Velan Inc.
TSX : VLN

Velan Inc.

May 19, 2009 15:37 ET

Velan Inc. Reports its Third Quarter and Nine Month Fiscal Year Results

MONTREAL, QUEBEC--(Marketwire - May 19, 2009) - Velan Inc. (TSX:VLN) today reported its financial results for the third quarter and the nine month fiscal year ended February 28, 2009.



SUMMARY OF RESULTS
(In millions of Canadian dollars, except per share amounts)

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THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
2009 2008 2009 2008
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Sales 130.1 116.3 326.9 331.2

Net Earnings 16.2 4.1 61.7 5.2

Earnings per Share 0.73 0.18 2.77 0.23
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Highlights

Velan reported improved financial results for the nine month fiscal year ended February 28, 2009, benefiting from the strengthening of the US dollar as well as the gain on sale of its Italian joint venture. The net earnings for the nine months were $61.7 million, of which $36.6 million related to the gain on the sale. The Company has changed its fiscal year end from May 31 to the last day of February, effective 2009.

Sales, Gross Profit and Net Earnings

Sales for the quarter reached $130.1 million, which is an 11.2% increase over the same quarter last year when the company recorded sales of $116.3 million. For the nine months ended February 28, 2009, sales were $326.9 million, which is 1.3% less than the previous year, due to the sale of the Italian joint venture in July 2008. If the sales of the Italian company are eliminated from both periods, sales increased by 14.9%. Sales were negatively impacted by delays on several large contracts due to the effects of the global financial crises, which resulted in some customers canceling or delaying orders. Delayed orders resulted in a buildup of approximately $25 million of inventory of completed valves in the North American plants that couldn't be shipped for various reasons before February 28, 2009.

The gross profit of the third quarter of $45.2 million, or 34.7% of sales, compared to the $32.2 million, or 27.7% of sales, recorded last year. The principal factor positively impacting the gross profit percentage was the weakening of the Canadian dollar against the US dollar. Other factors such as increased volume also positively affected margins. The gross profit for the nine months amounted to $92.3 million, or 28.2% of sales, this year compared to the $84.0 million, or 25.3% of sales, recorded last year.

Net earnings for the quarter of $16.2 million, or $0.73 per share, compared to net earnings of $4.1 million, or $0.18 per share, in the prior year. Net earnings for the nine month fiscal year amounted to $61.7 million, or $2.77 per share, the highest in the Company's history, compared to $5.2 million, or $0.23 per share, in the prior year. They include a gain of $36.6 million on the sale of the 50% ownership in the Italian joint venture. The biggest improvements in operating earnings were achieved in the North American, Korean and Portuguese operations, which all benefited from favourable currency changes. Although the Company reports in Canadian dollars, a majority of its sales is in US dollars. Based on average exchange rates the Canadian dollar weakened against the US dollar by 18.7% and 10.7% for the three and nine month periods respectively, which positively affected operating results. Changes in the period end currency rates result in the unrealized gains or losses on the consolidation of integrated subsidiaries. The Company recorded foreign exchange gains on the translation of integrated subsidiaries of $1.4 million and $5.7 million for the quarter and the nine month fiscal year respectively, compared to losses of $1.0 million and $3.9 million for the corresponding periods of the prior year.

Strong Balance Sheet

The Company continues to build a strong balance sheet and ended the quarter with shareholders' equity of $327.1 million, or $14.66 per share. The Company's net cash, defined as cash and cash equivalents plus short term investments less bank indebtedness and short-term bank loans, amounted to $63.5 million as at February 28, 2009, an increase of $34.5 million from May 31, 2008, the sale of the Italian company being a major contributor to this increase. Net cash provided from operating activities amounted to $11.8 million for the quarter and $14.8 million for the nine months.

