Suez launched today its strategic plan for the next decade: Shaping SUEZ 2030.
The plans aims to increase the company’s earnings with cost cuts of 1 billion euros per year by 2023, focusing on growth from industrial customers. With this move, the waste and water utility responds to pressures from activist fund Amber Capital, who accused the group of underperformance and called for a strategic reset of the business last July.
The strategy enhances value creation for stakeholders over the coming four years, with results as early as 2021. By then Suez expects recurring earnings per share of 0.8 euros (up from 0.47 in 2018). CEO Bertrand Camus told the press ‘We will maintain the dividend at 0.65 euro in the next two years and then we want to be able to make it grow in line with earnings, both in terms of earnings per share and recurring cash flows and as soon as the dividend is well covered by results and cash flow’, reports Reuters.
In response to Suez's announcement, the company's shares have dropped this morning from a little over 14 to 13.26 euros (-7.01%).
The plan outlines the company’s vision, to become a global leader in environmental services by 2030. In order to position itself for the next decade, Suez has identified three main drivers in its plan: selectivity, simplicity, and engagement with customers and from employees.
The company contemplates changes in its business models:
Shaping SUEZ 2030 will be implemented across the Group’s three business segments (new reporting segments will take effect on January 1st, 2020 at the latest):
- Water (c. 40% of 2018 sales) regroups all SUEZ municipal water activities globally,
- Recycling & Recovery (c. 40% of 2018 sales) regroups all SUEZ waste activities related to non-hazardous waste with municipal as well as with Industrial & Commercial customers,
- Environmental Tech & Solutions (c.20% of 2018 sales) regroups WTS, hazardous waste and speciality environmental solutions for industrial and municipal customers.
Following on Veolia’s footsteps, Suez will target international revenues and industrial customers, becoming less reliant on municipal customers. The company would like to increase the share of revenue from outside the EU from 38% in 2018 to 60%, and increase the share from industrial customers from 41% to 50%.
A third focus for development will be technology and digital, currently less than 20% of revenue, which the company wants to grow to 30%.
Camus told reporters that ‘The plan is to focus our financial resources on these three axes, the rotation of our assets will help us reconfigure our portfolio’.
The company said in a press release that businesses accounting for 15-20% of capital employed have been identified for portfolio rotation, but declined to comment on potential assets to be sold. Late last month U.S. company United Water and Spanish company Agbar surfaced as two potential candidates Suez might be considering for sale.
The company’s guidance for 2021 includes €0.8 recurring EPS (estimated at €0.56 for 2018), €500 million recurring Free Cash Flow (estimated at €95m for 2018) and net debt at 2.8 to 3.0x EBITDA, with ROCE at least two points above 2018 level (the 2018 ROCE is estimated at 4.9%).
Finally, the company will invest in innovation to ensure future growth, and has upscaled their commitment to sustainable development for 2030:
What does Amber Capital think of the new strategic plan?
In a statement, the investment fund Amber Capital, which holds a 1.9% stake in Suez, said: "The management laid a solid foundation with the ambition of a leaner Suez focused on bottom line growth, asset rotation and shareholder returns; however, they now need to deliver on disposals swiftly and demonstrate the higher organic growth profile they can achieve on the new perimeter. Execution will be key for the new Suez to prosper."
In a letter sent at the end of July, Amber Capital recommended the France-based utility company dispose of Spanish Agbar.
“From a financial standpoint, we are of the view that the asset has reached a maturity level that suggests a limited industrial angle for Suez to exploit from hereon.”