ZCL Composites Reports First Quarter 2011 Financial Results

EDMONTON, May 19 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the first quarter ended March 31, 2011.

Q1 2011 compared with Q1 2010

  • Revenue of $23.2 million, compared with $23.7 million;
  • Net loss of $1.2 million or $0.04 per share (fully diluted), compared with net loss of $2.9 million or $0.10 per share (fully diluted); and
  • Backlog of $35.8 million (quarterly record), compared with $31.2 million

"After a very challenging 2010, I believe that the first quarter results reflect that our strategic plan is starting to gain some momentum," said Rod Graham, ZCL's President and Chief Executive Officer. "While there are still many challenges to overcome, we are encouraged by our significantly smaller loss for the seasonally weak first quarter. We are also encouraged by our strong backlog, which was a quarterly record at March 31, 2011 and which continued to grow last month. As at the end of April, the backlog approached $41 million."

"A key internal message has been "simplify to grow". We are refocused on our core competencies of engineering, designing, manufacturing and selling the highest quality Fibreglass Reinforced Plastic (FRP) and Dual Laminate products available on the market."

Financial Results

Revenue for the first quarter of 2011 was $23.2 million, down 2% from $23.7 million in the first quarter of 2010. A strong increase in revenue earned from Petroleum Products, particularly in the Canadian operations, was offset by weaker revenue in the Dualam Industrial Corrosion Products and Water Products groups.

The Petroleum Products group had revenue of $14.8 million, up 20% from $12.3 million in the same quarter of 2010. The gain was attributable to a significant increase in revenue for both Canadian and US operations. The increase in revenue in the US operations was achieved primarily through an increase in sales to independent retail service station customers which in 2010 exhibited very weak demand.

The Water Products group had revenue of $2.8 million, down from $3.1 million in the same quarter a year ago. Water Product revenues were up approximately 11% in Canada and down approximately 10% in the United States.  This group is expected to be a contributor of ZCL's performance throughout the remainder of the year as Management has seen a growing backlog in orders in this group.

The Industrial Corrosion Products group had revenue of $5.5 million down from $8.2 million in the same quarter a year ago. The significant decrease in Industrial Corrosion Products revenue reflected lower revenue from the Dualam operations when compared to a strong first quarter of 2010, when Dualam was in the process of wrapping up large projects in the US. First quarter revenue from ZCL's traditional Industrial Corrosion Products operations in 2011 was up slightly when compared with the prior year, which was also a strong revenue quarter.

Gross profit totalled $1.8 million in the first quarter of 2011, up 151% from $0.7 million a year earlier.  Gross margin was 8% of revenue in the first quarter of 2011, up from just 3% of revenue a year earlier. The increase in gross profit resulted from changes in sales mix, inventory production levels and pricing. Gross profit improved in both the Petroleum Products and Water Products groups but decreased in the Industrial Corrosion Product group.

General and administration has remained relatively consistent at approximately $2.5 million and approximately 11% of revenue.

In what is traditionally our slowest quarter, we are pleased that our efforts to focus on our core competencies have enabled us to improve our net operating position and expand our backlog to $41 million.  Though we generated a net loss of $1.2 million, we believe that our outlook for the remainder of the year should result in additional improvements in our financial performance.

Divestiture of Non-Core Assets and Repayment of Debt

A key part of our simplification strategy was divestiture of non-core assets.  During the first quarter, the Company repatriated proceeds of a note and loan ZCL received as part of its Q2 2010 disposal of its Home Heating Oil Tank (HHOT) division.  The note and loan had a fair value of $1.3 million payable to the Company over a five year period.  ZCL received total proceeds of $1.6 million resulting in the gain on disposal of assets of $0.3 million.

Subsequent to the first quarter, the Company signed an agreement with Clemmer Steelcraft Technologies to sell the manufacturing equipment held in ZCL's Everlast steel tank division.  Over the past few years, this division typically generated a loss in each quarter and was not a core competency.

