July 7th, 2008
Message from President and CEO of Avensys Corporation
Update to shareholders
As I approach the end of my third year as your CEO at Avensys Corporation (Avensys), I want to reflect on the progress we have made over the past 3 years and to present to you what we see ahead.
When I first wrote to you in October 2005, we had three operating subsidiaries – Avensys Inc., Chartrand Laframboise Inc. (CLI), and C-Chip Technologies (North America) Inc. Our revenue for the fiscal year ended, June 30, 2005 was $5 million and our operating losses were high. Our debt was expensive and highly dilutive. We had autonomous management teams at each of the subsidiaries, and a small cadre of staff at the holding company.
Our strategy has been to:
• Focus the business on Avensys Inc. where we believe future sustainability and profitability lies, and grow that business aggressively.
• Stabilize our balance sheet and stop diluting our shareholders
• Build one management team and dramatically reduce overhead
Today we have one operating subsidiary, Avensys Inc., with two operating divisions:
• Avensys Technologies designs, manufactures, distributes, and markets worldwide high reliability optical components and modules as well as Fiber Bragg Gratings for the telecom market and high power devices and sub-assemblies for fiber lasers to the industrial market.
• Avensys Solutions is an industry leader in providing instrumentation and integrated solutions for the monitoring of industrial processes and environmental surveillance applications for air, water and soil in the Canadian marketplace.
Our current annual run rate for revenues is approximately $30 million, split evenly between the two divisions. We have one strategic financial investor, Imperium Partners, and a debt structure designed to provide management with the time to focus on building and operating the business. We have one management team and our public company operating costs have been reduced by two thirds. Despite the Canadian dollar appreciating by about 20%, from an average of 0.8255 in 2005 to 0.9929 in 2008, we are starting to show positive EBITDA and operating cash flow numbers on a quarterly basis. CAGR for revenues over the past 3 years was 59%.
Milestones in the implementation of our strategy over the past 3 years are:
• In February 2006, Avensys sold Chartrand Laframboise Inc., a security investigation firm, to a leading player in the security services business.
• In April 2006, Avensys acquired the assets of ITF Optical Technologies Inc. (ITF), a designer and manufacturer of advanced photonic solutions based on proprietary all-fiber technology, and together with the preferred shareholders of ITF created ITF Laboratories, a R&D organization.
• In August 2006, Avensys concluded a private placement for $3.6 million with accredited and institutional investors through the issuance of Series B convertible debenture.
• In December 2006, C-Chip Technologies entered into a technology license agreement with a technology partner. Subsequently, the agreement between C-Chip and its partner was terminated, effective December 2007, and C-Chip’s outstanding loan was forgiven. The C-Chip business was discontinued.
• In July 2007, Avensys entered into a strategic financial partnership with Imperium Partners in New York. In addition to the redemption of the Series B convertible debenture issued in August 2006, this capital restructuring provided Avensys with additional working capital and credit facilities to fund future growth and expansion.
• In March 2008, Avensys acquired the operations of Willer Engineering Limited, a privately-owned Toronto-based company providing industrial process measurement and Continuous Emission Monitoring (CEM) instrumentation solutions to the Eastern Canada industrial marketplace.
Throughout this period we have announced numerous product and market developments. Our Avensys Technologies division announced the qualification of our high powered pump laser combiner for the industrial laser market, the launch of a new miniature differential phase shift keying (DPSK) demodulator for the telecom market, record shipments of Fiber Bragg Gratings, new distributorships throughout the world for our line of optical components, and significant growth in the undersea telecom market. Avensys Solutions announced the sale of 125 ISCO flow meters for a the largest Inflow and Infiltration study in Canadian history to be carried out by Earth Tech Canada for the Regional Municipality of York wastewater system. Avensys Solutions continued to add several new product lines from leading suppliers around the world to its product lines and has steadily increased its presence as a value-add supplier of integrated monitoring solutions.
Looking ahead, I am excited by our prospects. Our vision is clear. Following the Willer acquisition, Avensys Solutions, the environmental and process measurement division, was able to quickly realize the planned costs savings associated with operational synergies and increase its order backlog for integrated solutions. The Willer team’s expertise takes us up the value chain thus creating opportunities to generate higher gross margins. The sales force has been integrated and early signs are very encouraging. We hope this newly merged division will take advantage of the growth associated with tighter control of industrial emissions and greenhouse effect gases.
At Avensys Technologies, the future is equally exciting. Fiber Laser is a disruptive technology in the industrial laser market. At present, we manufacture combiners for mid and high powered fiber lasers and plan to manufacture optical engines for lower powered fiber lasers. Growth rates should be in excess of 50%, bearing in mind that these components currently comprise approximately 20% of our optical business. In the telecommunications market, we currently make components (demodulators) for the new hi-speed transmission 40Gbs systems. We believe this market will emerge over the next 12 months. The demand for our undersea components should continue to be strong, although we do not anticipate the same growth rate as we have seen over the past 12 months. We do see strong growth for our Fiber Bragg Gratings commodity into the telecom market, and are exploring the possible establishment of a manufacturing organization in Asia, both to be near our customers and to take advantage of a lower cost structure.
Given these strong business fundamentals, we expect continued growth in revenues for our next fiscal year ending June 30, 2009. We continue to look opportunistically for acquisitions for both our divisions. With the Canadian dollar exchange rate stabilizing at par, we should be cash flow positive from operations for this coming FY 2009, after necessary capital expenditures, and should show an operating profit in Quarters 3 and 4.
We have a great team, excellent products and technologies, and strong market opportunities. I feel very confident about our future. Thank you for your support.
John Fraser
Chief Executive Officer
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