Moody's присвоило рейтинг "В2" казахстанской компании RG Brands

/REUTERS, Лондон, 24.12.04/ - Международное рейтинговое агентство Moody's Investors Service присвоило в пятницу долгосрочный рейтинг "В2" казахстанской компании ОАО RG Brands, одному из ведущих производителей и дистрибьюторов натуральных соков и напитков в стране. Компании также был присвоен рейтинг эмитента на уровне "В3". Прогноз по обоим рейтингам - стабильный, говорится в сообщении Moody's. Ниже приводится оригинальный текст сообщения агентства Moody's на английском языке. MOODY'S ASSIGNS B2 SENIOR IMPLIED RATING TO OJSC RG BRANDS; STABLE OUTLOOK London, 24 December 2004 - Moody's Investors Service has today assigned a B2 senior implied rating to OJSC RG Brands ("RG Brands" or "the company"), one of the leading food manufacturers and household product distributors in Kazakhstan. Concurrently, Moody's also assigned a B3 senior unsecured issuer rating to the company. This is a first-time rating for the company. The outlook for all ratings is stable. SUMMARY RATING RATIONALE The B2 senior implied rating reflects (i) RG Brands' solid market position in the juice, carbonated soft-drinks, tea and milk market segments in Kazakhstan; (ii) the country's favorable macroeconomic environment; (iii) Moody's expectations that the food market will report double-digit growth during the next three- to-five years; (iv) the extension of the company's product portfolio coupled with their different seasonal patterns; (v) the long-term nature of the of the exclusive bottling agreement with PepsiCo, Inc. and Moody's expectations that the company will successfully increase its share of the soft-drinks market; (vi) RG Brands' own distribution network and its proven track record in retaining distribution contracts with a number of international consumer goods manufacturers and (vii) Moody's recognition of the company's strong although young management team. However, the rating also recognises (i) the company's significant working capital and capex requirements in support of its aggressive expansion strategy; (ii) a degree of execution risk associated with Moody's expectations that the company will be highly acquisitive going forward; (iii) the present limited size of a fast growing business associated with material revenues concentration in its domestic market; (iv) Moody's expectations of limited free cash flow generation and the need to strengthen currently weak cash flow-based debt protection measures over the medium term; (v) the likelihood of increasing pressure on operating margins due to rising marketing budget for advertising campaigns and in-store promotions as competition for shelf space is increasing coupled with limited barriers to entry mainly reflecting continued market growth and (vi) the need for RG Brands to continue to unwind its relationships with related parties and strengthen its corporate governance going forward. The stable outlook reflects Moody's view that the company, although weakly positioned within its rating category, will continue to strengthen its market position, improve its cash flow generation over time and minimize related parties transactions. In addition, the stable outlook reflects Moody's expectations that the company will use internal cash flow generation to fund most of its capex requirements going forward. There is likely to be upward pressure on the ratings if RG Brands successfully implements its growth strategy and is able to capitalise on this by consolidating its domestic market presence. Conversely, there is likely to be downward pressure on the ratings should RG Brands' fail to strengthen cash flow generation from operating activities and deliver on financial and operational expectations over the medium-term or should the company be unable to manage its rising working capital and capital expenditures requirements as the business continues to expand. KEY CREDIT POSITIVES RG Brands was established in 1994 as distributor for the Kazakh market of imported products. Since the company started its operations, RG Brands progressively shifted from pure distribution into production of its own brands of natural juices through acquisitions and contribution of assets from its parent company, Resmi Group. RG Brands' main focus today is the production of natural juices, carbonated soft-drinks, tea and long-life milk while distribution activity is expected to account for approximately one fourth of the consolidated revenues for the financial year ending December 2004. The ratings positively reflect RG Brands' solid market position in each of its market segments; in particular, in Kazakhstan, the company holds 22% share of the juice market, 16% of the soft- drinks market, 15% of the UHT milk market and approximately 13% of the tea market. Moreover, RG Brands' product offering mainly targets the young population (approximately 30% of the population in Kazakhstan is aged between 16 and 30 year old) which also benefits from the highest level of disposable income. Overall, Moody's expects the Kazakh food industry to continue to report double- digit growth over the next three- to-five years should