MONTREAL, QUEBEC--(Marketwired - Jan. 13, 2016) - 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, 2015.
Highlights
- Sales of US$104.0 million for the quarter
- Adjusted net earnings1of US$5.2 million for the quarter
- Order backlog of US$348.5 million at the end of the quarter
- Net order bookings of US$89.5 million for the quarter
- Net cash1of US$69.5 million at the end of the quarter
- Returned US$2.8 million to shareholders in the quarter and US$7.5 million in the nine-month period by way of dividends and share repurchases
| Three-month period ended | Nine-month period ended | ||||||||
| November 30 | November 30 | ||||||||
| (millions of U.S. dollars, excluding per share amounts) | 2015 | 2014 | 2015 | 2014 | |||||
| Sales | $104.0 | $127.3 | $318.7 | $341.2 | |||||
| Gross profit | 26.0 | 33.5 | 76.2 | 89.2 | |||||
| Gross margin % | 25.0 | % | 26.3 | % | 23.9 | % | 26.1 | % | |
| Net income attributable to Subordinate and Multiple Voting Shares | 3.6 |
4.8 |
11.5 |
13.9 |
|||||
| Net income (loss) per share | - Basic | 0.16 | 0.22 | 0.52 | 0.63 | ||||
| - Diluted | 0.16 | 0.22 | 0.52 | 0.63 | |||||
Third Quarter Fiscal 2016 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the third quarter of fiscal 2015):
- Net earnings2amounted to $3.6 million or $0.16 per share compared to $4.8 million or $0.22 per share last year. Adjusted net earnings1, which excludes from net earnings2the after-tax impact of the restructuring costs incurred in the quarter, amounted to $5.2 million or $0.23 per share compared to $4.8 million or $0.22 per share last year. The $0.4 million increase in adjusted net earnings1was achieved despite a drop in sales and gross margin, which were offset by lower administration and net finance costs.
- Net new orders received ("bookings") amounted to $89.5 million, a decrease of $36.5 million or 29.0% compared to last year. The continued weakness 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.
- Sales amounted to $104.0 million, a decrease of $23.3 million or 18.3% compared to last year. The decrease in bookings over the last four quarters is having a negative impact on the Company's shipments and billings. Anticipating this drop in sales, the Company restructured its North American operations in the quarter with a workforce reduction and plant consolidation, thus lowering its production and administrative overhead costs.
- Gross margin decreased by 1.3 percentage points from 26.3% to 25.0%. This decrease is mainly attributable to a lower sales volume, which was partially offset by a decrease in direct labour and production overhead costs resulting from the restructuring described above.
- Foreign currency impacts:
- Based on average exchange rates, the euro weakened 5.4% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits, bookings, sales, and backlog 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 7.6% 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 quarter.
- The net impact of these currency swings was favourable to the Company's results for the current quarter.
First Nine Months Fiscal 2016 (unless otherwise noted, all comparisons are to the first nine months of fiscal 2015)
- Net earnings2amounted to $11.5 million or $0.52 per share compared to $13.9 million or $0.63 per share last year. Adjusted net earnings1amounted to $13.1 million or $0.59 per share compared to $13.9 million or $0.63 per share last year. The $0.8 million decrease in adjusted net earnings1is primarily attributable to a lower gross profit percentage partially offset by decreased administration and net finance costs.
- Sales amounted to $318.7 million, a decrease of $22.5 million or 6.6% compared to last year. The decrease in bookings over the last four quarters is having a negative impact on the Company's shipments and billings. Sales were also affected by a production slowdown caused by labour unrest and a lockout at the Company's Canadian facilities during the first half of the current fiscal year.
- Bookings amounted to $242.8 million, a decrease of $127.5 million or 34.4% compared to last year. Excluding the effect of an order cancellation of $23.6 million in the first quarter, bookings would have decreased by $103.9 million or 28.1% 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 sales outpacing bookings in the period, the Company ended the period with a backlog of $348.5 million, a decrease of $89.3 million or 20.4% since the beginning of the current fiscal year.
- Gross margin decreased by 2.2 percentage points from 26.1% to 23.9%. This decrease is attributable to a number of factors, including a lower sales volume and competitive bidding in a tighter market resulting in a greater proportion of lower margin product sales.
- Administration costs amounted to $57.6 million, a decrease of $10.4 million or 15.3%. The decrease is primarily attributable to favourable currency swings resulting from a stronger U.S. dollar, a decrease in compensation-related costs, and a decrease in costs recognized in connection with the Company's ongoing asbestos litigation. The fluctuation in asbestos-related costs for the period is due more to the timing of settlement payments in these two periods than to changes in long-term trends.
