(The following statement was released by the rating agency)
Nov 21 - Fitch Ratings has assigned Deutsche Post AG (DP) a Long-term Issuer
Default Rating (IDR) and senior unsecured rating of 'BBB+'. The Outlook on the IDR is Stable.
The agency has also assigned Deutsche Post Finance B.V. a senior unsecured rating of
The ratings reflect that DP operates with a well-integrated business profile,
dominant market position in the domestic mail and parcel market and a strong
global footprint in the express, global freight forwarding and supply chain
businesses. After the completion of the sale of Postbank shares in H112, DP also
benefits from greater financial flexibility and balance sheet transparency, with
an expectation of continued positive underlying free cash flow in the near term.
Finances have been on an improving trend. Fitch expects lease-adjusted FFO net
leverage at YE12 to decrease from 4.4x at YE11. According to Fitch's forecasts,
DP's free cash flow, in an absence of extraordinary dividends or share buy
backs, should remain positive over the next two to three years. Liquidity,
including an unused EUR2bn revolving facility is adequate considering the debt
maturity profile and the expectation of positive free cash flows. DP benefits
from a competitive cost of debt and comfortable interest cover ratio. However,
the Fitch expected fixed charge coverage (including operating leasing) for DP is
tight at below 3.0x.
The rating is constrained to the 'BBB' category as a result of DP's high
exposure to global market volatility through its DHL businesses: express,
freight forwarding and supply chain, representing 67% of the group EBITDA. DP's
traditional mail business is more exposed to the domestic economic cycle, and is
in structural decline, facing increasing competition and a high fixed cost base.
Management's targets to maintain the divisional contribution to the group
unchanged will require significant investments and Fitch views the targets as
challenging. The postal rate price increase recently agreed by the Federal
Network Agency and expected parcel growth will help improve the division's
margins from 2013. 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 DP's mail business risk.
DP's capital intensity ranges from high for the mail and express businesses to
the asset-light nature of the freight forwarding and supply chain businesses.
However, profit margins are narrow for the latter and higher for mail and
express. Profit margins for express are recovering compared with its major
competitors after a difficult and costly phase of restructuring due to the exit
from the domestic US market in 2009. Mail's declining profit margin is
constrained by staff costs (wages and pensions), declining mail volumes and
exposure to increasing fuel costs only partially hedged or passed through to
Within its peer group, Fitch believes that DP compares well and in places is
stronger when considering the degree of business integration, global footprint
and brand recognition. Similar to UPS and FedEx, DP DHL's profile is supported
by a strong and highly export-driven domestic economy. Differences arise when
comparing legacy issues from M&A growth, relevant for DP, but less so for the US
companies. Furthermore, Fitch considers that European operators are currently
more exposed to regulatory and litigation risks, as evidenced by the EU
antitrust and state aid investigations that DP is currently facing.
The Stable Outlook reflects the improvements in the financial profile after the
disposal of Postbank, but also the recovery of the express business's profits
and market share (with the latter also the case for the global freight
forwarding segment) that offset the currently challenging macroeconomic
WHAT COULD TRIGGER A RATING ACTION?
Future developments that may, individually or collectively, lead to negative
rating action include:
Negative: FFO lease adjusted net leverage above 3.5x on a sustained basis and
FFO fixed charges coverage below 2.0x; credit profile shifting towards more
asset-heavy businesses; significant deterioration in business fundamentals due
to a protracted economic downturn leading to significant volume and margins
reduction in the DHL divisions.
Positive: The current Rating Outlook is Stable. As a result, Fitch's
sensitivities do not currently anticipate developments with a material
likelihood, individually or collectively, of leading to a rating upgrade. Future
developments that may nonetheless, individually or collectively, lead to
positive rating action include:
FFO lease adjusted net leverage below 2.5x on a sustained basis and FFO fixed
charges coverage above 3.5x on a sustained basis; improving macro-economic
outlook; successful e-substitution strategy, continued success in expanding of
domestic parcel business, partially compensating the declining traditional mail