MRO Magazine

Velan Inc. Reports its First Quarter 2015/16 Financial Results


July 9, 2015
By Marketwired News

MONTREAL, QUEBEC–(Marketwired – July 9, 2015) – Velan Inc. (TSX:VLN) (the “Company”), a world-leading manufacturer of industrial valves, announced today its financial results for its first quarter ended May 31, 2015.

Highlights

  • Sales of US$103.2 million for the quarter         
  • Net earnings1 of US$3.1 million for the quarter         
  • Order backlog of US$410.4 million at the end of the quarter         
  • Net order bookings of US$81.8 million for the quarter         
  • Net cash2of US$61.3 million at the end of the quarter    

 

 Three-month periods ended 
(millions of U.S. dollars,
excluding per share amounts)
May 31,
2015
 
 
May 31,
2014
 
 
Sales $103.2 $103.1 
Gross Profit 23.5  26.5 
Gross profit % 22.8% 25.7%
Net income (loss) attributable to Multiple and Subordinate Voting Shares 3.1  4.0 
Net income (loss) per share –Basic 0.14  0.18 
 Diluted 0.14  0.18 

First Quarter Fiscal 2016 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first quarter of fiscal 2015):

  • Net earnings1amounted to $3.1 million or $0.14 per share compared to $4.0 million or $0.18 per share last year. The $0.9 million decrease in net earnings1is primarily attributable to a lower gross profit percentage partially offset by decreased administration costs.
  • The Company concluded labour negotiations with its Canadian unions in June 2015. The negative impact on net earnings1of these negotiations and lockout in its first quarter was under $1 million. The Company intends to recover this shortfall by the end of the current fiscal year.
  • Despite the production slowdown caused by the lockout, consolidated sales remained relatively stable in the quarter, amounting to $103.2 million, an increase of $0.1 million or 0.1%
  • Net new orders received (“bookings”) amounted to $81.8 million, a decrease of $35.8 million or 30.4% compared to last year. Excluding the effect of an order cancellation of $23.6 million in the quarter, bookings would have decreased by $12.2 million or 10.4%, which is primarily due to the negative Euro currency impact on the bookings in the Company’s European operations. As a result of these factors, the Company ended the quarter with a backlog of $410.4 million, a decrease of $27.4 million or 6.3% since the beginning of the current fiscal year.
  • Gross margin decreased by 2.9 percentage points from 25.7% to 22.8%. This decrease is mainly attributable to a product mix with a greater proportion of lower margin product sales, particularly large project orders.
  • Administration costs amounted to $19.2 million, a decrease of $2.1 million or 9.9%. The decrease is primarily attributable to a decrease in variable compensation-related costs and costs recognized in connection with the Company’s ongoing asbestos litigation. The fluctuation in asbestos costs for the quarter 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 quarter with net cash2of $61.3 million, a decrease of $14.3 million or 18.9% since the beginning of the current fiscal year. This decrease is primarily attributable to negative non-cash working capital movements, particularly an increase in accounts receivable and a decrease in customer deposits.
  • Foreign currency impacts:
    • Based on average exchange rates, the Euro weakened 20.8% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company’s net profits and bookings 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 11.2% 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 on the Company’s net earnings1.

“The first quarter presented a number of challenges, from contractual issues and a lockout in our Canadian plants to continued uncertainty over the Euro and the upstream oil and gas market,” said John Ball, CFO of Velan Inc. “However with our strong balance sheet, international capabilities and strategic initiatives, we continue to see opportunities for future growth.”

Yves Leduc, President of Velan Inc., said, “We are now deploying an operational excellence plan that aims to improve delivery, both in terms of timeliness and shortened lead times. We are also managing a portfolio of improvement initiatives to increase our cost competitiveness. These will help bolster our already strong position in each of our global markets.”

Tom Velan, CEO of Velan Inc. said, “The valve market is very competitive and challenging due to the impact of the low price of oil that has resulted in delays or cancellations of many mega-projects around the world. Even though our bookings in the oil sector have been negatively impacted, we are diversified by market and geography so we still see a lot of opportunities in the global energy sector. For example, in our first quarter, we booked $18.4 million of nuclear valve orders in China for new nuclear plants using Chinese technology. We are intensifying our efforts to increase our order bookings.”

Dividend

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

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the first quarter conference call to be held on Thursday, July 9, 2015, at 5:00 PM (EDT). The toll free call-in number is 1-888-273-1350, access code 21771513. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21771513.

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 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 AtMay 31, February 28, 
 2015 2015 
 $ $ 
Assets    
     
Current assets    
Cash and cash equivalents92,468 99,578 
Short-term investments1,621 847 
Accounts receivable110,151 105,335 
Income taxes recoverable7,626 5,472 
Inventories203,506 203,557 
Deposits and prepaid expenses5,942 5,326 
Derivative assets268 144 
 421,582 420,259 
Non-current assets    
Property, plant and equipment89,053 91,285 
Intangible assets and goodwill32,399 33,576 
Deferred income taxes12,422 12,392 
Other assets778 1,116 
  
 134,652 138,369 
     
Total assets556,234 558,628 
  
Liabilities    
  
Current liabilities    
Bank indebtedness24,243 15,616 
Short-term bank loans1,569 2,134 
Accounts payable and accrued liabilities70,447 70,997 
Income taxes payable4,497 3,961 
Dividend payable1,765 1,755 
Customer deposits39,537 44,111 
Provisions7,706 7,874 
Accrual for performance guarantees29,517 30,012 
Derivative liabilities3,305 5,362 
Current portion of long-term debt10,563 10,644 
 193,149 192,466 
Non-current liabilities    
Long-term debt2,785 4,183 
Deferred income taxes8,144 8,349 
Other liabilities8,456 8,537 
  
