March 10, 2009 -
Victoria, BC, Canada – (March 10, 2009) – Carmanah Technologies Corporation (TSX: CMH) today posted 2008 revenues of $60.6 million including a 40% increase from strategic businesses, along with a strong operating performance prior to a non-cash write down of goodwill due to market conditions.
- Sales: $60.6 million for 2008, up 2% from $59.3 million in 2007
- Strategic sales of $34.1 million for 2008, up 40% from $24.3 million in 2007 (primarily from solar LED lighting)
- Tactical sales of $26.5 million for 2008, down 24% from $35.0 million in 2007 (due to the 2008 exit of transit & distribution, and late 2007 exit of home power tactical markets)
- Gross margin: 34.3% for 2008, up from 26.3% in 2007
- Goodwill and intangible impairment: $10.7 million for 2008.This impairment is non-cash and does not affect liquidity, cash flows from operating activities or impact future operations.
- Net income: $1.3 million (excluding the impact of the goodwill and intangible impairment charges) for 2008, compared to a net loss of ($6.9) million in 2007
- Adjusted EBITDA: $4.7 million for 2008, compared to ($7.6) million in 2007
- Positive cash flow from operations: $4.0 million for 2008, compared to $2.0 million in 2007
- Cash balance: $7.9 million as at December 31, 2008, up from $4.1 million at the end of 2007
- Nil debt: Continued debt-free operation
Fourth Quarter Summary
- Sales: $15.8 million for Q4 2008, up 21% from $13.1 million in 2007
- Strategic sales of $12.0 million for 2008, up 96% from $6.1 million in 2007 (primarily from solar LED lighting)
- Tactical sales of $3.8 million for 2008, down 46% from $7.0 million in 2007 (due to the 2008 exit of transit & distribution, and late 2007 exit of home power tactical markets)
- Gross margin: 33.8% for Q4 2008, up from 18.7% in 2007
- Net income: $0.8 million (excluding the impact of the goodwill and intangible impairment charge) for Q4 2008, compared to a net loss of ($2.7) million in 2007
- Adjusted EBITDA: $2.2 million for Q4 2008, compared to ($2.7) million in 2007
- Positive cash flow from operations: $2.2 million for Q4 2008, compared to $2.1 million in 2007
|To view full financials, click here.
Summary of Results
Throughout 2008, Carmanah reinforced its strategic focus, controlled costs, and increased its investment in relevant R&D to foster a stronger and more resilient business, said Ted Lattimore, Carmanah CEO. “We realized that some significant changes would be required to return the company to a more profitable footing; in 2008, we implemented those changes, exiting businesses that weren’t contributing, freeing up resources for those that were, outsourcing manufacturing, and streamlining processes. We secured strategic partnerships, increased our commitment to product research and development, and strengthened our worldwide distributor network. In my opinion, we are now in a very good position. We know where we’re going, and we have the technology and lean infrastructure to get us there,” said Lattimore. “We’re also fortunate in that our strongest products fill a vital need within some of the world’s most resilient markets. Even during a recession, security and safety remain paramount – industries require reliable and affordable lights and power, and Carmanah remains a trusted supplier to some of the world’s largest industrial customers,” added Lattimore. “With solar technology more attractive than ever, our technology is fast approaching the tipping point between industry innovation and widespread acceptance; in a world turning to solar power and solar-LED lighting, Carmanah stands out as a very bright light,” said Lattimore.
The company’s conservative financial approach combined with a focused management style has helped set the business on a firm foundation for future growth, according to Roland Sartorius, Carmanah CFO. “Our net cash balance has grown from a low of negative $2 million in 2007 to nearly $8 million in the bank (and no debt) at the end of 2008. The fourth quarter of 2008 also marks our fourth straight quarter of positive Adjusted EBITDA and cash flow results in a row,” said Sartorius. “Our strategic businesses, mainly driven by solar LED lighting, have grown by 40% this year. Although current market conditions have necessitated the write-down of goodwill. These non-cash charges do not impact current or future operations, but solidify our balance sheet even further. Overall I’d say we’re in great shape for the year ahead.”
Balance Sheet Highlights
Cash increased to $7.9 million as at December 31, 2008 from $4.1 million as at December 31, 2007 as a result of the Company’s focus on working capital management and generating cash flow from operations.
