Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial
valves, announced today its financial results for its third quarter ended
November 30, 2012.
Three-month periods Nine-month periods
ended ended
November 30 November 30
(millions of U.S. dollars,
excluding per share
amounts) 2012 2011 2012 2011
------------------------------------------------
Sales $134.2 $118.9 $358.5 $319.4
Gross profit 33.3 27.3 83.5 64.3
Gross margin % 24.8% 23.0% 23.3% 20.1%
Net income (loss)
attributable to Subordinate
and Multiple Voting Shares 5.7 4.0 9.7 2.0
Net income (loss) per share
- Basic 0.26 0.18 0.44 0.09
- Diluted 0.26 0.18 0.44 0.09
Highlights
Third Quarter Fiscal 2013 (unless otherwise noted, all comparisons are to the
third quarter of fiscal 2012):
-- Net earnings(1) amounted to $5.7 million or $0.26 per share compared to
$4.0 million or $0.18 per share last year. Excluding currency impacts,
the Company would have reported net earnings(1) of $5.5 million or $0.25
per share this year compared to $2.1 million or $0.10 per share last
year. Further excluding the results of Velan ABV S.p.A. ("ABV"), an
Italian valve manufacturer acquired in the prior fiscal year, and the
effects of purchase price accounting, the Company would have reported
net earnings(1) of $5.6 million or $0.25 per share this year compared to
$4.7 million or $0.21 per share last year.
-- Net new orders received ("bookings") amounted to $83.3 million, a
decrease of $10.9 million or 11.6% compared to last year. Excluding
currency impacts, the decrease would have been $21.2 million or 22.5%.
The Company ended the quarter with a backlog of $575.7 million, a
decrease of $86.1 million since the beginning of the current fiscal
year. Excluding currency impacts, the backlog would have decreased by
$76.3 million over the same period to $585.5 million.
-- Sales amounted to $134.2 million, an increase of $15.3 million or 12.9%.
Excluding currency impacts, sales would have increased by $21.3 million
or 18.1%.
-- Gross margin increased by 1.8 percentage points from 23.0% to 24.8%.
Excluding currency impacts, the gross margin percentage would have
increased by 2.5 percentage points in the quarter. Further excluding the
results of ABV and the effects of purchase price accounting, gross
margin would have increased by 0.9 percentage points in the quarter.
-- Foreign currency impacts:
-- Based on average exchange rates, the euro weakened 5.7% 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 strengthened
0.5% against the U.S. dollar when compared to the same period last
year. This strengthening resulted in the Company's Canadian dollar
expenses being reported as higher U.S. dollar amounts in the current
quarter.
-- The Korean won strengthened 4.7% against the U.S. dollar when
comparing the spot rate at the beginning of the period to the period
end rate. This strengthening resulted in the Company recording
foreign exchange gains in the current quarter upon conversion of the
balance sheet of its Korean subsidiary whose functional currency is
the U.S. dollar.
-- The net impact of these three currency swings was generally
favourable to the Company's quarterly results since the positive
impact of the stronger Korean won outweighed the negative impacts of
a weaker euro and stronger Canadian dollar.
First Nine Months of Fiscal 2013 (unless otherwise noted, all comparisons are to
the first nine months of fiscal 2012):
-- Net earnings(1) amounted to $9.7 million or $0.44 per share compared to
$2.0 million or $0.09 per share last year. Excluding the results of ABV,
the effects of purchase price accounting and currency impacts, the
Company would have reported net earnings(1) of $12.0 million or $0.54
per share this year compared to $5.7 million or $0.26 per share last
year.
-- Bookings amounted to $273.4 million, a decrease of $129.7 million or
32.2% compared to last year. Excluding currency impacts, the decrease
would have been $113.1 million or 28.1%.
-- Sales amounted to $358.5 million, an increase of $39.1 million or 12.2%.
Excluding ABV and currency impacts, sales would have increased by $37.3
million or 12.3%.
-- Gross margin increased by 3.2 percentage points from 20.1% to 23.3%.
Excluding ABV, the effects of purchase price accounting and currency
impacts, gross margin would have increased by 3.3 percentage points.
-- The Company used net cash(2) from operations of $8.6 million in the
period. This use of net cash(2) was primarily attributable to increases
in accounts receivable and inventories, which was partially offset by
positive cash earnings in the period. The Company ended the period with
net cash(2) of $5.5 million.
