Velan Inc. Reports its Second Quarter 2014/15 Financial Results

2014-10-10

MONTREAL, QUEBEC, Oct 09, 2014 (Marketwired via COMTEX) -- Velan Inc. (VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its second quarter ended August 31, 2014.

Highlights

--  Sales of US$110.9 million for the quarter
--  Net earnings(1) of US$5.1 million for the quarter
--  Order backlog of US$490.7 million at the end of the quarter
--  Order bookings of US$117.9 million for the quarter
--  Net cash(2) of US$68.8 million at the end of the quarter
--  Quarterly dividend of CA$0.10 per share declared, payable December 31,
    2014
                                    Three-month periods   Six-month periods
                                                  ended               ended
                                              August 31           August 31
                                    ----------------------------------------
(millions of U.S. dollars,
 excluding per share amounts)            2014      2013      2014      2013
                                    ----------------------------------------
Sales                                 $ 110.9   $ 120.7   $ 214.0   $ 252.9
Gross profit                             29.2      30.1      55.7      60.8
Gross margin %                           26.3%     24.9%     26.0%     24.0%
Net income (loss) attributable to
 Subordinate and Multiple Voting
 Shares                                   5.1       4.9       9.1      10.7
Net income (loss)
 per share          - Basic              0.23      0.23      0.41      0.49
                    - Diluted            0.23      0.23      0.41      0.49


Second Quarter Fiscal 2015 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2014):

--  Net earnings(1) amounted to $5.1 million or $0.23 per share compared to
    $4.9 million or $0.23 per share last year. The $0.2 million increase in
    net earnings(1) is primarily attributable to an improved gross margin
    percentage and lower net borrowing costs.
--  Sales amounted to $110.9 million, a decrease of $9.8 million or 8.1% for
    the quarter, while net new orders received ("bookings") amounted to
    $117.9 million, an increase of $25.2 million or 27.2% compared to last
    year. As a result, the Company ended the quarter with a backlog of
    $490.7 million, an increase of $19.0 million or 4.0% since the beginning
    of the current fiscal year.
--  Gross margin increased by 1.4 percentage points from 24.9% to 26.3%.
    This increase is mainly attributable to a product mix with a greater
    proportion of higher margin product sales, particularly spare parts and
    valves without third party actuators.
--  The Company generated net cash(2) from operations of $5.3 million in the
    quarter. The Company ended the quarter with net cash(2) of $68.8
    million, an increase of $1.1 million or 1.6% since the beginning of the
    current fiscal year.


First Half Year Fiscal 2015 (unless otherwise noted, all comparisons are to the first half year of fiscal 2014):

--  Net earnings(1) amounted to $9.1 million or $0.41 per share compared to
    $10.7 million or $0.49 per share last year. The $1.6 million decrease in
    net earnings(1) is primarily attributable to lower sales volume which
    was partially offset by improved gross margins.
--  Sales amounted to $214.0 million, a decrease of $38.9 million or 15.4%.
    The decrease in sales is primarily attributable to decreased shipments
    of certain large export project orders.
--  Bookings amounted to $232.2 million, an increase of $32.8 million or
    16.4% compared to last year, continuing the positive trend which started
    during the latter half of the prior year.
--  Gross margin increased by 2.0 percentage points from 24.0% to 26.0%.
    This increase is mainly attributable to a product mix with a greater
    proportion of higher margin product sales, particularly spare parts and
    valves without third party actuators.
--  The Company generated net cash(2) from operations of $16.7 million in
    the period. This source of net cash(2) was primarily attributable to
    positive cash net earnings(1).
--  Foreign currency impacts:
    --  Based on average exchange rates, the Euro strengthened 4.1% against
        the U.S. dollar when compared to the same period last year. This
        strengthening resulted in the Company's net profits from its
        European subsidiaries being reported as higher U.S. dollar amounts
        in the current period.
    --  Based on average exchange rates, the Canadian dollar weakened 5.7%
        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 impact of these currency swings was favourable to the Company's
        results for the period.


