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 earnings¹of 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 earnings¹per 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 earnings¹amounted 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 earnings¹is 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 cash²from operations of $49.9 million. This source of net cash²is primarily attributable to positive cash net earnings¹and favourable working capital movements.
The Company ended the year with net cash²of $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 earnings¹amounted 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 earnings¹is 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 earnings¹which 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.

¹Net earnings refers to net income attributable to Subordinate and Multiple Voting Shares.

²Non-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	)