Press Releases / 22.05.2013

Press Release as of 22.05.2013


JSFC "Sistema Mass-media"

CJSC AK&M Rating Agency affirmed the ‘B++’ credit rating (positive outlook) assigned to Sistema Mass-media JSC as per the national scale.

The ‘B++' rating indicates that Sistema Mass-media JSC (SMM) is qualified as a sufficiently reliable borrower (the highest sub-grade of the ‘B' grade). Risk of a delay in meeting liabilities is moderate, restructuring risk for the loan / part of the loan is insignificant.

Media holding SMM’s rating is essentially backed by the trust and support of its parent company, JSFC Sistema, the largest Russian diversified investment corporation which owns 75% in SMM and is one of its principal lenders. We also appreciate the lower debt liabilities and an increase in profitability ratios in 2012 as the positive rating drivers.

As of 12/31/2012, consolidated debt liabilities (credits and loans) of SMM, according to the Company’s unaudited US GAAP statement, totaled $79.7 million (4.1% below what they had been at the start of the year), the debt burden on the Company reaching its five-year low. In 2012, the Company’s external loan obligations decreased by 15.5% from $38.9 million to $32.8 million, balance sheet liabilities decreased by almost 9%. As of 12/31/2012, the Company’s debt burden in relative terms was quite acceptable, net debt to revenue ratio being 0.86, net debt to OIBDA multiple being 2.25x. The foreign currency-denominated debt liabilities accounted for a mere 4% of the total debt. As a whole, the lower debt burden is one of the major positive rating drivers for SMM.

Despite a decrease in the Company’s revenue from $100.7 million to $79.9 million in 2012, gross profit margin improved from 58.8% to 69.7%, OIBDA margin increased from 18.7% to 38.2% (the 2011 financial results are hereinafter exclusive of depreciation of intangible assets in the amount of $50.79 million). Net loss decreased almost twice, loss from operations more than 5 times. To a large extent, these improvements resulted from a reduction in commercial, administrative and management expenses pursuant to a business restructuring and operating cost optimization program.

However, the longer than expected damnification process brought down the net asset value of SMM to the critically low level of $22.3 million, 6% below the Company’s authorized capital (for reference, the net asset value exceeded the authorized capital by 49% at the beginning of the year). The low asset value is affecting the Company’s financial stability and exerting significant pressure on its rating.

This negative signal is partly offset by the positive performance indicators of some of SMM business units in 2012. In particular, Stream Television Company increased its net profit from $1.7 million to $7.0 million benefiting from a higher share of high-margin services in the content distribution segment. This performance growth rate, if preserved, may turn out to be a strong argument in favor of the media holding’s rating in the long term.

Another risk factor our analysts regard as being restrictive on the Company’s rating is the lower share of current assets coupled with an upsurge in its short-term obligations. As a result, liquidity ratios decreased against the end of 2011 (absolute liquidity ratio from 99.4% to 59.6%, current liquidity ratio from 169.5% to 97.3%).

 

Sistema Mass-media JSC managing JSFC Sistema’s media assets is one of the largest Russian players in the market of content for pay television networks and other media resources. The company specializes in the production, aggregation and distribution of content for various platforms.

SMM owns and manages CJSC STREAM Television Company (content production, aggregation, and distribution), CJSC Russian World Studios and United Russian Studios JSC (movies and television content), Maxima Communication Group (advertising), and Digital Television Broadcasting LLC (TV broadcasting in the automobile television segment). The auditor of SMM JSC is CJSC Audit-Garantia-M, a member of the self-regulatory audit organization Audit Chamber of Russia (non-profit partnership), primary registration number (ORNZ) 10203001727.2

 

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This press release is based on the statement of assigning a credit rating to Sistema Mass-media JSC.

AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

 

CJSC Analysis, Consulting and Marketing Rating Agency
ul. Gubkina 3
Moscow, Russia
www.akmrating.ru
Press release by: A.V. Khibukhin
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.

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