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, 2012.
Three months ended
------------------------------------
(millions of U.S. dollars, excluding per May 31, May 31,
share amounts) 2012 2011
------------------------------------
Sales $115.9 $105.0
Gross Profit 24.1 21.3
Gross margin % 20.8% 20.3%
Net income (loss) attributable to
Multiple and Subordinate Voting Shares 0.7 0.1
Net income (loss) per share - Basic 0.03 0.01
Diluted 0.03 0.01
Highlights
First Quarter Fiscal 2013 (unless otherwise noted, all comparisons are to
the first quarter of fiscal 2012:)
-- Net earnings(1) amounted to $0.7 million or $0.03 per share compared to
$0.1 million or $0.01 per share last year. Excluding the results of
Velan ABV S.p.A. ("ABV"), an Italian valve manufacturer acquired in the
prior fiscal year, the effects of purchase price accounting and currency
impacts, the Company would have reported net earnings(1) of $1.9 million
or $0.09 per share this year compared to $0.6 million or $0.03 per share
last year.
-- Net new orders received ("bookings") amounted to $97.7 million, a
decrease of $39.1 million or 28.6% compared to last year. Excluding
currency impacts, the decrease would have been $11.1 million or 8.1%.
The Company ended the quarter with a backlog of $642.3 million, a
decrease of $19.5 million since the beginning of the current fiscal
year. Excluding currency impacts, the backlog would have increased by
$7.1 million over the same period to $668.9 million.
-- Sales amounted to $115.9 million, an increase of $10.9 million or 10.4%.
Excluding ABV and currency impacts, sales would have increased by $5.6
million or 5.5%.
-- Gross margin increased by 0.5 percentage points from 20.3% to 20.8%.
Excluding ABV, the effects of purchase price accounting and currency
impacts, gross margin would have increased by 1.7 percentage points from
21.7% to 23.4%.
-- The Company used net cash(2) from operations of $19.2 million in the
quarter. This use of net cash(2) was primarily attributable to increased
accounts receivable which resulted from the increase in sales. The
Company ended the quarter with net cash(2) of $25.3 million.
-- The Company generated net cash(2) from financing activities of $18.7
million in the quarter. This source of net cash(2) was principally from
a $20 million increase in long-term debt. The Company is using the
proceeds of this debt in order to fund its growing working capital
needs, particularly with respect to inventory purchases to service its
large backlog, to continue to improve its production capacity with
investments in machinery and equipment, and to fund various activities
in its overseas operations, particularly in Asia.
-- Based on average exchange rates, the euro weakened 8.5% 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. The
Canadian dollar weakened 3.1% 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 quarter. The net impact of these two currency swings was
generally unfavourable on the Company's quarterly results since the
positive impact of a weaker Canadian dollar was far outweighed by the
negative impact of a weaker euro.
(1) Net earnings or loss refers to net income or loss attributable to
Subordinate and Multiple Voting Shares.
(2) Non-GAAP measures - see explanation below.
"We continue to experience severe turbulence in the currency markets,
particularly with respect to the euro", said John Ball, CFO of Velan Inc.
"Although the recent plunge in the value of the euro will help the long term
international competitiveness of our European subsidiaries, it has also
negatively impacted our financial results of those operations as reported in
U.S. dollars. We continue to monitor the use of our working capital,
particularly with respect to the increase in our backlog and our investment in
productive capacity".
Tom Velan, President and CEO of Velan Inc. said, "Based on our large order
backlog, we continue to be focused on increasing our output and we are investing
in Asia and North America to increase our global manufacturing capacity. In this
quarter, we had lower volume than planned because of delays encountered in
manufacturing some of our large international projects. This was mainly due to a
combination of supply chain issues, customer- related issues, and internal
operational issues. We are devoting a lot of effort to solving these issues so
we can increase sales revenues and improve on-time delivery."
"Our change to reporting in U.S. dollars under International Financial Reporting
Standards reduced the currency impact of fluctuations in the value of the
Canadian dollar on our results since less than 10% of our sales were denominated
in Canadian dollars. Now, we have a growing impact of the euro in our results
due to the acquisition of ABV and the growth of our subsidiaries in France. At
the end of May, 48.5% of our backlog and 34.0% of our sales in the quarter were
made in euro. The continuing weakness of the euro and uncertainty resulting from
problems in Europe will continue to impact our results."
"As expected, our results were negatively impacted by the results of ABV,
particularly by the purchase price accounting and interest accretion
adjustments. Although ABV is continuing to post improved sales and results
following the acquisition transition period, we expect the negative impact on
results to continue in the near term until some lower margin orders are shipped
and replaced by more profitable orders."
"We are continuing to take measures to improve our operational excellence and
cost competitiveness, and to strengthen our presence in international markets in
order to improve our long-term performance and increase the value of our
company. In the shorter term, we are focused on improved execution of our large
project order backlog to increase sales and improve earnings."