 19,385 21,069 
Total liabilities212,534 213,535 
  
Equity    
  
Equity attributable to the Subordinate and Multiple Voting shareholders    
Share capital76,665 76,475 
Contributed surplus5,863 6,064 
Retained earnings285,060 283,724 
Accumulated other comprehensive income (loss)(30,647)(27,652)
 336,941 338,611 
  
Non-controlling interest6,759 6,482 
Total equity343,700 345,093 
  
Total liabilities and equity556,234 558,628 
     
     
     
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 
 May 31 
 2015 2014 
 $ $ 
  
Sales103,179 103,065 
     
Cost of sales79,662 76,580 
  
Gross profit23,517 26,485 
  
Administration costs19,181 21,297 
Other expense (income)15 (130)
  
Operating profit (loss)4,321 5,318 
  
Finance income256 265 
Finance costs302 379 
Finance income (costs) – net(46)(114)
Income (Loss) before income taxes4,275 5,204 
Income taxes844 1,142 
  
Net income (loss) for the period3,431 4,062 
  
Net income (loss) attributable to:    
Subordinate Voting Shares and Multiple Voting Shares3,107 4,005 
Non-controlling interest324 57 
 3,431 4,062 
Net income (loss) per Subordinate and Multiple Voting Share    
Basic0.14 0.18 
Diluted0.14 0.18 
  
Dividends declared per Subordinate and Multiple Voting Share0.08 0.09 
 (CA$0.10)(CA$0.10)
  
Total weighted average number of Subordinate and Multiple Votng Shares    
Basic21,936,769 21,958,012 
Diluted21,936,769 21,965,057 
     
     
     
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
   
   
 Three-month periods ended 
 May 31 
 2015 2014 
 $ $ 
  
Comprehensive income (loss)    
  
Net income (loss) for the period3,431 4,062 
  
Other comprehensive income (loss)    
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar) (3,042 ) (966 )
  
Comprehensive income (loss)389 3,096 
  
Comprehensive income (loss) attributable to:    
Subordinate Voting Shares and Multiple Voting Shares112 2,805 
Non-controlling interest277 291 
  
 389 3,096 
     
     
     
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, 201521,939,168 76,475 6,064 (27,652)283,724 338,611 6,482 345,093 
  
Net income (loss) for the period    3,107 3,107 324 3,431 
Other comprehensive income (loss)   (2,995) (2,995)(47)(3,042)
  
 21,939,168 76,475 6,064 (30,647)286,831 338,723 6,759 345,482 
  
Effect of share-based compensation  26   26  26 
Shares issued under Share Option Plan14,267 227 (227)     
Dividends                
 Multiple Voting Shares    (1,235)(1,235) (1,235)
 Subordinate Voting Shares    (518)(518) (518)
Share repurchase(3,400)(37)  (18)(55) (55)
  
Balance – May 31, 201521,950,035 76,665 5,863 (30,647)285,060 336,941 6,759 343,700 
  
  
Balance – February 28, 201421,958,768 76,688 6,099 (3,589)272,867 352,065 7,054 359,119 
  
Net income (loss) for the period    4,005 4,005 57 4,062 
Other comprehensive income (loss)   (1,200) (1,200)234 (966)
  
 21,958,768 76,688 6,099 (4,789)276,872 354,870 7,345 362,215 
  
Effect of share-based compensation  3   3  3 
Dividends                
 Multiple Voting Shares    (1,415)(1,415) (1,415)
 Subordinate Voting Shares    (602)(602) (602)
Share repurchase(1,000)(10)(6)  (16) (16)
  
Balance – May 31, 201421,957,768 76,678 6,096 (4,789)274,855 352,840 7,345 360,185 
                 
                 
                 
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
   
   
 Three-month periods ended 
 May 31 
 2015 2014 
 $ $ 
  
Cash flows from    
  
Operating activities    
Net income for the period3,431 4,062 
Adjustments to reconcile net income to cash provided by operating activities1,076 2,401 
Changes in non-cash working capital items(12,843)4,935 
Cash provided (used) by operating activities(8,336)11,398 
  
Investing activities    
Short-term investments(774)(92)
Additions to property, plant and equipment(1,577)(4,059)
Additions to intangible assets(105)(230)
Proceeds on disposal of property, plant and equipment, and intangible assets17 51 
Net change in other assets337 230 
Cash provided (used) by investing activities(2,102)(4,100)
  
Financing activities    
Dividends paid to Subordinate and Multiple Voting shareholders(1,743)(1,578)
Repurchase of shares(55)(16)
Short-term bank loans(565)(379)
Repayment of long-term debt(1,424)(1,679)
Cash provided (used) by financing activities(3,787)(3,652)
  
Effect of exchange rate differences on cash(1,512)(1,448)
  
Net change in cash during the period(15,737)2,198 
  
Net cash – Beginning of the period83,962 74,840 
  
Net cash – End of the period68,225 77,038 
  
Net cash is composed of:    
 Cash and cash equivalents92,468 102,516 
 Bank indebtedness(24,243)(25,478)
  
 68,225 77,038 
Supplementary information    
Interest received (paid)5 (93)
Income taxes reimbursed (paid)(1,868)(1,488)

VELAN Inc.
Tom Velan
Chief Executive Officer
(514) 748-8635
(514) 748-7743

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