VELAN Inc.
TSX : VLN

VELAN Inc.

January 13, 2015 13:16 ET

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

MONTREAL, QUEBEC--(Marketwired - Jan. 13, 2015) - 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, 2014.

Highlights

  • Sales of US$127.3 million for the quarter
  • Net earnings1 of US$4.8 million for the quarter
  • Order backlog of US$474.6 million at the end of the quarter
  • Order bookings of US$111.3 million for the quarter
  • Net cash2 of US$66.7 million at the end of the quarter
  • Quarterly dividend of CA$0.10 per share declared, payable March 31, 2015
Three-month periods ended Nine-month periods ended
November 30 November 30
(millions of U.S. dollars, excluding per share amounts) 2014 2013 2014 2013
Sales $ 127.3 $ 115.6 $ 341.2 $ 368.5
Gross profit 33.5 33.7 89.2 94.5
Gross profit % 26.3 % 29.2 % 26.1 % 25.6 %
Net income (loss) attributable to Subordinate and
Multiple Voting Shares 4.8 8.3 13.9 19.0
Net income (loss) per share
- Basic 0.22 0.38 0.63 0.87
- Diluted 0.22 0.38 0.63 0.87

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

  • Net earnings1 amounted to $4.8 million or $0.22 per share compared to $8.3 million or $0.38 per share last year. The $3.5 million decrease in net earnings1 is primarily attributable to a lower gross profit percentage and increased administration costs, in particular an increase in costs recognized in connection with the Company's ongoing asbestos litigation and higher sales commissions resulting from the increased sales output in the quarter.

  • Sales amounted to $127.3 million, an increase of $11.7 million or 10.1% from the prior year. The increase is due to improved execution of shipments of certain large export project orders in the current quarter.

  • Net new orders received ("bookings") amounted to $111.3 million, an increase of $22.9 million or 25.9% compared to last year.

  • Gross profit decreased by 2.9 percentage points from 29.2% to 26.3%. This decrease is mainly attributable to a product mix with a greater proportion of project orders which generally entail higher variable production costs.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro weakened 3.9% against the U.S. dollar when compared to the same quarter last year. This weakening resulted in the Company's net profits 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 7.2% against the U.S. dollar when compared to the same quarter 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 impact of these currency swings was generally neutral to the Company's results for the quarter.

First Nine Months Fiscal 2015 (unless otherwise noted, all comparisons are to the first nine months of fiscal 2014):

  • Net earnings1 amounted to $13.9 million or $0.63 per share compared to $19.0 million or $0.87 per share last year. The $5.1 million decrease in net earnings1 is primarily attributable to lower sales volume and higher administration costs, in particular an increase in costs recognized in connection with the Company's ongoing asbestos litigation as well as increased research and development costs in one of the Company's French subsidiaries related to new product qualifications.

  • Sales amounted to $341.2 million, a decrease of $27.3 million or 7.4%. Despite the improved execution in the quarter, the Company's shipments of certain large export project orders were lower for the first nine months of the current year compared to the prior period.

  • Bookings amounted to $343.5 million, an increase of $55.7 million or 19.4% compared to last year, continuing the positive trend which started during the latter half of the prior year.

  • Gross profit remained relatively stable, increasing by 0.5 percentage points from 25.6% to 26.1%. While the Company had a greater proportion of higher margin product sales, particularly spare parts and valves without third party actuators, in the first two quarters of the year, this trend was reversed in the current quarter of the year as the Company shipped a greater proportion of project orders, which generally entail lower gross margins.

  • The Company generated net cash2 from operations of $24.7 million in the period. Despite this increase, the Company ended the period with net cash2 of $66.7 million, a decrease of $1.0 million or 1.5% since the beginning of the current fiscal year. The Company's cash balance was negatively impacted by the 9.6% drop in the Euro spot rate against the U.S. dollar since the beginning of the year.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro strengthened 0.7% 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 6.1% 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 impact of these currency swings was favourable to the Company's results for the period.

"Our sales and net new orders for the quarter were an improvement over the prior year, although our gross profit remained flat as the increase in sales came from lower margin project sales," said John Ball, CFO of Velan Inc. "We are watching developments in both the currency markets, with a rapidly appreciating US dollar, and the crude oil markets with interest. While we are not sure that these trends will be sustained over the longer term, we believe that they offer not only challenges but opportunities to a company such as Velan, and our strong balance sheet is well positioned to weather these uncertain markets."

Tom Velan, President and CEO of Velan Inc. said, "These are rapidly changing times with a dramatic reduction in oil prices and significant currency exchange swings. We are fortunate to be diversified both geographically and by our end-user markets as we go after opportunities in a very competitive environment."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on March 31, 2015, to all shareholders of record as at March 16, 2015.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the third quarter conference call to be held on January 13, 2015, at 4:30 PM (EDT). The toll free call-in number is 1-888-273-1350, access code 21758605. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800- 558-5253, access code 21758605.

