Semcan Inc.
TSX VENTURE : STT

Semcan Inc.

June 01, 2009 18:21 ET

Semcan Inc Reports First Quarter Fiscal Year 2009 Financial Results

TORONTO, ONTARIO--(Marketwire - June 1, 2009) - Semcan Inc. ("Semcan" or the "Company") (TSX VENTURE:STT) today reported financial results for its quarter ended 31st March 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 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 Transfer Bulk Systems Inc. (Milton, Ontario and Pittsburgh, Pennsylvania).

Continuing Operations - Financial Report

Revenues for the quarter ended 31st March 2009 were $9.3 million, an increase of 59.4 percent over revenues of $5.9 million for the quarter ended 31st March 2008. The net loss for the quarter was $(0.5) million, compared to a net loss of $(0.05) million for the comparative quarter in 2008.

Non-GAAP adjusted EBITDA for quarter ended 31st March 2009 was $0.2 million, compared to $0.5 million for quarter ended 31st March 2008. Semcan's gross margins were 23.2 per cent, compared to 28.5 percent in 2008. Adjusted gross margin of 23.2 per cent was below expectation, and the results for the current quarter include a provision of approximately $330,000 for a project which incurred overruns in the period.

At 31st March 2009 the Company's order backlog was approximately $15.9 million.

Discontinued Operations

The discontinued operations are made up of Naston Ltd, Enviro-Pro-Tech, Inc., and Nucleus Distribution Inc. These operations have been 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 for 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 consolidated 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.

Nucleus Distribution Inc

The decision to sell Nucleus was made for three reasons: i) Nucleus' business does not fit with the Company's core engineering business; ii) the current state of the credit markets are such that the Company believed it prudent to reduce its debt load by the approximately $6,500,000 of debt being assumed by the purchaser, of which approximately $2,480,000 was classified as current liabilities at December 31, 2008, and iii) due to the state of the credit markets, the Company could not refinance the $2,000,000 promissory note due to the former owners of Ken-Co Industries Ltd., which came due on February 28, 2009.

The sale of Nucleus closed on April 27, 2009 and the Company has no further obligation with respect to the promissory note or other debt relating to Nucleus.

Discontinued Operations - Financial Report

Revenues for the quarter ended 31st March 2009 were $10.8 million, an increase of 149.7 percent over revenues of $4.3 million for the quarter ended 31st March 2008. Net profit for the quarter was $0.3 million, compared to net profit of $0.5 million for the comparative quarter in 2008.

Non-GAAP adjusted EBITDA for quarter ended 31st March 2009 was $0.6 million, compared to $0.7 million for quarter ended 31st March 2008. Gross margins were 22.7 per cent, compared to 40.4 percent in 2008. Adjusted gross margin of 23.9 per cent for the quarter includes a charge of $150,525 relating to the loss on sale of inventory following the shutdown of the Forward600 Precision Tools Division on 31st March 2009.

Working Capital

At March 31st, 2009, the Company has a working capital deficiency of $9,023,338. The working capital deficiency for the continuing operations is $8,321,324. Included in the continuing operation's working capital deficiency is $1,703,428 relating to maturing debt obligation and long term debt obligations that are classified as current liabilities due to covenant violations. Also included is a $3,000,000 promissory note owing to Westdale Construction Co. Ltd. which matures on August 12, 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 Semco Systems 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 April 23, 2009, the Company completed the sale of Nucleus Distribution Inc., the terms of which resulted in the assumption by the purchaser of approximately $6,500,000 of debt.

It will be necessary for the remaining divestitures to occur on the timelines described in Note 5.1.2. of the MD&A for the Company to be in a position to retire the current obligations in a manner acceptable to its lenders. There is no assurance that the Company will be able to complete the divestitures on a timely basis to repay the debt obligations.

Commenting on the situation, Phil Jamieson, Chairman and CEO, said, "We continue to take the steps required to reduce debt, improve our liquidity and to concentrate on our core competency of providing engineered systems to our market places. I am confident that the recent operating changes made will start to bear fruit over the next two quarters."

The detailed financial statements and MD&A for the quarter ended 31st March 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.

Caution Regarding Forward-Looking Information and Non-GAAP Measures

Forward-Looking Information

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 assume 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 or accuracy of this release.

Contact Information

  • Semcan Inc.
    Phil Jamieson
    Chairman
    (416) 703-1692 x 221