Victoria, BC, Canada – (March 11, 2008) – Carmanah Technologies Corporation (TSX: CMH) today announced its financial results for the years ended December 31, 2007 and 2006.
Highlights for 2007
- Sales of $59.0 million for 2007, down 5.1% from $62.2 million in 2006
- Gross margin of 26.4% for 2007, down from 32.6% in 2006
- Net loss of ($8.9) million for 2007 compared to ($0.4) million in 2006
- EBITA of ($9.6) million for 2007 compared to $1.6 million in 2006
- Positive cash flow from operations of $2.0 million, compared to a negative operating cash flow in 2006 of ($8.4) million
- Ended the year with net cash of $4.1 million
Summary of Q4 2007
- Sales of $13.0 million for the quarter, compared with $16.2 million in same period in 2006
- Gross margin of 18.8% for the quarter, down from 28.2% in same period in 2006
- Net loss of ($4.6) million for the quarter, compared to ($0.8) million in same period in 2006
- EBITA of ($4.6) million for the quarter, compared to ($0.4) million in same period in 2006
- Positive cash flow from operations of $2.1 million in the quarter, compared to a negative operating cash flow in 2006 of ($3.8) million
- Ended the quarter with net cash of $4.1 million
Executive Overview
According to Ted Lattimore, Carmanah’s new CEO, 2007 was a year of transition, replete with challenges that helped the company assess its strengths, and sharpen its focus for a more disciplined and profitable year ahead. “Over the past few months we’ve implemented some very positive changes: we’ve narrowed our focus, streamlined processes, controlled costs, and eliminated bank debt. As part of a comprehensive 100-day planning process, we’ve identified where we want to be, and developed the strategy to get us there,” said Lattimore. “Despite some initial inventory challenges, and the pressures from a significant increase in the Canadian dollar throughout the year, we’ve strengthened our financial position, improved cost and working capital management, and made progress toward a return to profitability,” said Lattimore. “I believe Q4 2007 marks a turning point for Carmanah – a point from which we can review how far we’ve come, learn from the challenges of the past, and build a strategy to guide us to the next level,” added Lattimore. “In Q4 2007, our new executive team performed a detailed review of our strategic direction, and developed a strategy that realigns our market verticals, and re-focuses our attention on those activities that are key to the company’s long-term success. I am very confident in the direction we have charted, and in our ability to reach our goals in 2008 and beyond.”
Roland Sartorius, Carmanah CFO, described some of the hurdles the company faced in 2007, a year that mainly combined unfavorable foreign exchanges rates and surplus inventory challenges, to result in an $8.9 million net loss for the year. “We’ve effectively addressed these matters, and fortunately, a large part of this loss was attributable to items that are not expected to reoccur,” explained Sartorius. “On the matter of foreign exchange, the strengthening Canadian dollar during the year impacted net pre-tax income by approximately $5.5 million. We estimate our top-line revenue was reduced by about $4.0 million as a significant amount of our sales are denominated in US dollars. We also incurred about $1.5 million in foreign exchange losses on our foreign denominated working capital. At the end of 2006, we had also built up a significant amount of inventory in anticipation of sales growth and expected shortages for raw materials (such as solar panels) which subsequently did not occur. To clear this excess inventory and reduce our non-cash working capital, we provided higher discounts on a variety of our products during the year which ultimately contributed to our overall lower margins. We also incurred one-time inventory write downs and adjustments, so that we could put the surplus inventory issue behind us,” explained Sartorius. “Finally at year end, we wrote off $2.0 million of goodwill associated with our 2003 acquisition of AVVA Technologies Inc. The write down was primarily the result of changes in our overall strategic direction. Overall, we’ve been very successful in addressing each challenge, ending the year with a strong balance sheet, and creating a solid platform for an exciting future of steady, strategic growth,” added Sartorius.
Balance Sheet Highlights
Net cash, cash equivalents, and short-term investments at December 31, 2007 were $4,1 million, compared to $2.3 million at December 31, 2006, while net working capital was $19.1 million (current ratio of 3.4:1) at December 31, 2007 compared with $26.7 million (current ratio of 3.5:1) at December 31, 2006. Credit facilities with the Royal Bank of Canada includes demand operating loans in the amount of $8.5 million and other credit facilities consisting of term loans and lease lines of credit in the amount of $4.0 million. The term loans are available once certain covenant targets are achieved. Nil was drawn at these facilities as at December 31, 2007, compared to $1.9 million drawn at December 31, 2006.