Dividend
The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per
share, payable on September 28, 2012, to all shareholders of record as at
September 14, 2012.
Conference Call
Financial analysts, shareholders, and other interested individuals are invited
to attend the first quarter conference call to be held on July 5, 2012, at 4:30
PM (EDT). The toll free call-in number is 1-800-268-5851, access code 21598363.
A recording of this conference call will be available for seven days at
1-416-626-4100 or 1-800-558- 5253, access code 21598363.
About Velan
Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves
with sales of $437 million in its last reported fiscal year. The company employs
over 1,950 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
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-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, short-term loans and current portion of long-term debt.
Velan Inc.
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,
2012 2011
$ $
Sales 115,852 105,023
Cost of sales 91,740 83,761
------------------------------------
Gross profit 24,112 21,262
Administration costs 23,925 20,649
Other expense (income) (928) 124
------------------------------------
Operating profit (loss) 1,115 489
Finance income 198 119
Finance costs 649 317
------------------------------------
Finance income (costs) - net (451) (198)
------------------------------------
Income (Loss) before income tax 664 291
Provision for (Recovery of) income tax (45) (50)
------------------------------------
Net income (loss) for the period 709 341
------------------------------------
------------------------------------
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple
Voting Shares 694 147
Non-controlling interest 15 194
------------------------------------
709 341
------------------------------------
------------------------------------
Net income (loss) per Subordinate and
Multiple Voting Share
Basic 0.03 0.01
Diluted 0.03 0.01
------------------------------------
------------------------------------
Dividends declared per Subordinate and
Multiple Voting Share 0.08 (CDN$0.08) 0.08 (CDN$0.08)
------------------------------------
------------------------------------
Total weighted average number of
Subordinate and Multiple Voting Shares
Basic 22,139,813 22,194,014
Diluted 22,149,091 22,245,063
------------------------------------
------------------------------------
Velan Inc.
Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
Three-month periods ended
May 31,
2012 2011
$ $
Comprehensive income (loss)
Net income (loss) for the period 709 341
Other comprehensive income (loss)
Foreign currency translation adjustment on foreign
operations whose functional currency is other
than the U.S. dollar (10,459) 2,814
--------------------------
Comprehensive income (loss) (9,750) 3,155
--------------------------
--------------------------
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting
Shares (9,112) 3,285
Non-controlling interest (638) (130)
--------------------------
(9,750) 3,155
--------------------------
--------------------------
Velan Inc.
Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
As At May 31, February 29,
2012 2012
$ $
Assets
Current assets
Cash and cash equivalents 65,985 65,414
Short-term investments 4,218 4,954
Accounts receivable 129,601 111,856
Income taxes recoverable 10,527 9,682
Inventories 262,010 258,684
Deposits and prepaid expenses 6,913 6,209
Derivative assets 2,455 1,737
-----------------------
481,709 458,536
Non-current assets
Property, plant and equipment 72,886 72,961
Intangible assets and goodwill 53,597 58,845
Deferred income taxes 10,238 10,152
Other assets 1,597 1,476
-----------------------
138,318 143,434
-----------------------
Total assets 620,027 601,970
-----------------------
-----------------------
Liabilities
Current liabilities
Bank indebtedness 37,591 32,438
Short-term loans 2,055 858
Accounts payable and accrued liabilities 81,088 82,088
Income tax payable 2,331 2,484
Dividend payable 1,715 1,791
Customer deposits 91,963 86,544
Provisions 4,771 5,149
Accrual for performance guarantees 21,952 21,679
Derivative liabilities 2,295 534
Current portion of long-term debt 5,245 1,696
Current portion of other liabilities 5,239 5,753
-----------------------
256,245 241,014
Non-current liabilities
Long-term debt 23,424 7,891
Deferred income taxes 7,552 8,270
Other liabilities 8,792 9,218
-----------------------
39,768 25,379
-----------------------
Total liabilities 296,013 266,393
-----------------------
Equity
Equity attributable to the Subordinate and Multiple
Voting shareholders
Share capital 78,651 78,764
Contributed surplus 1,872 1,871
Retained earnings 249,944 250,951
Accumulated other comprehensive income (loss) (14,023) (4,217)
-----------------------
316,444 327,369
Non-controlling interest 7,570 8,208
-----------------------
Total equity 324,014 335,577
-----------------------
Total liabilities and equity 620,027 601,970
-----------------------
-----------------------
Velan Inc.
