SOURCE: Eco-Shift Power Corp.

Eco-Shift Power Corp.

May 20, 2016 09:52 ET

Eco-Shift Issues Special Letter to Shareholders; Reiterates Outlook for Strong, Record Financial Results in 2016

GUELPH, ON--(Marketwired - May 20, 2016) - Eco-Shift Power Corp. (OTC PINK: ECOP), a global producer of certified, LED lighting products, today issued the following Special Letter to Shareholders from its Chief Executive Officer, Alistair Haughton.

Over the past year, Eco-Shift Power has made enormous strides to realize its full potential in the dynamic and rapidly growing lighting industry beginning with 2016. I am happy to report that our 2016 outlook is for steeply increasing revenue and record financial results.

Our capital structure is solid, we plan to up-list to the OTCQB stock exchange this summer, and I believe our growing cash flow will be sufficient to sustain organic growth for the foreseeable future.

Publicly, the Company effectively went 'dark' for 2015 as we had to focus all of our resources on the development of a new business model. Behind the scenes, it was an uphill road back to excellent operational and financial health. I am writing today to say, unequivocally, we have arrived.

We are now in the right segment of our industry, at the right time, with the right business model, state-of-the-art product lines and a growing list of world-class LED industry partners and customers. Today, Eco-Shift is free to aggressively pursue and capture an increasing share of a $45 billion1 global market that industry analysts forecast growing at an extraordinary 30 percent annually2.

Our earnings power is strong and rapidly increasing. Expect big results ahead.

2015: Year of Major Transition
In early 2015, I was recruited to lead a turnaround of Eco-Shift, a company that back then was working to establish a niche position designing, manufacturing, marketing and installing retrofit lighting solutions. That model however, was labor and capital intensive requiring far greater scale than could be produced in 2014.

The Company's manufacturing capability, reinforced by the people and industry relationships I and our team have brought to Eco-Shift, has enabled the Company to capitalize on its deep knowledge of the LED lighting industry. We have built a strong, growing and highly reputable position as the go-to company to produce top quality LED and other energy efficient lighting products white-labeled for major, global lighting distributors and industrial, corporate and mass-market retail clients.

When the major global lighting companies need best-in-class LED lighting, components and ancillary equipment, many out-source their manufacturing to an "Original Equipment Manufacturing" (OEM) or "Original Design Manufacturing" (ODM) company such as our Eco-Shift. In this way, they can focus on what they do best to meet the needs of their customers such as product design and marketing.

For a congruent example of this model in other industries, consider Apple or Nike. Both are major global brands that design and market excellent products, but outsource much of their manufacturing to OEMs that specialize in high-volume, top-quality contract manufacturing.

As this is my first Letter to Eco-Shift Shareholders, before discussing the current state of our company and the 2016 outlook, I will briefly cover my background.

I have a 30-year successful track record as a corporate executive that includes serving as CEO, COO and Managing Director of public and private companies in a variety of industries including industrial, tech, energy and infrastructure. This experience involves years of expertise and many key relationships developed in manufacturing, military and government contracting, corporate finance, market share acquisition, and M&A across the Americas, Asia Pacific and EU. Highlights include direct P&L responsibility for a $700 million company, and co-facilitating taking a multinational company public at a $340 million IPO valuation.

Today's State of Eco-Shift Power and the LED Lighting Industry
Operationally, Eco-Shift today is building valuable relationships with major lighting companies and distributors on four continents, some of which we expect to announce in the weeks and months ahead. Our world headquarters is in Guelph, Ontario, with affiliate and distributor offices strategically located in key markets California, Florida, Auckland NZ, and Scotland and new locations are under our active evaluation.

We have manufacturing joint ventures in Asia with world-class manufacturing facilities that provide practically unlimited capacity, without capital expenditure, on favorable financial terms for capital efficiency. Our product lines are created in close pre-consultation with our current and target customers (see our 2016 new product catalog).

And our timing couldn't be better. Over the past ten years, leading global lighting companies have invested many tens of millions of dollars in lighting industry R&D and engineering. LED and its related lighting technology have now reached a point ideally suited to Eco-Shift's contract manufacturing expertise. Extending my previous Apple analogy, think of the transition from the cell phone (incandescent light) to the smartphone (LED light) market at the time it first launched the iPhone in 2007 and you will understand why we at ECOP are optimistic.

LED lighting provides a more pleasant customer experience, while our full product lines offer compelling energy savings for a high ROI and short investment payback. This next generation of LED technology, along with generous, energy-savings cash incentives from many utility companies and governments worldwide, is driving its outsized 30 percent annualized growth.

In fact, when combined with Eco-Shift's energy management systems that utilize state-of-the-art IP addressable light fixtures with wireless communication, clients are seeing rates of return that often exceed 80 percent with payback periods ranging from just 12 to 30 months. Those returns are boosted by rebates earned from government or utility company funded energy reduction programs.

