Velan Inc.
TSX : VLN

Velan Inc.

October 12, 2012 13:40 ET

Velan Inc. Reports its Second Quarter 2012/13 Financial Results

MONTREAL, QUEBEC--(Marketwire - Oct. 12, 2012) - Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its second quarter ended August 31, 2012.

Three-month periods ended Six-month periods ended
August 31 August 31
(millions of U.S. dollars, excluding per share amounts) 2012 2011 2012 2011
Sales $108.4 $95.4 $224.3 $200.4
Gross profit 26.0 15.7 50.1 37.0
Gross margin % 24.0 % 16.5 % 22.3 % 18.4 %
Net income (loss) attributable to Subordinate and Multiple Voting Shares
3.3

(2.1

)

4.0

(2.0

)
Net income (loss) per share - Basic 0.15 (0.10 ) 0.18 (0.09 )
- Diluted 0.15 (0.10 ) 0.18 (0.09 )

Highlights

Second Quarter Fiscal 2013 (unless otherwise noted, all comparisons are to the second quarter of fiscal 2012):

  • Net earnings1 amounted to $3.3 million or $0.15 per share compared to a net loss1 of $2.1 million or $0.10 per share last year. Excluding currency impacts, the Company would have reported net earnings1 of $3.5 million or $0.16 per share this year compared to a net loss1 of $2.0 million or $0.09 per share last year. Further excluding the results of Velan ABV S.p.A. ("ABV"), an Italian valve manufacturer acquired in
    the prior fiscal year, and the effects of purchase price accounting, the Company would have reported net earnings1 of $4.5 million or $0.21 per share this year compared to a net loss1 of $0.5 million or $0.02 per share last year.

  • Net new orders received ("bookings") amounted to $92.4 million, a decrease of $79.7 million or 46.3% compared to last year. Excluding currency impacts, the decrease would have been $80.8 million or 46.9%. The Company ended the quarter with a backlog of $625.9 million, a decrease of $35.9 million since the beginning of the current fiscal year. Excluding currency impacts, the backlog would have decreased by $13.9 million over the same period to $647.9 million.

  • Sales amounted to $108.4 million, an increase of $13.0 million or 13.6%. Excluding currency impacts, sales would have increased by $18.1 million or 19.0%.

  • Gross margin increased by 7.5 percentage points from 16.5% to 24.0%. Excluding currency impacts, the gross margin percentage would have increased by 7.6 percentage points in the quarter. Further excluding the results of ABV and the effects of purchase price accounting, gross margin would have increased by 8.3 percentage points in the quarter. The increase in the gross margin percentage excluding ABV, the effects of purchase price accounting and currency impacts is primarily attributable to the increase in sales volume which allowed the Company to more efficiently cover its production overhead costs, lower raw material costs and product mix.

  • Based on average exchange rates, the euro weakened 13.5% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits from its European subsidiaries being reported as lower U.S. dollar amounts in the current quarter. The Canadian dollar weakened 3.9% 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 net impact of these two currency swings was generally unfavourable on the Company's quarterly results since the positive impact of a weaker Canadian dollar was outweighed by the negative impact of a weaker euro.

First Half Year Fiscal 2013 (unless otherwise noted, all comparisons are to the first half year of fiscal 2012):

  • Net earnings1 amounted to $4.0 million or $0.18 per share compared to a net loss1 of $2.0 million or
    $0.09 per share last year. Excluding the results of ABV, the effects of purchase price accounting and currency impacts, the Company would have reported net earnings1 of $6.4 million or $0.29 per share this year compared to $1.0 million or $0.04 per share last year.
  • Bookings amounted to $190.1 million, a decrease of $118.8 million or 38.5% compared to last year. Excluding currency impacts, the decrease would have been $91.9 million or 29.8%.

  • Sales amounted to $224.3 million, an increase of $23.9 million or 11.9%. Excluding ABV and currency impacts, sales would have increased by $20.2 million or 10.5%.

  • Gross margin increased by 3.9 percentage points from 18.4% to 22.3%. Excluding ABV, the effects of purchase price accounting and currency impacts, gross margin would have increased by 4.8 percentage points.

  • The Company used net cash2 from operations of $23.9 million in the period. This use of net cash2 was
    primarily attributable to increases in accounts receivable and inventories coupled with decreases in accounts payable. The Company ended the period with net cash2 of $5.6 million.
  • The Company generated net cash2 from financing activities of $12.4 million in the period. This source of net cash2 was principally from a $20.7 million increase in long-term debt. The Company is using the proceeds of this debt to fund its growing working capital needs, particularly with respect to inventory purchases to service its large backlog, to continue to improve its production capacity with investments in machinery and equipment, and to fund various activities in its overseas operations, particularly in Asia.

  • Based on average exchange rates, the euro weakened 11.0% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits from its European subsidiaries being reported as lower U.S. dollar amounts in the current period. The Canadian dollar weakened 3.5% 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 period. The net impact of these two currency swings was generally unfavourable on the Company's results for this period since the positive impact of a weaker Canadian dollar was outweighed by the negative impact of a weaker euro.

