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ZCL Composites Inc. (ZCL)
Market: CDN Consolidated
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Aug 1, 2014, 8:08 PM EDT
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ZCL Composites Reports Third Quarter 2011 Financial Results

EDMONTON, Nov. 8, 2011 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the third quarter ended September 30, 2011.

Q3 2011 compared with Q3 2010

  • Revenue of $36.4 million, up 12% from $32.3 million;
  • Net income of $1.9 million or $0.07 per share (fully diluted), compared with net loss of $12.7 million or $0.45 per share (fully diluted) - Q3 2010 net loss includes a goodwill and intangible impairment of $12.8 million; and
  • Backlog of $49.6 million (quarterly record), up 42% from $34.9 million.

Year to Date 2011 compared with Year to Date 2010

  • Revenue of $89.3 million, up 3% from $86.5 million;
  • Net income from continuing operations of $1.6 million or $0.06 per share (fully diluted), compared with a net loss of $15.6 million or $0.55 per share (fully diluted) - YTD 2010 net loss includes a goodwill and intangible impairment of $12.8 million; and
  • Net income of $1.5 million or $0.05 per share (fully diluted), compared with net loss of $16.0 million or $0.57 per share (fully diluted).

"This quarter marks the first anniversary in the change of direction for ZCL.  We continue to reinforce our simplify to grow strategy with our people, our customers and the investment community and we believe it is starting to make a difference," said Rod Graham, ZCL's President and Chief Executive Officer.

"The third quarter earnings of $0.07 per fully diluted share represent our second profitable quarter in a row and mark our highest profitability in the past 11 quarters.  The steps we took earlier in the year have helped enhance our profitability and our current backlog of just under $50 million provides us with some comfort that we are on the right path."

"While we operate under one corporate umbrella entity, ZCL Composites Inc., we continue to market ourselves by leveraging off of the strong brand identities of ZCL, Xerxes, Parabeam, Dualam and Troy," said Mr. Graham.  "To better support our sales and marketing effort, we are proud to introduce our updated website www.zcl.com.  We believe it clearly defines the present and the future for ZCL Composites and we encourage you to visit the site."

Financial Results

Revenue for the third quarter of 2011 was $36.4 million, up $4.1 million or 12% from $32.3 million from the third quarter of 2010.  The strong increase in revenue was attributable to both the Petroleum Products and Industrial Corrosion Products groups as compared to the third quarter of 2010.

The Petroleum Products group had revenue of $23.2 million, up 5% from $22.0 million in the same quarter of 2010. As with the previous two quarters, the combination of higher retail selling margins for fuel and more readily available financing, gave independent service station customers the ability to increase spending on our tanks.  Sales to these US customers were up 15% from the third quarter in 2010.  Distributor sales were also up significantly in the third quarter.  Overall, US Petroleum Products revenue was up $2.1 million or 16% over the third quarter of 2010.

Revenue from the Industrial Corrosion Products group was $9.0 million, up 48% from the $6.1 million realized in the same quarter of 2010. The increase from 2010 predominately reflected a gain of $2.2 million for the ZCL Dualam operation, compared with the same quarter in 2010. The backlog in the Industrial Corrosion division is significantly higher at September 30, 2011 than a year earlier, and although certain of the projects are longer term in nature, the increased revenue reflects a strengthening demand for Industrial Corrosion products.

Water Products revenue was $4.1 million, down slightly from the same period in 2010.  Both US and Canadian Water Products revenue was consistent with the prior year before a $0.2 million negative impact of foreign exchange.  Challenges in the US construction sector have continued to weigh on the sales momentum for the Water Products group, however we believe this will again become a growing market for ZCL.

Gross profit totalled $6.1 million in the third quarter of 2011, up 32% from $4.6 million a year earlier.  Gross profit was 17% of revenue in the third quarter of 2011, up from 14% of revenue a year earlier. Gross profit remained relatively flat as a percentage of revenue for the Water and Petroleum Products groups, however the Industrial Corrosion Products group improved significantly over the same period in 2010.

General and administration expenses were $2.6 million, down 24% from $3.4 million a year earlier. The reduction primarily related to numerous non-recurring costs incurred in 2010 relating to integration activities, ERP implementation and restructuring costs that were not repeated in 2011.  G&A costs were 7% of revenue compared to 10% in the same quarter of 2010.

Divestiture of Non-Core Assets and Repayment of Debt

ZCL continues to hold certain non-core real estate assets for sale.  Management expect to use any proceeds to further pay down debt.  These non-core assets are located in markets where it will take more time to realize liquidity.

ZCL has successfully divested of certain non-core real estate assets, as mentioned in the June 30, 2011 MD&A. These include the sale of assets from the steel tank division in 2011 and the repatriation in 2011 of the note and debt received on the sale of the Home Heating Oil Tank ("HHOT") division that occurred in 2010. So far in 2011, long term debt has been reduced by $4.1 million of which $2.9 million was a result of divesting of non-core assets.

Backlog and Financial Position

Compared with a year earlier, backlog increased by $14.7 million or 42%, led by growth of $15.7 million or 172% from the Industrial Corrosion Products operations. For the Company as a whole, backlog growth was achieved primarily in the Canadian operations.  US backlog is consistent with the same quarter of 2010.

Working capital was $20.7 million at September 30, 2011, up 11% from $18.7 million a year earlier.  Long term debt excluding preferred shares totalled $7.0 million at September 30, 2011, down 43% from $12.3 million a year earlier.

