VELAN Inc.
TSX : VLN

VELAN Inc.

October 13, 2016 13:15 ET

Velan Inc. Reports its Second Quarter 2016/17 Financial Results

MONTREAL, QUEBEC--(Marketwired - Oct. 13, 2016) - 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, 2016.

Highlights

  • Sales of US$71.1 million for the quarter
  • Net earnings1 of US$2.0 million for the quarter
  • Order backlog of US$374.0 million at the end of the quarter
  • Net order bookings of US$77.4 million for the quarter
  • Net cash2 of US$80.6 million at the end of the quarter
(millions of U.S. dollars, Three-month periods ended Six-month periods ended
excluding per share amounts) August 31 August 31
2016 2015 2016 2015
Sales $ 71.1 $ 111.6 $ 148.5 $ 214.7
Gross Profit 19.2 26.7 37.9 50.2
Gross profit % 27.0 % 23.9 % 25.5 % 23.4 %
Net income attributable to Multiple and
Subordinate Voting Shares 2.0 4.7 2.5 7.9
Net income per share - basic and diluted 0.10 0.22 0.12 0.36

Second Quarter Fiscal 2017 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2016):

  • Net earnings1 amounted to $2.0 million or $0.10 per share compared to $4.7 million or $0.22 per share last year. The $2.7 million decrease in net earnings1 is primarily attributable to a lower sales volume which was partially offset by a higher gross profit percentage and decreased administration costs.

  • Net new orders received amounted to $77.4 million, an increase of $5.9 million or 8.3% compared to last year. This increase is due primarily to new large project orders booked by the Company's French operations, which was partially offset by a decrease in orders booked in the Company's North American operations.

  • Sales amounted to $71.1 million, a decrease of $40.5 million or 36.3% from the prior year. Sales were negatively impacted by the decreased bookings received over the last fiscal year as well as delays in shipments of certain large project orders caused by various customer-related, supply chain and internal operational issues.

  • Gross profit percentage increased by 310 basis points from 23.9% to 27.0%. Despite the lower sales volume, the increase in the gross profit percentage was mainly attributable to a product mix with a greater proportion of higher margin product sales, material cost savings, as well as labour and overhead savings stemming from the restructuring initiatives implemented in the prior fiscal year.

  • The Company ended the period with net cash2 of $80.6 million, a decrease of $12.4 million or 13.3% since the beginning of the current quarter. This decrease is primarily attributable to negative non-cash working capital movements, particularly an increase in inventories and a decrease in accounts payable and accrued liabilities.

First Half Year Fiscal 2017 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first half year of fiscal 2016):

  • Net earnings1 amounted to $2.5 million or $0.12 per share compared to $7.9 million or $0.36 per share last year. The $5.4 million decrease in net earnings1 is primarily attributable to a lower sales volume which was partially offset by a higher gross profit percentage and decreased administration costs.

  • Bookings amounted to $187.4 million, an increase of $34.1 million or 22.2% compared to last year. Excluding the effect of an order cancellation of $23.6 million in the prior year period, bookings would have increased by $10.5 million or 5.9%. This increase is due primarily to new large project orders booked by the Company's French and Italian operations, which was partially offset by a decrease in orders booked in the Company's North American operations.

  • Sales amounted to $148.5 million, a decrease of $66.2 million or 30.8% from the prior year. Sales were negatively impacted, particularly in our Italian and North American operations, by the decreased bookings received over the last fiscal year. Delays in shipments of certain large project orders caused by various customer-related, supply chain and internal operational issues, particularly in our North American operations, also had a negative impact on sales for the period.

  • As a result of bookings outpacing sales in the period, the Company ended the period with a backlog of $374.0 million, an increase of $42.8 million or 12.9% since the beginning of the current fiscal year. In addition to higher bookings, the backlog was positively impacted by the strengthening of the euro against the U.S. dollar over the course of the period.

  • Gross profit percentage increased by 210 basis points from 23.4% to 25.5%. Despite the lower sales volume, the increase in the gross profit percentage was mainly attributable to a product mix with a greater proportion of higher margin product sales, material cost savings, as well as labour and overhead savings stemming from the restructuring initiatives implemented in the prior fiscal year.

  • Administration costs amounted to $35.8 million, a decrease of $3.3 million or 8.4%. The decrease was achieved despite a $0.6 million increase 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.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro strengthened 1.7% against the U.S. dollar when compared to the same period last year. This strengthening resulted in the Company's net profits and bookings 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 3.1% 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 the above currency swings was generally favourable on the Company's net earnings1.

