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Suez sells 75% of Northumbrian Water and reaches a new milestone in the implementation of the Action Plan 2003-2004

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Paris, M ay 17 /PRNewswire/ -- - The transaction allows SUEZ to reduce debt by 3.1 billion Euros and to divide by 20 its capital employed in the UK water business

- Value realised through asset sales since the announcement of the Action Plan now totals 5.4 billion

- SUEZ will remain the largest shareholder in Northumbrian with 25%, while reducing its capital employed by 95%

- This transaction represents an enterprise value of 3.2 billion Euros for Northumbrian

Suez has agreed on 16 May 2003 to sell 75% of Northumbrian Water, its UK water and sewerage business, to a consortium of institutional investors, the transaction values Northumbrian Water at £2,212 million (3.2 billion Euros).

This transaction which forms part of the Action Plan 2003-2004 will contribute to:

- Improving the average return on capital employed by the Group in European water, with a pro-forma return on capital employed (ROCE) of 13.5%, compared to 9% prior to the transaction. In 2002, Northumbrian accounted for 30% of capital employed but only 6% of revenues for SELS (Suez Environment Local Services), representing a capital intensity five times the Group average - Improving the Group's cash flows, releasing it from the substantial ongoing investment programme required by the UK regulatory framework (approximately 1.5 billion Euros over 5 years) - Reducing the Group's net debt by 3.1 billion Euros through cash receipts of 1.3 billion Euros and debt deconsolidation of 1.8 billion Euros

Following the divestitures of the Group's stakes in Axa, Total, Vinci and Fortis, this transaction is another key milestone in the implementation of the Action Plan that Suez announced on 9 January 2003. It confirms the rapid execution of the Action Plan, as the Group has disposed of more than 5.4 Billion Euros of assets since the start of 2003.

"This transaction is a key milestone in the implementation of the Action Plan. It confirms the Group's determination to accelerate its refocusing on its most profitable activities in Energy and Environment, and on the activities that present the best balance between profitability/risk exposure and cash generation. This transaction also recognises the quality and know-how of the employees of Northumbrian, who remain a valuable partner for Suez in the UK. Suez maintains a strong foothold in the UK market while at the same time reducing its financial constraints", said Gérard Mestrallet, CEO of Suez.

The Group will be linked with the new owners through its 25% stake in the Company, i.e. £130 million (185 million Euros) after the Company's refinancing, dividing by 20 its capital employed in the UK water market. The new business will be listed, in the first instance on the AIM on completion of the transaction within the next few days. Beyond Suez's retained capital investment, the Suez and Northumbrian teams will have the opportunity to continue the fruitful technical, commercial and personnel collaboration they have developed over the past years. Northumbrian operations are amongst the best performing in the UK water industry according to the Regulator's rankings.

The transparent and competitive sale process involved a large number of high quality potential buyers, which ensured realisation of a maximum price for Suez. The current low interest rates have created a favourable opportunity for the sale, in parallel with an increase in the company's leverage, so as to optimise its return on equity (ROE).

The transaction values Northumbrian's assets at £2,212 million. The regulatory capital value (asset value employed by the regulator in setting returns) totalled £2,170 million at the end of March 2003.

Following the transaction, Northumbrian will be accounted for under the equity method from 1st January 2003. Exchange rate levels, mark-to-market of the Company's long-term debt (fixed rates) and accounting differences between French and UK GAAP will however generate an accounting loss of approximately 360 million Euros (for the whole of Suez' stake in Northumbrian).

Suez's historic investment in Northumbrian has generated an all-in 12.6% equity IRR. Moreover, this transaction represents an EBITDA multiple of 8.8x (compared to 6.6x at the time of the acquisition of Northumbrian Water Ltd in 1996).

OSUK's contribution towards SUEZ's accounts for 2002 amounted to 1 840 million euros for liabilities, 310 million euros for the current cash flow and 350 million euros for investments, in other words, a negative net contribution to the liquid assets, even before dividends were distributed. In 2002, OSUK contributed 798 million euros to SUEZ's turnover, 399 million euros to the gross operating profit and 150 million euros to the net current profit.

In Great Britain, SUEZ is particularly active in purification activities (Sita UK), industrial services for the environment (Nalco, Ondeo Industrial Solutions), services for energy and industry (Elyo, Axima, Fabricom) and water treatment engineering (Degrémont) with a turnover of approximately 1 500 million euros for 2002 (excluding OSUK).

SUEZ, an international industrial and service company, provides corporations, communities and individuals with innovative solutions in the energy - electricity and gas - environment - water and purification sectors. In 2002, its turnover amounted to 40 218 billion euros (excluding energy-related trading). The Group is listed on the Paris Euronext, the Brussels Euronext, in Luxembourg and Zurich, and on the New York Stock Exchange.

SOURCE SUEZ



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