UGE Reports Audited Fiscal Year 2018 Financial Results
Toronto, Ontario--(Newsfile Corp. - April 30, 2019) - UGE International Ltd. (TSXV: UGE) (OTCQB: UGEIF) (the "Company" or "UGE"), a leader in solar energy solutions for the commercial and industrial sector, reported its financial results for the year ended December 31, 2018. UGE reports all amounts in US dollars.
2018 and Fourth Quarter Highlights
In 2018, the Company took steps to transition away from solar EPC revenue, and to growing its project development business, in order to achieve profitable growth in 2019
UGE's revenue and margins fell in 2018 as EPC projects drove revenue and achieved sub-par results; as a result, the Company downsized its Canadian operations by over 50% and focused its sales efforts on developing projects in its US and Philippines markets, which will drive revenue in 2019
Based on policy changes in the Ontario market, the Company wrote off its Goodwill amount in full, a non-cash accounting entry which significantly contributed to its 2018 loss
UGE worked with its major debt holders to convert $5.25 million of debt to equity during the last half of 2018, at share prices well above market, significantly strengthening the Company's balance sheet and resulting in a gain on conversion of $2.5 million.
At the end of 2018 the Company had $22.0 million of projects in its Committed Backlog with estimated average gross margins of 23%, in line with its goals for self-developed projects and more than double that achieved in 2018. That is an addition to $3.7 million of Contracted Backlog and a number of additional projects won in the first four months of 2019.
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Analysis of Financial Results
Recognizing that 2018 was a challenging year for the Company, management took decisive steps to re-position UGE for future success throughout the second half of 2018. This included repositioning its sales and development efforts on higher margin self-developed projects, lowering overhead expenses by approximately 30%, and taking a conservative approach to the future value of goodwill and certain EPC projects, as described herein.
After experiencing nine-fold growth over the prior two calendar years, revenue for the year ended December 31, 2018 was $17,192,220, a decrease of 18% versus 2017. The decline is attributed to limited growth opportunities in the Canadian market, which experienced significant policy changes in 2018, while new projects in the US market, including the largest non-Canadian project in Company history, were still in their planning stage. However, the Philippines accounted for 21% of revenue, increasing its revenue more than ten-fold year over year.
A significant focus in 2018 was to fully shift sales and development efforts to self- and co-developed projects, which result in higher average margins than completing engineering, procurement and construction ("EPC") work for other solar developers. Turning away EPC work was a contributing factor to the Company's lack of revenue growth in 2018, as UGE looked towards achieving better results in the future.
The gross profit margin for the year ended December 31, 2018 decreased to 10%, compared with 19% in the prior year, which is primarily attributable to revenue being driven by prior EPC project contracts, and because results on specific EPC projects were sub-par. Specifically, the Company wrote off receivables that are, as of now, uncollected, experienced liquidated damages on a portfolio of projects acquired in a 2017 acquisition, and accrued for losses due to a project dispute.
However, as the Company has shifted towards self-developed projects, it expects its results to significantly improve. As of December 31, 2018, the Company had $22.0 million in its Committed Backlog, with an estimated average gross margin of 23%, representing projects that it expects will become revenue throughout 2019 and beyond. This is in addition to Contracted Backlog of $3.7 million and a significant sum of additional projects contracted since the beginning of 2019.
Based on changes in the Company's Canadian market, UGE took steps to lower SG&A expenses significantly in the second half of 2018. This included downsizing its Canadian operations by over 50%, which is estimated to contribute to a 30% reduction in Company-wide SG&A expenses in 2019. SG&A expenses for the three months ended December 31, 2018 were $1,991,064; however, this includes the above-mentioned accrual of damages on an EPC project of $794,706, as well as a share-base compensation charge of $434,283.
Recognizing the significant policy changes in the Ontario solar market, within 2018 the Company wrote off its Goodwill amount in full, which had been recognized on the 2016 acquisition of Endura Energy Project Corp. This non-cash decision, totaling $3.0 million, significantly contributed to UGE's loss in 2018.
In order to strengthen the Company's financial position, UGE converted over $5.25 million of debt into equity in late 2018 at a price per common share of CAD$0.25, well above the market price of the shares. In addition to improving UGE's balance sheet and significantly decreasing interest costs, the conversion also resulted in a gain on conversion of $2.5 million.
"We recognize that 2018 was a difficult year for the Company, as we worked through and transitioned away from lower margin EPC work while enhancing the focus on our development business," said UGE's CEO, Nick Blitterswyk. "However, we acted quickly to re-position the Company and are excited for the opportunity to bounce back in 2019. With lighter overhead costs, and exciting growth opportunities in the US and Philippines, we are looking forward to much better performance in 2019."
Full financial results and Management's Discussion and Analysis are posted to SEDAR (www.sedar.com) and are available through the Company's website.
UGE delivers immediate savings to businesses through the low cost of solar energy. We help commercial and industrial clients become more competitive by providing low cost distributed renewable energy solutions at no upfront cost and maximum long-term benefit. With over 375 MW of global experience, we work daily to power a more sustainable world. Visit us at www.ugei.com.
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