Press Releases / 06.07.2016
Press Release as of 06.07.2016
AK&M Rating Agency has affirmed the national scale credit rating of Sistema JSFC at 'A++', revising the outlook from negative to stable.
The 'A++' rating indicates that Sistema JSFC qualifies as an extremely creditworthy borrower, with the lowest risk of a delay in meeting liabilities imaginable. The rating assignment was based on the Credit Rating Methodology for Corporates (Issuers) and Financial Assets rev. January 23, 2014, including the amendments approved by the Methodology Committee on February 18, 2015.
Sistema Joint-Stock Financial Corporation is a major private investor in the real economy of Russia. Sistema's investment portfolio mainly consists of shares and other equity stakes in Russian companies engaged in various economic sectors, including telecommunications, retail, power energy, high technologies, lumber harvesting and timber processing, agriculture, pharmaceutics, medical services, rail transport, finance, tourism, etc. Sistema JSFC is a controlling shareholder in most of its businesses. The company is developing according to the investment fund business model, its competencies being focused on identifying promising investment opportunities and increasing the operational efficiency of the assets acquired through their restructuring and attraction of sector-specific to strengthen expertise and mitigate financial risks.
The positive rating drivers for Sistema JSFC include a low debt burden, with a currently observed downward trend, a reduction in the overall loan debt, a well-structure debt profile, a lower share of short-term loan debt in total liabilities, growing sales revenues, improvements in most of the profit metrics and return ratios, equity capital growth.
The debt load ratio (Net Debt / OIBDA) of Sistema JSFC based on consolidated statements has been decreasing steadily since 2014. It shrank to 2.46 in 2015 and further decreased to 2.20 at the start of the second quarter of 2016. The current level of the Company's debt load ratio is a powerful positive rating driver for Sistema JSFC.
Consolidated loan debt of Sistema JSFC kept climbing up for three years from 2013 for 2015 reaching RUB 556.76 billion end of 2015. However, the Company overcame this trend in the first quarter of 2016 when its loan debt decreased by 6.4%. The easier debt burden contributes to the Copmany's credit rating.
In 2014-2015, the share of consolidated ruble-denominated loan debt of the holding increased to almost 60%, which strengthens the creditworthiness of Sistema JSFC amidst exchange rate fluctuations.
In 2014, the share of consolidated short-term loan debt obligations in total consolidated obligations of Sistema JSFC increased to 13.9%. However, the Company reduced this percentage to 13.4% in 2015 and the first quarter of 2016. In AK&M Rating Agency's view, the lower percentage of short-term debt in total debt liabilities is an evidence of Sistema's stronger creditworthiness.
In the period under review (starting from 2013), Sistema JSFC grew steadily. In the first quarter of 2016 alone, the company's sales revenue increased by 3.3% year-on-year. The growth of consolidated revenues contributes positively to the credit rating of Sistema JSFC.
In 2015, Sistema JSFC increased its consolidated gross profit and operating profit, OIBDA and EBITDA. In 2016, these metrics continued to grow. In the first quarter of 2016, consolidated gross profit increased by 4.2%, operating profit by 8.9%, OIBDA by 3.9%, earnings before depreciation and interest by 95.9% (i.e. almost twice) year-on-year according to AK&M Rating Agency's estimates. Also, the return ratios related to these profit indicators improved accordingly.
In particular, the return on sales indicator (ROS, EBITDA margin) increased from 18.2% to 23.2% in 2015, to 30.3% in the first quarter of 2016, according to our calculations. Return on sales based on operating profit increased from 9.3% to 9.7% in 2015, 11.5% (according to our estimates) in the first quarter of 2016.
