Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial
valves, announced today its financial results for its second quarter ended
August 31, 2012.
Three-month periods
ended Six-month periods ended
August 31 August 31
(millions of U.S. dollars,
excluding per share
amounts) 2012 2011 2012 2011
------------------------------------------------
Sales $108.4 $95.4 $224.3 $200.4
Gross profit 26.0 15.7 50.1 37.0
Gross margin % 24.0% 16.5% 22.3% 18.4%
Net income (loss)
attributable to Subordinate
and Multiple Voting Shares 3.3 (2.1) 4.0 (2.0)
Net income (loss)
per share - Basic 0.15 (0.10) 0.18 (0.09)
- Diluted 0.15 (0.10) 0.18 (0.09)
Highlights
Second Quarter Fiscal 2013 (unless otherwise noted, all comparisons are to the
second quarter of fiscal 2012):
-- Net earnings(1) amounted to $3.3 million or $0.15 per share compared to
a net loss(1) of $2.1 million or $0.10 per share last year. Excluding
currency impacts, the Company would have reported net earnings(1) of
$3.5 million or $0.16 per share this year compared to a net loss(1) of
$2.0 million or $0.09 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 $4.5 million or $0.21 per
share this year compared to a net loss(1) of $0.5 million or $0.02 per
share last year.
-- Net new orders received ("bookings") amounted to $92.4 million, a
decrease of $79.7 million or 46.3% compared to last year. Excluding
currency impacts, the decrease would have been $80.8 million or 46.9%.
The Company ended the quarter with a backlog of $625.9 million, a
decrease of $35.9 million since the beginning of the current fiscal
year. Excluding currency impacts, the backlog would have decreased by
$13.9 million over the same period to $647.9 million.
-- Sales amounted to $108.4 million, an increase of $13.0 million or 13.6%.
Excluding currency impacts, sales would have increased by $18.1 million
or 19.0%.
-- Gross margin increased by 7.5 percentage points from 16.5% to 24.0%.
Excluding currency impacts, the gross margin percentage would have
increased by 7.6 percentage points in the quarter. Further excluding the
results of ABV and the effects of purchase price accounting, gross
margin would have increased by 8.3 percentage points in the quarter. The
increase in the gross margin percentage excluding ABV, the effects of
purchase price accounting and currency impacts is primarily attributable
to the increase in sales volume which allowed the Company to more
efficiently cover its production overhead costs, lower raw material
costs and product mix.
-- Based on average exchange rates, the euro weakened 13.5% 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 3.9% 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 outweighed by the
negative impact of a weaker euro.
First Half Year Fiscal 2013 (unless otherwise noted, all comparisons are to the
first half year of fiscal 2012):
-- Net earnings(1) amounted to $4.0 million or $0.18 per share compared to
a net loss(1) of $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 $6.4 million or $0.29 per share this year
compared to $1.0 million or $0.04 per share last year.
-- Bookings amounted to $190.1 million, a decrease of $118.8 million or
38.5% compared to last year. Excluding currency impacts, the decrease
would have been $91.9 million or 29.8%.
-- Sales amounted to $224.3 million, an increase of $23.9 million or 11.9%.
Excluding ABV and currency impacts, sales would have increased by $20.2
million or 10.5%.
-- Gross margin increased by 3.9 percentage points from 18.4% to 22.3%.
Excluding ABV, the effects of purchase price accounting and currency
impacts, gross margin would have increased by 4.8 percentage points.
-- The Company used net cash(2) from operations of $23.9 million in the
period. This use of net cash(2) was
primarily attributable to increases in accounts receivable and
inventories coupled with decreases in accounts payable. The Company
ended the period with net cash(2) of $5.6 million.
-- The Company generated net cash(2) from financing activities of $12.4
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 11.0% 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 3.5% 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 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 we are gradually working through our high backlog although
perhaps not as quickly as we would like", said John Ball, CFO of Velan Inc.