Interim Consolidated Statements of Changes in Equity
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
Equity attributable to the Subordinate and Multiple
Voting shareholders
----------------------------------------------------------
Accumu-
lated
other
compre-
hensive
Number of Share Contributed income Retained
shares capital surplus (loss) earnings Total
----------------------------------------------------------
Balance - March 1,
2012 22,148,968 78,764 1,871 (4,217) 250,951 327,369
Net income (loss)
for the period - - - - 694 694
Other
comprehensive
income (loss) - - - (9,806) - (9,806)
----------------------------------------------------------
22,148,968 78,764 1,871 (14,023) 251,645 318,257
Effect of share-
based
compensation - - 14 - - 14
Dividends
Multiple Voting
Shares - - - - (1,246) (1,246)
Subordinate Voting
Shares - - - - (455) (455)
Non-controlling
interest - - - - - -
Share repurchase (10,400) (113) (13) - - (126)
----------------------------------------------------------
Balance - May 31,
2012 22,138,568 78,651 1,872 (14,023) 249,944 316,444
----------------------------------------------------------
----------------------------------------------------------
Balance - March 1,
2011 22,195,568 79,271 1,898 2,275 250,254 333,698
Net income (loss)
for the period - - - - 147 147
Other
comprehensive
income (loss) - - - 3,138 - 3,138
----------------------------------------------------------
22,195,568 79,271 1,898 5,413 250,401 336,983
Effect of share-
based
compensation - - 9 - - 9
Dividends
Multiple Voting
Shares - - - - (1,286) (1,286)
Subordinate Voting
Shares - - - - (547) (547)
Non-controlling
interest - - - - - -
Share repurchase (1,900) (20) (9) - - (29)
Non-controlling
interest arising
on acquisition - - - - - -
----------------------------------------------------------
Balance - May 31,
2011 22,193,668 79,251 1,898 5,413 248,568 335,130
----------------------------------------------------------
----------------------------------------------------------
Non-
controlling
interest Total equity
--------------------------------
Balance - March 1,
2012 8,208 335,577
Net income (loss)
for the period 15 709
Other
comprehensive
income (loss) (653) (10,459)
--------------------------------
7,570 325,827
Effect of share-
based
compensation - 14
Dividends
Multiple Voting
Shares - (1,246)
Subordinate Voting
Shares - (455)
Non-controlling
interest - -
Share repurchase - (126)
--------------------------------
Balance - May 31,
2012 7,570 324,014
--------------------------------
--------------------------------
Balance - March 1,
2011 4,025 337,723
Net income (loss)
for the period 194 341
Other
comprehensive
income (loss) (324) 2,814
--------------------------------
3,895 340,878
Effect of share-
based
compensation - 9
Dividends
Multiple Voting
Shares - (1,286)
Subordinate Voting
Shares - (547)
Non-controlling
interest - -
Share repurchase - (29)
Non-controlling
interest arising
on acquisition 8,372 8,372
--------------------------------
Balance - May 31,
2011 12,267 347,397
--------------------------------
--------------------------------
Velan Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
For the three-month
periods ended May 31,
2012 2011
Cash flows from $ $
Operating activities
Net income (loss) for the period 709 341
Adjustments to reconcile net profit to cash provided
operating activities
Depreciation of property, plant and equipment 2,214 2,020
Amortization of intangible assets 1,029 691
Deferred income taxes (963) (60)
Share-based compensation expense 14 9
Loss (Gain) on disposal of property, plant and
equipment (224) 19
Interest accretion on proceeds payable 186 106
Income from fair value adjustment of proceeds
payable (196) -
Unrealized foreign exchange gain on proceeds
payable (561) -
Net change in other liabilities (410) 114
------------------------
1,798 3,240
Changes in non-cash working capital items (21,001) (4,767)
------------------------
Cash provided (used) by operating activities (19,203) (1,527)
------------------------
Investing activities
Short-term investments 736 (37)
Additions to property, plant and equipment (4,252) (4,445)
Proceeds on disposal of property, plant and
equipment 392 8
Additions to intangible assets (58) (35)
Net change in other assets (134) 26
Business acquisition - net of cash acquired - (37,281)
------------------------
Cash provided (used) by investing activities (3,316) (41,764)
------------------------
Financing activities
Dividends paid to Subordinate and Multiple Voting
shareholders (1,777) (1,830)
Repurchase of shares (126) (29)
Short-term loans 1,197 (3,536)
Increase in long-term debt 20,092 -
Repayment of long-term debt (665) (52)
------------------------
Cash provided (used) by financing activities 18,721 (5,447)
------------------------
Effect of exchange rate differences on cash (784) 179
------------------------
Net change in cash during the period (4,582) (48,559)
Net cash - Beginning of the period 32,976 114,362
------------------------
Net cash - End of the period 28,394 65,803
------------------------
Net cash is composed of:
Cash and cash equivalents 65,985 73,790
Bank indebtedness (37,591) (7,987)
------------------------
Supplementary information 28,394 65,803
Interest received (paid) (349) (51)
Income taxes received (paid) (1,339) (2,451)
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