"Although our sales this quarter were lower than the comparable quarter last year, due in part to certain contracts that couldn't ship during the quarter, we were pleased that the margin continued to be stronger than last year," said John Ball, CFO of Velan Inc. "The stronger margins, coupled with flat administration costs, resulted in a slightly better net income for the quarter. Furthermore, given our strong balance sheet, we intend, subject to Toronto Stock Exchange approval, to renew our normal course issuer bid when it expires on October 21, 2014. Although this year we had hoped to buy more than the 17,600 shares that we managed to acquire on the open market, we realize our shares are thinly traded and not always available in the quantities we would like. Under the bid, we may purchase up to 100,000 Subordinate Voting Shares (the "Shares"), representing approximately 1.57% of the issued Shares of such class as at October 9, 2014. All Shares purchased will be cancelled. As at October 9, 2014, we had 6,374,601 Shares outstanding. During the past 12 months, 17,600 Shares were purchased at a weighted average price of $16.99. We have concluded that purchases of up to 100,000 of the issued and outstanding Shares may be an appropriate and desirable use of available funds and, therefore, would be in the best interest of the Corporation. As a result of such purchases, the number of issued Shares will be decreased and, consequently, the proportionate share interest of all remaining shareholders will be increased on a pro rata basis."

Tom Velan, President and CEO of Velan Inc. said, "We just completed an international sales conference with our distributors and agents as well as our sales people from around the world. I am encouraged by the great opportunities for our products in the global energy market."

Dividend

The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on December 31, 2014, to all shareholders of record as at December 15, 2014.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on October 9, 2014, at 4:30 PM (EDT). The toll free call-in number is 1-877-256-6025, access code 21735725. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21735725.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of $489 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 MD&A for a detailed calculation of this measure.

(1) Net earnings or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares.

(2) Non-IFRS measures - see explanation above.

Velan Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
As At                                             August 31,   February 28,
                                                        2014           2014
                                                           $              $
Assets
Current assets
Cash and cash equivalents                             98,190        106,716
Short-term investments                                   808            239
Accounts receivable                                  114,823        128,978
Income taxes recoverable                               8,436          5,465
Inventories                                          219,084        224,149
Deposits and prepaid expenses                          6,545          5,046
Derivative assets                                        307            498
                                              ------------------------------
                                                     448,193        471,091
Non-current assets
Property, plant and equipment                         94,743         96,605
Intangible assets and goodwill                        40,431         43,359
Deferred income taxes                                 11,064         11,406
Other assets                                           1,528          1,693
                                              ------------------------------
                                                     147,766        153,063
                                              ------------------------------
Total assets                                         595,959        624,154
                                              ------------------------------
                                              ------------------------------
Liabilities
Current liabilities
Bank indebtedness                                     22,811         31,876
Short-term bank loans                                  1,487            916
Accounts payable and accrued liabilities              65,776         76,590
Income tax payable                                     6,162          4,158
Dividend payable                                       2,018          1,586
Customer deposits                                     61,150         66,842
Provisions                                             7,483          8,060
Accrual for performance guarantees                    33,482         33,842
Derivative liabilities                                   358          1,501
Current portion of long-term debt                      9,582         10,402
                                              ------------------------------
                                                     210,309        235,773
Non-current liabilities
Long-term debt                                         8,823         11,685
Deferred income taxes                                  8,734          9,270
Other liabilities                                      8,552          8,307
                                              ------------------------------
                                                      26,109         29,262
                                              ------------------------------
Total liabilities                                    236,418        265,035
                                              ------------------------------
