U.S. Markets closed

Edited Transcript of SEV.PA earnings conference call or presentation 30-Oct-19 7:30am GMT

Q3 2019 Suez SA Earnings Call

Paris Nov 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Suez SA earnings conference call or presentation Wednesday, October 30, 2019 at 7:30:00am GMT

TEXT version of Transcript


Corporate Participants


* Julian D. Waldron

Suez SA - Group CFO


Conference Call Participants


* Anna Maria Scaglia

Morgan Stanley, Research Division - Research Analyst

* Emmanuel Philippe Turpin

Societe Generale Cross Asset Research - Equity Analyst

* James Brand

Deutsche Bank AG, Research Division - Research Analyst

* Olivier Pascal Michel Van Doosselaere

Exane BNP Paribas, Research Division - Analyst of Utilities

* Vincent Jean Michel Ayral

JP Morgan Chase & Co, Research Division - Analyst




Operator [1]


Hello, and welcome to the SUEZ 9 Months 2019 Results Call. (Operator Instructions) I am now handing you over to your host, Julian Waldron, Group CFO, to begin today's conference. Thank you.


Julian D. Waldron, Suez SA - Group CFO [2]


Thank you very much, and good morning, ladies and gentlemen. Thank you very much for joining our call, which concerns our progress for the 9 months period ending September 30. I know that it's a very busy morning for you all. We hope to complete the presentation and the Q&A in around 50 minutes, which I think should give you time then to get on to your next appointments.

There are many aspects to the third quarter which we view is really very positive, and I'll try to highlight those. I will also, because it's something that I want to do every quarter, comment on where we think -- I think we can do better. I think it's important we communicate both aspects of performance to you.

So let's turn to Slide 3. As you can see, we held our good H1 trajectory. We had a solid quarter 3. Revenues reached EUR 13.1 billion for the 9 months, and that represents 3.2% organic growth. Commercial activity has been strong in all our divisions and I think actually all our geographies. EBIT came in at 2.3 -- sorry, EBITDA came in at EUR 2.3 billion -- sorry, EBIT came in just over EUR 1 billion, up 4.2% organically. Our EBIT margin improved to 7.7%, slightly up on the 7.6% on a year ago. Net debt at EUR 10.6 billion at the end of September. As you know, the application of IFRS 16 accounting rules does inflate this. But again, I think as you're also aware, this is purely a technical effect with no change from an economic point of view. On a like-for-like basis, what's important to me is that net debt is lower than last year and our leverage ratio improved by 0.1x to 3.3x EBITDA at the end of September. So that's the highlights.

On Slide 4, we bridge revenue growth year-on-year, showing a positive organic contribution from all 4 divisions. The notable -- noticeable contribution from R&R Europe, and I'll come back on that in a moment, if I may. Just on nonorganic effects, you can see FX had a positive impact for EUR 90 million in particular driven by depreciation of the dollar and the Moroccan dirham against the euro, partly offset by an appreciation of the euro against, for example, the Chilean peso and the Australian dollar. Negative scope impact of EUR 61 million, this is linked to the disposal of 2 small activities in France, pallet recycling and medical waste collection. So that's for revenue growth.

If I look at EBIT on Slide 5. As I mentioned, we posted EUR 1.016 billion of EBIT in the 9 months compared to EUR 963 million in the 9 months a year ago. Most of the growth in EBIT we witnessed is organic, very few scope impacts and reflects the good revenue growth and solid underlying operational performance. All in all, the EBIT margin showed a small improvement from 7.6% -- just under 7.6% a year ago to nearly 7.7% this year.

So on Slide 6. Let's now dig into the performance of our 4 divisions, and I'll start with Water Europe on Slide 6. Revenues for the division up 0.9% organically in the 9 months. First thing to note is supportive volumes linked to weather conditions in France and in Spain.

Revenue in France was down 1.7% on an organic basis because of the loss of the Bordeaux contract in January 2019. Again, I think that's something which you've been aware for a while. Water sales volume were good. They increased by 1.3% during that dry and hot summer we had. And tariff indexation was a little better too at 1.7% positive.

In Spain, tariffs were close to stable, minus 4 -- 0.4%, and that takes into account the 1.65% decrease negotiated in Barcelona until May 2019. Revenue was up 1.2% organically, and that was also driven by the dry and hot weather we had during the summer.

