VELAN Inc.
TSX : VLN

VELAN Inc.

May 18, 2017 13:53 ET

Velan Inc. Reports Its Year-End and Fourth Quarter 2016/17 Financial Results

MONTREAL, QUEBEC--(Marketwired - May 18, 2017) - 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, 2017.

Highlights

  • Sales of US$102.8 million for the quarter
  • Adjusted net earnings1 of US$3.7 million for the quarter
  • Order backlog of US$438.2 million at the end of the quarter
  • Net new orders received ("Bookings") of US$125.9 million for the quarter
  • Net cash1 of US$72.5 million at the end of the quarter
  • Returned US$2.2 million to shareholders in the quarter and US$7.5 million in the fiscal year by way of dividends and share repurchases
(millions of U.S. dollars, Three-month
excluding periods ended Fiscal years ended
per share amounts) February 28, February 29, February 28, February 29,
2017 2016 2017 2016
Sales $ 102.8 $ 108.2 $ 331.8 $ 426.9
Gross profit 28.9 28.1 88.5 104.3
Gross profit % 28.1 % 26.0 % 26.7 % 24.4 %
Adjusted net earnings1 3.7 4.2 7.7 17.3
Adjusted net earnings1per share - basic and diluted 0.17 0.20 0.36 0.79
Net earnings (loss)2 3.7 (7.8 ) 7.7 3.6
Net earnings (loss)2per share - basic and diluted 0.17 (0.35 ) 0.36 0.17

Fourth Quarter Fiscal 2017 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the fourth quarter of fiscal 2016):

  • Net earnings2 amounted to $3.7 million or $0.17 per share compared to a net loss2 of $7.8 million or $0.35 per share last year. Adjusted net earnings1, which excludes from net earnings2 a goodwill impairment charge as well as the after-tax impact of the restructuring costs incurred in the prior year quarter, amounted to $3.7 million or $0.17 per share compared to $4.2 million or $0.20 per share last year. The $0.5 million decrease in adjusted net earnings1 is primarily attributable to a lower sales volume which was partially offset by gross margin improvements and decreased administration costs.

  • Bookings amounted to $125.9 million, an increase of $39.2 million or 45.2% compared to the prior year. This increase in bookings is principally attributable to new project orders won by the Company's French operations to supply valves towards the construction of a nuclear power plant in the U.K., which were partially offset by decreased bookings in the Company's North American operations where the current highly competitive environment in its various markets continues to put downward pressure on pricing and lead times.

  • Sales amounted to $102.8 million, a decrease of $5.4 million or 5.0% from the prior year. While sales were lower in the current quarter when compared to the comparative period in the prior year, they were stronger when compared to the previous three quarters of the current fiscal year. Sales for the quarter were improved in the Company's French operations, while its North American and Italian operations realized lower sales due to the effects of the lower bookings and backlog from the prior year.

  • Gross profit percentage increased by 210 basis points from 26.0% to 28.1%. Despite the lower sales volume, both the gross profit and the gross profit percentage increased due to a product mix with a greater proportion of higher margin product sales such as spare parts, material cost savings, as well as labour and overhead savings stemming from the restructuring initiatives implemented in the prior fiscal year

Year Ended Fiscal 2017 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the prior fiscal year):

  • Net earnings2 amounted to $7.7 million or $0.36 per share compared to $3.6 million or $0.17 per share last year. Adjusted net earnings1, which excludes from net earnings2 a goodwill impairment charge as well as the after-tax impact of restructuring costs incurred in the prior year, amounted to $7.7 million or $0.36 per share compared to $17.3 million or $0.79 per share last year. The $9.6 million decrease in adjusted net earnings1 is primarily attributable to a lower sales volume which was partially offset by gross margin improvements and decreased administration costs.