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

"We are pleased that we are gradually working through our high backlog although perhaps not as quickly as we would like", said John Ball, CFO of Velan Inc. "This is restoring our profitability as our shipments increase, although not without certain working capital challenges, and we continue to invest in our productive capacity both in Canada and abroad. The fluctuation of the euro this year, the current vagaries of the nuclear industry, and the uncertainty in certain world financial markets also contribute to these challenges, however they are outweighed by the longer term opportunities in our end user markets."

Tom Velan, President and CEO of Velan Inc. said, "In view of our large order backlog, our main focus is on increasing our output and improving our execution of our complex project orders. We are investing both in Asia and North America to increase our global manufacturing capacity and to strengthen our presence in international markets. In the shorter term, we are focused on improved execution of our large project order backlog to satisfy the needs of our customers."

Dividend

The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per share, payable on December 31, 2012, to all shareholders of record as at December 14, 2012.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on October 12, 2012, at 4:30 PM (EDT). The toll free call-in number is 1-888-224-7971, access code 21607087. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21607087.

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 2,000 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.

Non-GAAP measures

In this press release, the Company presented measures of performance and financial condition that 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, short-term loans, and current portion of long-term debt.

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 Six-month periods ended
August 31 August 31
2012 2011 2012 2011
$ $ $ $
Sales 108,449 95,389 224,301 200,412
Cost of sales 82,433 79,681 174,173 163,442
Gross profit 26,016 15,708 50,128 36,970
Administration costs 21,023 19,931 44,948 40,580
Other expense (income) 98 (340 ) (830 ) (216 )
Operating profit (loss) 4,895 (3,883 ) 6,010 (3,394 )
Finance income 160 42 358 161
Finance costs 698 506 1,347 823
Finance income (costs) - net (538 ) (464 ) (989 ) (662 )
Income (Loss) before income tax 4,357 (4,347 ) 5,021 (4,056 )
Provision for (Recovery of) income tax 941 (1,525 ) 896 (1,575 )
Net income (loss) for the period 3,416 (2,822 ) 4,125 (2,481 )
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 3,318 (2,111 ) 4,012 (1,964 )
Non-controlling interest 98 (711 ) 113 (517 )
3,416 (2,822 ) 4,125 (2,481 )
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.15 (0.10 ) 0.18 (0.09 )
Diluted 0.15 (0.10 ) 0.18 (0.09 )
Dividends declared per Subordinate and Multiple Voting Share 0.08 0.09 0.16 0.17
(CDN$0.08 ) (CDN$0.08 ) (CDN$0.16 ) (CDN$0.16 )
Total weighted average number of Subordinate and
Multiple Voting Shares
Basic 22,033,577 22,183,375 22,033,577 22,183,375
Diluted 22,038,797 22,225,091 22,043,135 22,230,509
Velan Inc.
Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Six-month periods ended
August 31 August 31
2012 2011 2012 2011
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 3,416 (2,822 ) 4,125 (2,481 )
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the U.S. dollar
1,455 1,031 (9,004 ) 3,845
Comprehensive income (loss) 4,871 (1,791 ) (4,879 ) 1,364
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 4,611 (1,258 ) (4,501 ) 2,027
Non-controlling interest 260 (533 ) (378 ) (663 )
4,871 (1,791 ) (4,879 ) 1,364
Velan Inc.
Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At August 31, February 29,
2012 2012
$ $
Assets
Current assets
Cash and cash equivalents 52,155 65,414
Short-term investments 2,657 4,954
Accounts receivable 124,934 111,856
Income taxes recoverable 9,537 9,682
Inventories 269,115 258,684
Deposits and prepaid expenses 8,118 6,209
Derivative assets 2,297 1,737
468,813 458,536
Non-current assets
Property, plant and equipment 77,506 72,961
Intangible assets and goodwill 53,560 58,845
Deferred income taxes 11,094 10,152
Other assets 1,612 1,476
143,772 143,434
Total assets 612,585 601,970
Liabilities
Current liabilities
Bank indebtedness 40,697 32,438
Short-term loans 1,961 858
Accounts payable and accrued liabilities 74,175 82,088
Income tax payable 1,895 2,484
Dividend payable 1,783 1,791
Customer deposits 90,224 86,544
Provisions 4,798 5,149
Accrual for performance guarantees 23,492 21,679
Derivative liabilities 654 534
Current portion of long-term debt 6,615 1,696
