ZCL Composites Reports Second Quarter 2008 Revenue and Net Income



    EDMONTON, Aug. 11 /CNW/ - ZCL Composites Inc. (TSX: ZCL) announced today
that it achieved record revenue and net income for the second quarter ended
June 30, 2008. ZCL also disclosed that it remains on track to meet its
financial targets for the full year.

    
    Second Quarter 2008 Highlights (Q2 2008 compared to Q2 2007)

     -  Record revenue of $33.0 million, up 16% from $28.5 million
     -  Record net income of $3.2 million, up 51% from $2.1 million
     -  Record diluted earnings per share of $0.12, up 50% from $0.08
     -  Backlog of $28.6 million, up 37% from $21.0 million at June 30, 2007

    First Half 2008 Highlights (First Half of 2008 compared to First Half of
    2007)

     -  Revenue of $56.8 million, up 31% from $43.5 million
     -  Net income of $4.6 million, up 107% from $2.2 million
     -  Diluted earnings per share of $0.17, up 89% from $0.09
    

    "The record second quarter revenue and net income resulted from increased
fibreglass tank sales to downstream petroleum customers in both Canada and the
US and increased product sales for tank lining installations primarily in
Florida." said Ven Côté, ZCL's President and CEO. "With half the year now
behind us, we are well positioned to meet our 2008 financial targets,
especially considering that the second half of the year is traditionally
stronger than the first half and that our backlog is higher than a year ago."
    The strong growth for the first half of 2008 reflects the factors noted
for the second quarter plus a full six month contribution from the Company's
US operations, acquired in February last year, compared to just over four
months in the first half of 2007. ZCL entered the US market when it acquired
Xerxes Corporation on February 22, 2007.

    Targets Compared With Results

    With the results achieved through the first half of 2008, management
believes that ZCL is on track to achieve its 2008 revenue and EBITDA (earnings
before interest, taxes, depreciation and amortization) targets originally
disclosed in March 2008.
    The 2008 revenue target is for growth of more than 20% compared to the
prior year. The 16% revenue increase in the second quarter was below the
annual target primarily due to the average US to Canadian dollar conversion
rate decreasing to approximately 1.01 in the second quarter of 2008, compared
to 1.10 in the same quarter last year. The Company generates significant
revenue denominated in US dollars and if a consistent conversion rate was in
effect each period, total revenue for the second quarter would have been up
approximately 22% over the second quarter last year. The 20% revenue growth
target for 2008 assumes an average US to Canadian dollar conversion rate of
1.00 in 2008, which is relatively consistent with the experience through the
first half of 2008 and the second half of 2007. The revenue growth of 31%
through the first half of 2008 exceeded the target due to the timing of the
acquisition of Xerxes.
    The 2008 target for EBITDA is to achieve a margin of 16.0% of revenue
compared to 13.9% in the prior year. In the second quarter of 2008, EBITDA
represented 17% of revenue, ahead of the annual target and up significantly
from 13.9% in the same quarter last year. Through the first half of 2008,
EBITDA represented 14.7% of revenue, up from 11.8% for the first half of 2007.
Historically, the Company's margin improves in the second half of the year due
to higher revenue levels.

    Key Factors Affecting Outlook

    Supporting the outlook for 2008 was strong growth in ZCL's sales order
backlog. As at June 30, 2008, the backlog was $28.6 million, up 32% from
$21.7 million at March 31, 2008 and up 37% from $21.0 million at June 30,
2007. For comparability purposes, the US dollar denominated portion of the
backlog for all three periods was translated into Canadian dollars at the
June 30, 2008 closing rate of 1.01.
    A significant portion of the backlog growth resulted from a 41% increase
in tank orders received in the US in the first half of 2008, compared to the
same six month period in 2007. This order growth reflects a strong increase in
orders for both downstream petroleum tanks and water and wastewater tanks.
Management believes that the downstream order growth resulted from the capture
of increased market share in the US due to higher steel prices and the
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 for fibreglass tanks remains intact at 30 years.
    The backlog increase was also due to a new three year contract, executed
in the second quarter, for the installation of ZCL's lining system in
Hong Kong. "In the second quarter, we were also proud to have received the
prestigious "CHESM" (Chevron's Health, Environment and Safety Management)
award in Hong Kong," noted Mr. Côté. "The receipt of this award recognizes our
commitment to safety and our desire and ability to meet customer
expectations."