Equity
Equity attributable to the Subordinate and
 Multiple Voting shareholders
Share capital                                         76,497         76,688
Contributed surplus                                    6,054          6,099
Retained earnings                                    277,884        272,867
Accumulated other comprehensive income (loss)         (8,597)        (3,589)
                                              ------------------------------
                                                     351,838        352,065
Non-controlling interest                               7,703          7,054
                                              ------------------------------
Total equity                                         359,541        359,119
                                              ------------------------------
Total liabilities and equity                         595,959        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        Six-month periods
                                             ended                    ended
                                         August 31                August 31
                                  2014        2013         2014        2013
                                     $           $            $           $
Sales                          110,888     120,762      213,953     252,930
Cost of sales                   81,635      90,685      158,215     192,174
                            -----------------------  -----------------------
Gross profit                    29,253      30,077       55,738      60,756
Administration costs            21,480      21,349       42,777      43,097
Other expense (income)             (86)        976         (216)      1,014
                            -----------------------  -----------------------
Operating profit (loss)          7,859       7,752       13,177      16,645
Finance income                     251         179          516         359
Finance costs                      253         610          632       1,156
                            -----------------------  -----------------------
Finance income (costs) - net        (2)       (431)        (116)       (797)
                            -----------------------  -----------------------
Income (Loss) before income
 tax                             7,857       7,321       13,061      15,848
Provision for (Recovery of)
 income tax                      2,438       2,093        3,580       4,338
                            -----------------------  -----------------------
Net income (loss) for the
 period                          5,419       5,228        9,481      11,510
                            -----------------------  -----------------------
                            -----------------------  -----------------------
Net income (loss)
 attributable to:
Subordinate Voting Shares
 and Multiple Voting Shares      5,098       4,889        9,103      10,689
Non-controlling interest           321         339          378         821
                            -----------------------  -----------------------
                                 5,419       5,228        9,481      11,510
                            -----------------------  -----------------------
                            -----------------------  -----------------------
Net income (loss) per
 Subordinate and Multiple
 Voting Share
Basic                             0.23        0.23         0.41        0.49
Diluted                           0.23        0.23         0.41        0.49
                            ------------------------------------------------
                            ------------------------------------------------
Dividends declared per
 Subordinate and Multiple         0.09        0.08         0.18        0.16
  Voting Share                (CA$0.10)   (CA$0.08)    (CA$0.20)   (CA$0.16)
                            -----------------------  -----------------------
                            -----------------------  -----------------------
Total weighted average
 number of Subordinate
 andMultiple Voting Shares
Basic                       21,948,133  21,923,768   21,948,133  21,923,768
Diluted                     21,958,384  21,935,818   21,956,900  21,935,754
                            -----------------------  -----------------------
                            -----------------------  -----------------------
Velan Inc.
Condensed 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
                                       2014       2013       2014       2013
                                          $          $          $          $
Comprehensive income (loss)
Net income (loss) for the period      5,419      5,228      9,481     11,510
Other comprehensive income (loss)
Foreign currency translation
 adjustment on foreign operations
 whose functional currency is
 other than the reporting currency
 (U.S. dollar)                       (3,771)     1,884     (4,737)       662
                                  --------------------  --------------------
Comprehensive income (loss)           1,648      7,112      4,744     12,172
                                  --------------------  --------------------
                                  --------------------  --------------------
Comprehensive income (loss)
 attributable to:
Subordinate Voting Shares and
 Multiple Voting Shares               1,290      6,701      4,095     11,447
Non-controlling interest                358        411        649        725
                                  --------------------  --------------------
                                      1,648      7,112      4,744     12,172
                                  --------------------  --------------------
                                  --------------------  --------------------