- The Company ended the period with net cash1of $69.5 million, a decrease of $6.1 million or 8.1% since the beginning of the current fiscal year. This decrease is primarily attributable to the Company returning $7.5 million in cash to its shareholders over the nine-month period by way of dividends and share repurchases.
- Foreign currency impacts:
- Based on average exchange rates, the euro weakened 17.2% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits, bookings, sales, and backlog 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 14.0% 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 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 earnings2.
- Based on average exchange rates, the euro weakened 17.2% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits, bookings, sales, and backlog from its European subsidiaries being reported as lower U.S. dollar amounts in the current period.
"Although this quarter was a challenge in respect to both order bookings and sales, management continued to take actions to improve the efficiency and profitability of the business," said John Ball, CFO of Velan Inc. "While the weakening Canadian dollar did help contribute to margins in North America, the increasingly competitive nature of the business, particularly in the hard-hit oil and gas sector, largely offset those gains."
Yves Leduc, President of Velan Inc., said, "Confronted with a slumping global energy market, the strategic direction we have set earlier this year is to cut expenses and grow margins through operational improvements. Accordingly, in this last quarter, we have proceeded with an important restructuring initiative that is helping us manage a reduced backlog. It is also giving us the necessary headroom to carry out a number of elements of our strategic plan aimed at increasing our gross margin and delivery performance. While we are unsure as to the timing of the eventual market recovery, in the meantime we are actively targeting bottom-line improvements."
Tom Velan, CEO of Velan Inc., said, "We continued to buy back shares under our Normal Course Issuer Bid ("NCIB") and, in the quarter, we bought back 90,300 shares at an average price of CA$15.76 or US$12.68 per share. On November 30, 2015, our share price closed at CA$15.60 or US$11.68 per share compared to our book value of US$15.68 per share. We continue to pay an annual dividend of CA$0.40 per share. We will continue to buy shares under our NCIB as we consider it a good investment of our cash."
Dividend
The Board declared an eligible quarterly dividend of CA$0.10 per share, payable on March 31, 2016, to all shareholders of record as at March 15, 2016.
Conference call
Financial analysts, shareholders, and other interested individuals are invited to attend the third quarter conference call to be held on Wednesday, January 13, 2016, at 4:30 p.m. (EDT). The toll free call-in number is 1-888-273-1350, access code 21802376. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21802376.
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 "adjusted net earnings" is defined as net income attributable to Subordinate and Multiple Voting Shares plus restructuring costs less the income tax effect of the restructuring costs. Refer to the "Reconciliations of Non- IFRS Measures" section in the Company's MD&A for a detailed calculation of this measure.
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 | Non-IFRS measures - see explanation above. |
| 2 | Net earnings or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares. |
| Velan Inc. |
| Condensed Interim Consolidated Statements of Financial Position |
| (Unaudited) |
| (in thousands of U.S. dollars) |
| As At | November 30, | February 28, | ||
| 2015 | 2015 | |||
| $ | $ | |||
| Assets | ||||
| Current assets | ||||
| Cash and cash equivalents | 81,392 | 99,578 | ||
| Short-term investments | 2,633 | 847 | ||
| Accounts receivable | 114,370 | 105,335 | ||
| Income taxes recoverable | 9,931 | 5,472 | ||
| Inventories | 178,636 | 203,557 | ||
| Deposits and prepaid expenses | 5,690 | 5,326 | ||
| Derivative assets | 91 | 144 | ||
| 392,743 | 420,259 | |||
| Non-current assets | ||||
