Velan Inc. Reports its Third Quarter 2015/16 Financial Results
/EINPresswire.com/ -- MONTREAL, QUEBEC -- (Marketwired) -- 01/13/16 -- 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, 2015.
Highlights
-- Sales of US$104.0 million for the quarter
-- Adjusted net earnings(1)of US$5.2 million for the quarter
-- Order backlog of US$348.5 million at the end of the quarter
-- Net order bookings of US$89.5 million for the quarter
-- Net cash(1)of US$69.5 million at the end of the quarter
-- Returned US$2.8 million to shareholders in the quarter and US$7.5
million in the nine-month period by way of dividends and share
repurchases
Three-month Nine-month period
period ended ended
November 30 November 30
--------------------------------------
(millions of U.S. dollars,
excluding per share amounts) 2015 2014 2015 2014
--------------------------------------
Sales $104.0 $127.3 $318.7 $341.2
Gross profit 26.0 33.5 76.2 89.2
Gross margin % 25.0% 26.3% 23.9% 26.1%
Net income attributable to
Subordinate and Multiple
Voting Shares 3.6 4.8 11.5 13.9
Net income (loss) per share - Basic 0.16 0.22 0.52 0.63
- Diluted 0.16 0.22 0.52 0.63
Third Quarter Fiscal 2016 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the third quarter of fiscal 2015):
-- Net earnings(2)amounted to $3.6 million or $0.16 per share compared to
$4.8 million or $0.22 per share last year. Adjusted net earnings(1),
which excludes from net earnings(2)the after-tax impact of the
restructuring costs incurred in the quarter, amounted to $5.2 million or
$0.23 per share compared to $4.8 million or $0.22 per share last year.
The $0.4 million increase in adjusted net earnings(1)was achieved
despite a drop in sales and gross margin, which were offset by lower
administration and net finance costs.
-- Net new orders received ("bookings") amounted to $89.5 million, a
decrease of $36.5 million or 29.0% compared to last year. The continued
weakness in the price of oil has had a negative impact on the Company's
order intake in some of its important markets, namely in the oil and gas
industry and the energy sector.
-- Sales amounted to $104.0 million, a decrease of $23.3 million or 18.3%
compared to last year. The decrease in bookings over the last four
quarters is having a negative impact on the Company's shipments and
billings. Anticipating this drop in sales, the Company restructured its
North American operations in the quarter with a workforce reduction and
plant consolidation, thus lowering its production and administrative
overhead costs.
-- Gross margin decreased by 1.3 percentage points from 26.3% to 25.0%.
This decrease is mainly attributable to a lower sales volume, which was
partially offset by a decrease in direct labour and production overhead
costs resulting from the restructuring described above.
-- Foreign currency impacts:
-- Based on average exchange rates, the euro weakened 5.4% against the
U.S. dollar when compared to the same period last year. This
weakening resulted in the Company's net profits, bookings, sales,
and backlog from its European subsidiaries being reported as lower
U.S. dollar amounts in the current quarter.
-- Based on average exchange rates, the Canadian dollar weakened 7.6%
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 currency swings was favourable to the
Company's results for the current quarter.
First Nine Months Fiscal 2016 (unless otherwise noted, all comparisons are to the first nine months of fiscal 2015)
-- Net earnings(2)amounted to $11.5 million or $0.52 per share compared to
$13.9 million or $0.63 per share last year. Adjusted net
earnings(1)amounted to $13.1 million or $0.59 per share compared to
$13.9 million or $0.63 per share last year. The $0.8 million decrease in
adjusted net earnings(1)is primarily attributable to a lower gross
profit percentage partially offset by decreased administration and net
finance costs.
-- Sales amounted to $318.7 million, a decrease of $22.5 million or 6.6%
compared to last year. The decrease in bookings over the last four
quarters is having a negative impact on the Company's shipments and
billings. Sales were also affected by a production slowdown caused by
labour unrest and a lockout at the Company's Canadian facilities during
the first half of the current fiscal year.
-- Bookings amounted to $242.8 million, a decrease of $127.5 million or
34.4% compared to last year. Excluding the effect of an order
cancellation of $23.6 million in the first quarter, bookings would have
decreased by $103.9 million or 28.1% in the period. This decrease is
mainly attributable to an economic downturn in some of the Company's
important markets, particularly the oil and gas industry and energy
sector.
-- As a result of sales outpacing bookings in the period, the Company ended
the period with a backlog of $348.5 million, a decrease of $89.3 million
or 20.4% since the beginning of the current fiscal year.
-- Gross margin decreased by 2.2 percentage points from 26.1% to 23.9%.
This decrease is attributable to a number of factors, including a lower
sales volume and competitive bidding in a tighter market resulting in a
greater proportion of lower margin product sales.
