EDMONTON, Aug. 4 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced
financial results for the second quarter and six months ended June 30, 2009.
Q2 2009 compared to Q2 2008
- Revenue of $28.8 million, down 13% from $33.0 million
- Net income of $0.6 million, compared to $3.2 million
- Diluted earnings per share of $0.02, compared to $0.12
- Backlog of $21.1 million, compared to $28.6 million at June 30, 2008
First Half of 2009 compared to First Half of 2008
- Revenue of $48.5 million, down 15% from $56.8 million
- Net loss of $0.8 million, compared to net income of $4.6 million
- Diluted loss per share of $0.03, compared to diluted earnings per
share of $0.17
On a sequential basis, the second quarter results were up from revenue of
$19.7 million and a net loss of $1.4 million or $0.05 per diluted share in the
first quarter of 2009 reflecting in part the general seasonality of ZCL's
ZCL continues to have a strong balance sheet with working capital of
$24.2 million, total assets of $117.6 million and long term debt of $6.5
million as at June 30, 2009.
"Our financial results for the second quarter and first half of 2009
reflect the global recession as many of our customers have been impacted by
the economic downturn, lower commodity prices and a scarcity of credit," said
Ven Côté, ZCL's President and Chief Executive Officer. "Looking ahead, we
expect revenue and earnings to continue to improve in the second half of the
year. We continue to push ahead on strong opportunities to capture market
share and grow our business in the North American downstream petroleum and
water and wastewater markets. With these opportunities, we believe that ZCL is
well positioned to prosper, especially when the economy turns around."
"We are also very encouraged by prospects for ZCL's tank manufacturing
and Phoenix System(TM) lining technologies in international markets as
reinforced by our recent signing of a license agreement with JIZHOU ZHONGYI
FRP Co., Ltd. of China," noted Mr. Côté. "We are confident that ZHONGYI is the
right partner to promote ZCL's products in China and that they share our
commitment to delivering quality service and value added products that
contribute to the protection of the environment".
For the third and fourth quarters of 2009, revenue and earnings are
expected to improve relative to the second quarter of 2009. However, the
current economy will make it difficult to match the strong results achieved in
the third and fourth quarters of 2008. This outlook is down from that provided
at the time of release of the first quarter results in May 2009 reflecting the
economic weakness having a greater impact than originally anticipated. To
mitigate the impact of the current economy, steps have been taken to reduce
both administrative and production costs, including reducing discretionary
expenses, accelerating best practice initiatives, eliminating all
non-essential overtime, reducing production staffing levels or work hours and
working with suppliers to achieve cost reductions.
Management continues to believe strong growth opportunities in the
downstream petroleum, water and wastewater, international and other markets
position ZCL well for future growth, particularly when the economy turns
around. With a strong balance sheet, the Company is also well positioned to
take advantage of strategic business development and acquisition opportunities
that may become available.
Downstream petroleum sales were lower in the second quarter of 2009
compared to the same period in 2008 reflecting lower sales in the US partially
offset by increased sales in Canada. Year-to-date, downstream petroleum
revenue was down overall.
In the US, revenue from direct sales to major downstream customers has
remained relatively consistent overall to date in 2009, compared to the same
period in 2008. However, sales through distributors and contractors, whose
customers are more likely to be impacted by the economy and the shortage of
available credit, were down significantly.
A clear example of the impact of the current economy is in Florida, where
sales for both the second quarter of 2009 and year-to-date were down compared
to the same periods in 2008. The state of Florida has set a deadline of
December 31, 2009 for all existing underground petroleum storage tanks to be
upgraded to a secondary containment system. As of July 25, 2009, the Florida
Department of Environmental Protection listed 2,177 sites (ZCL estimates that
there would be approximately two to three tanks per site) that still remain to
be upgraded. However, the Company believes that many site owners are not
making the necessary upgrades prior to the deadline due to financial reasons,
and will therefore be forced to shut down their fuelling operations. Station
owners that are forced to shut down will then have two years to decide whether
to pay for the permanent decommissioning of the tanks on site or upgrade to
secondary containment and resume fuelling.
