September 2018 Forward-Looking Information Advisory Regarding - - PowerPoint PPT Presentation
September 2018 Forward-Looking Information Advisory Regarding - - PowerPoint PPT Presentation
September 2018 Forward-Looking Information Advisory Regarding ForwardLooking Statements This document contains forwardlooking statements concerning future events or the Companys future performance, including the Companys objectives
Forward-Looking Information
Advisory Regarding Forward‐Looking Statements
This document contains forward‐looking statements concerning future events or the Company’s future performance, including the Company’s
- bjectives or expectations for revenue and earnings growth, business opportunities in the Fuels, Water & Wastewater, Oil & Gas and other markets,
efforts to reduce administrative and production costs, manage production levels, anticipated capital expenditure trends, activity in fuel 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”, “forecast” and similar expressions. Actual events or results may differ materially from those reflected in the Company’s forward‐looking statements due to a number
- f 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 Fuel, Water & Wastewater and Oil & Gas 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 U.S. 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 instability in the world today 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 U.S. 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 presentation. 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.
Mission Statement Our Mission Is
"To deliver peace of mind through corrosion-resistant solutions that preserve and protect the environment."
- TSX symbol
ZCL
- Basic common shares o/s
30.6M
- Shares held by mgmt & directors
1.4M
- Equity market capitalization
$265M
- Bank indebtedness (June 30, 2018)
$1.1M
- Dividend per share (quarterly/annual)
$0.135/$0.54
- Yield
6%
- Cash‐based dividend payout ratio
80% of funds from continuing operations
- Total Shareholder Return ‐ Five Year CAGR
25% (share price appreciation and dividends paid to 2017)
- NCIB implemented March 2015
up to 1,500,000 shares (2018/19 approval) 530,500 shares repurchased @ $6.10 in 2015 290,500 shares repurchased @ $10.92 in 2017 391,400 shares repurchased @ $9.04 in 2018
Market Summary
Executive Team
- President & CEO
Ted Redmond
- Chief Financial Officer
Kathy Demuth
- VP Fuel Markets
Tom Tietjen
- VP Water & Wastewater Markets
Jan Arciszewski
- VP Oil & Gas/International Markets
Gerardo Zendejas
- VP Human Resources
Joe Santoro
- VP Manufacturing
Shawn Roach
Board of Directors
- Tony Franceschini, Chair
- Ron Bachmeier
- Bruce Bentley
- Diane Brickner
- Leonard Cornez
- Joseph Gysel
- Darcy Morris
- Ralph Young
Executive Team & Board of Directors
North American Coverage
Key Competitive Advantages
- People (experienced, knowledgeable, long‐term, loyal employees)
- Strong global brands and reputation in Fuel markets
- Customer alliances and retention
– Contract renewals and pre‐buys – Strong national account customer base – majority of active buyers loyal to ZCL
- Transportation challenges provide economic moats
– North America – protected from foreign competition on USTs
- Broad geographic presence enhances competitiveness of delivered pricing
– Allows ZCL to offer customers the shortest lead times in the industry
- Strong balance sheet and free cash flow generating capability with strong return on
capital employed
- Website as marketing resource for project designers, engineers and end user
customers
Brand & Market Overview
Core Market Emerging Markets Fuel (~80% of Revenue) Water & Wastewater (~15% of Revenue) Oil & Gas (~5% of Revenue)
Fuel Markets
Applications
- Downstream Fuel – storage tanks at retail & commercial fuel sites
- Primarily double‐wall FRP underground fuel tanks (triple‐wall available)
Key Differentiators
- 2,500 liters to 200,000 liters, single or multi‐compartmental
- Double‐wall allows continual interstitial monitoring (liquid sensors, air pressure, vacuum or
hydrostatic) – Hydrostatic most common; provides continuous monitoring (not available in steel tanks)
Estimated Market Sizes1
- $200M ‐ $250M addressable market in United States (estimated capture rate > 50%)
- $25M to $35M addressable market in Canada (estimated capture rate > 85%)
Competitors
- Fiberglass – CSI Denali (only other FRP provider)
- Steel – Modern Welding, Highland, Northern Steel, and many regional manufacturers
Customers
- Primarily retail fuel marketers (gas station, convenience store and truck stop operators) and
equipment distributors
Current Market Conditions
- U.S. market activity strong, including distributors, "big box" retailers and larger convenience
store chains
- Improving Canadian market – being led by larger retail fuel marketers as well as distributors
Fuel Markets
- 1. Market sizes expressed in Canadian Dollars; Market sizes and capture rate estimated based on management’s knowledge of industry and historical purchasing activities
- f customer base
Market Growth Focus
- Mature market – focus on demographic shift for new to industry construction
