ZCL Composites Reports Q1 2017 Financial Results

EDMONTON, May 3, 2017 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the first quarter ended March 31, 2017. 

Q1 2017 compared with Q1 2016 (Continuing Operations)

• Revenue of $31.7 million, down $3.2 million or 9% from $34.9 million;
• Gross profit of $6.1 million (19% of revenue), down $1.6 million or 20% from $7.7 million (22% of revenue);
• Net income of $0.9 million or $0.03 per share (fully diluted), down $1.2 million or $0.04 per share from $2.1 million or $0.07 per share (fully diluted);
• Excluding the impact of the withholding taxes on the repatriation of earnings in the US required to fund the Q1 2017 special dividend of $20.0 million, earnings per share from continuing operations would have been $0.05; and
• Adjusted EBITDA of $3.2 million (10% of revenue), down $0.9 million from $4.0 million (12% of revenue).

"As we enter our 30^th Anniversary year, we remain optimistic about ZCL's future.  Although revenue of $31.7 million was down 9% compared to the first quarter of 2016, due primarily to poor weather conditions in large parts of North America, our strong backlog of $50.8 million as at March 31, 2017 gives us reasonable confidence that the slow start is a seasonal issue that is not indicative of our more positive outlook for the rest of 2017," said Ron Bachmeier, President and Chief Executive Officer. 

"Looking ahead, our market intelligence and customer feedback give us confidence that for the full year we will achieve our 2017 objectives.  As we have shared in the past, our 10/10/10 objective for achieving minimum 10% Compound Annual Growth Rates (CAGR) in revenues, earnings, and our dividend, all while being responsible stewards and prudent allocators of capital, forms the foundation for our long term strategy," continued Mr. Bachmeier.

"ZCL is preparing the company for the next phase of growth by investing in our business in areas such as sales and marketing, human capital management, information technology, employee safety and hygiene and operational improvements.  Although not reflected in current gross margin results, we believe the investments we are making now will result in increasing levels of profitability as we grow our business in the future," said Mr. Bachmeier.

Dividends

The Board has declared a quarterly dividend of $0.12 per share, the same rate as the prior quarter and a 50% increase over the $0.08 declared at the same time last year.  The dividend will be paid on July 17, 2017, to the shareholders of record as of June 30, 2017.

Backlog

Backlog was $50.8 million as at March 31, 2017, up $4.4 million or 10%, from $46.4 million a year earlier. 

Fuel Markets backlog of $42.9 million was $4.8 million or 13% higher compared to the first quarter of 2016, with the increase primarily derived from Canadian Fuel Markets which were up $3.5 million or 122%.

Water & Wastewater Markets backlog of $4.8 million, was comparable to the quarter ended March 31, 2016. US Water & Wastewater markets were up slightly, compared with a year earlier.  Canadian Water & Wastewater Markets were down $0.4 million compared to the same quarter in 2016.

Oil & Gas/Industrial Market backlog of $3.1 million was down 11% from $3.5 million a year earlier. Oil & Gas backlog increased by $1.2 million compared with a year earlier, with the bulk of this increase stemming from Western Canadian markets.  This increase was more than offset by a decrease in US Industrial Market backlog.

The total backlog increased by $15.2 million or 43% from $35.6 million at December 31, 2016, driven by the Fuel markets which were up $14.0 million or 48% compared to a quarter earlier.  Certain Fuel Markets customers delayed shipment of product due to poor weather conditions, shifting some orders into the second quarter of 2017.  Water & Wastewater Markets backlog was up $0.9 million or 23% and Oil & Gas/Industrial Market backlog was up $0.3 million or 11% compared to December 31, 2016.

Financial Position

Our balance sheet remained strong, with working capital of $51.6 million and a cash and cash equivalents balance of $25.1 million after the payment of $22.5 million in dividends in the first quarter of 2017.  We are keeping our balance sheet strong to maintain flexibility and preserve our ability to take advantage of future growth opportunities that may arise.

2017 Outlook

As we have shared in the past, our 10/10/10 objective for achieving minimum 10% Compound Annual Growth Rates (CAGR) in revenues, earnings, and our dividend forms the foundation for our long term strategy and all indications suggest our 2017 objectives are achievable.

