Ratings agency Moody's Investors Service this week changed its outlook to negative from stable on the ratings of Suez. The rating action followed Suez’ profit warning for 2017 and 2018 issued earlier in the week.
The company shares plunged 16% on its announcement. Despite company plans for cost reduction measures, on reporting its outlook shift, Moodys’ said: “Given the company's reduced financial flexibility following the acquisition of GE Water in 2017 for €3.2 billion, weaker earnings may result in credit metrics falling outside the guidance for the current ratings.”
The profit warning was widely viewed as a reflection of the scant growth in Europe for municipal water industry. Veolia Environnement too dropped its earnings targets and has made greater cost reductions.
Suez estimated that operating profits in 2017 decreased by around 2% to €1.3 billion, driven by exceptional costs of two contracts in Morocco and India, as well as the impact of the crisis in Catalonia, Spain. It expected a 10% increase operating profits for 2018 – 3% up excluding the contribution from GE Water – which was again below investor expectations.