ZCL Composites Reports Second Quarter and First Half 2007 Financial Results



    --Conference Call at 7 AM Mountain Time--

    EDMONTON, Aug. 3 /CNW/ - ZCL Composites Inc. (TSX:ZCL) reported financial
results for the second quarter and first half ended June 30, 2007, compared
with a year earlier.
    For the second quarter of 2007, revenue was $28.5 million, up 127.3% from
$12.6 million a year earlier. Net income was $2.1 million, up 122.2% from
$1.0 million a year earlier, and net income per share (diluted) was $0.08, up
100% from $0.04 a year earlier.
    For the first half of 2007, which included a weak first quarter, revenue
was $43.5 million, up 65.9% from $26.2 million a year earlier. Net income was
$2.2 million, down 14.3% from $2.6 million a year earlier, and net income per
share (diluted) was $0.09, down 25.0% from $0.12 a year earlier.
    "The second quarter growth from a year earlier is mainly attributable to
the strong performance of our newly acquired U.S. operations," said Ven Côté,
ZCL's President and Chief Executive Officer. "The U.S. performance more than
offset a decline in activity among ZCL Canadian petroleum industry customers.
We remain on track for very significant growth in 2007 as a whole."
    Effective February 22, 2007 ZCL acquired 100% of Xerxes Corporation, a
U.S. company with manufacturing operation in five states. Xerxes is involved
in the design, manufacture and marketing of fibreglass reinforced plastic
structural products for the petroleum, chemical, water and wastewater
industries. Prior to the acquisition, ZCL had no U.S. manufacturing operations
and negligible U.S. revenue.
    "We are focused on capitalizing on best practices and on cost reduction
in all areas as we combine our Canadian operations and our new U.S.
operations," said Mr. Côté. "We have identified potential for synergies in
material costs, freight, insurance and certain manufacturing processes. We
expect to realize savings from many of these synergies during 2007."

    EBITDA and Cash Flow

    Earnings before interest, income taxes, depreciation and amortization
(EBITDA) was $4.0 million for the second quarter of 2007, up 124.7% from
$1.8 million a year earlier. Cash generated by operations before changes in
working capital (cash flow) was $2.8 million in the second quarter of 2007, up
102.9% from $1.4 million a year earlier.
    For the first half of 2007, EBITDA was $5.1 million, up 23.9% from
$4.1 million a year earlier, and cash flow was $3.6 million, up 5.2% from
$3.4 million a year earlier. The gains are attributable to the newly acquired
U.S. operations, which more than offset decreased results from Canadian
operations.

    Outlook

    ZCL currently anticipates revenue for the full year 2007 in the range of
$105 million to $115 million, compared with $55.1 million a year earlier, with
the increase being primarily attributable to the Xerxes acquisition. ZCL
expects EBITDA in the range of $16 million to $18 million compared with
$9.6 million in 2006. The 2007 outlook is based on a number of assumptions,
including the expectation that second half 2007 performance will be stronger
than first half 2007 performance.
    ZCL's positive outlook for the second half of 2007 is driven, in part, by
increased seasonal demand and the inclusion of U.S. operations for six months,
compared with less than five months of U.S. operations in the first half of
2007. ZCL had no U.S. operations in 2006.
    "During the second quarter of 2007 our competitors in the steel tank
industry reached a warranty decision that is potentially favourable for ZCL's
fibreglass tank products," said Mr. Côté. "The Steel Tank Institute, a trade
group representing the majority of North America's steel tank manufacturers,
announced that warranties for steel tanks for underground petroleum storage
will be reduced to ten years from 30 years effective January 1, 2008. This
compares to a 30-year warranty for ZCL's products. As the leading manufacturer
of fibreglass tanks for underground petroleum storage, this gives us a
significant advantage in the marketplace.
    "Also during the second quarter, Chevron Hong Kong Limited (Caltex)
expanded by two additional sites the previously disclosed contract to install
our LIFELINER System(TM) at Chevron locations in Hong Kong. This brings the
total number of sites under contract to eight. Work on all eight sites is
scheduled for completion by the end of 2007. Further opportunities exist for
additional business with Caltex and with potential North American customers."
    Subsequent to the end of the second quarter of 2007 we announced a
seven-year supply agreement under which the tank service company, Tank Tech
Inc. ("Tank Tech") of Blodgett, Missouri, will sell and install ZCL's PHOENIX
System(R) tank liner product across the U.S. The new agreement replaces a
Florida-only, five year agreement between ZCL and Tank Tech announced in 2006.
Under the new agreement ZCL and its affiliates retain the right to market and
sell the PHOENIX System(R) directly to U.S. customers. Tank Tech has
non-exclusive marketing rights and has exclusive installation rights for the
PHOENIX System(R) in the U.S.
    "We believe there is a large, long-term global market for an alternative
to tank replacement when upgrading existing single wall tanks to secondary
containment standards. This alternative to tank replacement can minimize both
site disturbance and lost revenue at service stations. With the PHOENIX
System(R) technology and this new agreement with Tank Tech in place, we are in
a unique position to offer our customers the option of the finest in new
fibreglass tank products, as well as a proven lining system for their
upgrading needs," said Mr. Côté.
    ZCL's consolidated order backlog as of June 30, 2007 was $21.4 million.
This represents a strong start to the third quarter and compared with a
backlog of $22.9 million as of March 31, 2007 and $13.8 million as of June 30,
2006.