| Property, plant and equipment | 87,375 | 91,285 | ||
| Intangible assets and goodwill | 30,412 | 33,576 | ||
| Deferred income taxes | 11,991 | 12,392 | ||
| Other assets | 2,549 | 1,116 | ||
| 132,327 | 138,369 | |||
| Total assets | 525,070 | 558,628 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Bank indebtedness | 7,708 | 15,616 | ||
| Short-term bank loans | 1,204 | 2,134 | ||
| Accounts payable and accrued liabilities | 58,653 | 70,997 | ||
| Income taxes payable | 4,589 | 3,961 | ||
| Dividend payable | 1,631 | 1,755 | ||
| Customer deposits | 36,541 | 44,111 | ||
| Provisions | 8,965 | 7,874 | ||
| Accrual for performance guarantees | 29,839 | 30,012 | ||
| Derivative liabilities | 2,762 | 5,362 | ||
| Current portion of long-term debt | 9,081 | 10,644 | ||
| 160,973 | 192,466 | |||
| Non-current liabilities | ||||
| Long-term debt | 6,389 | 4,183 | ||
| Deferred income taxes | 7,797 | 8,349 | ||
| Other liabilities | 8,590 | 8,537 | ||
| 22,776 | 21,069 | |||
| Total liabilities | 183,749 | 213,535 | ||
| Equity | ||||
| Equity attributable to the Subordinate and Multiple Voting shareholders | ||||
| Share capital | 74,745 | 76,475 | ||
| Contributed surplus | 5,914 | 6,064 | ||
| Retained earnings | 289,728 | 283,724 | ||
| Accumulated other comprehensive income (loss) | (35,011 | ) | (27,652 | ) |
| 335,376 | 338,611 | |||
| Non-controlling interest | 5,945 | 6,482 | ||
| Total equity | 341,321 | 345,093 | ||
| Total liabilities and equity | 525,070 | 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 November 30 |
|
Nine-month periods ended November 30 |
|
|||||
| 2015 | 2014 | 2015 | 2014 | ||||||
| $ | $ | $ | $ | ||||||
| Sales | 104,002 | 127,290 | 318,739 | 341,243 | |||||
| Cost of sales | 77,988 | 93,807 | 242,527 | 252,022 | |||||
| Gross profit | 26,014 | 33,483 | 76,212 | 89,221 | |||||
| Administration costs | 18,579 | 25,244 | 57,649 | 68,021 | |||||
| Restructuring costs | 2,150 | - | 2,150 | - | |||||
| Other expense (income) | 162 | 180 | 171 | (36 | ) | ||||
| Operating profit (loss) | 5,123 | 8,059 | 16,242 | 21,236 | |||||
| Finance income | 213 | 264 | 713 | 780 | |||||
| Finance costs | 173 | 638 | 740 | 1,270 | |||||
| Finance income (costs) - net | 40 | (374 | ) | (27 | ) | (490 | ) | ||
| Income (Loss) before income taxes | 5,163 | 7,685 | 16,215 | 20,746 | |||||
| Provision for (Recovery of) income taxes | 1,496 | 2,521 | 4,020 | 6,101 | |||||
| Net income (loss) for the period | 3,667 | 5,164 | 12,195 | 14,645 | |||||
| Net income (loss) attributable to: | |||||||||
| Subordinate Voting Shares and Multiple Voting Shares | 3,608 | 4,759 | 11,464 | 13,862 | |||||
| Non-controlling interest | 59 | 405 | 731 | 783 | |||||
| 3,667 | 5,164 | 12,195 | 14,645 | ||||||
| Net income (loss) per Subordinate and Multiple Voting Share | |||||||||
| Basic | 0.16 | 0.22 | 0.52 | 0.63 | |||||
| Diluted | 0.16 | 0.22 | 0.52 | 0.63 | |||||
| Dividends declared per Subordinate and Multiple | 0.07 | 0.09 | 0.23 | 0.27 | |||||
| Voting Share | (CA$0.10 | ) | (CA$0.10 | ) | (CA$0.30 | ) | (CA$0.30 | ) | |
| Total weighted average number of Subordinate and Multiple Voting Shares | |||||||||
| Basic | 21,839,960 | 21,947,758 | 21,861,664 | 21,947,758 | |||||
| Diluted | 21,839,960 | 21,961,072 | 21,861,664 | 21,959,439 | |||||
| Velan Inc. |
| Condensed Interim Consolidated Statements of Comprehensive Income (Loss) |
| (Unaudited) |
| (in thousands of U.S. dollars) |
| Three-month periods ended November 30 |
Nine-month periods ended November 30 |
|||||||
| 2015 | 2014 | 2015 | 2014 | |||||
| $ | $ | $ | $ | |||||
| Comprehensive income (loss) | ||||||||
| Net income (loss) for the period | 3,667 | 5,164 | 12,195 | 14,645 | ||||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar) | (5,910 | ) | (8,238 | ) | (7,598 | ) | (12,975 | ) |
| Comprehensive income (loss) | (2,243 | ) | (3,074 | ) | 4,597 | 1,670 | ||
| Comprehensive income (loss) attributable to: | ||||||||
| Subordinate Voting Shares and Multiple Voting Shares | (2,423 | ) | (2,950 | ) | 4,105 | 1,145 | ||
| Non-controlling interest | 180 | (124 | ) | 492 | 525 | |||
| (2,243 | ) | (3,074 | ) | 4,597 | 1,670 | |||
