VELAN Inc.
TSX : VLN

VELAN Inc.

May 19, 2015 14:31 ET

Velan Inc. Reports its Year-End and Fourth Quarter 2014/15 Financial Results

MONTREAL, QUEBEC--(Marketwired - May 19, 2015) - Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its fiscal year and fourth quarter ended February 28, 2015.

Highlights

  • Sales of US$455.7 million for the year
  • Net earnings1 of US$18.6 million for the year
  • Order backlog of US$437.8 million at the end of the year
  • Order bookings of US$471.4 million for the year
  • Net cash2of US$75.6 million at the end of the year
  • Quarterly dividend of CA$0.10 per share declared, payable June 30, 2015

Three-month periods ended Fiscal years ended
February 28 February 28
(millions of U.S. dollars, excluding per share amounts) 2015 2014 2015 2014
Sales $ 114.5 $ 120.7 $ 455.7 $ 489.3
Gross profit 29.1 36.6 118.3 131.1
Gross profit % 25.4 % 30.3 % 26.0 % 26.8 %
Net income attributable to Subordinate and
Multiple Voting Shares 4.7 10.4 18.6 29.4
Net earnings1 per share - Basic 0.22 0.47 0.85 1.34
- Diluted 0.22 0.47 0.85 1.34

Year Ended Fiscal 2015 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the prior fiscal year):

  • Net earnings1 amounted to $18.6 million or $0.85 per share compared to $29.4 million or $1.34 per share last year. The $10.8 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 $455.7 million, a decrease of $33.6 million or 6.9% from the prior year. The Company's shipments of certain large project orders were lower for the current year compared to the prior year, despite the improved execution in the second half of the year.

  • Net new orders received ("bookings"), which were calculated based on actual orders received converted at average exchange rates, amounted to $471.4 million, an increase of $54.8 million or 13.2% compared to last year. This increase is primarily attributable to increased bookings in the Company's French and German subsidiaries.

  • Although bookings outpaced sales in the year, the Company ended the current fiscal year with a backlog of $437.8 million, a decrease of $33.9 million or 7.2% from the end of the prior year. This decrease is mainly attributable to the weakening of the Euro against the U.S. dollar over the course of the year, which had a $50.7 million negative impact on the Company's backlog in the year.

  • Gross profit percentage remained relatively stable, marginally decreasing by 0.8 percentage points from 26.8% to 26.0%. While the Company had a greater proportion of higher margin product sales, particularly spare parts and valves without third party actuators, in the first half of the year, this trend was reversed in the second half 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 $49.9 million. This source of net cash2 is primarily attributable to positive cash net earnings1 and favourable working capital movements.

  • The Company ended the year with net cash2 of $75.6 million, an increase of $7.9 million or 11.7% since the beginning of the current fiscal year. The Company's cash balance was negatively impacted by the
    18.6% drop in the Euro spot rate against the U.S. dollar since the beginning of the current fiscal year, which resulted in a $14.4 million reduction in the Company's net cash2.
  • Foreign currency impacts:

    • Based on average exchange rates, the Euro weakened 2.9% against the U.S. dollar when compared to the same period 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 fiscal year.
    • Based on average exchange rates, the Canadian dollar weakened 7.1% 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 fiscal year.
    • The unfavourable impact of the Euro decrease was generally offset by the favourable impact of the Canadian dollar decrease.

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

  • Net earnings1 amounted to $4.7 million or $0.22 per share compared to $10.4 million or $0.47 per share last year. The $5.7 million decrease in net earnings1 is primarily attributable to a lower gross profit percentage partially offset by decreased administration costs, in particular lower freight costs, the securing of a research and development grant attributable to the Company's Italian operations in the quarter and a decrease in costs associated with the Company's ongoing asbestos litigation.

  • Sales amounted to $114.5 million, a decrease of $6.2 million or 5.1%. Despite the strong push in the quarter to execute shipments of certain large project orders, the Company was not able to match the level of execution achieved in the same quarter of the prior year, particularly in its North American operations.

  • Bookings, which were calculated based on actual orders received converted at average exchange rates, amounted to $101.1 million, a decrease of $38.5 million or 27.6%. The decrease in net bookings is primarily attributable to the fact that the prior year quarter had over $40 million worth of orders that were booked with two large Indian energy customers, which did not repeat in the current quarter.

  • Gross profit percentage decreased by 4.9 percentage points from 30.3% to 25.4%. This decrease was primarily attributable to a product mix with a greater proportion of sales of lower margin products, such as complex and custom manufactured project valves, as opposed to higher margin products, such as spare parts.

  • Foreign currency impacts:

    • Based on average exchange rates, the Euro weakened 13.8% against the U.S. dollar when compared to the same period 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 9.5% 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 unfavourable impact of the Euro decrease was generally offset by the favourable impact of the Canadian dollar decrease.

