PostNL credit rating downgraded by S&P due to subdued profitability

Investing.com -- S&P Global Ratings has downgraded the credit ratings of Dutch e-commerce and postal operator PostNL (AS:PTNL), citing the company’s underperformance and subdued profitability. The long- and short-term issuer credit ratings have been lowered to ’BBB-/A-3’ from ’BBB/A-2’. The issue ratings on the company’s senior unsecured notes due in 2026 and 2031 have also been revised to ’BBB-’ from ’BBB’. Despite this, the outlook remains stable.

The company has been facing operational challenges in both the mail and parcel segments. There is no clear catalyst for a substantial medium-term profitability rebound, which is also reflected in the company’s 2025 EBIT guidance, falling below S&P’s previous base case. S&P Global Ratings-adjusted funds from operations (FFO) to debt is expected to stay below 45%, the guideline for the previous ’BBB’ rating. Yet, with active cost and yield management, and controlled capital spending, profitability is expected to improve gradually, and the ratio is expected to stabilize above 30%.

In 2024, PostNL’s performance was hampered by a higher-than-expected mail volume decline, labor cost pressure, and an unfavorable customer mix in the parcels segment. S&P Global Ratings-adjusted EBITDA of about €225 million was below the previous forecast of €260 million-€275 million. It was also lower than 2023’s EBITDA level of €255 million and the pre-pandemic level of €297 million.

Despite these challenges, an increase in EBITDA over 2025 and 2026 is still predicted, albeit at a slower pace, to €230 million-€240 million in 2025 and €245 million-€265 million in 2026. This improvement is expected to be supported by a 1%-3% parcel volume growth, specifically in international parcels, following a 7% increase in 2024, thanks to robust demand for Asian affordable products.

PostNL’s profitability has been volatile over the past few years, reflecting the company’s high operating leverage and large swings in parcels volumes. To enhance operating efficiency, the company implemented cost-saving measures, achieving approximately €75 million in savings in 2024. It plans to achieve an additional €85 million in savings in 2025.

The company has applied for financial support from the Dutch government to help fulfill its universal service obligation (USO (NYSE:USO)), requesting €30 million for 2025 and €38 million for 2026. In the parcel segment, profitability improvements are expected to come gradually from further innovation, promoting delivery to parcel lockers, and network optimization combined with material price adjustments.

Based on moderate growth in EBITDA and a small increase in S&P Global Ratings-adjusted debt, PostNL’s credit metrics are expected to start recovering from 2025. Adjusted FFO to debt is likely to improve to 35%-38% in 2025, from about 30% in 2024 and about 36% in 2023.

PostNL’s capital allocation policy supports its commitment to maintaining an investment-grade rating. The company is committed to maintaining a solid balance sheet aiming at a maximum debt leverage ratio of 2.0x and is expected to continue to apply strict cash flow management. PostNL’s reported debt leverage ratio was 1.95x in 2024, which compares with S&P’s adjusted debt-to-EBITDA ratio of about 2.4x.

The stable outlook reflects S&P’s expectation that PostNL will maintain its FFO-to-debt ratio above 30% thanks to its ongoing cost-saving initiatives, ability to gradually improve profitability, controlled capital spending, and consistent dividend policy. The rating could be lowered if PostNL experiences a more rapid decline in mail volume, fails to increase prices to offset cost inflation, or if its efficiency efforts do not deliver the envisaged cost savings. A positive rating action could be taken if the adjusted FFO-to-debt ratio improves sustainably to at least 45%, alongside a visible and structural improvement in profitability.

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