Suez Lyonnaise Des Eaux Reports Substantial Increase in First Half 1998 Earnings.

PARIS--(BUSINESS WIRE)--October 16, 1998--The following announcement was issued on Thursday, Oct. 15:

Net income -- FRF 3.1 billion :+44%

Net current income group share -- FRF 2.3 billion : +16%

Forecast growth of Net Income 1998 : +50%

Confirmation of 2002 target: FRF 56 net current income per share

The Supervisory Board of Suez Lyonnaise des Eaux, chaired by Jerome Monod, met on October 14, 1998 to examine the 1998 interim financial statements which were submitted by the Executive Board, on June 30, 1998.

Increased business activity of core businesses

First-half 1998 business activity continued to show growth in the Group's core businesses and international activities. Consolidated first-half revenues increased to FRF 99.8 billion, a 9.5 percent growth over the same period in 1997. Excluding the effect of exchange rate movements, the increase was 9.2 percent.

Core business activity revenues totaled FRF 64.7 billion, representing 64.8 percent of total revenues. Revenues from the energy business rose 10 percent, Water rose 8 percent, Waste Services and Communications increased 37 percent and 10 percent, respectively. Altogether, core business activities generated a 14 percent increase in revenues.

The first half of 1998 generated strong growth of core businesses outside the Group's domestic markets (France and Belgium), with revenues rising 52 percent to FRF 21.3 billion. The Group's international core business activity thus accounted for 33 percent of total core businesses revenues, versus 27 percent for the same period in 1997. This development is due primarily to the acquisition of the waste service activities of Browning Ferris Industries (BFI) outside of North America, to the increase in the international business activities of Tractebel (E.G.I) and to new contracts such as water and electricity management services in Casablanca, (Morocco). Nearly sixty percent of Group revenues were generated outside of France.

Net income: Increased by 44% representing 75% of current income

EBITDA from core businesses continued its upward path (+11.4%) to FRF 15.3 billion out of a total of FRF 19.8 billion.

Net income, group share, increased 16.2 percent to FRF 2.3 billion. The core business share of this figure amounted to 60 percent.

The contribution of the energy sector reached FRF 615 million, an increase of 18.7 percent which is explained by strong growth in the international electricity and gas activities of the Tractebel International subsidiary EGI, by Elyo's noticeable recovery and the increased activity of Electrabel and Distrigaz.

The group's Water business contributes to net current earnings at FRF 643 million, remaining pratically stable due to the pre-programmed impact from contracts awarded in 1997 (a "J" curve profit effect) and to lower income from water treatment engineering which is compensated by the sharp increase in other activities, especially internationally. The contribution of Waste services to net current income rose 11.3 percent to FRF 177 million, especially due to the improved performance of British and Spanish operations.

Finally, Communications generated a negative contribution of FRF 107 million due to the impact of TPS and cable development (television by satellite). Excluding TPS, M6 continues its progression.

Among the Group's other businesses, Construction continues to recover, contributing FRF 107 million thanks to a buildup in Groupe GTM's recurring business portfolio (concessions, road building, and industrial and electrical contracting). The contribution of Retail financial services is likewise on the rise thanks to improved results at Fortis AG, Generale de Banque, Sofinco and La Henin Vie.

Net current income of Societe Generale de Belgique increased by 25%.

Exceptional items (net of taxes and group share) account for FRF 0.8 billion. On the income side, Suez Lyonnaise des Eaux generated FRF 1.4 billion in capital gains from first-half disposals which included the sale of Saint-Gobain shares, La Henin-Epargne Credit, and various Suez Industrie investment lines. On the expense side, FRF 0.6 billion in extraordinary items were charged, largely for exceptional goodwill amortization of Elyo, and various provisions, including FRF 0.2 billion for potential risks in Energy and Water in emerging countries.

After exceptional items, net income (group share) at FRF 3.1 billion was 43.5% higher than the same period in 1997, reflecting the group's capacity to continue its strategy focused on boosting profitability.

Consolidated share data
                  JUNE 1998      JUNE 1997      Change

 Net Current       FRF 18.6       FRF 15.9      +16.4%
   Income
(Group Share)

 Net Income        FRF 24.7       FRF 17.2      +43.7%
(Group Share)

   Average              124          124.3         --
  number of
   shares(a)

(a) In millions after deducting treasury stock

Sound financial structure

Cash flow (excluding the financial sector), at FRF 13.4 billion and asset disposals at FRF 7.5 billion, essentially covered the FRF 22.5 billion in investments during the first six months of the year.

The Group's financial structure is strong and offers a comfortable base from which to grow its core businesses at the international level. Net indebtedness (including finance leases) came to FRF 69 billion out of total equity of FRF 116 billion. The Group's debt-to-equity ratio at June 30, 1998 was 60 percent. During the first six months of the year, net current income (excluding Retail financial services) covered financial expenses eight times over.

At June 30, 1998, Group share amounted to FRF 50 billion.

Outlook

Controlled expansion of core businesses activity

In the future, the Group intends to pursue international expansion of its three core businesses with worldwide ambitions (Energy, Water, Wastes Services) in both emerging as well as developed countries.

During the first half of 1998, high market valuations of the group's financial assets enabled it to undertake very profitable transactions and to restructure its portfolio of financial activities in Belgium. The international financial situation during the second half led to a decline in the relative prices of assets improving acquisition opportunities. Suez Lyonnaise des Eaux has important capital resources at hand to invest in its core businesses. Eventual investments are being studied carefully in a spirit of caution and determination to take action at the right moment.

In September 1998, Tractebel acquired majority control of a Brazilian electrical power producer, Gerasul. This USD O.8 billion transaction, has raised the Tractebel group's electrical generation capacity to nearly 40,000 megawatts. In October 1998 Suez Lyonnaise des Eaux along with Aguas de Barcelona will invest US $150 million to increase its participations in Aguas Argentina, Aguas de Santa Fe et Aguas Cordobesas in Argentina et Aguas de Illimani in Bolivia.

Low exposure to international instability

The Suez Lyonnaise des Eaux group's businesses and contracts are by nature hardly sensitive to the international instability. The Group, whose major business is providing private infrastructure services, has low exposure to emerging countries (Asia, Latin America, and Russia). These account for less than 6 percent of its revenues and equity (group share) at June 30, 1998.

The group's international projects practice standard prudential measures such as risk diversification (e.g. partnerships with local interests or multilateral agencies), risk coverage (political risk guarantees, contractual foreign exchange protection clauses), and non-recourse financing or financing with limited recourse. In addition, for the entire Group, provisions established for potential emerging country risk amount to FRF 1.1 billion.

Suez Lyonnaise has conservative foreign exchange and interest rates risk management.

Cancellation of 6.2 million shares

The Group obtained in September 1998 the go-ahead from the Commission des Operations de Bourse to buy back its shares, and the possibility of cancelling them. Using the authorization of the Annual General Meeting, the Executive Board will cancel on October 30, 1998, 4.8 million shares. Another 1.4 million shares will be cancelled as soon as various legal formalities have been completed.

Confirmation of net current income objectives

Profitability remains at the heart of the group's strategy. For 1998 Suez Lyonnaise des Eaux forecasts a further increase of approximately 50% in the annual net income group share. The recurring results of the core businesses as well as capital gains attained from disposals realized in 1998 especially Sofinco give strong visibility for expected performances in 1999 and 2000. The medium term target of net current income of FRF 56 per share in 2002 has been confirmed.