In Latin America, overall, they supported our revenue growth. Latin America was up 6.4% on an organic basis. Construction projects in Panama and Ecuador drove revenue. In Chile, volumes of water sold were up 1.3% and tariffs up 1.8%. The EUR 40 million scope impact you see on the left of this chart on Slide 6 is, in fact, linked to the transfer of one activity to the WTS division, and that the impact is neutralized at group level. Overall EBIT for Water Europe showed solid organic growth.

Slide 7, Recycling & Recovery Europe, far more moving parts in this business as usual. Strong headline numbers, 4.6% organic increase in revenue for the division over the 9 months. Volumes are moving in the direction that we expected. You will recall that we were at 0.8% in the first half of the year. And after 9 months, we're at 1.2% in terms of volume of waste increase. There are some puts and takes underneath that, so there's good momentum in the U.K., for example, with the new contract in Manchester, but also there's good momentum across the rest of Europe as well. I'd contrast that with volumes being lower in France, and I don't think we're the only company seeing that. In our case, however, we're already working at a very high saturation rate, so our focus is much more on profitability than volume.

Other factors have been important. So for example, in the North of Europe, the shutdown of the incinerators in Amsterdam has had an impact on waste flows, and it's shut down the volume of exports from the U.K. And we'll see how that pans out over the next couple of quarters as that -- as those incinerators come back online. So whilst we remain, I would say, vigilant and cautious, we continue to think that across Europe as a whole, exogenous factors, whether that's Brexit, whether that's the incinerators shut down, for example, things like that, and our own policies around saturation and around driving profitability which are having an impact on our waste flows at the moment.

Pricing continues to be good. It was a good first half, if you'll recall, and it's continued into Q3. And pricing needs to be good because there continues to be pressure on some of the key commodity prices, notably recyclates.

Last, when we look at revenue, we note that a lot of that is down to our hazardous waste segment, which I think validates our drive to grow in that piece of the business. So with 4.6% organic growth in revenue, we would expect and, so far year-to-date, we've seen good organic growth in EBIT and some operational leverage, too.

International on Slide 8. Revenues up 2.9% on an organic basis. I'd just remind you that it's a tough year-on-year comparison base. We had very strong organic growth last year from the consolidation of the SCIP Water asset in Shanghai from July 2018. And despite that strong comparison base, Asia still showed strong organic growth.

The Africa/Middle East/India region, turning to that next, is performing well at 2.7% organically, benefiting from new contracts in India. Revenue in Italy/Central and Eastern Europe increased by 4.1% organically. I call out a particularly good performance of our colleagues in Poland with contract wins and renewals throughout the year.

Australia, the trends in H1 was down organically, no change. It was down 4.3% organically over the 9 months and the same explanation as we had a super year in 2018 from volumes linked to major infrastructure works around Sydney, and those have just come to an end. Overall for International, we've seen good organic growth in EBIT and again some operational leverage.

Last, WTS on Slide 9. Revenues growing organically 4.2% to EUR 1.835 billion. There's some contrast underneath this number as there were, in fact, at the H1 no particular change in trend. I'll start with an area where I think we should better -- we should be doing better. Chemical & Monitoring Solutions in the U.S. was slow in the first half. It continued to be slow in Q3, and we need to do better here. There may have been some external factors, for example, quite a volatile oil and gas environment throughout the year, and that led, for example, to shutdowns at different times and occasionally more than we expected in Q2 and Q3. But part of our strategy going forward is to spread our commercial net wider in terms of industry segments in the U.S. The rest of the business are doing as we would like, particularly Engineered Systems, continued strong order book growth, up double digits organically. Chemical & Monitoring outside the U.S. is also doing well. Trends are good, the performance of the teams as well. I'm also very happy at this point with the way we're delivering on revenue synergies between WTS and the rest of the group and also on cost synergies.

Let's wrap up on Slide 10. We're growing well. We expect that to continue towards the end of the year. And with that in mind, we've modestly upgraded our revenue guidance. Instead of 2% to 3%, we expect organic growth to be in the upper end of that range. There are no changes to any other part of our guidance made this morning.

So I do want to turn to your questions on the 9 months, but we're not going to let our communication opportunity go by without making some comments on SUEZ 2030. I think reporting on our progress quarter-by-quarter is something that's hugely important to the way we manage the plan. And it's important for us to be able to give you visibility every quarter on the actions that we've taken and the results that we're delivering and, in particular, giving you confidence that we're going to hit those 2 financial targets in 2021, EUR 0.80 per share of recurring attributable income and EUR 500 million of recurring cash flow.

So I'll come back on a few things, but I am going to go quite fast through these pages because they're a recap of what we said at length on the 2nd of October and then in the long and busy road show we had thereafter.

