2014 Letter to Shareholders

To the Shareholders of Cemtrex Inc.,

It has been quite a busy year to say the least. This letter is a bit unorthodox with respect to its timing however we believed that due to recent developments in our business over the last year it was important for shareholders to attain a narrative from management regarding Cemtrex’s operations and future plans. From March to July of this year alone we had a 25% increase in the number of shareholders of the company. Naturally we felt that waiting for a letter in January after our annual report was issued would cause an unnecessary amount of speculation on the part of our shareholders as to what your management’s plans are. In the future on an annual basis, including at the end of this fiscal year, we will be sure to accompany our annual report with a letter from management.

We have now completed three quarters during our latest fiscal year. Our book value (unaudited) is presently $2,286,000 up from $94,000 in 2012 when current management took control of the operation resulting in a CAGR of 190%. Our earnings per share over the last 9 months have been $.05 while our average earnings per share over the last three years were about $.02.

As many of you are aware Cemtrex recently acquired all the assets of the ROB Group of companies in October 2013 (this fiscal year, our fiscal year ends September 30th). In my 2012 letter I mentioned that we were actively pursuing acquisition opportunities to grow the company in new areas. We have been in the environmental technologies and monitoring business for the past several years. However our ability to create sustainable growth was often hindered by environmental regulations that were postponed which were of no control of our own. When industry cries out that regulations will increase costs and reduce jobs many times these regulations are kicked down the road. This often resulted in our goals and objectives not being met in the past. As a result our plan was to diversify our capital allocation into new areas which could complement our on-going activities. We believe we can operate from a position of strength when we have two independent sources of earnings potential than be solely exposed to the conditions of one industry.

Our primary criteria were to find businesses we understood and ones that we felt were available at an attractive price. We spent close to two years looking for the right opportunity and subsequently settled on the ROB Group, located near Stuttgart, Germany. The ROB Group was acquired at approximately $5.6M, half of its book value at the time and doing approximately $30M in sales in the calendar year of 2013. We were able to do this deal on extremely favorable terms with low interest rates and zero dilution. This type of financing for a company of our size is highly unusual and thus represented a key factor in us going ahead with the deal. In the future we may not be so fortunate with the terms to get a deal done, but your management is careful to structure any terms that could potentially be toxic to us in the future. We would rather pass on a potentially great company than take such a risk.

You may be wondering how we were able to acquire such a big company for a low price. This company was in an insolvency situation due to a customer defaulting on a large amount of receivables. Moving forward we now ensure that all orders and receivables are insured by a major insurer to protect ourselves from this occurring again. The insolvency situation is now in the company’s history and we have been operating at a profit so far this year. This is also unusual for companies in an insolvency situation and you can thank the strong management of Frank Bittighofer and his team for this success. The team at our EMS operation is a group of honest and hardworking individuals and it has been a pleasure to work with them to put the company back on a path to success. We have a considerable amount of confidence in their ability to continue growing this operation back to its previous heights of $60M in revenue in 2010 and beyond.

Cemtrex now has two distinct operations: Electronics Manufacturing Services (EMS) & Environmental Products & Systems (EPS). Our total sales during the first nine months of this fiscal year was $33,966,686 compared to $11,138,665 over the same period a year ago representing an increase of 205%. This was primarily attributed to the acquisition however our environmental products & systems division experienced sales growth as well.

We remain cautiously optimistic with regards to our EPS operations. For our domestic operations we have a sound product portfolio serving industries that we feel are growing. We have seen growth in our monitoring and instrumentation sales this year and think this trend will continue. New Mercury regulations for the power and cement industry provide us with confidence that the growth will continue into 2015. Meanwhile domestic industrial dust filtration systems has demonstrated mixed results; We have seen stagnation in some industries however we are seeing new demand related to both the cement market and in oil and gas partially due to the activity in the fracking market. Regarding our international business, our feeling is that there remains strong demand in emerging markets, particularly Asia and the Middle East. However geopolitical events can influence how this market plays out and there are many reasons to be guarded at the moment.

