MOSCOW (Standard & Poor's) Nov. 15, 2010--Standard & Poor's Ratings Services said today that its rating on Russian cosmetics producer and distributor Concern Kalina (JSC) (national scale rating 'ruA-') remains unchanged after the company's announcement of the sale of its 100% stake in German cosmetics company Dr. Scheller Cosmetics AG to Coty Inc. (not rated) for an undisclosed
amount. Dr. Scheller contributed about 30% of Kalina's sales, but less than 10% of EBITDA prior to the spin-off. We understand Kalina will decide how to use the proceeds at a later date. In our view, Kalina's cash flow protection measures will likely remain commensurate with the rating after the
transaction, with debt leverage remaining below our guideline of 3x, even if Kalina doesn't use proceeds for debt repayment, which is one of the options it is considering. We also see the liquidity position being unaffected by the sale, because Kalina is gradually reducing the share of short-term debt in total debt and lengthening its debt maturity profile to offset lost undrawn bank lines available to Dr. Scheller. We consider the transaction's impact on the business risk profile to be marginal, given the low cash flow contribution of the German subsidiary to Kalina's overall business. The spin-off is in line with Kalina's strategy to focus on skin care and exit decorative cosmetics.
Standard & Poor's will monitor further developments and possible changes in Kalina's financial policy.