Slide 12. It's always worth starting with the fact that fundamentals underpinning our business for the long term are stronger than ever. Urbanization, water scarcity, tighter regulations, citizen awareness and the constraints on our industrial customers to cope with sustainability, those are all structurally positive trends to SUEZ.

Slide 13. The plan is comprehensive. We will continue to grow organically, and we will accelerate that growth, but we will grow with much more selectivity including on where we put our CapEx. We'll dispose of businesses. We've already started execution across the list of things that we want to dispose. We'll simplify our organization. We'll cut our costs to serve our clients better, improve our profit and to reinvest. And lastly, we'll engage with our employees to drive success. And there's one aspect to that I want to come back on, which is around incentives.

Slide 14. You've seen this. I don't need to go too much in detail. But as you've seen in Q3, we're growing well internationally, and we intend to drive that from 38% towards 60% of our revenues, leveraging on the core countries where we see structural growth. We'll grow with our industrial customers to more than half of our revenues. And for example, the growth of over 14% organically in hazardous waste and the good growth in the order book in WTS shows the potential here based on the 9 months. And in technology and data-driven, we expect to increase by 50% our revenues to close to 1/3 of what we do. We're making investments here already, and we can see our solutions appealing to customers, for example, in Singapore.

Slide 15. We know that between now and the full year, we need to come back and give you all of the modeling information you need on our 3 new segments. Suffice it to say that as we go through the next 2 years, you'll see us full capital employed, in particular through the disposal program out of Water and Recycling & Recovery. And you'll see us grow the investments that we made in Environmental Tech & Solutions.

On Slide 16, the financial targets we have. Starting on the right, to dispose of 15% to 20% of our capital employed. We expect to deliver the vast majority, if not all, of that plan over the next 2 years. Deliver through organic growth, through the portfolio rotation, through the profitability improvement, through selectivity, at least 2 points of additional return on capital employed by 2023. And specifically in 2021, those 2 critical targets, EPS of EUR 0.80 recurring, free cash flow of EUR 500 million recurring, and that's based on that leverage target of 2.8x to 3x.

On Slide 17, you've got the bridge. Again, delivering those numbers in 2021 is about driving organic growth, it's about driving the performance plans to improve our EBIT, it's about delivering the disposals and taking into account, which we've done, that we may dispose EBIT as part of that and improving tax and financial. And it's that, that I'll come back to on my last slide.

So 2 things which are new. First of all, on incentives. The management incentive plan was approved by the Board this week. We had some of the elements in place for the second, but I can now confirm that our performance targets for the 3-year plan, '19, '20, '21, on which the senior management is all incentivized after delivering that recurring EPS target, that recurring cash flow target and then overlaying on that total shareholder return, with the management long-term incentive fully aligned, delivering what we think creates value for our shareholders.

And last, a first page on progress, with just one slide today, which is Slide 19. We've done 2 liability management exercises since October 20 -- in September and October 2019: first, on our hybrid bonds; and secondly, on our senior bonds. We'll deliver through these 2 operations EUR 17 million in annual savings in our financial charges. Some of that will come in, in 2020. The full impact will come in, in 2021 once you tax that. We're getting on, it's not -- it's somewhere between EUR 0.015 and EUR 0.02 a share, so that's nearly 1/3 of the bottom end of our tax and financial charges objective for 2021. That's the sorts of information that quarter-by-quarter or whether it's on organic growth, whether it's on the performance plan, whether it's on disposals or whether it's on reducing our tax and financial charges, every quarter we will endeavor to give you an update on actions that we've taken and savings that we will concretely be able to deliver. So that's the first one, and I'd like to thank my teams for getting those transactions done swiftly during the months of September and October.

Now I'm going to hand over for questions. As you can see, we still got things that we need to do for you -- we know we need to do for you before the full year: so the new segment structure with the full reconciliation tables; and then set up the 2020 and 2021 period by setting out the operational KPIs on which we will frame.

Operator, I'll stop there and hand over for questions for the next 20, 25 minutes.


Questions and Answers


Operator [1]


(Operator Instructions) So our first question comes from the line of Vincent Ayral from JPMorgan.


Vincent Jean Michel Ayral, JP Morgan Chase & Co, Research Division - Analyst [2]


Two very quick questions on this set of results. The first is we see we had a hot and dry summer this year, and that clearly is not something that you would have assumed when you set the 2019 guidance at normal weather. So we see the sales guidance increase here, yet we do not see something repetitive at the EBITDA -- at the EBIT line. And I just wanted to get a bit of color why you did not nudge up the EBIT knowing that incremental water volumes are actually at higher margins. So that would be question number one.

