Semcan Inc.
TSX VENTURE : STT

Semcan Inc.

April 30, 2009 23:11 ET

Semcan Inc. Reports Fiscal Year and Quarter Ended 31st December 2008 Financial Results

TORONTO, ONTARIO--(Marketwire - April 30, 2009) - Semcan Inc. (TSX VENTURE:STT) ("Semcan" or the "Company") today reported financial results for the year ended 31st December 2008.

During the year ended 31st December 2008, the Company entered into various financing agreements to fund the acquisitions in the current year. The Company's original plan for the acquisitions was to refinance a substantial portion of the acquisition facilities prior to or shortly after closing of the transaction with various types of long-term debt and to repay the balance with cash flow from operating activities prior to the maturity of the term bank debt and notes payable. In the fourth quarter of 2008, conditions in the credit markets deteriorated substantially, effectively closing the credit markets to the Company. These credit market conditions had a serious impact on the global economy, which has contributed negatively to the Company's operations in 2008. Current weak global economic conditions make access to the credit and capital markets difficult for the Company, which may compromise the Company's ability to repay or refinance all or a portion of the acquisition loans as they come due.

In response to the new economic climate, the Company's board decided to review its business model and take action to restructure its debt. Semcan will now concentrate on its core North American environmental engineering business. The board has approved a new strategic initiative comprised of the following elements:

i. Reduction of debt load;

ii. Development of a competitive advantage in the Environmental Engineering business through positioning with proprietary and/or differentiating solutions;

iii. Divestiture of the Nucleus Distribution business to allow complete focus on Environmental Engineering;

iv. To grow organically by improving the performance of the North American engineering business rather than continuing the "growth by acquisition" strategy commenced in September 2006;

v. Divestiture of the UK operation and US soil remediation operation; and

vi. Review of senior management and overall Company headcount.

As a result of the decision to divest Nucleus Distribution Inc., the UK operation and the US soil remediation business, the Company has reported the results of operations and accounts relating to these three businesses as discontinued operations for the year ended 31st December 2008. The continuing operations are comprised of:

i. Semcan Inc.;

ii. Semco Systems Limited, including divisions Stanco Projects (Richmond BC), Semco Systems and Walter Equipment (Milton, ON), and subsidiary Transfer Bulk Systems, Inc, (Williamsville, NY and Pittsburgh, PA); and

iii. ZMI Portec Inc. (Sibley, IA).

Continuing Operations - Financial Report

Revenues for the fiscal year 2008 were $29.3 million, an increase of 106.3 percent over revenues of $14.2 million in the fiscal year 2007. Net loss for fiscal 2008 was $(2.3) million, compared to net profit of $0.5 million for the fiscal year 2007. The net loss for 2008 includes non-cash charges of $0.6 million expense relating to stock compensation expense and $1.95 million relating to amortization, compared to $0.87 million for these items in fiscal year 2007.

Adjusted EBITDA (EBITDA plus amortization of acquired order backlog) for fiscal year 2008 was $1.88 million, compared to $0.8 million for fiscal year 2007. Semcan's adjusted gross margins (gross margin plus amortization of acquired order backlog divided by revenue) were 26.9% compared to 29.1% in fiscal 2007.

Revenues for the quarter ended 31st December 2008 were $11.1 million, an increase of 94.7 percent over revenues of $5.7 million in the quarter ended 31st December 2007. Net loss for the quarter ended 31st December 2008 was $(0.2) million, compared to net profit of $0.2 million, for the quarter ended 31st December 2007.

Adjusted EBITDA (EBITDA plus amortization of acquired order backlog) for the quarter ended 31st December 2008 was $1.5 million, compared to $0.5 million for the quarter ended 31st December 2007. Semcan's adjusted gross margins (gross margin plus amortization of acquired order backlog divided by revenue) for the quarter ended 31st December 2008 were 26.3% compared to 28.5% for the quarter ended 31st December 2007. For fiscal year 2008 the company incurred $1.3 million in interest and financing charges compared to $0.2 million in the fiscal year 2007. The increase in this expense is due to the carrying charges and set up costs associated with two loans totalling $7.0 million, incurred to acquire the UK operation ($4.0 million) in April 2008 and the assets of ZMI Portec Inc ($3.0 million) in November 2008. Full details of these loans are covered in section 5.2 of the Management Discussion and Analysis for the year ended 31st December 2008.

At 31st December 2008, the Company's order backlog was approximately $18.7 million. In addition, the Company has approximately $4.7 million of confirmed orders which have been placed on hold by its customers.

Discontinued Operations - Financial Report

Revenues for the fiscal year 2008 were $54.6 million, an increase of 383.2 percent over revenues of $11.3 million in the fiscal year 2007. Net loss for fiscal 2008 was $6.0 million, compared with net profit of $0.5 million, for the fiscal year 2007. For the current year, the loss includes a capital loss on the sale of Nucleus of $5.2 million.

Adjusted EBITDA (EBITDA plus amortization of acquired order backlog) for fiscal year 2008 was $0.9 million, compared with $1.1 million for fiscal year 2007. Adjusted gross margins (gross margin plus amortization of acquired order backlog divided by revenue) were 18.3% compared with 38.1%.

Revenues for the quarter ended 31st December 2008 were $18.2 million, an increase of 435.3 percent over revenues of $3.4 million in the quarter ended 31st December 2007. Net loss for the quarter ended 31st December 2008 was $6.1 million, compared with a net loss of $0.3 million for the quarter ended 31st December 2007. For the current year, the loss includes a capital loss on the sale of Nucleus of $5.2 million.

Adjusted EBITDA (EBITDA plus amortization of acquired order backlog) for the quarter ended 31st December 2008 was ($1.5) million, compared to $0.0 million for the quarter ended 31st December 2007. Adjusted gross margins (gross margin plus amortization of acquired order backlog divided by revenue) for the quarter ended 31st December 2008 were 8.8% compared with 40.1% for the quarter ended 31st December 2007.

Working Capital

At December 31, 2008, the Company has a working capital deficiency of $9.5 million. The working capital deficiency for the continuing operations is $8.3 million. Included in the continuing operation's working capital deficiency is $7.0 million of maturing debt and long-term debt obligations, including a $3,000,000 promissory note which was originally due 12th May 2009, and has been extended to 12th August 2009.

It will be necessary for the remaining divestitures to occur by 12th August 2009, or alternatively, the Company will need to secure additional financing 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, or secure new financing on a timely basis to repay the debt obligations.

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. On 27th April 2009, the Company completed the sale of Nucleus, the terms of which resulted in the assumption by the purchaser of approximately $6.5 million of debt classified as current at 31st December 2008.

In addition, the related party lenders which provided a $4 million bridge loan for the acquisition of the UK operation have agreed to a suspension of principal and interest payments for 2009, to allow the Company to improve its working capital position. The Company intends to bring these arrears current upon the completion of the divestitures.

Commenting on the situation, Phil Jamieson, Chairman, said, "The current condition of the credit markets has made it difficult for the Company to access funds to refinance short-term obligations. As well, the operating results of Naston have severely impacted our earnings. While I am disappointed that we have had to use the divestiture of some of our operations to pay down debt, I am committed to taking the necessary steps to restore liquidity and allow our core North American environment engineering business to prosper."

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.