Amid all the talk of crisis and recession, there is something hugely reassuring about a discussion with Jean-Marc Boursier, the chief financial officer of newly demerged utility Suez Environnement.
Despite the rising cost of money and a slide in its share price, SE is pursuing business – and growth – as normal. Its markets are not about to collapse, its solidity is underpinned, and borrowings are modest.
Whatever happens in financial markets, people will go on brushing their teeth, flushing toilets and filling rubbish bags – and paying SE to deal with the consequences.
Yet Mr Boursier has had a lively 15 months. Together with chief executive Jean-Louis Chaussade, he steered SE through a demerger and initial public offering on Euronext in June. Together, they are building on the foundations of an €8bn (£6bn, $10bn) market capitalisation to deliver revenue growth of 7 per cent a year.
In February 2006, when then French prime minister Dominique de Villepin announced the surprise merger of state-run Gaz de France with quoted French-Belgian utility Suez, there was no hint of spinning off the Suez water and waste arm.
But the markets concluded Suez was worth substantially more than the French state gas business. To make possible the one-for-one share swap merger of the two energy groups, Suez executive chairman Gérard Mestrallet decided to demerge the environmental services business, retaining 35 per cent.
So in summer 2007, Mr Boursier was told to draw up a prospectus and prepare SE to take the stage as a listed entity in its own right.
Mr Boursier, now 41, had been in the job since June 2004. A graduate of a French grande école specialising in telecoms, he missed national service after breaking a knee playing rugby, and went instead to HEC, the Paris management school, to study finance.
After six years with Mazars, a French accounting firm, half in London, he joined SE in 1999, working at waste subsidiary Sita in mergers and acquisitions.
At a certain level, the demerger preparations were not as difficult as they might have been. SE – with annual income of €12bn, assets of €12.7bn and 62,000 employees – already operated as a stand-alone unit win the Suez group.
Nonetheless, its top executives had to create a corporate governance framework, hire a company secretary, put in place an investor-relations department, and draw up a prospectus that would meet the exacting standards of France’s markets regulator, the Autorité des Marchés Financiers.
The demerger was approved on schedule, taking effect on July 16 2008, following requisite approvals from trade unions and shareholders.
Suez Environnement is a slightly odd animal, neither fully independent, nor a subsidiary. In addition to the 35 per cent held by GDF Suez, five key shareholders – linked by a five-year pact – control another 13 per cent.
This provides ownership stability that many rivals would envy, together with opportunities. “A lot of companies would love to have a static shareholder with 35 per cent,” says Mr Boursier.
Thanks to its separate listing, says Mr Boursier, SE can reap many tax advantages. But it can also benefit from collaboration with its parent. Shared purchasing can cut costs. Co-located plants can use power station waste heat to desalinate drinking water.
On the financial front, he says, SE can benefit from the strong financial rating accorded GDF Suez to borrow from its part-parent at beneficial rates.
This matters, because supplying drinking water, treating waste water, and dealing with household and industrial waste can be capital-intensive. With net debt of just €5.4bn, or 2.6 times earnings before interest, taxation, depreciation, and amortisation, Mr Boursier thinks SE is undergeared, and could comfortably support borrowings of three times Ebitda.
Most of its municipal business, in Europe, the US, Latin America, and Asia and the Pacific, is underpinned by contracts lasting from five to 20 years. Mr Boursier’s aim is to bring borrowings more into line with the duration of contracts.
“Free cash flow will be about €600m for 2008,” says Mr Boursier. “I can self-finance a lot of our development.”
However, he is seeking a stand-alone rating from credit rating agencies for SE. “I want to be in a position to get access to other sources of finance,” he says. These would include private placings and bond issuance.
Suez Environnement is confident of its capacity for organic growth, yet it is remarkably busy with acquisitions. In January of this year, along with partners La Caixa and HISUSA, SE increased its stake in Aguas de Barcelona, a Spanish water utility.
To do so, SE borrowed €700m at 17 basis points over Euribor from a bank. The bank is now paying 100 basis points over Euribor for its borrowings, says Mr Boursier. “The bank is calling me every week to pay back the money!”
The deal was driven by a specialised M&A team on permanent watch for opportunities. Most are bolt-ons. In the third quarter, SE made five acquisitions, in France, the US, Chile and China.
“We are doing 20 transactions with a total value of €500m to €700m,” says Mr Boursier.
Talking to Mr Boursier, the overwhelming sense is of business as usual. The hiatus of demerger and listing is over. His weekends are once more taken up with visiting contemporary art galleries, playing tennis and running with his children or friends in the Bois de Boulogne near his home. Work and life, like the business, are in a sustainable and positive dynamic.