And then the second is regarding the chemical weakness we've seen or is still ongoing. Could you give us a bit more color on exactly what's the state there and what time of action plan are you considering on this specific issue? I know you started to comment slightly on this topic. More color would be appreciated as well.


Julian D. Waldron, Suez SA - Group CFO [3]


Vincent, thank you very much indeed. So 2 interesting questions. So one of the joys of understanding SUEZ and getting involved in SUEZ is being able to talk about the weather. Hot and dry was good. Occasionally, when it's hot and dry, and I think that's one of the things that makes me slightly prudent as we go through our last quarter, is occasionally, if it's very, very hot, you end up buying water in. And occasionally, that can be an issue for you in some places. We're not through the year yet, so I think a certain amount of prudence in that respect is important. Secondly, quarter 4 is generally quite a big quarter for us. So again, I think as we go into a quarter, a certain amount of prudence is needed. Thirdly, there are some areas of the business where I think we could do better, frankly. Whether we're going to be able to do better in quarter 4 or not, at this point, it's too early to tell.

So I think we know we're going to grow revenue in quarter 4, so notching up the revenue guidance was necessary. We're quite happy with the EBIT performance. It's bang in the middle of our -- it's quite in line with our 4% to 5% guidance. It's a few million euros to move it up or down from 4.2 to 4.3, for example. I would encourage you not to read too much into it. Quarter 4 is a big quarter for us. I just like to be a bit prudent at this stage. I don't think there's anything more to read into it than that.

As far as Chemical Monitoring Solutions, so I think -- just think, and this is -- I believe, unless I got it wrong, it's about WTS. So a couple of things first just to set the stage. As you can imagine, I've spent a lot of time on the WTS business since I came in. There are areas where I'm -- what I've seen, I think it's difficult for us to improve on. So I think the way that the commercial teams are looking to get customer synergies, revenue synergies I think is working very well. From what I've seen at the value capture plan and the due diligence I've done on the value capture plan in terms of cost synergies as well, I'm very comfortable that those teams are delivering what they said they would when the acquisition was made.

When we look at the nature of the commercial efforts and that success in engineered solutions, the order book is growing double digits, so I wouldn't call out anything in particular on that. When I look at chemical monitoring outside the U.S., again, the business is performing perfectly well. So the areas that I've called out since I've been here, in June, I called out working capital because I think the teams can do a better job in controlling and improving the working capital of WTS as a whole. And I called out in June, I called out it again today, I think the teams in the U.S. need to spread their commercial nets wider.

The business in the U.S. is very strong. My concern has been that it's been too narrowly focused. And therefore, when you have a volatile year in the U.S. as you've had this year in oil and gas, and that's the sector, as you know, that I know quite well, and whether that's downstream or upstream, then you can see an impact on the way your top line evolves.

So I think what needs to happen and what we're doing, and you saw some of that in the 2nd of October presentation, is focusing what we do across WTS, but with a particular focus on the teams in the U.S., on a broader industry sector coverage, diversifying in that market as we are elsewhere into different industries sectors where there's different economic exposures. So for example, if you move into food and bev, obviously, you're in a less volatile, less cyclical business. If you move more into microelectronics, and you've seen some of the efforts and some of the successes we've had there, you're an industry -- in an industry which is structurally growing. Those are the fundamental aspects behind what we want the teams in the U.S. to do and that we've started that work only a couple of months ago. I think that's something that Bertrand and I looked at carefully and have started to give directions on that, but we expect that to accelerate over the next few quarters.

Again, what I almost want always to do in these calls, Vincent, is to accentuate the positive. But where there are things that I think we as a company need to improve, need to do differently, need to do better, I'd rather pull those out for you, and then you can judge us over the next quarters and years on whether we're successful or not. I hope that was helpful.


Vincent Jean Michel Ayral, JP Morgan Chase & Co, Research Division - Analyst [4]


Just one last follow-up question. It's on the incentive plan. So it's pretty wide, 1,750 beneficiaries. What we see is performance targets, which are the group performance target. Do you have, I would say, performance target as well at the team level to be sure that everybody is engaged regarding the direction because, otherwise, the issue you always have is you could say, "Okay, that's what the group delivers, and there's plenty of other people, so I'd just tag along." How do you make sure that people really want to basically play forward and push forward more than anything?


