We believe that our cash flow from operating activities (€5,826 million in 2005), authorized credit facilities and commercial paper backup lines (€7,145 million as of December 31, 2005) and our cash and marketable securities positions (€11,260 million as of December 31, 2005) will be sufficient to cover our current and anticipated liquidity requirements for the next 12 months. However, we may decide to borrow additional amounts from banks or to issue new debt securities to investors to maintain our level of unused available credit lines.
The Group has provided a reconciliation of cash flow from operating activities to net income for the years ended December 31, 2005 and 2004. The reconciliation is disclosed in the consolidated statements of cash flows in our Consolidated Financial Statements.
Cash flow from operating activities increased in 2005 by €798 million resulting from a fall in working capital requirements. However, this was offset by tax payments totaling €723 million, which were in line with payments made in 2004. The marked improvement in operating working capital requirements was driven by SEE (up €483 million) and by the Environment segment (up €179 million). A large portion of the improvement in SEE’s operating working capital requirements can be attributed to non-recurring items, such as the significant backlog of outstanding invoices from ECS networks in 2004, combined with the effects of timing differences affecting the collection of tax receivables, especially VAT. The remaining operating cash flow amounted to €5,751 million for the year ended December 31, 2005, up €70 million from the 2004 figure, which included non-recurring items, particularly extraordinary dividends received from Telenet and Nea (SEE, €158 million) and Taweelah (SEI, €40 million), and a net positive impact of €66 million regarding Electrabel’s pension obligations.
The Group’s major investment in 2005 was the buyout of minority interests in Electrabel in the last quarter of the year, for an amount of €11.1 billion. This acquisition was financed by the issuance of shares in an amount of €2,414 million and by a cash payment of €8,678 million within the scope of a cash and share bid. The cash payment resulted in part from a share capital increase carried out in October 2005 by SUEZ for €2,335 million and included in cash flow from financing activities.
Investments in 2005 excluding the cash and share bid for Electrabel came in at just below €3.6 billion and can be broken down as follows:
Disposals totaled €3.0 billion in 2005 and primarily relate to the partial listing of:
The Group divested its residual 25% interest in Northumbrian Water (€382 million) and in SENA’s District Heating Cooling Systems (€210 million).
Interest and dividends from non-current financial assets, as well as changes in loans and receivables, generated positive cash flow of €0.3 billion.
In total, cash flow from investing activities resulted in a €9.0 billion cash shortfall.
Dividends paid in 2005 are in line with those paid in 2004 and amount to €1.5 billion (including €807 million in dividends paid by SUEZ SA and dividends paid to minority shareholders of subsidiaries). Lower interest expense (€682 million in 2005 compared to €1,097 million in 2004) is consistent with changes in average gross debt and is also due to the payment in advance of term of the bonds redeemable in Fortis shares.
Borrowings were higher than actual repayments and were taken out mainly in the last quarter of the year in connection with the cash and share bid for Electrabel. This had a positive impact of €5,270 million on Group cash flow.
The impact on cash of capital increases carried out by the parent company mainly in connection with the cash and share bid for minority interests in Electrabel amounted to €2,962 million.
Lastly, the assignment of litigious receivables without legal recourse had a positive €995 million impact on cash flow from financing activities.
Overall, cash flow from financing activities generated an amount of €6.5 billion in 2005.
Our outstanding borrowings and long-term debt increased by €4,745 million to €25,064 million in 2005, compared to €20,319 million and included mainly bonds (€8,959 million), withdrawals on credit facilities (€5,495 million) and other bank borrowings (€5,639 million). Short-term debt represented 35.1% of our total debt in 2005 and 19.1% in 2004.
After hitting a low of €11 billion at June 30, 2005, total borrowings less securities and cash and cash equivalents at December 31 of the same year edged up slightly to €13.8 billion, compared with €11.6 billion at December 31, 2004.
Total borrowings less securities and cash and cash equivalents, including the impact of financial instruments, is 50%-denominated in euros, 37% in US dollars and 3% in pounds sterling (50%, 33%, and 6%, respectively, at year-end 2004).
Including the impact of financial instruments, 35% of gross debt is at fixed rates.
Due to significantly high liquidity at December 31, 2005 (€10.4 billion) and our policy of favoring fixed-rate debt when interest rates are at a historically low level, 64% of total borrowings less securities and cash and cash equivalents is at fixed rates. The average maturity is 7.9 years.
At December 31, 2005, we had undrawn credit facilities and treasury note back-up lines totaling €7.1 billion, versus €6.1 billion at December 31, 2004.
