VELAN Inc.

TSX : VLN


VELAN Inc.

January 09, 2014 16:00 ET

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

MONTREAL, QUEBEC--(Marketwired - Jan. 9, 2014) - Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its third quarter ended November 30, 2013.

Highlights

  • Sales of US$115.6 million for the quarter
  • Net earnings(1) of US$8.3 million for the quarter
  • Order backlog of US$450.2 million at the end of the quarter
  • Order bookings of US$88.4 million for the quarter
  • Net cash(2) of US$59.2 million at the end of the quarter
Three-month periods ended Nine-month periods ended
November 30 November 30
(millions of U.S. dollars, excluding per share amounts) 2013 2012 2013 2012
Sales $115.6 $134.2 $368.5 $358.5
Gross profit 33.7 33.3 94.5 83.5
Gross margin % 29.2 % 24.8 % 25.6 % 23.3 %
Net income (loss) attributable to Subordinate and Multiple Voting Shares 8.3 5.7 19.0 9.7
Net income (loss) per share - Basic 0.38 0.26 0.87 0.44
- Diluted 0.38 0.26 0.87 0.44

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

  • Net earnings(1) amounted to $8.3 million or $0.38 per share compared to $5.7 million or $0.26 per share last year. The $2.6 million increase in net earnings(1) is primarily attributable to improved gross profit margins, lower administration costs and favourable foreign currency impacts.

  • Sales amounted to $115.6 million, a decrease of $18.6 million or 13.9% when compared to the record sales output recognized for a November quarter end in the prior year.

  • Net new orders received ("bookings") amounted to $88.4 million, an increase of $5.1 million or 6.1% compared to last year.

  • Gross margin improved by 4.4 percentage points from 24.8% to 29.2%. This increase is mainly attributable to a higher proportion of spare part sales in certain subsidiaries which generally entail lower variable production costs.

  • Administration costs amounted to $21.9 million, decreasing $1.7 million or 7.2% from the prior year.

  • Foreign currency impacts:

    • Based on average exchange rates, the euro strengthened 6.4% 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 4.6% 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 Korean won strengthened 4.9% against the U.S. dollar when comparing the spot rate at the beginning of the period to the period end rate. This strengthening resulted in the Company recording foreign exchange gains in the current quarter upon conversion of the balance sheet of its Korean subsidiary whose functional currency is the U.S. dollar.

    • The impact of these three currency swings was favourable to the Company's results for the quarter.

First Nine Months of Fiscal 2014 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first nine months of fiscal 2013):

  • Net earnings(1) amounted to $19.0 million or $0.87 per share compared to $9.7 million or $0.44 per share last year. The $9.3 million increase in net earnings(1) is primarily attributable to higher sales volume, improved gross profit margins and lower administration costs.

  • Sales amounted to $368.5 million, an increase of $10.0 million or 2.8%. The increase in sales is primarily attributable to increased shipments of certain large export project orders and higher spare parts sales.

  • Bookings amounted to $287.8 million, an increase of $14.4 million or 5.3% compared to last year.

  • The Company ended the period with a backlog of $450.2 million, a decrease of $80.8 million or 15.2% since the beginning of the current fiscal year. This decrease is mainly attributable to the higher sales output outpacing the bookings in the period.

  • Gross margin improved by 2.3 percentage points from 23.3% to 25.6%. This increase is mainly attributable to higher sales volume and improved efficiencies as a result of a higher margin product mix, particularly spare part sales.

  • Administration costs amounted to $65.0 million, a decrease of $3.5 million or 5.1%.

  • The Company generated net cash(2) from operations of $62.1 million in the period. This source of net cash(2) was primarily attributable to improved net earnings(1) and a decrease in both inventory and accounts receivable. The Company ended the period with net cash(2) of $59.2 million, an increase of $39.4 million or 199% since the beginning of the current fiscal year.

  • Foreign currency impacts:

    • Based on average exchange rates, the euro strengthened 3.5% 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 3.3% 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 Indian rupee weakened 12.9% 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.

"We are pleased with the solid results for both the quarter and year to date," said John Ball, CFO of Velan Inc. "Both earnings and gross profit have improved over the previous year. The third quarter was also quite positive for both our cash position and working capital."