The main change in the Balance Sheet from December 31, 2007 to December 31, 2008, resulted in a $10.7 million write-down of Goodwill and Intangible Assets. This resulted in lower total asset and shareholder’s equity balances.
In April 2008, Carmanah entered into a new three-year $10 million committed revolving credit facility with the Bank of Montreal. This facility formally replaced the agreement held with the Royal Bank of Canada. The amount available is subject to certain covenants calculated on a quarterly basis and is secured by general security agreements. At December 31, 2008, the Company had not drawn on these facilities.
Overview of Operations
Carmanah designs, manufactures and distributes a range of energy efficient and renewable-energy technology. In 2008, the company was restructured around two business segments:
- Strategic: includes the primary business units of LED lights and beacons and solar power systems for industrial and grid-tie applications. These units represent the company’s main focus over the long term.
- Tactical: includes business units such as energy-efficient LED edge-lit signage and solar component distribution. These units are generally stand-alone growth opportunities.
This optimized structure reflects the Company’s emphasis on developing key revenue-producing activities, while accommodating additional complementary profitable opportunities within the company’s three technology groups: solar-powered LED lighting, solar power systems and LED-illuminated signage.
- The Solar LED Lighting Group provides a variety of energy-efficient LED lights and signals for marine, aviation, transit, roadway and industrial worksite applications, as well as an award-winning line of area lights for general illumination introduced in 2008.
- The Solar Power Systems Group offers a wide range of solar-electric power generators for industrial, residential and recreational power applications.
- The LED Sign Group designs and manufactures energy-efficient LED edge-lit signs for corporate identity, point of purchase and architectural applications.
At the end of June 2008, based on the results of our first quarter and market trends in both of our strategic and tactical segments, we announced a decision to further refine and accelerate our focus on our strategic direction. As a result, four major restructuring initiatives were announced, effective June 25th, 2008:
- Outsourcing the manufacturing for our core products to Flextronics Inc., a worldwide electronics manufacturing service provider. Offering unlimited access to assembly and distribution points around the world, this partnership is expected to help control costs and maximize the efficiency of our supply chain, while providing a flexible infrastructure for scalable growth. As a result of the outsourcing, we closed our main manufacturing facility in Victoria, British Columbia.
- Exiting of certain “tactical” business lines. As our solar component and solar-powered transit shelter lighting kits businesses were faced with increased commoditization and pricing pressures, we decided to further consolidate our operations and close our US solar component distribution business and warehouse operations. We closed our Santa Cruz facility during October 2008 and our Calgary, Alberta office and warehouse during November 2008. Administrative functions from the California and Alberta locations were moved to our headquarters in Victoria, BC.
- Restructuring our sales model – To increase the efficiency of our sales organization and improve customer service, we restructured our global sales force from a product or market vertical format to a regional geographic model.
- Simplifying our business processes and reducing our overhead and administrative costs – With the aim of increasing our operational efficiency and effectiveness, as well as further reducing our operating costs, we streamlined our organizational structure, reduced staff across various departments including the executive team, operations, marketing, and general and administrative departments.
In the fourth quarter of 2008, we highlighted the need to increase our investment into new generations of energy management building blocks that can be leveraged by our solar lighting and power systems products. In December, 2008, we opened a “Center of Excellence” energy management engineering office.
Carmanah maintains a global headquarters in Victoria, British Columbia, Canada, with manufacturing and distribution services outsourced to manufacturing services provider Flextronics International Ltd.
Results of Operations
Carmanah’s sales for the year ended December 31, 2008 were $60.6 million for 2008, up from $59.3 million in 2007. Sales for the fourth quarter of 2008 were $15.8 million; $2.7 million higher than the same period in 2007. A summary of revenues from each of the Strategic and Tactical business segments follows:
||Three Months Ended December 31
||Year Ended December 31
|– Solar LED Lights
|– Solar Power Systems
- Strategic Businesses: Sales were $34.1 million, up $9.8 million from the same period of 2007. Solar LED sales provided strong growth during 2008, with solar marine, aviation and obstruction beacons leading the way. This growth was offset by lower sales in Solar Power Systems, primarily due to some delayed shipments in 2008 and the fact that a significant grid tie project in Prince Edward Island was completed in the second six months of 2007. There were no such comparable large-scale projects in the same period of 2008.