Julian D. Waldron, Suez SA - Group CFO [5]


Thank you very much for the question because I think it's -- is that the engagement and motivation of the employee base is hugely important for us. It's central to what our success will look like. There are always 3 aspects to remuneration. The first is base salary, of course. The second, which is covered really on this page, is the long-term incentive. The only point that I would come back on, on the long-term incentive is it has -- the net has been spread a little wider at 750 people. On average over the last 3 or 4 years, we've been between 1,300 and 1,500 people, I think, from memory, so it is a slightly broader group of people. And we felt that, that was important at this stage. Now the third aspect to remuneration is annual variable pay. Now annual variable pay is going to be set exactly as you, I think, sort of hinted that in your question.

So let's start with growth. There are some parts of our business, Asia, for example, where we're growing well, where we're -- organically, where we're growing with the types of projects that we want to win, where we're growing with the right type of risks, with the right type of capital employed and the right repetitive payback. So teams in Asia might well have more of their annual variable based around delivering more growth. However, there are other parts of the business where growth is structurally slower and also where the type of growth that we want to drive is not always there. Those teams need to be driven on other metrics, whether that's cash flow, for example, whether that's working capital, whether that's the cost reduction or performance improvement metrics. So the annual process, which we're finalizing over the next 6 to 8 weeks, is going to look at team by team, business by business and will be quite granular. For all of those people, there will still be an element of the group because we do want people to understand what the group as a whole is trying to do. But you're absolutely right, team by team, it will be more granular and more selective in how we drive people to achieve what their particular business needs to drive.


Operator [6]


The next question comes from the line of Emmanuel Turpin from Societe Generale.


Emmanuel Philippe Turpin, Societe Generale Cross Asset Research - Equity Analyst [7]


Three questions, please, starting on waste volumes. Julian, would you mind sharing with us a bit more granularity on how much the Manchester contract contributed to the volume growth? We had been told in previous quarters that the Manchester contract would benefit greatly to this volume growth. So that -- this has happened, and I would love to know by how much and on whether you stick to the outlook of the 1.5% growth in volume that you were expecting for the full year '19 in previous quarters. So that's question number one.

Question number 2 is on EBITDA. A quick calculation tells me that it actually declined on an organic basis, 3Q year-on-year. And I was wondering if you could give us some indications of how this performance is spread between the main businesses, where the decline comes from and if you have any expectation for the full year.

And last question is to come back on the incentive plan on Slide 18. Out of your 3 main performance targets, the EPS, the returning free cash flow and the total shareholder return, how are they weighted relative to one another? Are they equally important? Or are -- is one more important towards the financial remuneration than the other?


Julian D. Waldron, Suez SA - Group CFO [8]


Thank you very much. I think I'm probably going to take them in the reverse order, and that's probably due to the length of the individual answers.

Firstly, on the weighting of those 3, it will -- it might vary a little bit depending on the recipient, but it's quite balanced across those 3 things. There's no one aspect which is more or less preponderant. I think we want to get a balance between those 3 things.

Secondly, on EBITDA, I'm always a little bit perplexed about how to comment on EBITDA. It -- there's a lot of moving parts underneath it particularly around provisions. And some of it year-on-year is around the performance that we had in the quarters and the way that provisions were used. EBITDA, over the last couple of years, my perception is that it's been impacted most of all by construction activity and the way that construction activity has flowed through the P&L, whether that's been good news or bad news on construction activity. I don't have any particular underlying business comments to make on Q3. And I don't think I have any particularly useful comments to make on where things will be at the end of the year because, as I said, I just think it's too volatile an indicator, generally speaking. I think the one underlying comment that I would make, and you'll forgive me for dragging this back, I'm probably going to do this too often, but forgive me for dragging it back a little bit to the strategic plan. I think EBITDA is volatile because of construction risks when I look over a long period of time. And therefore, one of the things that we want to reduce and want to stop over the next couple of years is the amount of construction work and construction risks that we take. I believe that over time, that will drive greater logic and regularity in what happens between EBIT and EBITDA. But on this particular quarter, I don't have any particular underlying things to bring out, and I don't see any particular things underlying on the business for the last quarter. It's a good point, and I wish I had a better underlying explanation, but I think it's construction that on -- from a strategic and from a management level looking forward is where I put my finger as what we need to change.

