VELAN Inc.
TSX : VLN

VELAN Inc.

May 17, 2011 12:34 ET

Velan Inc. Reports its Full Year and Fourth Quarter 2010/11 Financial Results

MONTREAL, QUEBEC--(Marketwire - May 17, 2011) - Velan Inc. (TSX:VLN), a world-leading manufacturer of industrial valves, announced today its financial results for the full year and fourth quarter ended February 28, 2011.

THREE MONTHS ENDEDFULL YEAR ENDED
FEBRUARY 28FEBRUARY 28
2011201020112010
Sales107.1116.8388.5465.9
Net Earnings (Loss)(0.2)6.15.835.5
Earnings (Loss) per Share(0.01)0.280.261.60

Highlights

Full Year Fiscal 2011 (all comparisons versus full year fiscal 2010 unless otherwise noted):

  • 1. Net earnings of $5.8 million, or $0.26 per share, compares to $35.5 million, or $1.60 per share.

  • 2. Bookings of $418.4 million, down 3.3%, but would have been up 5.2% if not for negative currency effects.

  • 3. Sales of $388.5 million, down 16.6%, or 8.4% excluding negative currency effects.

  • 4. Gross margin decreased by 6.0% from 32.0% to 26.0%; the decrease would have been 2.0% excluding negative currency effects.

  • 5. Net cash1 generated from operations of $26.0 million, compares to $67.6 million.

  • 6. Backlog of $532.6 million, up 5.9%, or 13.3% excluding negative currency effects.

  • 7. Shareholders' equity of $340.6 million, or $15.35 per share, down 1.6%.

  • 8. Net cash1 of $110.5 million, or $4.98 per share, up 6.5%.

  • 9. Based on average exchange rates, the Canadian dollar strengthened against the Company's main selling currencies, the U.S. dollar and the euro, by 8.9% and 16.0%, respectively. This significant strengthening had a negative impact on the Company's results.

Fourth Quarter Fiscal 2011 (all comparisons versus fourth quarter fiscal 2010 unless otherwise noted):

  • Net loss of $0.2 million, or $0.01 per share, compares to net earnings of $6.1 million, or $0.28 per share.

  • Bookings of $83.3 million, down 35.6%, or 28.4% excluding negative currency effects.

  • Sales of $107.1 million, down 8.3%, or 1.2% excluding negative currency effects.

  • Gross margin decreased by 1.5% from 28.2% to 26.7%, but would have increased by 0.4% if not for negative currency effects.

  • Net cash1 generated from operations of $15.3 million, up 19.5%.

  • Based on average exchange rates, the Canadian dollar strengthened against the Company's main selling currencies, the U.S. dollar and the euro, by 5.5% and 11.5%, respectively. This significant strengthening had a negative impact on the Company's results.

"As we anticipated one year ago, this has been a downturn year with lower sales and earnings as the effects of the global financial crisis impacted us as a late-cycle company. We started this year with lower deliverable backlog due to low order bookings last year, other than nuclear. Our margins were squeezed by a combination of lower volume, higher input costs, and a strong Canadian dollar," said Tom Velan, President and CEO of Velan Inc.

"We remain focused on our operational excellence program to implement cost reductions. Faced with significant material cost increases, we have been raising our selling prices. We expect these measures will help protect our margins in the near term and help improve margins when our sales volume increases."

Nuclear continued to be an important factor in the Company's sales, bookings, and backlog. The serious nuclear accident at Fukishima, Japan, caused by the earthquake and tsunami has had a serious impact on the nuclear industry around the world. Despite the tragic events in Japan, the Company believes that the new generation- three reactors have vastly improved safety characteristics and that nuclear will play an important role in meeting future energy requirements. The Company expects that its current order backlog will continue to be manufactured as scheduled, but there will be a hiatus or slowdown in commitments for new orders.

Tom Velan said, "There have now been more positive trends in the global economy and in our main markets over the last few months, with the exception of nuclear. We are starting this year with a higher backlog than last year. Although there are signs of improvement in our markets, we expect that it will take time for the capital-intensive project market to fully recover and we continue to experience fierce competition as competitors fight to maintain market share and sales volume. We continue to take measures to broaden our scope of product offerings and strengthen our international presence."