Current portion of other liabilities 2,384 5,753
248,678 241,014
Non-current liabilities
Long-term debt 22,434 7,891
Deferred income taxes 7,463 8,270
Other liabilities 8,845 9,218
38,742 25,379
Total liabilities 287,420 266,393
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,836 78,764
Contributed surplus 1,758 1,871
Retained earnings 251,471 250,951
Accumulated other comprehensive income (loss) (12,730 ) (4,217 )
317,335 327,369
Non-controlling interest 7,830 8,208
Total equity 325,165 335,577
Total liabilities and equity 612,585 601,970
Velan Inc.
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
Accumulated
Contri- other
Number of Share buted comprehensive Retained Non-controlling
shares capital surplus income (loss) earnings Total interest Total equity
Balance - March 1, 201222,148,968 78,764 1,871 (4,217)250,951 327,369 8,208 335,577
Net income (loss) for the period- - - - 4,012 4,012 113 4,125
Other comprehensive income (loss)- - - (8,513)- (8,513)(491)(9,004)
22,148,968 78,764 1,871 (12,730)254,963 322,868 7,830 330,698
Effect of share-based compensation- - 29 - - 29 - 29
Dividends
Multiple Voting Shares- - - - (2,478)(2,478)- (2,478)
Subordinate Voting Shares- - - - (1,014)(1,014)- (1,014)
Non-controlling interest- - - - - - - -
Share repurchase(177,200)(1,928)(142)- - (2,070)- (2,070)
Balance - August 31, 201221,971,768 76,836 1,758 (12,730)251,471 317,335 7,830 325,165
Balance - March 1, 201122,195,568 79,271 1,898 2,275 250,254 333,698 4,025 337,723
Net income (loss) for the period- - - - (1,964)(1,964)(517)(2,481)
Other comprehensive income (loss)- - - 3,991 - 3,991 (146)3,845
22,195,568 79,271 1,898 6,266 248,290 335,725 3,362 339,087
Effect of share-based compensation- - 17 - - 17 - 17
Dividends
Multiple Voting Shares- - - - (2,568)(2,568)- (2,568)
Subordinate Voting Shares- - - - (1,093)(1,093)- (1,093)
Non-controlling interest- - - - - - (84)(84)
Share repurchase(19,200)(201)(78)- - (279)- (279)
Non-controlling interest arising on acquisition- - - - - - 8,372 8,372
Balance - August 31, 201122,176,368 79,070 1,837 6,266 244,629 331,802 11,650 343,452
Velan Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods Six-month periods
ended August 31, ended August 31,
2012 2011 2012 2011
Cash flows from $ $ $ $
Operating activities
Net income (loss) for the period 3,416 (2,822 ) 4,125 (2,481 )
Adjustments to reconcile net profit to cash provided operating activities
Depreciation of property, plant and equipment 2,314 2,204 4,528 4,224
Amortization of intangible assets 621 1,667 1,650 2,358
Deferred income taxes (810 ) (882 ) (1,773 ) (942 )
Share-based compensation expense 15 8 29 17
Loss (Gain) on disposal of property, plant and equipment 103 31 (121 ) 50
Interest accretion on proceeds payable 163 305 349 411
Income from fair value adjustment of proceeds payable - - (196 ) -
Unrealized foreign exchange gain on proceeds payable (13 ) - (574 ) -
Net change in other liabilities (24 ) 514 (434 ) 628
5,785 1,025 7,583 4,265
Changes in non-cash working capital items (10,481 ) (13,829 ) (31,482 ) (18,596 )
Cash provided (used) by operating activities (4,696 ) (12,804 ) (23,899 ) (14,331 )
Investing activities
Short -term investments 1,561 (614 ) 2,297 (651 )
Additions to property, plant and equipment (6,830 ) (2,932 ) (11,082 ) (7,377 )
Proceeds on disposal of property, plant and equipment 67 19 459 27
Additions to intangible assets (208 ) (610 ) (266 ) (645 )
Net change in other assets (10 ) (9 ) (144 ) 17
Business acquisition - net of cash acquired - - - (37,281 )
Cash provided (used) by investing activities (5,420 ) (4,146 ) (8,736 ) (45,910 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,723 ) (1,850 ) (3,500 ) (3,680 )
Dividends paid to non-controlling interest - (84 ) - (84 )
Repurchase of shares (1,944 ) (250 ) (2,070 ) (279 )
Payment of proceeds payable (2,905 ) - (2,905 ) -
Short -term loans (94 ) (1,306 ) 1,103 (4,842 )
Increase in long-term debt 623 4,224 20,715 4,224
Repayment of long-term debt (292 ) (5 ) (957 ) (57 )
Cash provided (used) by financing activities (6,335 ) 729 12,386 (4,718 )
Effect of exchange rate differences on cash (485 ) 133 (1,269 ) 312
Net change in cash during the period (16,936 ) (16,088 ) (21,518 ) (64,647 )
Net cash - Beginning of the period 28,394 65,803 32,976 114,362
Net cash - End of the period 11,458 49,715 11,458 49,715
Net cash is composed of:
Cash and cash equivalents 52,155 58,210 52,155 58,210
Bank indebtedness (40,697 ) (8,495 ) (40,697 ) (8,495 )
11,458 49,715 11,458 49,715
Supplementary information
Interest received (paid) (511 ) (54 ) (860 ) (105 )
Income taxes received (paid) (1,636 ) (1,568 ) (2,975 ) (4,019 )

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