-- The Company generated net cash(2) from financing activities of $8.6
million in the period. This source of net cash(2) was principally from a
$20.7 million increase in long-term debt. The Company is using the
proceeds of this debt 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 9.3% 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 period. The
Canadian dollar weakened 1.4% 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 period. The net impact of these two currency swings was
generally unfavourable on the Company's results for this period since
the positive impact of a weaker Canadian dollar was 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 are pleased that the positive sales and profit trend noted in our second
quarter continued and improved in our third quarter," said John Ball, CFO of
Velan Inc. "The pressure is easing on our backlog and we are benefitting from
the increased flow of shipments. We continue to see opportunities in several
foreign markets as demand in our key end-user markets is generally strong and we
are focusing our efforts to capitalize on these opportunities."
Tom Velan, President and CEO of Velan Inc. said, "We had record sales of $134.2
million for this quarter and we continued to make progress towards our earnings
objectives. While we are striving to achieve the highest sales revenues in our
history this year, we are also focusing on longer term objectives. We opened our
new plant in Coimbatore, India, in December and at the same time we are
expanding production in our Korean and Chinese plants. We have also made
significant investments in our North American plants to increase our output. We
are building our global manufacturing capacity and at the same time increasing
our presence in global markets."
Dividend
The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per
share, payable on March 29, 2013, to all shareholders of record as at March 15,
2013.
Conference call
Financial analysts, shareholders, and other interested individuals are invited
to attend the third quarter conference call to be held on January 8, 2013, at
4:30 PM (EDT). The toll free call-in number is 1-888-224-7971, access code
21628978. A recording of this conference call will be available for seven days
at 1-416-626-4100 or 1-800-558- 5253, access code 21628978.
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 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-GAAP measures
In this press release, the Company presented measures of performance and
financial condition that 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 bank
borrowings.
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 Nine-month periods
ended ended
November 30 November 30
2012 2011 2012 2011
$ $ $ $
Sales 134,203 118,939 358,504 319,351
Cost of sales 100,862 91,652 275,035 255,094
------------------------------------------------
Gross profit 33,341 27,287 83,469 64,257
Administration costs 23,592 21,634 68,540 62,214
Other expense (income) 112 (101) (718) (317)
------------------------------------------------
Operating profit (loss) 9,637 5,754 15,647 2,360
Finance income 142 69 500 230
Finance costs 1,230 213 2,577 1,036
------------------------------------------------
Finance income (costs) - net (1,088) (144) (2,077) (806)
------------------------------------------------
Income (Loss) before income
tax 8,549 5,610 13,570 1,554
Provision for (Recovery of)
income tax 2,421 1,778 3,317 203
------------------------------------------------
Net income (loss) for the
period 6,128 3,832 10,253 1,351
------------------------------------------------
------------------------------------------------
Net income (loss)
attributable to:
Subordinate Voting Shares
and Multiple Voting Shares 5,712 3,992 9,724 2,028
Non-controlling interest 416 (160) 529 (677)
------------------------------------------------
6,128 3,832 10,253 1,351
------------------------------------------------
------------------------------------------------
Net income (loss) per
Subordinate and Multiple
Voting Share
Basic 0.26 0.18 0.44 0.09
Diluted 0.26 0.18 0.44 0.09
------------------------------------------------
------------------------------------------------
Dividends declared per
Subordinate and Multiple
Voting 0.08 0.07 0.24 0.24
Share (CDN$0.08) (CDN$0.08) (CDN$0.24) (CDN$0.24)
------------------------------------------------
------------------------------------------------
Total weighted average
number of Subordinate and
Multiple Voting Shares
Basic 22,022,256 22,180,538 22,022,256 22,180,538
Diluted 22,027,043 22,197,471 22,030,500 22,218,713
------------------------------------------------
------------------------------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods Nine-month periods
