Velan Inc.
TSX : VLN

Velan Inc.

May 18, 2010 12:45 ET

Velan Inc. Reports Its 2010 Financial Year Results

MONTREAL, QUEBEC--(Marketwire - May 18, 2010) - Velan Inc. (TSX:VLN) today reported its financial results for the fourth quarter and the year ended February 28, 2010.

SUMMARY OF RESULTS
(In millions of Canadian dollars, except per share amounts)
  THREE MONTHS ENDED 12 MONTHS ENDED 9 MONTH FISCAL
  FEBRUARY 28 FEBRUARY 28 YEAR ENDED
  2010 2009 2010 2009 FEBRUARY 28
          2009
 
Sales 116.8 130.1 465.9 426.4 326.9
 
Net Earnings 6.1 16.2 35.5 67.0 61.7
 
Earnings per Share 0.28 0.73 1.60 3.10 2.77

Highlights

Velan reported strong financial results for the year ended February 28, 2010, benefiting from the high backlog of orders it had heading into the recession. The net earnings for the year were $35.5 million, the third highest in the sixty year history of the Company. Fiscal year 2009 was a record year with net earnings of $67.0 million, which included a gain of $36.6 million on the sale of the Italian joint venture in July 2008. Effective February 28, 2009, the Company changed its year end from May 31st to the last day of February, resulting in a nine month fiscal year. Comparisons in this press release are to the twelve month period ended February 28, 2009, and exclude the operational results of the former Italian joint venture.

Sales, gross profit and net earnings

For the year ended February 28, 2010, sales were $465.9 million, which is 9.3% more than the previous year after adjusting for the previous sales made by the Italian joint venture sold in July 2008. Sales for the quarter reached $116.8 million. This is a 10.2% decrease from the same quarter last year when the company recorded sales of $130.1 million. The decrease for the quarter is mainly attributable to the Company's North American operations, which felt the negative impact of the Canadian dollar being an average of 17.5% stronger against the US dollar compared to the same quarter last year

The gross profit for the year of $149.0 million, or 32.0% of sales, compared to $116.1 million, or 27.2% of sales, recorded last year. The principal factor positively impacting the gross profit percentage was the contribution of the foreign exchange hedging program due to the fluctuation of the Canadian dollar against the US dollar. Other factors such as increased volume also positively affected margins. The gross profit for the quarter amounted to $33.0 million, or 28.3% of sales, this year compared to the $45.2 million, or 34.7% of sales, recorded last year.

Net earnings for the year amounted to $35.5 million, or $1.60 per share, compared to $67.0 million, or $3.10 per share, in the prior year, which include a gain of $36.6 million on the sale of the 50% ownership in the Italian joint venture. Net earnings for the quarter of $6.1 million, or $0.28 per share, compared to net earnings of $16.2 million, or $0.73 per share, in the prior year. Lower sales and negative currency impact are the main reasons for the decrease in net earnings compared to the same quarter last year.

Although the Company reports in Canadian dollars, a majority of its sales are in US dollars. Based on average exchange rates the Canadian dollar strengthened against the US dollar by 17.5% for the quarter but weakened by 0.5% for the year respectively.

Changes in the period end currency rates result in the unrealized gains or losses on the consolidation of integrated subsidiaries. The Company recorded foreign exchange losses on the translation of integrated subsidiaries of $0.1 million and $7.6 million for the quarter and year respectively, compared to gains of $1.4 million and $5.4 million for the corresponding periods of the prior year.

Strong balance sheet

The Company continues to build a strong balance sheet and ended the quarter with shareholders' equity of $346.2 million, or $15.55 per share. The Company's net cash, defined as cash and cash equivalents plus short-term investments less bank indebtedness and short-term bank loans, amounted to $103.8 million as at February 28, 2010, or $4.66 per share. Net cash from operating activities amounted to $12.8 million for the quarter and $67.6 million for the year.

Bookings and Outlook

Order bookings of $432.6 million were 28.9% lower than the previous twelve month period. The backlog decreased to $503.0 million, of which $181.9 million is scheduled for shipment after February 2011. The backlog in the French subsidiaries increased to $286.3 million. The Company remains cautious about the short-term outlook but optimistic about the long term opportunities, given the current mixed economic environment and the lower short term backlog. Tom Velan, the President said "In the six quarters following the start of the global financial crisis in September 2008, we have reported strong sales and earnings results but lower bookings. Although there have been more positive trends in the global economy, this has not yet resulted in an upward trend in our markets with the exception of nuclear markets. Now our margins are being squeezed as there is downward pressure on valve prices, material prices are increasing and the Canadian dollar has risen 20.9% to settle close to parity with the US dollar. Due to our lower backlog and bookings, we have reduced our global manpower by 144 people as of April 30th, 2010 compared to the beginning of fiscal 2010. We regret that market conditions have forced us to lay off some of our employees and we hope that this is a temporary measure as there are positive indications that our markets will improve in the second half of this fiscal year. Despite the tough market environment over the last six quarters, our continuing large backlog of orders and strong balance sheet put us in a good position to continue to cope with the impact of the downturn in our markets. We expect that this will be a challenging year with lower sales and reduced margins. We continue to focus our efforts on pursuing business opportunities around the world in order to book enough orders so that we can continue to build on the excellent results achieved over the last six quarters".

