Deutsche Post DHL fires ratings agency Standard & Poor’s
Deutsche Post has cut ties with the credit ratings agency Standard & Poor’s, but suggested the move was because its credit ratings service was too expensive, rather than because of the actual credit rating provided. The German postal and logistics giant said today that it will stick with Fitch Ratings and Moody’s Investors Service to assess its credit ratings.
Ratings agencies provide a guide to investors on the level of risk involved in investing in companies like Deutsche Post, and their credit ratings determine how expensive it is for companies to borrow money.
Deutsche Post was given a BBB+ credit rating by Standard and Poor’s, along with a “stable” assessment of its outlook.
Moody’s gives Deutsche Post a BAA1 rating, and raised its guidance on the Post’s outlook to “positive” this September.
The German postal service insisted today that its decision to end its partnership with Standard and Poor’s was nothing to do with the rating it had been given.
“We have decided to cancel our long-standing and constructive working relationship with Standard and Poor’s solely for commercial reasons,” said Larry Rosen, the Deutsche Post chief financial officer.
Deutsche Post said that thanks to its “financial stability and outstanding market position”, its new ratings agency Fitch had decided to issue a rating equivalent to that of Standard and Poor’s, BBB+ with a stable outlook.
“Thanks to our financial strength, Deutsche Post DHL’s reputation on the capital market, and the ratings from Moody’s and Fitch, we retain a strong capability to successfully execute capital market transactions at attractive terms,” said Rosen.
Deutsche Post has seen its overall revenues growing 5.8% year-on-year this year so far, but its earnings have been flat, hit by some large tax repayments demanded by Europe and the German government this summer.
The company has seen share prices rising through 2012, from close to EUR 12 per share at the start of the year to about EUR 15 per share this month.
Fitch Ratings
Fitch Ratings said today that Deutsche Post operates a “well-integrated” business profile, looking favourably on the dominant market position the company enjoys in the domestic mail and parcel market, and a “strong global footprint” in the global express, freight and supply chain businesses.
The agency said Deutsche Post’s finances had been improving, and that its cash flow was expected to remain positive over the next few years.
The “BBB” rating reflects the postal company’s “high exposure” to the volatile global express, freight and supply chain market, which accounts for 67% of group earnings, said Fitch Ratings.
The agency also noted the “structural decline” of the traditional mail business, along with the fixed costs of the domestic mail network and the sector’s close links to the state of the economy in Germany. It suggested the mail business would need “significant investments” if it is to maintain its contribution to the group’s performance as a whole.
“The agency believes that the secular changes affecting the mail industry, including competition from electronic communication and digitalisation leading to structural volume decline, have significantly increased Deutsche Post’s mail business risk,” said Fitch Ratings today.
Profit margins are “narrow” for freight and supply chain operations, and higher for mail and express, with DHL’s express margins now recovering after a “difficult and costly” restructuring as the DHL brand pulled out of major domestic express markets around the world from 2009, Fitch Ratings advised.
However, Fitch Ratings said Deutsche Post DHL “compares well and in places is stronger” than rival integrators UPS and FedEx, supported by Germany’s “highly export-driven” economy.
The agency said its “stable” outlook verdict was based on the financial state of Deutsche Post after it sold off its shares in the Postbank business in Germany, and because of the recovery of the DHL Express profits and market share.