"While we continued to experience softness in sales for a variety of reasons, both customer specific and general market conditions, we both improved margin and held expenses in line for the quarter," said John Ball, CFO of Velan Inc. "Our bookings and backlog, especially for longer term projects, and "bookings to sales" ratio all continued to improve, and our general working capital position remains strong. 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, 2016. Under the bid, we may purchase up to 153,969 Subordinate Voting Shares (the "Shares"), representing approximately 2.5% of the issued Shares of such class as at October 13, 2016. All Shares purchased will be cancelled. As at October 13, 2016, we had 6,158,768 Shares outstanding. During the past 12 months, 137,700 Shares were purchased at a weighted average price of CA $15.56. We have concluded that purchases of up to 153,969 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, "The market downturn has deeply affected our performance in the first half of the year in several ways: we have seen lower bookings in North America, customers postponing shipments, and the increased complexity of some large orders causing supply chain and production delays. We are responding by intensifying our operational improvement efforts and by aggressively pursuing orders in specifically targeted markets. On the positive side, our backlog has increased steadily since the beginning of the year, which should benefit next year's performance. The Company has the resilience to withstand a very challenging market and is taking actions that should help rebound strongly when it recovers."

Tom Velan, CEO of Velan Inc. said, "Recently, I attended the annual meeting of the North American Valve Manufacturers' Association. The meeting confirmed that the industry is facing a tough market environment and we are continuing our efforts to improve our operations to be ready to benefit when the market conditions improve."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on December 30, 2016, to all shareholders of record as at December 15, 2016.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on Thursday, October 13, 2016, at 4:30 p.m. (EDT). The toll free call-in number is 1-888- 273-1350, access code 21819904. A recording of this conference call will be available for seven days at 1-416-626- 4100 or 1-800-558-5253, access code 21819904.

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$426.9 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 Management Discussion and Analysis included in its Interim Report for the quarter ended August 31, 2016 for a detailed calculation of this measure.

(1) Net earnings refers to net income 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 29,
2016 2016
$ $
Assets
Current assets
Cash and cash equivalents 89,872 89,368
Short-term investments 1,769 3,225
Accounts receivable 103,107 119,569
Income taxes recoverable 9,116 5,674
Inventories 175,860 162,523
Deposits and prepaid expenses 5,012 3,586
Derivative assets 1,279 1,598
386,015 385,543
Non-current assets
Property, plant and equipment 94,322 95,257
Intangible assets and goodwill 19,968 20,352
Deferred income taxes 14,486 13,537
Other assets 807 938
129,583 130,084
Total assets 515,598 515,627
Liabilities
Current liabilities
Bank indebtedness 6,996 5,028
Short-term bank loans 1,344 1,319
Accounts payable and accrued liabilities 53,305 62,943
Income taxes payable 4,357 5,746
Dividend payable 1,658 1,606
Customer deposits 39,351 28,123
Provisions 9,647 9,333
Accrual for performance guarantees 29,350 30,563
Derivative liabilities 930 2,945
Current portion of long-term debt 6,575 7,978
153,513 155,584
Non-current liabilities
Long-term debt 13,744 14,471
Deferred income taxes 3,280 3,408
Other liabilities 9,903 9,045
26,927 26,924
Total liabilities 180,440 182,508
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 74,217 74,345
Contributed surplus 5,979 5,941
Retained earnings 279,523 280,380
Accumulated other comprehensive income (loss) (30,526 ) (33,089 )
329,193 327,577
Non-controlling interest 5,965 5,542
Total equity 335,158 333,119
Total liabilities and equity 515,598 515,627
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
2016 2015 2016 2015
$ $ $ $
Sales 71,137 111,558 148,546 214,737
Cost of sales 51,897 84,877 110,641 164,539
Gross profit 19,240 26,681 37,905 50,198
Administration costs 17,032 19,889 35,798 39,070
Other expense (income) 309 (6 ) 202 9
Operating profit (loss) 1,899 6,798 1,905 11,119
Finance income 215 244 480 500
Finance costs 132 265 257 567
Finance income (costs) - net 83 (21 ) 223 (67 )
Income (Loss) before income taxes 1,982 6,777 2,128 11,052
Provision for (Recovery of) income taxes 102 1,680 (326 ) 2,524
Net income (loss) for the period 1,880 5,097 2,454 8,528
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 2,001 4,749 2,529 7,856
Non-controlling interest (121 ) 348 (75 ) 672
1,880 5,097 2,454 8,528
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.10 0.22 0.12 0.36
Diluted 0.10 0.22 0.12 0.36
Dividends declared per Subordinate and Multiple 0.07 0.08 0.15 0.16
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 21,731,871 21,875,203 21,729,924 21,886,645
Diluted 21,736,983 21,875,203 21,735,703 21,886,645
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
2016 2015 2016 2015
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 1,880 5,097 2,454 8,528
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar)

