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ZCL Composites Reports Q4 and Fiscal 2013 Financial Results

EDMONTON, March 7, 2014 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the fourth quarter and year ended December 31, 2013.

Year 2013 compared with 2012

  • Revenue of $161.7 million, down $8.7 million or 5% from $170.4 million;
  • Record net income of $14.4 million or $0.49 per share (basic and fully diluted), up $0.9 million or $0.02 per share from $13.5 million or $0.47 per share ($0.46 fully diluted); 2012 net income included a positive impact of $1.4 million or $0.05 per share relating to the redemption of the preferred shares and related transactions;
  • Record adjusted EBITDA of $25.6 million, up $3.1 million or 14% from $22.5 million;
  • Backlog of $38.9 million, up $3.7 million or 11% from $35.2 million.
  • Quarterly dividend of $0.035 per share, up 17% from $0.03 per share in the third quarter of 2013.

Q4 2013 compared with Q4 2012

  • Revenue of $37.7 million, down $7.2 million or 16% from $44.9 million;
  • Net income of $1.8 million or $0.06 per share (basic and fully diluted), down $1.1 million or $0.04 per share from $2.9 million or $0.10 per share (basic and fully diluted); and
  • Adjusted EBITDA of $4.0 million, down $1.4 million or 26% from $5.4 million.

"Overall, I look back at 2013 as a successful year for ZCL," said Ron Bachmeier, President and Chief Executive Officer. "We posted records for net income of $14.4 million, adjusted EBITDA of $25.7 million, and fully diluted earnings per share of $0.49.  In addition, we achieved a return on capital employed of 29%, up from just 12% as recently as 2011."

"Although we have made improvements in operating efficiencies in many areas of our business, there is still room for improvement.  The sequential drop we saw in fourth quarter margins of 2013 was the result of short term volume, customer mix and product mix issues."

Financial Results

Revenue for the year ended December 31, 2013 was $161.7 million, down $8.7 million or 5% from $170.4 million for the year ended December 31, 2012. The Underground operating segment grew 6% and Petroleum Products achieved record annual revenues. The overall decrease in revenue was attributable to the Aboveground operating segment.

Gross profit for the year ended December 31, 2013 was $33.5 million, up $3.6 million or 12% from $29.9 million a year earlier.  Gross margin increased to 21% of revenue for 2013, up from 18% a year earlier, with the increase attributed to process improvements in operations, changes in customer mix, and in the Underground segment, increased sales volume without a corresponding increase in the fixed cost base.

Net income for the year ended December 31, 2013 was $14.4 million, up $0.9 million or 7% from $13.5 million a year earlier.  Net income per diluted share for 2013 was $0.49, up $0.03 from $0.46 per diluted share a year earlier.  Excluding a 2012 redemption of preferred shares and settlement of financial claims, which provided earnings per share of $0.05, the earnings per share increase over 2012 would have been $0.07 or 17%.

Backlog

As of December 31, 2013, backlog was $38.9 million, up $3.7 million or 11% from $35.2 million a year earlier.  The overall increase resulted from growth in the Underground backlog, which was partially offset by a decline in the Aboveground backlog compared to December of 2012.  The Aboveground backlog decline reflects continued softness in new order activity in the Oil Sands, industrial chemicals and power generation markets.

Financial Position

At December 31, 2013, ZCL's balance sheet had working capital (current assets less current liabilities) of $47.8 million, up $16.2 million or 51% from $31.7 million at December 31, 2012.  Net cash increased $15.1 million throughout the 2013 fiscal year to $15.2 million, primarily due to increases in cash flows from operations throughout the year of $18.4 million.

Dividends

Given our financial strength and confidence in our future cash flow generating capabilities, we are pleased to report the Board declared a 17% increase in the quarterly dividend to $0.035 per share for the fourth quarter of 2013, up from $0.03 per share previously.  The dividend will be paid on April 15, 2014, to the shareholders of record as of March 31, 2014.

2013 Report Card

For 2013, our focus was on profitable growth through our "simplify to grow" strategy.  The five key aspects of ZCL's 2013 strategic plan were as follows:

  • Focus on quality:
    • Improve our quality control processes through lean initiatives in order to reduce rework and disruptions in the production flow.
    • Results: Achieved improvements with in-plant quality control pass rates, on-time delivery and cosmetic quality.
  • Improve profitability:
    • Exceed the 13% EBITDA achieved in 2012 and improve gross margins as a percentage of revenue by 2% from 18% in 2012.
    • Results: Exceeded both targets with adjusted EBITDA of 16% of revenue and gross margins of 21%.
  • Meet deliveries and reduce lead times:
    • Meet 100% of the customer delivery requirements and shorten lead times by 25% in order to improve the flexibility of the plants and responsiveness to customers.
    • Results:  Achieved the goal to shorten Underground Storage Tank lead times by 25%.
  • Expand employee integration:
    • Refine our employee compensation package to further align employee goals and objectives with our strategic priorities and shareholder interests.
    • Results:  Achieved improvements through refined compensation and performance management systems.
  • Continued focus on safety:
    • Continuation of the standardization of our safety policies, procedures and metrics.
    • Results: Achieved improvement in company safety metrics.

2014 Strategic Priorities and Outlook

For 2014, our strategic priorities are now more 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.

Our operations group plans to increase the capital investment in 2014 in order to further progress lean initiatives within our facilities. This will include increasing the capital budget for 2014 for process improvement projects in addition to the standard maintenance capital requirements.  ZCL's maintenance capital requirements are between $3 million to $5 million annually.  For 2014, ZCL's capital budget is planned to be at the upper end of that range in order to upgrade certain of our existing facilities and equipment with the intent to further improve lead times and process flow.

While our Underground segment is poised for growth, short term market uncertainty and lack of visibility in our Aboveground segment means achieving growth in Corrosion Products in 2014 is not assured.

For the three months ended   2013   2012
(in thousands of dollars,   Dec 31   Sep 30   Jun 30   Mar 31   Dec 31   Sep 30   Jun 30   Mar 31
except per share amounts)   $   $   $   $   $   $   $   $
Revenue   37,715   43,931   47,250   32,809   44,866   50,067   42,850   32,576
Net income   1,769   4,993   5,087   2,536   2,876   4,805   4,207   1,602
Basic earnings per share   0.06   0.17   0.17   0.09   0.10   0.17   0.15   0.06
Diluted earnings per share   0.06   0.17   0.17   0.09   0.10   0.16   0.15   0.06
Dividends declared per share   0.03   0.03   0.025   0.025   0.02   0.015   0.01   0.01

MD&A and Financial Statements

The Company's management's discussion and analysis ("MD&A") and consolidated financial statements for the years ended December 31, 2013 and 2012, are available on Sedar at www.sedar.com and the ZCL Web site 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, March 10, 2014, to discuss its financial and operating results for the year and fourth quarter ended December 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 Non-IFRS Measures:

ZCL uses both IFRS and non-IFRS measures to make strategic decisions and to set targets.  Backlog, adjusted EBITDA, and return on capital employed are non-IFRS measures that are used by ZCL and may not be comparable to similar measures used by other companies.

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.

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 deferred development costs and intangible assets, gains or losses on sale of assets, and impairment of assets.

Return on Capital Employed

Return on capital employed is defined as adjusted EBITDA divided by capital employed, being shareholders equity, plus long term debt, including current portion and preferred shares, including current portion, less cash and cash equivalents.

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.  Unless otherwise indicated, the 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 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 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.

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