On the positive side in the US downstream petroleum market, the Company
has continued to attract new customers and grow its customer base. Management
believes that this growth reflects increased 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 key factors contributing to the increasing
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. While these factors create an
opportunity to grow market share today, further advances in the use of
biofuels blends will likely create future opportunities, since the corrosion
resistance of many of the tanks currently in use today will need to be
ZCL recently introduced its Prezerver(R) program to US customers. This
insurance backed 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 to grow market share in the
US downstream market.
In Canada, downstream petroleum revenue, after a slow first quarter,
rebounded to be up slightly in the second quarter of 2009 compared to the same
quarter last year. The Canadian downstream market differs from the US in that
a majority of the Canadian retail service stations are still owned and
operated by the larger oil and gas and convenience store companies.
Water and Wastewater
In the water and wastewater market, the significant decrease in new
construction has resulted in lower revenue in both the second quarter of 2009
and year-to-date, compared to the same periods in 2008. Over the past number
of years, the Company has generated strong growth from this market and water
and wastewater sales now account for roughly 20% of ZCL's total revenue.
ZCL has a very small share of the water and wastewater market and
management continues to believe that the opportunities in this market are
substantial. Customers are realizing that ZCL's watertight and easy to install
fibreglass tanks are an ideal alternative to the concrete products that have
traditionally dominated this market. The Company continues to push ahead on
building brand recognition, pursuing partner opportunities and establishing
new sales channels across the North American water and wastewater market.
Upstream, Industrial and Corrosion
The upstream, industrial and corrosion markets account for roughly 10% of
ZCL's total revenue with a majority of the sales currently occurring in the
western part of Canada and the US. With the lower commodity prices for oil and
natural gas and reduced drilling and construction activity, total revenue from
these markets was down significantly in both the second quarter and first half
of 2009, compared to the same periods in the prior year.
International and Other Markets
ZCL continues to focus on attracting licensees for its tank manufacturing
and Phoenix System(TM) lining technologies in the international marketplace.
Subsequent to the end of the second quarter, the Company executed a new
license agreement with JIZHOU ZHONGYI FRP Co., Ltd. of China. This agreement
has a twenty year term and provides for a license fee and ongoing royalties.
It is also expected that this and other new license agreements will result in
increased revenue from the sale of ZCL proprietary products used in the
manufacturing or installation of the licensed products. The Company expects to
execute additional new license agreements in 2009.
ZCL continues to pursue additional opportunities for its tank lining
system in North America, Europe and South East Asia. Success was achieved in
the first half 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
Summary Financial Results
(in thousands, except per share amounts)
Second Quarter Year-to-Date
2009 2008 2009 2008
Revenue $28,810 $33,014 $48,491 $56,811
Net income (loss) $559 $3,202 ($797) $4,555
Diluted earnings (loss) per share $0.02 $0.12 ($0.03) $0.17
The management's discussion and analysis ("MD&A") and unaudited interim
consolidated financial statements for the second quarter ended June 30, 2009
are available on the ZCL website at this link:
ZCL Composites Inc. has scheduled an investor conference call for 9:30
a.m. Mountain Time (11:30 a.m. Eastern Time) on Wednesday, August 5, 2009, to
discuss its financial and operating results for the second quarter ended June
To access the conference call by telephone, please dial toll free
1-800-589-8577 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, efforts
to reduce administrative and production costs, 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 June 30, 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 continuing economic
weakness in the US and Canada, tighter lending standards, volatile capital
markets, lower commodity prices, the severity of the US housing crisis 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 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.
For further information:
For further information: Ven Côté, President & CEO, ZCL Composites Inc.,
(780) 466-6648, firstname.lastname@example.org; Darin Coutu, Chief Financial Officer, ZCL
Composites Inc., (780) 466-6648, email@example.com