In terms of waste volumes, so first things first, we expect to be at 1.5% for the full year. No change on that. And as you can see, we're slowly but surely getting there, 1 -- 0.8% in the first half, 1.2% in quarter 3. Manchester started last June. It's a contributor to getting us from 0.8% to 1.2%., but it's not the only thing. Although France is down, activity in Northwest Europe continues to be actually quite robust. Now I did put out a caveat, and it's now more than that, is I think we need to see over the next 2 to 3 quarters the impact, firstly, of Brexit; secondly, the impact of the restart of those incinerators in Amsterdam. We know that volumes were okay across Northwest Europe outside France. So in Germany, for example, they were fine. So again, France was low. We think some of that at least was partly our own actions because we're quite saturated, and so we're looking to value rather than volume.

At this point, overall, although we do remain vigilant and cautious, I don't see any single unified trend on waste volumes across Europe that I'd like to call out. But again, I think it's important to remain vigilant and cautious. So Manchester contributed. It's not all of the growth between 0.8% and 1.2%. And I would say that Manchester is not fully operational at this point. We started in the middle of June. It's still ramping up. We'd expect to be fully operational as we get through quarter 4.

We had a review with the teams about 10 days ago. They are pleased with what they've done so far. They're on track in terms of ramp-up, but they're not fully there yet. So I think in quarter 4, to get from the 1.2% to 1.5%, Manchester will help. And I think by the end of the year, it should be pushing at full strength. I think there are some other trends in Northwest Europe which are still supportive. France is not. But again, my caution on answering is around just the general volume of moving parts that there are in waste across Europe. I hope that was helpful.


Operator [9]


The next question comes from the line of James Brand from Deutsche Bank.


James Brand, Deutsche Bank AG, Research Division - Research Analyst [10]


I also have 3 questions. The first is just on WT&S. I appreciate that you gave some commentary on how the synergies are coming through to an earlier question. But your language in what you described the profit evolution of that business was quite different to how you described the other divisions. And so I was just wondering whether you were seeing decent EBIT growth coming through in that business, which is what one might be expecting given the synergies, or not.

The second question is on the kind of restructuring asset rotation program. I appreciate that you said at the strategy plan that you would not comment on individual assets, but there's been reports in the press that you've mandated SocGen to sell Agbar. And given that that's hot in the press, I just thought I'd ask whether you could confirm whether that was true or not or if you have anything to say about it.

And then thirdly, the shares of Aguas Andinas have dropped quite sharply over the last month, and it seems like people are getting a bit more worried about the stuff around ease. So I was just wondering whether you could comment on what's going on there.


Julian D. Waldron, Suez SA - Group CFO [11]


James, thank you very much. The law of 3 questions this morning. WTS -- again, I think what I always want to do in these calls is to be positive where I think it's important and worthwhile being positive, say that I don't think there's anything material when that's what I believe and say that I'm not pleased where I'm not pleased.

And on WTS, there are areas where we're very happy with what's happening. In CMS in the U.S., we're not performing as we would like. And that means that from that business, we're not getting the revenue growth, and therefore, we're not getting the profit coming through that we'd like. So synergies are fine. Order book is good. Performance of ES is -- worldwide is excellent. Performance of CMS outside the U.S. seems to be fine, but it's an area where I -- where we want the teams to do better. And we want to them to do better in revenue, and the drop-through to EBIT is a natural consequence. So it's nothing more, nothing less than just trying to be clear where I think we need to do better as a company.

Second question, asset rotation. You'll forgive me, I'll start with a stubborn bit. I'm not going to comment either on rumor, and I promise you it's a rumor because we've said nothing. Now I want to go just one step beyond that, not on asset specific but just to confirm. We started working on a lot of aspects, point number one. We know what we want to do. We know where we want to act in terms of disposals, point number two. Point number three, we expect to get the vast majority, if not all, of this program done in 2020 and 2021. And again, that's important because that gave us both the confidence to model out and therefore fix the EUR 0.80 of recurring income as a floor for us in 2021. And it also gave us confidence to be able to note that we expect further net earnings growth beyond 2021. Those are the 3 things I think I'd say about asset rotation. We know what we want to do. We've started. We expect to get the vast majority, if not all, of this program done over 2020 and 2021.

Third thing, on Chile. So I think 2 or 3 things in Chile. First of all, external matters. So Chile is one of the countries around the world at the moment where there is a strong popular movement around social matters, around political matters, focused on cost of living increases. So it's not the only country in which that's an important factor. We have them here in France. We have them in Spain. We have them in other territories around the world. So I think that's an important backdrop to everything that is happening in Chile at the moment. Now we're monitoring what is happening. What's important for us most of all is the security of our employees, to make sure that they can do their job safely, to make sure that they can continue to provide the public service that we provide locally on a reliable basis. So that's in the context of those popular demonstrations in Chile is our first and most important concern.

