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.
- 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.
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.
- 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.
"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:
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/