Tom Velan, President and CEO of Velan Inc. said, "We are pleased to report strong earnings in the quarter. Although our bookings in the quarter continued to be lower than we would like, there has been a gradual strengthening over recent months and in December 2013 we had consolidated bookings of more than $50 million. We have many outstanding opportunities in the marketplace and we are working on turning these opportunities into orders."

Dividend

The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per share, payable on March 31, 2014, to all shareholders of record as at March 17, 2014.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the third quarter conference call to be held on January 9, 2014, at 4:30 PM (EDT). The toll free call-in number is 1-877-256-6025, access code 21703038. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558- 5253, access code 21703038.

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 November 30, February 28,
2013 2013
$ $
Assets
Current assets
Cash and cash equivalents 103,467 77,172
Short-term investments 2,176 398
Accounts receivable 127,025 134,374
Income taxes recoverable 8,878 7,672
Inventories 224,791 246,983
Deposits and prepaid expenses 6,055 6,048
Derivative assets 567 340
472,959 472,987
Non-current assets
Property, plant and equipment 95,984 90,630
Intangible assets and goodwill 43,263 43,194
Deferred income taxes 11,506 11,226
Other assets 1,746 1,737
152,499 146,787
Total assets 625,458 619,774
Liabilities
Current liabilities
Bank indebtedness 38,570 48,580
Short-term bank loans 1,255 2,284
Accounts payable and accrued liabilities 72,376 78,431
Income tax payable 7,089 2,831
Dividend payable 1,652 1,701
Customer deposits 73,856 76,682
Provisions 7,618 6,345
Accrual for performance guarantees 33,742 28,525
Derivative liabilities 696 1,380
Current portion of long-term debt 10,395 10,463
Current portion of other liabilities - 1,951
247,249 259,173
Non-current liabilities
Long-term debt 13,118 16,387
Deferred income taxes 7,842 8,035
Other liabilities 8,464 8,006
29,424 32,428
Total liabilities 276,673 291,601
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,688 76,314
Contributed surplus 6,095 1,746
Retained earnings 264,064 250,129
Accumulated other comprehensive income (loss) (4,893 ) (8,676 )
341,954 319,513
Non-controlling interest 6,831 8,660
Total equity 348,785 328,173
Total liabilities and equity 625,458 619,774
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 Nine-month periods ended
November 30 November 30
2013 2012 2013 2012
$ $ $ $
Sales 115,611 134,203 368,541 358,504
Cost of sales 81,863 100,862 274,037 275,035
Gross profit 33,748 33,341 94,504 83,469
Administration costs 21,901 23,592 64,998 68,540
Other expense (income) 33 112 1,047 (718 )
Operating profit (loss) 11,814 9,637 28,459 15,647
Finance income 244 142 603 500
Finance costs 531 1,230 1,687 2,577
Finance income (costs) - net (287 ) (1,088 ) (1,084 ) (2,077 )
Income (Loss) before income tax 11,527 8,549 27,375 13,570
Provision for (Recovery of) income tax 2,688 2,421 7,026 3,317
Net income (loss) for the period 8,839 6,128 20,349 10,253
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 8,319 5,712 19,008 9,724
Non-controlling interest 520 416 1,341 529
8,839 6,128 20,349 10,253
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.38 0.26 0.87 0.44
Diluted 0.38 0.26 0.87 0.44
Dividends declared per Subordinate and Multiple Voting 0.07 0.08 0.23 0.24
Share (CDN$0.08 ) (CDN$0.08 ) (CDN$0.24 ) (CDN$0.24 )
Total weighted average number of Subordinate and Multiple Voting Shares
Basic 21,941,076 22,022,256 21,929,494 22,022,256
Diluted 21,941,076 22,027,043 21,929,494 22,030,500
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Nine-month periods ended
November 30 November 30
2013 2012 2013 2012