Priorities and Outlook

We continue to focus on and execute the key tenets of the 2011 Strategic Plan, being:

  • Focus on core competencies;
  • Improve EBITDA as a percentage of revenue and debt;
  • Improve balance sheet returns;
  • Reinstitute a dividend payment as our performance continue to improve;
  • Improve internal operating and financial reporting with a suite of key performance indicators ("KPIs") with the implementation of the ERP system that occurred in 2010;
  • Reinforce a program of operational excellence and continuous improvement with a particular focus on cost controls; and
  • Maintain a strong safety culture.

ZCL is cautiously optimistic that profitability will continue in the fourth quarter of 2011 and into 2012, with the possible exception of the first quarter which is traditionally the weakest due to seasonal factors.

We caution that the extent of our profitability is dependent on the rate of economic growth in our markets. There appear to be increasing risks that economic growth may slow down or that another recession may be developing. A recession could lead to short term unprofitable operations, but we remain confident that our business will deliver strong and profitable growth over the longer term.

Summary Financial Results

For the three months ended 2011       2010       2009
(note 1)
  Sep 30 Jun 30       Mar 31 Dec 31 Sep 30 Jun 30 Mar 31       Dec 31
(in thousands of dollars,             (restated) (restated) (restated) (restated)        
except per share amounts) $ $       $ $ $ $ $       $
Revenue 36,352 29,820       23,158 35,029 32,340 30,521 23,685       28,609
Net income (loss)                            
  Continuing operations 1,892 969       (1,247) (1,102) (12,485) (437) (2,676)       2,052
  Discontinued operations - (181)       17 287 (233) 4 (207)       (571)
  Total 1,892 788       (1,230) (815) (12,718) (433) (2,883)       1,481
Basic and diluted earnings
  (loss) per share
                           
  Continuing operations 0.07 0.03       (0.04) (0.04) (0.44) (0.02) (0.09)       0.08
  Total 0.07 0.03       (0.04) (0.03) (0.45) (0.02) (0.10)       0.06

MD&A and Financial Statements

The Company's management's discussion and analysis ("MD&A") and unaudited interim consolidated financial statements for the three and nine months ended September 30, 2011 are available on Sedar at www.sedar.com and the ZCL website at this link: www.zcl.com/investor-relations.html.

Conference Call

ZCL Composites Inc. has scheduled an investor conference call for 8:00 a.m. Mountain Time (10:00 a.m. Eastern Time) on Wednesday November 9, 2011, to discuss its financial and operating results for the third quarter of 2011.

To access the conference call by telephone, please call 647-427-7450 from the greater Toronto area, or dial toll free 888-231-8191 from anywhere in North America. An audio webcast may be accessed through the investor events tab on the ZCL Composites website. Audio replays will be available on the ZCL Composites website shortly after the conclusion of the conference call.

The conference call will include prepared remarks by ZCL's President and Chief Executive Officer, Rod Graham, by ZCL's Chief Operating Officer, Ron Bachmeier and by ZCL's Chief Financial Officer, Kathy Demuth. After the prepared remarks, ZCL will accept questions from analysts and institutional investors. The public is invited to listen to the conference call in real time or by replay.

Note on Backlog

Backlog is defined as the total value of orders that management has assessed as having a high certainty of being performed because of the existence of a contract or purchase order specifying the scope, value and timing of an order.

Advisory Regarding Forward-Looking Statements

This document contains forward-looking statements under the heading "Outlook" and elsewhere concerning future events or the Company's future performance, including the Company's objectives or expectations for revenue and earnings growth, income taxes as a percentage of pre-tax income, business opportunities in the Petroleum Products, Water Products, Industrial Corrosion Products markets, efforts to reduce administrative and production costs, manage production levels, anticipated capital expenditure trends, activity in the petroleum and other industries and markets served by the Company and the sufficiency of cash flows and credit facilities available to cover normal operating and capital expenditures. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions.

Actual events or results may differ materially from those reflected in the Company's forward-looking statements due to a number of known and unknown risks, uncertainties and other factors affecting the Company's business and the industries the Company serves generally.

These factors include, but are not limited to, fluctuations in the level of capital expenditures in the Petroleum Products, Water Products, and Industrial Corrosion Products markets; drilling activity, oil and natural gas prices and other factors that affect demand for the Company's products and services; industry competition; the need to effectively integrate acquired businesses; uncertainties as to the Company's ability to implement its business strategy effectively in Canada and the United States; political and economic conditions; the Company's ability to attract and retain key personnel; raw material and labour costs; fluctuations in the US and Canadian dollar exchange rates; and other risks and uncertainties described under the heading "Risk Factors" in the Company's most recent Annual Information Form and elsewhere in this document and other documents filed with Canadian provincial securities authorities. These documents are available to the public at www.sedar.com.  Unless otherwise indicated, the unaudited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and the reporting currency is in Canadian dollars.

In addition to the factors noted above, management cautions readers that the current economic environment could have a negative impact on the markets in which the Company operates and on the Company's ability to achieve its financial targets.  Factors such as continuing economic uncertainty in the US and Canada, tighter lending standards, volatile capital markets, fluctuating commodity prices, and other factors could negatively impact the demand for the Company's products and the Company's ability to grow or sustain revenues and earnings. Fluctuations in the US to Canadian dollar conversion rate also have the potential to impact the Company's revenues and earnings.

The Company believes that the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this report should not be unduly relied upon.

The forward-looking statements in this report speak only as of the date of this report. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by the Company or on the Company's behalf, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

 

 

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