Energy Efficiency - Why Now?
Montreal, October 1, 2009 (TSX-V: SDW) -- In July, McKinsey & Co. released a new report on Unlocking Energy Efficiency in the US. The conclusion states that persistent barriers have restrained investments in over 100 million buildings that could result in $1.2 trillion in annual savings or 23% of the annual demand for energy in the US. US Energy Secretary Chu wrote an editorial in a Washington DC newspaper in July calling energy efficiency not just low hanging fruit but "lying on the ground".
Despite the hype about investing in energy efficiency, and the underlying common sense of it especially for the environment, not to mention financial viability of installing a cost reducing Sofame energy efficiency system, our customers must make hard decisions. Universities, manufacturing and new construction markets are all facing restraints in spending. Hospitals, renewable energy plants and food processing are continuing to invest. Sofame has developed a diverse pipeline of projects over the last two years. We have shipped equipment to meat processing facilities in Quebec, to multi-national food processors in the United States, a hospital in New Jersey, and finally a large Ivy League university combined heat and power project. This foothold in the United States did not exist in 2008. We have forged ahead in difficult circumstances and created a customer base in the largest market in the worked for our products. The Sofame system at the University was commissioned in September, and the fuel cost reduction target of 11% will be achieved.
The last year delivered many surprises for the global economy and most of them were negative. The stock market tumbled a year ago, financial institutions disappeared or went on "life support", credit conditions deteriorated rapidly and as many experts described it, there was incredible wealth destruction in financial markets. Sofame has weathered this storm until now, but like all companies, access to new capital is far more difficult than it was a year ago.
In retrospect the management team at Sofame has identified two critical factors that caused many potential customers to postpone making their final purchasing decisions. The first one is lack of access to internal corporate funding due to the credit crunch. Despite project paybacks less than one year in many cases, even large corporations are reluctant to tie up scarce cash resources in fixed asset investments, no matter that the benefits are in terms of reduction in annual fuel costs. When plant activity was scaled back during the recession, many of these plants already experienced reduced costs, but for the wrong reasons.
This brings us to the second sales driver for Sofame, the price of natural gas. When the price of gas plummeted from $14 to $2.50 over the last year, the urgency to reduce recurring operating costs through energy efficiency retrofits simply disappeared. Although economists may continue to debate the future of gas prices, recent market activity seems to indicate that that at least on a technical level, a floor may have been established in recent weeks. October gas on the NYMEX touched $4 this week, up from $2.50 at the beginning of September. Our hope is that Sofame customers are watching.
Sofame has expanded its network of established professional engineering representatives and is now delivering an extensive training program. Sofame's new sales management systems bring more support to our sales people, and expose more value to our customers while they evaluate all their options. Sofame's competitors are currently experiencing a similar challenge in growing revenues. It takes more effort to expand a market than to steal market share from an established segment.
To further differentiate its value proposition, Sofame has continued to build on its previously announced carbon credit and turn-key financing initiatives at a slower pace than planned, in order to focus all our resources on primary equipment sale activities. We have made turn-key finance offers to many of our customers so far. Four have requested a follow-up proposal.
As always, the management team at Sofame is leaving no stone unturned in its drive to satisfy both our customers and our shareholders. We always highlight all the benefits of our technology and our products, as well as our engineering experience and creative solutions to every situation. Sofame must realize its true potential by outliving the rapidly fading economic downturn. This does require further financing activities which have been under way for several weeks. We have no news to report on that front at this time. Relationships with some major customers are progressing very well, and new orders should be forthcoming. Any questions from shareholders or potential investors should be directed to our CEO, Michel Brisson. We thank you for your continued support of our company and our green initiative.