VELAN Inc.
TSX : VLN

VELAN Inc.

July 09, 2015 13:00 ET

Velan Inc. Reports its First Quarter 2015/16 Financial Results

MONTREAL, QUEBEC--(Marketwired - July 9, 2015) - 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, 2015.

Highlights

  • Sales of US$103.2 million for the quarter
  • Net earnings1 of US$3.1 million for the quarter
  • Order backlog of US$410.4 million at the end of the quarter
  • Net order bookings of US$81.8 million for the quarter
  • Net cash2of US$61.3 million at the end of the quarter

Three-month periods ended
(millions of U.S. dollars,
excluding per share amounts)
May 31,
2015

May 31,
2014

Sales $ 103.2 $ 103.1
Gross Profit 23.5 26.5
Gross profit % 22.8 % 25.7 %
Net income (loss) attributable to Multiple and Subordinate Voting Shares 3.1 4.0
Net income (loss) per share - Basic 0.14 0.18
Diluted 0.14 0.18

First Quarter Fiscal 2016 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first quarter of fiscal 2015):

  • Net earnings1amounted to $3.1 million or $0.14 per share compared to $4.0 million or $0.18 per share last year. The $0.9 million decrease in net earnings1is primarily attributable to a lower gross profit percentage partially offset by decreased administration costs.

  • The Company concluded labour negotiations with its Canadian unions in June 2015. The negative impact on net earnings1of these negotiations and lockout in its first quarter was under $1 million. The Company intends to recover this shortfall by the end of the current fiscal year.

  • Despite the production slowdown caused by the lockout, consolidated sales remained relatively stable in the quarter, amounting to $103.2 million, an increase of $0.1 million or 0.1%

  • Net new orders received ("bookings") amounted to $81.8 million, a decrease of $35.8 million or 30.4% compared to last year. Excluding the effect of an order cancellation of $23.6 million in the quarter, bookings would have decreased by $12.2 million or 10.4%, which is primarily due to the negative Euro currency impact on the bookings in the Company's European operations. As a result of these factors, the Company ended the quarter with a backlog of $410.4 million, a decrease of $27.4 million or 6.3% since the beginning of the current fiscal year.

  • Gross margin decreased by 2.9 percentage points from 25.7% to 22.8%. This decrease is mainly attributable to a product mix with a greater proportion of lower margin product sales, particularly large project orders.

  • Administration costs amounted to $19.2 million, a decrease of $2.1 million or 9.9%. The decrease is primarily attributable to a decrease in variable compensation-related costs and costs recognized in connection with the Company's ongoing asbestos litigation. The fluctuation in asbestos costs for the quarter is due more to the timing of settlement payments in these two periods rather than to changes in long-term trends.

  • The Company ended the quarter with net cash2of $61.3 million, a decrease of $14.3 million or 18.9% since the beginning of the current fiscal year. This decrease is primarily attributable to negative non-cash working capital movements, particularly an increase in accounts receivable and a decrease in customer deposits.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro weakened 20.8% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits and bookings from its European subsidiaries being reported as lower U.S. dollar amounts in the current quarter.

    • Based on average exchange rates, the Canadian dollar weakened 11.2% 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 unfavourable impact of the Euro decrease was generally offset by the favourable impact of the Canadian dollar decrease on the Company's net earnings1.

"The first quarter presented a number of challenges, from contractual issues and a lockout in our Canadian plants to continued uncertainty over the Euro and the upstream oil and gas market," said John Ball, CFO of Velan Inc. "However with our strong balance sheet, international capabilities and strategic initiatives, we continue to see opportunities for future growth."

Yves Leduc, President of Velan Inc., said, "We are now deploying an operational excellence plan that aims to improve delivery, both in terms of timeliness and shortened lead times. We are also managing a portfolio of improvement initiatives to increase our cost competitiveness. These will help bolster our already strong position in each of our global markets."