Summary Financial Results

For the three months ended		2017	2016				2015
(in thousands of dollars,		Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
except per share amounts)		$	$	$	$	$	$	$	$
Revenue by Market:
	Fuel	26,913	39,030	49,664	34,978	29,118	34,501	46,278	32,936
	Water & Wastewater	4,202	6,433	5,902	6,213	4,398	6,758	6,794	6,783
	Oil & Gas/Industrial	626	1,139	2,319	3,528	1,400	3,139	2,564	1,750
Total revenue		31,741	46,602	57,885	44,719	34,916	44,398	55,636	41,469
Net income
	Continuing operations	919	5,749	7,741	4,396	2,132	4,774	7,896	3,883
	Discontinued operations (note 1)	(37)	146	(1,249)	(2,842)	(1,094)	(889)	(2,691)	(483)
Total net income		882	5,895	6,492	1,554	1,038	3,885	5,205	3,400
Adjusted EBITDA (note 2)		3,171	9,418	12,125	7,387	4,048	7,062	12,172	6,619
Basic and diluted earnings per share
	Continuing operations	0.03	0.19	0.25	0.14	0.07	0.16	0.26	0.13
	Total	0.03	0.19	0.21	0.05	0.03	0.13	0.17	0.11
Adjusted EBITDA per diluted share (note 2)		0.10	0.30	0.39	0.24	0.13	0.23	0.40	0.22
Dividends declared per share		0.77	0.08	0.08	0.08	0.58	0.05	0.045	0.045
Note 1: The discontinued operations are the ZCL Dualam operations which were exited in the third quarter of 2016, due to continued and expected future operating losses.
Note 2: Adjusted EBITDA and adjusted EBITDA per diluted share are non-IFRS measures and are defined later in this Press Release under "Non-IFRS Measures."

The Company's management's discussion and analysis ("MD&A") and unaudited interim condensed consolidated financial statements for the first quarter ended March 31, 2017, 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 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Thursday, May 4, 2017, to discuss its financial and operating results for the first quarter ended March 31, 2017. 

To access the conference call by telephone, please call [phone] from the greater Toronto area, or dial toll free 888-231-8191 from elsewhere in North America.  An audio webcast may be accessed through the Investor Events tab on the ZCL website at http://www.zcl.com/investor-relations/investor-events.html. Audio replays will be available on the ZCL website shortly after the conclusion of the conference call.

The conference call will include prepared remarks by ZCL's President and Chief Executive 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.

Annual General Meeting

ZCL will be hosting its Annual General Meeting on Thursday May 4, 2017, at 2:00 pm MT, to be held at the Hampton Inn by Hilton, 10020 12 Ave SW, Edmonton, AB.  All shareholders and institutional investors are invited to attend this meeting.

Note on Non-IFRS Measures:

ZCL uses both IFRS and non-IFRS measures to make strategic decisions and to set targets and believes that these non-IFRS measures are useful for providing securities analysts, investors, and other interested parties with additional information to assist them in understanding components of our financial results.  This includes a more complete understanding of factors and trends affecting our operating performance.  Adjusted EBITDA, adjusted EBITDA per diluted share and working capital are non-IFRS measures that are used by ZCL and may not be comparable to similar measures used by other companies.

Adjusted EBITDA and adjusted EBITDA per diluted share

Adjusted EBITDA is defined as income from continuing operations before finance expense, income taxes, share-based compensation, depreciation of property, plant and equipment, amortization of intangible assets, gains or losses on sale of assets, and impairment of assets.  Adjusted EBITDA per diluted share is defined as adjusted EBITDA divided by weighted average diluted shares outstanding.

Working Capital

Working capital is defined as current assets less current liabilities.

About ZCL Composites Inc.

Our mission is to deliver Peace of Mind through corrosion resistant solutions that preserve and protect the environment.  More information about ZCL is available on our website at www.zcl.com.

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 Fuels, Water and Wastewater, Oil and Gas, and Industrial markets, efforts to reduce administrative and production costs, manage production levels, anticipated capital expenditure trends, activity in the Fuels 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," "forecast" 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 Fuel, Water and Wastewater, Oil and Gas, and Industrial 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 dollar, euro 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 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 global economic uncertainty, 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 conversion rates of the US dollar to Canadian dollar and euro to Canadian dollar 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 press release. 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. 

SOURCE ZCL Composites Inc.

Ron Bachmeier, President & CEO, ZCL Composites Inc., [phone], [email protected]; Kathy Demuth, Chief Financial Officer, ZCL Composites Inc., [phone], [email protected]

Related Links

http://www.zcl.com