ZCL Composites Reports Q1 2018 Financial Results & Special Dividend

EDMONTON, May 3, 2018 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the first quarter ended March 31, 2018. 

Q1 2018 compared with Q1 2017 (Continuing Operations)

• Revenue of $31.9 million, up $0.2 million from $31.7 million;
• Gross profit of $4.6 million (15% of revenue), down $1.5 million or 24% from $6.1 million (19% of revenue);
• Net income of $0.5 million or $0.02 per share (fully diluted), down $0.4 million or $0.01 per share from $0.9 million or $0.03 per share (fully diluted);
• Adjusted EBITDA of $1.5 million (5% of revenue), down $1.7 million from $3.2 million (10% of revenue);
• Backlog of $44.9 million, down $5.9 million or 12%, from $50.8 million;
• Quarterly dividend of $0.135 per share, up 13% from $0.12 per share, to be paid on July 16, 2018 to shareholders of record on June 30, 2018; and
• Special dividend of $0.40 per share to be paid on June 15, 2018 to shareholders of record on May 31, 2018.

"The first quarter 2018 revenue was comparable with the first quarter of 2017," said Ron Bachmeier, President and Chief Executive Officer.  "However, due to the combination of rising resin prices, negative foreign exchange translation and planned investments on operational improvement programs that are expected to benefit future periods, our first quarter 2018 profitability was down from 2017. 

"Despite the slow first quarter, feedback from our customers and other market intelligence give us confidence in our ability to achieve our 2018 objectives in terms of growth in revenue and earnings," said Mr. Bachmeier.

Update on Strategic Options

ZCL is providing an update on a recently completed confidential review of various value maximizing strategies for the Company. 

The ZCL Board of Directors regularly considers strategic options to create shareholder value.  As part of this process, in August of 2017, the Board struck a Special Committee of independent directors and engaged Raymond James Ltd., to assist in exploring and evaluating a comprehensive and wide range of strategic and financial alternatives to enhance shareholder value.  The conclusion of this extensive and thorough process did not bring forward actionable, value-maximizing alternatives, in form or substance, for the Board to recommend them for shareholder approval. 

ZCL's Board and Management team believe the best option for Shareholders at this time, is for the Board to complete the process for appointing a new CEO, to support the leadership team in reviewing and updating our strategy for the immediate future, and to maintain its consistent and robust dividend policy, while focusing on expanding revenue growth and improving margins.

Update on CEO Succession

The Board established an extensive recruiting plan for CEO succession in early November, 2017.  Although this process is progressing well, it has been delayed by the Strategic Options review, which necessitated prudent pauses in the schedule.  The Board is negotiating an agreement with the preferred candidate and will be providing a further update on CEO succession after a written employment agreement is completed and can be disclosed.  To ensure a smooth transition, our current President and CEO, Ron Bachmeier will remain in the role until June 30, 2018, and will be available to provide advisory and other services to the new CEO until September 30, 2019.

Dividends and Capital Allocation

The Board has declared a quarterly dividend of $0.135 per share, the same rate as the prior quarter and a 13% increase over the $0.12 declared at the same time last year.  The dividend will be paid on July 16, 2018, to the shareholders of record as of June 30, 2018.

The Board has also declared a special dividend of $0.40 per share to the shareholders of record on May 31, 2018.  The dividend will be paid on June 15, 2018.

In addition, we have currently allocated $5 million toward future share repurchases under our NCIB.

Backlog

Backlog was $44.9 million as at March 31, 2018, down $5.9 million or 12%, from $50.8 million a year earlier. 

Fuel Markets backlog of $40.5 million was $2.5 million or 6% lower compared to the first quarter of 2017, with the decrease primarily derived from Canadian Fuel Markets which were down $2.2 million after a seasonably strong first quarter of 2018 in revenue. On a source currency basis, the US Fuel backlog was up $0.5 million compared to the same quarter a year earlier.

Water & Wastewater Markets backlog of $3.8 million, was down $1.0 million compared to the quarter ended March 31, 2017. US Water & Wastewater Markets were down $0.6 million (source currency), prior to a $0.3 million negative impact on the conversion of US dollar denominated backlog to Canadian dollars for reporting purposes.  Canadian Water & Wastewater Markets were comparable to the same quarter in 2017.  

Oil & Gas Market backlog of $0.7 million was down $2.4 million from $3.1 million a year earlier. ZCL ceased offering products to Industrial & Oil Sands Markets in 2017, resulting in the year over year decrease in backlog of $2.5 million.