Tom Velan, CEO of Velan Inc. said, "The valve market is very competitive and challenging due to the impact of the low price of oil that has resulted in delays or cancellations of many mega-projects around the world. Even though our bookings in the oil sector have been negatively impacted, we are diversified by market and geography so we still see a lot of opportunities in the global energy sector. For example, in our first quarter, we booked $18.4 million of nuclear valve orders in China for new nuclear plants using Chinese technology. We are intensifying our efforts to increase our order bookings."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on September 30, 2015, to all shareholders of record as at September 15, 2015.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the first quarter conference call to be held on Thursday, July 9, 2015, at 5:00 PM (EDT). The toll free call-in number is 1-888-273-1350, access code 21771513. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21771513.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of $455.7 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,
2015 2015
$ $
Assets
Current assets
Cash and cash equivalents 92,468 99,578
Short-term investments 1,621 847
Accounts receivable 110,151 105,335
Income taxes recoverable 7,626 5,472
Inventories 203,506 203,557
Deposits and prepaid expenses 5,942 5,326
Derivative assets 268 144
421,582 420,259
Non-current assets
Property, plant and equipment 89,053 91,285
Intangible assets and goodwill 32,399 33,576
Deferred income taxes 12,422 12,392
Other assets 778 1,116
134,652 138,369
Total assets 556,234 558,628
Liabilities
Current liabilities
Bank indebtedness 24,243 15,616
Short-term bank loans 1,569 2,134
Accounts payable and accrued liabilities 70,447 70,997
Income taxes payable 4,497 3,961
Dividend payable 1,765 1,755
Customer deposits 39,537 44,111
Provisions 7,706 7,874
Accrual for performance guarantees 29,517 30,012
Derivative liabilities 3,305 5,362
Current portion of long-term debt 10,563 10,644
193,149 192,466
Non-current liabilities
Long-term debt 2,785 4,183
Deferred income taxes 8,144 8,349
Other liabilities 8,456 8,537
19,385 21,069
Total liabilities 212,534 213,535
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,665 76,475
Contributed surplus 5,863 6,064
Retained earnings 285,060 283,724
Accumulated other comprehensive income (loss) (30,647 ) (27,652 )
336,941 338,611
Non-controlling interest 6,759 6,482
Total equity 343,700 345,093
Total liabilities and equity 556,234 558,628
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
2015 2014
$ $
Sales 103,179 103,065
Cost of sales 79,662 76,580
Gross profit 23,517 26,485
Administration costs 19,181 21,297
Other expense (income) 15 (130 )
Operating profit (loss) 4,321 5,318
Finance income 256 265
Finance costs 302 379
Finance income (costs) - net (46 ) (114 )
Income (Loss) before income taxes 4,275 5,204
Income taxes 844 1,142
Net income (loss) for the period 3,431 4,062
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 3,107 4,005
Non-controlling interest 324 57
3,431 4,062
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.14 0.18
Diluted 0.14 0.18
Dividends declared per Subordinate and Multiple Voting Share 0.08 0.09
(CA$0.10 ) (CA$0.10 )
Total weighted average number of Subordinate and Multiple Votng Shares
Basic 21,936,769 21,958,012
Diluted 21,936,769 21,965,057
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended
May 31
2015 2014
$ $
Comprehensive income (loss)
Net income (loss) for the period 3,431 4,062
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar)
(3,042

)

(966

)
Comprehensive income (loss) 389 3,096
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 112 2,805
Non-controlling interest 277 291
389 3,096
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, 2015 21,939,168 76,475 6,064 (27,652 ) 283,724 338,611 6,482 345,093
Net income (loss) for the period - - - - 3,107 3,107 324 3,431
Other comprehensive income (loss) - - - (2,995 ) - (2,995 ) (47 ) (3,042 )
21,939,168 76,475 6,064 (30,647 ) 286,831 338,723 6,759 345,482
Effect of share-based compensation - - 26 - - 26 - 26
Shares issued under Share Option Plan 14,267 227 (227 ) - - - - -
Dividends
Multiple Voting Shares - - - - (1,235 ) (1,235 ) - (1,235 )
Subordinate Voting Shares - - - - (518 ) (518 ) - (518 )
Share repurchase (3,400 ) (37 ) - - (18 ) (55 ) - (55 )
Balance - May 31, 2015 21,950,035 76,665 5,863 (30,647 ) 285,060 336,941 6,759 343,700
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
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended
May 31
2015 2014
$ $
Cash flows from
Operating activities
Net income for the period 3,431 4,062
Adjustments to reconcile net income to cash provided by operating activities 1,076 2,401
Changes in non-cash working capital items (12,843 ) 4,935
Cash provided (used) by operating activities (8,336 ) 11,398
Investing activities
Short-term investments (774 ) (92 )
Additions to property, plant and equipment (1,577 ) (4,059 )
Additions to intangible assets (105 ) (230 )
Proceeds on disposal of property, plant and equipment, and intangible assets 17 51
Net change in other assets 337 230
Cash provided (used) by investing activities (2,102 ) (4,100 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,743 ) (1,578 )
Repurchase of shares (55 ) (16 )
Short-term bank loans (565 ) (379 )
Repayment of long-term debt (1,424 ) (1,679 )
Cash provided (used) by financing activities (3,787 ) (3,652 )
Effect of exchange rate differences on cash (1,512 ) (1,448 )
Net change in cash during the period (15,737 ) 2,198
Net cash - Beginning of the period 83,962 74,840
Net cash - End of the period 68,225 77,038
Net cash is composed of:
Cash and cash equivalents 92,468 102,516
Bank indebtedness (24,243 ) (25,478 )
68,225 77,038
Supplementary information
Interest received (paid) 5 (93 )
Income taxes reimbursed (paid) (1,868 ) (1,488 )

Contact Information

  • VELAN Inc.
    Tom Velan
    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)
    www.velan.com