It was almost expected: the downgrading of Qantas’ credit rating on Friday by Moody’s, the ratings agency.
Qantas’ interim result, revealed with the $500 million capital raising a few weeks ago, showed a sharp slump in profit, and a drop in traffic.
That was a combination to attract the rating agencies, and Moody’s pounced on Friday.
Nothing has happened since then to improve the picture; just more cost cutting such as Jetstar taking over Qantas’ domestic New Zealand rotes and Qantas dropping a number of international routes to NZ, China and India).
More downgrades will follow, especially when the batch of interim results are completed this week.
Moody’s also warned the major Australian banks last week that it was looking at their credit ratings (all AA).
Standard and Poor’s chopped Queensland’s rating from AAA to AA plus on Friday.
Qantas shares fell to a record low after the rating was lowered one level to Baa2, two grades above junk.
The outlook is stable, Moody’s said in a statement.
“Qantas’ credit profile has been adversely impacted by relatively high debt and strained profitability and cash flow, putting pressure on the rating at a time of worsening industry fundamentals,” Moody’s analyst Ian Lewis said in the statement.
"However, the sharp fall-off in consumer demand for air travel, as a result of the global economic crisis and which is to a large extent beyond Qantas’ control, has outweighed the beneficial effect of these actions, placing material challenges that are more manageable at the Baa2 rating."
"The downgrade reflects deterioration in Qantas’ credit profile over a period of time, which has significantly diminished the available cushion within the previous Baa1 rating," Mr Lewis said.
The shares ended up down 4.3% on Friday at $1.68.
Qantas CEO, Alan Joyce said in a statement that the "aviation sector is experiencing a high degree of volatility worldwide, and Qantas has had to confront that.
“In the current environment, we have increased our focus on earnings preservation and conservative cash management.”
The airline has cut its interim dividend to 6c a share from 18c a year earlier.
Qantas’ ratings trim and the cut in Queensland’s won’t be the last here by credit rating companies.
In fact there are now just six companies worldwide on an AAA rating at major agencies.
Two of those may fall off this list: they are major US companies, General Electric and Pfizer, the big drug group now engaged in an absurd $US68 billion takeover bid. GE shares are now below $US10 on Wall Street.
Surfwear maker Billabong International Ltd has reported a 7.1% fall in first half profit to $82.4 million as the global retail slump took its toll, especially in the US.
It’s clear looking at the results that the company’s earnings in particular were boosted by the slide in the value of the Australian dollar during the half, as the company had mentioned last month.
Billabong said it remains on track to achieve full year earnings per share growth of between 6% and 10% for the 2009 financial year.
The Company reported sales up 22.2% to $808.6 million for the period, but lower than expected earnings, as had been flagged last month.
"As previously foreshadowed, net profit after tax (NPAT) declined 7.1% to $82.4 million and earnings per share (EPS) declined 7.4% to 39.9 cents per share.
"This result includes a $2.3 million non-cash, pre-tax impairment charge relating to the Company’s own retail stores in the United Kingdom and the United States, which represents 1.0 cent in EPS and $2.0 million in NPAT. Excluding the impairment charge, NPAT declined 4.8% to $84.4 million.
"Earnings before interest, tax, depreciation and amortisation (EBITDA) remained steady at $147.3 million, while Group EBITDA margins declined from 22.2% to 18.2%, principally reflecting the current challenging trading environment, particularly in the US.
"The half year result was built on a strong overall performance in Europe, a steady outcome in Australasia and higher sales growth at lower margins in the Americas as the economic downturn took hold and consumer spending declined.
"Additionally, the benefits from exchange rate movements, in particular the weaker AUD against the USD and Euro, and sustainable improvements in the Group’s effective tax rate also contributed positively to the result."
In Europe, the company said sales jumped 24.0% to $177.8 million, while EBITDA margins increased to 20.1% from 19.3% in the prior corresponding period.
"Reported sales in Australasia lifted 6.3% to $245.7 million, with EBITDA margins easing from 30.6% (pcp) to 28.3% reflecting increasing contributions from lower margin territories and negative currency impacts from South Africa.
"The Americas had reported sales growth of 33.9% to $385.1 million, a result significantly boosted by acquisitions and favourable currency movements.
“EBITDA margins softened to 10.6% (from 16.7% pcp) following increased investment in Company owned retail businesses and a reduction in underlying year-on-year sales amid extremely weak economic and consumer conditions."
Billabong CEO, Derek O’Neill said in the statement that the Group’s increased sales reflects the strength of Billabong’s brands and enhances the company’s ability to emerge from the global slowdown in a position of strength.
“While the Company has experienced margin erosion in its bigge