Dividend

The Board declared an eligible quarterly dividend of $0.08 per share, payable on June 30, 2010, to all shareholders of record as at June 15, 2010.

Conference call

The company will hold a conference call on May 18, 2010 at 4:30 pm (ET). The toll free call-in number is 1-800-745-9476, access code 21469264. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21469264.

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.

J.D. Ball

CFO

                           
                           
                           
Consolidated Statements of Earnings and Retained Earnings                          
                               
   
   
    Unaudited         Unaudited  
    Three months ended       Twelve months ended  
    February 28       February 28  
(in thousands of dollars,                              
excluding per share amounts)   2010       2009       2010       2009  
   
Sales $ 116,795   $ 130,147   $ 465,945   $ 466,277  
Cost of sales   83,816       84,921       316,933       336,587  
Gross profit   32,979       45,226       149,012       129,690  
   
Expenses (other income)                              
Engineering, selling, general and administrative and research   20,814       21,429       74,635       78,918  
Interest                              
  Long-term debt   12       250       265       677  
  Other   75       122       231       864  
Amortization of property, plant and equipment   2,377       2,425       9,550       8,851  
Net gain on disposition of business   -       -       -       (36,595 )
Other expense (income)   (82 )     (461 )     (970 )     (1,676 )
Non-controlling interest   512       640       1,403       2,255  
Foreign exchange loss (gain) on translation of integrated subsidiaries   115       (1,360      7,594       (5,423
    23,823       23,045       92,708       47,871  
Earnings before income taxes   9,156       22,181       56,304       81,819  
   
Provision for income taxes   5,139       4,899       22,822       11,506  
Provision (recovery) for future income taxes   (2,041 )     1,036       (2,041 )     1,287  
Net earnings $ 6,058     $ 16,246     $ 35,523     $ 69,026  
   
   
   
Retained earnings - beginning $ 241,375   $ 202,790   $ 217,251   $ 153,580  
Net earnings   6,058       16,246       35,523       69,026  
Dividends                              
Multiple Voting Shares   1,245       1,245       4,981       3,735  
Subordinate Voting Shares   534       540       2,139       1,620  
Retained earnings - ending $ 245,654     $ 217,251     $ 245,654     $ 217,251  
   
   
Earnings per share                              
Basic $ 0.28     $ 0.73     $ 1.60     $ 3.10  
Diluted $ 0.27     $ 0.73     $ 1.59     $ 3.10  
                 
                 
                 
Consolidated Balance Sheets                
 
 
    Unaudited       Unaudited
    Feb 28       Feb 28
(in thousands of dollars)   2010       2009
 
ASSETS                
Current assets                
  Cash and cash equivalents $ 106,940   $ 66,776    
  Short-term investments   310       166    
  Accounts receivable   95,546       123,333    
  Income taxes recoverable   3,497       4,523    
  Inventories   206,472       212,781    
  Deposits and prepaid expenses   5,959       8,683    
  Future income taxes   4,735       4,054    
    423,459       420,316    
 
Future income taxes   1,880       1,614    
Property, plant and equipment   73,418       70,270    
Goodwill   12,502       12,502    
Other assets   1,438       1,818    
  $ 512,697     $ 506,520    
 
LIABILITIES                
Current liabilities                
  Bank indebtedness $ 2,630   $ 2,454    
  Short-term bank loans   833       1,003    
  Accounts payable and accrued liabilities   68,248       91,047    
  Income taxes payable   3,473       3,605    
  Dividend payable   1,778       1,786    
  Customers' deposits   58,146       51,608    
  Provision for performance guarantees   11,470       7,438    
  Future income taxes   907       2,771    
  Current portion of long-term debt   46       530    
    147,531       162,242    
Future income taxes   3,834       3,286    
Long-term debt   3,956       4,397    
Non-controlling interest   4,149       2,610    
Other long-term liabilities   7,043       6,870    
    166,513       179,405    
 
SHAREHOLDERS' EQUITY                
Capital stock   108,073       109,326    
Contributed surplus   2,016       1,622    
Retained earnings   245,654       217,251    
Accumulated other comprehensive loss   (9,559 )     (1,084 )  
    346,184       327,115    
  $ 512,697     $ 506,520    
                     