-- Administration costs amounted to $57.6 million, a decrease of $10.4
million or 15.3%. The decrease is primarily attributable to favourable
currency swings resulting from a stronger U.S. dollar, a decrease in
compensation-related costs, and a decrease in costs recognized in
connection with the Company's ongoing asbestos litigation. The
fluctuation in asbestos-related costs for the period is due more to the
timing of settlement payments in these two periods than to changes in
long-term trends.
-- The Company ended the period with net cash(1)of $69.5 million, a
decrease of $6.1 million or 8.1% since the beginning of the current
fiscal year. This decrease is primarily attributable to the Company
returning $7.5 million in cash to its shareholders over the nine-month
period by way of dividends and share repurchases.
-- Foreign currency impacts:
-- Based on average exchange rates, the euro weakened 17.2% against the
U.S. dollar when compared to the same period last year. This
weakening resulted in the Company's net profits, bookings, sales,
and backlog from its European subsidiaries being reported as lower
U.S. dollar amounts in the current period.
-- Based on average exchange rates, the Canadian dollar weakened 14.0%
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 unfavourable impact of the euro decrease was generally offset by
the favourable impact of the Canadian dollar decrease on the
Company's net earnings(2).
"Although this quarter was a challenge in respect to both order bookings and sales, management continued to take actions to improve the efficiency and profitability of the business," said John Ball, CFO of Velan Inc. "While the weakening Canadian dollar did help contribute to margins in North America, the increasingly competitive nature of the business, particularly in the hard-hit oil and gas sector, largely offset those gains."
Yves Leduc, President of Velan Inc., said, "Confronted with a slumping global energy market, the strategic direction we have set earlier this year is to cut expenses and grow margins through operational improvements. Accordingly, in this last quarter, we have proceeded with an important restructuring initiative that is helping us manage a reduced backlog. It is also giving us the necessary headroom to carry out a number of elements of our strategic plan aimed at increasing our gross margin and delivery performance. While we are unsure as to the timing of the eventual market recovery, in the meantime we are actively targeting bottom-line improvements."
Tom Velan, CEO of Velan Inc., said, "We continued to buy back shares under our Normal Course Issuer Bid ("NCIB") and, in the quarter, we bought back 90,300 shares at an average price of CA$15.76 or US$12.68 per share. On November 30, 2015, our share price closed at CA$15.60 or US$11.68 per share compared to our book value of US$15.68 per share. We continue to pay an annual dividend of CA$0.40 per share. We will continue to buy shares under our NCIB as we consider it a good investment of our cash."
Dividend
The Board declared an eligible quarterly dividend of CA$0.10 per share, payable on March 31, 2016, to all shareholders of record as at March 15, 2016.
Conference call
Financial analysts, shareholders, and other interested individuals are invited to attend the third quarter conference call to be held on Wednesday, January 13, 2016, at 4:30 p.m. (EDT). The toll free call-in number is 1-888-273-1350, access code 21802376. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21802376.
About Velan
Founded in Montreal in 1950, Velan Inc. (www.velan.com) is one of the world's leading manufacturers of industrial valves, with sales of US$455.7 million in its last reported fiscal year. The Company 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
This news release may include forward-looking statements, which generally contain words like "should", "believe", "anticipate", "plan", "may", "will", "expect", "intend", "continue" or "estimate" or the negatives of these terms or variations of them or similar expressions, all of which are subject to risks and uncertainties, which are disclosed in the Company's filings with the appropriate securities commissions. While these statements are based on management's assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that it believes are reasonable and appropriate in the circumstances, no forward-looking statement can be guaranteed and actual future results may differ materially from those expressed herein. The Company disclaims any intention or obligation to update or revise any forward-looking statements contained herein whether as a result of new information, future events or otherwise, except as required by the applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
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 "adjusted net earnings" is defined as net income attributable to Subordinate and Multiple Voting Shares plus restructuring costs less the income tax effect of the restructuring costs. Refer to the "Reconciliations of Non- IFRS Measures" section in the Company's MD&A for a detailed calculation of this measure.
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) Non-IFRS measures - see explanation above.
Net earnings or loss refer to net income or loss attributable to
(2) Subordinate and Multiple Voting Shares.
