ZCL Composites Reports First Quarter 2009 Financial Results



    EDMONTON, May 7 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced
financial results for the first quarter ended March 31, 2009.

    
    Q1 2009 summary compared with Q1 2008

    -   Net loss of $1.4 million, compared with net income of $1.4 million
    -   Diluted loss per share of $0.05, compared with diluted earnings per
        share of $0.05
    -   Revenue of $19.7 million, down 17% from $23.8 million
    -   Backlog of $25.4 million, up 16% from $21.9 million
    

    "These financial results reflect our typically slower first quarter
combined with the impact of the North American economy," said Ven Côté, ZCL's
President and Chief Executive Officer. "As we anticipated, some of our
customers were impacted by the economic downturn, lower commodity prices and,
in some cases, a scarcity of credit. Looking ahead, we expect revenue and
earnings to improve in the seasonally stronger second quarter. We also expect
to continue to capitalize on opportunities to capture market share in the
downstream petroleum, water and wastewater and international markets."
    "An exception to the overall revenue decline was sales to major retail
petroleum customers, which rose in the first quarter of 2009 compared to the
first quarter of 2008. This increase was due to the new customers that we
added in 2008 and early in 2009", commented Mr. Côté. "We attribute the
customer growth to an increasing recognition of the superior corrosion
resistant properties of fibreglass."
    At the end of the first quarter of 2009, ZCL remained in a strong
financial position with working capital of $24.9 million, total assets of
$120.9 million and long term debt of $6.0 million. Working capital at the end
of the first quarter was significantly higher than $17.8 million a year
earlier, but was down from $28.9 million at December 31, 2008.
    ZCL's backlog totalled $25.4 million at March 31, 2009, up 17% from $21.8
million at December 31, 2008 and up 16% from $21.9 million at March 31, 2008.
The increase from December 31, 2008 reflects the seasonality of ZCL's business
and the increase from March 31, 2008 was due to a higher US to Canadian dollar
conversion rate.

    Outlook

    Looking ahead, revenue and earnings are expected to improve in the
seasonally stronger second quarter, however trending lower than the same
quarter last year. For 2009 as a whole, the Company is now targeting to
achieve revenue consistent with 2008, but even so, the current economic
environment may lead to lower revenue in 2009 compared with 2008.
Notwithstanding the economy, the Company expects to generate solid
profitability over the balance of the year.
    The Company also remains focused on pursuing initiatives to continue to
capture market share in the downstream petroleum, water and wastewater and
international markets.

    Downstream Petroleum Market

    Downstream petroleum revenue declined in the first quarter of 2009,
compared to the first quarter of 2008, as lower distributor sales more than
offset increased sales direct to major retail service station owners. The
Company believes that the lower distributor sales resulted from the impact of
the economy, while the increased sales to major downstream petroleum customers
reflected the continued attraction of new customers and the consistent buying
patterns and financial strength of these larger companies.
    The Company continued to attract new downstream petroleum customers in
the first quarter, continuing the trend from 2008. Management believes this
customer growth reflects growing recognition by retail service station owners
that steel petroleum storage tanks are subject to internal corrosion and that
fibreglass tanks, such as ZCL's, have superior corrosion resistant properties.
Two factors that have contributed to the growing recognition of internal
corrosion are advances in the use of biofuels which create a more corrosive
environment and a decision by the Steel Tank Institute ("STI") to reduce the
warranty on new STI licensed tanks to 10 years from 30 years effective January
1, 2008. ZCL's warranty against corrosion for its fibreglass tanks remains
intact at 30 years.

    Prezerver(R) Enhanced Protection Program

    ZCL recently introduced its insurance backed Prezerver(R) Enhanced
Protection Program to US customers. This program, which provides customers
with third-party liability and pollution coverage, has allowed ZCL to
differentiate itself in the Canadian downstream market and should further help
ZCL to grow market share in the US downstream market.

    Regulation in Florida

    In the state of Florida, regulators have set a deadline of December 31,
2009 for all existing underground single wall petroleum storage tanks to be
upgraded or replaced with a secondary containment system. Even with the
approaching deadline, sales of both new tanks and materials for Phoenix
System(TM) lining installations in Florida were down in the first quarter of
2009 compared to the same quarter last year. Overall for 2009, tank and lining
related sales for Florida are expected to be similar to 2008, but with the
purchases primarily occurring in the second half of the year.
    While many site owners will not complete the upgrades by the deadline for
financial reasons, the station owners will then have a further two years to
decide whether to upgrade to secondary containment or pay for the permanent
decommissioning of their tanks. ZCL remains optimistic that a number of these
Florida service stations will choose to upgrade by the end of 2011 if they
miss the 2009 deadline.