In the first quarter of 2005, the Group refinanced its €4.5 billion syndicated credit line (guaranteed by GIE SUEZ Alliance) prior to maturity, for the same amount but with an extended term of seven years and significantly improved financial conditions. SUEZ SA has also restructured several existing bilateral credit lines to reduce borrowing costs, and negotiated new, five-year bilateral credit lines, bringing undrawn SUEZ Corporate credit lines to a total of €5,674 million. These facilities are not subject to any financial covenants or ratings trigger.
The Group sometimes sets up lending facilities for financing its subsidiaries whose credit limits and withdrawals are subject to financial ratios set by the borrower or guarantor. The level and definition of these ratios, also known as financial covenants, are set prospectively in conjunction with lenders and can be adjusted during the life of the facilities.
At December 31, 2005, no default had been reported with respect to our debt. All of our relevant companies had complied with the covenants and representations included in their loan agreements except for certain local debt set up in the form of project financing or debt without recourse, whose covenants or finance plans are currently being renegotiated (see Note 39 to our Consolidated Financial Statements for a review of the situation in Argentina) .
SUEZ’s and certain subsidiaries’ senior secured or unsecured debt securities are currently rated by Standard and Poor’s Investor Services or Moody’s Rating Services. On February 27, 2006, Standard & Poor’s and Moody’s placed their ratings for SUEZ Alliance GIE and SUEZ SA under review, due to the planned merger with GDF. Pending the results of this review, GIE SUEZ Alliance maintains its rating of A2/P-1 from Moody’s and A-/A-2 from S&P. SUEZ SA maintains its A- rating with S&P.
Liquidity and Contractual Commitments
The following table represents an estimate of our contractual obligations as of December 31, 2005 impacting our future cash outflows. This estimate encompasses our gross borrowings and, off-balance sheet commitments such as operating leases, irrevocable commitments under which the Group has undertaken to purchase tangible assets, and other long-term commitments.
|
(in € millions)
|
Payments in
|
|
< 1 year
|
1 to 3 years
|
3 to 5 years
|
> 5 years
|
Total
|
|
Outstanding borrowings less capital leases
|
8,683
|
3,166
|
6,256
|
5,708
|
23,813
|
|
Capital leases
|
109
|
186
|
165
|
791
|
1,251
|
|
Operating leases
|
476
|
820
|
726
|
2,860
|
4,881
|
|
Irrevocable purchase commitments
|
1,563
|
401
|
121
|
520
|
2,605
|
|
Interest payments
(1)
|
856
|
1,343
|
820
|
1,078
|
4,097
|
|
Net scheduled obligations on interest rate swaps
(2)
|
(110)
|
(206)
|
(78)
|
(69)
|
(463)
|
|
Other long-term commitments
|
194
|
1,268
|
31
|
316
|
1,808
|
|
(1)
Scheduled interest payments associated with variable rates of interest are computed on the basis of the rates in effect at December 31, 2005.
(2)
Scheduled interest payments of the variable leg of the swaps are computed based on the rates in effect at December 31, 2005.
|
The off-balance sheet items described in the Notes to our Consolidated Financial Statements could significantly impact our operating results, liquidity and capital resources based on changes in the specific facts and circumstances of the specific arrangements disclosed in Item 5.E.
SUEZ 2005
FORM 20-F |
92
Back to contents
The table above does not include obligations related to our pension and other employee benefit plans. At December 31, 2005, our projected benefit obligations related to these plans exceeded assets of the plan by €3,920 million. We also have provisions for reprocessing and storage of nuclear fuels and for dismantling of plant and equipment which have not been included in the table above as these obligations settle on a long-term horizon.
Included in the table above at December 31, 2005, are commitments for capital expenditures of approximately €2,605 million. These commitments related mainly to the construction of various power generation facilities and purchase of equipment including turbines, natural gas power stations, cogeneration installations and incinerators (€1,366 million) and capital expenditures under certain concession contracts (€1,239 million). We review on a regular basis our liquidity needs for the next 12 months.
We anticipate that any liquidity needs will be covered by our operating cash flows, sales of marketable securities and new credit facilities.
At the end of 2005, we had available authorized credit facilities and treasury note back-up lines totaling €7.1 billion (€6.1 billion as of December 31, 2004).
Currency Fluctuations
Although we derive the majority of our revenues and incur most of our expenses in countries that are members of the Euro zone, the net impact of currency fluctuations in 2005 on sales was an increase of €257 million, mainly due to the changes in the value of the Brazilian real (€162 million). Fluctuations in the US dollar had a minor €4 million negative impact.
Our foreign exchange risk related to long-term assets and cash flows denominated in non-euro currencies is hedged, if possible, through the provision of financing in the same currency. As a result, we maintain a portion of our financing in US dollars reflecting our business in this currency. At December 31, 2005, our consolidated US dollar-denominated debt amounted to 13% of our total consolidated gross debt. We can adjust the amount of US dollar-denominated debt as needed using our available long-term multi-currency revolving credit lines.