Financially, we have strengthened our balance sheet substantially compared with a year ago. Currently, we have just under 125 million shares fully diluted (unaudited). Based on our internal projections, I believe our increasing cash flow will be sufficient to fund organic company growth throughout 2016 without having to raise any additional capital.

Our blended gross margin is about 40 percent which attests to both the value of, and demand for, the outstanding LED lighting products we produce, as well as our ability to manage costs. We have reduced sales, general and administrative expenses dramatically from a year ago and expect to keep operating expenses relatively flat compared with revenue growth so our earnings power scales well at higher sales levels.

Competitively, we are distinguished by our deep, worldwide relationships with numerous top lighting brands and distributors, our commitment to unrivaled levels of service and ability to white label products to serve established in-market product lines. Further, we have practically unlimited manufacturing capacity at favorable financial terms typically reserved for far larger companies.

We are not a low-cost bidder. Customers buy from ECOP confident that ours are the industry's highest quality products and components from the diode sets to the drivers, housing units on down to the smallest unit parts such as wiring, boards, solder, lenses and so on. Quality and reliability are paramount, as our recently announced distribution agreement with Sprocket confirms. We back our products with industry leading warranty programs. 

$45 Billion Demand-Driven Addressable Market
We address a vast and extremely fast growing global market, currently estimated at $45 billion, into which we are already selling on four continents. Industry research firm Transparency Market Research (TMR) reports, "The global industrial and commercial LED lighting market was worth $12.9 billion in 2012 and is projected to reach $86 billion by 2019, growing at a CAGR of 30.8% from 2013 to 2019."2

TMR adds that the global industrial and commercial LED lighting market is mainly used for industrial, commercial, architectural, and outdoor purposes. Europe holds the biggest market share at 33.1 percent which is attributable to the increasing investment made by various governments. The European market is also getting an impetus from the complete ban on the production or import of incandescent lamps. This move is forcing manufacturers to shift focus to LED lighting benefiting that market for industrial and commercial LED lighting.

Trend setting California is due to phase out the use of incandescent bulbs entirely by 2018. In the US, over the past ten years legislators, the EPA and the States have created a patchwork of regulations to phase out incandescent and fluorescent along with the entire planet -- literally from China to Cuba. Not unlike the shift from candles and kerosene to electric light bulbs, the global shift to LED is massive and accelerating.

Eco-Shift Outlook 2016: Poised for Success
Looking ahead, I have set the following goals for our Company for 2016:

  • Generate over $12 Million1 in Revenue. We target at least $12 million in 2016 revenue at healthy gross margins. 
  • Restore Status as a US Fully Reporting SEC Company. We plan to restore our fully reporting SEC status, file our audited FY-15 annual and other reports, and to up-list to the OTCQB Stock Exchange in Q3-16 -- all by this summer.
  • Reinforce Management Team. We have a small, highly productive senior management team of seasoned industry executives. We will look to add key positions, selectively, to management or our Board of Directors as needed.
  • Communicate Proactively. We are implementing 'best practices' financial communication initiatives to communicate our progress proactively with our shareholders, Wall Street and the media. We are upgrading our website, slated for next month, with robust new sections for customers, channel partners and investors.
  • Capture Market Share. Working with our channel partners, we are gaining solid traction targeting Fortune 1,000 companies, big box and mass market retailers.
  • Expand our Global Footprint. We plan to build additional new partnerships with leading distributors and other channel partners for deeper coverage of Europe, Asia Pacific, North and Latin America and to open new offices in Europe and Latin America.

To summarize, Eco-Shift today provides:

  • A highly competitive position to capture share of the accelerating global demand driving 30% annual addressable market growth projected to reach $86B in 2019
  • Sought-after industry leading LED lighting products and warranties
  • Excellent, growing relationships with many key global lighting brands and distributors
  • Gross margins anticipated at about 40 percent
  • Practically unlimited manufacturing capacity at excellent, capital efficient terms
  • An accomplished, veteran industry management team
  • A steep revenue ramp-up underway in 2016

On behalf of your Company, our Board of Directors and Officers, we thank our shareholders for their support and patience. It is a privilege to lead your company into what I strongly believe to be an exciting and rewarding future.

Sincerely yours,

Alistair Haughton
Chief Executive Officer

1 All dollar figures are US dollars.

Forward-Looking Statements
This Letter contains "forward-looking statements." Such statements may be preceded by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond Eco-Shift's control, and cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) projecting future financial results or marketplace trends, (ii) the highly competitive nature of lighting industry sales and distribution, (iii) development and protection of our key OEM/ODM and distribution partnerships, (iv) unexpected industry technological development, (v) government, economic and regulatory changes. More detailed information about Eco-Shift and the risk factors that may affect the realization of forward looking statements is set forth in our filings with the Securities and Exchange Commission (SEC). Investors are urged to read these documents free of charge on the SEC's web site at Eco-Shift assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

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