VELAN Inc.
TSX : VLN

VELAN Inc.

October 14, 2015 14:21 ET

Velan Inc. Reports Its Second Quarter 2015/16 Financial Results

MONTREAL, QUEBEC--(Marketwired - Oct. 14, 2015) - 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, 2015.

Highlights

  • Sales of US$111.6 million for the quarter
  • Net earnings1of US$4.7 million for the quarter
  • Order backlog of US$374.2 million at the end of the quarter
  • Net order bookings of US$71.5 million for the quarter
  • Net cash2of US$66.5 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) 2015 2014 2015 2014
Sales $111.6 $110.9 $214.7 $214.0
Gross profit 26.7 29.2 50.2 55.7
Gross margin % 23.9 % 26.3 % 23.4 % 26.0 %
Net income (loss) attributable to Subordinate and Multiple Voting Shares 4.7 5.1 7.9 9.1
Net income (loss) per share - Basic 0.22 0.23 0.36 0.41
- Diluted 0.22 0.23 0.36 0.41

Second Quarter Fiscal 2016 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2015):

  • Net earnings1amounted to $4.7 million or $0.22 per share compared to $5.1 million or $0.23 per share last year. The $0.4 million decrease in net earnings1is primarily attributable to a lower gross profit percentage partially offset by decreased administration costs.

  • Sales remained relatively stable in the quarter, amounting to $111.6 million, an increase of $0.7 million or 0.6%, despite a production slowdown caused by a lockout at the Company's Canadian facilities at the beginning of the quarter.

  • Net new orders received ("bookings") amounted to $71.5 million, a decrease of $55.2 million or 43.6% compared to last year. The continued decline in the price of oil has had a negative impact on the Company's order intake in some of its important markets, namely in the oil and gas industry and the energy sector.

  • Gross margin decreased by 2.4 percentage points from 26.3% to 23.9%. This decrease is mainly attributable to a number of factors, including a greater proportion of lower margin product sales and increased pressure on pricing due to a more competitive bidding environment.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro weakened 17.5% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits and bookings from its European subsidiaries being reported as lower U.S. dollar amounts in the current quarter.

    • Based on average exchange rates, the Canadian dollar weakened 15.0% 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 unfavourable impact of the Euro decrease was generally offset by the favourable impact of the Canadian dollar decrease on the Company's net earnings1.

First Half Year Fiscal 2016 (unless otherwise noted, all comparisons are to the first half year of fiscal 2015)

  • Net earnings1amounted to $7.9 million or $0.36 per share compared to $9.1 million or $0.41 per share last year. The $1.2 million decrease in net earnings1is primarily attributable to a lower gross profit percentage partially offset by decreased administration costs.

  • Despite the production slowdown caused by labour unrest and a lockout at the Company's Canadian facilities during the first half of the current fiscal year, consolidated sales remained relatively stable in the period, amounting to $214.7 million, an increase of $0.7 million or 0.3%.

  • Bookings amounted to $153.3 million, a decrease of $91.0 million or 37.2% compared to last year. Excluding the effect of an order cancellation of $23.6 million in the first quarter, bookings would have decreased by $67.4 million or 27.6% in the period. This decrease is mainly attributable to an economic downturn in some of the Company's important markets, particularly the oil and gas industry and energy sector.

  • As a result of lower bookings combined with the marginal increase in sales, the Company ended the period with a backlog of $374.2 million, a decrease of $63.6 million or 14.5% since the beginning of the current fiscal year.

  • Gross margin decreased by 2.6 percentage points from 26.0% to 23.4%. This decrease is mainly attributable to a number of factors, including a greater proportion of lower margin product sales and increased pressure on pricing due to a more competitive bidding environment.

  • Administration costs amounted to $39.1 million, a decrease of $3.7 million or 8.6%. The decrease is primarily attributable to favourable currency swings resulting from a stronger U.S. dollar, a decrease in variable compensation-related costs and a decrease in costs recognized in connection with the Company's ongoing asbestos litigation. The fluctuation in asbestos costs for the period is due more to the timing of settlement payments in these two periods rather than to changes in long-term trends.

  • The Company ended the period with net cash2of $66.5 million, a decrease of $9.1 million or 12.0% since the beginning of the current fiscal year. This decrease is primarily attributable to negative non-cash working capital movements, particularly an increase in accounts receivable and a decrease in customer deposits.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro weakened 19.2% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits and bookings from its European subsidiaries being reported as lower U.S. dollar amounts in the current period.

    • Based on average exchange rates, the Canadian dollar weakened 13.3% 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 unfavourable impact of the Euro decrease was generally offset by the favourable impact of the Canadian dollar decrease on the Company's net earnings1.