With respect to the foreign exchange risk in markets outside North America and Europe, we reduce our risks when possible through contractual price adjustments negotiated in concession contracts, through US dollar denominated contracts, and by increasing the local portion of our costs. We may also use derivative instruments such as foreign currency swaps, forward contracts or collars. We may also hedge our exposure related to firm commitments either by entering into specific insurance policies, such as contracts with
Compagnie Française d’Assurance pour le Commerce Extérieur
, an insurance company that caters to the needs of French companies investing in or doing business outside of France, or by using forward contracts. In addition, we hedge estimated cash flows related to forecasted investments and divestments using firm or option contracts. We do not enter into forward foreign currency exchange contracts for trading purposes.
Our main protection against currency fluctuations is also the inclusion, when possible, in our international contracts of clauses that link the prices to the US dollar rate in order to minimize our exposure to local currency fluctuations as our related debt obligations are generally denominated in US dollars. As a consequence, we may be affected by fluctuations in the US dollar/euro exchange rate or by adverse changes in foreign currency exchange rates, such as the devaluation of the Argentine peso in 2002 when the contractual clauses above mentioned are not enforceable or when financial instruments were not implemented.
Inflation
We operate in, and receive payments in the currencies of certain countries with historically high levels of inflation, such as Latin America and Asian countries. This risk is generally covered by contractual clauses that enable us to revise our prices, on negotiated dates, to take inflation into account. Inflation has not had a material effect on our results of operations during the periods presented.
With the devaluation of the Argentine peso, inflation has increased in Argentina. Although this country has not been classified as a hyper inflationary economy, this may affect our operations in this country, depending on the results of the renegotiation of our concession agreements. The impact on our future results remains uncertain.
U.S. GAAP
We prepare our Consolidated Financial Statements in accordance with IFRS, which differs in certain important respects from U.S. GAAP. The following paragraphs describe the principal adjustments and reclassifications necessary to reconcile our income from operating activities prepared in accordance with IFRS to the amounts prepared in accordance with U.S. GAAP. See Note 42 and 43 to our Consolidated Financial Statements for a more detailed description of differences between IFRS and U.S. GAAP which impact our net income Group share for the years ended December 31, 2005 and 2004.
SUEZ 2005
FORM 20-F |
93
Back to contents
2005
Our U.S. GAAP income from operating activities totaled €1,714.9 million (€2,806.7 million lower than under IFRS) for the year ended December 31, 2005.
Proportionately Consolidated Joint Ventures
Income from operating activities from proportionately consolidated joint ventures has been reclassified as income from equity method investments under U.S. GAAP, which has decreased U.S. GAAP income from operating activities by €549.6 million in 2005.
Reclassifications between IFRS and U.S. GAAP
The significant reclassifications recorded when reconciling the Group’s income from operating activities determined in accordance with IFRS to the corresponding amounts prepared in accordance with U.S. GAAP include:
·
gains on sales of shares of equity method investees of €963.8 million, recorded in “Disposals of assets, net” within “Income from operating activities” for IFRS have been reclassified to “Share in income/(loss) of associates” for U.S. GAAP purposes;
·
gains on sales of non-consolidated investments of €117.3 million recorded in “Disposals of assets, net” within “Income from operating activities” for IFRS have been classified as non-operating income for U.S. GAAP purposes;
·
the accretion of interest expense relating to discounted provisions (i.e., dismantling, nuclear waste reprocessing, site restoration, and pension and other retirement obligations) and amounting to €321.1 million has been reclassified from “Financial loss” under IFRS to the respective expense amount within “Income from operating activities” for U.S. GAAP purposes.
Adjustments between IFRS and U.S. GAAP
The significant adjustments recorded when reconciling the Group’s income from operating activities determined in accordance with IFRS to the corresponding amounts prepared in accordance with U.S. GAAP include:
·
a decrease of €98.9 million in 2005 due to amortization of fair value adjustments resulting from business combinations recorded under U.S. GAAP and goodwill impairment charges adjustments recorded under U.S. GAAP;
·
a decrease of €210.5 million related to differences in accounting for impairment charges on long-lived assets;
·
a decrease of €107.0 million related to losses on the partial sale of certain consolidated investments which results from a difference in the basis of the investment as well as from the recognition in the profit and loss statement of cumulative translation adjustments for U.S. GAAP purposes which for IFRS purposes were, as allowed under IFRS 1, transferred to Consolidated reserves within equity on January 1, 2004.
2004
Our U.S. GAAP income from operating activities totaled €2,426.3 million (€1,113.2 million lower than under IFRS) for the year ended December 31, 2004.
Proportionately Consolidated Joint Ventures
Income from operating activities from proportionately consolidated joint ventures has been reclassified as income from equity method investments under U.S. GAAP, which has decreased U.S. GAAP income from operating activities by €474.8 million in 2004.
