VELAN Inc.
TSX : VLN

VELAN Inc.

October 09, 2014 13:16 ET

Velan Inc. Reports its Second Quarter 2014/15 Financial Results

MONTREAL, QUEBEC--(Marketwired - Oct. 9, 2014) -

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, 2014.

Highlights

  • Sales of US$110.9 million for the quarter
  • Net earnings1 of US$5.1 million for the quarter
  • Order backlog of US$490.7 million at the end of the quarter
  • Order bookings of US$117.9 million for the quarter
  • Net cash2 of US$68.8 million at the end of the quarter
  • Quarterly dividend of CA$0.10 per share declared, payable December 31, 2014
Three-month periods ended Six-month periods ended
August 31 August 31
(millions of U.S. dollars, excluding per share amounts) 2014 2013 2014 2013
Sales $ 110.9 $ 120.7 $ 214.0 $ 252.9
Gross profit 29.2 30.1 55.7 60.8
Gross margin % 26.3 % 24.9 % 26.0 % 24.0 %
Net income (loss) attributable to Subordinate and Multiple Voting Shares 5.1 4.9 9.1 10.7
Net income (loss) per share - Basic 0.23 0.23 0.41 0.49
- Diluted 0.23 0.23 0.41 0.49

Second Quarter Fiscal 2015 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2014):

  • Net earnings1 amounted to $5.1 million or $0.23 per share compared to $4.9 million or $0.23 per share last year. The $0.2 million increase in net earnings1 is primarily attributable to an improved gross margin percentage and lower net borrowing costs.

  • Sales amounted to $110.9 million, a decrease of $9.8 million or 8.1% for the quarter, while net new orders received ("bookings") amounted to $117.9 million, an increase of $25.2 million or 27.2% compared to last year. As a result, the Company ended the quarter with a backlog of $490.7 million, an increase of $19.0 million or 4.0% since the beginning of the current fiscal year.

  • Gross margin increased by 1.4 percentage points from 24.9% to 26.3%. This increase is mainly attributable to a product mix with a greater proportion of higher margin product sales, particularly spare parts and valves without third party actuators.

  • The Company generated net cash2 from operations of $5.3 million in the quarter. The Company ended the quarter with net cash2 of $68.8 million, an increase of $1.1 million or 1.6% since the beginning of the current fiscal year.

First Half Year Fiscal 2015 (unless otherwise noted, all comparisons are to the first half year of fiscal 2014):

  • Net earnings1 amounted to $9.1 million or $0.41 per share compared to $10.7 million or $0.49 per share last year. The $1.6 million decrease in net earnings1 is primarily attributable to lower sales volume which was partially offset by improved gross margins.

  • Sales amounted to $214.0 million, a decrease of $38.9 million or 15.4%. The decrease in sales is primarily attributable to decreased shipments of certain large export project orders.

  • Bookings amounted to $232.2 million, an increase of $32.8 million or 16.4% compared to last year, continuing the positive trend which started during the latter half of the prior year.

  • Gross margin increased by 2.0 percentage points from 24.0% to 26.0%. This increase is mainly attributable to a product mix with a greater proportion of higher margin product sales, particularly spare parts and valves without third party actuators.

  • The Company generated net cash2 from operations of $16.7 million in the period. This source of net cash2 was primarily attributable to positive cash net earnings1.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro strengthened 4.1% 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 5.7% 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 impact of these currency swings was favourable to the Company's results for the period.

"Although our sales this quarter were lower than the comparable quarter last year, due in part to certain contracts that couldn't ship during the quarter, we were pleased that the margin continued to be stronger than last year," said John Ball, CFO of Velan Inc. "The stronger margins, coupled with flat administration costs, resulted in a slightly better net income for the quarter. Furthermore, given our strong balance sheet, we intend, subject to Toronto Stock Exchange approval, to renew our normal course issuer bid when it expires on October 21, 2014. Although this year we had hoped to buy more than the 17,600 shares that we managed to acquire on the open market, we realize our shares are thinly traded and not always available in the quantities we would like. Under the bid, we may purchase up to 100,000 Subordinate Voting Shares (the "Shares"), representing approximately 1.57% of the issued Shares of such class as at October 9, 2014. All Shares purchased will be cancelled. As at October 9, 2014, we had 6,374,601 Shares outstanding. During the past 12 months, 17,600 Shares were purchased at a weighted average price of $16.99. We have concluded that purchases of up to 100,000 of the issued and outstanding Shares may be an appropriate and desirable use of available funds and, therefore, would be in the best interest of the Corporation. As a result of such purchases, the number of issued Shares will be decreased and, consequently, the proportionate share interest of all remaining shareholders will be increased on a pro rata basis."

