Velan Inc. (TSX:VLN), a world-leading manufacturer of industrial valves,
announced today its financial results for the full year and fourth quarter ended
February 28, 2011.
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THREE MONTHS ENDED FULL YEAR ENDED
FEBRUARY 28 FEBRUARY 28
2011 2010 2011 2010
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Sales 107.1 116.8 388.5 465.9
Net Earnings (Loss) (0.2) 6.1 5.8 35.5
Earnings (Loss) per Share (0.01) 0.28 0.26 1.60
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Highlights
Full Year Fiscal 2011 (all comparisons versus full year fiscal 2010 unless
otherwise noted):
-- 1. Net earnings of $5.8 million, or $0.26 per share, compares to $35.5
million, or $1.60 per share.
-- 2. Bookings of $418.4 million, down 3.3%, but would have been up 5.2% if
not for negative currency effects.
-- 3. Sales of $388.5 million, down 16.6%, or 8.4% excluding negative
currency effects.
-- 4. Gross margin decreased by 6.0% from 32.0% to 26.0%; the decrease
would have been 2.0% excluding negative currency effects.
-- 5. Net cash(1)generated from operations of $26.0 million, compares to
$67.6 million.
-- 6. Backlog of $532.6 million, up 5.9%, or 13.3% excluding negative
currency effects.
-- 7. Shareholders' equity of $340.6 million, or $15.35 per share, down
1.6%.
-- 8. Net cash(1)of $110.5 million, or $4.98 per share, up 6.5%.
-- 9. Based on average exchange rates, the Canadian dollar strengthened
against the Company's main selling currencies, the U.S. dollar and the
euro, by 8.9% and 16.0%, respectively. This significant strengthening
had a negative impact on the Company's results.
Fourth Quarter Fiscal 2011 (all comparisons versus fourth quarter fiscal 2010
unless otherwise noted):
-- Net loss of $0.2 million, or $0.01 per share, compares to net earnings
of $6.1 million, or $0.28 per share.
-- Bookings of $83.3 million, down 35.6%, or 28.4% excluding negative
currency effects.
-- Sales of $107.1 million, down 8.3%, or 1.2% excluding negative currency
effects.
-- Gross margin decreased by 1.5% from 28.2% to 26.7%, but would have
increased by 0.4% if not for negative currency effects.
-- Net cash(1)generated from operations of $15.3 million, up 19.5%.
-- Based on average exchange rates, the Canadian dollar strengthened
against the Company's main selling currencies, the U.S. dollar and the
euro, by 5.5% and 11.5%, respectively. This significant strengthening
had a negative impact on the Company's results.
"As we anticipated one year ago, this has been a downturn year with lower sales
and earnings as the effects of the global financial crisis impacted us as a
late-cycle company. We started this year with lower deliverable backlog due to
low order bookings last year, other than nuclear. Our margins were squeezed by a
combination of lower volume, higher input costs, and a strong Canadian dollar,"
said Tom Velan, President and CEO of Velan Inc.
"We remain focused on our operational excellence program to implement cost
reductions. Faced with significant material cost increases, we have been raising
our selling prices. We expect these measures will help protect our margins in
the near term and help improve margins when our sales volume increases."
Nuclear continued to be an important factor in the Company's sales, bookings,
and backlog. The serious nuclear accident at Fukishima, Japan, caused by the
earthquake and tsunami has had a serious impact on the nuclear industry around
the world. Despite the tragic events in Japan, the Company believes that the new
generation- three reactors have vastly improved safety characteristics and that
nuclear will play an important role in meeting future energy requirements. The
Company expects that its current order backlog will continue to be manufactured
as scheduled, but there will be a hiatus or slowdown in commitments for new
orders.
Tom Velan said, "There have now been more positive trends in the global economy
and in our main markets over the last few months, with the exception of nuclear.
We are starting this year with a higher backlog than last year. Although there
are signs of improvement in our markets, we expect that it will take time for
the capital-intensive project market to fully recover and we continue to
experience fierce competition as competitors fight to maintain market share and
sales volume. We continue to take measures to broaden our scope of product
offerings and strengthen our international presence."
Following the year end, the Company acquired 70% of ABV Energy S.p.A., now Velan
ABV S.p.A. ("ABV"), an Italian valve manufacturer with two plants in Lucca,
Italy. ABV manufactures engineered valves, actuators, and control systems
supplied to energy markets. The former shareholders will retain a 30% interest.
ABV reported sales of approximately $49.7 million (EUR36.4 million) for its last
fiscal year.
The Company believes ABV will be accretive to earnings, excluding the effects of
purchase price accounting. The Company is still in the process of determining
the purchase price equation and as such is not in a position to estimate the
impact that purchase price accounting will have on its fiscal 2012 results.
Tom Velan said, "We are pleased to have executed on one of our major strategic
goals, with the largest acquisition in our history. ABV's product line is
entirely complementary to our valve range, broadening the scope of our offerings
to energy markets and providing us with a great opportunity to grow sales and
earnings over the coming years."
