Velan Inc.
TSX : VLN

Velan Inc.

May 28, 2013 14:34 ET

Velan Inc. Reports its Fourth Quarter and Year-End 2011/12 Financial Results

MONTREAL, QUEBEC--(Marketwired - May 28, 2013) - Velan Inc. (TSX:VLN), a world-leading manufacturer of industrial valves, announced today its financial results for its fourth quarter and fiscal year ended February 29, 2012.

(millions of U.S. dollars, Three months ended Fiscal years ended
excluding per
share amounts)
February 29,
2012
February 28,
2011
February 29,
2012
February 28,
2011
Sales $117.8 $107.0 $437.1 $380.7
Gross Profit 23.0 29.6 87.3 101.4
Gross margin % 19.5 % 27.7 % 20.0 % 26.6 %
Net income (loss) attributable to Multiple and Subordinate Voting Shares
5.9

7.1

7.9

21.2
Net income (loss) per share -
Basic 0.27 0.32 0.36 0.96
Diluted 0.27 0.31 0.36 0.95

Highlights

Fourth Quarter Fiscal 2012 (unless otherwise noted, all comparisons are to the fourth quarter of fiscal 2011):

  • Net earnings1 amounted to $5.9 million or $0.27 per share compared to $7.1 million or $0.32 per share last year. Excluding the results of Velan ABV S.p.A. ("ABV"), the effects of purchase price accounting and currency impacts, the Company would have reported net earnings1 of $6.0 million or $0.27 per share in the current quarter compared to $8.2 million or $0.37 per share last year.

  • Net new orders received ("bookings") amounted to $125.9 million, an increase of $0.2 million or 0.2% compared to last year. Excluding ABV and currency impacts, bookings would have decreased by $11.7 million or 9.3%. Because the Company has a very large order backlog, it is quoting long lead times, which is negatively impacting bookings for some products. The Company ended the fiscal year with a backlog of $661.8 million; $617.1 million excluding ABV. The Company's backlog increased by 20.8% when compared to the end of the previous fiscal year.

  • Sales amounted to $117.8 million, an increase of $10.8 million or 10.1%. Excluding ABV and currency impacts, sales increased $4.4 million or 4.1%.

1 Net earnings or loss refers to net income or loss attributable to Subordinate and Multiple Voting Shares.
  • Gross margin decreased by 8.2 percentage points from 27.7% to 19.5%. Excluding ABV, the effects of purchase price accounting and currency impacts, gross margin would have decreased by 6.1 percentage points from last year.

  • The Company generated net cash1 from operations of $15.6 million. This source of net cash1 is primarily attributable to a decrease in accounts receivable, which was driven by the collections in the quarter of the
    increased billings reported in the third quarter of the current year. The Company ended the year with net cash1 of $37.1 million.

Year-ended fiscal 2012 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the prior fiscal year):

  • Net earnings2 amounted to $7.9 million or $0.36 per share compared to $21.2 million or $0.96 per share last year. Excluding ABV, the effects of purchase price accounting and currency impacts, the Company would have reported net earnings1 of $12.5 million or $0.56 per share this year compared to $14.3 million or $0.65 per share last year.

  • Net new orders received ("bookings") amounted to $529.0 million, an increase of $78.9 million or 17.5% compared to last year. Excluding ABV and currency impacts, the increase would have been $42.4 million or 9.4%.

  • Sales amounted to $437.1 million, an increase of $56.4 million or 14.8%. Excluding ABV and currency impacts, sales increased $26.2 million or 6.9%.

  • Gross margin decreased by 6.6 percentage points from 26.6% to 20.0%. Excluding ABV, the effects of purchase price accounting and currency impacts, gross margin would have decreased by 1.8 percentage points.

  • The Company used net cash1 from operations of $12.8 million. This use of net cash1 is primarily attributable to increased inventory purchases to service the growing backlog.

  • Based on average exchange rates, the U.S. dollar weakened 2.8% against the Canadian dollar when compared to the same period last year. This weakening resulted in the Company's Canadian dollar expenses being reported as higher U.S. dollar amounts in the current year. The euro strengthened 5.0% 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 year.

"The continued growth of both our sales and backlog, as well as the acquisition of ABV, has absorbed much of our working capital this year", John Ball, CFO of Velan Inc. said. "Notwithstanding these two factors, we continue to look for ways of improving the efficiency of our working capital and we are pleased that we ended the year with net cash1of $37.1 million and a strong balance sheet".

