ZCL Composites Reports Q4 and Fiscal 2017 Financial Results

EDMONTON, March 7, 2018 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the fourth quarter and year ended December 31, 2017.  ZCL also declared a 13% increase in the quarterly dividend.

Q4 2017 compared with Q4 2016 (Continuing Operations)

• Revenue of $50.7 million, up $4.1 million or 9% from $46.6 million;
• Gross profit of $11.9 million (24% of revenue), up $0.3 million or 3% from $11.6 million (25% of revenue);
• Net income of $6.1 million or $0.20 per share (fully diluted), up $0.4 million or $0.01 per share from $5.7 million or $0.19 per share (fully diluted);
• Adjusted EBITDA of $9.2 million (18% of revenue), down $0.2 million or 2% from $9.4 million (20% of revenue); and
• Increase of the quarterly dividend to $0.135 per share, up 13% from $0.12 per share, to be paid on April 16, 2018 to shareholders of record on March 31, 2018.

Fiscal year 2017 compared with 2016 (Continuing Operations)

• Record revenue of $188.2 million, up $4.0 million or 2% from $184.1 million;
• Gross profit of $41.4 million (22% of revenue), down $1.9 million or 4% from $43.3 million (24% of revenue);
• Net income of $18.4 million or $0.59 per share (fully diluted), down $1.6 million or 8% from $20.0 million or $0.65 per share (fully diluted);
• Adjusted EBITDA of $31.2 million (17% of revenue), down $1.8 million or 5% from $33.0 million (18% of revenue); and
• Backlog of $31.0 million, down $4.6 million or 13% from $35.6 million.

"ZCL ended 2017 on a high note as a result of strong fourth quarter sales and profitability," said Ron Bachmeier, President and Chief Executive Officer.  "Revenue of $50.7 million was up 9% from the same quarter a year earlier with increases in all market segments.  Gross profit was up 3%, compared with the fourth quarter in 2016." 

"Overall, revenues were up compared to a year earlier and even though gross profit was impacted due to a number of investments supporting manufacturing innovation, sales and marketing initiatives, employee safety and plant physical condition, we believe these strategic initiatives will benefit the Company and positively impact profitability in 2018 and beyond," said Mr. Bachmeier.

Increase in Quarterly Dividend

While continuing to search out profitable growth opportunities, we are pleased to again demonstrate our commitment to sharing ZCL's success with our shareholders in the form of a 13% increase in our quarterly dividend, from $0.12 per share per quarter ($0.48 per share annually) to $0.135 per share per quarter ($0.54 per share annually).

Backlog

Backlog was $31.0 million as at December 31, 2017, compared to $35.6 million a year earlier, and reflected a negative foreign exchange translation impact. 

Fuel Markets backlog of $26.7 million was down $2.2 million or 8% compared to a year earlier.  The decrease in Fuel backlog was driven by the change in the foreign exchange rate from 1.34 at December 31, 2016 to 1.26 at December 31, 2017.  On a source currency basis, Fuel backlog was comparable to a year earlier.

Water & Wastewater backlog of $3.6 million was down $0.3 million compared with a year earlier, due to a reduction in the US dollar exchange rate, compared with a year earlier.  On a source currency basis, Water & Wastewater backlog was comparable to a year earlier.

Oil & Gas/Industrial Products backlog of $0.7 million was down $2.1 million from $2.8 million a year earlier. ZCL ceased offering products to Industrial and Oil Sands Markets in 2017, resulting in a $2.5 million reduction in Oil & Gas/Industrial backlog.   

The total backlog decreased by $12.3 million or 28% from $35.6 million at September 30, 2017.  On a source currency basis, overall backlog decreased $10.3 million or 29% from the prior quarter, primarily due to the normal seasonal nature of the business.

Financial Position

At December 31, 2017, ZCL's balance sheet had working capital of $52.9 million, down $20.8 million from $73.7 million as at December 31, 2016.  The majority of the decrease was a result of a decrease in cash and cash equivalents and inventory partially offset by a reduction in deferred revenue when compared to a year earlier.  During 2017, cash decreased $17.7 million to $25.6 million as at December 31, 2017, primarily due to dividends paid of $33.7 million, partially offset by cash generated on funds from continuing operations of $23.0 million. 

2018 Outlook

At this point, we anticipate first quarter 2018 revenue will be comparable with the first quarter of 2017.  However, due to the combination of rising resin prices, negative foreign exchange translation and spending on operational improvement programs that are expected to benefit future periods, we anticipate first quarter 2018 results to be down from 2017.

For the full year 2018, we expect organic growth 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. 

We are implementing some important improvements on how we operate as a company as we strive toward operational excellence.  These improvements include the real time capturing and reporting of market and business intelligence data to make timely, data-based decisions that will increase our sales pipeline, improve our operational efficiency, and better serve our ability to ability to meet customer needs and enable ZCL to address new markets for our products.

In addition, continual product and process innovation efforts are expected to improve manufacturing efficiencies and throughput. We have also prioritized an increased focus on health and safety for our employees within our manufacturing facilities. These initiatives are necessary to support our long term profitable growth strategy.

As our normal business cycle results in increasing revenues beyond the first quarter, we expect these operational improvement investments will deliver higher profitability in 2018 and beyond.

Succession Planning Update

The Governance & Compensation Committee of the Board, working with our executive search firm, has been making good progress on CEO succession, but the process is not complete and requires additional time. As a result, Ron Bachmeier has agreed to postpone his retirement until June 30, 2018, if the additional time is needed to complete the succession process.

Capital Allocation

Our Board of Directors continues to evaluate its options for capital allocation which includes cash distributions through dividends.  However, this evaluation process requires more time, and we expect to provide more information when we release our first quarter 2018 results.

Summary Financial Results

For the three months ended		2017				2016
(in thousands of dollars,		Dec 31	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31
except per share amounts)		$	$	$	$	$	$	$	$
Total Revenue		50,701	52,421	53,306	31,741	46,602	57,885	44,719	34,917
Net income
	Continuing operations	6,114	5,357	6,031	919	5,749	7,741	4,396	2,132
	Discontinued operations (note 1)	27	(52)	(374)	(37)	146	(1,249)	(2,842)	(1,093)
	Total	6,141	5,305	5,657	882	5,895	6,492	1,554	1,039
Adjusted EBITDA (note 2)		9,241	9,306	9,467	3,172	9,418	12,125	7,387	4,046
Basic and diluted earnings per share
	Continuing operations	0.20	0.17	0.19	0.03	0.19	0.25	0.14	0.07
	Total	0.20	0.17	0.18	0.03	0.19	0.21	0.05	0.03
Adjusted EBITDA per diluted share (note 2)		0.30	0.30	0.30	0.10	0.30	0.39	0.24	0.13
Dividends declared per share		0.12	0.12	0.12	0.77	0.08	0.08	0.08	0.58

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 consolidated financial statements for the years ended December 31, 2017 and 2016, are available on SEDAR at www.sedar.com and the ZCL website at this link: https://www.zcl.com/en/investor-relations/financial.

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, March 8, 2018, to discuss its financial and operating results for the year and fourth quarter ended December 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 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.

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.

please contact: 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