Since 2014 when all return ratios based on pre-tax profit were below zero, things have changed for the better. Return on costs (ROC, EBT margin) increased from -0.3% to 2.9% in 2015, reached 7.9% in the first quarter of 2016. Return on assets (ROA, EBT margin) went up from -0.1% to 1.6% in 2015, further improved to 2.4% in the first quarter of 2016 (according to our estimates). Return on equity (ROE, EBT margin) increased from -0.5% to 8.3% in 2015, reached 12.3% at the beginning of Q2 2016 (according to our estimates).
It should be noted that while Sistema's consolidated sales revenues increased by 3.3% in the first quarter of 2016, consolidated pre-tax profit soared almost 5.4 times for the same period, according to our calculations.
Therefore, improvements in most of the Company's profit metrics and return ratios has made a positive impact on the credit rating of Sistema JSFC.
Sistema JSFC's equity capital has increased since 2014. According to the Company's consolidated statements, the equity capital growth rate was 7.1% in 2015, 1.1% in the first quarter of 2016. As of April 1, 2016, the Company's equity capital exceeded RUB 253 billion. It should be noted that the equity capital growth was entirely attributable to an increase in retained earnings in 2015 and the first quarter of 2016. The moderate but apparent qualitative equity capital improvement contributes to the credit rating of Sistema JSFC.
In AK&M Rating Agency's view, the credit rating of Sistema JSFC is constrained by high infrastructure and sectoral risks related to the significant concentration of business, and a rather weak current liquidity position.
MTS PJSC, the biggest subsidiary of Sistema JSFC, accounts for 60.7%, the whole telecommunications business for approximately 63% of the holding's sales revenue. MTS PJSC also generates more than half of Sistema JSFC's consolidated profit. The sustained high dependence on the operating performance of MTS PJSC reflects infrastructure and sectoral risks related to significant business concentration and essentially constrains the credit rating of Sistema JSFC.
As of the start of the second quarter of 2016 current liquidity ratio of the holding decreased to 0.84, the equity to total assets ratio was 0.2, while financial stability ratio (equity plus long-term debt to total assets ratio) was 0.59, according to AK&M Rating Agency's calculations. The relatively low level of current liquidity constrains the credit rating of Sistema JSFC.
The outlook revision from 'negative' to 'stable' reflects the current stabilization in the development of Sistema JSFC.
Established 1993, Sistema JSFC is the largest publicly traded diversified financial corporation in Russia and the CIS with large assets in various sectors of economy. Companies controlled by Sistema JSFC are operating in Russia, other CIS countries, East and West Europe providing services related to telecoms, hi-tech, fuel & energy, petrochemistry, radio and space technologies, banking, retail trade, mass media, tourism and healthcare to more than 150 million consumers. The companies in which Sistema JSFC exercises control are active in not only Russia, but also other CIS countries, Eastern and Western Europe, as well as Asia.
Full corporate name: Sistema Joint Stock Financial Corporation.
Short name: Sistema JSFC.
Location: (registered address): ul. Mokhovaya 13, 125009 Moscow, Russia
As of April 1, 2016, assets of Sistema JSFC exceeded RUB 1,251 billion, the authorized capital was RUB 869 million. The Company's reports are audited by CJSC Deloitte & Touche CIS.
This press release refers to the Statement of assignment of a credit rating to Sistema JSFC based on the Credit Rating Methodology for Corporates (Issuers) and Financial Assets rev. January 23, 2014, including the amendments approved by the Methodology Committee on February 18, 2015.
AK&M Rating Agency assigned a credit rating to Sistema JSFC for the first time a credit rating on June 25, 2009. The last rating action was taken on June 7, 2015 All rating action announcements are available on the www.akmrating.ru website.
The rating is valid until July 2017. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Company's creditworthiness are revealed.
For estimation purposes, we completely rely on the reliability of information provided by the Company. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.
The rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion and shall not be construed as a recommendation to make any investment decisions.
AK&M Rating Agency shall not be held liable 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
Ul. Gubkina 3, Moscow, Russia
Phone no.: (495) 916-70-30, fax no.: (499) 132-69-18.