  • Bookings amounted to $448.2 million, an increase of $118.7 million or 36.0% compared to last year. Excluding the effect of an order cancellation of $23.6 million in the prior year, bookings would have increased by $95.1 million or 26.9%. This increase is due primarily to new large project orders booked by the Company's French, German and Italian operations, which was partially offset by a decrease in orders booked in the Company's North American operations.

  • Sales amounted to $331.8 million, a decrease of $95.1 million or 22.3%. Despite an improved performance in the last quarter of the year, sales were negatively impacted, particularly in the Company's Italian and North American operations, by the decreased bookings received over the last fiscal year. Delays in shipments of certain large project orders caused by various customer-related, supply chain and internal operational issues, particularly in our North American operations, also had a negative impact on sales for the year.

  • As a result of bookings outpacing sales in the year, the Company ended the year with a backlog of $438.2 million, an increase of $107.0 million or 32.3% since the beginning of the current fiscal year. This increase in backlog occurred despite the negative impact related to the weakening of the euro spot rate against the U.S. dollar over the course of the year.

  • Gross profit percentage increased by 230 basis points from 24.4% to 26.7%. Despite the lower sales volume, the increase in the gross profit percentage was mainly attributable to a product mix with a greater proportion of higher margin product sales, material cost savings, as well as labour and overhead savings stemming from the restructuring initiatives implemented in the prior fiscal year.

  • Administration costs amounted to $75.9 million, a decrease of $2.1 million or 2.7%. This decrease was achieved despite a $1.2 million increase in costs recognized in connection with the Company's ongoing asbestos litigation. The fluctuation in asbestos costs for the year is due more to the timing of settlement payments in these two periods rather than to changes in long-term trends.

  • The Company ended the year with net cash1 of $72.5 million, a decrease of $9.5 million or 11.6% since the beginning of the year. This decrease is primarily attributable to negative working capital movements and distributions to shareholders via dividends and share repurchases.

  • Foreign currency fluctuations did not have a significant impact on the Company's net earnings2 in the current fiscal year. Based on average exchange rates, the euro remained relatively constant against the U.S. dollar, while the Canadian dollar weakened by only 0.3% against the U.S. dollar when compared to the same period last year.

"This was a year of challenges, particularly on the sales front. Our various efficiency initiatives that we commenced last year helped protect our margin and bottom line this year. In addition, we have conserved cash and maintained a strong balance sheet," said John Ball, CFO of Velan Inc. "While we are encouraged by the steady increase in our backlog, we note that it is concentrated in some of our overseas markets. Our focus for the coming year will be to maintain and broaden our order buildup as well as to ensure timely delivery of project orders."

Yves Leduc, President and CEO of Velan Inc., said, "Although the year's results were disappointing, we are encouraged by signs that the outlook may be improving as both bookings and backlog increased in the second half of the fiscal year. With these recent orders, we should see performance improve in the latter part of the next fiscal year. While market conditions slowly improve, we continue to implement several improvement initiatives under our strategic plan Velocity 2020 in order to position the Company, not just to ride the wave of a recovering market, but to outperform it. The goal is to transform our Company into an organization that is more agile and customer-centric, by delivering greater value to our customers through front-loaded application engineering and design solutions, fast lead times and disciplined market development."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on June 30, 2017, to all shareholders of record as at June 15, 2017.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the fourth quarter conference call to be held on Thursday, May 18, 2017, at 4:30 p.m. (EDT). The toll free call-in number is 1-800-672-3665, access code 21852130. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21852130.

