Velan Inc.
TSX : VLN

Velan Inc.

October 09, 2013 16:00 ET

Velan Inc. Reports its Second Quarter 2013/14 Financial Results

MONTREAL, QUEBEC--(Marketwired - Oct. 9, 2013) - 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, 2013.

Highlights

  • Record sales of US$120.7 million for the quarter
  • Net earnings1 of US$4.9 million for the quarter
  • Order backlog of US$477.3 million at the end of the quarter
  • Order bookings of US$92.7 million for the quarter
  • Net cash2 of US$28.5 million at the end of the quarter
Three-month periods ended Six-month periods ended
August 31 August 31
(millions of U.S. dollars, excluding per share amounts) 2013 2012 2013 2012
Sales $120.7 $108.4 $252.9 $224.3
Gross profit 30.1 26.0 60.8 50.1
Gross margin % 24.9 % 24.0 % 24.0 % 22.3 %
Net income (loss) attributable to Subordinate and Multiple Voting Shares 4.9 3.3 10.7 4.0
Net income (loss) per share - Basic 0.23 0.15 0.49 0.18
- Diluted 0.23 0.15 0.49 0.18

Second Quarter Fiscal 2014 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2013):

  • Net earnings1 amounted to $4.9 million or $0.23 per share compared to $3.3 million or $0.15 per share last year. The $1.6 million increase in net earnings1 is primarily attributable to higher sales volume and improved gross profit margins.

  • Sales amounted to $120.7 million, an increase of $12.3 million or 11.3%. The amount of sales for the current quarter is the highest amount ever recorded for an August quarter end in the Company's history.

  • Net new orders received ("bookings") amounted to $92.7 million, an increase of $0.3 million or 0.3% compared to last year.

  • Gross margin increased by 0.9 percentage points from 24.0% to 24.9%. This increase is mainly attributable to the higher sales volume.

  • Administration costs remained relatively even at $21.4 million, increasing $0.4 million or 1.9% from the prior year.

First Half Year Fiscal 2014 (unless otherwise noted, all comparisons are to the first half year of fiscal 2013):

  • Net earnings1 amounted to $10.7 million or $0.49 per share compared to $4.0 million or $0.18 per share last year. The $6.7 million increase in net earnings1 is primarily attributable to higher sales volume, improved gross profit margins and lower administration costs.

  • Sales amounted to $252.9 million, an increase of $28.6 million or 12.8%. The increase in sales is primarily attributable to increased shipments of certain large export project orders and higher spare parts sales.

  • Bookings amounted to $199.4 million, an increase of $9.3 million or 4.9% compared to last year.

  • The Company ended the period with a backlog of $477.3 million, a decrease of $53.7 million or 10.1% since the beginning of the current fiscal year. This decrease is mainly attributable to the higher sales output outpacing the higher bookings in the period.

  • Gross margin increased by 1.7 percentage points from 22.3% to 24.0%. This increase is mainly attributable to higher sales volume and improved efficiencies as a result of a higher margin product mix.

  • Administration costs amounted to $43.1 million, a decrease of $1.8 million or 4.0%. The decrease is primarily attributable to a decrease in sales commissions and a decrease in costs recognized in connection with the Company's ongoing asbestos litigation. The fluctuation in asbestos costs is due more to the timing of settlement payments in the two periods rather than to changes in long-term trends.

  • The Company generated net cash2 from operations of $23.4 million in the period. This source of net cash2 was primarily attributable to improved net earnings1 and a decrease in inventory. The Company ended the period with net cash2 of $28.5 million, an increase of $8.7 million or 43.9% since the beginning of the current fiscal year.

  • Foreign currency impacts:

    • Based on average exchange rates, the euro strengthened 2.9% 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 period.

    • Based on average exchange rates, the Canadian dollar weakened 2.4% 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 Indian rupee weakened 17.3% against the U.S. dollar when comparing the spot rate at the beginning of the period to the period end rate. This weakening resulted in the Company recording significant unrealized foreign exchange losses in the current period upon conversion of the U.S. dollar denominated loans payable by its Indian subsidiary to various related parties.