    
    Other factors continuing to impact management's outlook for the remainder
of 2008 and beyond include:

     -  Strong growth opportunities in the water and wastewater market.
        Currently, the Company has a very small share of this substantial
        market and management believes that ZCL's watertight and easy to
        install fibreglass tanks are an ideal alternative to the concrete
        products that have traditionally dominated this market. Over the past
        few years, strong growth in water and wastewater sales has been
        generated. Through the first half of 2008, water and wastewater
        revenue was relatively consistent with the prior year, however the
        orders received and related backlog have shown strong growth. To
        further capitalize on this opportunity, sales resources continue to
        be expanded and dedicated to this market in both Canada and the
        US. Management believes that over time, this fast growing part of the
        business may become larger than the market for petroleum storage
        solutions.
     -  Continued strong support for ZCL's petroleum liquid storage solutions
        as evidenced by the contract extensions announced earlier this year
        and the two year contract executed with Ultramar Ltd. in the second
        quarter. The ZCL team takes significant pride in these contracts as
        they are an expression of confidence in the Company's ability to
        consistently supply high quality products and a value added approach
        to customer service. The Company intends to continue to grow its
        presence in the petroleum market by further capitalizing on the
        strength of its product solutions and approach to customer service.
     -  Regulations adopted by the state of Florida that require all existing
        single wall underground petroleum storage tanks to be upgraded or
        replaced with a secondary containment system by the end of 2009. In
        an article that appeared in the Tampa Tribune earlier this year, it
        was indicated that "about 40% or 3,200 of the state's gas stations
        have not yet complied". This leaves upwards of 10,000 plus tanks that
        need to be upgraded, replaced or shutdown by the end of 2009. A
        significant increase in short-term demand could result, given that
        annual demand for the entire US market is typically 12,000 to 15,000
        tanks. Through the first half of 2008, the Company has experienced
        higher product sales for the purpose of lining tanks primarily in
        Florida; however tank sales in Florida have remained relatively
        consistent compared with the same period a year earlier. Based on
        information gathered from state authorities, management believes that
        the Company is not losing market share as the total number of new
        tanks installed in Florida, by ZCL and others, has decreased in the
        first half of 2008 compared with the same period in 2007.
     -  Higher natural gas prices in 2008, while not having an impact to
        date, could result in increased Canadian upstream activity in future
        periods if prices remain strong over the longer term.
     -  Opportunities for ZCL's technology in the coal-burning power plant
        industry due to the regulatory push towards reducing sulphur dioxide
        emissions. The Company has received expressions of interest for its
        corrosion resistant fibreglass technology and management believes
        ZCL's technology is an ideal and cost effective solution for use in
        scrubbers and chimney stacks that remove sulphur dioxide from flue
        gas emissions.
    

    "With our superior, environmentally friendly fibreglass products and
attractive market opportunities, we remain optimistic about our long-term
profitable growth objective of 15% to 20% per annum and a medium-term
objective of improving EBITDA to 20% of revenue," said Mr. Côté. These
objectives reflect expectations for organic growth and do not take into
account growth related to potential new acquisitions. With a strong balance
sheet, management believes that ZCL is well positioned to take advantage of
strategic and accretive acquisition opportunities that may become available."

    
    Summary Financial Results
                                                  Three Months Ended June 30
    -------------------------------------------------------------------------
    (in thousands, except per share amounts         2008      2007  % change
    -------------------------------------------------------------------------
    Revenue                                      $33,014   $28,532       16%
    -------------------------------------------------------------------------
    Net Income                                    $3,202    $2,126       51%
    -------------------------------------------------------------------------
    Net income per share (diluted)                 $0.12     $0.08       50%
    -------------------------------------------------------------------------
    Average number of shares (diluted)            26,595    26,548         -
    -------------------------------------------------------------------------



