MRO Magazine

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


May 19, 2015
By Marketwired News

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 )

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

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