    • The net impact of these three currency swings was generally favourable to the Company's results since the positive impacts of both a stronger euro and a weaker Canadian dollar outweighed the negative impact of a weaker Indian rupee.

The Company is continuing with the business integration process at its Italian subsidiary, Velan ABV S.p.A. ("ABV"). As part of this process, the Company effectively increased its ownership percentage to 100% through a recapitalization of ABV's corporate structure during the current quarter.

"We are pleased by the continued strong sales and margin results in our second quarter, due in part to the shipment of some large projects from prior years," said John Ball, CFO of Velan Inc. "We are watching the rate of new order bookings which has not kept pace with our sales this year, and are focused on developing our backlog so as to maintain momentum for next year."

Tom Velan, President and CEO of Velan Inc. said, "We continued the positive trend from our first quarter. We had record sales for this quarter and net earnings1 were up 47.3% from the same quarter last year. Our sales continued to outpace our bookings so our backlog is down under $500 million. We are intensifying our efforts to improve our bookings, especially on international projects."

Dividend

The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per share, payable on December 31, 2013, to all shareholders of record as at December 16, 2013.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on October 9, 2013, at 4:30 PM (EDT). The toll free call-in number is 1-877-256-6025, access code 21675768. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21675768.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of over $500 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 August 31, February 28,
2013 2013
$ $
Assets
Current assets
Cash and cash equivalents 74,892 77,172
Short-term investments 2,631 398
Accounts receivable 136,988 134,374
Income taxes recoverable 7,231 7,672
Inventories 224,965 246,983
Deposits and prepaid expenses 6,418 6,048
Derivative assets 191 340
453,316 472,987
Non-current assets
Property, plant and equipment 91,804 90,630
Intangible assets and goodwill 42,629 43,194
Deferred income taxes 11,104 11,226
Other assets 1,665 1,737
147,202 146,787
Total assets 600,518 619,774
Liabilities
Current liabilities
Bank indebtedness 40,939 48,580
Short-term bank loans 1,283 2,284
Accounts payable and accrued liabilities 67,309 78,431
Income tax payable 5,411 2,831
Dividend payable 1,666 1,701
Customer deposits 65,980 76,682
Provisions 6,992 6,345
Accrual for performance guarantees 31,562 28,525
Derivative liabilities 1,450 1,380
Current portion of long-term debt 10,487 10,463
Current portion of other liabilities - 1,951
233,079 259,173
Non-current liabilities
Long-term debt 14,407 16,387
Deferred income taxes 7,824 8,035
Other liabilities 8,234 8,006
30,465 32,428
Total liabilities 263,544 291,601
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,314 76,314
Contributed surplus 6,092 1,746
Retained earnings 257,431 250,129
Accumulated other comprehensive income (loss) (9,055 ) (8,676 )
330,782 319,513
Non-controlling interest 6,192 8,660
Total equity 336,974 328,173
Total liabilities and equity 600,518 619,774
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 Six-month periods ended
August 31 August 31
2013 2012 2013 2012
$ $ $ $
Sales 120,762 108,449 252,930 224,301
Cost of sales 90,685 82,433 192,174 174,173
Gross profit 30,077 26,016 60,756 50,128
Administration costs 21,349 21,023 43,097 44,948
Other expense (income) 976 98 1,014 (830 )
Operating profit (loss) 7,752 4,895 16,645 6,010
Finance income 179 160 359 358
Finance costs 610 698 1,156 1,347
Finance income (costs) - net (431 ) (538 ) (797 ) (989 )
Income (Loss) before income tax 7,321 4,357 15,848 5,021
Provision for (Recovery of) income tax 2,093 941 4,338 896
Net income (loss) for the period 5,228 3,416 11,510 4,125
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 4,889 3,318 10,689 4,012
Non-controlling interest 339 98 821 113