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
                                                                comprehensi
                                                                        ve
                                Number of     Share Contributed      income
                                   shares   capital     surplus      (loss)
                              ----------------------------------------------
Balance - February 28, 2014    21,958,768    76,688       6,099      (3,589)
Net income (loss) for the
 period                                 -         -           -           -
Other comprehensive income
 (loss)                                 -         -           -      (5,008)
                              ----------------------------------------------
                               21,958,768    76,688       6,099      (8,597)
Effect of share-based
 compensation                           -         -           6           -
Dividends
  Multiple Voting Shares                -         -           -           -
  Subordinate Voting Shares             -         -           -           -
Share repurchase                  (17,600)     (191)        (51)          -
                              ----------------------------------------------
Balance - August 31, 2014      21,941,168    76,497       6,054      (8,597)
                              ----------------------------------------------
                              ----------------------------------------------
Balance - February 28, 2013    21,923,768    76,314       1,746      (8,676)
Net income (loss) for the
 period                                 -         -           -           -
Other comprehensive income
 (loss)                                 -         -           -         758
                              ----------------------------------------------
                               21,923,768    76,314       1,746      (7,918)
Effect of share-based
 compensation                           -         -          16           -
Dividends
  Multiple Voting Shares                -         -           -           -
  Subordinate Voting Shares             -         -           -           -
Acquisition of non-controlling
 interest                               -         -       4,330      (1,137)
                              ----------------------------------------------
Balance - August 31, 2013      21,923,768    76,314       6,092      (9,055)
                              ----------------------------------------------
                              ----------------------------------------------
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
                              ----------------------
                                                           Non-
                                 Retained           controlling      Total
                                 earnings     Total    interest     equity
                              ---------------------------------------------
Balance - February 28, 2014       272,867   352,065       7,054    359,119
Net income (loss) for the
 period                             9,103     9,103         378      9,481
Other comprehensive income
 (loss)                                 -    (5,008)        271     (4,737)
                              ---------------------------------------------
                                  281,970   356,160       7,703    363,863
Effect of share-based
 compensation                           -         6           -          6
Dividends
  Multiple Voting Shares           (2,852)   (2,852)          -     (2,852)
  Subordinate Voting Shares        (1,200)   (1,200)          -     (1,200)
Share repurchase                      (34)     (276)          -       (276)
                              ---------------------------------------------
Balance - August 31, 2014         277,884   351,838       7,703    359,541
                              ---------------------------------------------
                              ---------------------------------------------
Balance - February 28, 2013       250,129   319,513       8,660    328,173
Net income (loss) for the
 period                            10,689    10,689         821     11,510
Other comprehensive income
 (loss)                                 -       758         (96)       662
                              ---------------------------------------------
                                  260,818   330,960       9,385    340,345
Effect of share-based
 compensation                           -        16           -         16
Dividends
  Multiple Voting Shares           (2,420)   (2,420)          -     (2,420)
  Subordinate Voting Shares          (967)     (967)          -       (967)
Acquisition of non-controlling
 interest                               -     3,193      (3,193)         -
                              ---------------------------------------------
Balance - August 31, 2013         257,431   330,782       6,192    336,974
                              ---------------------------------------------
                              ---------------------------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
                                  Three-month periods     Six-month periods
                                                ended                 ended
                                            August 31             August 31
                                       2014      2013        2014      2013
                                          $         $           $         $
Cash flows from
Operating activities
Net income for the period             5,419     5,228       9,481    11,510
Adjustments to reconcile net
 income to cash provided by
 operating activities                 4,985     4,931       7,386     8,251
Changes in non-cash working
 capital items                       (5,151)  (11,421)       (216)    3,684
                                  --------------------  --------------------
Cash provided (used) by operating
 activities                           5,253    (1,262)     16,651    23,445
                                  --------------------  --------------------
Investing activities
Short-term investments                 (477)   (1,080)       (569)   (2,233)
Additions to property, plant and
 equipment                           (1,661)   (3,975)     (5,720)   (8,198)
Additions to intangible assets          (63)     (152)       (293)     (205)
Proceeds on disposal of property,
 plant and equipment, and
 intangible assets                       77         -         128        87
Net change in other assets              (63)       87         167        72
                                  --------------------  --------------------
Cash provided (used) by investing
 activities                          (2,187)   (5,120)     (6,287)  (10,477)
                                  --------------------  --------------------
Financing activities
Dividends paid to Subordinate and
 Multiple Voting shareholders        (2,042)   (1,721)     (3,620)   (3,422)
Repurchase of shares                   (260)        -        (276)        -
Payment of proceeds payable               -         -           -    (1,960)
Short-term bank loans                   950       177         571    (1,001)
Increase in long-term debt                -     1,263           -     2,654
Repayment of long-term debt          (1,720)   (3,124)     (3,399)   (4,843)
                                  --------------------  --------------------
Cash provided (used) by financing
 activities                          (3,072)   (3,405)     (6,724)   (8,572)
                                  --------------------  --------------------
Effect of exchange rate
 differences on cash                 (1,653)    1,097      (3,101)      965
                                  --------------------  --------------------
Net change in cash during the
 period                              (1,659)   (8,690)        539     5,361
Net cash - Beginning of the period   77,038    42,643      74,840    28,592
                                  --------------------  --------------------
Net cash - End of the period         75,379    33,953      75,379    33,953
                                  --------------------  --------------------
                                  --------------------  --------------------
Net cash is composed of:
  Cash and cash equivalents          98,190    74,892      98,190    74,892
  Bank indebtedness                 (22,811)  (40,939)    (22,811)  (40,939)
                                  --------------------  --------------------
                                     75,379    33,953      75,379    33,953
                                  --------------------  --------------------
                                  --------------------  --------------------
Supplementary information
Interest received (paid)                 27      (227)        (66)     (586)
Income taxes reimbursed (paid)       (1,198)   (1,301)     (2,686)     (797)