"While our year to date financial results and balance sheet have generally withstood some very challenging market conditions in 2015, we continue to carefully monitor our rate of order intake," said John Ball, CFO of Velan Inc. "The current uncertainty of our end user valve markets, as well as a drive for efficiencies, led us to implement an operational cost saving restructuring in our North American operations, which, we believe, will benefit future results. 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, 2015. Under the bid, we may purchase up to 314,878 Subordinate Voting Shares (the "Shares"), representing approximately 5% of the issued Shares of such class as at October 14, 2015. All Shares purchased will be cancelled. As at October 14, 2015, we had 6,297,568 Shares outstanding. During the past 12 months, 90,300 Shares were purchased at a weighted average price of CA $18.70. We have concluded that purchases of up to 314,878 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 Company. 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."

Yves Leduc, President of Velan Inc., said, "We are going through a challenging industry environment with end- users delaying or postponing large projects and competitors aggressively adjusting their pricing. This is why we have quickly moved to reduce our cost base while mobilizing the whole organization behind an operational excellence plan aiming to improve our delivery, increase our cost competitiveness and grow sales. The Company is resilient and we are preparing to rebound once the sector recovers."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on December 31, 2015, to all shareholders of record as at December 15, 2015.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on Wednesday, October 14, 2015 at 4:30 PM (EDT). The toll free call-in number is 1-888-273-1350, access code 21779560. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21779560.

About Velan

Founded in Montreal in 1950, Velan Inc. (www.velan.com) is one of the world's leading manufacturers of industrial valves, with sales of US$455.7 million in its last reported fiscal year. The Company 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

This news release may include forward-looking statements, which generally contain words like "should", "believe", "anticipate", "plan", "may", "will", "expect", "intend", "continue" or "estimate" or the negatives of these terms or variations of them or similar expressions, all of which are subject to risks and uncertainties, which are disclosed in the Company's filings with the appropriate securities commissions. While these statements are based on management's assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that it believes are reasonable and appropriate in the circumstances, no forward-looking statement can be guaranteed and actual future results may differ materially from those expressed herein. The Company disclaims any intention or obligation to update or revise any forward-looking statements contained herein whether as a result of new information, future events or otherwise, except as required by the applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

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.

1Net earnings or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares.

