First-time rating assignment
Milan, April 11, 2011 -- Moody's Investors Service has today assigned to TNT Express N.V.
("TNT Express" or "the company") a provisional
long-term issuer rating of (P)Baa1 and a provisional short-term
issuer rating of (P)P-2. The outlook on the ratings is stable.
This is the first time Moody's has assigned ratings to TNT Express.
The assigned ratings are provisional because of the pending demerger that
is subject to shareholder approval at the Annual General Meeting of the
TNT N.V. group (or "the group", rated
Baa1, negative) on 25 May, to which new credit facilities
are also contingent upon. Moody's will assign definitive
ratings once the demerger is complete. A definitive rating may
differ from a provisional rating.
TNT Express is a newly created company and currently part of the TNT N.V.
group. The group is expected to seek shareholders' approval
towards the end of May to demerge its express business (consolidated under
TNT Express N.V.) from its mail operations, which
will remain under the auspices of the TNT N.V. group.
Moody's understands that the group's existing debt and most
of its pension liabilities will remain with the mail business, while
TNT Express will effectively have no funded debt but significant financial
and operating leases (the latter amounting to an annual expense of EUR354
million during fiscal year ending (FYE) 2010).
"The (P)Baa1 issuer rating assigned to TNT Express reflects the
company's solid business risk profile and prospective sound credit
metrics after the completion of the planned demerger, which mitigate
the effect of the TNT Express exposure to the cyclical express delivery
industry," says Paolo Leschiutta, a Moody's Vice
President-Senior Analyst and lead analyst for TNT Express N.V.
"Moody's notes, however, that the rating is currently
weakly positioned and is predicated on the expectation that, over
the short to medium term, TNT Express will achieve, and thereafter
maintain, financial leverage -- measured as debt/EBITDA
and adjusted for operating leases -- of around 2.5x
and a retained cash flow (RCF)/debt ratio above 20%,"
continues Mr Leschiutta. "The Baa1 rating also incorporates
Moody's expectation that the company will generate positive free
cash flow on an ongoing basis, as defined by Moody's,
i.e. including dividend payments."
TNT Express benefits from its (i) leading position in the European courier
express parcel market, holding according to the company around 17%
of the business-to-business market in Europe; and (ii)
increasing presence in emerging markets, particularly China,
India and Latin America. However, on a stand-alone
basis, Moody's considers TNT Express to be weaker than the
consolidated group, as the company will remain more exposed to cyclical
trends. In addition, the rating agency notes that despite
the company's plans to further expand into growing emerging markets,
competition remains strong and currently high oil prices could exert pressure
on volumes on a global basis. In addition, compared with
key competitors, TNT remains smaller in size and has a smaller presence
in the growing Asian market.
Nevertheless, TNT Express's ratings also reflect Moody's
expectation that the company will maintain a strong liquidity profile
and a conservative financial policy targeting a solid Baa1 rating.
To this extent, Moody's notes that, as at FYE December
2010, the company's key credit metrics (leverage at 2.7x
and an RCF/debt ratio of 20.9%) were at the lower end of
the rating category and that ongoing investments to expand the business
in emerging markets are likely to limit free cash flow generation over
the short to medium term. The current rating does not assume any
large debt financed acquisition. In addition, current uncertainties
in the economic climate, high oil prices and an unfavourable business
mix, mainly due to a shift in the customer mix, are likely
to result in only modest improvements in operating profit, in Moody's
view. The rating agency expects that any financial de-leveraging
will be a result of improving profitability, given the limited and
fixed nature of the existing financial debt of the company.
TNT Express's liquidity profile is supported by: (i) approximately
EUR266 million of cash available (some of which is restricted) on the
pro-forma balance sheet as at December 2010, as adjusted
for the demerger and (ii) a new committed revolving credit line of EUR570
million. Moody's considers these sources together with the
expected cash generated from operating activities to be sufficient to
cover Moody's estimate of the company's capital expenditure
of approximately EUR300 million per annum, its working capital absorption
and dividend payments. The rating agency notes that the company
has no significant debt repayments over the short term and that the new
credit facility, conditional to the demerger taking place,
does not contain any financial covenants or repeating material adverse
change (MAC) clauses and matures in five years.
The stable outlook reflects Moody's expectation that TNT Express
will progressively expand its business, maintaining a conservative
financial policy and improving its key credit metrics over time.
Moody's notes that upside pressure on the rating could be limited
by TNT Express's business profile, given the company's
exposure to a cyclical industry and its smaller size compared with its
key competitors. Nonetheless, Moody's would consider
upgrading the ratings if TNT were able to achieve and maintain on a ongoing
basis financial leverage of around 2.0x and an RCF/debt ratio above
25%. Conversely, failure to improve key credit metrics
from the FYE 2010 level and ongoing negative free cash flow could result
in negative pressure being exerted on the ratings. An increase
in financial leverage above 3.0x and a reduction in TNT Express's
RCF/debt below 20% could also exert pressure on the company's
ratings and result in a change of outlook.
Moody's also understands that once the demerger becomes effective,
the guarantor under TNT Finance B.V.'s Euro Commercial
Paper (ECP) programme is intended to be replaced with TNT Express N.V.
The rating agency would therefore expect to affirm TNT Finance BV's
rating and change the outlook to stable once the demerger is completed
and TNT Finance BV is effectively guaranteed by TNT Express NV.
The principal methodology used in this rating was Postal and Express Delivery
Companies published in December 2008.
TNT Express is a leading provider of on-demand, door-to-door
express delivery services, mainly for business-to-business
customers, focusing on time-certain or day-certain
delivery of documents, parcels and freight. In FYE December
2010, the company generated almost EUR7 billion in revenues and
a reported operating profit of EUR180 million. On average,
TNT Express delivered around 4.7 million parcels per week in more
than 200 countries during this period. The company employs around
83,000 people, runs a fleet of more than 30,000 road
vehicles and 50 aircraft and operates around 2,600 sorting centres
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Italia S.r.l
Moody's assigns (P)Baa1/P-2 ratings to TNT Express; stable outlook
Corso di Porta Romana 68