In recovery plan, Carmanah narrows product focus

February 12, 2008
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Carmanah Technologies Corp. is finally on the cusp of a turnaround after a year’s decline that has seen the Canadian solar icon tumble into penny stock territory, the company’s new chief executive officer says.

Ted Lattimore, who took over the reins from former CEO Art Aylesworth last fall, said yesterday that with fewer product lines, and a close watch on expenses, the company will become profitable again as early as this year.

For 2007, however, Victoria-based Carmanah will report a pretax loss of about $10-million on revenue of between $58-million and $60-million, Mr. Lattimore said. Detailed results will be released on March 11.

Investor disappointment with a company that showed so much promise has depressed Carmanah stock from about $3.50 a share at the beginning of 2007 to below $1.

The 2007 loss, while directly stemming from the high dollar and excess inventory, was really caused by a diversification strategy that was too broad, Mr. Lattimore said.

In future, Carmanah will concentrate internationally on making solar-powered warning lights and beacons, along with solar-powered generators for telecommunications stations and other industrial purposes.

It will also work on developing large solar power systems connected to the power grid, but will keep this business within Canada.

Carmanah has already sold off its division that makes solar products for consumers, and has wound down the arm that designed custom lighting for bus shelters. Divisions that make LED (light emitting diode) signage, and distribute solar components, will be shunted out of the main corporate focus and put in the hands of entrepreneurial managers.

With that leaner structure in place, Carmanah should be able to capitalize on the “extremely positive” outlook for the solar sector, Mr. Lattimore said.

At the same time, the financial writedowns taken in the 2007 fiscal year mean “we don’t have any other skeletons in the financial closet,” he said.

He noted that the three top executives at the company – himself, chief operating officer Philippe Favreau and chief financial officer Roland Sartorius – have each been with the company for less than six months.

The new team’s message to investors is that “we have a plan,” he said. “This is a company that is planning its future on organic growth. `It` is going to be very successful just by running a business rigorously.”

While it is “tragic” that the company has taken such a fall in the view of investors, those who hang on for a couple more years “will be happy they did,” he insisted.

Sara Elford, an analyst with Canaccord Capital Inc. in Halifax, said she is confident that a turnaround has started at Carmanah under a refreshing new management attitude.

“I’m thrilled to hear that their strategy and focus is on discipline and profitability,” she said.

While many investors in solar stocks often want “quick gratification,” those who have patience could be well rewarded if Carmanah can deliver revenue growth and profits, she said. “These turnarounds, when they are successful, can often come very quickly,” and so investors should consider “pecking away” at the stock now.

McMurray Whale, an analyst at Cormark Securities Inc. in Toronto, is more cautious.

“They’ve presented a plan that is reasonable, but it is going to take some time to see how they are able to execute,” he said.

Most investors – particularly in current jittery markets – will likely feel the same way before jumping back into the stock, Mr. Whale predicts. “Investors have been disappointed with them, so now it’s wait-and-see mode, and that’ll take a few quarters.”

Carmanah Tech. (CMH)