15 November 2016

Kalashnikov Group obtained A+ credit rating


The Kalashnikov Group which is incorporated in the State Corporation Rostec has obtained the A+ (long-term) credit rating assigned by the RAEX (Expert RA) rating agency. Accordingly, the company is defined as “highly creditworthy”. The credit outlook is updated to Stable, which means that the possibility to increase the rating index can be achieved in a medium-term perspective.

The key factors that had a significant impact on the level of rating include moderately high liquidity indicators (according to the accounting report dated 30 June 2016, absolute, quick, and current liquidity ratio figures were 0.01, 0.28 and 0.67; rates adjusted for creditor indebtedness accounted for 0.03, 0.52 and 1.24 respectively), low level of total debt load (the debt as at 30 September 2016, with the exception of a subordinate loan and taking into account the operating leases, to EBITDA for the period from 30 June 2015 to 30 June 2016, amounted to 1.05, taking into consideration that planned debt-to-EBITDA for 2016 ratio will amount to 2.06 which is lower than the fixed debt convenants), and low level of debt burden (interest expense in terms of unselected subordinate loan limit) within 12 months to EBIDTA for the period from 30 June 2015 to 30 June 2016, amounted to 0.09 and 0.42, to planned EBIDTA for 2016 = 0.14 and 0.62).

The report also highlights moderately high level of profitability (for the period from 30 June 2015 to 30 June 2016 without evaluation ROA = 13.8%, ROE = 45.6%, ROS = 19.4%, EBITDA profitability = 27.8%, at the end of 2016 the EBITDA margin is expected to amount to 16.5% (for 2015 = 17.3%), high level of predictive liquidity (for 30 June 2016, this coefficient amounted to 2.26), and high level of strategic planning. Analysts also note high reliability of the insurance cover (the property of the company is insured against risks of loss in the insurance company featuring the RAEX A++ credit rating), high business volume (in 2015 profit of the company increased by 180% comprising 8.2 bn rubles, in 2016 the company expects a growth of 110% up to 17.4 bn rubles; negative EBIDTA in 2014 rose to 1.4 bn rubles in 2015 and is expected to amount to 2.9 bn rubles in 2016), independence from the supplier (the supplier costs came to 13.4% of total costs in 2015) and broad sales diversification (30% of company’s revenue is generated by export sales). 

“The Group plans to prepare the IFRS report which will make it possible to evaluate the consolidated financial statement of the company. The agency expects that the state order as well as a number of export contracts will be executed in due time and that the relations with suppliers relations will normalize which is reflected in the positive rating outlook”, Pavel Mitrofanov, the RAEX (Expert RA) Managing Director for Corporate Ratings said.

“Financial stability is the determinant of the successful development of the company. The high rating confirms the reliability of the Kalashnikov Group as a business partner and improves the transparency to contractors and investors”, the Kalashnikov Group CEO Alexey Krivoruchko said.

The constraining factors included the low level of coverage of available short-term liabilities with assets adjusted for risks (stress liquidity coefficient amounted to 0.94 as at 30 June 2016; providing the receivables adjustment for future reservations, the working capital would be negative and amount to 2.1 bn rubles), low level of the  financial disclosure (since 2016 the company has not have its annual report published), and overdue debts. The rating values are also influenced by the moderate exchange risks (30% of the company’s revenue comes in foreign currency while the expenses are typically denominated in rubles) and the low level of business diversification (the share of civil products in total income is remarkably lower than the share of military products).

The Kalashnikov Group is a manufacturer of small arms, sports and hunting rifles, aircraft guns, highly précised guided projectiles, and other products and tools including those designed for military use. The volume of company’s assets as at 30 June 2016, amounted to 22.8 bn rubles, the company’s capital - 9 bn rubles, company’s revenue for the period from 30 June 2015 to 30 June 2016was 16 bn rubles, EBIDTA and the net profit amounted to 4.4 and 3.5 over the same period.