2Non-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,
2015 2015
$ $
Assets
Current assets
Cash and cash equivalents 87,541 99,578
Short-term investments 1,664 847
Accounts receivable 113,604 105,335
Income taxes recoverable 8,716 5,472
Inventories 190,291 203,557
Deposits and prepaid expenses 5,892 5,326
Derivative assets 111 144
407,819 420,259
Non-current assets
Property, plant and equipment 87,922 91,285
Intangible assets and goodwill 32,653 33,576
Deferred income taxes 12,079 12,392
Other assets 1,611 1,116
134,265 138,369
Total assets 542,084 558,628
Liabilities
Current liabilities
Bank indebtedness 15,297 15,616
Short-term bank loans 1,506 2,134
Accounts payable and accrued liabilities 59,855 70,997
Income taxes payable 4,259 3,961
Dividend payable 1,662 1,755
Customer deposits 36,864 44,111
Provisions 8,800 7,874
Accrual for performance guarantees 30,814 30,012
Derivative liabilities 3,358 5,362
Current portion of long-term debt 9,601 10,644
172,016 192,466
Non-current liabilities
Long-term debt 7,198 4,183
Deferred income taxes 8,117 8,349
Other liabilities 8,450 8,537
23,765 21,069
Total liabilities 195,781 213,535
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 75,729 76,475
Contributed surplus 5,889 6,064
Retained earnings 287,900 283,724
Accumulated other comprehensive income (loss) (28,980 ) (27,652 )
340,538 338,611
Non-controlling interest 5,765 6,482
Total equity 346,303 345,093
Total liabilities and equity 542,084 558,628
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
2015 2014 2015 2014
$ $ $ $
Sales 111,558 110,888 214,737 213,953
Cost of sales 84,877 81,635 164,539 158,215
Gross profit 26,681 29,253 50,198 55,738
Administration costs 19,889 21,480 39,070 42,777
Other expense (income) (6 ) (86 ) 9 (216 )
Operating profit (loss) 6,798 7,859 11,119 13,177
Finance income 244 251 500 516
Finance costs 265 253 567 632
Finance income (costs) - net (21 ) (2 ) (67 ) (116 )
Income (Loss) before income taxes 6,777 7,857 11,052 13,061
Provision for (Recovery of) income taxes 1,680 2,438 2,524 3,580
Net income (loss) for the period 5,097 5,419 8,528 9,481
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 4,749 5,098 7,856 9,103
Non-controlling interest 348 321 672 378
5,097 5,419 8,528 9,481
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.22 0.23 0.36 0.41
Diluted 0.22 0.23 0.36 0.41
Dividends declared per Subordinate and Multiple 0.08 0.09 0.16 0.18
Voting Share (CA$0.10 ) (CA$0.10 ) (CA$0.20 ) (CA$0.20 )
Total weighted average number of Subordinate and Multiple Voting Shares
Basic 21,875,203 21,948,133 21,886,645 21,948,133
Diluted 21,875,203 21,958,384 21,886,645 21,956,900
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
2015 2014 2015 2014
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 5,097 5,419 8,528 9,481
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar) 1,354 (3,771 ) (1,688 ) (4,737 )
Comprehensive income (loss) 6,451 1,648 6,840 4,744
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 6,416 1,290 6,528 4,095
Non-controlling interest 35 358 312 649
6,451 1,648 6,840 4,744
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
Accumulated
other
Number of Share Contributed comprehensive Retained Non-controlling Total
shares capital surplus income (loss) earnings Total interest equity
Balance - February 28, 2015 21,939,168 76,475 6,064 (27,652 ) 283,724 338,611 6,482 345,093
Net income (loss) for the period - - - - 7,856 7,856 672 8,528
Other comprehensive income (loss) - - - (1,328 ) - (1,328 ) (360 ) (1,688 )
21,939,168 76,475 6,064 (28,980 ) 291,580 345,139 6,794 351,933
Effect of share-based compensation - - 52 - - 52 - 52
Shares issued under Share Option Plan 14,267 227 (227 ) - - - - -
Dividends
Multiple Voting Shares - - - - (2,495 ) (2,495 ) - (2,495 )
Subordinate Voting Shares - - - - (932 ) (932 ) - (932 )
Non-controlling interest - - - - - - (139 ) (139 )
Share repurchase (89,300 ) (973 ) - - (253 ) (1,226 ) - (1,226 )
Acquisition of non-controlling interest - - - - - - (890 ) (890 )
Balance - August 31, 2015 21,864,135 75,729 5,889 (28,980 ) 287,900 340,538 5,765 346,303
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
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
2015 2014 2015 2014
$ $ $ $
Cash flows from
Operating activities
Net income for the period 5,097 5,419 8,528 9,481
Adjustments to reconcile net income to cash provided by operating activities 4,331 4,985 5,407 7,386
Changes in non-cash working capital items (3,566 ) (5,151 ) (16,409 ) (216 )
Cash provided (used) by operating activities 5,862 5,253 (2,474 ) 16,651
Investing activities
Short-term investments (43 ) (477 ) (817 ) (569 )
Additions to property, plant and equipment (2,549 ) (1,661 ) (4,126 ) (5,720 )
Additions to intangible assets (22 ) (63 ) (127 ) (293 )
Proceeds on disposal of property, plant and equipment, and intangible assets 73 77 90 128
Acquisition of non-controlling interest (890 ) - (890 ) -
Net change in other assets (845 ) (63 ) (508 ) 167
Cash provided (used) by investing activities (4,276 ) (2,187 ) (6,378 ) (6,287 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,777 ) (2,042 ) (3,520 ) (3,620 )
Dividends paid to non-controlling interest (139 ) - (139 ) -
Repurchase of shares (1,171 ) (260 ) (1,226 ) (276 )
Short-term bank loans (63 ) 950 (628 ) 571
Increase in long-term debt 6,009 - 6,009 -
Repayment of long-term debt (2,800 ) (1,720 ) (4,224 ) (3,399 )
Cash provided (used) by financing activities 59 (3,072 ) (3,728 ) (6,724 )
Effect of exchange rate differences on cash 2,374 (1,653 ) 862 (3,101 )
Net change in cash during the period 4,019 (1,659 ) (11,718 ) 539
Net cash - Beginning of the period 68,225 77,038 83,962 74,840
Net cash - End of the period 72,244 75,379 72,244 75,379
Net cash is composed of:
Cash and cash equivalents 87,541 98,190 87,541 98,190
Bank indebtedness (15,297 ) (22,811 ) (15,297 ) (22,811 )
72,244 75,379 72,244 75,379
Supplementary information
Interest received (paid) (4 ) 27 1 (66 )
Income taxes reimbursed (paid) (1,981 ) (1,198 ) (3,849 ) (2,686 )

Contact Information

  • VELAN Inc.
    Tom Velan
    Chief Executive Officer
    (514) 748-7743
    (514) 748-8635 (FAX)

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