ended ended
November 30 November 30
2012 2011 2012 2011
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the
period 6,128 3,832 10,253 1,351
Other comprehensive income
(loss)
Foreign currency translation
adjustment on foreign
operations whose functional
currency is other than the
U.S. dollar 4,321 (11,055) (4,683) (7,210)
------------------------------------------------
Comprehensive income (loss) 10,449 (7,223) 5,570 (5,859)
------------------------------------------------
------------------------------------------------
Comprehensive income (loss)
attributable to:
Subordinate Voting Shares
and Multiple Voting Shares 9,662 (6,117) 5,161 (4,090)
Non-controlling interest 787 (1,106) 409 (1,769)
------------------------------------------------
10,449 (7,223) 5,570 (5,859)
------------------------------------------------
------------------------------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At November 30, February 29,
2012 2012
$ $
Assets
Current assets
Cash and cash equivalents 57,840 65,414
Short-term investments 2,279 4,954
Accounts receivable 132,717 111,856
Income taxes recoverable 6,963 9,682
Inventories 264,952 258,684
Deposits and prepaid expenses 6,578 6,209
Derivative assets 663 1,737
------------------------------------
471,992 458,536
Non-current assets
Property, plant and equipment 87,663 72,961
Intangible assets and goodwill 54,941 58,845
Deferred income taxes 11,086 10,152
Other assets 1,740 1,476
------------------------------------
155,430 143,434
------------------------------------
Total assets 627,422 601,970
------------------------------------
------------------------------------
Liabilities
Current liabilities
Bank indebtedness 45,916 32,438
Short-term loans 2,112 858
Accounts payable and accrued liabilities 78,239 82,088
Income tax payable 2,168 2,484
Dividend payable 1,766 1,791
Customer deposits 84,802 86,544
Provisions 5,179 5,149
Accrual for performance guarantees 25,163 21,679
Derivative liabilities 963 534
Current portion of long-term debt 10,269 1,696
Current portion of other liabilities 2,540 5,753
------------------------------------
259,117 241,014
Non-current liabilities
Long-term debt 17,976 7,891
Deferred income taxes 7,528 8,270
Other liabilities 9,344 9,218
------------------------------------
34,848 25,379
------------------------------------
Total liabilities 293,965 266,393
------------------------------------
Equity
Equity attributable to the Subordinate
and Multiple Voting shareholders
Share capital 76,517 78,764
Contributed surplus 1,745 1,871
Retained earnings 255,399 250,951
Accumulated other comprehensive income
(loss) (8,780) (4,217)
------------------------------------
324,881 327,369
Non-controlling interest 8,576 8,208
------------------------------------
Total equity 333,457 335,577
------------------------------------
Total liabilities and equity 627,422 601,970
------------------------------------
------------------------------------
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
------------------------------------------------------------
Accumulated
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 - - - - 9,724 9,724
Other
comprehensive
income (loss) - - - (4,563) - (4,563)
------------------------------------------------------------
22,148,968 78,764 1,871 (8,780) 260,675 332,530
Effect of share-
based
compensation - - 43 - - 43
Dividends
Multiple
Voting Shares - - - - (3,739) (3,739)
Subordinate
Voting Shares - - - - (1,537) (1,537)
Non-
controlling
interest - - - - - -
Share repurchase (206,500) (2,247) (169) - - (2,416)
------------------------------------------------------------
Balance -
November 30,
2012 21,942,468 76,517 1,745 (8,780) 255,399 324,881
------------------------------------------------------------
------------------------------------------------------------
Balance - March
1, 2011 22,195,568 79,271 1,898 2,275 250,254 333,698
Net income
(loss) for the
period - - - - 2,028 2,028
Other
comprehensive
income (loss) - - - (6,118) - (6,118)
------------------------------------------------------------
22,195,568 79,271 1,898 (3,843) 252,282 329,608
Effect of share-
based
compensation - - 50 - - 50
Dividends
Multiple
Voting Shares - - - - (3,852) (3,852)
Subordinate
Voting Shares - - - - (1,582) (1,582)
Non-
controlling
interest - - - - - -
Share repurchase (27,800) (302) (85) - - (387)
Non-controlling
interest
arising on
acquisition - - - - - -
------------------------------------------------------------
Balance -
November 30,
2011 22,167,768 78,969 1,863 (3,843) 246,848 323,837
------------------------------------------------------------
------------------------------------------------------------
Non-controlling
interest Total equity