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 8,839 6,128 20,349 10,253
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the U.S. dollar 4,384 4,321 5,046 (4,683 )
Comprehensive income (loss) 13,223 10,449 25,395 5,570
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 12,481 9,662 23,928 5,161
Non-controlling interest 742 787 1,467 409
13,223 10,449 25,395 5,570
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
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 - - - - 19,008 19,008 1,341 20,349
Other comprehensive income (loss) - - - 4,920 - 4,920 126 5,046
21,923,768 76,314 1,746 (3,756 ) 269,137 343,441 10,127 353,568
Effect of share-based compensation - - 19 - - 19 - 19
Shares issued under Share Option Plan 35,000 374 - - - 374 - 374
Dividends
Multiple Voting Shares - - - - (3,617 ) (3,617 ) - (3,617 )
Subordinate Voting Shares - - - - (1,456 ) (1,456 ) - (1,456 )
Non-controlling interest - - - - - - (103 ) (103 )
Acquisition of non-controlling interest - - 4,330 (1,137 ) - 3,193 (3,193 ) -
Balance - November 30, 2013 21,958,768 76,688 6,095 (4,893 ) 264,064 341,954 6,831 348,785
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 - - - - 9,724 9,724 529 10,253
Other comprehensive income (loss) - - - (4,563 ) - (4,563 ) (120 ) (4,683 )
22,148,968 78,764 1,871 (8,780 ) 260,675 332,530 8,617 341,147
Effect of share-based compensation - - 43 - - 43 - 43
Dividends
Multiple Voting Shares - - - - (3,739 ) (3,739 ) - (3,739 )
Subordinate Voting Shares - - - - (1,537 ) (1,537 ) - (1,537 )
Non-controlling interest - - - - - - (41 ) (41 )
Share repurchase (206,500 ) (2,247 ) (169 ) - - (2,416 ) - (2,416 )
Balance - November 30, 2012 21,942,468 76,517 1,745 (8,780 ) 255,399 324,881 8,576 333,457
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Nine-month periods ended
November 30 November 30
2013 2012 2013 2012
$ $ $ $
Cash flows from
Operating activities
Net income for the period 8,839 6,128 20,349 10,253
Adjustments to reconcile net income to cash provided by operating activities 2,580 5,755 10,831 8,733
Changes in non-cash working capital items 27,210 3,378 30,894 (27,624 )
Cash provided (used) by operating activities 38,629 15,261 62,074 (8,638 )
Investing activities
Short-term investments 455 378 (1,778 ) 2,675
Additions to property, plant and equipment (6,493 ) (11,559 ) (14,691 ) (22,641 )
Additions to intangible assets (60 ) (139 ) (265 ) (405 )
Proceeds on disposal of property, plant and equipment, and - (75 ) 87 384
Net change in other assets (81 ) (123 ) (9 ) (267 )
Cash provided (used) by investing activities (6,179 ) (11,518 ) (16,656 ) (20,254 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,700 ) (1,801 ) (5,122 ) (5,301 )
Dividends paid to non-controlling interest (103 ) (41 ) (103 ) (41 )
Shares issued under Share Option Plan 374 - 374 -
Repurchase of shares - (346 ) - (2,416 )
Payment of proceeds payable - - (1,960 ) (2,905 )
Short-term bank loans (28 ) 151 (1,029 ) 1,254
Increase in long-term debt - - 2,654 20,715
Repayment of long-term debt (1,740 ) (1,749 ) (6,583 ) (2,706 )
Cash provided (used) by financing activities (3,197 ) (3,786 ) (11,769 ) 8,600
Effect of exchange rate differences on cash 1,691 509 2,656 (760 )
Net change in cash during the period 30,944 466 36,305 (21,052 )
Net cash - Beginning of the period 33,953 11,458 28,592 32,976
Net cash - End of the period 64,897 11,924 64,897 11,924
Net cash is composed of:
Cash and cash equivalents 103,467 57,840 103,467 57,840
Bank indebtedness (38,570 ) (45,916 ) (38,570 ) (45,916 )
64,897 11,924 64,897 11,924
Supplementary information
Interest received (paid) (147 ) (489 ) (733 ) (1,349 )
Income taxes reimbursed (paid) (1,676 ) 693 (2,473 ) (2,282 )

Contact Information

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

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