EDMONTON, July 30, 2015 /CNW/ – ZCL Composites Inc. (TSX: ZCL) today announced financial results for the second quarter and six months ended June 30, 2015.
Q2 2015 compared with Q2 2014
First Half 2015 compared with First Half 2014
“Overall financial results in the second quarter of 2015 were mixed compared with a year earlier,” said Ron Bachmeier, President and Chief Executive Officer. “Our total revenue and backlog increased because of strong performance by the Underground operating segment. However, revenue in our Aboveground operating segment, and in particular, the Western Canadian Oil Sands, declined sharply, leading to an overall decline in gross profit and net income. The lower sales volume in the Western Canadian Aboveground operations impacted the ability to cover the fixed cost base of the manufacturing operations, thereby impacting overall profitability.”
“We continue to believe that ZCL’s on-going diversification into non-Petroleum markets such as Water Products and Corrosion Products has long term value, but while our forecasts for Water Products is improving, the current environment for Corrosion Products remains challenging.”
Financial Results
Revenue for the second quarter ended June 30, 2015 was $46.7 million, up $5.0 million or 12% from $41.7 million earned for the second quarter of 2014. The Underground segment was up 20% relative to the prior year, partially offset by declines in the Aboveground segment.
Gross profit for the second quarter ended June 30, 2015 was $8.4 million, down $1.3 million or 13% from $9.7 million a year earlier. Gross margin of 18% was down five percentage points from 23% of revenue for the second quarter of 2014. The decrease in gross profit and gross margin was attributable to the Aboveground operating segment. Revenue from the Western Canadian operations of the Aboveground operating segment declined sharply, compared with a year earlier.
Net income for the second quarter ended June 30, 2015 was $3.4 million, down $1.1 million or 24% from $4.5 million a year earlier. Earnings per share for the second quarter of 2015 was $0.11, down $0.04 or 27% from $0.15 per share a year earlier.
Backlog
As of June 30, 2015, backlog was $53.3 million, up $9.5 million or 22% from $43.8 million a year earlier. The increase resulted from substantial growth in the Underground segment backlog partially offset by a decrease in Aboveground segment backlog. In the Underground segment, record quarterly backlog of $45.7 million was $15.1 million or 49% higher compared to the same quarter last year, and increases were primarily generated in US Petroleum Products. At June 30, 2015, the Aboveground segment backlog was down $5.6 million compared to the same quarter a year earlier. The decrease was derived from both US and Canadian markets.
Financial Position
At June 30, 2015, ZCL’s balance sheet had working capital (current assets less current liabilities) of $64.0 million, up $1.4 million from $62.6 million at December 31, 2014 and up $12.4 million from $51.6 million at June 30, 2014. Net cash decreased to $14.8 million, down $11.0 million from $25.8 million at December 31, 2014 and down $0.9 million from $15.6 million at June 30, 2014. The decrease in net cash during the second quarter of 2015 is primarily a result of a planned finished goods inventory build in our US Underground operations, in which Petroleum tanks have been built in anticipation of increased second half 2015 demand relative to 2014.
Dividends
The Board has maintained the dividend level, declaring a quarterly dividend of $0.045 per share. This represents a 29% increase over the $0.035 dividend declared at the same time last year. The dividend will be paid on October 15, 2015, to the shareholders of record as of September 30, 2015.
Outlook
Based on performance in the first half of 2015 and our robust backlog of $53.3 million, driven by the Underground operating segment, we expect to grow our overall revenue for the full year 2015. Although we expect to see overall gross margin improvement compared to the first half of 2015, we expect that weakness in the Aboveground operating segment, due primarily to the uncertainty in the energy sector, will impact our profitability in the upcoming quarters.
Our revenue growth continues to be driven by our Underground segment, and in particular, by our Petroleum Products group in the US market. The changing regulatory environment in the US, at both the federal and state levels, continues to support our view of longer term moderate growth for our Petroleum Products group. Specifically, the recently released US Environmental Protection Agency’s (EPA) long awaited update to underground storage tank regulations will set in motion a process of state level regulatory changes over the next three years. We expect to benefit from the revisions to UST regulations in various states over the coming years.