Tom Velan, President and CEO of Velan Inc. said, "We just completed an international sales conference with our distributors and agents as well as our sales people from around the world. I am encouraged by the great opportunities for our products in the global energy market."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on December 31, 2014, to all shareholders of record as at December 15, 2014.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on October 9, 2014, at 4:30 PM (EDT). The toll free call-in number is 1-877-256-6025, access code 21735725. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21735725.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of $489 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,
2014 2014
$ $
Assets
Current assets
Cash and cash equivalents 98,190 106,716
Short-term investments 808 239
Accounts receivable 114,823 128,978
Income taxes recoverable 8,436 5,465
Inventories 219,084 224,149
Deposits and prepaid expenses 6,545 5,046
Derivative assets 307 498
448,193 471,091
Non-current assets
Property, plant and equipment 94,743 96,605
Intangible assets and goodwill 40,431 43,359
Deferred income taxes 11,064 11,406
Other assets 1,528 1,693
147,766 153,063
Total assets 595,959 624,154
Liabilities
Current liabilities
Bank indebtedness 22,811 31,876
Short-term bank loans 1,487 916
Accounts payable and accrued liabilities 65,776 76,590
Income tax payable 6,162 4,158
Dividend payable 2,018 1,586
Customer deposits 61,150 66,842
Provisions 7,483 8,060
Accrual for performance guarantees 33,482 33,842
Derivative liabilities 358 1,501
Current portion of long-term debt 9,582 10,402
210,309 235,773
Non-current liabilities
Long-term debt 8,823 11,685
Deferred income taxes 8,734 9,270
Other liabilities 8,552 8,307
26,109 29,262
Total liabilities 236,418 265,035
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,497 76,688
Contributed surplus 6,054 6,099
Retained earnings 277,884 272,867
Accumulated other comprehensive income (loss) (8,597 ) (3,589 )
351,838 352,065
Non-controlling interest 7,703 7,054
Total equity 359,541 359,119
Total liabilities and equity 595,959 624,154
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
2014 2013 2014 2013
$ $ $ $
Sales 110,888 120,762 213,953 252,930
Cost of sales 81,635 90,685 158,215 192,174
Gross profit 29,253 30,077 55,738 60,756
Administration costs 21,480 21,349 42,777 43,097
Other expense (income) (86 ) 976 (216 ) 1,014
Operating profit (loss) 7,859 7,752 13,177 16,645
Finance income 251 179 516 359
Finance costs 253 610 632 1,156
Finance income (costs) - net (2 ) (431 ) (116 ) (797 )
Income (Loss) before income tax 7,857 7,321 13,061 15,848
Provision for (Recovery of) income tax 2,438 2,093 3,580 4,338
Net income (loss) for the period 5,419 5,228 9,481 11,510
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 5,098 4,889 9,103 10,689
Non-controlling interest 321 339 378 821
5,419 5,228 9,481 11,510
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.23 0.23 0.41 0.49
Diluted 0.23 0.23 0.41 0.49
Dividends declared per Subordinate and Multiple 0.09 0.08 0.18 0.16
Voting Share (CA$0.10 ) (CA$0.08 ) (CA$0.20 ) (CA$0.16 )
Total weighted average number of Subordinate andMultiple Voting Shares
Basic 21,948,133 21,923,768 21,948,133 21,923,768
Diluted 21,958,384 21,935,818 21,956,900 21,935,754
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
2014 2013 2014 2013
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 5,419 5,228 9,481 11,510
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar) (3,771 ) 1,884 (4,737 ) 662
Comprehensive income (loss) 1,648 7,112 4,744 12,172
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 1,290 6,701 4,095 11,447
Non-controlling interest 358 411 649 725
1,648 7,112 4,744 12,172
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, 2014 21,958,768 76,688 6,099 (3,589 ) 272,867 352,065 7,054 359,119
Net income (loss) for the period - - - - 9,103 9,103 378 9,481
Other comprehensive income (loss) - - - (5,008 ) - (5,008 ) 271 (4,737 )
21,958,768 76,688 6,099 (8,597 ) 281,970 356,160 7,703 363,863
Effect of share-based compensation - - 6 - - 6 - 6
Dividends
Multiple Voting Shares - - - - (2,852 ) (2,852 ) - (2,852 )
Subordinate Voting Shares - - - - (1,200 ) (1,200 ) - (1,200 )
Share repurchase (17,600 ) (191 ) (51 ) - (34 ) (276 ) - (276 )
Balance - August 31, 2014 21,941,168 76,497 6,054 (8,597 ) 277,884 351,838 7,703 359,541
Balance - February 28, 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
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
2014 2013 2014 2013
$ $ $ $
Cash flows from
Operating activities
Net income for the period 5,419 5,228 9,481 11,510
Adjustments to reconcile net income to cash provided by operating activities 4,985 4,931 7,386 8,251
Changes in non-cash working capital items (5,151 ) (11,421 ) (216 ) 3,684
Cash provided (used) by operating activities 5,253 (1,262 ) 16,651 23,445
Investing activities
Short-term investments (477 ) (1,080 ) (569 ) (2,233 )
Additions to property, plant and equipment (1,661 ) (3,975 ) (5,720 ) (8,198 )
Additions to intangible assets (63 ) (152 ) (293 ) (205 )
Proceeds on disposal of property, plant and equipment, and intangible assets 77 - 128 87
Net change in other assets (63 ) 87 167 72
Cash provided (used) by investing activities (2,187 ) (5,120 ) (6,287 ) (10,477 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (2,042 ) (1,721 ) (3,620 ) (3,422 )
Repurchase of shares (260 ) - (276 ) -
Payment of proceeds payable - - - (1,960 )
Short-term bank loans 950 177 571 (1,001 )
Increase in long-term debt - 1,263 - 2,654
Repayment of long-term debt (1,720 ) (3,124 ) (3,399 ) (4,843 )
Cash provided (used) by financing activities (3,072 ) (3,405 ) (6,724 ) (8,572 )
Effect of exchange rate differences on cash (1,653 ) 1,097 (3,101 ) 965
Net change in cash during the period (1,659 ) (8,690 ) 539 5,361
Net cash - Beginning of the period 77,038 42,643 74,840 28,592
Net cash - End of the period 75,379 33,953 75,379 33,953
Net cash is composed of:
Cash and cash equivalents 98,190 74,892 98,190 74,892
Bank indebtedness (22,811 ) (40,939 ) (22,811 ) (40,939 )
75,379 33,953 75,379 33,953
Supplementary information
Interest received (paid) 27 (227 ) (66 ) (586 )
Income taxes reimbursed (paid) (1,198 ) (1,301 ) (2,686 ) (797 )

Contact Information

  • VELAN Inc.
    Tom Velan
    President
    (514) 748-7743
    (514) 748-8635 (FAX)

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