Now 2 other things underlying that. First, we're in the middle of tariff negotiations. We will see how that goes both in that political context and generally given the local economic situation over the next few weeks and months. We know that there is a drive to take water tariffs down. We also know that there is a significant requirement for investments. So in our discussions with our clients in the country, we need to make sure that both of those things are put into the balance.

In terms of our own operations, we had one of our water companies where we had an incident that we do not like involving the supply of water in Osorno. We take extremely seriously anything like that, and we're working very closely with the regulator and with our client, both to learn any lessons that we need to and to manage that situation going forward.

So I think overall in Chile, first priority is to make sure that whatever is going on, that our employees are safe, that our employees can continue to do their job, that we continue to supply the water on a reliable basis. We're in the midst of tariff negotiations. We need that to balance both the political will to drive tariffs down but, on the other hand, the need to invest in the country. Those are the things that we need to manage, and I think we've done that over the years with success in the country. It's good that we are operating in Chile with local partners. Again just to come back on strategy, there are a number of territories around the world where being local, having local partners is important to us. And that's certainly the case with Andinas. That's probably what I need and what I wanted to say, so thank you very much.


Operator [12]


The next question comes from the line of Olivier Van Doosselaere from Exane.


Olivier Pascal Michel Van Doosselaere, Exane BNP Paribas, Research Division - Analyst of Utilities [13]


I had 2 left. One was just coming back a little bit on the evolution of the top line. I know you said and I understand we shouldn't look too much into one specific quarter. And in the end, you are now actually more optimistic on your revenues for the year than maybe you were earlier on when we see -- where you're guiding top line to land. But I guess equally, we can see that there is a little bit of a slowdown on the top line evolution and probably on the rest of the P&L as well in the third quarter relative to the first half. I'm just wondering from here, is it -- should we expect that going forward that between 2% and 3% of organic top line growth that you indicate for the year, is that for you the norm? And then the 3.5% that you did in H1 was a bit an exceptionally good performance? Or do you think that we can actually go back and accelerate again from where we have dropped a bit in the third quarter. And then second -- and if so, where would be the areas where you would actually want to see the acceleration occur?

And then my second question is on hybrid. So you've mentioned that you have done some liability management exercises. I was wondering more broadly what your thinking was around hybrid. Do you think it's an efficient and attractive tool to use for funding given how rating agencies look at it? Or do you actually look at it as expensive debt? And I'm seeing that more in the context also on what you have said before with regards to your 2021 targets. Clearly, buying back the hybrids would help the EPS. And equally, the hybrids are not in your net debt-to-EBITDA definition. And I remember that there was a bit of confusion on the level of net debt to EBITDA that you expected in 2021 potentially after the disposals. So I was wondering how you look at hybrids in terms of a funding tool.


Julian D. Waldron, Suez SA - Group CFO [14]


Olivier, thank you very much for those 2 questions. So on the first one, on the top line, we said that we would for the year be up 2% to 3%. We're up 3.2% in the 9 months. We expect to be at the upper end of the range of 2% to 3%. So I think where we started the year, we expect to be towards the upper end of the range from where we started. I think that's -- that shows pretty solid judgment at the beginning of the year. I think it shows that when some quarters are good, some quarters are strong, that's great. Some quarters are less strong. I wouldn't read too much into a quarter-by-quarter movement. And so guidance goes up a little bit, and that reflects the fact that we expect the carry-on growing in quarter 4.

When -- I'm going to use the word you used, which was slowdown. I think when we look at what we see, again, we need to remain cautious and vigilant, but I'm not sure that we see too many tangible pieces of evidence of a slowdown at this point. I think that's important because what you will see, and I think to some extent you're seeing it today. Yes, I'm not going to go back on the areas where I think we need to do better. We need to do better in CMS in the U.S. That's the only spot that I call out where I think I really would like us to be doing better. Everywhere else, frankly, I'm really pleased with the volumes, with the underlying rates of growth and so on and so forth.

I also would just -- again, just go back, and let's just recheck comparison basis. So internationally, for example, I know percentage-wise, it looks less than a year ago. But again, you just need to understand the comparison base there, thanks to the integration of SCIP Water a year ago, it's a tough comparison base for me. So again, I think just in one quarter, and we can come back to that if we need to, but let's just put things into perspective of comparison basis, some areas that I've called out that I'm not happy with, everywhere else. But I haven't called out it out just because I think it's doing well. And no particular trends to call out at this point.