- Tactical Businesses: Sales were $26.5 million, down $8.5 million from the same period of 2007. Signage business sales increased by $1.9 million due to a large order from a major US lottery customer. This increase was offset by lower sales within the distribution businesses as the Company starts to wind down its distribution warehouses in Calgary and Santa Cruz. Also, the prior year had included approximately $4.2 million of sales into the home power market, a market that Carmanah chose to exit due to the lower margins and increasing competition.
Carmanah offers product solutions to a variety of market sectors that carry different margins; as a result, gross margin can be significantly impacted by the sales mix. Overall gross margin for 2008 was $20.8 million, up from $15.6 million in the same period of 2007. As a percentage, overall margins increased from 26.3% in 2007 to 34.3% in 2008. This increase was primarily due to (1) a continued focus on lean manufacturing and supply chain management, and (2) increased sales of higher margin solar LED products, and decreased sales of lower margin home power and transit products which were exited at the end of 2007. In addition, there were significant inventory write downs associated with distribution inventory and foreign exchange losses that occurred in the second quarter of 2007 that were not repeated in 2008.
- Strategic Businesses: The gross margin increased by $5.8 million as a result of a larger percentage of sales from solar LED lights compared to the same period in 2007. Solar LED lights normally generate a higher gross margin compared to solar power systems.
- Tactical Businesses: The gross margin decreased by $0.6 million, although on a percentage basis gross margin was up 4.2% from prior year due to a greater percentage contribution from the signage business and initiation of price increases where possible.
Operating expenses in 2008, excluding restructuring and amortization totaled $18.2 million, $3.8 million or 17.1% lower than $22.0 million incurred in 2007. As a percentage of sales, our operating costs excluding the restructuring and amortization charges have decreased by 7.1% over the same period in 2007.
- Sales and marketing expenses were $2.2 million lower than the same period in 2007. This was primarily due to (a) lower sales and marketing salaries resulting from the restructuring, (b) lower commissions and (c) general cost reduction as we continue to apply a more focused approach to general corporate marketing initiatives, tradeshow and samples and shipping costs. As a percentage of sales, sales and marketing expenditures fell to 11.2% in 2008 from 15.2% in 2007.
- Research, development, and engineering expenses were $2.2 million net of SR&ED investment tax credits and a government grant, down $0.6 million from $2.8 million during the same period of 2007. Actual 2008 gross expenditures were $3.6 million, up from $3.4 million from the same period in 2007. As a percentage of sales, our net research, development, and engineering expenses decreased to 3.6% from 4.7% in the same period in 2007. The net decrease is due to the recognition of a $0.4 million government grant and the recognition of additional SR&ED credits previously unrecognized. These were offset by higher engineering expenditures which do not qualify for the SR&ED tax credit.
- General and administrative expenses declined to $9.2 million from $10.1 million in the same period of 2007. This decrease is primarily due to lower salaries and benefits resulting from the restructuring as well as overall tighter controls over discretionary spending. As a percentage of sales, general and administrative costs decreased to 15.2% in 2008 from 17.1% in 2007.
- Restructuring charge of $1.6 million is the result of several restructuring initiatives we announced, including outsourcing our manufacturing, exiting of our tactical distribution businesses, and simplifying and reducing the cost of our organizational structure. The restructuring charge is comprised of employee severances and terminations, and inventory write-downs. We expect that these initiatives will result in total restructuring charges of approximately $1.9 million. We expect the remaining $0.3 million will be charged to earnings over the first quarter of 2009. The timing of these charges will depend on management actions and applicable guidelines under Generally Accepted Accounting Principles (“GAAP”).
- Amortization expense was $1.4 million, which is $0.2 million higher than the same period in 2007. This was primarily due to changes made to the estimated useful lives of the underlying assets as a result of the recent corporate restructuring.