Following the year end, the Company acquired 70% of ABV Energy S.p.A., now Velan ABV S.p.A. ("ABV"), an Italian valve manufacturer with two plants in Lucca, Italy. ABV manufactures engineered valves, actuators, and control systems supplied to energy markets. The former shareholders will retain a 30% interest. ABV reported sales of approximately $49.7 million (€36.4 million) for its last fiscal year.

The Company believes ABV will be accretive to earnings, excluding the effects of purchase price accounting. The Company is still in the process of determining the purchase price equation and as such is not in a position to estimate the impact that purchase price accounting will have on its fiscal 2012 results.

Tom Velan said, "We are pleased to have executed on one of our major strategic goals, with the largest acquisition in our history. ABV's product line is entirely complementary to our valve range, broadening the scope of our offerings to energy markets and providing us with a great opportunity to grow sales and earnings over the coming years."

After the year end, the Company also purchased land in Coimbatore in southern India to build a new plant that will serve both to improve its cost competitiveness and its access to the rapidly growing Indian market. This plant will take time to build and put into operation.

"We are pleased to have maintained a solid balance sheet," said John Ball, CFO of Velan Inc., "and to have generated net cash1 from operations during this challenging year. Our focus on working capital management allowed us to fund the ABV acquisition from our own cash resources and still have sufficient liquidity to satisfy our working capital requirements and execute on our business strategy.

"This is the last year we will be reporting our results in Canadian dollars. As a result of the adoption of the International Financial Reporting Standards ("IFRS"), we are switching to the U.S. dollar as our functional and reporting currency. We expect this change to lessen, but not eliminate, the foreign exchange-related volatility on our earnings."

Tom Velan concluded, "We are a late-cycle company, so while many businesses had lower sales right after the financial crisis, we had very good results for six quarters but experienced a downturn in this fiscal year. We expect to have better results in fiscal 2012 as we are starting this year with a higher backlog and there have been more positive trends in the global economy and in our main markets over the last few months, with the exception of nuclear. We have and continue to take measures to broaden our product offering, improve our cost competitiveness, and strengthen our presence in international markets in order to improve our performance and increase the value of our company."

Dividend

The Board declared an eligible quarterly dividend of $0.08 per share, payable on June 30, 2011, to all shareholders of record as at June 15, 2011.

Conference Call

Financial analysts, shareholders, and other interested individuals are invited to attend the fourth-quarter conference call to be held on May 17, 2011, at 3:30 PM (EST). The toll free call-in number is 1-800-734-4208, access code 21523248. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21523248.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of Cnd. $388 million in its last reported fiscal year. The company employs over 1,800 people and has manufacturing plants in nine 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.

1 Non-GAAP measure – see explanation below

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.