"This is restoring our profitability as our shipments increase, although not
without certain working capital challenges, and we continue to invest in our
productive capacity both in Canada and abroad. The fluctuation of the euro this
year, the current vagaries of the nuclear industry, and the uncertainty in
certain world financial markets also contribute to these challenges, however
they are outweighed by the longer term opportunities in our end user markets."
Tom Velan, President and CEO of Velan Inc. said, "In view of our large order
backlog, our main focus is on increasing our output and improving our execution
of our complex project orders. We are investing both in Asia and North America
to increase our global manufacturing capacity and to strengthen our presence in
international markets. In the shorter term, we are focused on improved execution
of our large project order backlog to satisfy the needs of our customers."
Dividend
The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per
share, payable on December 31, 2012, to all shareholders of record as at
December 14, 2012.
Conference call
Financial analysts, shareholders, and other interested individuals are invited
to attend the second quarter conference call to be held on October 12, 2012, at
4:30 PM (EDT). The toll free call-in number is 1-888-224-7971, access code
21607087. A recording of this conference call will be available for seven days
at 1-416-626-4100 or 1-800-558-5253, access code 21607087.
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 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.
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 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 Six-month periods ended
August 31 August 31
2012 2011 2012 2011
$ $ $ $
Sales 108,449 95,389 224,301 200,412
Cost of sales 82,433 79,681 174,173 163,442
------------------------------------------------
Gross profit 26,016 15,708 50,128 36,970
Administration costs 21,023 19,931 44,948 40,580
Other expense (income) 98 (340) (830) (216)
------------------------------------------------
Operating profit (loss) 4,895 (3,883) 6,010 (3,394)
Finance income 160 42 358 161
Finance costs 698 506 1,347 823
------------------------------------------------
Finance income (costs) - net (538) (464) (989) (662)
------------------------------------------------
Income (Loss) before income
tax 4,357 (4,347) 5,021 (4,056)
Provision for (Recovery of)
income tax 941 (1,525) 896 (1,575)
------------------------------------------------
Net income (loss) for the
period 3,416 (2,822) 4,125 (2,481)
------------------------------------------------
------------------------------------------------
Net income (loss)
attributable to:
Subordinate Voting Shares
and Multiple Voting Shares 3,318 (2,111) 4,012 (1,964)
Non-controlling interest 98 (711) 113 (517)
------------------------------------------------
3,416 (2,822) 4,125 (2,481)
------------------------------------------------
------------------------------------------------
Net income (loss) per
Subordinate and Multiple
Voting Share
Basic 0.15 (0.10) 0.18 (0.09)
Diluted 0.15 (0.10) 0.18 (0.09)
------------------------------------------------
Dividends declared per
Subordinate and Multiple
Voting Share 0.08 0.09 0.16 0.17
(CDN$0.08) (CDN$0.08) (CDN$0.16) (CDN$0.16)
------------------------------------------------
------------------------------------------------
Total weighted average
number of Subordinate and
Multiple Voting Shares
Basic 22,033,577 22,183,375 22,033,577 22,183,375
Diluted 22,038,797 22,225,091 22,043,135 22,230,509
------------------------------------------------
------------------------------------------------
Velan Inc.
Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods Six-month periods
ended ended
August 31 August 31
2012 2011 2012 2011
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 3,416 (2,822) 4,125 (2,481)
Other comprehensive income (loss)
Foreign currency translation
adjustment on foreign operations
whose functional currency is
other than the U.S. dollar
1,455 1,031 (9,004) 3,845
-------------------------------------------
Comprehensive income (loss) 4,871 (1,791) (4,879) 1,364
-------------------------------------------
-------------------------------------------
Comprehensive income (loss)
attributable to:
Subordinate Voting Shares and
Multiple Voting Shares 4,611 (1,258) (4,501) 2,027
Non-controlling interest 260 (533) (378) (663)
-------------------------------------------
4,871 (1,791) (4,879) 1,364
-------------------------------------------
-------------------------------------------
Velan Inc.
Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At August 31, February 29,
2012 2012
$ $
Assets
Current assets
Cash and cash equivalents 52,155 65,414
Short-term investments 2,657 4,954
Accounts receivable 124,934 111,856
Income taxes recoverable 9,537 9,682
Inventories 269,115 258,684
Deposits and prepaid expenses 8,118 6,209
Derivative assets 2,297 1,737
--------------------------
468,813 458,536
Non-current assets
Property, plant and equipment 77,506 72,961
Intangible assets and goodwill 53,560 58,845
Deferred income taxes 11,094 10,152
Other assets 1,612 1,476
--------------------------
143,772 143,434
--------------------------
Total assets 612,585 601,970
--------------------------
--------------------------
Liabilities
Current liabilities
Bank indebtedness 40,697 32,438
Short-term loans 1,961 858
Accounts payable and accrued liabilities 74,175 82,088
Income tax payable 1,895 2,484
Dividend payable 1,783 1,791
Customer deposits 90,224 86,544
Provisions 4,798 5,149
Accrual for performance guarantees 23,492 21,679
Derivative liabilities 654 534
Current portion of long-term debt 6,615 1,696
Current portion of other liabilities 2,384 5,753
--------------------------
248,678 241,014
Non-current liabilities
Long-term debt 22,434 7,891
Deferred income taxes 7,463 8,270
Other liabilities 8,845 9,218
--------------------------
38,742 25,379
--------------------------
Total liabilities 287,420 266,393
--------------------------
Equity
Equity attributable to the Subordinate and
Multiple Voting shareholders
Share capital 76,836 78,764
Contributed surplus 1,758 1,871
Retained earnings 251,471 250,951
Accumulated other comprehensive income (loss) (12,730) (4,217)
--------------------------
317,335 327,369
Non-controlling interest 7,830 8,208
--------------------------
Total equity 325,165 335,577
--------------------------
Total liabilities and equity 612,585 601,970
--------------------------
--------------------------
Velan Inc.
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
Contri- other
Number of Share buted comprehensive Retained
shares capital surplus income (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 - - - - 4,012 4,012
Other
comprehensive
income (loss) - - - (8,513) - (8,513)
-------------------------------------------------------------
22,148,968 78,764 1,871 (12,730) 254,963 322,868
Effect of
share-based
compensation - - 29 - - 29
Dividends
Multiple
Voting Shares - - - - (2,478) (2,478)
Subordinate
Voting Shares - - - - (1,014) (1,014)
Non-
controlling
interest - - - - - -
Share
repurchase (177,200) (1,928) (142) - - (2,070)
-------------------------------------------------------------
Balance -
August 31,
2012 21,971,768 76,836 1,758 (12,730) 251,471 317,335
-------------------------------------------------------------
Balance - March
1, 2011 22,195,568 79,271 1,898 2,275 250,254 333,698
Net income
(loss) for the
period - - - - (1,964) (1,964)
Other
comprehensive
income (loss) - - - 3,991 - 3,991
-------------------------------------------------------------
22,195,568 79,271 1,898 6,266 248,290 335,725
Effect of
share-based
compensation - - 17 - - 17
Dividends
Multiple
Voting Shares - - - - (2,568) (2,568)
Subordinate
Voting Shares - - - - (1,093) (1,093)
Non-
controlling
interest - - - - - -
Share
repurchase (19,200) (201) (78) - - (279)
Non-controlling
interest
arising on
acquisition - - - - - -
-------------------------------------------------------------
Balance -
August 31,
2011 22,176,368 79,070 1,837 6,266 244,629 331,802
-------------------------------------------------------------
Non-
controlling
interest Total equity
----------------------------
Balance - March
1, 2012 8,208 335,577
Net income
(loss) for the
period 113 4,125
Other
comprehensive
income (loss) (491) (9,004)
----------------------------
7,830 330,698
Effect of
share-based
compensation - 29