After the year end, the Company also purchased land in Coimbatore in southern
India to build a new plant that will serve both to improve its cost
competitiveness and its access to the rapidly growing Indian market. This plant
will take time to build and put into operation.
"We are pleased to have maintained a solid balance sheet," said John Ball, CFO
of Velan Inc., "and to have generated net cash(1)from operations during this
challenging year. Our focus on working capital management allowed us to fund the
ABV acquisition from our own cash resources and still have sufficient liquidity
to satisfy our working capital requirements and execute on our business
strategy.
"This is the last year we will be reporting our results in Canadian dollars. As
a result of the adoption of the International Financial Reporting Standards
("IFRS"), we are switching to the U.S. dollar as our functional and reporting
currency. We expect this change to lessen, but not eliminate, the foreign
exchange-related volatility on our earnings."
Tom Velan concluded, "We are a late-cycle company, so while many businesses had
lower sales right after the financial crisis, we had very good results for six
quarters but experienced a downturn in this fiscal year. We expect to have
better results in fiscal 2012 as we are starting this year with a higher backlog
and there have been more positive trends in the global economy and in our main
markets over the last few months, with the exception of nuclear. We have and
continue to take measures to broaden our product offering, improve our cost
competitiveness, and strengthen our presence in international markets in order
to improve our performance and increase the value of our company."
Dividend
The Board declared an eligible quarterly dividend of $0.08 per share, payable on
June 30, 2011, to all shareholders of record as at June 15, 2011.
Conference Call
Financial analysts, shareholders, and other interested individuals are invited
to attend the fourth-quarter conference call to be held on May 17, 2011, at 3:30
PM (EST). The toll free call-in number is 1-800-734-4208, access code 21523248.
A recording of this conference call will be available for seven days at
1-416-626-4100 or 1-800-558-5253, access code 21523248.
About Velan
Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves
with sales of Cnd. $388 million in its last reported fiscal year. The company
employs over 1,800 people and has manufacturing plants in nine 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.
(1)Non-GAAP measure - see explanation below
Non-GAAP measures
In this press release, the Company presented measures of performance and
financial condition which are not defined under Canadian GAAP ("non-GAAP
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.
Net cash is defined as cash and cash equivalents plus short-term investments
less bank indebtedness and short- term bank loans.
Consolidated Statements of Earnings
and Retained Earnings
Unaudited Unaudited
Three months Twelve months
ended ended
February 28 February 28
(in thousands of dollars,
excluding per share amounts) 2011 2010 2011 2010
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Sales $107,117 $116,795 $388,466 $465,945
Cost of sales 78,552 83,816 287,413 316,933
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Gross profit 28,565 32,979 101,053 149,012
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Expenses (other income)
Engineering, selling, general and
administrative and research 22,010 20,814 74,012 74,635
Interest
Long-term debt (51) 12 187 265
Other 156 75 402 231
Amortization of property, plant
and equipment 2,625 2,377 10,071 9,550
Other income (403) (82) (857) (970)
Non-controlling interest 59 512 570 1,403
Foreign exchange loss on
translation of
integrated subsidiaries 2,174 115 3,548 7,594
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26,570 23,823 87,933 92,708
----------------------------------------
Earnings before income taxes 1,995 9,156 13,120 56,304
Provision for (recovery of) income
taxes - Current 2,593 5,139 7,701 22,822
Provision for (recovery of) income
taxes - Future (391) (2,041) (391) (2,041)
----------------------------------------
Net earnings (loss) $ (207) $ 6,058 $ 5,810 $ 35,523
----------------------------------------
Retained earnings - beginning $246,340 $241,375 $245,654 $217,251
Net earnings (loss) (207) 6,058 5,810 35,523
Dividends
Multiple Voting Shares 1,245 1,245 4,980 4,981
Subordinate Voting Shares 531 534 2,127 2,139
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Retained earnings - ending $244,357 $245,654 $244,357 $245,654
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Earnings (loss) per share
Basic $ (0.01) $ 0.28 $ 0.26 $ 1.60
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Diluted $ (0.01) $ 0.27 $ 0.26 $ 1.59
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Consolidated Balance Sheets
Unaudited Unaudited
February 28 February 28
(in thousands of dollars) 2011 2010
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ASSETS
Current assets
Cash and cash equivalents $ 116,703 $ 106,940
Short-term investments 85 310
Accounts receivable 95,187 95,546
Income taxes recoverable 5,432 3,497
Inventories 207,478 206,472
Deposits and prepaid expenses 3,766 5,959
Future income taxes 4,914 4,735
----------------------------