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$331.8 million in its last reported fiscal year. The Company employs over 1,800 people and has manufacturing plants in 9 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 or loss attributable to Subordinate and Multiple Voting Shares plus goodwill impairment loss, 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 Management Discussion and Analysis included in its Annual Report for the fiscal year ended February 28, 2017 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 Management Discussion and Analysis included in its Annual Report for the fiscal year ended February 28, 2017 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 February 28, February 29,
2017 2016
$ $
Assets
Current assets
Cash and cash equivalents 84,019 89,368
Short-term investments 974 3,225
Accounts receivable 125,512 119,569
Income taxes recoverable 7,145 5,674
Inventories 173,089 162,523
Deposits and prepaid expenses 3,391 3,586
Derivative assets 1,202 1,598
395,332 385,543
Non-current assets
Property, plant and equipment 91,535 95,257
Intangible assets and goodwill 19,023 20,352
Deferred income taxes 12,951 13,537
Other assets 456 938
123,965 130,084
Total assets 519,297 515,627
Liabilities
Current liabilities
Bank indebtedness 7,792 5,028
Short-term bank loans 1,650 1,319
Accounts payable and accrued liabilities 60,641 62,943
Income taxes payable 946 5,746
Dividend payable 1,631 1,606
Customer deposits 43,953 28,123
Provisions 10,600 9,333
Accrual for performance guarantees 26,943 30,563
Derivative liabilities 799 2,945
Current portion of long-term debt 7,115 7,978
162,070 155,584
Non-current liabilities
Long-term debt 15,318 14,471
Deferred income taxes 2,784 3,408
Other liabilities 7,214 9,045
25,316 26,924
Total liabilities 187,386 182,508
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital 73,584 74,345
Contributed surplus 6,017 5,941
Retained earnings 281,343 280,380
Accumulated other comprehensive income (loss) (35,550 ) (33,089 )
325,394 327,577
Non-controlling interest 6,517 5,542
Total equity 331,911 333,119
Total liabilities and equity 519,297 515,627
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 29, February 28, February 29,
2017 2016 2017 2016
$ $ $ $
Sales 102,835 108,156 331,777 426,895
Cost of sales 73,944 80,085 243,249 322,612
Gross profit 28,891 28,071 88,528 104,283
Administration costs 18,950 20,325 75,868 77,974
Goodwill impairment loss - 11,510 - 11,510
Restructuring costs - 609 - 2,759
Other expense (income) 579 (519 ) (408 ) (348 )
Operating profit (loss) 9,362 (3,854 ) 13,068 12,388
Finance income 328 583 992 1,296
Finance costs 623 357 1,066 1,097
Finance income (costs) - net (295 ) 226 (74 ) 199
Income (Loss) before income taxes 9,067 (3,628 ) 12,994 12,587
Provision for (Recovery of) income taxes 4,981 4,282 4,680 8,302
Net income (loss) for the period 4,086 (7,910 ) 8,314 4,285
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 3,707 (7,823 ) 7,737 3,641
Non-controlling interest 379 (87 ) 577 644
4,086 (7,910 ) 8,314 4,285
Net income (loss) per Subordinate and Multiple Voting Share
Basic 0.17 (0.35 ) 0.36 0.17
Diluted 0.17 (0.35 ) 0.36 0.17
Dividends declared per Subordinate and Multiple 0.08 0.08 0.31 0.31
Voting Share (CA$0.10 ) (CA$0.10 ) (CA$0.40 ) (CA$0.40 )
Total weighted average number of Subordinate and Multiple Voting Shares
Basic 21,698,670 21,758,224 21,722,089 21,861,230
Diluted 21,703,812 21,759,862 21,727,697 21,868,242
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 29, February 28, February 29,
2017 2016 2017 2016
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 4,086 (7,910 ) 8,314 4,285
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar)

208


1,606


(2,014


)


