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Art courts a partner to inject cash in the group

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ART plans to bring in a technical partner in the battery unit who will inject approximately USD 2.0m to the group while management is also working on restructuring approximately USD 3.0m short-term debt and lower the average cost of debt to about 14%, analysts noted on Friday.

All these initiatives are expected to result in annualised interest cost savings of approximately US$ 1.2m. The three paper operations are also being consolidated.

The operations of the company have improved significantly although a bulging debt remains an overriding worry. The remaining operations are no longer hemorrhaging the group and any reduction in the debt cost will aid bottom line.

ART has so far reported a muted operating performance characterised by margin squeeze on increased competition.

Gross profit margins declined one percentage points to 32.5% while operating margins eased two percentage points to 6% pushing a 24% decline in operating profits.
Turnover was flat year-on-year on account of a 9% increase at both Chloride and Plantations, a 14% increase at Eversharp, offset by the significant decline in
the paper business. Although net profit growth was good at 17% y-o-y, this was driven by a tax credit of USD 0.2m.

All units were profitable except the paper business that posted a loss of approximately USD 0.2m as volumes and margins declined by 14% and 5%, respectively. The plantations reported a PBT of USD 0.3m, although it is lower than that for the prior period due to a USD 0.1m loss on account of the fire incident.

Cash generation improved with net cash generated from operations turning positive. Net finance charges reduced by 13% to USD 0.9m, although they remained high. The operating cash flow represented a cash interest cover of just 0.3x. Although net gearing reduced to 71% from 81% at year end, it remained untenable. The group reduced debt by USD 1.0m utilising funds from the Zambian asset disposal.

The counter is trading under cautionary regarding the negotiations to bring in a technical partner. Analysts on Friday recommended a hold on this counter.

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