VELAN Inc.
TSX : VLN

VELAN Inc.

July 10, 2014 12:35 ET

Velan Inc. Reports its First Quarter 2014/15 Financial Results

MONTREAL, QUEBEC--(Marketwired - July 10, 2014) - Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its first quarter ended May 31, 2014.

Highlights

  • Sales of US$103.1 million for the quarter
  • Net earnings1 of US$4.0 million for the quarter
  • Order backlog of US$483.1 million at the end of the quarter
  • Order bookings of US$114.3 million for the quarter
  • Net cash2 of US$70.7 million at the end of the quarter
Three-month periods ended

(millions of U.S. dollars, excluding per share amounts)
May 31,
2014
May 31,
2013
Sales $ 103.1 $ 132.2
Gross Profit 26.5 30.7
Gross margin % 25.7 % 23.2 %
Net income (loss) attributable to Multiple and Subordinate Voting Shares 4.0 5.8
Net income (loss) per share - Basic 0.18 0.26
Diluted 0.18 0.26

First Quarter Fiscal 2015 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first quarter of fiscal 2014):

  • Net earnings1 amounted to $4.0 million or $0.18 per share compared to $5.8 million or $0.26 per share last year. The $1.8 million decrease in net earnings1 is primarily attributable to lower sales volume which was partially offset by improved gross margins and lower administration costs.

  • Sales amounted to $103.1 million, a decrease of $29.1 million or 22.0%. The decrease in sales is primarily attributable to decreased shipments of certain large export project orders.

  • Net new orders received ("bookings") amounted to $114.3 million, an increase of $7.6 million or 7.1% compared to last year, continuing the positive trend which started during the latter half of the prior year.

  • The Company ended the quarter with a backlog of $483.1 million, an increase of $11.4 million or 2.4% since the beginning of the current fiscal year. This increase is mainly attributable to the higher bookings outpacing the lower sales output in the quarter.

  • Gross margin increased by 2.5 percentage points from 23.2% to 25.7%. This increase is mainly attributable to a product mix with a greater proportion of higher margin product sales, particularly spare parts and valves without third party actuators.

  • Administration costs amounted to $21.3 million, a decrease of $0.4 million or 1.8%. The decrease is primarily attributable to a decrease in sales commissions and freight to customers on project orders which was partially offset by an increase in costs recognized in connection with the Company's ongoing asbestos litigation. The increase in asbestos costs is due more to the fact that the prior year settlement payments in the quarter were unusually low compared to other periods over recent years.

  • The Company generated net cash2 from operations of $11.4 million in the quarter. This source of net cash2 was primarily attributable to positive cash net earnings1 and non-cash working capital movements. The Company ended the quarter with net cash2 of $70.7 million, an increase of $3.0 million or 4.4% since the beginning of the current fiscal year.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro strengthened 6.2% against the U.S. dollar when compared to the same period last year. This strengthening resulted in the Company's net profits from its European subsidiaries being reported as higher U.S. dollar amounts in the current quarter.

    • Based on average exchange rates, the Canadian dollar weakened 7.1% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's Canadian dollar expenses being reported as lower U.S. dollar amounts in the current quarter.

    • The impact of these currency swings was favourable to the Company's results for the quarter.

"While Velan occasionally has quarters where not all contract sales take place as planned, and our first quarter was one of those quarters, we were pleased with the improved margins and expense control during the quarter," said John Ball, CFO of Velan Inc. "The backlog has slowly been increasing, and the balance sheet continued to strengthen, with our cash position improving from last year end."

Tom Velan, President and CEO of Velan Inc. said, "After finishing our Fiscal 2014 with such a strong quarter, we would have liked to see the sales momentum continue into our first quarter of Fiscal 2015. Although some projects didn't make it out the door in our first quarter, we continued to benefit from a favorable product mix and improved margins."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on September 30, 2014, to all shareholders of record as at September 15, 2014.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the first quarter conference call to be held on July 10, 2014, at 5:00 PM (EST). The toll free call-in number is 1-877-256-6025, access code 21721720. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558- 5253, access code 21721720.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of $489 million in its last reported fiscal year. The Company employs over 2,000 people and has manufacturing plants in 10 countries. Velan Inc. is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

Safe harbour statement

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.