    
    Summary Financial Results

    In thousands of dollars
    except for share data

                         Three months ended June 30
    -------------------------------------------------------------------------
                                                2007        2006    % change
    -------------------------------------------------------------------------
    Revenue                                     $28,532     $12,552   127.3%
    -------------------------------------------------------------------------
    Net Income                                    2,126         957   122.2%
    -------------------------------------------------------------------------
    Net income per share (diluted)                $0.08       $0.04   100.0%
    -------------------------------------------------------------------------
    Average number of shares (diluted)       26,548,252  21,933,637    21.0%
    -------------------------------------------------------------------------

                           Six months ended June 30
    -------------------------------------------------------------------------
                                                2007        2006    % change
    -------------------------------------------------------------------------
    Revenue                                     $43,477     $26,213    65.9%
    -------------------------------------------------------------------------
    Net income from continuing operations         2,203       2,252    (2.2%)
    -------------------------------------------------------------------------
    Net income from discontinued operations           -         319      n/a
    -------------------------------------------------------------------------
    Net Income                                    2,203       2,571   (14.3%)
    -------------------------------------------------------------------------
    Net income per share, continuing
     operations (diluted)                         $0.09       $0.11   (18.2%)
    -------------------------------------------------------------------------
    Net income per share (diluted)                $0.09       $0.12   (25.0%)
    -------------------------------------------------------------------------
    Average number of shares (diluted)       25,412,930  21,508,961    18.2%
    -------------------------------------------------------------------------
    

    The Management's Discussion and Analysis as well as the complete
financial statements and notes for the second quarter and first half of 2007
will be available on the ZCL website at this link:
www.zcl.com/investors/corpdisclosure.html, and on the SEDAR website at
www.sedar.com.

    Conference Call

    ZCL Composites Inc. has scheduled an investor conference call for 7 a.m.
(MT) (9 a.m. (ET)) on Friday, August 3, 2007, to discuss its financial and
operating results for the second quarter and first half ended June 30, 2007.
    To access the conference call by telephone, please call 1-416-644-3418
from the Greater Toronto Area, or dial toll-free 1-800-731-5319 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

    EBITDA is not a recognized measure under GAAP, does not have a
standardized meaning prescribed by GAAP and may not be comparable to similar
measures used by other companies. The Company uses both GAAP and non-GAAP
measures to make strategic decisions and set targets and believes that these
non-GAAP measures provide useful supplemental information to investors.
Investors are cautioned that EBITDA should not be construed as an alternative
to net income as determined in accordance with GAAP.

    Disclaimer

    This news release contains forward-looking information concerning future
events or ZCL's future performance. Actual events or results could differ
materially from a conclusion, forecast or projection in such forward-looking
statements due to a number of known and unknown risks, uncertainties and other
factors affecting ZCL's business, the industries ZCL serves and the economy
generally. Certain material factors or assumptions have been applied in
drawing conclusions or making forecasts or projections as reflected in the
forward-looking statements. ZCL 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 should not be unduly relied upon.
    Additional information about the material factors that could cause actual
results to differ materially from the conclusions, forecasts or projections in
the forward-looking statements, and the material factors or assumptions that
have been applied in drawing conclusions or making forecasts or projections as
reflected in the forward-looking statements, is contained in ZCL's second
quarter 2007 Management Discussion and Analysis and the Annual Information
Form, available on the ZCL website at www.zcl.com and on the SEDAR website at
www.sedar.com.
    These forward-looking statements speak only as of August 3, 2007. ZCL
does not undertake to update any forward-looking statements, whether written
or oral, except as may be required under applicable securities laws.

    
    ZCL Composites Inc.

                         CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)
    As at                                               June 30, December 31,
                                                         2007         2006
    (in thousands of dollars)                              $            $
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash                                                  3,924        7,802
    Accounts receivable                                  13,197        7,483
    Inventories                                          22,315       10,807
    Prepaid expenses                                        596          142
    Future tax assets                                       631           11
    -------------------------------------------------------------------------
                                                         40,663       26,245
    Property, plant and equipment                        16,807       10,588
    Deferred costs                                          923        1,050
    Intangible assets                                    10,576          687
    Goodwill                                             29,559        1,991
    Other assets                                            984          854
    Future tax assets                                       761            -
    -------------------------------------------------------------------------
                                                        100,273       41,415
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                     5,963            -
    Accounts payable and accrued liabilities             11,076        5,329
    Income taxes payable                                     38        1,398
    Deferred revenue                                        963          896
    Current portion of long term debt                     1,960            -
    Future tax liabilities                                  385          180
    -------------------------------------------------------------------------
                                                         20,385        7,803
    Government grants                                       131          136
    Future tax liabilities                                6,899        1,228
    Long term debt                                        7,460            -
    -------------------------------------------------------------------------
                                                         34,875        9,167
    -------------------------------------------------------------------------

    Commitments and contingencies

    Shareholders' equity
    Share capital                                        61,845       23,135
    Contributed surplus                                     449          452
    Accumulated other comprehensive loss                 (5,160)           -
    Retained earnings                                     8,264        8,661
    -------------------------------------------------------------------------
                                                         65,398       32,248
    -------------------------------------------------------------------------
                                                        100,273       41,415
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ZCL Composites Inc.