The total backlog increased by $13.9 million or 45% from $31.0 million at December 31, 2017, driven by the Fuel Markets which were up $13.8 million compared to a quarter earlier.  Water & Wastewater and Oil & Gas Markets were comparable to December 31, 2017.  The increase in backlog over the prior quarter was due to the normal seasonal nature of the business.

Financial Position

Our balance sheet remained strong, with working capital of $51.4 million and a cash and cash equivalents balance of $17.6 million.  We are keeping a strong balance sheet to maintain flexibility and preserve our ability to take advantage of future growth opportunities that may arise.

2018 Outlook

For the full year of 2018, we expect revenue to increase from the modest growth levels achieved in 2017, particularly on a source currency basis. We expect this growth to come from a combination of market growth in our core Fuel Markets with the continued replacement of the aged infrastructure and new to industry construction, market share gains against steel in our existing Fuel and Oil & Gas Markets, and market share gains against concrete in Water & Wastewater Markets. We also expect to achieve growth by expanding our product offerings across all revenue segments, and by developing new or adjacent markets for our current products. 

Our seasonal business cycle typically delivers increasing revenues throughout the year on a sequential quarter basis, with the seasonal low in the first quarter. We expect improved results in the second quarter compared with the first quarter of 2018. However, the second quarter of 2018 may not match the exceptionally strong results in the second quarter of 2017.

We also expect that the operational improvement investments we have made to date will deliver improved profitability over the long term and in the second half of 2018 compared with the second half of 2017.

We remain confident in meeting our 10/10/10 objectives of revenue, profit and dividend growth over the longer term, even though the attainment of these growth percentages in each individual year is not guaranteed.

Summary Financial Results

For the three months ended		2018	2017				2016
(in thousands of dollars,		Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30
except per share amounts)		$	$	$	$	$	$	$	$
Total Revenue		31,882	50,701	52,421	53,306	31,741	46,602	57,885	44,719
Net income
	Continuing operations	486	6,114	5,357	6,031	919	5,749	7,741	4,396
	Discontinued operations (note 1)	-	27	(52)	(374)	(37)	146	(1,249)	(2,842)
Total net income		486	6,141	5,305	5,657	882	5,895	6,492	1,554
Adjusted EBITDA (note 2)		1,479	9,241	9,306	9,467	3,172	9,418	12,125	7,387
Basic and diluted earnings per share
	Continuing operations	0.02	0.20	0.17	0.19	0.03	0.19	0.25	0.14
	Total	0.02	0.20	0.17	0.18	0.03	0.19	0.21	0.05
Adjusted EBITDA per diluted share (note 2)		0.05	0.30	0.30	0.30	0.10	0.30	0.39	0.24
Dividends declared per share		0.135	0.12	0.12	0.12	0.77	0.08	0.08	0.08

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, 2018, are available on SEDAR at www.sedar.com and the ZCL website at this link: https://www.zcl.com/en/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 Friday, May 4, 2018, to discuss its financial and operating results for the first quarter ended March 31, 2018.

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 https://www.zcl.com/en/investor-relations/webcasts.  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 & Special Meeting

ZCL will be hosting its Annual General & Special Meeting on Friday, May 4, 2018, at 2:00 pm MT, to be held at the Four Points Sheraton, 10010 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 press release contains forward-looking statements and forward-looking information as defined under applicable securities legislation (collectively, "forward-looking statements") under the heading "Outlook" and elsewhere concerning future events or the Company's future performance.  All statements other than statements of historical fact are forward-looking statements 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 Fuel, Water & Wastewater, Oil & Gas and International markets, efforts to reduce administrative and production costs, manage production levels, anticipated capital expenditure trends, activity in the fuel 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. The use of any of the words such as "seek," "anticipate," "plan," "contemplate," "continue," "estimate," "expect," "intend," "propose," "forecast," "may," "will," "shall," "project," "predict," "potential," "targeting," "intend," "could," "might," "should," "believe" and similar expressions are intended to identify forward-looking statements.  These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.  No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this document should not be unduly relied upon.

These factors include, but are not limited to, fluctuations in the level of capital expenditures in the Fuel, Water & Wastewater, and Oil & Gas 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 press release and other documents filed with Canadian provincial securities authorities. These documents are available to the public at www.sedar.com.  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, tight 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 press release 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 press release are expressly qualified by this cautionary statement. 

SOURCE ZCL Composites Inc.

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

Related Links

http://www.zcl.com