"While Fiscal 2015 was a profitable year overall for Velan, with $18.6 million of net earnings1 which generated approximately $50 million of cash, the year presented its challenges, ranging from the soaring value of the U.S. dollar, the uncertainty caused by the plunging price of oil, and the contract issues related to certain large project orders," said John Ball, CFO of Velan Inc. "Fortunately the diversity of our geographic operations, product lines and customer base allowed us to weather these issues, and to maintain gross margins and increase net bookings."

Yves Leduc, President of Velan Inc., said, "We are driving an operational excellence plan in our North American operations, focused on improving our global supply chain performance, project execution and lead times, and cost competitiveness. These initiatives will strengthen our position in each of our markets worldwide."

Tom Velan, CEO of Velan Inc. said, "As we proved last year, the Company is resilient, able to withstand unexpected swings in demand, owing in large part to the knowhow of our people, our superior product portfolio and track record in quality, as well as to being diversified both geographically and by end user markets. We have a solid order backlog of $437.8 million, as we go after sales opportunities in a very competitive and challenging global market."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on June 30, 2015, to all shareholders of record as at June 15, 2015.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the fourth quarter conference call to be held on Tuesday, May 19, 2015, at 4:30 p.m. (EDT). The toll free call-in number is 1-888- 273-1350, access code 21768781. A recording of this conference call will be available for seven days at 1-416- 626-4100 or 1-800-558-5253, access code 21768781.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of $455.7 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 Management Discussion and Analysis included in its Annual Report for the fiscal year ended February 28, 2015 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 February 28, February 28,
2015 2014
$ $
Assets
Current assets
Cash and cash equivalents 99,578 106,716
Short-term investments 847 239
Accounts receivable 105,335 128,978
Income taxes recoverable 5,472 5,465
Inventories 203,557 224,149
Deposits and prepaid expenses 5,326 5,046
Derivative assets 144 498
420,259 471,091
Non-current assets
Property, plant and equipment 91,285 96,605
Intangible assets and goodwill 33,576 43,359
Deferred income taxes 12,392 11,406
Other assets 1,116 1,693
138,369 153,063
Total assets 558,628 624,154
Liabilities
Current liabilities
Bank indebtedness 15,616 31,876
Short-term bank loans 2,134 916
Accounts payable and accrued liabilities 70,997 76,590
Income taxes payable 3,961 4,158
Dividend payable 1,755 1,586
Customer deposits 44,111 66,842
Provisions 7,874 8,060
Accrual for performance guarantees 30,012 33,842
Derivative liabilities 5,362 1,501
Current portion of long-term debt 10,644 10,402
192,466 235,773
Non-current liabilities
Long-term debt 4,183 11,685
Deferred income taxes 8,349 9,270
Other liabilities 8,537 8,307
21,069 29,262
Total liabilities 213,535 265,035
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 76,475 76,688
Contributed surplus 6,064 6,099
Retained earnings 283,724 272,867
Accumulated other comprehensive income (loss) (27,652 ) (3,589 )
338,611 352,065
Non-controlling interest 6,482 7,054
Total equity 345,093 359,119
Total liabilities and equity 558,628 624,154
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 Fiscal years ended
February 28 February 28
2015 2014 2015 2014
$ $ $ $
Sales 114,507 120,716 455,750 489,257
Cost of sales 85,445 84,074 337,467 358,111
Gross profit 29,062 36,642 118,283 131,146
Administration costs 20,370 22,145 88,391 87,143
Other expense (income) 373 (1,316 ) 337 (269 )
Operating profit (loss) 8,319 15,813 29,555 44,272
Finance income 287 256 1,067 859
Finance costs 387 682 1,657 2,369
Finance income (costs) - net (100 ) (426 ) (590 ) (1,510 )
Income (Loss) before income taxes 8,219 15,387 28,965 42,762
Provision for (Recovery of) income taxes 3,672 4,733 9,773 11,759
Net income (loss) for the period 4,547 10,654 19,192 31,003
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 4,718 10,392 18,580 29,400
Non-controlling interest (171 ) 262 612 1,603
4,547 10,654 19,192 31,003
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.22 0.47 0.85 1.34
Diluted 0.22 0.47 0.85 1.34
Dividends declared per Subordinate and Multiple 0.09 0.08 0.36 0.31
Voting Share (CA$0.10 ) (CA$0.08 ) (CA$0.40 ) (CA$0.32 )
Total weighted average number of Subordinate and Multiple Voting Shares
Basic 21,947,725 21,958,768 21,947,725 21,936,714
Diluted 21,962,474 21,962,693 21,962,617 21,936,714
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Fiscal years ended
February 28 February 28
2015 2014 2015 2014
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 4,547 10,654 19,192 31,003
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reportingcurrency (U.S. dollar)

