modeFinance Monthly Overview: October 2011

Monthly Overview: October 2011

modeFinance Monthly Overview October 2011

In order to give a financial and economic overview of miscellaneous companies from different countries, modeFinance analysts executed a monthly study regarding the calculated ratings.

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Monthly Overview: October 2011 How many companies?

Country

Russian Federation Romania Spain Italy United Kingdom France Norway Sweden Estonia Serbia Others TOTAL

In October, 2011modeFinance calculated 2,256,884 ratings based on 2010 annual financial statements in 93 countries across the world. In the table of ratings by country (Tab.1), the first 10 countries with the number of the ratings which are evaluated by modeFinance using MORE rating technology (please see the details here) are presented.

Number of evaluated ratings

Mean Rating

596,549 487,427 256,836 213,087 124,578 92,118 67,067 57,775 54,696 53,656 253,095 2,256,884

B B B B B BB BB BB BB B BB B

Tab 1 the first 10 countries in terms of number of evaluated ratings in October 2010

Number of companies 700.000 600.000 500.000 400.000 300.000 200.000 100.000 0

Fig 1Distribution of evaluated companies

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Monthly Overview: October 2011

How much is the Total Turnover?

In October, 2011the value of the sum of the Total Turnover of the rated companies is 7,387,131 million Euros. The distribution of the Total Turnover for the rated companies is shown if the following graph.

Number of companies 10.000.000 1.000.000 100.000 10.000

1.000 100 10 1 Turnover < 5'000 (th Euro)

The evolution of ROI and ROE?

5'000 < Turnover < 50'000 (th Euro)

Turnover > 50'000 (th Euro)

On the evaluated companies, a statistical study of the distribution of ROI and ROE during the observed years (2008-2009-20010) is executed.

4,50% 4,00%

3,50% 3,00% 2,50% ROE

2,00%

ROI

1,50% 1,00% 0,50% 0,00% 2008

2009

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2010

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Monthly Overview: October 2011

The evolution of the debts?

Using the Leverage Ratio it is possible to understand the evolution of total debts during the years.

2010

0,0-2,0 2009

2,0-5,0 >5,0

<0,0 2008

0%

20%

How many companies with profits or losses?

40%

60%

80%

100%

In the following graph it is possible to understand the evolution of Profit&Loss during the years in our study.

100% 90% 80% 70% 60% 50%

P/L >= 0

40%

P/L < 0

30% 20% 10% 0% 2008

2009

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2010

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Monthly Overview: October 2011 And what about the corporate credit rating?

To understand the trends in ratings over the years, the comparison among 2008, 2009 and 2010 performances are exhibited in the following graph. Thanks to the comparison among years it is possible to observe the trends in the ratings within the years. The first figure shows the distribution of the three yearsâ&#x20AC;&#x2122; rating results; in addition to this the aggregated classes of ratings can be observed in the second figure. (The aggregated classes are Healthy, Equilibrated, Vulnerable and Riskyplease see the Appendix).

25,0%

20,0%

15,0% Rating 2008 Rating 2009

10,0%

Rating 2010 5,0%

0,0% AAA AA

A

BBB BB

B

CCC

CC

C

D

40,0% 35,0%

30,0% 25,0%

20,0% 15,0% 10,0%

5,0% 0,0%

Healty (AAAAA-A)

Equilibrate (BBB-BB)

Vulnerable (B-CCC)

Risky (CC-C-D)

Rating 2008

18,9%

34,9%

29,0%

17,2%

Rating 2009

17,3%

33,5%

29,5%

19,8%

Rating 2010

17,1%

33,0%

29,3%

20,6%

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Monthly Overview: October 2011 And what about probability of default?

It is interesting to check the evolution of the mean probability of default evaluated on every companies with 2010 data. This month the modeFinance Risk Index is 0,1075.

modeFinance Risk Index 0,12 0,1

0,08 0,06 0,04

modeFinance Risk Index

0,02 0

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Monthly Overview: October 2011 Which company had the best rating in October?

The top ten companies with the best ratings (according to the available data in October 2010) are exhibited in Table 2.

The companies were selected from the global database, hence they represent different countries.

Company name DANONE, SA

Country

Rating

Spain

AAA AAA AAA AAA AAA AAA AAA AAA AAA AAA

CONTINENTAL MABOR - INDUSTRIA DE PNEUS, S.A.

Portugal

SOUZA CRUZ OVERSEAS, S.A. (ZONA FRANCA DA MADEIRA)

Portugal

SATURN

Russian Federation

LOLLAND SA

Spain

ENERGOTRANS, A.S.

Czech Republic

SUN FOOD INTERNATIONAL CO LTD

Thailand

SANTILLANA EDUCACION SL

Spain

KPMG SP. Z O.O.

Poland

JUST ITALIA S.R.L.

Italy

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Monthly Overview: October 2011 The best company in October, 2011: modeFinance Credit Report

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Monthly Overview: October 2011

APPENDIX MORE rating guide General vision A credit rating is an opinion of the general creditworthiness of an obligor (issuer rating), or the creditworthiness of an obligor in respect of a specific debt security, or other financial obligation (issue rating), based on relevant risk factors.

The Multi Objective Rating Evaluation (MORE) model is essentially used to assess the level of distress of industrial companies by using data included in financial statements.