Also in our Underground segment, our Water Products group is benefiting from new construction and regulatory changes. In the short term, we anticipate growth as construction recovers in US residential, commercial, industrial, and institutional markets. Over the longer term, we expect ZCL to benefit from regulatory changes resulting from growing concerns about drought conditions, especially in California, and from changes to local building and zoning codes that require large capacity onsite water storage systems for fire suppression systems. Many states and municipalities are also implementing regulations requiring the detention and cleaning of storm water runoff before it reaches municipal sewer systems due to concerns about contaminated storm water runoff negatively impacting rivers, lakes, and streams.
We do not expect to see revenue growth in our Corrosion Products group in 2015. However, we remain reasonably optimistic about long term prospects for this sector due to the independently forecasted re-shoring of global chemical manufacturing capacity to North America resulting from historically inexpensive and plentiful energy resources, all in a geopolitically safe area of the world. During the quarter, we restructured our Corrosion sales team and have adopted new selling strategies in order to strengthen and further diversify our Aboveground customer base. We expect this change to enhance our long term growth potential as early efforts have already identified numerous opportunities. Given the long cycle times from quoting to order fulfilment with our large Aboveground orders, we will not see these changes generate a significant increase in Aboveground revenue until 2016 or 2017.
Departure of the Chief Operating Officer
Our Chief Operating Officer, Kapul Gill, has resigned from ZCL to pursue other career opportunities. We have commenced a search process for his replacement and have completed a transition plan. His final day will be July 31, 2015. Since starting with ZCL in October 2012, Kapul has led many positive changes within ZCL’s operations group, making a valuable contribution to creating a sustainable culture of operational continuous improvement at ZCL.
Summary Financial Results
|
For the three months ended |
2015 |
2014 |
2013 |
|||||
|
(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 |
46,664 |
32,195 |
48,195 |
49,361 |
41,687 |
31,592 |
37,715 |
43,931 |
|
Net income |
3,400 |
509 |
4,895 |
5,557 |
4,492 |
1,372 |
1,769 |
4,993 |
|
Adjusted EBITDA (note 1) |
6,052 |
1,800 |
7,702 |
8,834 |
7,382 |
3,159 |
3,975 |
8,512 |
|
Basic earnings per share |
0.11 |
0.02 |
0.16 |
0.19 |
0.15 |
0.05 |
0.06 |
0.17 |
|
Diluted earnings per share |
0.11 |
0.02 |
0.16 |
0.18 |
0.15 |
0.05 |
0.06 |
0.17 |
|
Adjusted EBITDA per diluted share (note 1) |
0.20 |
0.06 |
0.25 |
0.29 |
0.24 |
0.10 |
0.13 |
0.28 |
|
Dividends declared per share |
0.045 |
0.045 |
0.04 |
0.04 |
0.035 |
0.035 |
0.03 |
0.03 |
|
Note 1 Adjusted EBITDA and adjusted EBITDA per diluted share are non-IFRS measures and are defined later in this press release. |
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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 and six months ended June 30, 2015 and 2014, 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 Friday, July 31, 2015, to discuss its financial and operating results for the second quarter and six months ended June 30, 2015.
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 Non-IFRS Measures:
ZCL uses both IFRS and non-IFRS measures to make strategic decisions and to set targets. Backlog, adjusted EBITDA, and net cash 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 and adjusted EBITDA per diluted share
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. Adjusted EBITDA per diluted share is defined as adjusted EBITDA divided by weighted average diluted shares outstanding.
Net cash
Net cash is defined as cash and cash equivalents less long term debt, current portion of long term debt, finance lease, current portion of finance lease, and bank indebtedness.
About ZCL Composites Inc.
Our vision is to be the leading global provider of environmentally friendly liquid storage, fluid handling and corrosion resistant industrial products that are making a lasting difference. More information about ZCL is available on our website at www.zcl.com.
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 press release. 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. For further information, please contact:
SOURCE ZCL Composites Inc.