Overview of Operations
Carmanah designs, manufactures and distributes a range of energy efficient and renewable-energy technology. A recent strategic review has resulted in the company being structured around two business segments intended to help define the optimal structure for the company going forward:
- Strategic: includes the primary business units of LED lights and beacons and solar power systems for industrial and grid-tie applications. These units will be the main focus of the company going forward over the long term.
- Tactical: includes business units such as energy-efficient LED edge-lit signage and solar component distribution. These units are important today and are generally stand-alone growth opportunities.
This optimal go-forward business strategy is expected to emphasize the company’s key revenue-producing activities while accommodating other 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 lighting products for marine, aviation, transit, roadway and industrial worksite applications. The Solar Power Systems Group offers a wide range of renewable energy system solutions 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. Carmanah’s headquarters and primary manufacturing and distribution facilities continue to be located in Victoria, British Columbia, Canada, with additional manufacturing and distribution facilities in Calgary, Alberta, Canada, as well as regional distribution and sub-assembly facilities in Santa Cruz, California.
Results of Operations
Sales
Carmanah’s sales for the year ended December 31, 2007 were $59.0 million, down $3.2 million from 2006. A summary of revenues from each of Carmanah’s technology groups follows:
| Sales Summary (CAD1,000’s) | ||
| Q4 2007 | Q4 2006 | |
| $13,014 | $16,222 | |
| Solar LED Lighting | $7,136 | $6,786 |
| Solar Power Systems | 5,045 | 8,147 |
| LED Sign Group | 833 | 1,289 |
| 2007 | 2006 | |
| $59,009 | $62,183 | |
| Solar LED Lighting | $27,457 | $26,861 |
| Solar Power Systems | 27,346 | 30,905 |
| LED Sign Group | 4,206 | 4,417 |
- Solar LED Lighting Group: Sales were $27.5 million in 2007, up $0.6 million over 2006. Overall sales growth was negatively impacted by the decision to exit the customized transit market. In total, transit sales were $4.9 million in 2007, down from $6.2 million in 2006. The decision to exit the custom transit business was due to the fact that the majority of sales required significant modifications for each customer. As a result, the necessary economies of scale could not be obtained to provide sufficient margins to justify maintaining its current product offering in this business. In the future, the transit customers’ needs will be fulfilled with a General Illumination portfolio that is suitable for transit shelters and other remote situations. Estimated negative foreign exchange impact on sales for this group was $1.8 million
- Solar Power Systems Group: Sales were $27.3 million in 2007, down $3.6 million over 2006. This decrease is mainly due to lower sales in the fourth quarter as a result of (1) restructuring within the company’s US distribution which involved replacing key sales staff, which resulted in a $4.5 million drop in sales and (2) the sale of the home power vertical which reduced sales by approximately $0.4 million in the fourth quarter. In total, Home power sales represented approximately $4.2 million of sales in 2007. In 2008, the majority of these sales are expected to disappear. Estimated negative foreign exchange impact on sales for this group was $2.0 million.
- LED Sign Group: Sales were $4.2 million in 2007, which is fairly comparable to $4.4 million recorded in 2006. Sales growth in this market is expected to come from (1) new technologies, such as EVENLIT™, which are being integrated into the product offering, and (2) expansion into new geographic markets. Estimated negative foreign exchange impact on sales for this group was $0.2 million.
Gross Profit and Margin
Gross profit was $15.6 million for the year, down from $20.3 million in 2006. Overall margins decreased to 26.4% in 2007 from 32.6% in 2006. Gross margins were negatively impacted as a result of lower sales due to the significant 2007 decline in the US dollar, estimated to be approximately $4.0 million, as well as approximately $1.2 million of one-time inventory write downs. Other factors that impacted gross margins are outlined below:
- Within the Solar LED group, there was a change in the sales mix towards lower margin products. The majority of the change in mix came from a shift in product sales from Aviation to Roadways. Sales of higher margin Aviation products were $1.4 million lower in 2007 than in 2006 due to delayed contracts. These reduced aviation market sales were made up by a $2.0 million increase in 2007 sales of lower margin Roadway products
- Within the Solar power Systems group, there was a fair amount of discounting certain products in an effort to reduce the surplus inventory that was purchased in late 2006.
Operating expenses
Operating expenses in 2007 totaled $23.1 million, $3.0 million or 15% higher than $20.1 million incurred in 2006. As a percentage of sales, operating costs have increased to 39% in 2007 from 32% in 2006. The majority of this increase was incurred in the first half of 2007, when spending was based upon expected sales growth which did not occur. Operating costs peaked in Q2 2007 at $6.7 million and then significantly declined in the latter half of the year as the new executive team implemented cost-cutting measures.