- 1980's tanks reaching end of original 30 year warranty (both steel and FRP), leads to increased rate
- f tank replacement
– State regulatory replacement mandates increasing – Owners choosing to implement replacement plans for risk management purposes – Insurance and bank limitations on age of tanks covered
- Historically high retail profits due to increasing retail fuel volumes provide capital funding for site
expansion – Continued expansion by large regional C‐store chains and nontraditional fuel retailers using fuel based customer loyalty programs to grow market share
- Future fuels (E15, E85, biofuels) – replacement and upgrades
– Growing recognition that biofuels add to concerns about internal corrosion in steel tanks – June 2016 EPA Notice regarding internal corrosion of steel tanks storing diesel fuel (ULSD)
- Diesel Exhaust Fluid (DEF) – highway, off‐road construction, marine
– Bulk storage of DEF will continue to increase
- Decreasing steel market share continues to provide growth opportunities
- Excellent distributor network in place selling to small retailers and commercial accounts
Fuel Markets
Fuel Markets
Downstream Fuel – Estimated Market Share
- Management believes ZCL has gained significant market share1 over the past 10
years – Primarily at the expense of steel with recent gains versus CSI as well
- Steel accounts for <15% of new installations but is still 40% to 50% of today's
installed/in‐service tank base – Represents over 275,000 in service USTs in the U.S. and Canada that are replacement targets
- 1. Market size and market share estimated based on management’s knowledge of industry and historical purchasing activities of customer base
ZCL CSI Steel
Fuel Markets
Downstream Fuel UST Ages
- Some studies1 estimate 15% ‐ 20% of today's installed/in‐service tanks are >30
years old while 50% ‐ 60% are >20 years old – Based on historical sales data and regional studies of installed tank base ages
- This implies ~100,000 tanks >30 years old and ~300,000 tanks >20 years old
– Supports our future growth forecast based on current ~7,500 USTs sold in North America annually
- 1. Sources include a study published in October, 2015 from the Association of State and Territorial Solid Waste Management Officials titled “An Analysis of UST Systems
Infrastructure in Select States”
Applications
- ZCL serves all Water & Wastewater submarkets in which tanks are employed as a
component of the system:
– Water Conservation ‐ Rainwater collection and use, stormwater detention/filtration – Plumbing Engineered Solutions – Grease/oil/solids interceptors and decontamination – Wastewater – Decentralized onsite wastewater treatment, municipal wastewater collection – Fire Protection ‐ Dry hydrant cisterns, sprinkler systems – Industrial Wastewater ‐ Wash down drainage and leachate treatment – Potable Water ‐ Potable water storage
Water & Wastewater Markets
Estimated Market Size1
- Total addressable market size of $400M ‐ $500M in North America, based on primary offering
(5,000 to 100,000 gallons)
- Market segments vary from $20M to $100M
Competitors
- Concrete is dominant (>80%) with hundreds of regional suppliers
- FRP – CSI Denali and many small regional manufacturers including LF, Canwest, Barski, Granby
(Nemo)
- HDPE/Poly (under 5,000 gallons) – Norwesco, Snyder, Darco, Infiltrator and many national and
regional manufacturers
Customers
- Various end users, system integrators and engineering firms
Water & Wastewater Markets
- 1. Market size expressed in Canadian Dollars and estimated based on Lucintel market study commission by ZCL and management’s knowledge of industry
Key Differentiators
- Strong value proposition between 5,000 and 100,000 gallons (particularly 20,000 to 50,000)
- Lower life cycle cost given minimal maintenance required vs. concrete
- Superior corrosion resistance for applications with higher degree of environmental sensitivity
- Watertight, lightweight and easy to install products
Current Market Conditions
- Tied to construction cycle
– Institutional, commercial, industrial and residential building continue to slowly improve
- Broad water market should benefit from increased construction activity and economic growth
- Evolving government regulations for wastewater, stormwater, combined sewer overflow (CSO),
FOG (fats, oils, grease) and fire submarkets will support growth
- Growing awareness of water as a scarce resource with value causing water pricing to increase
– Leads to conservation, recycle, reuse systems with tanks
Water & Wastewater Markets
Market Growth Focus
- FRP poised to gain market share from concrete based on:
– Specifications
- By establishing preferred partner status with major water/wastewater integrated
solutions providers and expanding industry‐specific indirect channel network – Life cycle cost
- Higher value of factory‐manufactured, watertight, lightweight, structurally strong and
easy to install storage vessel delivered to site for same‐day installation
- Compares to long‐term construction project and high maintenance costs of poured‐in‐
place concrete – Sustainability advantages
- Studies prove “carbon footprint” of FRP products is superior to concrete and steel1