                      CONSOLIDATED STATEMENTS OF INCOME
                                 (Unaudited)

    Periods Ended June 30

                                               Three months     Six months
                                               2007    2006    2007    2006
    (in thousands of dollars)                    $       $       $       $
    -------------------------------------------------------------------------

    Revenue                                   28,532  12,552  43,477  26,213
    Manufacturing and selling costs           22,813  10,025  35,373  20,670
    -------------------------------------------------------------------------
                                               5,719   2,527   8,104   5,543
    Amortization                                 926     382   1,678     768
    General and administration                 1,765     767   2,987   1,414
    Financing expense (income)                   223      (8)    568      39
    -------------------------------------------------------------------------
    Income before income taxes                 2,805   1,386   2,871   3,322
    -------------------------------------------------------------------------

    Income taxes
    Current                                    1,016     540   1,107   1,227
    Future                                      (337)   (111)   (439)   (157)
    -------------------------------------------------------------------------
                                                 679     429     668   1,070
    -------------------------------------------------------------------------

    Net income from continuing operations      2,126     957   2,203   2,252
    Net income from discontinued operations        -       -       -     319
    -------------------------------------------------------------------------
    Net income                                 2,126     957   2,203   2,571
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings per share
    Net income from continuing operations      $0.08   $0.05   $0.09   $0.11
    Net income from discontinued operations        -       -       -   $0.01
    -------------------------------------------------------------------------
    Net income                                 $0.08   $0.05   $0.09   $0.12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings per share
    Net income from continuing operations      $0.08   $0.04   $0.09   $0.11
    Net income from discontinued operations        -       -       -   $0.01
    -------------------------------------------------------------------------
    Net income                                 $0.08   $0.04   $0.09   $0.12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    ZCL Composites Inc.

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited)

    Periods Ended June 30
                                               Three months     Six months
                                               2007    2006    2007    2006
    (in thousands of dollars)                    $       $       $       $
    -------------------------------------------------------------------------

    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                 2,126     957   2,203   2,571
    Add items not affecting cash:
      Amortization expense                       926     382   1,678     768
      Future tax recovery                       (337)   (111)   (439)   (157)
      Stock based compensation expense            54     137     109     193
    -------------------------------------------------------------------------
                                               2,769   1,365   3,551   3,375
    Changes in non-cash working capital:
      Decrease in accounts receivable          2,558   2,246      16     984
      Increase in inventories                   (633) (1,540) (2,043) (2,168)
      (Increase) decrease in prepaid expenses     23    (131)    (82)    (68)
      (Decrease) increase in accounts payable
       and accrued liabilities                (1,152)    (25) (1,047)    430
      (Decrease) increase in deferred revenue   (179)      -      67       -
      (Decrease) increase in income taxes
       payable                                 1,053     233    (593)    419
    -------------------------------------------------------------------------
    Cash flows (used in) from operating
     activities                                4,439   2,148    (131)  2,972
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING ACTIVITIES
    Issue of common shares                       117     767  37,813   2,741
    Net advances (repayment) of bank
     indebtedness                              2,265    (114)  5,963  (2,777)
    Dividends paid                            (2,600)      -  (2,600)      -
    Net cash received on long term debt            -       -  20,000       -
    Repayment of long term debt                 (500)      - (10,500)      -
    -------------------------------------------------------------------------
    Cash flows from (used in) financing
     activities                                 (718)    653  50,676     (36)
    -------------------------------------------------------------------------

    CASH FLOWS FROM INVESTING ACTIVITIES
    Business acquisition, including bank
     indebtedness assumed and repaid               -       - (52,648)      -
    Purchase of property, plant and equipment   (801)   (387) (1,464)   (522)
    Other                                          -       -     (74)      -
    -------------------------------------------------------------------------
    Cash flows used in investing activities     (801)   (387)(54,186)   (522)
    -------------------------------------------------------------------------

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

    Increase (decrease) in cash                2,697   2,414  (3,878)  2,414
    Cash, beginning of the period              1,227       -   7,802       -
    -------------------------------------------------------------------------
    Cash, end of the period                    3,924   2,414   3,924   2,414
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: Ven Côté, President & CEO, ZCL Composites Inc.,
(780) 466-6648, ven.cote@zcl.com; Bernie Lafferty, Vice President Finance &
CFO, ZCL Composites Inc., (780) 466-6648, bernie.lafferty@zcl.com


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