Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd.

March 17, 2008 17:37 ET

Wenzel Downhole Tools Ltd. Announces 2007 Results

CALGARY, ALBERTA--(Marketwire - March 17, 2008) - Wenzel Downhole Tools Ltd. (the "Company") (TSX:WZL) announces financial results for the year ended December 31, 2007.

The Company's revenues for the full year 2007 were $54.23 million compared to $55.55 million in 2006. While in the US drilling activity remained buoyant, thus enabling the Company to grow US revenues by $9.7 million or 60.5%, lower drilling activity in Canada and reduced international sales related to the postponement of several orders due to political developments in the Middle East, resulted in a reduction in combined Canadian and international revenues of $11.0 million or 28%. Consolidated net earnings for 2007 were $2.4 million or $.08 per share compared to $4.8 million or $.16 per share in 2006.

Drilling activity in Canada in 2007 was down by 32% compared to 2006, creating a challenging environment for the energy services sector. Fewer wells drilled, combined with the resulting price pressures from having an excess of capacity within the sector, plus the need to retain skilled staff in the tight Alberta labour market, narrowed margins. In response to the growing US sales and reduced Canadian activity the majority (60%) of the rental fleet of drilling tools was located in the US at year end. However the rapidity of the unpredicted changes from a low Canadian dollar being worth 84.7 cents per US dollar in March 2007 to a high value of 108.5 cents in November was a significant factor in reduced margins from US rentals, since almost all costs for repair and maintenance of the tools are in Canadian dollars. For both US and international sales the unavoidable time delay between bidding on a successful sale and manufacturing the specific tools also contributed to lower margins.

These negative impacts of the appreciating Canadian dollar and increased depreciation, from significant asset additions in 2006 and 2007, are main reasons for the increase in the Cost of Goods and Services in 2007 compared to 2006. The rapid changes in the Canadian dollar also had a negative impact on other expenses. While expenses other than Cost of Goods and Services were up $0.46 million in 2007 compared to 2006, the largest single item increase was a foreign exchange loss of $1.40 million compared to $0.55 million in 2006. "G & A" expense increases were mainly due to staff additions in the US related to the added sales.

"The risks associated with attempting to hedge against the negative impact of currency fluctuations are too large for a company of our size," said Harvie Andre, President & CEO, "but we have taken a number of steps to reduce our vulnerability. We now bid our foreign sales in euros and have improved internal information flow to ensure a tighter connection between price and cost in North America. We have also increased prices in the US."

Speaking about the prospects for 2008, Mr. Andre said, "In Canada early indications are that drilling activity is recovering from the lows of 2007, a reflection, no doubt, of higher gas and oil prices and an expectation of clearer tax and royalty regimes. Prospects in the US remain positive and even more so internationally. The Company maintains its reputation for producing the highest quality downhole tools and providing excellent service. In addition the Company will be introducing two new products for which we believe there is a receptive market." "All things considered", he added, "we are optimistic that 2008 will be an excellent year for the Company."

Selected Annual Information

Year Ended December 31
($000's, except for
per share values)
2007 2006 2005
Revenue 54,228 55,552 39,397
Gross Profit 20,358 27,220 18,960
Gross Profit Percentage 38% 49% 48%
Earnings before interest, taxes, depreciation,
amortization, stock based compensation and other
expenses (Note(1) 12,221 18,421 13,757
Operating earnings before other expenses and
income taxes 3,917 11,241 7,820
Earnings before income taxes 3,869 9,197 6,644
Net earnings 2,387 4,817 6,507
Net earnings per share 0.08 0.16 0.21
Total Assets 56,100 61,060 43,625
Long-Term Debt 3,572 5,115 6,806

Note (1) EBITDA, or earnings before interest, taxes, depreciation and
amortization is calculated by adding these items back to reported
net earnings. In addition to EBITDA, stock based compensation
expense and other expenses, due mainly to extra professional costs
associated with the investigations arising from the cease trade
order, the recent takeover bid, and related regulatory matters
have been excluded so as to make year to year comparisons more

($ 000's) 2007 2006 2005
Net earnings $ 2,387 $ 4,817 $ 6,507
Income taxes 1,483 4,380 137
Other expenses 48 2,044 1,176
Depreciation 6,578 5,152 5,106
Interest 1,559 926 817
Stock based compensation 166 1,102 14
EBITDA $12,221 $18,421 $13,757

Management uses EBITDA as a measurement to determine the ability of the Company to generate cash from normal operations. EBITDA does not have a standardized meaning for Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable with calculations of similar measures presented by other issuers. EBITDA is not intended to represent net income for the period nor should it be viewed as an alternative to operating or net income or other measures of financial performance calculated in accordance with GAAP.

About Wenzel Downhole Tools Ltd.

Wenzel Downhole Tools Ltd. is a manufacturer, seller and renter of drilling tools used in oil and gas exploration. In Canada the company has its manufacturing and servicing facilities located in Edmonton, Alberta and its corporate offices in Calgary, Alberta. Its U.S. headquarters and service facilities are in Conroe, Texas, with a service and sales office in Casper, Wyoming and a sales office in Oklahoma City, Oklahoma.

Wenzel Downhole Tools Ltd. is listed for trading on the Toronto Stock Exchange, symbol WZL. The Company's consolidated financial statements and Management's Discussion and Analysis will be posted on SEDAR (www.sedar.com).

This news release may contain forward-looking information. Actual results may differ materially from those contemplated. The risks, uncertainties and other factors, both known and unknown, that could influence actual results may be substantial and include those described in documents filed with regulatory authorities, such as the Company's most recently filed Annual Report and Annual Information Form. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive there from. Please refer to the Company's public disclosure documents for more information on these risks and uncertainties as they apply to the Company.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy and accuracy of this release.

Contact Information

  • Wenzel Downhole Tools Ltd.
    Harvie Andre
    President and CEO
    (403) 205-6696
    Wenzel Downhole Tools Ltd.
    William Spence
    (403) 205-6696
    (403) 265-8154 (FAX)
    Website: www.downhole.com