CNP ASSURANCES
Fitch Ratings has revised
A full list of rating actions is below.
The revision of the Outlook to Stable is driven by our reassessment of
KEY RATING DRIVERS
Status, Ownership and Control: 'Strong'
LP is a limited company (societe anonyme) fully owned by the French state and Caisse des Depots et Consignations (CDC; AA/Negative), a state-owned financial institution. Since
Since the law of
Fitch expects the French state to maintain broad control over LP's financial and operational activities, including the nomination of the chief executive and chairman of the board. LP remains subject to audits from supervising ministries and the state's supervisory bodies.
Support
Fitch views the total
The French state exercises regulatory influence over LP, which supports the latter's financial stability. The missions and financial links between the state and LP are set out in a public-service agreement, which defines the public-service missions performed by the latter and the subsidies it receives. In 2020, the French state's subsidies amounted to
The share of subsidies will increase substantially as of 2022. In light of the universal postal service becoming unprofitable during the pandemic, the French state has decided to allocate LP a compensation of at least
LP could also benefit from the French state's emergency-liquidity mechanisms, in case of need. However, this financial support would only be possible within the limits set by EU competition law as it has been operating in a competitive business environment since
Socio-Political Implications of Default: 'Strong'
Fitch believes that a default of LP would temporarily endanger the continued provision of essential public services and lead to significant political repercussions. The French law underpins LP's status as a national public service, and defines the group's four public-service missions: universal postal service, regional planning through its extensive post office network, banking access, and press distribution at discounted tariffs.
LP is one of
Since 2012, as requested by the government, LBP has provided funding to local authorities and hospitals, directly and through a joint venture with CDC. In Fitch's view, a default by LP would not trigger a default of LBP and disrupt its financing activities as the latter is ring-fenced. However, it would send a negative signal to LBP's investors and partners, making support by the French state in a timely manner even more necessary.
Financial Implications of Default: 'Strong'
Fitch does not deem LP as a proxy financing vehicle for the French state as it now operates in a competitive market and benefits from financial autonomy. However, we believe that a default of LP would affect the funding of other French GREs as investors would likely lose confidence in the French state's ability and willingness to prevent a default of its GREs.
LP is a sizeable issuer with
Standalone Credit Profile
The 'bbb+' SCP reflects a combination of 'Midrange' assessment for both revenue defensibility and operating risk, and a leverage ratio slightly above 4x on average in 2023-2025 under our rating case (2020: 8x). LP's revised SCP reflects the annual
Revenue Defensibility: 'Midrange'
LP has diversified revenue sources, comprising regulated activities, such as domestic mail and parcel delivery, non-regulated activities, like express delivery, and dividends from LBP. Demand and pricing attributes are different among its activities and are both assessed as 'Midrange'.
Mail delivery suffered a sharp volume decline (18%) and was loss-making in 2020. This is the primary reason behind the state's decision to allocate
In contrast, the pandemic boosted parcel and express delivery volumes, which increased 29% and 40%, respectively, in 2020. This trend should continue in the next four years and we expect parcel and express delivery to account for an increasing share of LP's revenue. However, strong organic volume growth is partially offset by pressure on prices, due to competition.
LP did not receive dividends from LBP in 2020, due to the
The regulator (Arcep) allowed LP to increase stamp tariffs by 5% a year in 2019-2022. However, this is unlikely to be sufficient to cover the revenue decline linked to a fall in volume. LP's ability to increase tariffs on competitive activities is limited by stiff market competition.
Operating Risk: 'Midrange'
LP has well-identified costs drivers with moderate potential volatility. Cash-adjusted operating expenditure mainly comprises staff costs (49% of operating spending in 2020) and goods and services, especially out-sourced transport (49%). However, it remains exposed to fuel expenses that subcontractors can pass on through tariffs and which can negatively affect the group's operating performance.
In Fitch's view, flexibility on major expenditure items is limited by a large share of staff costs and the public-service requirements set by the state. The public-service missions of universal postal service and press distribution entail numerous logistical platforms and a higher number of employees to ensure daily distribution six days a week. Capex is modest compared with total expenses: it amounted to
LP faces some labour constraints within its express delivery business unit. However, supply constraints remain a limited risk for the group overall. Its mechanisms for capital planning and funding are adequate and should not represent a risk for the group.
Financial Profile: 'Midrange'
Our rating case expects LP's leverage ratio to be slightly above 4x on average in 2023-2025 (2020: 8x).
2020 was a challenging year for LP as its Fitch-adjusted EBITDA fell 18% yoy to
Our rating case expects LP's EBITDA to significantly improve to
Our rating case expects LP's net adjusted debt to decline to
Derivation Summary
Fitch views LP as a government-related entity (GRE) of the French state and rates the entity two notches below
Short-Term Ratings
The 'F1+' Short-Term IDR reflects the higher of two options mapping to a Long-Term IDR of 'A+', in line with our top-down rating approach.
Debt Ratings
Debt ratings are in line with LP's Long- and Short-Term IDRs.
Key Assumptions
Qualitative assumptions:
Our rating case is a through-the-cycle scenario based on the following assumptions for 2021-2025:
Operating revenue growth on average at 2.1% a year
Operating expenditure growth on average at 1.2% a year
Negative capital balance of
Average cost of debt of 3.1% (including lease cost)
Liquidity and Debt Structure
Fitch-adjusted debt of
Half the amounts of hybrid issues are incorporated in the adjusted debt calculation as we assigned 50% equity content to them.
Operating leases are based on LP's data, using IFRS19 methodology.
LP's defined pension funding totalled
Fitch-adjusted net debt (
Summary of Financial Adjustments
Our analysis is based on LP's logistics and commercial activities, including subsidiaries such as
Issuer Profile
LP is the mail operator in
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade could result from weaker linkage or incentive-to-support factors. This could be triggered by, among other things, a dilution of control, a regulatory change or a weakening of LP's importance to the French state.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A leverage ratio remaining sustainably below 4x under our rating case could lead to lead to an upward assessment of the SCP, which would trigger an upgrade if our assessment of other rating factors remains unchanged. It could also result from stronger linkage or incentive-to-support factors.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Public Ratings with Credit Linkage to other ratings
LP's ratings are credit-linked to
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
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