Tom Velan, President and CEO of Velan Inc. said, "The increases in bookings, backlog, and sales for the year to date are good indications of an improving global market for our products. We are starting our new year with a very strong backlog and the challenge we faced last year due to insufficient orders has changed to the challenge of producing our order backlog as quickly and profitably as possible. We are investing in increasing our global manufacturing capacity. Faced with significant material cost increases over the last two years, we have been raising our selling prices. For some of our product lines, we still face lower margins because material cost increases have risen faster than selling prices. We need to raise our margins by increasing volume and continuing to increase our prices where possible to cover cost increases.

1 Non-GAAP measures - see explanation below.
2 Net earnings or loss refers to net income or loss attributable to Subordinate and Multiple Voting Shares.

"We were disappointed by the results from our acquisition of ABV. This was a transition year for ABV, which had poor results due to a combination of some underpriced orders, significant material cost increases, and the additional work required to complete the acquisition, implement a new Enterprise Resource Planning ("ERP") system, and establish the new manufacturing plant. We expect improving results going forward as the new plant capacity is now in operation and the new ERP system has been implemented. Also, ABV is starting this year with more than double the backlog it had at the time of acquisition. We are working with the management of ABV to help improve operations to increase both output and profitability.

"We are continuing to take measures to improve our operational excellence and cost competitiveness, and to strengthen our presence in international markets in order to improve our long-term performance and increase the value of our company. In the shorter term, we are focused on improved execution of our large project order backlog to increase sales and improve earnings."

Dividend

The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per share, payable on June 29, 2012, to all shareholders of record as at June 15, 2012.

Conference Call

Financial analysts, shareholders, and other interested individuals are invited to attend the fourth quarter conference call to be held on May 17, 2012, at 4:30 PM (EST). The toll free call-in number is 1-888-628-4143, access code 21591591. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21591591.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of $437 million in its last reported fiscal year. The company employs over 1,950 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-GAAP measures

In this press release, the Company presented measures of performance and financial condition which are not defined under Canadian GAAP ("non-GAAP 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.

Net cash is defined as cash and cash equivalents plus short-term investments less bank indebtedness and short- term bank loans.

SELECTED FINANCIAL INFORMATION

Reconciliation of Net Income (Loss) from Canadian GAAP to IFRS:

Fiscal Year Three Months
Ended Ended
(In thousands of indicated currency) February 28 February 28
2011 2011
$ $
Net Income (Loss) - GAAP in Canadian dollars 5,810 (207 )
Net Income (Loss) - GAAP in U.S. dollars 5,665 (233 )
IFRS Adjustments to net income (loss) in U.S. dollars:
Change of functional currency to U.S. dollar 14,819 5,617
Reclassification of Non-controlling Interest 775 45
Income taxes - tax effect of above differences 740 1,689
Net Income (Loss) - IFRS in U.S. dollars 21,999 7,118

Reconciliation of Comprehensive Income (Loss) from Canadian GAAP to IFRS:

Fiscal Year Three Months
Ended Ended
(In thousands of indicated currency) February 28 February 28
2011 2011
$ $
Comprehensive Income (Loss) - GAAP in Canadiandollars
1,976

(20
)
Comprehensive Income (Loss) - GAAP in U.S. dollars 1,907 (80 )
IFRS Adjustments to comprehensive income (loss) in U.S.dollars:
Change of functional currency to U.S. dollar 21,091 10,488
Realized translation adjustment on reduction of net investment in self-sustaining operations
(239
)
(2
)
Reclassification of Non-controlling Interest 845 60
Income taxes - tax effect of above differences 740 1,689
Comprehensive Income (Loss) - IFRS in U.S. dollars 24,344 12,155

Reconciliation of Equity from Canadian GAAP to IFRS:

February 28 March 1,
(In thousands of indicated currency) 2011 2010
$ $
Equity - GAAP in Canadian dollars 340,627 346,184
Equity - GAAP in U.S. dollars 350,265 328,682
IFRS Adjustments to Equity in U.S. dollars:
Change of functional currency to U.S. dollar (19,794 ) (13,469 )
Reclassification of non-controlling interest 4,025 4,954
Income taxes - tax effect of above differences 3,227 2,439
Equity - IFRS in U.S. dollars 337,723 322,606
Velan Inc.
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 Fiscal years ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
$ $ $ $
Sales 117,784 107,028 437,135 380,706
Cost of sales 94,779 77,393 349,873 279,280
Gross profit 23,005 29,635 87,262 101,426
Administration cost 21,406 22,343 83,620 73,597
Other expense (income) (3,489 ) (253 ) (3,806 ) (601 )
Operating profit (loss) 5,088 7,545 7,448 28,430
Finance income 88 187 318 571
Finance costs 633 106 1,669 577
Finance income (costs) - net (545 ) 81 (1,351 ) (6 )
Income (Loss) before income tax 4,543 7,626 6,097 28,424
Income tax expense (recovery) 145 508 348 6,425
Net income (loss) for the period 4,398 7,118 5,749 21,999
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 5,864 7,073 7,892 21,224
Non-controlling interest (1,466 ) 45 (2,143 ) 775
4,398 7,118 5,749 21,999
Net income (loss) per Subordinate and
Multiple Voting Share
Basic 0.27 0.32 0.36 0.96
Diluted 0.27 0.31 0.36 0.95
Dividends declared per Subordinate and 0.08 0.08 0.32 0.31
Multiple Voting Share (CDN$0.08 ) (CDN$0.08 ) (CDN$0.32 ) (CDN$0.32 )
Velan Inc.
Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Fiscal years ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 4,398 7,118 5,749 21,999
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the U.S. dollar
(251
)
5,037