The basic idea of the model is to analyze a set of financial and economic ratios in a predictive corporate bankruptcy model with the purpose of creating a fundamental credit rating model for each industrial sector.

Results of the model are obtained by applying newly developed numerical methodologies, drawing together financial theory, data mining and engineering design methodologies. The heart of MORE is a multi dimensional and multi objective algorithm that produces a classification of each company, by taking into account any attributes (such as sector and country) characterizing a firm.

The model gives the opportunity to assign a rating to a company even without considering a complete data analysis and allows to process quality information. It induces a better understanding of a companyâ&#x20AC;&#x2122;s strength and weakness thanks to sophisticated data mining tools and taking into account the analystsâ&#x20AC;&#x2122; knowledge.

The MORE rating vision is to look at the fundamental economics of the company. The main idea is to evaluate the rating observing every aspect of the economical and financial behavior of the company: better is the equilibrium between the different aspects, better will be the final rating.

This is done studying, evaluating and aggregating the most important sections of the financial and economic behavior of a company as: profitability, liquidity, solvency, interest coverage and efficiency.

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Monthly Overview: October 2011

Rating scale Rating class

Rating Macro class

The company's capacity to meet its financial commitments is extremely strong. The company shows an excellent economic and financial flow and fund equilibrium

AAA

AA

Assessment

Healthy

The company has very strong creditworthiness. It also has a good capital structure and economic and financial equilibrium. Difference from 'AAA' is slight The company has a high solvency. The company is however more susceptible to the adverse effects of changes in circumstances and economic conditions than companies in higher rated categories

A

Capital structure and economic equilibrium are considered adequate. The company's capacity to meet its financial commitments could be affected by serious unfavourable events

BBB Equilibrated BB

A company rated 'BB' is more vulnerable than companies rated 'BBB'.

Furthermore the company faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions

B

The company presents vulnerable signals with regard to its fundamentals.

Adverse business, financial, or economic conditions will be likely to impair the company's capacity or willingness to meet its financial commitments Vulnerable

CCC

The company shows signals of high vulnerability. In the event of adverse market and economic conditions, the company's strong disequilibrium could increase

CC

C

D

A company rated 'CCC' has a dangerous disequilibrium on the capital structure and on its economic and financial fundamentals. Adverse market events and an inadequate management could affect with high probability the company's solvency

Risky

The company shows considerable pathological situations. The company's capacity to meet its financial commitments is very low The company has not any longer the capacity to meet its financial commitments

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Monthly Overview: October 2011 Fundamental Credit Rating Ratios Solvency ratios Leverage ratio Assets to debt Financial ratios Fixed Assets coverage ratio

Measures the level of total liabilities of the company in comparison with equity Indicates companyâ&#x20AC;&#x2122;s solvency. The company shows a level of deficit when the value of this ratio is under one unit Only for holdings. It measures the capital structure i.e. whether a company covers the fixed assets with long term capital.

Liquidity ratios Current ratio Quick ratio Profitability and economic ratios Return on Investment (ROI) Return on Equity(ROE) Asset turnover

Profit margin Interest coverage ratio Interest Paid coverage

The current ratio measures whether a company has sufficient short-term assets to cover its short-term liabilities.

The quick ratio compares current liabilities only to those assets that can be readily turned into cash.

It measures the profitability of company investments without regard to the way the investment is financed.

It measures the profitability of the equity.

It indicates the investments turnover with regard to sales. The level assumed from the ratio depends on the sector in which the company operates.

It indicates the profitability of the sales.

Indicate the ability of the company to cover interest expenses through the economic margins (Gross profit and EBIT) and through the cash flow from operating activities.

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Monthly Overview: October 2011

mF Credit Limit mF Credit limit is the estimation of the amount of maximum credit that is possible to assign on a commercial relationship with the analyzed company with an outlook of one year. modeFinance used the following values associated with the company analyzed while computing the credit limit:

Size; Years in Business; Average number of suppliers; Liquidity of the company and the comparison with its sector;; The funds dedicated to be paid to suppliers; The likelihood that a company October pay its debts in the next 12 months (MORE Ratings).

The credit limit in this report is merely a suggested value of commercial credit limit calculated on the basis of annual public data. This value should be reviewed by paying attention at the Confidence Level value and by using other information such as other business information, news... etc; and private information such as the relationship with client, history of payments, guarantees andthe knowledge of the sector.

Probability of default and Confidence Level In addition to the MORE rating, modeFinance also estimates the probability of default and provides a level of confidence. The probability of default is the degree of certainty (in quantitative terms) that the company will go into default.

As the probability of default is strongly affected by the economic climate the company is operating in, companies in the same MORE class will not necessarily have the same probability of default.

The MORE model can produce a MORE rating even if there is missing data by using an associated confidence level:

Co n fid en ce

Ava ila b leIn fo rma tion To ta lIn fo rma tion

The level of confidence does not indicate financial confidence in the company. It is a reflection of the variations in availability of financial data across Europe due to filing regulations and suggests the degree of financial detail the MORE rating is able to take into account for each company.

For companies with fully populated records a confidence level of 100% would be applied: companies where no financial data is provided, 0%. This puts the MORE rating in a context for the user and aids interpretation. modeFinance AREA Science Park Padriciano 99 34012 Trieste ITALY

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Monthly Overview: October 2011

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