Non-IFRS measures

In this press release, the Company presented measures of performance and financial condition that are not defined under International Financial Reporting Standards ("non-IFRS measures") and are therefore unlikely to be comparable to similar measures presented by other companies. These measures are used by management in assessing the operating results and financial condition of the Company. In addition, they provide readers of the Company's consolidated financial statements with enhanced understanding of its results and financial condition, and increase transparency and clarity into the operating results of its core business.

The term "net cash" is defined as cash and cash equivalents plus short-term investments less bank indebtedness, short-term bank loans, and current portion of long-term bank borrowings. Refer to the "Reconciliations of Non- IFRS Measures" section in the Company's MD&A for a detailed calculation of this measure.

1 Net earnings or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares.

2 Non-IFRS measures - see explanation above.

Velan Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At May 31, February 28,
2014 2014
$ $
Assets
Current assets
Cash and cash equivalents 102,516 106,716
Short-term investments 331 239
Accounts receivable 112,470 128,978
Income taxes recoverable 7,917 5,465
Inventories 226,914 224,149
Deposits and prepaid expenses 5,948 5,046
Derivative assets 526 498
456,622 471,091
Non-current assets
Property, plant and equipment 97,616 96,605
Intangible assets and goodwill 42,289 43,359
Deferred income taxes 11,725 11,406
Other assets 1,468 1,693
153,098 153,063
Total assets 609,720 624,154
Liabilities
Current liabilities
Bank indebtedness 25,478 31,876
Short-term bank loans 537 916
Accounts payable and accrued liabilities 72,649 76,590
Income tax payable 5,263 4,158
Dividend payable 2,025 1,586
Customer deposits 63,975 66,842
Provisions 7,739 8,060
Accrual for performance guarantees 33,655 33,842
Derivative liabilities 335 1,501
Current portion of long-term debt 10,059 10,402
221,715 235,773
Non-current liabilities
Long-term debt 10,314 11,685
Deferred income taxes 9,042 9,270
Other liabilities 8,464 8,307
27,820 29,262
Total liabilities 249,535 265,035
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,678 76,688
Contributed surplus 6,096 6,099
Retained earnings 274,855 272,867
Accumulated other comprehensive income (loss) (4,789 ) (3,589 )
352,840 352,065
Non-controlling interest 7,345 7,054
Total equity 360,185 359,119
Total liabilities and equity 609,720 624,154
Velan Inc.
Condensed Interim Consolidated Statements of Income (Loss)
(Unaudited)
(in thousands of U.S. dollars, excluding number of shares and per share amounts)
Three-month periods ended
May 31
2014 2013
$ $
Sales 103,065 132,168
Cost of sales 76,580 101,489
Gross profit 26,485 30,679
Administration costs 21,297 21,748
Other expense (income) (130 ) 38
Operating profit (loss) 5,318 8,893
Finance income 265 180
Finance costs 379 546
Finance income (costs) - net (114 ) (366 )
Income (Loss) before income tax 5,204 8,527
Income taxes 1,142 2,245
Net income (loss) for the period 4,062 6,282
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 4,005 5,800
Non-controlling interest 57 482
4,062 6,282
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.18 0.26
Diluted 0.18 0.26
Dividends declared per Subordinate and Multiple Voting Share 0.09 0.08
(CA$0.10 ) (CA$0.08 )
Total weighted average number of Subordinate and Multiple Voting Shares
Basic 21,958,012 21,923,768
Diluted 21,965,057 21,934,333
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended
May 31
2014 2013
$ $
Comprehensive income (loss)
Net income (loss) for the period 4,062 6,282
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency isother than the reporting currency (U.S. dollar)
(966

)

