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Semcan Inc.: Semcan Inc. Reports Third Quarter 2008 Financial Results

^{Published on 2008-11-28 16:30:54 - Market Wire}
 

TORONTO, ONTARIO--(Marketwire - Nov. 28, 2008) - Semcan Inc. (TSX VENTURE:STT) (the "Company") today reported financial results for its quarter ended September 30, 2008. Revenues for the quarter were $19.99 million, an increase of 164% over revenues of $7.57 million for the quarter ended September 30, 2007. For the nine month period ended September 30, 2008, revenues were $54.61 million compared with $16.42 million for the corresponding period in 2007 - an increase of 232.6%.

The net loss for the quarter was $1,792,911, or $0.065 per fully diluted share, compared to a net income of $49,900, or $0.002 per share in 2007. For the nine month period ended September 30, 2008, the net loss was $1,964,431, or $0.071 per share compared with net income of $203,259, or $0.007 per share for the nine months ended September 30, 2007.

Net income for the current quarter includes non-cash charges totaling $1.56 million; $0.14 million expense relating to Stock Compensation, $0.50 million relating to Amortization of acquired backlog and $0.92 million relating to Depreciation and Amortization.

Non-GAAP EBITDA (earnings before interest, taxes, depreciation and amortization) for the quarter was $(0.26) million, compared to $0.49 million for the same quarter last year. For the nine month period ended September 30, 2008, non-GAAP EBITDA was $2.76 million compared with $1.45 million for the nine months ended September 30, 2007. The EBITDA for the quarter is approximately $2.1 million dollars short of expectations. A detailed explanation of this shortfall can be seen in the MD&A accompanying these financial statements in Section 9.1 "Overall Profitability and Segment Results."

The selling, general and administration expenses (SG&A) for the current quarter were 19.3% of gross revenues, compared with 25.2% for the quarter ended September 30, 2007. For the nine months ended September 30, 2008, the SG&A ratio was 19.6% compared with 23.4% for the nine months ended September 30, 2007.

The Company had a working capital deficiency of $3,981,145 as at September 30, 2008, compared with positive working capital of $3,772,316 as at December 31, 2007. The September 30, 2008 position includes $996,901 of value attributed to acquired order backlogs, which is the expected remaining net cash flow from order backlogs on hand at the time of the Company's acquisition of Stanco Projects Ltd., Enviro-Pro-Tech, Inc. and Naston Limited.

The Company's current liabilities include approximately $3 million of notes payable which mature in January and February 2009. Management intends to retire these debts through the following:

i. Proceeds from the anticipated exercise of 1,635,370 warrants expiring December 21, 2008. These warrants have an exercise price of $0.40 per share, and are expected to provide additional equity of approximately $650,000; and

ii. Sale of Nucleus Distribution Inc. On November 27, 2008, the Company entered into a Letter of Intent with respect to the sale of its interest in Nucleus Distribution Inc. for total proceeds of $6,500,000, to be paid in cash and the assumption of existing debt, subject to the approval of the existing senior lenders. The Letter of Intent also provides for an extension in the maturity date, and subsequent assumption by the purchaser, of a $2,000,000 promissory note due February 28, 2009 which is included in the current liabilities noted above.

The sale of the distribution business will reduce the Company's term debt from its September 30, 2008 level of approximately $12.9 million to approximately $9.7 million, including $3 million of new debt associated with the ZMI Portec acquisition announced on November 17, 2008.

"The third quarter results are very disappointing, particularly from the United Kingdom operation. The investment in an increased infrastructure both in North America and the United Kingdom has adversely affected our operating results for this quarter." said Phil Jamieson, CEO of Semcan Inc. "However, our order book in the Engineering & Design segment remains strong, and the sale of Nucleus will allow us to focus full management time and attention on integrating the engineering businesses and drive profitable operations going forward."

The detailed financial statements and MD&A for the quarter ended September 30, 2008 are available at [ www.sedar.com ].

About Semcan Inc.

SEMCAN is a rapidly growing company expanding through acquisitions within the Industrial and Distribution sectors. SEMCAN seeks out well managed profitable companies that meet certain financial parameters. SEMCAN works with existing management to grow the acquired companies both organically and through further complementary acquisitions. SEMCAN is fast becoming a worldwide supplier of industrial processes and environmental solutions with specific emphasis on water remediation, emission control systems and earth decontamination. SEMCAN provides the central finance and administrative functions, allowing operational management to remain focused on bottom line profitability thereby increasing shareholder value.

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.

The TSX Venture Exchange has neither approved nor disapproved the contents of this press release.