| 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, 2015 | 21,939,168 | 76,475 | 6,064 | (27,652 | ) | 283,724 | 338,611 | 6,482 | 345,093 | ||||||||
| Net income (loss) for the period | - | - | - | - | 11,464 | 11,464 | 731 | 12,195 | |||||||||
| Other comprehensive income (loss) | - | - | - | (7,359 | ) | - | (7,359 | ) | (239 | ) | (7,598 | ) | |||||
| 21,939,168 | 76,475 | 6,064 | (35,011 | ) | 295,188 | 342,716 | 6,974 | 349,690 | |||||||||
| Effect of share-based compensation | - | - | 77 | - | - | 77 | - | 77 | |||||||||
| Shares issued under Share Option Plan | 14,267 | 227 | (227 | ) | - | - | - | - | - | ||||||||
| Dividends | |||||||||||||||||
| Multiple Voting Shares | - | - | - | - | (3,670 | ) | (3,670 | ) | - | (3,670 | ) | ||||||
| Subordinate Voting Shares | - | - | - | - | (1,376 | ) | (1,376 | ) | - | (1,376 | ) | ||||||
| Non-controlling interest | - | - | - | - | - | - | (139 | ) | (139 | ) | |||||||
| Share repurchase | (179,600 | ) | (1,957 | ) | - | - | (414 | ) | (2,371 | ) | - | (2,371 | ) | ||||
| Acquisition of non-controlling interest | - | - | - | - | - | - | (890 | ) | (890 | ) | |||||||
| Balance - November 30, 2015 | 21,773,835 | 74,745 | 5,914 | (35,011 | ) | 289,728 | 335,376 | 5,945 | 341,321 | ||||||||
| 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 | ||||||||
| Velan Inc. |
| Condensed Interim Consolidated Statements of Cash Flow |
| (Unaudited) |
| (in thousands of U.S. dollars) |
| Three-month periods ended November 30 |
Nine-month periods ended November 30 |
||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||
| $ | $ | $ | $ | ||||||
| Cash flows from | |||||||||
| Operating activities | |||||||||
| Net income for the period | 3,667 | 5,164 | 12,195 | 14,645 | |||||
| Adjustments to reconcile net income to cash provided by operating activities | 2,935 | 6,125 | 8,342 | 13,511 | |||||
| Changes in non-cash working capital items | 8,480 | (3,231 | ) | (7,929 | ) | (3,447 | ) | ||
| Cash provided (used) by operating activities | 15,082 | 8,058 | 12,608 | 24,709 | |||||
| Investing activities | |||||||||
| Short-term investments | (969 | ) | 490 | (1,786 | ) | (79 | ) | ||
| Additions to property, plant and equipment | (3,588 | ) | (4,543 | ) | (7,714 | ) | (10,263 | ) | |
| Additions to intangible assets | (53 | ) | (107 | ) | (180 | ) | (400 | ) | |
| Proceeds on disposal of property, plant and equipment, and intangible assets | 60 | 32 | 150 | 160 | |||||
| Acquisition of non-controlling interest | - | - | (890 | ) | - | ||||
| Net change in other assets | (940 | ) | 288 | (1,448 | ) | 455 | |||
| Cash provided (used) by investing activities | (5,490 | ) | (3,840 | ) | (11,868 | ) | (10,127 | ) | |
| Financing activities | |||||||||
| Dividends paid to Subordinate and Multiple Voting shareholders | (1,650 | ) | (1,978 | ) | (5,170 | ) | (5,598 | ) | |
| Dividends paid to non-controlling interest | - | (86 | ) | (139 | ) | (86 | ) | ||
| Repurchase of shares | (1,145 | ) | (16 | ) | (2,371 | ) | (292 | ) | |
| Short-term bank loans | (302 | ) | 296 | (930 | ) | 867 | |||
| Increase in long-term debt | 1,125 | - | 7,134 | - | |||||
| Repayment of long-term debt | (1,692 | ) | (1,468 | ) | (5,916 | ) | (4,867 | ) | |
| Cash provided (used) by financing activities | (3,664 | ) | (3,252 | ) | (7,392 | ) | (9,976 | ) | |
| Effect of exchange rate differences on cash | (4,488 | ) | (2,275 | ) | (3,626 | ) | (5,376 | ) | |
| Net change in cash during the period | 1,440 | (1,309 | ) | (10,278 | ) | (770 | ) | ||
| Net cash - Beginning of the period | 72,244 | 75,379 | 83,962 | 74,840 | |||||
| Net cash - End of the period | 73,684 | 74,070 | 73,684 | 74,070 | |||||
| Net cash is composed of: | |||||||||
| Cash and cash equivalents | 81,392 | 89,430 | 81,392 | 89,430 | |||||
| Bank indebtedness | (7,708 | ) | (15,360 | ) | (7,708 | ) | (15,360 | ) | |
| 73,684 | 74,070 | 73,684 | 74,070 | ||||||
| Supplementary information | |||||||||
| Interest received (paid) | 99 | (35 | ) | 100 | (101 | ) | |||
| Income taxes reimbursed (paid) | (2,198 | ) | (2,717 | ) | (6,047 | ) | (5,403 | ) | |
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)
www.velan.com