The Company will continue its efforts to sell additional non-core assets including the land and buildings in Waverly Nova Scotia and real estate assumed in the 2010 acquisition of Dualam.

At March 31, 2011, ZCL's balance sheet recorded working capital (current assets minus current liabilities) of $16.8 million, total assets of $109.8 million and long-term debt of $7.8 million. Long-term debt was down 30% from $11.1 million a year earlier. During the quarter, we repaid $2.9 million of principal as a result of divesting of non-core assets.

Backlog and Financial Position

ZCL's backlog at March 31, 2011 totalled $35.8 million, up 15% from $31.2 million a year earlier. Encouragingly, all markets (Petroleum Products, Water Products and Industrial Corrosion Products) saw growth in both Canada and United States. As at April 30th, backlog has approached $41 million, in part because of activities of the Dualam Industrial Corrosion Products group.

Outlook and Priorities for 2011

Although there are macro risks that cannot be predicted, we continue to have a positive outlook on all three lines of business and are comfortable that each line of business can be grown in a profitable manner.

We continue to focus on the strategic priorities for 2011, being:

  • Focus on core competencies;
  • Improving on EBITDA as a percentage of revenue and debt;
  • Improved balance sheet returns;
  • Reinstitute a dividend payment by the end of 2011 or early 2012;
  • Improve internal operating and financial reporting with a suite of key performance indicators ("KPIs") with the implementation of the ERP system that occurred in 2010;
  • Reinforce a program of operational excellence and continuous improvement with a particular focus on cost controls; and
  • Maintain a strong safety culture.

ZCL is concentrating on better use of its North American manufacturing footprint to serve its customers effectively and efficiently. Management has identified approximately $2.5 million of capital expenditures for 2011 on plant and equipment to improve productivity as part of the normal capital expenditure program.

Summary Financial Results

  2011 2010 2009 (note 1)
(in thousands of dollars, Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
    (restated) (restated) (restated) (restated)      
except per share amounts) $ $ $ $ $ $ $ $
Revenue 23,158 35,029 32,340 30,521 23,685 28,609 28,645 27,494
Net income (loss)                
  Continuing operations (1,247) (1,102) (12,487) (436) (2,676) 2,052 1,665 1,016
  Discontinued operations 17 287 (232) 3 (207) (571) (177) (457)
  Total (1,230) (815) (12,719) (433) (2,883) 1,481 1,488 559
Basic & diluted earnings (loss) per share                
  Continuing operations (0.04) (0.04) (0.44) (0.02) (0.10) 0.08 0.06 0.04
  Total (0.04) (0.03) (0.45) (0.02) (0.10) 0.06 0.06 0.02
note 1: For comparative periods prior to January 1, 2010 (IFRS transition date), the financial information presented has not been
re-stated to reflect the Company's adoption of IFRS.

MD&A and Financial Statements

The Company's management's discussion and analysis ("MD&A") and unaudited consolidated financial statements for the three months ended March 31, 2011 are available on Sedar at www.sedar.com and 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 20, 2011, to discuss its financial and operating results for first quarter of 2011.

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 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, Rod Graham, by ZCL's Chief Operating 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 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 or expectations for revenue and earnings growth, income taxes as a percentage of pre-tax income, business opportunities in the Petroleum Products, Water Products, Industrial Corrosion Products markets, efforts to reduce administrative and production costs, manage production levels, anticipated capital expenditure trends, activity in the petroleum 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" 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 Products, Water Products, and Industrial Corrosion Products 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 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 unaudited 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 economic uncertainty in the US and Canada, 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 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.

SOURCE ZCL Composites Inc.

For further information:

Rod Graham
President & CEO
ZCL Composites Inc. 
(780) 466-6648
                    Kathy Demuth
Chief Financial Officer
ZCL Composites Inc.
(780) 466-6648


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