Semcan Inc.
TSX VENTURE : STT

Semcan Inc.

August 31, 2009 19:21 ET

Semcan Inc. Reports Second Quarter Fiscal Year 2009 Financial Results

TORONTO, ONTARIO--(Marketwire - Aug. 31, 2009) - Semcan Inc. ("Semcan" or the "Company") (TSX VENTURE:STT) today reported financial results for its quarter ended 30th June 2009. Semcan reports on both Continuing and Discontinued Operations as a result of decisions made by the Company in late 2008 to divest certain businesses in order to pay down debt.

Continuing Operations

The Continuing Operations are made up of Semcan Inc. and Stanco Projects Limited (formerly Semco Systems Limited), which include the following divisions: Stanco Projects (Richmond B.C.); Semco Systems, ZMI Portec Inc., Walter Equipment (all in Milton, Ontario), and Stanco Projects Inc. (formerly Transfer Bulk Systems, Inc.) (Milton, Ontario and Pittsburgh, Pennsylvania).

Continuing Operations - Financial Report

Revenues for the quarter ended 30th June 2009 were $9.5 million, an increase of 56 percent over revenues of $6.1 million for the quarter ended 30th June 2008. The net loss for the quarter was $0.4 million, compared to a net loss of $1.5 million for the comparative quarter in 2008

Non-GAAP adjusted EBITDA for the quarter ended 30th June 2009 was $0.56 million, compared to ($0.1) million for quarter ended 30th June 2008. Semcan's gross margins were 23.2 per cent in the current quarter, compared to 25.7 percent in 2008.

At 30th June 2009 the Company's order backlog was approximately $12.5 million.

Discontinued Operations

The discontinued operations are made up of Naston Ltd, Enviro-Pro-Tech, Inc., and Nucleus Distribution Inc. These operations are classified as discontinued for the following reasons:

Naston Ltd.

Naston was acquired to give the Company an international presence in the industrial and municipal water and wastewater treatment markets. Naston has an excellent reputation for providing custom designed water treatment systems in the United Kingdom, Europe, Africa and the Middle East. In addition, Naston has in place a strategic relationship with Aqueduct plc, a financial fund which offers solutions for financing water treatment systems to large, blue chip UK-based organizations.

While Naston has great potential, the Company believes that it cannot afford to hold it given the level of debt incurred to acquire it, and the reality that, to date, Naston has been unable to service that debt.

Enviro-Pro-Tech, Inc.

Enviro, a company specializing in cleaning soil which has been contaminated by spillage of petroleum products, was acquired early in 2008. Enviro, which is located in Pensacola, FL and carries out the majority of its work on projects funded by a program administered by the Florida government, was to be the Company's stepping stone into the soil remediation market. A potential acquisition target which performs soil remediation for industrial customers was identified in September 2008; if it had been joined with EPT, the combined operation would have given Semcan a considerable presence in the growing soil remediation market. However, the Company could not finance the acquisition from internal resources and external funds were not available. Enviro continues to be both profitable and cash positive but lacks critical mass; these factors, and the fact that it has no specific debt against it, makes Enviro a logical part of the divestiture plan. The sale of Enviro closed on 31st August 2009.

Nucleus Distribution Inc.

The sale of Nucleus closed on 27th April 2009 and reduced the Company's debt by approximately $6.5 million.

Discontinued Operations - Financial Report

Revenues for the quarter ended 30th June 2009 were $10.8 million, compared with $18.3 million for the quarter ended 30th June 2008. Net profit for the quarter before provision for loss on sale of the discontinued operations was $1.65 million, compared to net profit of $0.98 million for the comparative quarter in 2008. The Company recorded a provision of $8.65 million against its investment in discontinued operations to reflect current market conditions and the likely proceeds from the Enviro-Pro transaction which closed after 30th June 2009.

Non-GAAP adjusted EBITDA for quarter ended 30th June 2009 was $1.88 million, compared to $1.87 million for quarter ended 30th June 2008.