(56


)


1,354


3,061


(1,688


)
Comprehensive income (loss) 1,824 6,451 5,515 6,840
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 1,640 6,416 5,092 6,528
Non-controlling interest 184 35 423 312
1,824 6,451 5,515 6,840
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 29, 2016 21,737,135 74,345 5,941 (33,089 ) 280,380 327,577 5,542 333,119
Net income (loss) for the period - - - - 2,529 2,529 (75 ) 2,454
Other comprehensive income (loss) - - - 2,563 - 2,563 498 3,061
21,737,135 74,345 5,941 (30,526 ) 282,909 332,669 5,965 338,634
Effect of share-based compensation - - 38 - - 38 - 38
Share repurchase (11,800 ) (128 ) - - (31 ) (159 ) - (159 )
Dividends
Multiple Voting Shares - - - - (2,402 ) (2,402 ) - (2,402 )
Subordinate Voting Shares - - - - (953 ) (953 ) - (953 )
Balance - August 31, 2016 21,725,335 74,217 5,979 (30,526 ) 279,523 329,193 5,965 335,158
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 ) - - - - -
Share repurchase (89,300 ) (973 ) - - (253 ) (1,226 ) - (1,226 )
Acquisition of non-controlling interest - - - - - - (890 ) (890 )
Dividends
Multiple Voting Shares - - - - (2,495 ) (2,495 ) - (2,495 )
Subordinate Voting Shares - - - - (932 ) (932 ) - (932 )
Non-controlling interest - - - - - - (139 ) (139 )
Balance - August 31, 2015 21,864,135 75,729 5,889 (28,980 ) 287,900 340,538 5,765 346,303
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
2016 2015 2016 2015
$ $ $ $
Cash flows from
Operating activities
Net income for the period 1,880 5,097 2,454 8,528
Adjustments to reconcile net income to cash provided by operating activities
4,752

4,331

5,259

5,407
Changes in non-cash working capital items (13,539 ) (3,566 ) (1,734 ) (16,409 )
Cash provided (used) by operating activities (6,907 ) 5,862 5,979 (2,474 )
Investing activities
Short-term investments 299 (43 ) 1,456 (817 )
Additions to property, plant and equipment (1,937 ) (2,549 ) (3,273 ) (4,126 )
Additions to intangible assets (10 ) (22 ) (60 ) (127 )
Proceeds on disposal of property, plant and equipment, and intangible assets
46

73

179

90
Acquisition of non-controlling interest - (890 ) - (890 )
Net change in other assets (29 ) (845 ) 133 (508 )
Cash provided (used) by investing activities (1,631 ) (4,276 ) (1,565 ) (6,378 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,697 ) (1,777 ) (3,303 ) (3,520 )
Dividends paid to non-controlling interest - (139 ) - (139 )
Repurchase of shares (159 ) (1,171 ) (159 ) (1,226 )
Short-term bank loans 152 (63 ) 25 (628 )
Increase in long-term debt - 6,009 - 6,009
Repayment of long-term debt (1,311 ) (2,800 ) (3,272 ) (4,224 )
Cash provided (used) by financing activities (3,015 ) 59 (6,709 ) (3,728 )
Effect of exchange rate differences on cash (581 ) 2,374 831 862
Net change in cash during the period (12,134 ) 4,019 (1,464 ) (11,718 )
Net cash - Beginning of the period 95,010 68,225 84,340 83,962
Net cash - End of the period 82,876 72,244 82,876 72,244
Net cash is composed of:
Cash and cash equivalents 89,872 87,541 89,872 87,541
Bank indebtedness (6,996 ) (15,297 ) (6,996 ) (15,297 )
82,876 72,244 82,876 72,244
Supplementary information
Interest received (paid) 112 (4 ) 224 1
Income taxes reimbursed (paid) (1,285 ) (1,981 ) (3,205 ) (3,849 )

Contact Information

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

    VELAN Inc.
    Yves Leduc
    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