                                                    Six Months Ended June 30
    -------------------------------------------------------------------------
    (in thousands, except per share amounts         2008      2007  % change
    -------------------------------------------------------------------------
    Revenue                                      $56,811   $43,477       31%
    -------------------------------------------------------------------------
    Net Income                                    $4,555    $2,203      107%
    -------------------------------------------------------------------------
    Net income per share (diluted)                 $0.17     $0.09       89%
    -------------------------------------------------------------------------
    Average number of shares (diluted)            26,595    25,413        5%
    -------------------------------------------------------------------------
    

    The Company's Management's Discussion and Analysis ("MD&A") and unaudited
interim consolidated financial statements for the three and six months ended
June 30, 2008 are available on SEDAR at www.sedar.com and the ZCL website at
www.zcl.com/investors/corpdisclosure.html. The unaudited interim Consolidated
Balance Sheets, Consolidated Statements of Income and the Consolidated
Statements of Cash Flows are also attached.

    Conference Call

    ZCL Composites Inc. has scheduled an investor conference call for 9:00 am
Mountain Time (11:00 am Eastern Time) on Monday, August 11, 2008, to discuss
its financial and operating results for the second quarter ended June 30,
2008.
    To access the conference call by telephone, please call 416-644-3414 from
the Greater Toronto Area, or dial toll-free 1-800-732-9303 from elsewhere 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.

    About ZCL

    ZCL Composites Inc. is North America's largest underground fibreglass
tank manufacturer. ZCL's complete fuel storage systems marketed under the
"Prezerver" trademark carry a $2 million warranty against pollution.

    Note on EBITDA

    While EBITDA is not a financial measure under Generally Accepted
Accounting Principles (GAAP), management uses it to make strategic decisions
and set targets. Many financial analysts also use EBITDA to make investment
decisions because it helps assess changes in ZCL's business across different
time periods. Investors should not consider EBITDA as an alternative to net
income, cash flow or other indicators of performance or liquidity which have
been determined under GAAP. EBITDA does not have any standardized meaning
prescribed by GAAP and may be different from, and therefore not comparable to
EBITDA measures used by other companies. A table has been included in the
Company's MD&A for the second quarter of 2008 that reconciles net income from
continuing operations to EBITDA.

    Advisory Regarding Forward-Looking Statements

    This document contains forward-looking statements under the heading "Key
Factors Affecting Outlook" and elsewhere concerning future events or the
Company's future performance, including the Company's projected operating
results for 2008 and beyond, revenue and EBITDA targets, business
opportunities in the petroleum, water/wastewater and other markets,
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 petroleum industry capital expenditures, 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, and other risks and uncertainties described under the heading "Risk
Factors" in the Company's Annual Information Form for the year ended
December 31, 2007, and elsewhere in other documents filed with Canadian
provincial securities authorities. These documents are available to the public
at www.sedar.com.
    The Company believes that the expectations reflected in these
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. These
statements 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.

    
    ZCL Composites Inc.
    Consolidated Balance Sheets
    As at June 30, 2008 and December 31, 2007
    (Unaudited)

                                                        June 30, December 31,
                                                           2008         2007
    (in thousands of dollars)                                 $            $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                             2,439        2,033
    Accounts receivable                                  19,502       16,595
    Inventories                                          20,020       16,218
    Income taxes recoverable                              1,038            -
    Prepaid expenses                                      1,139          661
    Future tax assets                                       163          416
    -------------------------------------------------------------------------
                                                         44,301       35,923
    Property, plant and equipment                        22,046       20,749
    Deferred development costs                              687          819
    Intangible assets                                     8,257        8,995
    Goodwill                                             28,011       27,327
    Other assets                                            555          555
    -------------------------------------------------------------------------
                                                        103,857       94,368
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                     6,734          150
    Accounts payable and accrued liabilities             12,925       10,886
    Accrued pension liability                               292          284
    Income taxes payable                                     70          511
    Deferred revenue                                      1,774        1,490
    Current portion of long term debt                     1,960        1,960
    -------------------------------------------------------------------------
                                                         23,755       15,281
    Future tax liabilities                                4,499        4,623
    Long term debt                                        5,500        6,978
    -------------------------------------------------------------------------
                                                         33,754       26,882
    -------------------------------------------------------------------------

