Standard & Poor revises New Zealand Post outlook to “negative”

Credit-rating agency Standard & Poor has downgraded New Zealand Post’s outlook from “stable” to “negative” over concerns about the ongoing decline in mail volumes. The postal service has its credit rating monitored in relation to its $400m debt facilities, with the rating reviewed on a semi-annual basis.

Standard & Poor’s Ratings Services affirmed the Post’s AA- long-term credit rating and A-1+ short term credit rating, but the Post’s outlook was downgraded along with its banking subsidiary Kiwibank

The change was based on what the agency saw as a continuing deterioration in New Zealand Post’s core business, letters, and the increasing dependence of the company on the competitive parcels segment for growth.

The post has been experiencing a 4.5% year-on-year decline in its mail volumes, a trend expected to continue for the rest of this decade, though expectations are that it will eventually plateau.

New Zealand Post insisted the state of its mail and parcels business was part of a global trend in the postal industry.

Brian Roche, the New Zealand Post CEO, said the change in outlook was “disappointing”, but his company remained confident that it was on track to meet the challenges from the global mail trends.

“New Zealand Post is well-positioned to deliver on a sustainable physical network, growing the bank, creating a digital future and a superior customer experience,” he said.

New Zealand Post is increasing its retail parcel rates by up to 11% from next month, four years after the last such rate increase, to cover operating costs that have increased because of inflation and fuel price increases. The company is also introducing new surcharges for delivering parcels to rural areas.

Weaken

Standard & Poor credit analyst Adrian Chow said in a statement that his company believed New Zealand Post was facing an “ongoing structural decline” in its core business of standard letter deliveries, which would continue to weaken over time.

“In addition, we expected the company will become increasingly reliant on more competitive earning streams such as parcel and express courier deliveries, which will place further pressure on its business risk profile,” said Chow.

New Zealand Post does benefit considerably from its status as a state-owned enterprise in its credit rating – its standalone credit profile is assessed by Standard & Poor as BBB+, but the agency believes the likelihood “very high” that the New Zealand government would step in to provide assistance if the postal service faced financial distress.

Standard & Poor said in its latest assessment that New Zealand Post could find its credit rating lowered within two years if the “erosion” of its letter volumes accelerate and are not countered by improvements in the efficiency of the delivery network.

Any signal from the New Zealand Government that it would not help in the event of a financial collapse at New Zealand Post would also hurt its credit rating.

To return to a “stable” outlook, the postal service will have to stabilise its postal business, said Standard & Poor.

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