Carmanah Turns the Corner

Monday, June 2, 2008

There was a time when Carmanah Technologies or its CEO Art Aylesworth won every business award going, when the most striking feature of every annual report was a bar graph showing precipitously climbing sales, and when the only fly in the ointment was some muttering in the wings from analysts about an unimpressive return on investment.

The muttering grew as the small profits turned, in 2006, to small, then, in 2007, big losses.

But happy days are here again for the producer of solar-powered lighting: 2007 saw new people gradually fill the key leadership positions at the firm: the new team bit the bullet declaring one-time losses in the 2007 annual report and before the ink had dried had produced results for the first quarter of 2008 showing the first profit in six quarters.

It was just $83,000, but a big improvement on the $469,000-loss suffered in the first quarter of 2007. Better yet, said new CEO Ted Lattimore, it put Carmanah on target for a "transition year" of modest but positive earnings, and lay the foundation for increasingly brighter performances in subsequent years.

Lattimore had retired two years before joining Carmanah in October, after turning around a Romanian mobile phone company for its Montreal owner. Prior to that he worked for Bell. His arrival at Carmanah completed a new triumvirate whose other members are chief operating officer Philippe Favreau (who had held similar responsibilities for worldwide operations of Schneider Electric and Kodak) and Roland Sartorius, the chief financial officer, who had most recently been COO at Infosat Communications.

Lattimore says he was happily retired in Vancouver when informally asked about taking over Carmanah.

"I had been approached before a few times but nothing appealed very much," he told the BE. What made Carmanah standout? "Here was a company with the potential to do something pretty big in the area of alternative energy. The company had all kinds of young people with passion for doing something different."

It looked like a company at a classic transitional phase in its young life, from a gangling an awkward adolescent with all kinds of energy to a mature and well-organized operation that met the expectations of its shareholders.

"A company with sales over $50 million (which Carmanah surpassed in 2006) is very different from one that is under that. A company with more than 200 employees is very different from one that has only 50. And a company that sells a multitude of products is very different from one that offers just a few."

But the company had a large market potential, an excellent product line and a reputation just as good.

To achieve a turnaround, says Lattimore, "It needed real organizational skill."

The first thing he set about organizing was a process to develop the turnaround strategy and the first priority was making sure everyone was onside. "There are many ways a company can follow at this stage in its development that will all work," he says. "What's important is that everyone agrees on which way." So Lattimore surveyed his staff, his board and his customers.

What stood out from his staff survey was "their desire for change. That was very impressive."

Lattimore brainstormed for five days with 12 managers, six newcomers and six old hands, to produce a draft strategy, ran it by the board, took two days to produce a final version which the board viewed and approved.

The new model Carmanah was more focused and more prioritized. The old Carmanah had taken up too much of its management's time solving problems as they came up. "We would throw management against the issue until the next issue came up," without an eye to the item's importance. There were 12 product categories or "verticals" - undifferentiated in importance. A good metaphor, says Lattimore, would be to divide up General Motors into divisions, with one for seats and another for car bodies; such an arrangement would be disastrous overe the long term.

The new model has two categories: strategic and tactical. The tactical category comprises illuminated signage and solar panel distribution. The strategic covers solar paneled beacons and solar power production. Each provides about half the company's sales but the strategic items are those which Carmanah's team identifies as holding the company's future: where the greatest market potential exists for already developed products.

As for the tactical areas: "If we get some real entrepreneurs in there who can make them grow, that's great." But if they don't, top management won't be devoting huge gobs of its time there. "Now we are spending 80 per cent of our time on strategic areas and 20 per cent on the tactical."

Another way the new model is bringing focus is in product lines. A few years back Carmanah acquired Soltek Powersource, a small Victoria firm. In January it sold the home power division of that firm back to Soltek's developer, David Egles. "We were never going to make money on this," says Lattimore. "It needed an entrepreneur" who would devote unlimited energy to the project to make it grow.

Carmanah also had a part of its street sign business developing custom designs for customers: another money loser. Now it provides off-the-shelf solutions.

In its growth spurt earlier in the decade, the company built up an inventory of $20 million, The company has written off much of that that was obsolete and sold much it.

As a result of these changes, and an overall attention to cost reduction, Carmanah expects to break even in 2008 with roughly the same sales as in 2007 but with expenses much reduced. So far, so good. Over the first quarter, costs are down 10 per cent.

Moreover, the company is already implementing the part of the strategy that calls for partnerships that are truly complementary. It has just announced a deal with Ruud Lighting of Wisconsin for a new product that combines the American firm's outstandingly bright BetaLED line of lights with Carmanah's EverGEN solar power engine. Ruud will market the product.

"To take a company with so much potential and make it grow is inspiring to all of us," says Lattimore. "We're pleased with where we've taken it so far."