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 November 30, February 28,
2014 2014
$ $
Assets
Current assets
Cash and cash equivalents 89,430 106,716
Short-term investments 318 239
Accounts receivable 123,352 128,978
Income taxes recoverable 10,519 5,465
Inventories 208,331 224,149
Deposits and prepaid expenses 5,480 5,046
Derivative assets 94 498
437,524 471,091
Non-current assets
Property, plant and equipment 94,056 96,605
Intangible assets and goodwill 37,823 43,359
Deferred income taxes 10,331 11,406
Other assets 1,224 1,693
143,434 153,063
Total assets 580,958 624,154
Liabilities
Current liabilities
Bank indebtedness 15,360 31,876
Short-term bank loans 1,783 916
Accounts payable and accrued liabilities 76,708 76,590
Income taxes payable 7,055 4,158
Dividend payable 1,918 1,586
Customer deposits 46,620 66,842
Provisions 9,326 8,060
Accrual for performance guarantees 31,977 33,842
Derivative liabilities 2,461 1,501
Current portion of long-term debt 9,708 10,402
202,916 235,773
Non-current liabilities
Long-term debt 7,123 11,685
Deferred income taxes 8,327 9,270
Other liabilities 8,105 8,307
23,555 29,262
Total liabilities 226,471 265,035
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,486 76,688
Contributed surplus 6,054 6,099
Retained earnings 280,760 272,867
Accumulated other comprehensive income (loss) (16,306 ) (3,589 )
346,994 352,065
Non-controlling interest 7,493 7,054
Total equity 354,487 359,119
Total liabilities and equity 580,958 624,154
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 Nine-month periods ended
November 30 November 30
2014 2013 2014 2013
$ $ $ $
Sales 127,290 115,611 341,243 368,541
Cost of sales 93,807 81,863 252,022 274,037
Gross profit 33,483 33,748 89,221 94,504
Administration costs 25,244 21,901 68,021 64,998
Other expense (income) 180 33 (36 ) 1,047
Operating profit (loss) 8,059 11,814 21,236 28,459
Finance income 264 244 780 603
Finance costs 638 531 1,270 1,687
Finance income (costs) - net (374 ) (287 ) (490 ) (1,084 )
Income (Loss) before income taxes 7,685 11,527 20,746 27,375
Provision for (Recovery of) income taxes 2,521 2,688 6,101 7,026
Net income (loss) for the period 5,164 8,839 14,645 20,349
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 4,759 8,319 13,862 19,008
Non-controlling interest 405 520 783 1,341
5,164 8,839 14,645 20,349
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.22 0.38 0.63 0.87
Diluted 0.22 0.38 0.63 0.87
Dividends declared per Subordinate and Multiple 0.09 0.07 0.27 0.23
Voting Share (CA$0.10 ) (CA$0.08 ) (CA$0.30 ) (CA$0.24 )
Total weighted average number of Subordinate and
Multiple Voting Shares
Basic 21,947,758 21,941,076 21,947,758 21,929,494
Diluted 21,961,072 21,941,076 21,959,439 21,929,494
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
2014 2013 2014 2013
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 5,164 8,839 14,645 20,349
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar) (8,238 ) 4,384 (12,975 ) 5,046
Comprehensive income (loss) (3,074 ) 13,223 1,670 25,395
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares (2,950 ) 12,481 1,145 23,928
Non-controlling interest (124 ) 742 525 1,467
(3,074 ) 13,223 1,670 25,395
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 - - - - 13,862 13,862 783 14,645
Other comprehensive income (loss) - - - (12,717 ) - (12,717 ) (258 ) (12,975 )
21,958,768 76,688 6,099 (16,306 ) 286,729 353,210 7,579 360,789
Effect of share-based compensation - - 6 - - 6 - 6
Dividends
Multiple Voting Shares - - - - (4,208 ) (4,208 ) - (4,208 )
Subordinate Voting Shares - - - - (1,722 ) (1,722 ) - (1,722 )
Non-controlling interest - - - - - - (86 ) (86 )
Share repurchase (18,600 ) (202 ) (51 ) - (39 ) (292 ) - (292 )
Balance - November 30, 2014 21,940,168 76,486 6,054 (16,306 ) 280,760 346,994 7,493 354,487
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 - - - - 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
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
2014 2013 2014 2013
$ $ $ $
Cash flows from
Operating activities
Net income for the period 5,164 8,839 14,645 20,349
Adjustments to reconcile net income to cash provided by operating activities 6,125 2,580 13,511 10,831
Changes in non-cash working capital items (3,231 ) 27,210 (3,447 ) 30,894
Cash provided (used) by operating activities 8,058 38,629 24,709 62,074
Investing activities
Short-term investments 490 455 (79 ) (1,778 )
Additions to property, plant and equipment (4,543 ) (6,493 ) (10,263 ) (14,691 )
Additions to intangible assets (107 ) (60 ) (400 ) (265 )
Proceeds on disposal of property, plant and equipment, and intangible assets 32 - 160 87
Net change in other assets 288 (81 ) 455 (9 )
Cash provided (used) by investing activities (3,840 ) (6,179 ) (10,127 ) (16,656 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,978 ) (1,700 ) (5,598 ) (5,122 )
Dividends paid to non-controlling interest (86 ) (103 ) (86 ) (103 )
Shares issued under Share Option Plan - 374 - 374
Repurchase of shares (16 ) - (292 ) -
Payment of proceeds payable - - - (1,960 )
Short-term bank loans 296 (28 ) 867 (1,029 )
Increase in long-term debt - - - 2,654
Repayment of long-term debt (1,468 ) (1,740 ) (4,867 ) (6,583 )
Cash provided (used) by financing activities (3,252 ) (3,197 ) (9,976 ) (11,769 )
Effect of exchange rate differences on cash (2,275 ) 1,691 (5,376 ) 2,656
Net change in cash during the period (1,309 ) 30,944 (770 ) 36,305
Net cash - Beginning of the period 75,379 33,953 74,840 28,592
Net cash - End of the period 74,070 64,897 74,070 64,897
Net cash is composed of:
Cash and cash equivalents 89,430 103,467 89,430 103,467
Bank indebtedness (15,360 ) (38,570 ) (15,360 ) (38,570 )
74,070 64,897 74,070 64,897
Supplementary information
Interest received (paid) (35 ) (147 ) (101 ) (733 )
Income taxes reimbursed (paid) (2,717 ) (1,676 ) (5,403 ) (2,473 )

Contact Information

  • VELAN Inc.
    Tom Velan
    President and 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)
    www.velan.com