Reclassifications between IFRS and U.S. GAAP
The significant reclassifications recorded when reconciling the Group‘s income from operating activities determined in accordance with IFRS to the corresponding amounts prepared in accordance with U.S. GAAP include:
·
gains on sales of non-consolidated investments of €70.8 million recorded in “Disposals of assets, net” within “Income from operating activities” for IFRS have been classified as non-operating income for U.S. GAAP purposes;
·
the accretion of interest expense relating to discounted provisions (i.e., dismantling, nuclear waste reprocessing, site restoration, and pension and other retirement obligations) and amounting to €328.8 million has been reclassified from “Financial loss” under IFRS to the respective expense amount within “income from operating activities” for U.S. GAAP purposes.
SUEZ 2005
FORM 20-F |
94
Back to contents
Adjustments between IFRS and U.S. GAAP
The significant adjustments recorded when reconciling the Group’s income from operating activities determined in accordance with IFRS to the corresponding amounts prepared in accordance with U.S. GAAP include:
·
a decrease of €315.1 million due to differences related to derivative contracts in accordance with SFAS 133.
·
a decrease of €151.0 million due to the combined effect of amortization of fair value adjustments resulting from business combinations recorded under U.S. GAAP and reversal of goodwill impairment charges recorded under IFRS.
·
an increase of €189 million related to financial asset sales due to differences in carrying value and the timing of recognizing the sale.
Recently Issued Accounting Pronouncements Not Yet Adopted under IFRS
We have not applied the following standards and interpretations published by the IASB but not yet effective:
·
IFRS 6 – Exploration for and Evaluation of Mineral Resources which does not apply to our activities;
·
IFRS 7 – Financial Instrument: Disclosures and the Amendment to IAS 1 – Presentation of Financial Statements – Capital Disclosures which provide for further disclosure requirements. We have not yet decided whether we will apply these new requirements in 2006 or 2007;
·
the Amendment to IAS 19 – Employee Benefits, Actuarial Gains and Losses, Group Plans and Disclosures applicable to financial years beginning on or after January 1, 2006. We have not yet decided whether to use the option providing for the elimination of the corridor method and for the recognition of actuarial gains and losses directly in equity. The other requirement of the Amendment to IAS 19 will be applied in 2006; to date we have not assessed the possible impacts of the amendments applicable to our plans; and
·
IFRIC 5 – Rights to Interests Arising from Decommissioning Restoration and Environmental Rehabilitation Funds, IFRIC 6 – Liabilities Arising from Participating in a Specific Market: Waste, Electrical and Electrical Equipment and IFRIC 7 – Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies are applicable in 2006. We do not expect the adoption of these interpretations to have a material impact on our consolidated financial statements as they do not apply to our activities.
Recently Issued Accounting Pronouncements Not Yet Adopted under U.S. GAAP
SFAS No.123(R), Accounting for Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No.123 (revised 2004), Share-Based Payment (SFAS No.123(R)), which is a revision of SFAS No.123, Accounting for Stock-Based Compensation. SFAS No.123(R) supersedes Accounting Principles Board (APB) Opinion No.25, Accounting for Stock Issued to Employees. Generally, the approach in SFAS No.123(R) is similar to the approach described in SFAS No.123. However, SFAS No.123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.
We are required to adopt SFAS No.123(R) on January 1, 2006 for U.S. GAAP purposes. We expect to adopt its requirements using the ‘‘modified prospective’’ method described in SFAS No.123(R). Under this method, compensation cost is recognized beginning with the period in which the recognition provisions are first applied (a) based on the requirements of SFAS No.123(R) for all share-based payments granted after the date of adoption of Statement No.123(R) and (b) based on the requirements of Statement No.123 for all awards granted to employees prior to the date of adoption of Statement No.123(R) that remain unvested on the effective date.
The impact of adoption of Statement No.123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future.
SUEZ 2005
FORM 20-F |
95
Back to contents
SFAS No. 153, Exchanges of Non-monetary Assets
In December 2004, the FASB issued SFAS No.153,
Exchanges of Non-monetary Assets - an amendment of APB Opinion No.29
(SFAS 153), which amends APB Opinion No.29,
Accounting for Non-monetary Transactions
, to eliminate the exception to fair value accounting for non-monetary exchanges of similar productive assets and replaces it with a general exception to fair value accounting for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 was effective for U.S. GAAP purposes for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.
SFAS No. 154, Accounting Changes and Error Corrections
This Statement replaces APB Opinion No.20, Accounting Changes, and SFAS No.3, Reporting
Accounting Changes in Interim Financial Statements
, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.
Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, this Statement requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable.
This Statement requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in nondiscretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change.
This Statement also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle.
This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 relating to U.S. GAAP.
FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligation
This Interpretation clarifies that the term conditional asset retirement obligation as used in SFAS No.143,
Accounting for Asset Retirement Obligation
, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Thus, the timing and/or method of settlement may be conditional on a future event. Accordingly, an entity is required to recognized a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred, which is generally upon acquisition, construction, or development and/or through the normal operation of the asset. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. Statement 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.
We will adopt the provisions of this Interpretation on January 1, 2006. We are still assessing the impact, if any, of adopting this Interpretation in 2006.
SUEZ 2005
FORM 20-F |
96
Back to contents
Other
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not or are not believed by management to have a material impact on our present or future Consolidated Financial Statements.
C. Research and Development, Patents and Licenses
Research and Development
In 2005, we spent €84.8 million on research and development. In 2004, we spent €85 million on research and development. These investments were primarily made in technical or expertise centers.
Innovation Policy
The aim of the SUEZ innovation strategy is to make the services that are best adapted to their current and future needs available to each of its customers.
In 2005, three goals underpinned this strategy:
·
satisfying an increasingly strict and demanding need in terms of sustainable development thanks to our presence in both the energy sector and environmental sector;
·
developing new services for municipal and industrial customers with targeted offers;
·
improving productivity, especially through increased sharing of advances between entities, a high level of use of information and communications technologies, and advances in the simulation field.
Our policy in matters of innovation rests on a systematic approach to stimulation and promotion of initiatives and innovative projects in the technical, commercial, and managerial fields. As a result of this approach, it was decided to launch a program that will amount to €5 million per year for CO
2
capture and storage.
In the technical field, we rely on our Research and Development (R&D) department, which registered 13 patents and received a total of €84.8 million in 2005.
We dedicated €85 million to R&D in 2004, €79 million in 2003, €99 million in 2002, and €100 million in 2001 and registered 15 patents in 2004, 13 patents in 2003, 19 in 2002, and 13 in 2001.
Licensing policy is the responsibility of each entity concerned. As a result, it is repeated in the corresponding paragraphs below.
Research and Development activities are carried out mainly in technical centers:
·
Laborelec
(160 persons) is based near Brussels and specializes in activities related to the production, distribution and use of electricity and related forms of energy and sustainable development.
It is on the cutting edge in the control of energy quality and the knowledge of processes and equipment for energy production, including renewable energies (more specifically, from biomass). Monitoring of equipment behavior, especially the vibratory control of rotating machines, is a strong point, as is the knowledge of the behavior of materials (especially gas turbines, steam generators for nuclear power plants and high pressure boilers). Laborelec has developed and applied specialized services for industry based essentially on energy efficiency.
Its expertise can be seen in all four of its product lines:
-
“electric power systems and metrology”;
-
“sustainable process technology”;
-
“electrical materials and equipment”; and
-
“materials technology, vibrations and noise control”.
A multi-functional area of specialization, called process control and IT systems, bridges these four areas of expertise.
SUEZ 2005
FORM 20-F |
97
Back to contents
For several activities, Laborelec’s professionalism and impartiality are guaranteed by ISO 17025 and ISO 9001 accreditations and certifications.
·
Elyo Cylergie
(15 persons) is based near Lyon and specializes in energy-related services. Special emphasis is placed on energy efficiency, limitation of environmental impact, health and comfort, and monitoring commitments to performance.
To this end, Elyo Cylergie has come to specialize in four primary areas:
-
“energy efficiency”;
-
“maintenance and reliability of equipment”;
-
“environment, health, and comfort”; and
-
“metrology and result indicators”.
·
CIRSEE
(120 researchers and experts) is based in the Paris region and specializes in the fields of drinking water, waste water, and waste. Its research is concentrated in four areas of expertise:
-
“water resources and drinking water production”;
-
“environment, waste water and sludge treatment, organic effluents”;
-
“health and analytical expertise”; and
-
“information technology relevant to the water and waste business lines”.
In the field of waste, Suez Environnement also relies for its operating companies (water and solid waste) on:
-
the “Solid Waste R&D Department” based in Gargenville, which specializes in the study of solid waste;
-
the Technical Counting Center of Lyonnaise des Eaux France in Lyon (AXEO); and
-
the research laboratories of the AGBAR Group and of Northumbrian Water Limited in the areas of water and sanitation.
·
Cerdeg
(around 40 persons) is based in the Paris Region, and Denard (5 persons) is based in the United States. These two centers specialize in the design of new products and processes in the treatment of wastewater and drinking water, and the desalination of sea water.
Cerdeg’s research is concentrated in four areas of expertise:
-
“drinking water, reuse, desalination, and membrane products chains”;
-
“sludge products and chains”;
-
“biological reactors and chains”; and
-
“physico-chemical products and separation”.
Finally, a fifth multi-functional division is dedicated to Odors and the improvement of the Environment.