5,228 3,416 11,510 4,125
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.23 0.15 0.49 0.18
Diluted 0.23 0.15 0.49 0.18
Dividends declared per Subordinate and Multiple Voting Share 0.08 0.08 0.16 0.16
(CDN$0.08 ) (CDN$0.08 ) (CDN$0.16 ) (CDN$0.16 )
Total weighted average number of Subordinate and Multiple Voting Shares
Basic 21,923,768 22,033,577 21,923,768 22,033,577
Diluted 21,935,818 22,038,797 21,935,754 22,043,135
Velan Inc.
Condensed 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
2013 2012 2013 2012
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 5,228 3,416 11,510 4,125
Other comprehensive income (loss
Foreign currency translation adjustment on foreign operations whose functional currency is other than the U.S. dollar 1,884 1,455 662 (9,004 )
Comprehensive income (loss) 7,112 4,871 12,172 (4,879 )
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 6,701 4,611 11,447 (4,501 )
Non-controlling interest 411 260 725 (378 )
7,112 4,871 12,172 (4,879 )
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
Contri-
buted
surplus
Accu-mulated
other
compre-
hensive
income
(loss)
Retained
earnings
Total Non-controlling
interest
Total
equity
Balance - March 1, 2013 21,923,768 76,314 1,746 (8,676 ) 250,129 319,513 8,660 328,173
Net income (loss) for the period - - - - 10,689 10,689 821 11,510
Other comprehensive income (loss) - - - 758 - 758 (96 ) 662
21,923,768 76,314 1,746 (7,918 ) 260,818 330,960 9,385 340,345
Effect of share-based compensation - - 16 - - 16 - 16
Dividends
Multiple Voting Shares - - - - (2,420 ) (2,420 ) - (2,420 )
Subordinate Voting Shares - - - - (967 ) (967 ) - (967 )
Acquisition of non-controlling interest - - 4,330 (1,137 ) - 3,193 (3,193 ) -
Balance - August 31, 2013 21,923,768 76,314 6,092 (9,055 ) 257,431 330,782 6,192 336,974
Balance - March 1, 2012 22,148,968 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 )
Share repurchase (177,200 ) (1,928 ) (142 ) - - (2,070 ) - (2,070 )
Balance - August 31, 2012 21,971,768 76,836 1,758 (12,730 ) 251,471 317,335 7,830 325,165
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Six-month periods ended
August 31 August 31
2013 2012 2013 2012
$ $ $ $
Cash flows from
Operating activities
Net income for the period 5,228 3,416 11,510 4,125
Adjustments to reconcile net income to cash provided by operating activities 4,931 1,121 8,251 2,978
Changes in non-cash working capital items (11,421 ) (9,233 ) 3,684 (31,002 )
Cash provided (used) by operating activities (1,262 ) (4,696 ) 23,445 (23,899 )
Investing activities
Short-term investments (1,080 ) 1,561 (2,233 ) 2,297
Additions to property, plant and equipment (3,975 ) (6,830 ) (8,198 ) (11,082 )
Additions to intangible assets (152 ) (208 ) (205 ) (266 )
Proceeds on disposal of property, plant and equipment, and - 67 87 459
Net change in other assets 87 (10 ) 72 (144 )
Cash provided (used) by investing activities (5,120 ) (5,420 ) (10,477 ) (8,736 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,721 ) (1,723 ) (3,422 ) (3,500 )
Repurchase of shares - (1,944 ) - (2,070 )
Payment of proceeds payable - (2,905 ) (1,960 ) (2,905 )
Short-term bank loans 177 (94 ) (1,001 ) 1,103
Increase in long-term debt 1,263 623 2,654 20,715
Repayment of long-term debt (3,124 ) (292 ) (4,843 ) (957 )
Cash provided (used) by financing activities (3,405 ) (6,335 ) (8,572 ) 12,386
Effect of exchange rate differences on cash 1,097 (485 ) 965 (1,269 )
Net change in cash during the period (8,690 ) (16,936 ) 5,361 (21,518 )
Net cash - Beginning of the period 42,643 28,394 28,592 32,976
Net cash - End of the period 33,953 11,458 33,953 11,458
Net cash is composed of:
Cash and cash equivalents 74,892 52,155 74,892 52,155
Bank indebtedness (40,939 ) (40,697 ) (40,939 ) (40,697 )
33,953 11,458 33,953 11,458
Supplementary information
Interest received (paid) (227 ) (511 ) (586 ) (860 )
Income taxes reimbursed (paid) (1,301 ) (1,636 ) (797 ) (2,975 )

Contact Information

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

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