Bookings and Outlook

Order bookings of $459.7 million were 11% higher than last year, 36% higher without the bookings of the Italian company. The backlog increased to $537.6 million, of which $131.9 million is scheduled for shipment after February 2010. The backlog in the French subsidiaries increased to $211 million. Tom Velan, the President said "Our customers and markets have been negatively impacted by the fall in the oil price, lower commodity prices, falling demand, and the global financial crisis. Some customers have made layoffs and closed plants. There has been downward pressure on prices and we expect this will continue. Order bookings have been negatively impacted by the market conditions and in the third quarter our bookings were down 30.1% from the third quarter last year. We are fortunate that in this period of uncertainty, most of our plants are still operating with good order backlogs. At the same time, we are concerned about the impact of the turmoil in financial markets and the global economy on our customers and in particular the capital-intensive project markets. It is very difficult to predict what will happen to our markets and currency exchange rates over the next year. Although there is a lot of uncertainty in this tough financial environment, our large backlog of orders and strong balance sheet put us in a good position to weather this global economic storm."

Dividend

The Board declared an eligible quarterly dividend of $0.08 per share, payable on June 30, 2009 to all shareholders of record as at June 15, 2009.

Conference Call

Financial analysts, shareholders and other interested individuals are invited to attend the third quarter and fiscal year conference call to be held on May 19, 2009 at 4:30 PM (ET). The toll free call-in number is 1-800-732-6870, access code 21424905. A recording of this conference call will be available for 7 days at 1-416-626-4100 or 1-800-558-5253, access code 21424905.

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.

J.D. Ball, CFO



Consolidated Statements of Earnings and Retained Earnings

Unaudited Unaudited
Three months ended Nine months ended
February 28 February 28
(in thousands of dollars,
excluding per share amounts) 2009 2008 2009 2008
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Sales $130,147 $116,298 $326,859 $331,239
Cost of sales 84,921 84,117 234,557 247,218
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Gross profit 45,226 32,181 92,302 84,021
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Expenses (other income)
Engineering, selling, general and
administrative and research 21,429 20,273 57,497 56,447
Interest
Long-term debt 250 422 487 767
Other 122 399 432 989
Amortization of property, plant
and equipment 2,425 2,289 6,436 6,515
Net gain on disposition of
business - - (36,595) -
Other expense (income) (461) (207) (1,392) (783)
Non-controlling interest 640 866 1,110 2,996
Foreign exchange loss (gain) on
translation of integrated
subsidiaries (1,360) 957 (5,660) 3,928
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23,045 24,999 22,315 70,859
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Earnings (loss) before income
taxes 22,181 7,182 69,987 13,162

Provision for income taxes 4,899 3,082 7,218 7,975
Provision (recovery) for
future income taxes 1,036 - 1,036 -
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Net earnings (loss) $16,246 $4,100 $61,733 $5,187
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Retained earnings - beginning $202,790 $149,480 $160,873 $148,245
Transition adjustment on
adoption of financial
instrument standards, net of tax - - - 148
Net earnings (loss) 16,246 4,100 61,733 5,187
Dividends
Multiple Voting Shares 1,245 - 3,735 -
Subordinate Voting Shares 540 - 1,620 -
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Retained earnings - ending $217,251 $153,580 $217,251 $153,580
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Earnings (loss) per share
Basic $0.73 $0.18 $2.77 $0.23
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Diluted $0.73 $0.18 $2.77 $0.23
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Consolidated Balance Sheets

Unaudited Unaudited
February 28 May 31
(in thousands of dollars) 2009 2008
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ASSETS
Current assets
Cash and cash equivalents $66,776 $38,831
Short-term investments 166 937
Accounts receivable 123,333 155,956
Income taxes recoverable 4,523 4,173
Inventories 212,781 184,697
Deposits and prepaid expenses 8,683 3,283
Future income taxes 4,054 3,747
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420,316 391,624

Future income taxes 1,614 2,009
Property, plant and equipment 70,270 62,852
Goodwill 12,502 12,502
Other assets 1,818 1,481
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$506,520 $470,468
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LIABILITIES
Current liabilities
Bank indebtedness $2,454 $4,220
Short-term bank loans 1,003 9,519
Accounts payable and accrued liabilities 91,047 97,933
Income taxes payable 3,605 3,509
Dividend payable 1,786 -
Customers' deposits 51,608 32,713
Provision for performance guarantees 7,438 8,591
Future income taxes 2,771 2,044
Current portion of long-term debt 530 5,990
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162,242 164,519
Future income taxes 3,286 2,825
Long-term debt 4,397 13,755
Non-controlling interest 2,610 9,869
Other long-term liabilities 6,870 7,471
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179,405 198,439
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SHAREHOLDERS' EQUITY
Capital stock 109,326 109,390
Contributed surplus 1,622 1,502
Retained earnings 217,251 160,873
Accumulated other comprehensive
income (loss) (1,084) 264
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327,115 272,029
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$506,520 $470,468
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Consolidated Statements of Cash Flows