- Sales and marketing expenses increased by $0.8 million primarily due to additional marketing staff and higher expenditures on samples and shipping, tradeshows, travel and advertising in the first half of 2007. These increases were partially offset by reduced commissions expense due to lower sales. As a percentage of sales, sales and marketing expenditures grew from 13% in 2006 to 15% in 2007.
- Research, Development, and Engineering expenses for the year were $2.8 million, net of SR&ED investment tax credits, up $0.6 million from 2006 levels. The increase is attributable to lower SR&ED investment tax credits in 2007, as a significant amount of engineering time and resources was allocated to streamlining and implementing lean manufacturing processes. Actual gross expenditures were fairly comparable year over year with $3.4 million in 2007 versus $3.5 million in 2006. As a percentage of sales, net research, development, and engineering expenses were 4.8% compared with 3.6% for 2006.
- General and administrative expenses for 2007 totaled $10.1 million compared with $8.5 million in 2006. This 19% increase was due to additional administrative and finance staff levels, non-recurring executive recruiting costs, additional provisions for bad debts, and higher information systems costs due to general expansion. As a percentage of sales, general and administrative costs increased to 17% compared with 14% in 2006.
- Amortization expense of $1.1 million for 2007 is comparable to 2006.
Other Expenses
Net non-operating expenses were ($3.3) million in 2007 versus a net non-operating income of $0.4 million in 2006. A $2.0 million write down of goodwill was incurred in the fourth quarter as a result of an annual impairment analysis. The impaired goodwill related to the 2003 acquisition of AVVA Technologies Inc, now a part of the LED Signs group. Of the $3.1 million of goodwill acquired, $2.0 million was deemed impaired due to a change in overall strategic direction which now considers this group tactical versus strategic. A $0.3 million gain was recorded on the sale of certain assets related to its residential vertical within the Solar Power Systems group. The assets disposed of primarily related to inventory, customer lists, and equipment. Significant foreign exchange losses of $1.5 million were incurred during 2007. This compares with a gain of $0.3 million during 2006. This is primarily due to the significant decline of the US dollar relative to the Canadian dollar which has negatively affected the value of the company’s US dollar-denominated working capital as a significant portion of sales and purchases are denominated in the US dollar.
Income Tax
Income tax recovery for the year ended December 31, 2007 was $1.9 million. This amount consists of a current tax recovery of $0.3 million plus future income tax recovery of $1.6 million. The difference relative to the statutory tax rate is primarily due to non-deductible stock-based compensation and the write down of goodwill. The future income tax recovery of $1.6 million reflects the increase in net future tax assets resulting primarily from increased loss carry forwards. Cash taxes for 2007 were approximately $0.1 million and relate to U.S operations.
Earnings
Non-GAAP measures – certain non-GAAP measures are used to assist in assessing financial performance. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. One such non-GAAP measure used for assessing financial performance is earnings before interest, taxes and amortization (EBITA). EBITA for 2007 was ($9.6) million compared to $1.6 million in 2006.
| EBITA Reconciliation (CAD1,000’s) |
Three months ended December 31, |
Year ended December 31, |
||
| 2007 | 2006 | 2007 | 2006 | |
| EBITA | $(4,643) | $(802) | $(8,914) | $(365) |
| Net earnings – as reported | $(4,635) | $(802) | $(8,914) | $(365) |
| Add back (deduct): | ||||
| Interest Income | (25) | (6) | 91 | (167) |
| Income taxes | (270) | 54 | (1,923) | 951 |
| Amortization | 287 | 354 | 1,151 | 1,144 |
About Carmanah Technologies Corporation
Carmanah is one of the world’s premier suppliers of renewable and energy-efficient technologies, including solar-powered LED lighting, solar power systems & equipment and LED illuminated signage. From its global headquarters in Victoria, British Columbia, Canada, Carmanah oversees a network of branch offices and sales representatives around the world.
Carmanah is a publicly traded company, with common shares listed on the Toronto Stock Exchange under the symbol “CMH” and on the Berlin and Frankfurt Stock Exchanges under the symbol “QCX”. For more information, visit www.carmanah.com.
Carmanah Technologies Corporation
“Roland Sartorius”
Roland Sartorius
Chief Financial Officer
For further information, please contact:
Investors:
Investor Relations
Tel: +1.250.380.0052
Toll-Free: 1.877.722.8877
Media:
Public Relations: David Davies
Tel: +1.250.382.4332
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, 2006, 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.