TEXT - Fitch revises Hurriyet Gazetecilik ve Matbaacilik A.S. outlook
Nov 14 - Fitch Ratings has revised the Outlook on Hurriyet Gazetecilik ve Matbaacilik A.S. (Hurriyet) to Positive from Stable and affirmed its Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B+'. The agency has also affirmed Hurriyet's National Long-term rating at 'A(tur)' and revised its Outlook to Positive. The ratings reflect the company's leading market position in the newspaper segment but still high FFO adjusted net leverage at YE 2012 of 4.5x. The Positive Outlook reflects Fitch's expectation that this will substantially reduce in 2013, mainly from the sale of real estate. Hurriyet's Long-Term IDRs are at the same level as the IDRs of its parent company, Dogan Yayin Holding AS (DYH, 'B+'/Positive), in line with Fitch's parent and subsidiary rating linkage criteria. DYH and its flagship newspaper have an established strong rating linkage as DYH guarantees Hurriyet's bank debt. (DYH holds 67% of Hurriyet). There has been a structural trend of falling circulation and declining share of newspapers in local advertising market spending relative to television and the internet. Fitch expects this to continue as the internet increases its share of advertising spending to 20% by 2016. The same trends apply to TME, which has also experienced a structural decline in operating margins due to price-based competition and the negative impact of the internet. TME's revenue has suffered significantly due to elevated competition from online classifieds and the stabilisation of the business is the main concern in the medium term. TME faces direct competition from the internet, mainly in the lucrative Moscow region where EBITDA is nearly breakeven at H112. Hurriyet's strong free cash flow (FCF) generation capability is hindered by falling EBITDA margins due to rising newsprint prices and falling circulation, as a result of the structural decline in the print business as well as the pressure on the EBITDA of its main subsidiary, Trader Media East (TME). However, the company is still able to generate significant free cash flow due to low capex requirements and positive working capital. Hurriyet's maturities are concentrated in 2013 and 2014 at USD154m and USD64m, respectively. The group's consolidated cash position of USD50m at H112, expected proceeds from the sale of its real estate and annual FCF generation capability are adequate to offset any liquidity needs by end-2014. WHAT COULD TRIGGER A RATING ACTION? Positive: Future developments that may, individually or collectively, lead to positive rating action include: - Exposure to DYH group-wide risks is a significant credit constraint on Hurriyet due to the strong rating links between the company and DYH. Consequently, an upgrade of DYH's rating would have direct implications for Hurriyet's ratings. - A reduction of FFO adjusted net leverage to 2x supported by FCF and higher EBITDA margins, and a turnaround of TME through its online strategy would also be positive for the standalone ratings, but it is already captured in the current rating. Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Exposure to DYH group-wide risks is a significant credit constraint on Hurriyet due to the strong rating links between the company and DYH. Consequently, a downgrade of DYH's rating would have direct implications for Hurriyet's ratings.
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