(5,992


)
Comprehensive income (loss) 4,294 (6,304 ) 6,300 (1,707 )
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares 3,723 (5,901 ) 5,276 (1,796 )
Non-controlling interest 571 (403 ) 1,024 89
4,294 (6,304 ) 6,300 (1,707 )
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 29, 2016 21,737,135 74,345 5,941 (33,089 ) 280,380 327,577 5,542 333,119
Net income (loss) for the period - - - - 7,737 7,737 577 8,314
Other comprehensive income (loss) - - - (2,461 ) - (2,461 ) 447 (2,014 )
21,737,135 74,345 5,941 (35,550 ) 288,117 332,853 6,566 339,419
Effect of share-based compensation - - 76 - - 76 - 76
Share repurchase (69,900 ) (761 ) - - (165 ) (926 ) - (926 )
Dividends
Multiple Voting Shares - - - - (4,745 ) (4,745 ) - (4,745 )
Subordinate Voting Shares - - - - (1,864 ) (1,864 ) - (1,864 )
Non-controlling interest - - - - - - (49 ) (49 )
Balance - February 28, 2017 21,667,235 73,584 6,017 (35,550 ) 281,343 325,394 6,517 331,911
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 - - - - 3,641 3,641 644 4,285
Other comprehensive income (loss) - - - (5,437 ) - (5,437 ) (555 ) (5,992 )
21,939,168 76,475 6,064 (33,089 ) 287,365 336,815 6,571 343,386
Effect of share-based compensation - - 104 - - 104 - 104
Shares issued under Share Option Plan 14,267 227 (227 ) - - - - -
Share repurchase (216,300 ) (2,357 ) - - (381 ) (2,738 ) - (2,738 )
Acquisition of non-controlling interest - - - - - - (890 ) (890 )
Dividends
Multiple Voting Shares - - - - (4,801 ) (4,801 ) - (4,801 )
Subordinate Voting Shares - - - - (1,803 ) (1,803 ) - (1,803 )
Non-controlling interest - - - - - - (139 ) (139 )
Balance - February 29, 2016 21,737,135 74,345 5,941 (33,089 ) 280,380 327,577 5,542 333,119
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 29, February 28, February 29,
2017 2016 2017 2016
$ $ $ $
Cash flows from
Operating activities
Net income for the period 4,086 (7,910 ) 8,314 4,285
Adjustments to reconcile net income to cash provided by operating activities
3,265

8,738

10,267

17,080
Changes in non-cash working capital items (7,059 ) 15,448 (11,434 ) 7,519
Cash provided (used) by operating activities 292 16,276 7,147 28,884
Investing activities
Short-term investments (825 ) (592 ) 2,251 (2,378 )
Additions to property, plant and equipment (1,730 ) (12,077 ) (7,721 ) (19,791 )
Additions to intangible assets (831 ) (1,149 ) (910 ) (1,329 )
Proceeds on disposal of property, plant and equipment, and intangible assets
220

122

399

272
Acquisition of non-controlling interest - - - (890 )
Net change in other assets 134 1,625 482 177
Cash provided (used) by investing activities (3,032 ) (12,071 ) (5,499 ) (23,939 )
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders (1,632 ) (1,583 ) (6,584 ) (6,753 )
Dividends paid to non-controlling interest - - (49 ) (139 )
Repurchase of shares (572 ) (367 ) (926 ) (2,738 )
Short-term bank loans 337 115 331 (815 )
Increase in long-term debt 5,079 10,365 5,079 17,499
Repayment of long-term debt (581 ) (3,206 ) (5,904 ) (9,122 )
Cash provided (used) by financing activities 2,631 5,324 (8,053 ) (2,068 )
Effect of exchange rate differences on cash (7 ) 1,127 (1,708 ) (2,499 )
Net change in cash during the period (116 ) 10,656 (8,113 ) 378
Net cash - Beginning of the period 76,343 73,684 84,340 83,962
Net cash - End of the period 76,227 84,340 76,227 84,340
Net cash is composed of:
Cash and cash equivalents 84,019 89,368 84,019 89,368
Bank indebtedness (7,792 ) (5,028 ) (7,792 ) (5,028 )
76,227 84,340 76,227 84,340
Supplementary information
Interest received (paid) 353 432 641 532
Income taxes reimbursed (paid) (2,447 ) (4,695 ) (7,722 ) (10,742 )

Contact Information

  • VELAN Inc.
    Yves Leduc
    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