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Rating action

Scope Ratings GmbH (Scope) has affirmed the issuer rating of A+/Stable to Norwegian postal services company Posten Norge AS (Posten). At the same time, the senior unsecured debt rating of A+ has also been affirmed.

Rating rationale

Following the recent release of Posten’s FY 2021 results, Scope notes that the company has delivered another strong result which surpassed the rating agency’s expectations. This shows that Posten is well positioned to benefit from the increased demand for fast and environmentally friendly delivery solutions (especially from e-commerce), which are also triggering increased capacity investments. While the affirmation reflects recent good performance, Scope also notes the potential rising leverage due to higher capex and dividend spending that could result in some financial metrics deterioration.

With regard to Posten’s business risk profile, the company continues to have a strong position in Norway due to its long-standing monopoly-like position over traditional letter posting services. The parcel business, on the other hand, is seeing higher competition, but is growing significantly with a positive long-term profitability trend. Posten continues to improve its sales channels, which comprise physical branches (primarily within supermarkets and grocery stores), self-service pick-up boxes, home delivery and digital solutions, providing important competitive positioning elements. EBITDA margins are likely to be negatively affected by the continued loss of mail volume. Overall, however, Scope anticipates that EBITDA margins going forward should be sustainably higher than the normalised level before 2020.

Posten’s financial risk profile is supported by historically strong credit metrics, with Scope-adjusted leverage averaging 0.9x the last two years. Going forward, Scope expects leverage to increase in the short to medium term and put some pressure on the financial risk profile, but not on a sustained basis. Scope notes that based on Posten’s improved financial flexibility during 2021 and desire to maintain its market position in the growing and more competitive logistics landscape, Posten has initiated increase investment ambitions. The growth investments (indicated at NOK 3bn-4bn the next four years) will largely be dedicated to increasing terminal capacity and will put pressure on free operating cash flow and leverage. Scope expects Scope-adjusted leverage to increase towards 2x in the medium term and funds from operations/Scope-adjusted debt ratios of around 45%. Interest cover is expected to remain very strong. Over time, Scope continues to assume that the company will aim to fund investments with internal generated cash flow. Scope assumes also that dividends will be high in 2022, given Posten’s strong performance last year, and then return to a more normalised, stated policy target thereafter.

Scope’s adjustment for supplementary rating drivers is related to parent support. The issuer rating reflects Posten’s standalone credit quality of A- and a two-notch uplift based on Scope’s assessment of the strong capacity and willingness of Posten’s sole owner, the Norwegian state (rated AAA/Stable by Scope), to provide support, assessed in accordance with Scope’s Government Related Entities Methodology. Separately, Scope continues to assume that the supportive regulatory framework, under which the Norwegian government fully covers the net costs of holding the USO provider licence, will remain unchanged. With regards to financial policy, Scope notes the deviation from the dividend policy last year with around 100% dividend pay-out ratio compared to the 50% policy ambition, and will be monitoring the new announcement this year, given the increased investment ambitions.

Posten’s liquidity position is strong with good access to bank and domestic bond markets. The company issued two green bonds in 2021 totalling NOK 1bn. It also signed a new EUR 200m revolving credit facility, which includes conditions related to the company’s achievement of sustainability targets for reducing greenhouse gas emissions. These financing initiatives strengthen Posten's commitment to being the “greenest” logistics player in the Nordic region, and a significant portion of its future investments will support these ambitions. As of YE 2021, the company had NOK 3.4bn in cash and marketable securities and NOK 2.5bn in undrawn credit lines. Liquidity is therefore sufficient to cover the NOK 1.6bn in short-term debt and could also be used to finance Posten’s growth capacity investment plans.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation that Posten will continue to hold a leading position in the Nordic parcel market and remain Norway’s traditional mail service provider. The Outlook also assumes that the Norwegian state will remain the company’s sole owner and that there will be no significant adverse change to the regulatory framework and government procurement agreements with the Norwegian Ministry of Transport and Communication. Financially, Scope expects free operating cash flow to fluctuate somewhat due to increased investment but with Scope-adjusted leverage averaging 1-2x over time. Scope also assume that dividend pay-out and financial policy do not adversely change.

A positive rating action is possible if profitability margins and discretionary cash flow improve (but currently remote, given the investment phase), resulting in Scope-adjusted leverage sustained at well below 1x.

A negative rating action is possible if the Norwegian state reduces its ownership and/or if the regulatory framework governing Posten’s role as Norway’s mandatory postal service provider changes adversely. A downgrade is also possible if overall market conditions weaken or the financial policy changes significantly adversely, leading to negative credit ratio effects exemplified by Scope-adjusted leverage moving towards 2x (or higher) on a sustained basis.

Long-term and short-term debt ratings

The senior unsecured debt rating is in line with the issuer rating. Posten Norge AS is also the bond-issuing entity. Posten has three outstanding NOK bonds totalling NOK 1.35bn, maturing in 2022 and 2026.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (Corporate Rating Methodology, 6 July 2021; Rating Methodology: Government Related Entities, 5 May 2021), are available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-EU. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Henrik Blymke, Managing Director
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 26 March 2021.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
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