ZCL Composites Reports First Quarter 2012 Financial Results

EDMONTON, May 8, 2012 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the first quarter ended March 31, 2012.

Q1 2012 compared with Q1 2011

• Record first quarter revenue of $32.6 million, up 41% from $23.2 million;
• Net income of $1.6 million or $0.06 per share (fully diluted), compared with net loss of $1.2 million or $0.04 per share (fully diluted);
• Backlog of $52.9 million, up 48% from $35.8 million; and
• Quarterly dividend of $0.01 per share.

For the first three months of 2012, ZCL achieved record first quarter revenue and net income from continuing operations. We have a strong start to 2012, especially since the first quarter is generally our weakest quarter due to the seasonal nature of our product offerings. Contributing to our optimism, backlog as of March 31, 2012, achieved a quarterly record.

Contributing to our strong first quarter performance was execution on one of management's key objectives, to better utilize the 12 month efficiency of our North American plant infrastructure. In addition, the mild winter weather afforded us an opportunity to increase revenue beyond the usual seasonal disruption in demand.

"Our sales team across all three product groups, Petroleum Products, Water Products and Industrial Corrosion Products, has effectively balanced capturing first quarter revenue, while building a record backlog that is flexible on production timing," said Rod Graham, President and Chief Executive Officer.  "This has allowed ZCL to improve supplier relationships, labour hours, production slots and better manage historical seasonal fluctuations and lead times."

"I am pleased to report the nature of that backlog is broad based across all of our three product groups and is well balanced across most of our operating geographies. I believe that our first quarter results coupled with our strong order book should provide investors comfort that once again ZCL is positioned to grow its business lines."

Financial Results

Revenue for the first quarter ended March 31, 2012, was $32.6 million, up $9.4 million or 41% from $23.2 million for the first quarter ended March 31, 2011.  The increase in revenue was attributable to both of ZCL's operating segments: Underground Fluid Containment (which consists of Petroleum Products and Water Products) and Aboveground Fluid Containment (which consists of Industrial Corrosion Products). Canadian and US operations both contributed to the improvement in revenue.

Underground Fluid Containment ("Underground") revenue of $23.7 million increased by $5.2 million or 29% and included a 29% increase in Petroleum Products revenue, and a 28% increase in the Water Products revenue, compared with the first quarter of 2011.  Aboveground Fluid Containment ("Aboveground") revenue of $8.9 million was $4.2 million or 88% higher than the first quarter of 2011.

Gross profit for the three months ended March 31, 2012, was $5.4 million, up $3.6 million or 196% from March 31, 2011 gross profit of $1.8 million.  Gross margin improved to 17% of revenue for the three months ended March 31, 2012, up from 8% a year earlier. The increase in gross profit resulted from an increase in revenues as well as an increase in profitability on those revenues.  Both the Aboveground and Underground operating segments contributed to the increase in gross profit and gross margin.

Net income was $1.6 million or $0.06 per diluted share for the three months ended March 31, 2012, up $2.8 million from a net loss of $1.2 million or $0.04 per diluted share in the same quarter of the previous year.  The gain was attributable to the improved revenue, increased gross profit, and also to lower general and administration expenses and lower finance expenses.

General and administration ("G&A") for the three months ended March 31, 2012, decreased $0.4 million or 17% over the same period in 2011.  The quarter over quarter reduction in G&A reflected the results of cost saving initiatives that were implemented in 2011. In 2011, G&A included charges for restructuring and other costs that were incurred as a result of a conscious decision to improve the future financial state of the Company.

Backlog and Financial Position

The March 31, 2012 backlog of $52.9 million is the highest quarter end backlog the Company has reported to date, up $17.1 million or 48% over the March 31, 2011 backlog.  The growth in backlog was led by the Aboveground segment, with an increase in backlog of $17.3 million or 136% over the prior year.

At December 31, 2011, ZCL's balance sheet had working capital (current assets less current liabilities) of $24.9 million up $1.5 million or 6% from $23.4 million at December 31, 2011.  Net debt (long term debt, including current portion, plus bank indebtedness, less cash and cash equivalents), totalled $6.7 million, up from $4.6 million at December 31, 2011. The increase helped finance the work in progress and finished goods inventory build during the first quarter.  Total long term liabilities at March 31, 2012, were $15.0 million, down $0.2 million from the year ended December 31, 2011.

Dividends

During the 2011 year end Board meeting, the Board elected to re-implement the quarterly dividend payment.  The first quarter 2012 dividend declared is $0.01 per share for the shareholders of record as of June 29, 2012, and will be paid on July 16, 2012.  This amount will be revisited by the Board quarterly, with a philosophical balance of fiscal prudence and a sharing of improved results.

Outlook and Priorities for 2012

The plan for 2012 is to continue with profitable growth.  We are optimistic about our prospects given:

• We have taken steps to ensure a strong group of brands within the ZCL corporate family with a single culture and mandate;
• We are focused on cost control and core assets;
• With the focus on marketing groups, as opposed to operating groups, we have chosen to put forth a concerted effort to create a stronger customer value proposition;
• We continue to focus on safety; and
• We continue to drive toward targets of organic revenue growth of 10% - 15% in tandem with 12% - 15% EBITDA as a percentage of revenue.

Summary Financial Results

For the Three Months Ended             2012			2011				2010
		Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
(in thousands of dollars,							(restated)	(restated)	(restated)
except per share amounts)		$	$	$	$	$	$	$	$
Revenue		32,576	37,716	36,352	29,820	23,158	35,028	32,340	30,521
Net income (loss)
	Continuing operations	1,602	1,840	1,892	969	(1,247)	(1,102)	(12,485)	(437)
	Discontinued operations	-	-	-	(181)	17	287	(233)	4
	Total	1,602	1,840	1,892	788	(1,230)	(815)	(12,718)	(433)
Basic & diluted earnings (loss) per share
	Continuing operations	0.06	0.06	0.07	0.03	(0.04)	(0.04)	(0.44)	(0.02)
	Total	0.06	0.06	0.07	0.02	(0.04)	(0.03)	(0.45)	(0.02)

(1)	The 2010 comparative information has been adjusted for IFRS requirements from the amounts reported under previous GAAP.
(2)	The discontinued operations are the steel tank division which was sold May 31, 2011, and the Home Heating Oil Tank division, which ZCL sold June 14, 2010, because they were not part of ZCL's core business.

MD&A and Financial Statements

The Company's management's discussion and analysis ("MD&A") and unaudited interim condensed consolidated financial statements for the first quarter ended March 31, 2012 are available on Sedar at www.sedar.com and the ZCL website at this link: http://www.zcl.com/investor-relations/financials.html.

Conference Call

ZCL Composites Inc. has scheduled an investor conference call for 9:30 a.m. Mountain Time (11:30 a.m. Eastern Time) on Wednesday, May 9, 2012, to discuss the first quarter financial and operating results for 2012.

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 Underground and Aboveground Fluid Containment operating segments, 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 and 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, 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.

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 weakness in the US and Canada, tighter lending standards, volatile capital markets, lower commodity prices, the severity of the US housing crisis 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.

Rod Graham
President & CEO
ZCL Composites Inc.
[phone]
[email protected]

Kathy Demuth
Chief Financial Officer
ZCL Composites Inc.
[phone]
[email protected]