(7,461
)
2,345
Comprehensive income (loss) 4,147 12,155 (1,712 ) 24,344
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 5,490 12,095 1,400 23,499
Non-controlling interest (1,343 ) 60 (3,112 ) 845
4,147 12,155 (1,712 ) 24,344
Velan Inc.
Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At February 29, February 28, March 1,
2012 2011 2010
$ $ $
Assets
Current assets
Cash and cash equivalents 65,414 119,996 101,691
Short-term investments 4,954 87 295
Accounts receivable 111,856 94,495 86,756
Income taxes recoverable 9,682 5,007 3,301
Inventories 258,684 205,334 190,031
Deposits and prepaid expenses 6,209 3,875 5,672
Derivative assets 1,737 3,329 4,042
458,536 432,123 391,788
Non-current assets
Property, plant and equipment 72,961 64,622 63,931
Intangible assets and goodwill 58,845 11,657 11,382
Deferred income taxes 10,152 6,244 5,545
Other assets 1,476 1,391 1,388
143,434 83,914 82,246
Total assets 601,970 516,037 474,034
Liabilities
Current liabilities
Bank indebtedness 32,438 5,634 2,500
Short-term bank loans 858 822 791
Accounts payable and accrued liabilities 82,088 65,329 63,897
Income tax payable 2,484 1,832 4,505
Dividend payable 1,791 1,830 1,689
Customer deposits 86,544 73,054 55,403
Provisions 5,149 4,288 2,973
Accrual for performance guarantees 21,679 13,354 7,955
Derivative liabilities 534 447 1,077
Current portion of long-term debt 1,696 603 44
Current portion of other liabilities 5,753 - -
241,014 167,193 140,834
Non-current liabilities
Long-term debt 7,891 4,408 3,768
Deferred income taxes 8,270 57 124
Other liabilities 9,218 6,656 6,702
25,379 11,121 10,594
Total liabilities 266,393 178,314 151,428
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 78,764 79,271 79,651
Contributed surplus 1,871 1,898 1,936
Retained earnings 250,951 250,254 236,065
Accumulated other comprehensive income (loss) (4,217 ) 2,275 -
327,369 333,698 317,652
Non-controlling interest 8,208 4,025 4,954
Total equity 335,577 337,723 322,606
Total liabilities and equity 601,970 516,037 474,034
Velan Inc.
Interim Consolidated Statements of Changes in Equity
(Unaudited)
(in thousands of U.S. dollars)
Equity attributable to the Subordinate and Multiple Voting shareholders
Accumulated
other
Share Contributed comprehensive Retained Non-controlling
capital surplus income (loss) earnings Total interest Total equity
Balance - March 1, 2010 79,651 1,936 - 236,065 317,652 4,954 322,606
Net income for the year - - - 21,224 21,224 775 21,999
Other comprehensive income - - 2,275 - 2,275 70 2,345
79,651 1,936 2,275 257,289 341,151 5,799 346,950
Effect of share-based compensation - 63 - - 63 - 63
Dividends
Multiple Voting Shares - - - (4,930 ) (4,930 ) - (4,930 )
Subordinate Voting Shares - - - (2,105 ) (2,105 ) - (2,105 )
Non-controlling interest - - - - - (1,774 ) (1,774 )
Share repurchase (380 ) (101 ) - - (481 ) - (481 )
Balance - February 28, 2011 79,271 1,898 2,275 250,254 333,698 4,025 337,723
Balance - March 1, 2011 79,271 1,898 2,275 250,254 333,698 4,025 337,723
Net income (loss) for the year - - - 7,892 7,892 (2,143 ) 5,749
Other comprehensive loss - - (6,492 ) - (6,492 ) (969 ) (7,461 )
79,271 1,898 (4,217 ) 258,146 335,098 913 336,011
Effect of share-based compensation - 71 - - 71 - 71
Dividends
Multiple Voting Shares - - - (5,022 ) (5,022 ) - (5,022 )
Subordinate Voting Shares - - - (2,173 ) (2,173 ) - (2,173 )
Non-controlling interest - - - - - (948 ) (948 )
Share repurchase (507 ) (98 ) - - (605 ) - (605 )
Non-controlling interest arising on acquisition - - - - - 8,243 8,243
Balance - February 29, 2012 78,764 1,871 (4,217 ) 250,951 327,369 8,208 335,577
Velan Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Fiscal years ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
Cash flows from $ $ $ $
Operating activities
Net income (loss) for the period 4,398 7,118 5,749 21,999
Adjustments to reconcile net income (loss) to cash provided by operating activities -
Depreciation of property, plant and equipment 2,451 2,038 8,847 8,146
Amortization of intangible assets 494 228 4,330 813
Deferred income taxes (2,417 ) (2,318 ) (2,929 ) (987 )
Share-based compensation expense 21 10 71 63
Loss (Gain) on disposal of property, plant and equipment (25 ) (448 ) (14 ) (472 )
Interest accretion on proceeds payable 244 - 946 -
Income from fair value adjustment of proceeds payable (2,230 ) - (2,230 ) -
Unrealized foreign exchange gain on proceeds payable (978 ) - (978 ) -
Net change in other long-term liabilities 790 451 684 (46 )
2,748 7,079 14,476 29,516
Changes in non-cash working capital items
Accounts receivable 15,786 (8,646 ) (8,515 ) (7,781 )
Inventories (11,260 ) (543 ) (38,421 ) (15,385 )
Income taxes recoverable 481 (1,123 ) (4,758 ) (1,715 )
Deposits and prepaid expenses (1,541 ) 1,881 (1,903 ) 1,787
Derivative assets (463 ) (120 ) 1,564 709
Accounts payable and accrued liabilities 3,908 6,256 4,741 1,424
Income taxes payable 317 (1,059 ) 115 (2,687 )
Customer deposits 2,538 10,995 11,139 17,555
Provisions 1,356 1,052 846 1,308
Accrual for performance guarantees 3,233 2,109 7,863 5,370
Derivative liabilities (1,503 ) 203 85 (633 )
12,852 11,005 (27,244 ) (48 )
Cash provided (used) by operating activities 15,600 18,084 (12,768 ) 29,468
Investing activities
Short-term investments (3,440 ) 322 (4,867 ) 208
Additions to property, plant and equipment (3,770 ) (3,318 ) (12,710 ) (8,657 )
Proceeds on disposal of property, plant and equipment 39 447 100 653
Additions to intangible assets (1,102 ) (424 ) (1,840 ) (973 )
Net change in other assets (235 ) 80 (87 ) (3 )
Business acquisition - net of cash acquired - - (37,281 ) -
Cash provided (used) by investing activities (8,508 ) (2,893 ) (56,685 ) (8,772 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,781 ) (1,752 ) (7,234 ) (6,894 )
Dividends paid to non-controlling interest (864 ) 40 (948 ) (1,774 )
Repurchase of shares (217 ) (26 ) (605 ) (481 )
Short-term bank loans 11 13 (4,831 ) 31
Increase in long-term debt 609 1,001 5,221 1,001
Repayment of long-term debt (366 ) 2 (3,002 ) (87 )
Cash provided (used) by investing activities (2,608 ) (722 ) (11,399 ) (8,204 )
Effect of exchange rate differences on cash 503 2,118 (534 ) 2,679
Net change in cash during the period 4,987 16,587 (81,386 ) 15,171
Net cash - Beginning of period 27,989 97,775 114,362 99,191
Net cash - End of period 32,976 114,362 32,976 114,362
Net cash is composed of:
Cash and cash equivalents 65,414 119,996 65,414 119,996
Bank indebtedness (32,438 ) (5,634 ) (32,438 ) (5,634 )
32,976 114,362 32,976 114,362
Supplementary information
Interest received (paid) 197 (133 ) (555 ) (219 )
Income taxes received (paid) (888 ) (6,597 ) (6,742 ) (11,355 )

Contact Information

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

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