Dividends
Multiple
Voting Shares - (2,478)
Subordinate
Voting Shares - (1,014)
Non-
controlling
interest - -
Share
repurchase - (2,070)
----------------------------
Balance -
August 31,
2012 7,830 325,165
----------------------------
Balance - March
1, 2011 4,025 337,723
Net income
(loss) for the
period (517) (2,481)
Other
comprehensive
income (loss) (146) 3,845
----------------------------
3,362 339,087
Effect of
share-based
compensation - 17
Dividends
Multiple
Voting Shares - (2,568)
Subordinate
Voting Shares - (1,093)
Non-
controlling
interest (84) (84)
Share
repurchase - (279)
Non-controlling
interest
arising on
acquisition 8,372 8,372
----------------------------
Balance -
August 31,
2011 11,650 343,452
----------------------------
Velan Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods Six-month periods
ended August 31, ended August 31,
2012 2011 2012 2011
Cash flows from $ $ $ $
Operating activities
Net income (loss) for the
period 3,416 (2,822) 4,125 (2,481)
Adjustments to reconcile net
profit to cash provided
operating activities
Depreciation of property,
plant and equipment 2,314 2,204 4,528 4,224
Amortization of intangible
assets 621 1,667 1,650 2,358
Deferred income taxes (810) (882) (1,773) (942)
Share-based compensation
expense 15 8 29 17
Loss (Gain) on disposal of
property, plant and
equipment 103 31 (121) 50
Interest accretion on
proceeds payable 163 305 349 411
Income from fair value
adjustment of proceeds
payable - - (196) -
Unrealized foreign
exchange gain on proceeds
payable (13) - (574) -
Net change in other
liabilities (24) 514 (434) 628
------------------------------------------------
5,785 1,025 7,583 4,265
Changes in non-cash working
capital items (10,481) (13,829) (31,482) (18,596)
------------------------------------------------
Cash provided (used) by
operating activities (4,696) (12,804) (23,899) (14,331)
------------------------------------------------
Investing activities
Short -term investments 1,561 (614) 2,297 (651)
Additions to property, plant
and equipment (6,830) (2,932) (11,082) (7,377)
Proceeds on disposal of
property, plant and
equipment 67 19 459 27
Additions to intangible
assets (208) (610) (266) (645)
Net change in other assets (10) (9) (144) 17
Business acquisition - net
of cash acquired - - - (37,281)
------------------------------------------------
Cash provided (used) by
investing activities (5,420) (4,146) (8,736) (45,910)
------------------------------------------------
Financing activities
Dividends paid to
Subordinate and Multiple
Voting shareholders (1,723) (1,850) (3,500) (3,680)
Dividends paid to non-
controlling interest - (84) - (84)
Repurchase of shares (1,944) (250) (2,070) (279)
Payment of proceeds payable (2,905) - (2,905) -
Short -term loans (94) (1,306) 1,103 (4,842)
Increase in long-term debt 623 4,224 20,715 4,224
Repayment of long-term debt (292) (5) (957) (57)
------------------------------------------------
Cash provided (used) by
financing activities (6,335) 729 12,386 (4,718)
------------------------------------------------
Effect of exchange rate
differences on cash (485) 133 (1,269) 312
------------------------------------------------
Net change in cash during
the period (16,936) (16,088) (21,518) (64,647)
Net cash - Beginning of the
period 28,394 65,803 32,976 114,362
------------------------------------------------
Net cash - End of the period 11,458 49,715 11,458 49,715
------------------------------------------------
Net cash is composed of:
Cash and cash equivalents 52,155 58,210 52,155 58,210
Bank indebtedness (40,697) (8,495) (40,697) (8,495)
------------------------------------------------
11,458 49,715 11,458 49,715
Supplementary information
Interest received (paid) (511) (54) (860) (105)
Income taxes received (paid) (1,636) (1,568) (2,975) (4,019)
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