the national economy maintain current growth rate. The food industry evolution is likely to take advantage of the country's favorable macroeconomic environment underpinned by the growing national petroleum industry, positive demographic trend, continued growth of disposable income and progressive shift towards more Western European consumer preferences. The Kazakh food market is still fragmented, increasingly more competitive and sophisticated although this is somewhat mitigated by high growth potential. RG Brands' market segments are likely to develop differently with limited market growth expectations in the tea business as tea consumption in Kazakhstan is one of the highest in the world while the juice and milk segments are expected to develop more positively. In Moody's opinion, the company is likely to grow faster than the market in each business division mainly reflecting (i) the company's cross-selling strategy within its vast product range and rising marketing expenditures, (ii) a well recognised portfolio of owned and franchised brands including Gracio and Da-Da for juices, Pepsi for soft-drinks, Nestle' for milk and Piala and Jenning for tea, (iii) a degree of pricing negotiation power with its customer base largely represented by small and medium stores, (iv) new product launches (i.e. iced tea, enriched juices and condensed milk) and packaging innovation (i.e. teabags, juice in PET bottles and "screw-cap" tetrapak) and (v) the company's distribution capability. The ratings also reflect the extension of the company's product portfolio which includes along with RG Brands' own and franchised product range, the distribution of a number of household products of highly regarded international manufacturers (i.e. J&J, SC Johnson, Henkel, Unilever, GSK, Nestle', etc.). In addition, in Moody's view, the product range may generate significant synergies as some production equipment can be used alternatively for juice and milk production in order to adjust peak of demand and the different seasonal patterns. Moody's recognises the benefit to the business of the long-term nature of the exclusive bottling agreement with PepsiCo, Inc. Pepsi represents approximately 16% of the soft-drink market in Kazakhstan while Coca-Cola controls one third of the market with the remaining 50% still held by local producers. The company is heavily investing in production equipment and supporting sales through in-store promotions and advertising campaigns. While Coca-Cola is likely to retain its market leadership, Moody's expects the company to gain market share from local producers going forward. The ratings also factor the strength of RG Brands' distribution network which is mainly organized around 19 distribution centers (of which one is located in Kyrgyzstan) directly controlled by the company. As market coverage increases, RG Brands has signed exclusive distribution contracts with local third-party sub- distributors; while this may limit the company's control of the distribution chain, RG Brands' will enjoy lower operating costs and reduced investments in distribution infrastructure and logistics. Moody's recognises that RG Brands' distribution capability is a key competitive advantage in a country of 2.7 million square kilometers and a population of approximately 15 million. The company has also proven its ability to successfully retain distribution contracts in exclusivity with a number of international household products manufacturers. While the company reports that they have never lost a contract, it is also very unlikely that the international producers would consider it viable to build their own distribution network given the country's geographic extension. Finally, Moody's views the management team as being supported by a clearly defined business strategy and approach to the market. The team mainly includes young talented people benefiting from international experience and seasoning. Moody's also notes that the executive management benefits from a number of incentives as part of their remuneration package. KEY CREDIT RISKS Moody's ratings also reflect material execution risks associated with the company's expansion strategy fuelled by (i) expected market growth over the near- to-medium term, (ii) RG Brands' aggressive marketing strategy on existing and new product offering and (iii) geographic market expansion. The success of the company's marketing strategy mainly depends on its ability to (i) retain and enhance its pricing negotiation power in a changing retailer environment, (ii) launch innovative products such as flavored milk, iced tea and new flavors for juices which grant a premium price and meet changing customers' preference, (iii) minimize product cannibalization and (iv) strengthen the level of service associated with sales and distribution. In Moody's opinion, RG Brands will face material working capital and capex funding requirements going forward to support the company's top-line growth, maintain a healthy utilisation rate of capacity and further strengthen its distribution capability in particular in conjunction with the introduction of short shelf-life products. In