Additionally, Denard specializes in two specific areas: UV Disinfection and Rapid Separation.
·
ONDEO IS
(12 persons) is a European network dedicated to the industrial market; it specializes in its primary market of the delivery of industrial water to various sectors (oil and energy, pharmaceuticals, microelectronics, agro-foods, etc.).
Among R&D earnings in 2005, we can also mention:
For SUEZ Energy Europe and International
·
The establishment of good manufacturing practices and operational assistance for the (co) combustion of pulverized wood in coal power plants (especially everything that concerns the preparation and handling of the combustible). Application at the Awirs power plant in Belgium, where 80 MWe is now completely wood-powered.
·
The development and launch of a diagnostic center that gathers sensitive surveillance data from power plants, to monitor trends (detection of early errors) and perform long-distance diagnostics. It is our goal to equip 10 SEE and SEI electrical power plants.
·
The development of a methodology to monitor the aging of alternators and transformers through a range of different types of measurements (including partial discharge, measuring flow in the rotor, and monitoring of products from decomposing insulation).
·
The development of good manufacturing practices for the optimal operation of the electrical grid, in case of a Distributed Production connection (how to set up protections, verification of network accommodation capacity, with an influence on centralized remote control signals).
·
The comparative study of the electronic counters that will replace the analogue meters (comparative tests, connection techniques, and calibration).
·
The finalization by the CNR (
Compagnie Nationale du Rhône
) of a series of hydro-meteorological forecasting tools for the optimization of hydroelectric production on the Rhône by integrating the multiple constraints related to the varied uses of a river. This series of tools has reduced the time between the 24- hour electrical production projections and reality by half. These delays mean heavy financial penalties for the network manager.
SUEZ 2005
FORM 20-F |
98
Back to contents
For SUEZ Energy Services
We aim to guarantee constant indoor air quality while optimizing energy expenses, through demand-controlled Ventilation, a new service developed by Elyo.
The year 2005 saw the end of two years of studies and tests for various technologies for different types of buildings as part of a project led by Elyo Cylergie with the support of ADEME (the French agency for environmental protection and energy control), and conducted in partnership with the French agencies CETIAT (technical center for the heating, ventilation and air-conditioning industries), COSTIC (scientific and technical committee for climatic industries), CSTB (scientific and technical center for the construction industries) and several building companies. As a result, a skills and goods manufacturing practices guide was provided to Elyo sales representatives and operators, as well as an indoor air diagnostic tool.
Tractebel Engineering carried out a study on the use of tunnels for the strengthening of interconnected electricity transport networks for the European Commission.
The use of CO
2
in industrial refrigeration circuits is more difficult than other, more environmentally harmful fluids. GTI Koudentechniek BV (Netherlands) has helpfully provided more than thirty industrial facilities that use CO
2
which have technical performances and energy savings that are the same as if not better than traditional systems. In addition, the energy savings bring these facilities within the category of projects to which funding is granted by the Dutch government.
For SUEZ Environment
Significant work is currently being done on the renewal policy for functioning pipelines, to determine how long they can still be used according to local conditions, their age, and their material properties. The goal of this very important program is to develop a “sustained maintenance” policy for underground systems. The significant results obtained will lead to modifications of some product standards and enable the implementation of good manufacturing practices to be completed.
SUEZ Environment has united 12 operational units to handle a major program to combat odor pollution in the neighborhoods around its sanitation and waste services facilities. The Group currently carries out measuring and model building for odor dispersal systems, identifies emissions from numerous sources and has remedial resources at its disposal. As a result, new deodorizing facilities can be designed and in an emergency situation, preventative and corrective action can be taken in cooperation with the local inhabitants.
As part of the permanent sanitary monitoring that has been developed, SUEZ Environment, with its European partners in the Poseidon project, has qualified the nature of the risks related to the presence of potentially harmful endocrine products, which demonstrates that this risk is under control as regards drinking water. The technologies developed by the Group, and by Degrémont in particular, allow these products to be treated correctly in case they are present in the water resources.
Continuing its leadership in the field of desalination and drinking water, Degrémont has patented a membrane pre-treatment process using micro-coagulation, a process which allows flow over the membranes to be increased significantly.
In the field of disinfection using ultraviolet light, the range of products developed by Degrémont has been expanded so that the needs of higher-flow systems can be met.
A skid that integrates ultrafiltration and reverse osmosis units on the same platform has been developed to treat surface water and industrial water. This skid is used for discharges of between 5 and 50 m3/h. Six applications have been sold to date.
As regards innovation, SUEZ is recognized by two promotional and management resources.
SUEZ 2005
FORM 20-F |
99
Back to contents
The Innovation Initiatives Trophies
These reward the initiative of employees or teams for operational production in four categories: technical, commercial, management, and cross-category.
