ZCL Composites Reports First Quarter 2013 Financial Results

EDMONTON, May 3, 2013 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the first quarter ended March 31, 2013.

Q1 2013 compared with Q1 2012

  • Revenue of $32.8 million, compared to $32.6 million;
  • Net income of $2.5 million, up $0.9 million or 58% from $1.6 million;
  • Earnings per share (fully diluted) of $0.09, up $0.03 or 50% from $0.06 per share (fully diluted);
  • EBITDA of $4.8 million (15% of revenue), up $1.3 million or 36% from $3.5 million (11% of revenue);
  • Backlog of $41.3 million, down $11.6 million or 22% from $52.9 million; and
  • Quarterly dividend of $0.025 per share.

"After a successful 2012 in which ZCL reported record revenues and earnings, we have started 2013 with record first quarter earnings," said Ron Bachmeier, President and Chief Executive Officer. "The first quarter earnings record shows that our strategic focus on increasing ZCL's profitability is working.  We remain committed to executing our strategic plan and delivering profitable growth by increasing plant throughput, improving manufacturing efficiencies, shortening lead times, and reducing our manufacturing costs through better control systems and eliminating non-value added activities."

"With continued opportunities to diversify our product lines and broaden our geographic presence, ZCL has the capability to maintain our profitability given the inherent seasonality of our Underground segment and limit exposure to the uncertainties of an unpredictable and challenging global economy.  As we look forward to the remainder of 2013, we will protect our balance sheet while searching out opportunities to grow our business through innovation and investment."

Financial Results

Revenue for the first quarter ended March 31, 2013 was $32.8 million, compared to $32.6 million for the first quarter ended March 31, 2012. Both Petroleum and Corrosion Products groups were up as compared to a year earlier, but those increases were offset by a $1.3 million decrease in the Water Products group.

Gross profit for the first quarter ended March 31, 2013 was $6.7 million, up $1.3 million or 24% from $5.4 million a year earlier. Gross margin increased to 20% of revenue for the first quarter of 2013, from 17% for the same quarter a year earlier with the increase coming from continued improvement in production efficiencies overall, particularly in the Aboveground operating segment, as well as changes in customer mix.

General and administration ("G&A") expense for the first quarter ended March 31, 2013 of $2.2 million compared to $2.1 million for the first quarter ended March 31, 2012.

Net income for the first quarter ended March 31, 2013 was $2.5 million, up $0.9 million or 58% from $1.6 million a year earlier.  Earnings per share for the first quarter of 2013 was $0.09 (fully diluted), up $0.03 or 50% from $0.06 (fully diluted) a year earlier. The production efficiencies, changes in customer mix and reduced finance expenses drove this improvement.

Backlog and Financial Position

As of March 31, 2013, backlog was $41.3 million, down $11.6 million or 22% from $52.9 million a year earlier and up $6.1 million or 17% from December 31, 2012. The decrease from the first quarter of 2012 resulted from a decline in the Aboveground backlog, which more than offset a $6.8 million increase in the Underground backlog.  The nature of revenue in the Aboveground operating segment is more dependent on larger orders that are long term in nature which leads to higher volatility in the backlog when comparing points in time.

At March 31, 2013, ZCL's balance sheet had working capital (current assets less current liabilities) of $34.2 million, up $2.5 million or 8% from $31.7 million at December 31, 2012.  As at December 31, 2012, ZCL eliminated its net debt.  ZCL continues to remain in a positive net cash position (cash and cash equivalents less debt) with an improvement to $0.7 million as at March 31, 2013 compared with $0.1 million at December 31, 2012.  Management expects the net cash/net debt position to continue to fluctuate due to the inherent seasonality and timing of working capital requirements of the business.

Dividends

The Board declared a $0.025 per share dividend for the first quarter of 2013.  The dividend will be paid on July 15, 2013, to the shareholders of record as of June 28, 2013.

Outlook and Priorities for 2013

For 2013, our strategic priorities are directly focused on improving profitability and maintaining a strong and flexible balance sheet while we pursue organic growth opportunities.  We remain committed to the five key aspects of ZCL's 2013 strategic plan:

  • Focus on quality:
    • Improve our quality control processes through lean initiatives in order to reduce rework and disruptions in the production flow.
  • Improve profitability:
    • Exceed the 13% EBITDA margin achieved in 2012 and maintain a sustainable range of 13% to 15%, and
    • Improve gross profit as a percentage of revenue by 2%.
  • Meet deliveries and reduce lead times:
    • Meet 100% of the customer delivery requirements and shorten lead times by 25% to improve the flexibility of the plants and responsiveness to customers.
  • Expand employee integration:
    • Refine our employee compensation package to further align employee goals and objectives with our strategic priorities and shareholder interests.
  • Continued focus on safety:
    • Continuation of the standardization of our safety policies, procedures and metrics.

Summary Financial Results

For the three months ended   2013 2012 2011
(in thousands of dollars, Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30
except per share amounts) $ $ $ $ $ $ $ $
Revenue 32,809 44,866 50,067 42,850 32,576 37,716 36,352 29,820
Net income                
  Continuing operations 2,536 2,876 4,805 4,207 1,602 1,840 1,892 969
  Discontinued operations1 - - - - - - - (181)
  Total 2,536 2,876 4,805 4,207 1,602 1,840 1,892 788
Basic earnings per share                
  Continuing operations 0.09 0.10 0.17 0.15 0.06 0.06 0.07 0.03
  Total 0.09 0.10 0.17 0.15 0.06 0.06 0.07 0.02
Diluted earnings per share                
  Continuing operations 0.09 0.10 0.16 0.15 0.06 0.06 0.07 0.03
  Total 0.09 0.10 0.16 0.15 0.06 0.06 0.07 0.02
Dividends declared per share 0.025 0.02 0.015 0.01 0.01 - - -

(1) The discontinued operations are the steel tank division sold May 31, 2011 because they were not part of ZCL's core business.

MD&A and Financial Statements

The Company's management's discussion and analysis ("MD&A") and unaudited interim condensed consolidated financial statements for the first quarter ended March 31, 2013 and 2012, 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 Monday May 6, 2013, to discuss its financial and operating results for the first quarter ended March 31, 2013.

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 web site at http://www.zcl.com/investor-relations/investor-events.html. Audio replays will be available on the ZCL web site 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 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.

Note on EBITDA

EBITDA is defined as income from 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.

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, 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 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, 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.

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 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.



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