ZCL Composites Reports Q4 and Fiscal 2016 Record Financial Results, Special Dividend and a 50% Increase in Quarterly Dividend

EDMONTON, March 8, 2017 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the fourth quarter and year ended December 31, 2016.  ZCL also declared a special dividend and a 50% increase in the regular quarterly dividend.

Fiscal year 2016 compared with 2015 (Continuing Operations)

  • Record revenue of $184.1 million, up $19.2 million or 12% from $164.9 million;
  • Record gross profit of $43.3 million (24% of revenue), up $8.1 million or 23% from $35.2 million (21% of revenue);
  • Record net income of $20.0 million or $0.65 per share (fully diluted), up $2.5 million or 14% from $17.5 million or $0.58 per share (fully diluted);
  • Record adjusted EBITDA of $33.0 million (18% of revenue), up $4.8 million or 17% from $28.1 million (17% of revenue);
  • Backlog of $35.6 million, down $2.8 million or 7% from $38.5 million;
  • Increase of the quarterly dividend to $0.12 per share, up 50% from $0.08 per share, to be paid on April 17, 2017 to shareholders of record on March 31, 2017; and
  • Special dividend of $0.65 per share to be paid on March 31, 2017 to shareholders of record on March 17, 2017.

 

Q4 2016 compared with Q4 2015 (Continuing Operations)

  • Revenue of $46.6 million, up $2.2 million or 5% from $44.4 million;
  • Gross profit of $11.6 million (25% of revenue), up $2.7 million or 30% from $9.0 million (20% of revenue);
  • Net income of $5.7 million or $0.19 per share (fully diluted), up $1.0 million or $0.03 per share from $4.8 million or $0.16 per share (fully diluted); and
  • Adjusted EBITDA of $9.4 million (20% of revenue), up $2.4 million or 33% from $7.1 million (16% of revenue).

 

"2016 was a transitional year for ZCL," said Ron Bachmeier, President and Chief Executive Officer.  "While achieving record results in revenue, gross profit, net income and adjusted EBITDA from continuing operations, we successfully exited the ZCL Dualam operations.  This transition has allowed us to re-focus our efforts on our core and emerging markets where we have a significant competitive advantage and offer our customers a unique value proposition."

Special Dividend and Increase in Quarterly Dividend

"We remain committed to being prudent stewards of the capital we have been entrusted to manage," said Ron Bachmeier, President and Chief Executive Officer.  "We are pleased to again demonstrate our commitment to sharing ZCL's success with our shareholders while preserving our strong balance sheet and maintaining the necessary flexibility to take advantage of future growth opportunities as they may arise.  ZCL's board has decided to substantially increase its distribution to shareholders through two initiatives: a one-time special dividend of $0.65 per share and a 50% increase in our quarterly dividend to $0.12 per share.  The increase in our quarterly dividend is a reflection of our confidence in ZCL's ability to generate consistent and sustainable funds from operations."

Backlog

Backlog was $35.6 million as at December 31, 2016, compared to $38.5 million a year earlier. 

Petroleum Products backlog of $29.4 million was down $2.1 million or 7% compared to a year earlier.  The decrease in Petroleum Products backlog was driven by the change in the foreign exchange rate from 1.39 at December 31, 2015 to 1.34 at December 31, 2016.  On a source currency basis, Petroleum Products backlog was down $0.9 million compared to a year earlier with the bulk of the decrease derived from midstream and upstream customers compared with a year earlier.

Water Products backlog of $3.9 million was down 4% compared with a year earlier.  The reduction in backlog was reflected in the Canadian backlog which was down $0.1 million compared to a year earlier.  On a source currency basis, Water Products backlog was comparable to a year earlier.

Industrial Products backlog of $2.3 million was down $0.7 million from $3.0 million a year earlier.  The year over year reduction in backlog was driven by a $1.9 million decrease in Western US backlog, partially offset by a $1.2 million increase in the Oil Sands sector of Western Canada. 