The 19th series, launched at the end of 2004, resulted in the award of 36 trophies (including 10 first prizes) on 13 June 2005.
·
Master Offers Application
: online help to optimize the development of offers (Elyo);
·
Serving our European customers
: “mirror” organization for our international customers (Electrabel);
·
Hot and cold water distribution in urban areas
: based on incinerator steam (Elyo Iberica);
·
Conquest of the “retail” market
: (SUEZ Energy Resources North America);
·
“AMI”
: on-site mobile assistance, called “the companion of tomorrow” (Lyonnaise des Eaux);
·
Employee self-service
: human resources services within easy reach by intranet (SUEZ-Electrabel);
·
Services Area
: payment of bills with local merchants (Lydec);
·
Héliantis
: natural drying of sludge (France-Sanitation, Degrémont, Lyonnaise des Eaux);
·
ORRMA
: outsourcing of spare parts management for the army (INEO);
·
Production of farm electricity
: based on bio-methanization (Laborelec).
Value creation label
This award is given to projects that have won an Innovation Initiative Trophy three or four years previously.
In 2005, the 2001 and 2002 Trophy winners were examined.
Four winners received the label:
·
WindGIS
– Tractebel Engineering (2002 Trophy)
Method for evaluating economic, environmental, and corporate feasibility for wind energy farms.
·
Composting in a ventilated box
– Agro Développement (2001 Trophy)
“Patented” procedure that allowed the mixing of sludge compost from different sources.
·
Kronos
– Electrabel (2002 Trophy)
High-capacity management system for Internet-accessible energy indicators used by large industrial customers, retail customers, and automobile manufacturers.
·
SIG
/Geographical Information Systems (GIS) in the Water and Strength field (2001 Trophy)
Implementation of a methodology for updating data in the field by users of GIS data and other related data.
Patents and Licenses
In 2003, we filed 13 patents excluding those filed by Ondeo Nalco. When Ondeo Nalco was sold in 2003, it retained all of its intellectual property rights. In 2004 and 2005, we (excluding Ondeo Nalco) filed respectively 15 and 13 patents.
SUEZ 2005
FORM 20-F |
100
Back to contents
D. Trend Information
See Item 8.B. Significant Changes.
E. Off-Balance Sheet Arrangements
We had other transactions which, pursuant to current legislation, are not reflected in our Consolidated Financial Statements. Operating subsidiaries of the Group have entered into various long-term contracts and “take-or-pay” contracts for the purchase or sale of specified quantities of commodities for firm purchases (essentially gas) and electricity or gas for firm sales and related services. Principal future commitments under the SEE, SEI and Elyo contracts are presented below. They are valued at the closing spot rate or the price provided in the contract if this is not exclusively based on market conditions and, according to their maturity, are discounted based on the issued bond rates of leading companies. We are also committed to purchasing and selling future services in the completion of long-term contracts.
In the normal course of activities, certain of our subsidiaries have also entered into contracts for the purchase of technical installations with a total value of €1,366.3 million as of December 31, 2005. These commitments primarily concern the construction of energy production units and the acquisition of equipment comprising turbines, gas power stations and cogeneration plants and incinerators.
|
(in € millions)
|
Firm commodity, combustibles and
electricity purchases
|
Firm electricity,
gas, steam and oil sales
|
Firm PP&
E purchases
|
|
2006
|
8,118.7
|
12,138.9
|
921.4
|
|
2007
|
5,802.3
|
4,725.4
|
188.7
|
|
2008
|
4,715.3
|
3,262.5
|
24.0
|
|
2009
|
4,412.7
|
2,377.2
|
5.8
|
|
2010
|
4,540.4
|
1,924.5
|
-
|
|
Thereafter
|
37,687.8
|
7,281.4
|
226.4
|
|
TOTAL
|
65,277.2
|
31,709.9
|
1,366.3
|
Finally, we also made investments in certain concession contracts and, as such, incurred capital expenditures totaling €1,239.0 million as of December 31, 2005.
Operating leases which may not be terminated
We are committed to operating leases, which may not be terminated, relating to premises, facilities, ships (LNG tankers) and vehicles which expire on various dates during the next few years. We consider that, in the normal course of business, contracts expiring will be renewed or replaced. Lease charges are presented in Note 32 to our Consolidated Financial Statements.