(1,222

)
Comprehensive income (loss) 3,096 5,060
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 2,805 4,746
Non-controlling interest 291 314
3,096 5,060
Velan Inc.
Condensed Interim Consolidated Statements of Changes in Equity
(Unaudited)
(in thousands of U.S. dollars, excluding number of shares)
Equity attributable to the Subordinate and Multiple Voting shareholders
Number of
shares
Share
capital
Contributed
surplus
Accumulated
other
comprehensive
income (loss)

Retained
earnings


Total

Non-controlling
interest


Total
equity
Balance - February 28, 2014 21,958,768 76,688 6,099 (3,589 ) 272,867 352,065 7,054 359,119
Net income (loss) for the period - - - - 4,005 4,005 57 4,062
Other comprehensive income (loss) - - - (1,200 ) - (1,200 ) 234 (966 )
21,958,768 76,688 6,099 (4,789 ) 276,872 354,870 7,345 362,215
Effect of share-based compensation - - 3 - - 3 - 3
Dividends
Multiple Voting Shares - - - - (1,415 ) (1,415 ) - (1,415 )
Subordinate Voting Shares - - - - (602 ) (602 ) - (602 )
Share repurchase (1,000 ) (10 ) (6 ) - - (16 ) - (16 )
Balance - May 31, 2014 21,957,768 76,678 6,096 (4,789 ) 274,855 352,840 7,345 360,185
Balance - February 28, 2013 21,923,768 76,314 1,746 (8,676 ) 250,129 319,513 8,660 328,173
Net income (loss) for the period - - - - 5,800 5,800 482 6,282
Other comprehensive income (loss) - - - (1,054 ) - (1,054 ) (168 ) (1,222 )
21,923,768 76,314 1,746 (9,730 ) 255,929 324,259 8,974 333,233
Effect of share-based compensation - - 8 - - 8 - 8
Dividends
Multiple Voting Shares - - - - (1,220 ) (1,220 ) - (1,220 )
Subordinate Voting Shares - - - - (472 ) (472 ) - (472 )
Balance - May 31, 2013 21,923,768 76,314 1,754 (9,730 ) 254,237 322,575 8,974 331,549
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended
May 31
2014 2013
$ $
Cash flows from
Operating activities
Net income for the period 4,062 6,282
Adjustments to reconcile net income to cash provided by operating activities 2,401 3,320
Changes in non-cash working capital items 4,935 15,105
Cash provided (used) by operating activities 11,398 24,707
Investing activities
Short-term investments (92 ) (1,153 )
Additions to property, plant and equipment (4,059 ) (4,223 )
Additions to intangible assets (230 ) (53 )
Proceeds on disposal of property, plant and equipment, and intangible assets 51 87
Net change in other assets 230 (15 )
Cash provided (used) by investing activities (4,100 ) (5,357 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,578 ) (1,701 )
Repurchase of shares (16 ) -
Payment of proceeds payable - (1,960 )
Short-term bank loans (379 ) (1,178 )
Increase in long-term debt - 1,391
Repayment of long-term debt (1,679 ) (1,719 )
Cash provided (used) by financing activities (3,652 ) (5,167 )
Effect of exchange rate differences on cash (1,448 ) (132 )
Net change in cash during the period 2,198 14,051
Net cash - Beginning of the period 74,840 28,592
Net cash - End of the period 77,038 42,643
Net cash is composed of:
Cash and cash equivalents 102,516 84,359
Bank indebtedness (25,478 ) (41,716 )
77,038 42,643
Supplementary information
Interest received (paid) (93 ) (359 )
Income taxes reimbursed (paid) (1,488 ) 504

Contact Information

  • VELAN Inc.
    Tom Velan
    President and Chief Executive Officer
    (514) 748-7743
    (514) 748-8635 (FAX)

    VELAN Inc.
    John D. Ball
    Chief Financial Officer
    (514) 748-7743
    (514) 748-8635 (FAX)
    Web: www.velan.com