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Tunisia : Fitch «pulls the alarm» for the Siame of Jamel El Arem.

The bad news persist for one of the companies of the Group El Arem (Jamel), the Siame, local equipment supplier, electric distribution, ùainly the energy counters, accessories for low and medium power and circuit disrupter.

The enterprise whose rate in the Stock Market is among the most instable and is even falling over a period of one year (Graph of Cofib), has been accumulating for some time low grades from its notation agency, which is disclosing, now, the management misbehaviour, which are the cause of its bad results résultats, according to the notation agency Fitch which published, yesterday Monday, November 24th 2008, another press release in this concern and raises a «deterioration of the financial profile » of the enterprise. A grade which arrives at he wrong moment, since the enterprise, quoted in the immobilized values of the Tunis Stock Market from 1999 with a float of 23%, already registered in its intermediary activity indicators, a decrease of 13 % in its revenues at the end of September 2008 (14,3 MDT against 17,2 MDT at the end of September 2007) and an adjusted debt which is increasing by 2,9 MDT (12,5 MDT against 9,6 MDT in the same period).

This last report maunly says that «Fitch Ratings has just decreased the long term notation of the Industrial Company of Equipment and Electric Materials  (Siame) of ‘BBB- (tun)’ (BBB minus (tun)) to ‘BB-(tun)’ (BB minus (tun)). The shorts term grade also decreased by ‘F3 (tun)’ to ‘B (tun)’. The prospect of the long term notation changed from Negative to Stable ». The notation agency then explains this notation.

Tight treasury, debt ratio deterioration and increasing debt.

«The lowering of the national grades of the Siame reflects the significant deterioration, according to the agency, in the operational and financial profile of the company. While the agency was expecting an improvement of endebtedness in 2008, the dividend distribution of about 1,5 MDT in a context of tight treasury contributed to the deterioration of the credit ratios. Consequently, the Siame debt increased in 2008while its financial flexibility was clearly reduced. Fitch expects the adjusted debt ratio/Ebitdar should reach 6,7 at the end of 2008 compared with 5,7 at the end of 2007. The persistent negative cash flow in a context of reduced financial flexibility and in the continuous absence of support from the shareholders will make the Siame strongly dependent on bank re-financing. The agency notes a growth of the financial guarantees in favour of the subsidiaries reaching 3,4 MDT at the end of 2007 (2,2 MDT at the end of 2006)».

Following this, Fitch clarifies his judgement by the stable prospects granted in the notation and explains that this difference «reflects the agency expectations concerning a stabilisation of the margins for the  Siame following the fall in the petrol prices and in the change rate euro/dollar. Besides, the projects of the Tunisian Company of Electricity and Gas (Steg) to increase the national production of electricity could provide the Siame with sales opportunities for the two coming years». Fitch wants to remain positive, all the more that the group and the business man running it is not lacking funds, as per his investment efforts in other sectors (mainly and to mention only one the profilé) and his continuous search of partnership.

There are good prospects, though.

Abunding in positivism, Fitch explains that «the grades of the Siame continue to reflect its diversified offer and its market position with the advantage of historical relations with the Steg. The Siame has also developed a privileged relation with General Electric Power Control (GE) and produces circuit disrupters and the brand GE since 2004. While the agency appreciates the Siame initiatives meant to reposition its offer, the agency expects to see the effects of this on the reinforcement of the company profitability in the coming years. The company has also developed a sub-contracting activity for some multinationals among which Sagem, Valéo, Tefal and Tyco.

The Siame revenues increased by 21% in 2007 and the exploitation margin evaluated by means of the ratio Ebitdar/revenue decreased to 8,5% after a slight increase to 9,8% in 2006. However, the net exploitation cash flow (NECF) recovered to 6,8% (3,7% in 2007) following better management of the need for operation funds. Besides, the coverage of the investment expenses by the NECF improved to 1,2x (0,3 in 2006). But free cash flow (FCF) remained negative by -1,4 MDT following dividend distribution of 1,9 MDT ».


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