The present value of minimum future payments in respect of these leases are as follows:
|
(in € millions)
|
Operating leases which may not be terminated
|
|
2006
|
209.4
|
|
2007
|
155.5
|
|
2008
|
128.8
|
|
2009
|
124.6
|
|
2010
|
131.0
|
|
Thereafter
|
941.5
|
|
TOTAL
|
1,690.8
|
SUEZ 2005
FORM 20-F |
101
Back to contents
Other commitments
|
|
December 31,
2005
|
Maturing within
1 year
|
Maturing within
1 to 5 years
|
Maturing in
more than 5 years
|
December 31,
2004
|
|
Total guarantees given on subcontracts
|
3,426.5
|
1,648.6
|
1,029.4
|
748.5
|
2,513.7
|
|
Commitments given on contracts
|
748.8
|
438.8
|
124.6
|
185.4
|
785.5
|
|
Performance bonds and similar
|
2,677.7
|
1,209.8
|
904.8
|
563.1
|
1,728.2
|
|
Financing commitments
|
4,530.8
|
774.1
|
789.3
|
2,967.4
|
3,797.5
|
|
Personal collateral given
|
778.1
|
102.6
|
227.9
|
447.6
|
1,111.1
|
|
Assets pledged and other collateral given
|
3,415.9
|
521.1
|
435.6
|
2,459.2
|
2,637.1
|
|
Other financing commitments given
|
336.8
|
150.4
|
125.8
|
60.6
|
49.3
|
|
Other commitments given
|
1,917.7
|
356.3
|
654.3
|
907.1
|
2,972.9
|
|
Total commitments given
|
9,875.0
|
2,779.0
|
2,473.0
|
4,623.0
|
9,284.1
|
|
Guarantees received on contracts
|
954.7
|
630.8
|
297.1
|
26.8
|
581.3
|
|
Financing commitments received
|
7,734.7
|
737.7
|
2,407.1
|
4,589.9
|
7,122.7
|
|
Undrawn authorized credit facilitiesand commercial paper back-up lines
|
7,144.9
|
450.8
|
2,213.6
|
4,480.5
|
6,104.4
|
|
Securitization
|
102.7
|
|
102.7
|
|
110.2
|
|
Other financing commitments received
|
487.1
|
286.9
|
90.8
|
109.4
|
908.1
|
|
Other commitments received
|
633.0
|
226.5
|
385.0
|
21.5
|
317.1
|
|
Total commitments received
|
9,322.4
|
1,595.0
|
3,089.2
|
4,638.2
|
8,021.1
|
Commitments given on contracts primarily comprise performance bonds guaranteeing customers the completion of contract services, guarantees of which may have been issued by SUEZ. In terms of the performance bonds, 35% relate to the Environment business and 65% to the Energy business. The percentage of the contract covered by the guarantee depends on the location of the contract (10 to 15% of the contract value for normal performance bonds and up to 70% for certain performance bonds).
Other contract guarantees include advance repayment deposits, retention deposits, bid deposits and to a lesser extent guarantees covering advance payments made to sub-contractors.
Financing commitments given comprise personal security granted primarily to creditors of our equity investees in the amount of €778.1 million, collateral of €3,415.9 million and other financing commitments given mainly to proportionally consolidated companies of €336.8 million. In the case of collateral, the assets allocated to guarantee the liabilities are primarily tangible assets (power stations and other installations and equipment) and to a lesser extent consolidated investments (€1,089.1 million) which represent approximately 32% of collateral. We have received financing commitments in the amount of €7,734.7 million, corresponding primarily to available approved credit facilities and commercial paper back-up lines.
Other commitments given include principally the following transactions:
·
Investments in CNR, aimed at broadening Electrabel’s presence in France in connection with the company’s development strategy. The related share purchase commitments totaled approximately €306 million, to be spread over the period between 2006 and 2007 (see Note 28 to our Consolidated Financial Statements).
·
A commitment by Electrabel totaling €695 million to cover credit risks of companies that are separate legal entities and which hold leases relating to power plants in the Benelux countries.
·
Financial guarantees given by SITA France to the regional authorities (
préfectures
), totaling €196 million (€189 million in 2004) relating to landfill sites.
In addition, some of our companies are committed under vendor warranties related to the divestment of operations. A reserve is set aside to cover these warranties when it seems probable that they will be called upon. Potential liabilities in respect of vendor warranties totaled €1,507.4 million at December 31, 2005 compared with €1,445.9 million one year earlier. They related essentially to the sales of Northumbrian, Nalco, Noos, Coditel, Codenet, Paris Premiere, IndoSUEZ, Mirec, Château d’Eau and SEN.
SUEZ 2005
FORM 20-F |
102
Back to contents
Finally, through one of our U.S. subsidiaries, we still hold the lease for the premises in Naperville occupied by and sub-let to Ondeo Nalco. We have received a counter-guarantee in relation to this lease from Ondeo Nalco, according to which Ondeo Nalco is liable for all obligations thereunder vis-à-vis both ourselves and the owner-lessor of the premises. In the event of default by Ondeo Nalco, we would be liable to pay the lease payments for the remaining term of the lease, amounting to €201.8 million.
F. Tabular Disclosure of Contractual Obligations
See “Item 5.B. – Liquidity and Contractual Commitments”.
Next Section
Previous Section