Acquisitions

We believe in both organic and inorganic growth. We naturally treasure organic growth when it is achievable. Industrial and manufacturing businesses often require significant capital investments to achieve above average organic growth. As a result we prefer to broaden our perspective when it comes to each dollar we invest in our operations. While we are confident that within the industries in which we operate each dollar invested will yield strong organic growth our objective is to grow as quickly as possible. In our opinion utilizing this dollar to buy another business instead of trying to push more organic growth can be equally beneficial or better in certain instances when you buy the right company at the right price. We feel that the ROB Group acquisition is a perfect example of this.

In short our goal is to grow swiftly while maximizing our return on equity for our shareholders. As a result we are satisfied with either organic or inorganic growth. We are public for this reason. Often times we see microcap companies that seem to float along year after year with no strategic purpose. In our opinion if you are a microcap company and you choose to remain public, you had better be aggressive and take advantage of the public market. I’d like to emphasize the point however that for us growth is growth, however it comes. We are not a “one mouse-trap” company and nor do we have any desire to be one. As a result our organic growth may vary year to year but we strive for strong consistent average organic growth of 15% annually. Ultimately, as long as every dollar retained and used by the company is creating at least a dollar of market value above market rate than we are doing a satisfactory job. It will not matter whether this value is organic or inorganic.

Earlier this year we announced that we entered into a Letter of Intent to acquire a wastewater treatment and biogas technology company. This company is similar to our existing EPS operation in terms of the nature of the business and we feel it would add significant value. This deal has not yet been consummated and we will make the appropriate announcements as progress is made.

With respect to the companies we are looking for we are primarily focused on acquisitions that will complement our existing operations well. We are presently trying to find companies that can add additional strategic or competitive value to either operation. However should a new opportunity present itself in a technology industry we like, understand, and see potential in, it is possible we may pursue it. We prefer businesses with 1) favorable long term economic characteristics; 2) attractive purchase price when being viewed from private ownership; 3) operations in markets and industries we feel we understand; and 4) readily apparent methods for us as owners to help facilitate higher growth and profitability.

In general our present philosophy is to have a controlling stake in any acquisition we make. While we are aware of the fact that we are not experts in any business we acquire we prefer having the ability to select the management team and influence the direction of the business particularly with respect to the use of cash. We regularly pursue companies that are in distressed situations. However we acknowledge that we are not miracle workers and that there should be significant conviction on our part to justify getting into a turnaround situation. We understand that this is a tremendously difficult task and will only pursue these opportunities when we are satisfied with the potential risks.

Miscellaneous

We are currently trading Over-The-Counter and we realize that this can hinder our visibility to many investment communities and deter a large swathe of institutional funds from investing in us that would be available to us if we were on a major exchange. However, we are confident that when we are approximately doubled from present size with respect to either revenue or earnings it will make sense to undertake steps for an up-listing.

We will do our best in being straightforward in these letters to you when reporting on our business activity, focusing more on the facts and our philosophies rather than any speculation as to our prospects or providing lofty projections. We would prefer the results speak for themselves and create a track record of doing what we say we are going to do. We know that you have more than 13,000 companies you can choose to invest your money in and we have to compete for your money the same as anyone. Often times the CEO and Board of Directors of public companies own a small fraction of the company and as a result corporate actions are not always in tune with rewarding the shareholders. In our case with over 70% of Cemtrex’s stock in management’s hands, we treat your money as if it is ours, because as you can see we have a lot of skin in the game.

As always please feel free to email investors@cemtrex.com or call the company for any questions you may have. Sometimes we cannot always be as candid as we would prefer in our responses due to disclosure policies but we will continue to make a best effort in updating shareholders about our on-going activities to avoid undue speculation.

It is an exciting time for our company and we are eager to continue building on our recent progress.

Sincerely,

 

Saagar Govil
Chairman & CEO

 

Safe Harbor Statement

This press release contains forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. Statements made herein are as of the date of this press release and should not be relied upon as of any subsequent date.

For further information, please contact:

Saagar Govil
Cemtrex, Inc.
Phone: 631-756-9116