MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings for Globo Comunicacao e Participacoes S.A. (Globo):
--Foreign currency Issuer Default Rating (IDR) at 'BBB+';
--Local currency IDR at 'BBB+';
--National scale long-term rating at 'AAA(bra)'.
The Rating Outlook is Stable.
In addition, Fitch has also affirmed the ratings for the following Globo debt obligations:
--USD325 million perpetual unsecured notes at 'BBB+';
--USD200 million senior unsecured notes due 2022 at 'BBB+';
--USD300 million senior unsecured notes due 2022 at 'BBB+'.
KEY RATING DRIVERS
Globo's ratings continue to reflect its strong business profile, as the leading TV network in Brazil, as well as the largest programming provider for Pay TV operators domestically. The company's solid financial and liquidity positions are underpinned by continued positive free cash flow generation and a comfortable debt maturity profile.
Continued Strong Business Profile:
Globo business strength is supported by its extensive TV station networks in Brazil, through its five wholly owned TV stations, and its 117 affiliates that jointly cover approximately 99% of Brazilian households. The company's strategy continues to focus on the production of high quality content to align audience choices with advertisers, including top-rated prime time programming. This has resulted in leading audience shares throughout the years and has enabled Globo to maintain strong pricing power.
Attractive Advertising Trends in Brazil:
Globo's revenues have performed better than national GDP in recent years, reflecting TV broadcasting's position as the most important media in Brazil with approximately 60% of the national advertising budget. TV advertising is oriented to sectors with low volatility, such as consumer, retailing and financial services, and Fitch expects this to continue in the near future. Special events such as the 2014 World Cup and 2016 Olympics taking place in Brazil should support positive results during 2014-2016.
During the first nine months of 2013 the company's advertising revenues (69.2% of total revenues) grew 11% to BRL7.19 billion compared to the same period of 2012, based on higher sales volume and price adjustments. In addition, content and programming segment revenues (27% of total revenues) increased 19.9% in the same period to BRL2.81 billion, as a result of favorable trends in pay TV customers' subscriber base. Globo's total revenues for the nine-month period grew 13.8% to BRL10.39 billion and adjusted EBITDA 17.1% to BRL2.87 billion.
Growth Driven by Economic Activity:
Brazil's economic activity slowed down in 2012 as a result of global economic environment and softer commodity prices, among other factors. Brazil's advertising market continues growing in line with increased disposable income and consumer trends. During 2012 TV advertising grew close to 8%, above the 6% of the total advertising market; TV advertising and pay-TV subscribers are expected to continue showing positive trends as the Brazilian middle class strengthens and demands more products and services. Pay TV penetration has been growing in the past years to approximately 27% and still has room to capture additional subscribers, compared to other countries.
Solid Positive Cash Generation:
Globo's solid financial position is underpinned by its strong cash generation, which in turn has translated into robust credit metrics compared to its global industry peers. Fitch expects Globo to generate positive free cash flow (FCF) in the future as capex and dividend payments are expected to be covered with internal cash generation. For the LTM ended Sept. 30, 2013, Globo generated cash flow from operations (CFFO) of BRL2.9 billion, and capex and dividends of approximately BRL1.5 billion led to a robust FCF of BRL1.4 billion. During the same period, EBITDA of BRL3.6 billion continued to show a growth trend, with EBITDA margin of 25.4% in line with the last two years.
Ample Liquidity:
Globo has an ample liquidity position and an extended debt maturity profile. At Sept. 30, 2013, the company had a positive net cash position with BRL6.6 billion of cash and marketable securities compared with total debt of BRL1.9 billion. Globo's consolidated debt is mainly composed of USD500 million of senior notes due in 2022 and USD325 million of perpetual notes.
RATINGS SENSIBILITIES
Drastic Credit Metrics Deterioration: Globo's ratings could be pressured by qualitative and quantitative factors, including extreme negative operational results that could drastically affect the company's cash flow generation and credit metrics over time.
Country Ceiling and Industry Limitation: Positive rating actions are limited by Brazil's country ceiling of 'BBB+' and the industry's inherent risk profile.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology', Aug. 5, 2013;
--'National Scale Ratings Criteria', Oct. 30, 2013.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=809659
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