433,565 423,459
Future income taxes 1,900 1,880
Property, plant and equipment 71,932 73,418
Goodwill 12,502 12,502
Other assets 1,331 1,438
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$ 521,230 $ 512,697
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LIABILITIES
Current liabilities
Bank indebtedness $ 5,483 $ 2,630
Short-term bank loans 800 833
Accounts payable and accrued liabilities 63,727 68,248
Income taxes payable 1,543 3,473
Dividend payable 1,778 1,778
Customer deposits 71,009 58,146
Provision for performance guarantees 17,148 11,470
Future income taxes 743 907
Current portion of long-term debt 587 46
----------------------------
162,818 147,531
Future income taxes 4,000 3,834
Long-term debt 4,286 3,956
Non-controlling interest 3,024 4,149
Other long-term liabilities 6,475 7,043
----------------------------
180,603 166,513
----------------------------
SHAREHOLDERS' EQUITY
Capital stock 107,553 108,073
Contributed surplus 2,110 2,016
Retained earnings 244,357 245,654
Accumulated other comprehensive loss (13,393) (9,559)
----------------------------
340,627 346,184
----------------------------
$ 521,230 $ 512,697
--=========================-
Consolidated Statements of Cash Flows
Unaudited Unaudited
Three months ended Twelve months ended
February 28 February 28
(in thousands of dollars) 2011 2010 2011 2010
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Cash provided from:
Operating activities
Net earnings (loss) $ (207) $ 6,058 5,810 $ 35,523
Items not affecting cash -
Amortization of property
plant & equipment 2,625 2,377 10,071 9,550
Stock options expense 10 27 64 197
Future income taxes (391) (2,041) (391) (2,041)
Gain on disposal of
property, plant and
equipment (412) (64) (467) (64)
Realized translation
adjustment on reduction
of net investment in a
self-sustaining operation - - 488 -
Non-controlling interest 59 512 570 1,403
Net change in other long-
term liabilities 108 (74) (591) 167
-------------------------------------------
1,792 6,795 15,554 44,735
-------------------------------------------
Changes in non-cash working
capital items
Accounts receivable (4,148) (1,377) 344 26,756
Income taxes recoverable (1,601) 434 (2,015) 988
Inventories 5,007 18,424 (1,048) 6,075
Deposits and prepaid
expenses 2,048 (997) 2,102 2,623
Accounts payable and
accrued liabilities 3,537 (3,541) (4,708) (23,644)
Income taxes payable (562) (11,949) (2,010) (137)
Customer deposits 7,072 788 12,331 6,296
Provision for performance
guarantees 2,148 4,202 5,443 3,883
-------------------------------------------
13,501 5,984 10,439 22,840
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15,293 12,779 25,993 67,575
-------------------------------------------
Investing activities
Short-term investments 335 80 225 (144)
Additions to property, plant
and equipment (4,026) (4,162) (9,817) (14,038)
Proceeds on disposal of
property, plant and equipment 483 90 649 90
Net change in other assets 156 268 103 366
-------------------------------------------
(3,052) (3,724) (8,840) (13,726)
-------------------------------------------
Financing activities
Repurchase of shares (26) - (490) (1,056)
Dividends (1,776) (1,770) (7,107) (7,128)
Dividends to non-controlling
interest - (2) (1,870) (87)
Short-term bank loans (32) (3) (33) (170)
Increase in long-term debt 1,021 - 1,021 -
Repayment of long-term debt - (4) (89) (1,061)
-------------------------------------------
(813) (1,779) (8,568) (9,502)
Effect of exchange rate
differences on cash and cash
equivalents (487) (3,899) (1,675) (4,359)
-------------------------------------------
Net change in cash and cash
equivalents 10,941 3,377 6,910 39,988
Net cash - beginning 100,279 100,933 104,310 64,322
-------------------------------------------
Net cash - ending $ 111,220 $ 104,310 $ 111,220 $ 104,310
--========================================-
Net cash includes cash and cash
equivalents less bank
indebtedness
Interest paid amounted to : 136 32 225 178
Income tax paid amounted to: 6,725 13,731 11,583 20,515
Consolidated Statements of Comprehensive Income and Accumulated Other
Comprehensive Loss
Unaudited Unaudited
Three months ended Twelve months ended
February 28 February 28
(in thousands of dollars) 2011 2010 2011 2010
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Net earnings (loss) $ (207) $ 6,058 5,810 $ 35,523
Other comprehensive income
(loss), net of tax
Foreign currency
translation adjustment on
self-sustaining operations 187 (7,053) (4,078) (8,475)
Realized translation
adjustment on the
reduction of the net
investment in self-
sustaining foreign
operations - - 244 -
----------------------------------------------
Comprehensive income (loss) (20) (995) 1,976 27,048
----------------------------------------------
Accumulated other
comprehensive loss, net tax
Accumulated other
comprehensive income (loss),
beginning of period (13,580) (2,506) (9,559) (1,084)
Other comprehensive income
(loss) for the period 187 (7,053) (4,078) (8,475)
Realized translation
adjustment on the
reduction of the net
investment in self-
sustaining
foreign operations - - 244 -
----------------------------------------------
Accumulated other
comprehensive loss, end of
period (13,393) (9,559) (13,393) (9,559)
----------------------------------------------
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