The total backlog decreased by $10.9 million or 23% from $46.5 million at September 30, 2016 due to the normal seasonal nature of the business.  Petroleum Products backlog was down $12.1 million or 29% compared to a quarter earlier.  Water Products was down $0.5 million or 12% and Industrial Products backlog was up $1.7 million compared with September 30, 2016.

Financial Position

At December 31, 2016, ZCL's balance sheet had working capital of $73.7 million, down $3.0 million from $76.8 million as at December 31, 2015.  The majority of the decrease was a result of a decrease in inventory partially offset by a reduction in accounts payable when compared to a year earlier.  During 2016, cash increased $3.0 million to $43.2 million as at December 31, 2016, primarily due to cash generated on funds from continuing operations of $23.6 million during 2016, offset by dividends paid of $24.0 million during 2016.  

2017 Outlook

Our portfolio of products possesses significant competitive advantages and presents a strong unique value proposition to our customers.  We continue the pursuit of profitable growth opportunities across all business units and have shifted our business alignment strategy from product to market focused segments to better support our customer needs.  These market segments are Fuel, Water and Wastewater, and Oil & Gas/Industrial.  This transition allows ZCL to better understand market trends and provide high value added solutions resulting in further expansion of our core and emerging markets.

In addition to our pursuit of profitable growth opportunities, we maintain our focus on continuous improvement initiatives within our manufacturing group.  During 2016, our progress to be more efficient in our manufacturing operations was demonstrated by our improvement in gross margin, from 21% in 2015 to 24% in 2016.  For 2017 and beyond, we have a number of high value projects underway to use increased automation, incorporate advanced materials, and implement process changes to continue to drive down our cost of manufacturing.  We are also reinforcing our internal processes in other areas of the company, including human capital management, information technology, and worker safety and hygiene, to ensure that ZCL has the platform and resources in place to take advantage of future growth opportunities as they arise.

When our outlook for all of our markets are taken as a whole, we remain confident in our 10/10/10 Plan of delivering 10% compound annual growth rates in revenues, earnings, and our dividend payout.  While the achievement of these growth rates cannot be assured in any individual year, we believe these are realistic growth rates for ZCL over the longer term.  Although our backlog as of December 31, 2016 was slightly lower than a year ago, we are confident that revenue for 2017 will be higher than 2016.

Summary Financial Results

For the three months ended

2016

2015

(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

46,602

57,885

44,719

34,917

44,398

55,636

41,469

23,439

Net income










Continuing operations

5,749

7,741

4,396

2,132

4,774

7,896

3,883

960


Discontinued operations (note 1)

146

(1,249)

(2,842)

(1,093)

(889)

(2,691)

(483)

(451)


Total

5,895

6,492

1,554

1,039

3,885

5,205

3,400

509

Adjusted EBITDA (note 2)

9,418

12,125

7,387

4,046

7,062

12,172

6,619

2,293

Basic and diluted earnings per share










Continuing operations

0.19

0.25

0.14

0.07

0.16

0.26

0.13

0.03


Total

0.19

0.21

0.05

0.03

0.13

0.17

0.11

0.02

Adjusted EBITDA per diluted share (note 2)

0.30

0.39

0.24

0.13

0.23

0.40

0.22

0.07

Dividends declared per share

0.08

0.08

0.08

0.58

0.05

0.045

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 consolidated financial statements for the years ended December 31, 2016 and 2015, 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, March 9, 2017, to discuss its financial and operating results for the year and fourth quarter ended December 31, 2016. 

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 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.

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 Fuels, 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.

For further information: Ron Bachmeier, President & CEO, ZCL Composites Inc., (780) 466-6648, Ron. Bachmeier@zcl.com; Kathy Demuth, Chief Financial Officer, ZCL Composites Inc., (780) 466-6648, Kathy.Demuth@zcl.com

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