------------------------------------------------------------
Balance - March
1, 2012 8,208 335,577
Net income
(loss) for the
period 529 10,253
Other
comprehensive
income (loss) (120) (4,683)
------------------------------------------------------------
8,617 341,147
Effect of share-
based
compensation - 43
Dividends
Multiple
Voting Shares - (3,739)
Subordinate
Voting Shares - (1,537)
Non-
controlling
interest (41) (41)
Share repurchase - (2,416)
------------------------------------------------------------
Balance -
November 30,
2012 8,576 333,457
------------------------------------------------------------
------------------------------------------------------------
Balance - March
1, 2011 4,025 337,723
Net income
(loss) for the
period (677) 1,351
Other
comprehensive
income (loss) (1,092) (7,210)
------------------------------------------------------------
2,256 331,864
Effect of share-
based
compensation - 50
Dividends
Multiple
Voting Shares - (3,852)
Subordinate
Voting Shares - (1,582)
Non-
controlling
interest (84) (84)
Share repurchase - (387)
Non-controlling
interest
arising on
acquisition 8,372 8,372
------------------------------------------------------------
Balance -
November 30,
2011 10,544 334,381
------------------------------------------------------------
------------------------------------------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods Nine-month periods
ended November 30, ended November 30,
2012 2011 2012 2011
Cash flows from $ $ $ $
Operating activities
Net income (loss) for the
period 6,128 3,832 10,253 1,351
Adjustments to reconcile net
profit to cash provided
operating activities
Depreciation of property,
plant and equipment 2,413 2,172 6,941 6,396
Amortization of intangible
assets 607 1,478 2,257 3,836
Deferred income taxes 100 430 (1,673) (512)
Share-based compensation
expense 14 33 43 50
Loss (Gain) on disposal of
property, plant and
equipment (23) (39) (144) 11
Interest accretion on
proceeds payable 156 291 505 702
Income from fair value
adjustment of proceeds
payable - - (196) -
Unrealized foreign
exchange gain on proceeds
payable 149 - (425) -
Net change in other
liabilities 373 (734) (61) (106)
------------------------------------------------
9,917 7,463 17,500 11,728
Changes in non-cash working
capital items 5,344 (21,500) (26,138) (40,096)
------------------------------------------------
Cash provided (used) by
operating activities 15,261 (14,037) (8,638) (28,368)
------------------------------------------------
Investing activities
Short -term investments 378 (776) 2,675 (1,427)
Additions to property, plant
and equipment (11,559) (1,563) (22,641) (8,940)
Proceeds on disposal of
property, plant and
equipment (75) 34 384 61
Additions to intangible
assets (139) (93) (405) (738)
Net change in other assets (123) 131 (267) 148
Business acquisition - net
of cash acquired - - - (37,281)
------------------------------------------------
Cash provided (used) by
investing activities (11,518) (2,267) (20,254) (48,177)
------------------------------------------------
Financing activities
Dividends paid to
Subordinate and Multiple
Voting shareholders (1,801) (1,773) (5,301) (5,453)
Dividends paid to non-
controlling interest (41) - (41) (84)
Repurchase of shares (346) (109) (2,416) (388)
Payment of proceeds payable - - (2,905) -
Short -term loans 151 - 1,254 (4,842)
Increase in long-term debt - 388 20,715 4,612
Repayment of long-term debt (1,749) (2,579) (2,706) (2,636)
------------------------------------------------
Cash provided (used) by
financing activities (3,786) (4,073) 8,600 (8,791)
------------------------------------------------
Effect of exchange rate
differences on cash 509 (1,349) (760) (1,037)
------------------------------------------------
Net change in cash during
the period 466 (21,726) (21,052) (86,373)
Net cash - Beginning of the
period 11,458 49,715 32,976 114,362
------------------------------------------------
Net cash - End of the period 11,924 27,989 11,924 27,989
------------------------------------------------
Net cash is composed of:
Cash and cash equivalents 57,840 49,822 57,840 49,822
Bank indebtedness (45,916) (21,833) (45,916) (21,833)
------------------------------------------------
Supplementary information 11,924 27,989 11,924 27,989
------------------------------------------------
Interest received (paid) (489) (647) (1,349) (752)
Income taxes received (paid) 693 (1,835) (2,282) (5,854)
FOR FURTHER INFORMATION PLEASE CONTACT:
Velan Inc.
Tom Velan
President and Chief Executive Officer
(514) 748-7743
(514) 748-8635 (FAX)
Velan Inc.
John D. Ball
Chief Financial Officer
(514) 748-7743
(514) 748-8635 (FAX)
www.velan.com
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