- Opportunities to capitalize on evolving regulatory environment
– Environmental awareness: "scarce commodity with value" is a key opportunity – Water reuse/recycle movement is macro driver – Urban stormwater regulations driving new opportunities – Increased regulatory focus on use of grease interceptors provides opportunity
- U.S. drought conditions support growth of rainwater collection
Water & Wastewater Markets
- 1. Sources include 2016 Stanford University Lifecycle Analysis comparing FRP to Concrete
Applications
- Midstream Oil & Gas – sump tanks for pipeline systems
- Upstream Oil & Gas – storage & process vessels at E&P sites
Estimated Market Size1
- $50M addressable market in geographies served by ZCL (Canada & US)
– Current capture rate of ~10%, provides compelling growth opportunity Competitors
- Midstream Oil & Gas – CSI Denali & small regional steel manufacturers
- Upstream Oil & Gas – regional steel manufacturers
Oil & Gas Markets
- 1. Market size expressed in Canadian dollars and estimated based on 2017 BCC study commissioned by ZCL and management’s knowledge of industry
Customers
- Several major pipeline and E&P companies operating in North America
Key Differentiators
- Superior corrosion resistance in an area with a high degree of environmental
sensitivity
- Ability to provide engineered solutions to EPC companies
Current Market Conditions
- Pipeline expansion combined with aged steel pump station sump tank
infrastructure will drive midstream sales growth (pump station sump tanks)
- Production activity in Western Canada and the US continues to trend positively
Oil & Gas Markets
Parabeam
- Manufactured in Helmond, The Netherlands
- 3D woven glass fabric used in new double‐wall tanks and Phoenix System
– Also applications in boats, ships, trucks, cars, trains and as a building material
- Relative advantages include lighter weight, corrosion resistance and insulation properties
- 15%‐20% of output sold externally (remainder used in ZCL products)
Licensing
- Licensees in several international markets for tank manufacturing and Phoenix System
- Agreements include upfront technology licensing fees and ongoing royalties based on sales
– Also generates sales of ZCL products used to produce licensee products (e.g. Parabeam)
Specialty Products
Outlook
Core Emerging New
Fuel Markets Water & Wastewater Markets Oil & Gas Markets TBD
- Drives our success
through strong cash flow generation
- Downstream (retail)
sub‐market with mid to high single digit CAGR
- Future growth driven
by non‐traditional fuel retailers competing for market share
- On‐going consolidation
supports long term confidence for growth
- Water is the next scarce
resource that will continue to increase in value
- Future organic CAGR of
10%‐20%
- ZCL’s underground
storage tanks part of the water conservation solution for a large existing market
- Gradually improving
construction market across North America and market share gains against incumbent concrete products support growth
- Focus on limited
geographies where ZCL has strong presence and high brand awareness
- M&A – Water
Market focus
- Innovation leads to
new products and markets
- International
Revenue by Market (cont. ops.)
$132M
$152M $165M $184M $188M $182M
Revenue by Market (cont. ops.)
O&G Water Fuel
CAGR
Fuel 10% Water 5%
$132M
$152M $165M $184M $188M $182M
Revenue by Market (cont. ops.)
47% 56% 53% 44% 61% 39% 43% 45% 57% 55%
Gross Profit & Gross Margin (cont. ops.)
Gross Profit & Gross Margin (cont. ops.)
Gross Profit & Gross Margin Impacts
- List price increases have been realized in only a portion of the
customer base due to increasing competitive pricing pressures
- Increasing resin input costs
- Increased labor costs
- Tightening labor pool in certain facilities
- Implementation challenges of product & process innovation
and plant improvements & standardization have resulted in manufacturing inefficiencies
Gross Profit – What are we doing
- Reduce training and inefficiencies by limiting ongoing recruiting & process
changes through remainder of 2018
- Focus on throughput to meet higher customer demand in 2H which will
also increase fixed cost absorption – Went back to historical two shift operation in most plants as labour shortage was resulting in too much turnover in three shift operations
- Price increases from earlier in the year, working their way through the
- rder pipeline
- Negotiating with high volume suppliers for further cost reductions
- Value engineering tank through product design and innovation (easy
implementation, no training required at shop level)
- Secondary bonding with adhesives
Adjusted EBITDA (cont. ops.)
Adjusted EBITDA (cont. ops.)
Earnings Per Share (cont. ops)
Return on Capital Employed (cont. ops.)
Debt to Adjusted EBITDA
Funds from Operations vs. Capital Spend
Capital Allocation Strategy
- Fund all organic growth opportunities as per our strategic plan
– $4 to $5 million annual spend for maintenance and growth capital
- Continue to pursue and evaluate opportunities to grow through M&A
– Pursue strategic fits and act when the right opportunities materialize that are consistent with our strategy
- Continue to optimize returns to shareholders