                     
                     
Consolidated Statements of Cash Flows                    
   
   
    Unaudited   Unaudited  
    Three months ended   Twelve months ended  
    February 28   February 28  
(in thousands of dollars)   2010     2009   2010     2009  
Cash provided from (required for):                      
Operating activities                      
  Net earnings $ 6,058   $ 16,246   35,523   $ 69,026  
    Items not affecting cash -                      
      Amortization   2,377     2,425   9,550     8,851  
      Stock options expense   27     65   197     112  
      Future income taxes   (2,041 )   1,036   (2,041 )   1,190  
      Loss on disposal of property, plant and equipment   (64 )   (35 ) (64 )   73  
      Net gain on disposition of business   -     -   -     (36,595 )
      Non-controlling interest   512     640   1,403     2,255  
      Net change in other long-term liabilities   (74 )   (188 ) 167     (211 )
    6,795     20,189   44,735     44,701  
  Net changes in non-cash working capital items                      
      Accounts receivable   (1,377 )   (391 ) 26,756     (15,464 )
      Income taxes recoverable   434     3,527   988     (916 )
      Inventories   18,424     (11,039 ) 6,075     (57,402 )
      Deposits and prepaid expenses   (997 )   830   2,623     (6,774 )
      Accounts payable and accrued liabilities   (3,541 )   (2,403 ) (23,644 )   37,972  
      Income taxes payable   (11,949 )   1,539   (137 )   2,253  
      Customers' deposits   788     (954 ) 6,296     21,255  
      Provision for performance guarantees   4,202     527   3,883     1,313  
    5,984     (8,364 ) 22,840     (17,763 )
    12,779     11,825   67,575     26,938  
Investing activities                      
   
  Net proceeds on disposition of business   -     -   -     42,538  
  Net cash increase on disposal of a business   -     -   -     550  
  Short-term investments   80     569   (144 )   (166 )
  Additions to property, plant and equipment   (4,162 )   (7,403 ) (14,038 )   (23,439 )
  Proceeds on disposal of property, plant and equipment   90     95   90     146  
  Net change in other assets   268     (220 ) 366     (878 )
    (3,724 )   (6,959 ) (13,726 )   18,751  
Financing activities                      
  Repurchase of Shares   -     -   (1,056 )   (47 )
  Dividends   (1,770 )   (1,785 ) (7,128 )   (3,570 )
  Dividends to non-controlling interest   (2 )   (119 ) (87 )   (891 )
  Short-term bank loans   (3 )   24   (170 )   (9,404 )
  Increase in long-term debt   -     -   -     457  
  Repayment of long-term debt   (4 )   (920 ) (1,061 )   (3,972 )
    (1,779 )   (2,800 ) (9,502 )   (17,427 )
Effect of exchange rate differences on cash and                      
cash equivalents   (3,899 )   997   (4,359 )   1,812  
Net change in cash and cash equivalents   3,377     3,063   39,988     30,074  
Net cash - beginning   100,933     61,259   64,322     34,248  
Net cash - ending $ 104,310   $ 64,322   $ 104,310   $ 64,322  
   
Net cash includes cash and cash equivalents less bank indebtedness                    
   
Interest paid amounted to :   32     73   178     1,389  
Income tax paid amounted to:   13,731     3,545   20,515     11,009  
   
   
   
Consolidated Statements of Comprehensive Income          
           
    Unaudited   Unaudited  
    Three months ended   Twelve months ended  
    February 28   February 28  
(in thousands of dollars)   2010   2009   2010     2009  
  Net earnings $ 6,058   $ 16,246   35,523   $ 69,026  
  Other comprehensive income (loss), net of tax                    
    Foreign currency translation adjustment on self-sustaining                    
    operations (non taxable)   (7,053 ) 669   (8,475 )   832  
    Comprehensive income   (995 ) 16,915   27,048     69,858  
   
   
Accumulated other comprehensive income (loss), net tax                    
Accumulated other comprehensive income (loss), beginning of period   (2,506 ) (1,753 ) (1,084 )   (1,074 )
    Other comprehensive income (loss) for the period   (7,053 ) 669   (8,475 )   832  
    Realized translation adjustment on the disposition of a self-sustaining foreign operations       -   -     (679 )
    Realized translation adjustment on reduction of net investment in self-                    
    sustaining foreign operations   -   -   -     (163 )
   
    Accumulated other comprehensive income (loss), end of period   (9,559 ) (1,084 ) (9,559 )   (1,084 )

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Contact Information

  • VELAN Inc.
    Tom Velan
    President
    514-748-7743
    514-748-8635 (FAX)
    or
    VELAN Inc.
    M. John D. Ball
    Chief Financial Officer
    514-748-7743
    514-748-8635 (FAX)
    www.velan.com