addition, Moody's cautions the risks correlated to the company's intention to progressively enter a number of markets in Central Asia which would require an upgrade of the company's controlling/accounting systems and IT infrastructure. While current investment plans would require significant cash burn, the ratings also reflect a certain level of flexibility afforded to RG Brands' management in curtailing capital expenditures if required. In addition, Moody's expects RG Brands to remain highly acquisitive over the near- to-medium term following the recent acquisition of Kosmis, the milk operations of Nestle' in Kazakhstan. The acquisition of the Nestle' plant in the northern region will also support RG Brands' strategy to expand its juice and milk business in Russia. Future acquisitions will be mainly pursued in market segments with significant growth expectations and possible synergies with the rest of the company's existing product portfolio. The ratings also factor the company's limited business size as Moody's expects the company to report approximately US$ 80 million revenues for financial year 2004 which is however representing an increase of more than 2.5 times compared to sales level recorded during prior year. In addition, we note the risks associated with current sales concentration in Kazakhstan as exports still account for a minimal proportion of RG Brands' consolidated sales. The rating also reflects material financial risks related to Moody's expectations of limited cash flow generation due to substantial working capital and capex requirements as well as weak cash flow-based credit metrics over the near-to- medium term. During financial years 2003 and through first half 2004, the company reported negative free cash flow mainly due to growing working capital requirements and higher cash interest payments. RG Brands' cash flow based credit metrics are currently weak as the company reported negative adjusted RCF/net debt and adjusted FFO coverage ratio for financial year 2003. For financial year 2004, Moody's estimates the company's lease-adjusted debt/EBITDAR to be between 3.0x and 3.5x. It is Moody's belief that future improvements in operating cash flow generation will heavily hinge on management's success in implementing stringent working capital controls and on the expected full recovery of other account receivables of financial nature which the company reports are collateralised by assets. As the food market environment in Kazakhstan is increasingly competitive reflecting limited shelf space, aggressive advertising and promotion campaigns and evolution of retail format towards supermarkets and large distribution chains, Moody's expects the company's operating margins to experience some pressure due to increased marketing expenses; this should be in part mitigated by the positive effect of recently launched cost reduction measures and better utilisation of the company's fixed cost structure. We also note that sustained market growth and positive macroeconomic trend make the Kazakh food market appealing to new entrants. The company's corporate governance and track record of transactions with related parties reflect Resmi Group's heavy involvement in RG Brands' operations. Major investment plans and financing decisions are decided at the Resmi Group level while the company's management has full power for investments and financing decisions representing no more than 10% of the company's equity capital. In addition, RG Brands has historically engaged in transactions with other entities within the Resmi Group related to its involvement in non-banking financial and investment activities. In Moody's view, these transactions represent one of the factors constraining the B2 rating at the current level; Moody's will derive increased comfort from the company's decision to unwind its relationships with those entities once such transactions have been minimised . STRUCTURAL CONSIDERATION The B3 senior unsecured issuer rating reflects the sizeable amount of secured debt present in the company's debt structure, be that in the form of capital leases, vendor financing or bank financing. In particular, Moody's acknowledges that the bank loans lent to the company by local and international banks are all secured against the company's fixed assets and inventories. Moreover, the rating reflects the overall weak credit protection measures embedded within the capital structure. COMPANY SUMMARY Headquartered in Almaty, Kazakhstan, OJSC RG Brands is a leading food producer in Central Asia. The company which is 100% owned by the Resmi Group, was established in 1994 and has rapidly grown through acquisitions. For the first half of financial year 2004, RG Brands reported under IFRS consolidated revenues and operating profit of KZT 4.7 billion and KZT 403.2 million, respectively. London David G. Staples Managing Director Corporate Finance Group Moody's Investors Service Ltd. JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 London Francesco Sebastiani Analyst Corporate Finance Group Moody's Investors Service Ltd. JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 [2004-12-24]