(11,875
)

1,265


(24,850
)

6,311
Foreign currency translation adjustment realized on the liquidation of a subsidiary whose functional currency isother than the reporting currency (U.S. dollar)

636


-


636


-
Comprehensive income (loss) (6,692 ) 11,919 (5,022 ) 37,314
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares (6,628 ) 11,696 (5,483 ) 35,624
Non-controlling interest (64 ) 223 461 1,690
(6,692 ) 11,919 (5,022 ) 37,314
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 - - - - 18,580 18,580 612 19,192
Other comprehensive income (loss) - - - (24,063 ) - (24,063 ) (151 ) (24,214 )
21,958,768 76,688 6,099 (27,652 ) 291,447 346,582 7,515 354,097
Effect of share-based compensation - - 15 - - 15 - 15
Dividends
Multiple Voting Shares - - - - (5,447 ) (5,447 ) - (5,447 )
Subordinate Voting Shares - - - - (2,233 ) (2,233 ) - (2,233 )
Non-controlling interest - - - - - - (1,033 ) (1,033 )
Share repurchase (19,600 ) (213 ) (50 ) - (43 ) (306 ) - (306 )
Balance - February 28, 2015 21,939,168 76,475 6,064 (27,652 ) 283,724 338,611 6,482 345,093
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 - - - - 29,400 29,400 1,603 31,003
Other comprehensive income (loss) - - - 6,224 - 6,224 87 6,311
21,923,768 76,314 1,746 (2,452 ) 279,529 355,137 10,350 365,487
Effect of share-based compensation - - 23 - - 23 - 23
Shares issued under Share Option Plan 35,000 374 - - - 374 - 374
Dividends
Multiple Voting Shares - - - - (4,760 ) (4,760 ) - (4,760 )
Subordinate Voting Shares - - - - (1,902 ) (1,902 ) - (1,902 )
Non-controlling interest - - - - - - (103 ) (103 )
Acquisition of non-controlling interest - - 4,330 (1,137 ) - 3,193 (3,193 ) -
Balance - February 28, 2014 21,958,768 76,688 6,099 (3,589 ) 272,867 352,065 7,054 359,119
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Fiscal years ended
February 28 February 28
2015 2014 2015 2014
$ $ $ $
Cash flows from
Operating activities
Net income for the period 4,547 10,654 19,192 31,003
Adjustments to reconcile net income to cash provided by operating activities
5,934

5,059

19,445

15,890
Changes in non-cash working capital items 14,726 (2,328 ) 11,279 28,566
Cash provided (used) by operating activities 25,207 13,385 49,916 75,459
Investing activities
Short-term investments (529 ) 1,937 (608 ) 159
Additions to property, plant and equipment (2,559 ) (3,262 ) (12,822 ) (17,953 )
Additions to intangible assets - (132 ) (400 ) (397 )
Proceeds on disposal of property, plant and equipment, and intangible assets
-

309

160

396
Net change in other assets 121 53 576 44
Cash provided (used) by investing activities (2,967 ) (1,095 ) (13,094 ) (17,751 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,913 ) (1,655 ) (7,511 ) (6,777 )
Dividends paid to non-controlling interest (947 ) - (1,033 ) (103 )
Shares issued under Share Option Plan - - - 374
Repurchase of shares (14 ) - (306 ) -
Payment of proceeds payable - - - (1,960 )
Short-term bank loans 351 (339 ) 1,218 (1,368 )
Increase in long-term debt - - - 2,654
Repayment of long-term debt (1,459 ) (1,847 ) (6,326 ) (8,430 )
Cash provided (used) by financing activities (3,982 ) (3,841 ) (13,958 ) (15,610 )
Effect of exchange rate differences on cash (8,366 ) 1,494 (13,742 ) 4,150
Net change in cash during the period 9,892 9,943 9,122 46,248
Net cash - Beginning of the period 74,070 64,897 74,840 28,592
Net cash - End of the period 83,962 74,840 83,962 74,840
Net cash is composed of:
Cash and cash equivalents 99,578 106,716 99,578 106,716
Bank indebtedness (15,616 ) (31,876 ) (15,616 ) (31,876 )
83,962 74,840 83,962 74,840
Supplementary information
Interest received (paid) (16 ) (329 ) (117 ) (1,062 )
Income taxes reimbursed (paid) (3,954 ) (1,473 ) (9,357 ) (3,946 )

Contact Information

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

    VELAN Inc.
    John D. Ball
    Chief Financial Officer
    (514) 748-7743
    (514) 748-8635 (FAX)