Working Capital

At 30th June 2009, the Company has a working capital deficiency of $7,691,345. The working capital deficiency for the continuing operations is $8,505,098. Included in the continuing operation's working capital deficiency is a $3,000,000 promissory note owing to Westdale Construction Co. Ltd. The maturity date of this note has been extended to 12th November 2009, and the Company repaid $1,500,000 of this note subsequent to 30th June 2009.

The Company's plan to improve liquidity is to use the proceeds from selling the businesses classified as discontinued operations (see above) to pay down the existing debt obligations, and also to focus management's attention on the Canadian engineering business conducted by Stanco Projects Limited. It is anticipated that the Company's ongoing operations will be comprised solely of the businesses reported in the Engineering & Design, North America segment (see above) by the end of 2009. On 31st August 2009, the Company completed the sale of Enviro-Pro-Tech, Inc., which resulted in the full repayment of the Company's term bank loan.

It will be necessary for the divestiture of Naston to occur on the timelines described in Note 6.1.2 of the MD&A (or for the Company to access additional financing) for the Company to be in a position to retire the current obligation in a manner acceptable to Westdale. There is no assurance that the Company will be able to accomplish this on a timely basis to repay the debt obligations. The Company is also seeking additional working capital to help fund its ongoing business.

Commenting on the situation, Phil Jamieson, Chairman and CEO, said, "We continue to make progress in executing the plan we put in place at the beginning of 2009 to reduce debt, improve our liquidity and to concentrate on our core North American engineering business. Since embarking on the debt reduction plan, we have reduced our debt by a total of over $9 million. We are working toward the completion of our restructuring by the end of 2009 so that we may enter 2010 with a properly-financed go-forward business."

The detailed financial statements and MD&A for the quarter ended 30th June 2009 are available at www.sedar.com.

About Semcan Inc.

Semcan is a worldwide supplier of industrial processes and environmental solutions with specific emphasis on water remediation and emission control systems.

Forward-Looking Statement Disclaimer

Caution Regarding Forward-Looking Information and Non-GAAP Measures

This news release contains certain forward-looking statements. These statements relate to future events or future performance and reflect management's current expectations and assumptions regarding the growth, results of operations, performance, and business prospects and opportunities. Such forward-looking statements reflect management's current beliefs and expectations and are based on information currently available to management of Semcan. In particular, statements regarding the future operating results and economic performance are forward-looking statements. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual events or results to differ materially from the events and results discussed in the forward-looking statements, including risks outlined under "Risk Factors" in our Annual Information Form, which is posted at www.sedar.com. In evaluating these statements, investors should specifically consider various factors, including such risks as Investment Risk; Business Valuations; Condition of Capital Markets; Dependence on Key Personnel; General Economic Factors; Interest Rate Risk; Competition; and Reliance on Key Suppliers. One or more of these "Risk Factors" could cause actual events or results to differ materially from any forward-looking statement. These factors should not be considered exhaustive. Although the forward-looking statements contained in this press release are based on what management of Semcan considers to be reasonable assumptions based on information currently available to them, there can be no assurance that actual events or results will be consistent with these forward-looking statements, and management's assumptions may prove to be incorrect. These forward-looking statements are made as of the date of this press release, and none of Semcan nor its directors assumes any obligation to update or revise them to reflect new events or circumstances. Undue reliance should not be placed on forward-looking statements.

Non-GAAP Measures

The term "EBITDA" is a financial measure used in this document which is not a standard measure under Canadian generally accepted accounting principles. Semcan's method of calculating EBITDA may differ from the methods used by other issuers. Therefore, Semcan's measure of EBITDA, as presented in this press release, may not be comparable to similar measures presented by other issuers. EBITDA refers to net earnings determined in accordance with generally accepted accounting principles, before depreciation and amortization, interest expense, and income tax expense. Management believes that EBITDA is a useful supplemental measure of cash available for debt service, working capital, capital expenditures, income taxes, and distribution. Investors are cautioned that EBITDA, as a non-GAAP measure, is not an alternative to measures under GAAP and should not, on its own, be construed as an indicator of performance or cash flows, a measure of liquidity or as a measure of actual return.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy of this release.

Contact Information

  • Semcan Inc.
    Phil Jamieson
    Chairman
    (416) 703-1692 x221