Non-operating costs totaled $8.7 million in 2008 versus $3.3 million in 2007. This increase is primarily due to:
- In the fourth quarter, we conducted our annual goodwill and intangibles asset impairment tests. We compared the fair value of the reporting units, determined on a discounted after-tax cash-flow basis, to their carrying value. As goodwill impairment test indicated that the carrying value exceeded their fair value, thus an impairment exists, and due to the recent fluctuations in the market and the uncertainties arising from overall economic conditions, we recorded a $10.1 million impairment to and write-off of goodwill. The write off of goodwill related to the remaining booked goodwill stemming from our 2003 acquisition of AVVA Technologies Inc. (now our LED signs group) and our 2005 acquisition of Soltek Powersource Ltd. (now our power systems business). In 2007, we recorded a $2.0 million write down of goodwill as a result of performing the same annual impairment analysis. The 2007 impairment of goodwill related to our 2003 acquisition of AVVA Technologies Inc. The goodwill and intangible impairment charges are non-cash in nature and do not affect our liquidity, cash flows from operating activities or debt covenants and will not impact future operations. At the end of December 2007, we recorded a $0.3 million gain on the sale of certain assets related to our residential home power business within the solar power systems group. The assets we disposed of primarily related to inventory, customer lists, and equipment.
- During 2008, we recorded a foreign exchange gain of $2.0 million compared to a loss of $1.5 million in 2007. These foreign exchange gains and losses arose on the translation of the foreign-denominated assets and liabilities. We minimize our exposure to foreign exchange fluctuations by matching US-dollar assets / revenues with US-dollar liabilities / expenses and where appropriate, by entering into forward contracts to buy or sell US dollars in exchange for Canadian dollars. The gain in 2008 and loss in 2007 was primarily due to the volatility of the US dollar relative to the Canadian dollar over the past two years. A significant portion of our sales and purchases are denominated in the US dollar. As at December 31, 2008, we had entered into a series of foreign currency forward contracts (CDN/USD) that provided for the purchase of $2.5 million at a rate of $1.148. The fair value of the forward contracts, estimated using current market rates as at December 31, 2008, is $0.2 million.
Income tax expense (recovery) for the year was $0.4 million compared with ($1.9) million for 2007. This amount consisted of current and future tax expense (recovery) of ($1) thousand (2007 – $0.3 million recovery) and $0.4 million (2007 – $1.6 million recovery), respectively.
Our effective tax recovery rate is (4.7%), which varies from the statutory rate of 31.0%. The primary difference is due to non-deductible stock compensation ($0.8 million), the write down of goodwill ($10.1 million), as well as revisions to the estimated tax rates utilized in the recovery.
For the quarter and year ended December 31, 2008, as well as the respective comparative periods in 2007, we are disclosing adjusted EBITDA, a non-GAAP financial measure, as a supplementary indicator of operating performance. We define adjusted EBITDA as net income before, interest, income taxes, amortization, restructuring charges, and goodwill and intangible impairments. We are presenting the non-GAAP financial measure in our filings because we use it internally to make strategic decisions, forecast future results and to evaluate our performance and because we believe that our current and potential investors and many analysts use the measure to assess our current and future operating results and to make investment decisions. It is a non-GAAP measure and it is not intended as a substitute for GAAP measures.
|Adjusted EBITA Reconciliation
||Three months ended Dec 31,
||Year ended Dec 31,
| Income taxes
| Goodwill and intangible impairment
| Restructuring charges
About Carmanah Technologies Corporation
As one of the most trusted names in solar technology, Carmanah has earned a reputation for delivering strong and effective products for industrial applications worldwide. Industry proven to perform reliably in some of the world’s harshest environments, Carmanah solar LED lights and solar power systems provide a durable, dependable and cost effective energy alternative. Carmanah is a publicly traded company, with common shares listed on the Toronto Stock Exchange under the symbol “CMH”. For more information, visit carmanah.com.
Carmanah Technologies Corporation
Chief Financial Officer
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Public Relations: David Davies
Forward Looking Statements
This release may contain forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “expects,” “plans,” “estimates,” “intends,” “believes,” “could,” “might,” “will” or variations of such words and phrases. Forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Carmanah to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties which are described under the caption “Note Regarding Forward-looking Statements” and “Key Information – Risk Factors” and elsewhere in Carmanah’s Annual Report for the fiscal year ended December 31, 2008, as filed on SEDAR at www.sedar.com. The risk factors identified in Carmanah’s Annual Report are not intended to represent a complete list of factors that could affect Carmanah. Accordingly, readers should not place undue reliance on forward-looking statements. Carmanah does not assume any obligation to update the forward-looking information contained in this press release.