Consolidated Statements of Earnings
and Retained Earnings
UnauditedUnaudited
Three months endedTwelve months ended
February 28February 28
(in thousands of dollars,
excluding per share amounts)2011201020112010
Sales$107,117$116,795$388,466$465,945
Cost of sales78,55283,816287,413316,933
Gross profit28,56532,979101,053149,012
Expenses (other income)
Engineering, selling, general and
administrative and research22,01020,81474,01274,635
Interest
Long-term debt(51)12187265
Other15675402231
Amortization of property, plant and equipment2,6252,37710,0719,550
Other income(403)(82)(857)(970)
Non-controlling interest595125701,403
Foreign exchange loss on translation of
integrated subsidiaries2,1741153,5487,594
26,57023,82387,93392,708
Earnings before income taxes1,9959,15613,12056,304
Provision for (recovery of) income taxes - Current2,5935,1397,70122,822
Provision for (recovery of) income taxes - Future(391)(2,041)(391)(2,041)
Net earnings (loss)$(207)$6,058$5,810$35,523
Retained earnings - beginning$246,340$241,375$245,654$217,251
Net earnings (loss)(207)6,0585,81035,523
Dividends
Multiple Voting Shares1,2451,2454,9804,981
Subordinate Voting Shares5315342,1272,139
Retained earnings - ending$244,357$245,654$244,357$245,654
Earnings (loss) per share
Basic$(0.01)$0.28$0.26$1.60
Diluted$(0.01)$0.27$0.26$1.59
Consolidated Balance Sheets
UnauditedUnaudited
February 28February 28
(in thousands of dollars)20112010
ASSETS
Current assets
Cash and cash equivalents$116,703$106,940
Short-term investments85310
Accounts receivable95,18795,546
Income taxes recoverable5,4323,497
Inventories207,478206,472
Deposits and prepaid expenses3,7665,959
Future income taxes4,9144,735
433,565423,459
Future income taxes1,9001,880
Property, plant and equipment71,93273,418
Goodwill12,50212,502
Other assets1,3311,438
$521,230$512,697
LIABILITIES
Current liabilities
Bank indebtedness$5,483$2,630
Short-term bank loans800833
Accounts payable and accrued liabilities63,72768,248
Income taxes payable1,5433,473
Dividend payable1,7781,778
Customer deposits71,00958,146
Provision for performance guarantees17,14811,470
Future income taxes743907
Current portion of long-term debt58746
162,818147,531
Future income taxes4,0003,834
Long-term debt4,2863,956
Non-controlling interest3,0244,149
Other long-term liabilities6,4757,043
180,603166,513
SHAREHOLDERS' EQUITY
Capital stock107,553108,073
Contributed surplus2,1102,016
Retained earnings244,357245,654
Accumulated other comprehensive loss(13,393)(9,559)
340,627346,184
$521,230$512,697
Consolidated Statements of Cash Flows
UnauditedUnaudited
Three months endedTwelve months ended
February 28February 28
(in thousands of dollars)2011201020112010
Cash provided from:
Operating activities
Net earnings (loss)$(207)$6,0585,810$35,523
Items not affecting cash -
Amortization of property plant & equipment2,6252,37710,0719,550
Stock options expense102764197
Future income taxes(391)(2,041)(391)(2,041)
Gain on disposal of property, plant and equipment(412)(64)(467)(64)
Realized translation adjustment on reduction of net investment in a
self-sustaining operation--488-
Non-controlling interest595125701,403
Net change in other long-term liabilities108(74)(591)167
1,7926,79515,55444,735
Changes in non-cash working capital items
Accounts receivable(4,148)(1,377)34426,756
Income taxes recoverable(1,601)434(2,015)988
Inventories5,00718,424(1,048)6,075
Deposits and prepaid expenses2,048(997)2,1022,623
Accounts payable and accrued liabilities3,537(3,541)(4,708)(23,644)
Income taxes payable(562)(11,949)(2,010)(137)
Customer deposits7,07278812,3316,296
Provision for performance guarantees2,1484,2025,4433,883
13,5015,98410,43922,840
15,29312,77925,99367,575
Investing activities
Short-term investments33580225(144)
Additions to property, plant and equipment(4,026)(4,162)(9,817)(14,038)
Proceeds on disposal of property, plant and equipment4839064990
Net change in other assets156268103366
(3,052)(3,724)(8,840)(13,726)
Financing activities
Repurchase of shares(26)-(490)(1,056)
Dividends(1,776)(1,770)(7,107)(7,128)
Dividends to non-controlling interest-(2)(1,870)(87)
Short-term bank loans(32)(3)(33)(170)
Increase in long-term debt1,021-1,021-
Repayment of long-term debt-(4)(89)(1,061)
(813)(1,779)(8,568)(9,502)
Effect of exchange rate differences on cash and cash
equivalents(487)(3,899)(1,675)(4,359)
Net change in cash and cash equivalents10,9413,3776,91039,988
Net cash - beginning100,279100,933104,31064,322
Net cash - ending$111,220$104,310$ 111,220$104,310
Net cash includes cash and cash equivalents less bank indebtedness
Interest paid amounted to :13632225178
Income tax paid amounted to:6,72513,73111,58320,515
Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Loss
UnauditedUnaudited
Three months endedTwelve months ended
February 28February 28
(in thousands of dollars)2011201020112010
Net earnings (loss)$(207)$6,0585,810$35,523
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment on self-sustaining operations187(7,053 )(4,078) (8,475)
Realized translation adjustment on the reduction of the net investment in self-
sustaining foreign operations--244-
Comprehensive income (loss)(20)(995)1,97627,048
Accumulated other comprehensive loss, net tax
Accumulated other comprehensive income (loss), beginning of period(13,580)(2,506)(9,559)(1,084)
Other comprehensive income (loss) for the period187(7,053)(4,078)(8,475)
Realized translation adjustment on the reduction of the net investment in self-sustaining
foreign operations--244-
Accumulated other comprehensive loss, end of period(13,393)(9,559)(13,393)(9,559)

Contact Information

  • Tom Velan
    President and Chief Executive Officer

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