Now in terms of looking forward, the whole point of SUEZ 2030 and what we want to do with the business is to drive organic growth on a selective, profitable return, lower capital-intensive basis than it is today. So if you look 3 or 4 years ago before the GE acquisition, the group was probably capable of growing organically 1% to 2%. You add GE to that mix and the WTS business, then we'd more or less double that from 1% to 2%, to 2% to 3%. And as you've seen this year, we're in the upper end of that range.

As we move through the plan, our aim would be to drive organic growth in the business higher still. We need to make sure we do it in the right way selectively. And we need to make sure we do it with the right projects, which, for example, as I mentioned 2 -- many were earlier on with lower construction. But when we look at the growth of hazardous waste in Q3, when we look at the growth of the WTS order book in Q3, when we look at the resilience of our water volumes, when we look at the potential for growth in tariffs, for example, in the U.S. business, when we look at the potential for structural growth driven by regulation in places like China, the opportunities internationally, industrially and with technology are super. The basic trends underlying our business, organization, water scarcity, regulation, citizen awareness and a greater cost of sustainability for industrial customers, those are driving our revenue. Our job is to do that selectively. And a lot of our time internally at the moment -- and I mentioned this on road shows and I've mentioned this on the second. A lot of our time internally at the moment is politely but firmly saying no to projects and to make sure the people understand the type of things that we want to grow on. And little by little, we are seeing projects come through on a more creative basis, on a more agile basis, which gives me confidence that we can accelerate our growth as we go over the next few years.

So no trend to call out in Q3. Let's make sure we understand the comparison base. One area that I'm not happy with, CMS in the U.S. The rest of the business is doing what we asked it to do at the beginning of the year. And I think that's good and, hence, the slight tweak in the guidance today.

Last question -- and I'm conscious that time is running on, so I'll maybe take one question after my next answer, which I will try to make shorter. On hybrid, first and most important thing to me is that the 2021 targets are fixed after the hybrid cost. So whether the hybrid cost goes up, down, left or right, we will still hit EUR 0.80 a share after we paid for the hybrids. And I think that's by far the most important thing. Once I've said that, I think all management of the debt and hybrids stock that we have will be opportunistic going forward. We actually don't have too much in the way of repayments in 2020. It's quite a low year in terms of repayments, so we're just going to be opportunistic. And I view the hybrids as just one tool in that. We were opportunistic at the beginning of September in terms of refinancing, and we were opportunistic with the senior bonds. I think what's important for shareholders is that when we talk about EUR 0.80 a share of recurring income in 2021, it's struck after the hybrid costs, whatever that happens to be at that time. And as you've seen, thanks to the liability management, it will be coming down. Beyond that, I just want to remain opportunistic and manage the company in the best way possible.

Last question, please, and then we'll let you get on.


Operator [15]


The next question comes from the line of Anna Maria Scaglia from Morgan Stanley.


Anna Maria Scaglia, Morgan Stanley, Research Division - Research Analyst [16]


I will be very, very quick. You're reporting -- reported an organic growth variation of 4.6% in Recycling & Recovery in Europe in the 9 months of revenues. I was wondering if you can tell us what that would have been excluding the Manchester contract or, say differently, what was the contribution of Manchester to the revenues overall.


Julian D. Waldron, Suez SA - Group CFO [17]


I don't have a specific number to give you, but I don't think that it would have made what I would call a material change for that 4.6% since the biggest growth driver percentage-wise anyway across that business was hazardous. And I think whether we look at China or whether we look at Europe in terms of revenue, I think hazardous is where we're still seeing -- yes, it's not always the same every quarter, but I think generally speaking, that's where we're seeing the most structural growth. Business in Northwest Europe outside the U.K. was also quite good in quarter 3. France was slower, as I've mentioned, in terms of volumes, but we've been chasing value there and we've been chasing price rather than volume. So I understand the question, but I really -- I don't think that you should consider that 4.6% a Manchester-driven number. It's much more broader than that.

I've gone over by 2 or 3 minutes, and that's not the length of the questions, it's the length of the answers, but I hope those were helpful. I'm around, the team -- the IR team here led by Mathilde is around for the rest of the day. Happy to take further questions. Otherwise, thank you very much, and enjoy the rest of what I know is a busy day. Thank you.


Operator [18]


Thank you for joining today's call. You may now disconnect your handsets.