Global Arab Network | Fitch affirms Tunisia-based electrical accessories manufacturer SIAME negative ratings

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Fitch affirms Tunisia-based electrical accessories manufacturer SIAME negative ratings

Global Arab Network - - Hannan Taha

Friday, 23 July 2010 13:22

Tunis_Societe_Industrielle_dAppareillage_et_de_Materiels_Electriques_SIAME

Tunisia (Tunis) - Fitch Ratings has affirmed Tunisia-based manufacturer of low- and medium-voltage electrical fittings and accessories Societe Industrielle d'Appareillage et de Materiels Electriques' (SIAME) National Long term rating at 'B(tun)'. Fitch has simultaneously removed the rating from Rating Watch Evolving (RWE), where it was placed on 29 October 2009 following the announcement of the acquisition of 53.7% of SIAME by a consortium of private investors led by Mohamed Hedi Ben Ayed. A Negative Outlook has been assigned. SIAME's National Short-term rating is affirmed at 'B(tun)'.

The ratings have been affirmed as Fitch considers the change in ownership to be rating-neutral. The company's persistently high leverage and weak interest coverage continue to weigh on the ratings, and although some credit is given to the new management's plans to progressively improve SIAME's operating profile and its prospects for free cash flow (FCF) generation after 2012 , it remains to be seen if these improvements will materialize and be sustained.

Liquidity has shown some improvement due to cash conservation measures, including positive working capital as a result of lower receivables, minimal capital expenditures and business divestments. These measures have helped reduce debt to TND4.3m from TND10.5m and improve the debt maturity profile. Other positive rating factors include a good local market positioning across the company's product categories, as reflected in its position as a major preferred supplier to STEG, the state-owned electricity and gas utility company, and strong brand recognition backed by a partnership with General Electric Power Control.

The Negative Outlook reflects Fitch's view that SIAME's credit ratios will remain under pressure over the next 18 months. Despite Fitch's expectation of progressive improvements in operating margins driven by planned price increases and further reductions in operating expenditure, revenue growth is expected to remain flat in 2010 on a like-for-like basis following the discontinuation of unprofitable product lines. Planned capital expenditure in 2011, estimated at TND2m-3m for new automated workshops is likely to leave the business in a negative FCF position, resulting in higher leverage. Fitch's central rating case projects low and negative FCF for 2010 and 2011 respectively, FFO interest coverage of 2.3x and 3.5x and a peak in FFO-adjusted net leverage of 5.4x and 5.6x.

SIAME's 2009 revenue declined to TND21.8m from TND24.2m in 2008 due to lower sales to STEG and weaker export sales. However, sales to the domestic private market have shown a sustainable growth to TND11.6m in 2009 from TND4.2m in 2006. SIAME's operating EBTIDA margin deteriorated to -1.8% in 2009 from 4.9% in 2008 whilst FFO fell to TND0.9m from TND1.8m. Although adjusted debt declined to TND10.7m from TND14.4m, leverage ratios remained high with FFO-adjusted net leverage at 4.9x.

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