    Commitments and contingencies

    Shareholders' equity
    Share capital                                        62,190       62,190
    Contributed surplus                                     491          449
    Accumulated other comprehensive loss                 (7,536)      (8,729)
    Retained earnings                                    14,958       13,576
    -------------------------------------------------------------------------
                                                         70,103       67,486
    -------------------------------------------------------------------------
                                                        103,857       94,368
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ZCL Composites Inc.
    Consolidated Statements of Income
    For the periods ended June 30
    (Unaudited)

                                            Three months          Six months
    (in thousands of dollars, except      2008      2007      2008      2007
     per share amounts)                      $         $         $         $
    -------------------------------------------------------------------------

    Revenue                             33,014    28,532    56,811    43,477
    Manufacturing and selling costs     25,165    22,813    44,403    35,373
    -------------------------------------------------------------------------
                                         7,849     5,719    12,408     8,104

    General and administration           2,246     1,765     4,041     2,987
    Amortization                           919       926     1,736     1,678
    Financing expense                      215       223       348       568
    -------------------------------------------------------------------------
                                         3,380     2,914     6,125     5,233
    -------------------------------------------------------------------------
    Income before income taxes           4,469     2,805     6,283     2,871
    -------------------------------------------------------------------------
    Income tax expense (recovery)
      Current                            1,208     1,016     1,708     1,107
      Future                                59      (337)       20      (439)
    -------------------------------------------------------------------------
                                         1,267       679     1,728       668
    -------------------------------------------------------------------------

    Net income                           3,202     2,126     4,555     2,203
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share
      Basic                              $0.12     $0.08     $0.17     $0.09
      Diluted                            $0.12     $0.08     $0.17     $0.09
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ZCL Composites Inc.
    Consolidated Statements of Cash Flows
    For the periods ended June 30
    (Unaudited)

                                            Three months          Six months
                                          2008      2007      2008      2007
    (in thousands of dollars)                $         $         $         $
    -------------------------------------------------------------------------

    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net income                           3,202     2,126     4,555     2,203
    Add items not affecting cash:
      Amortization expense                 919       926     1,736     1,678
      Future tax expense (recovery)         59      (337)       20      (439)
      Stock-based compensation expense      21        54        42       109
    -------------------------------------------------------------------------
                                         4,201     2,769     6,353     3,551
    Changes in non-cash working
     capital:
      Decrease (increase) in accounts
       receivable                       (2,819)    2,558    (2,696)       16
      Increase in inventories             (340)     (633)   (3,636)   (2,043)
      (Increase) decrease in prepaid
       expenses                           (679)       23      (461)      (82)
      (Decrease) increase in accounts
       payable and accrued liabilities     487    (1,152)    1,858    (1,047)
      (Decrease) increase in deferred
       revenue                              93      (179)      253        67
      (Decrease) increase in income
       taxes payable                       587     1,053    (1,506)     (593)
    -------------------------------------------------------------------------
    Cash flows from (used in)
     operating activities                1,530     4,439       165      (131)
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING
     ACTIVITIES
    Issue of common shares                   -       117         -    37,813
    Net advances of bank indebtedness    2,619     2,265     6,584     5,963
    Dividends paid                      (3,173)   (2,600)   (3,173)   (2,600)
    Net cash received on long term
     debt                                    -         -         -    20,000
    Repayment of long term debt           (500)     (500)   (1,500)  (10,500)
    -------------------------------------------------------------------------
    Cash flows from (used in)
     financing activities               (1,054)     (718)    1,911    50,676
    -------------------------------------------------------------------------

    CASH FLOWS FROM INVESTING
     ACTIVITIES
    Business acquisition, including
     bank indebtedness assumed and
     repaid                                  -         -         -   (52,648)
    Purchase of property, plant and
     equipment                            (577)     (801)   (1,705)   (1,464)
    Other                                    -         -         -       (74)
    -------------------------------------------------------------------------
    Cash flows used in investing
     activities                           (577)     (801)   (1,705)  (54,186)
    -------------------------------------------------------------------------

    Foreign exchange gain (loss) on
     cash held in foreign currency         (40)     (223)       35      (237)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and
     cash equivalents                     (141)    2,697       406    (3,878)
    Cash and cash equivalents,
     beginning of the period             2,580     1,227     2,033     7,802
    -------------------------------------------------------------------------
    Cash and cash equivalents, end
     of the period                       2,439     3,924     2,439     3,924
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





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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