Press Releases / 08.04.2013

Press Release as of 08.04.2013

Sistema JSFC

AK&M Rating Agency affirmed the ‘A+' credit rating (positive outlook) assigned to Sistema Joint Stock Financial Corporation (Sistema JSFC) as per the national scale.

The ‘A+' rating indicates that JSFC Sistema qualifies as a highly reliable borrower. Risk of a delay in meeting liabilities is insignificant.

We appreciate the Company’s ever stronger consolidated revenue and net profit position, growing return ratios, increasing assets and equity capital, as well as a recent downward trend in the amount of loan debt, favorable debt profile and smart business diversification as the essential arguments for the rating of Sistema JSFC.

For three quarters 2012, consolidated revenue of Sistema JSFC as per US GAAP was USD 24.3 billion. Over the 12-month period ending on September 30, 2012, Sistema JSFC consistently increased its consolidated quarterly revenues, which largely contributed to a favorable 9-month financial result: net profit of Sistema JSFC for January-September 2012 was almost 3.5 times above its full-year 2011 profit.

For January-September 2012, return on assets (ROA) of Sistema JSFC increased to 1.65% from 0.50% in 2011, return on equity (ROE) to 5.36% from 1.56% in 2011, return on sales (ROS, operating profit margin) rose to 8.26% from 6.21%, net profit margin went up to 3.01% from 0.66%, return on invested capital (ROIC) was 2.89% against 0.73% in 2011, while EBITDA margin reached 21.19%, topping the 2011 result (20.90%). The growing return ratios indicate that Sistema JSFC’s operations are increasingly profitable.

In 2012, Sistema JSFC increased its consolidated assets and equity capital benefiting from its growth and business expansion. For 9 months 2012,consolidated assets of Sistema JSFC increased by 5.4%, equity capital grew by 9.9%.

The Company’s debt burden is declining. According to Sistema JSFC’s consolidated US GAAP report for three quarters 2012, its financial liabilities (credits and loans) decreased by almost 1.6% against 2011 to USD 16.2 billion. As of the end of the third quarter 2012, Sistema JSFC kept its loan debt to revenue ratio (0.50), equity to debt ratio (0.53) at 2011 levels. Interest coverage ratio (the ratio of EBIT to interest payments) for three quarters 2012 increased from 2.07 to 2.77, contributing to the rating score.

We acknowledge that the company’s incomes ensure full, comfortable and timely discharge of all its obligations. Sistema JSFC’s available financial capacities are several times above its scheduled loan debt service payments due in the coming annual period. Sistema JSFC’s retained earnings alone as of the last reporting date totaled USD 6.95 billion.

The favorable debt profile also supports the rating score. Long-term loans, the most reliable funding source in the way of investment activities, account for most of JSFC Sistema’s portfolio (72%), which reduces the short-term debt burden and improves the Company’s financial position. Besides, the share of loans denominated in Russian rubles is going up (from ca. 60% in 2009 to over 71% at the end of the third quarter 2012), which cuts down the Company’s foreign currency-related risks amid the financial market turbulence.

Another positive signal for JSFC Sistema’s rating is the diversity of its business activities. The companies controlled by JSFC Sistema are engaged in various sectors: telecommunications, fuel and energy, banking, trade, high technologies, medicine and other sectors. This diversity moderates volatility of cash flows and increases immunity against industry-specific risks.

At the same time, the persisting debt burden, slower equity turnover, natural dependence on the macroeconomic environment and negative cash flows generated by some of Sistema JSFC companies are working against its credit rating.

Despite the apparent positive downward trend in the Company’s loan debt, the remaining debt burden of Sistema JSFC exerts pressure on its rating. In particular, the debt to equity ratio rose from 2.15 to 2.23 for 9 months 2012.

Another negative point is the slower turnover of capital (including equity capital) in 2012.

As long as Sistema JSFC acquires and sells expensive investment assets, it is naturally susceptible to the macroeconomic environment which has a considerable impact on the risks of such large-scale stock transactions.

Several companies in Sistema JSFC’s business structure are generating negative cash flows, another argument against the Company’s rating. For 9 months 2012, OJSC RTI, OJSC Sistema Mass Media, OJSC MTS-Bank and Sistema Shyam TeleServices Ltd. posted net losses, affecting the incomes and profitability of the financial corporation as a whole.

Established 1993, Sistema JSFC is the largest public 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, travelling and healthcare to more than 100 million consumers. In recent years, Sistema JSFC has evolved from being an operational holding company to employing an investment fund model. According to Sistema JSFC’s consolidated US GAAP report, the Company’s assets at the end of Q3 2012 amounted to USD 46.2 billion, equity capital totaled USD 14.1 billion.

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Full name: Sistema Joint Stock Financial Corporation.

Short name: Sistema JSFC.

This press release is based on the statement of assigning a credit quality rating to Sistema JSFC.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company’s credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities.

CJSC 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.

CJSC AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC 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), and the MICEX (as a prerequisite for including bonds in the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation base and for listing bonds). By a resolution of Russia’s GovernmentAK&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
Press release by: A.G. Chumachenko
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18