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Rating action

Scope Ratings UK Limited (Scope) has affirmed the issuer rating assigned to the Norwegian postal services company Posten Bring AS (Posten, erstwhile Posten Norge AS) at A, while revising the Outlook to Stable from Negative. Posten’s senior unsecured debt rating has been affirmed at A.

Rating rationale

The rating action reflects Scope’s expectation of improved leverage in 2023 and over the medium term, in comparison to the elevated leverage of over 3.5x in 2022, driven by an improvement in operating profitability to over 9%. The Outlook also assumes continued higher government procurements at over NOK 1.1bn in 2023 and over NOK 1.4bn in 2024. Scope notes that the continued high capex in 2024 and 2025 will result in leverage remaining elevated over this period, and meaningful deleveraging is only expected to begin post 2025.

Posten business risk profiles continues to be supported by its long-standing monopoly-like position over traditional letter posting services in Norway, which is partially supported by government procurements of commercially non-viable postal services. Posten’s parcel and logistics business, on the other hand, entails a higher degree of competition, but shows much higher growth trends. Posten keeps improving its competitive positioning by improving its sales channels, which comprise physical branches, self-service pick-up boxes, home delivery and digital solutions. In addition, offerings such as Shelfless (fully automated storage/warehouses) and Norgespakken establish Posten as a provider of innovative, technology-driven fulfilment and logistics solutions, adapting to consumer behaviour. Scope anticipates that over the medium term, EBITDA margins will remain around or just under 10%, lower than the highs achieved in 2020 and 2021.

Posten’s financial risk profile reflects its current position in the capex cycle, with leverage elevated from historical levels on account of its ambitious investment programme in Norway and Sweden, although the improved profitability expected in 2023 is projected to improved Posten’s leverage metrics in comparison to 2022. Scope expects Posten’s leverage to remain around 3x over the medium term. Posten’s investment plans are expected to continue over 2024 and 2025, with an estimated NOK 3.5bn of capex over this period, with some of the capex pushed further to 2026 in light of the continuing difficult macroeconomic conditions. Growth investments will largely be dedicated to increasing capacity at its terminals and will continue to constrain free operating cash flow and leverage over this period. Scope expects Scope-adjusted funds from operations/debt to remain above 25%, while interest cover is expected to remain at around 7.5x. Scope assumes that the company will not be able to fund investments with internal cash flow in the next two to three years, thus maintaining negative free operating cash flow.

Scope’s adjustment for supplementary rating drivers is related to parent support. The issuer rating reflects Posten’s standalone credit quality of BBB+ 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 following Scope’s Government Related Entities Rating Methodology. Separately, Scope continues to assume that the supportive regulatory framework, under which the Norwegian government covers the net costs of holding the universal service obligation provider licence, will remain, though full compensation costs/losses borne by Posten may not be covered without a time lag. Scope also notes that the government procurement of NOK 1.18bn expected for 2023 is much higher than for 2022 at NOK 731m, showcasing the ability and willingness of the Norwegian state to fulfil its obligations to Posten under the USO.

Posten’s liquidity is strong as it has good access to banks and domestic bond markets. After issuing NOK 1bn in green bonds and signing a EUR 200m revolving credit facility tied to targets for reducing greenhouse gas emissions in 2021, the company shifted to the issuance of short-term debt (certificates of deposit, short-term revolving credit facilities and revolver drawdown) in 2022 given the increased rate environment. In 2023, the company has refinanced the majority of the short-term debt taken in 2022 with the issuance of further green bonds worth NOK 2.5bn. As of YE 2023, the company is expected to have around NOK 2.5bn in cash and marketable securities and NOK 2.2bn in undrawn credit lines. Liquidity is therefore sufficient to cover interest-bearing short-term debt.

Outlook and rating-change drivers

The revision in Outlook to Stable reflects the expectation of improvement in Posten Bring’s leverage to significantly below 3.5x in 2023, driven by an improvement in Scope-adjusted EBITDA margins to 9%, and that both leverage and EBITDA margins will remain at similar levels over the medium-term. The Outlook also assumes that Posten will continue to hold a leading position in the Nordic parcel market and remain Norway’s traditional mail service provider, with the Norwegian state remaining the company’s sole owner without any significant adverse change to the regulatory framework and government procurement agreements with the Norwegian Ministry of Transport.

A positive rating action could occur if profitability margins and discretionary cash flow improved, resulting in Scope-adjusted leverage sustained below 3x and free operating cash flow/debt is sustained above 15%.

A negative rating action could occur if the Norwegian state reduced its ownership and/or if the regulatory framework governing Posten’s role as Norway’s mandatory postal service provider changed adversely. A similar action could also occur if weak market conditions persisted or worsened, or if Posten’s financial policy changed significantly, leading to Scope-adjusted leverage over 3.5x on a sustained basis along with consequent negative cash flow ratios.

Long-term debt ratings

The senior unsecured debt rating is affirmed at A, in line with the issuer rating. Posten is also the bond-issuing entity. Posten has outstanding bonds totalling NOK 3.5bn, maturing between 2026-2031, as well as a NOK 111m Nordic Investment Bank loan with repayment in December 2024. 

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 Outlook (General Corporate Rating Methodology, 16 October 2023; Government Related Entities Rating Methodology, 13 July 2023), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/uk-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 these 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 Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings and Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings UK Limited at 52 Grosvenor Gardens, London, United Kingdom, SW1W 0AU, Tel +44 20 7824 5180. The Credit Ratings and Outlook are EU-endorsed.
Lead analyst: Rohit Nair, 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. The Credit Ratings/Outlook were last updated on 27 February 2023.

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

Conditions of use/exclusion of liability
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