Unaudited Unaudited
Three months ended Nine months ended
February 28 February 28
(in thousands of dollars) 2009 2008 2009 2008
--------------------------------------------------------------------------
Cash provided from (required for):
Operating activities
Net earnings (loss) $16,246 $4,100 61,733 $5,187
Items not affecting cash -
Amortization 2,425 2,289 6,436 6,515
Stock options expense 65 8 103 26
Future income taxes 1,036 - 1,036 -
Gain on disposal of property,
plant and equipment (35) (65) (61) (169)
Net gain on disposition of
business - (36,595) -
Non-controlling interest 640 866 1,110 2,996
Net change in other long-term
liabilities (188) 30 (247) 381
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20,189 7,228 33,515 14,936
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Net changes in non-cash working
capital items
Accounts receivable (391) (13,383) (2,900) (10,422)
Income taxes recoverable 3,527 (753) (353) (2,043)
Inventories (11,039) 3,293 (51,421) 1,038
Deposits and prepaid expenses 830 (194) (6,014) 602
Accounts payable and accrued
liabilities (2,403) 1,199 18,023 (6,287)
Income taxes payable 1,539 (298) 2,289 322
Customers' deposits (954) 6,036 22,000 14,919
Provision for performance
guarantees 527 (121) (299) (1,186)
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(8,364) (4,221) (18,675) (3,057)
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11,825 3,007 14,840 11,879
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Investing activities

Net proceeds on disposition of
business - - 42,538 -
Net cash paid on business
acquisition - - - (3,265)
Short-term investments 569 - 771 1,012
Additions to property, plant and
equipment (7,403) (2,354) (20,425) (8,618)
Proceeds on disposal of property,
plant and equipment 95 17 117 50
Net change in other assets (220) 1 (340) 271
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(6,959) (2,336) 22,661 (10,550)
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Financing activities
Repurchase of Shares - - (47) -
Dividends (1,785) - (3,570) -
Dividends to non-controlling
interest (119) - (119) -
Short-term bank loans 24 (60) (2,728) 3,464
Increase in long-term debt - 1,531 248 9,367
Repayment of long-term debt (920) (423) (2,195) (1,341)
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(2,800) 1,048 (8,411) 11,490
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Effect of exchange rate
differences on cash and
cash equivalents 997 532 621 1,113
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Net change in cash and cash
equivalents 3,063 2,251 29,711 13,932

Net cash - beginning 61,259 31,997 34,611 20,316
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Net cash - ending $64,322 $34,248 $64,322 $34,248
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Net cash includes cash and
cash equivalents less bank
indebtedness

Interest paid amounted to : 73 110 269 965
Income tax paid amounted to: 3,545 2,959 5,786 8,153



Consolidated Statements of Comprehensive Income

Unaudited Unaudited
Three months ended Nine months ended
February 28 February 28
(in thousands of dollars) 2009 2008 2009 2008
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Net earnings (loss) $16,246 $4,100 61,733 $5,187
Other comprehensive income
(loss), net of tax
Foreign currency translation
adjustment on self-sustaining
operations (non taxable) 669 656 (669) 1,255
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Comprehensive income 16,915 4,756 61,064 6,442
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Accumulated other comprehensive
income (loss), net tax
Accumulated other comprehensive
income (loss), beginning of
period (1,753) (1,730) 264 (2,449)
Other comprehensive income
(loss) for the period 669 656 (669) 1,255
Realized translation adjustment
on the disposition of a self-
sustaining foreign operations (679)

Realized translation adjustment
on reduction of net investment in
self sustaining foreign operations - - - 120
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Accumulated other comprehensive
income (loss), end of period (1,084) (1,074) (1,084) (1,074)
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Contact Information

  • VELAN Inc.
    Tom Velan
    President
    514-748-7743
    514-748-8635 (FAX)
    or
    VELAN Inc.
    M. John D. Ball
    Chief Financial Officer
    514-748-7743
    514-748-8635 (FAX)
    www.velan.com