    Water and Wastewater Market

    Over the past number of years, the Company has generated strong growth
from the water and wastewater market. With this growth, water and wastewater
sales now account for roughly 20% of ZCL's total revenue. While sales were
down in the first quarter of 2009, the Company continues to believe that
growth is achievable through the continued identification and pursuit of new
opportunities and through the capture of market share since ZCL only has a
very small share of the substantial market. Customers are beginning to realize
that ZCL's watertight and easy to install fibreglass tanks are an ideal
alternative to the concrete products that have traditionally dominated this
market. Additional resources and initiatives have been directed to this market
and these investments are expected to contribute to continued growth.

    International and Other Markets

    ZCL has increased its focus on attracting international licensees for its
tank manufacturing and Phoenix System(TM) technologies. Strong interest has
been generated to date and it is expected that new license agreements will be
completed in 2009. The license agreements provide upfront payments and ongoing
royalties and will result in the sale of ZCL proprietary products that are
required in the manufacturing or installation of certain of the licensed
products.
    ZCL also continues to pursue additional opportunities for its tank lining
system in the US, and in Canada, Europe and South East Asia. Success was
achieved in the first quarter of 2009 with new sites completed for a customer
in the US and more installations are planned over the remainder of 2009. In
addition, contracted installations in Hong Kong in 2009 are expected to be
similar to 2008.

    Foreign Exchange Rates

    Foreign exchange rates will have an impact on revenue and expenses in
2009 as approximately two-thirds of ZCL's business activity is denominated in
US dollars. In 2008, the US to Canadian dollar conversion rate averaged
approximately 1.07, with the rate averaging about 1.02 through the first nine
months and increasing to 1.22 in the fourth quarter. The conversion rate has
remained in the 1.20 range through the early part of 2009. A higher US dollar
relative to the Canadian dollar is expected to have a positive impact on
overall revenue and earnings.

    Summary

    Over the longer term, ZCL's objective of achieving average revenue growth
of 15% to 20% per annum remains intact, as does the objective of improving
EBITDA to 20% of revenue. ZCL has a strong balance sheet, and as a result, is
well positioned to take advantage of strategic business development and
acquisition opportunities that may become available.

    
    Summary Financial Results

                         First quarter ended March 31
    -------------------------------------------------------------------------
    (in thousands, except per share amounts)                  2009      2008
    -------------------------------------------------------------------------
    Revenue                                                $19,681   $23,797
    -------------------------------------------------------------------------
    Net income (loss)                                      ($1,356)   $1,353
    -------------------------------------------------------------------------
    Diluted earnings (loss) per share                       ($0.05)    $0.05
    -------------------------------------------------------------------------
    Average number of shares (diluted)                      26,456    26,596
    -------------------------------------------------------------------------
    

    The management's discussion and analysis ("MD&A") and unaudited interim
consolidated financial statements for the quarter ended March 31, 2009 are
available on the ZCL website at this link:
www.zcl.com/investors/corpdisclosure.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 Friday, May 8, 2009, to
discuss its financial and operating results for the first quarter and year
ended March 31, 2009.
    To access the conference call by telephone, please dial toll free
1-800-587-1893 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, Ven Côté, and by ZCL's Chief Financial Officer, Darin
Coutu. 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 for revenue growth and EBITDA
(earnings before interest, taxes, depreciation and amortization), business
opportunities in the petroleum, water and wastewater, international and other
markets, outlook for raw material costs and production efficiencies,
anticipated capital expenditure trends and activity in the petroleum and other
industries and markets served by the Company. 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 and water and wastewater
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 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 the Company's management's discussion and analysis for the quarter ended
March 31, 2009 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 significant economic instability in the world today 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 the economic
downturn in the US and Canada, tighter lending standards, volatile capital
markets, falling commodity prices, the severity of the US housing crisis and
other factors could negatively impact demand 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.

    %SEDAR: 00003872E




For further information:

For further information: Ven Côté, President & CEO, ZCL Composites Inc.,
(780) 466-6648, ven.cote@zcl.com; Darin Coutu, Chief Financial Officer, ZCL
Composites Inc., (780) 466-6648, darin.coutu@zcl.com


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