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ZCL Composites Reports Second Quarter 2014 Financial Results

EDMONTON, Aug. 5, 2014 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the second quarter and six months ended June 30, 2014.

Q2 2014 compared with Q2 2013

  • Revenue of $41.7 million, down $5.6 million or 12% from $47.3 million;
  • Net income of $4.5 million or $0.15 per fully diluted share, down $0.6 million or 12% from $5.1 million or $0.17 per fully diluted share;
  • Adjusted EBITDA of $7.4 million (18% of revenue), down $0.9 million or 11% from $8.3 million (18% of revenue);
  • Backlog of $43.8 million, up $8.7 million or 25% from $35.1 million; and
  • Increase quarterly dividend to $0.04 per share, up $0.01 or 33% from $0.03.

First Half 2014 compared with First Half 2013

  • Revenue of $73.3 million, down $6.8 million or 9% from $80.1 million; and
  • Net income of $5.9 million or $0.20 per fully diluted share, down $1.8 million or 23% from $7.6 million or $0.26 per fully diluted share.

"During the second quarter of 2014 we experienced customer-requested shipment delays as well as continued softness in Aboveground Products," said Ron Bachmeier, President and Chief Executive Officer.  "As a result, the second quarter of 2014 was softer than the second quarter of 2013 and lower than we anticipated at the end of the first quarter."

"The shipment delays, which were in part attributable to construction project delays at customers' worksites, represent pending revenue that should lead to improved second half 2014 results compared with the second half of 2013. With regard to the full year 2014, the Underground segment is poised for revenue growth compared with 2013, while Aboveground segment revenue will likely be lower than 2013. Even with lower Aboveground segment revenue, we expect ZCL's 2014 net income and EBITDA will exceed 2013 levels and we should benefit from the gradually improving fundamentals we are seeing in the markets we serve."

Financial Results

Revenue for the second quarter ended June 30, 2014 was $41.7 million, compared to $47.3 million earned for the second quarter of 2014.  The Underground operating segment was up $1.2 million, but this increase was more than offset by a $6.8 million decrease in the Aboveground operating segment as compared to the second quarter of 2013.

Gross profit for the second quarter ended June 30, 2014 was $9.7 million, down $0.8 million or 8% from $10.5 million a year earlier.  Gross profit increased by $0.7 million for the Underground operations, but was more than offset by a $1.5 million decrease in the Aboveground operations.  Gross margin of 23% was up slightly from 22% of revenue a year earlier.

Net income for the second quarter ended June 30, 2014 was $4.5 million, down $0.6 million or 12% from $5.1 million a year earlier.  Earnings per share for the second quarter of 2014 was $0.15, down $0.02 or 12% from $0.17 per share a year earlier.

Backlog

As of June 30, 2014, backlog was $43.8 million, up $8.7 million or 25% from $35.1 million a year earlier.  The increase resulted from an increase in both the Underground and Aboveground backlog and was partly due to the customer-requested shipment delays noted above.  The increase in Underground backlog was driven by the US operations, which were up 36% prior to translation into Canadian dollars.  The Aboveground backlog was up 71% or $7.7 million relative to the second quarter of 2013, stemming mostly from an increase in the industrial chemical and power generation markets.

Financial Position

At June 30, 2014, ZCL's balance sheet had working capital (current assets less current liabilities) of $51.6 million, up $3.8 million from $47.8 million at December 31, 2013 and up $11.9 million from $39,700 at June 30, 2013.  Net cash increased to $15.6 million, up $0.5 million from $15.1 million at December 31, 2013 and up $16.2 million from a net debt position of $0.6 million at June 30, 2013. 

Dividends

Reflecting our confidence in improving overall performance over the long term, and our strong cash flow from operations, the Board has increased the dividend level, declaring a quarterly dividend of $0.04 per share. This represents a 33% increase over the $0.03 dividend declared at the same time last year. The dividend will be paid on October 15, 2014, to the shareholders of record as of September 30, 2014. 

Priorities for 2014

For the remainder of 2014, our strategic priorities remain directly focused on growth while maintaining profitability under the continuous improvement umbrella. The four key aspects of the 2014 strategic plan include:

  • Revenue growth:
    • Targeting and engaging expanded sales channels to strategically penetrate existing and emerging markets.
  • Increase profitability:
    • Continuous improvement in operations by increased use of automation, expanded use of KPIs and leveraging our supply chain to optimize materials management.
  • Invest in human capital:
    • Continue to use ZCL employee branding to make ZCL the employer of choice.
  • Continued focus on safety:
    • Implement behavioral change to drive safety improvements.

Summary Financial Results

For the three months ended

2014

2013

2012

(in thousands of dollars,

Jun 30

Mar 31

Dec 31

Sep 30

Jun 30

Mar 31

Dec 31

Sep 30

except per share amounts)

$

$

$

$

$

$

$

$

Revenue

41,687

31,592

37,715

43,931

47,250

32,809

44,866

50,067

Net income

4,492

1,372

1,769

4,993

5,087

2,536

2,876

4,805

Adjusted EBITDA (note 1)

7,382

3,159

3,975

8,512

8,316

4,797

5,386

7,910

Basic earnings per share

0.15

0.05

0.06

0.17

0.17

0.09

0.10

0.17

Diluted earnings per share

0.15

0.05

0.06

0.17

0.17

0.09

0.10

0.16

Adjusted EBITDA per diluted share (note 1)

0.24

0.10

0.13

0.28

0.28

0.16

0.18

0.27

Dividends declared per share

0.035

0.035

0.03

0.03

0.025

0.025

0.02

0.015

Note 1: Adjusted EBITDA and adjusted EBITDA per diluted share are non-IFRS measures and are defined later in this MD&A under "Non-IFRS Measures."

 

MD&A and Financial Statements

The Company's management's discussion and analysis ("MD&A") and unaudited interim condensed consolidated financial statements for the second quarter ended June 30, 2014 and 2013, 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 Wednesday, August 6, 2014, to discuss its financial and operating results for the second quarter ended June 30, 2014.

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.

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 website at http://www.zcl.com/investor-relations/investor-events.html. Audio replays will be available on the ZCL website shortly after the conclusion of the conference call.

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.  Backlog is a non-IFRS measure and does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies.

Note on Adjusted EBITDA

Adjusted 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.

Note on Adjusted EBITDA per Diluted Share

Adjusted EBITDA per diluted share is defined as adjusted EBITDA divided by weighted average diluted shares outstanding.

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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