Velan Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
As At November 30, February 28,
2015 2015
$ $
Assets
Current assets
Cash and cash equivalents 81,392 99,578
Short-term investments 2,633 847
Accounts receivable 114,370 105,335
Income taxes recoverable 9,931 5,472
Inventories 178,636 203,557
Deposits and prepaid expenses 5,690 5,326
Derivative assets 91 144
----------------------------------
392,743 420,259
Non-current assets
Property, plant and equipment 87,375 91,285
Intangible assets and goodwill 30,412 33,576
Deferred income taxes 11,991 12,392
Other assets 2,549 1,116
----------------------------------
132,327 138,369
----------------------------------
Total assets 525,070 558,628
----------------------------------
----------------------------------
Liabilities
Current liabilities
Bank indebtedness 7,708 15,616
Short-term bank loans 1,204 2,134
Accounts payable and accrued liabilities 58,653 70,997
Income taxes payable 4,589 3,961
Dividend payable 1,631 1,755
Customer deposits 36,541 44,111
Provisions 8,965 7,874
Accrual for performance guarantees 29,839 30,012
Derivative liabilities 2,762 5,362
Current portion of long-term debt 9,081 10,644
----------------------------------
160,973 192,466
Non-current liabilities
Long-term debt 6,389 4,183
Deferred income taxes 7,797 8,349
Other liabilities 8,590 8,537
----------------------------------
22,776 21,069
----------------------------------
Total liabilities 183,749 213,535
----------------------------------
Equity
Equity attributable to the Subordinate and
Multiple Voting shareholders
Share capital 74,745 76,475
Contributed surplus 5,914 6,064
Retained earnings 289,728 283,724
Accumulated other comprehensive income
(loss) (35,011) (27,652)
----------------------------------
335,376 338,611
Non-controlling interest 5,945 6,482
----------------------------------
Total equity 341,321 345,093
----------------------------------
Total liabilities and equity 525,070 558,628
----------------------------------
----------------------------------
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 ended Nine-month periods ended
November 30 November 30
2015 2014 2015 2014
$ $ $ $
Sales 104,002 127,290 318,739 341,243
Cost of sales 77,988 93,807 242,527 252,022
----------------------------------------------------
Gross profit 26,014 33,483 76,212 89,221
Administration costs 18,579 25,244 57,649 68,021
Restructuring costs 2,150 - 2,150 -
Other expense (income) 162 180 171 (36)
----------------------------------------------------
Operating profit (loss) 5,123 8,059 16,242 21,236
Finance income 213 264 713 780
Finance costs 173 638 740 1,270
----------------------------------------------------
Finance income (costs) -
net 40 (374) (27) (490)
----------------------------------------------------
Income (Loss) before
income taxes 5,163 7,685 16,215 20,746
Provision for (Recovery
of) income taxes 1,496 2,521 4,020 6,101
----------------------------------------------------
Net income (loss) for
the period 3,667 5,164 12,195 14,645
----------------------------------------------------
----------------------------------------------------
Net income (loss)
attributable to:
Subordinate Voting
Shares and Multiple
Voting Shares 3,608 4,759 11,464 13,862
Non-controlling interest 59 405 731 783
----------------------------------------------------
3,667 5,164 12,195 14,645
----------------------------------------------------
----------------------------------------------------
Net income (loss) per
Subordinate and
Multiple Voting Share
Basic 0.16 0.22 0.52 0.63
Diluted 0.16 0.22 0.52 0.63
----------------------------------------------------
----------------------------------------------------
Dividends declared per
Subordinate and
Multiple 0.07 0.09 0.23 0.27
Voting Share (CA$0.10) (CA$0.10) (CA$0.30) (CA$0.30)
----------------------------------------------------
----------------------------------------------------
Total weighted average
number of Subordinate
and Multiple Voting
Shares
Basic 21,839,960 21,947,758 21,861,664 21,947,758
Diluted 21,839,960 21,961,072 21,861,664 21,959,439
----------------------------------------------------
----------------------------------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
Three-month periods ended Nine-month periods ended
November 30 November 30
2015 2014 2015 2014
$ $ $ $
Comprehensive income
(loss)
Net income (loss) for
the period 3,667 5,164 12,195 14,645
Other comprehensive
income (loss)
Foreign currency
translation adjustment
on foreign operations
whose functional
currency is other than
the reporting currency
(U.S. dollar) (5,910) (8,238) (7,598) (12,975)
----------------------------------------------------
Comprehensive income
(loss) (2,243) (3,074) 4,597 1,670
----------------------------------------------------
----------------------------------------------------
Comprehensive income
(loss) attributable to:
Subordinate Voting
Shares and Multiple
Voting Shares (2,423) (2,950) 4,105 1,145
Non-controlling interest 180 (124) 492 525
----------------------------------------------------
(2,243) (3,074) 4,597 1,670
----------------------------------------------------
----------------------------------------------------
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
Number of Share Contributed comprehensive
shares capital surplus income (loss)
-----------------------------------------------
Balance - February 28, 2015 21,939,168 76,475 6,064 (27,652)
Net income (loss) for the
period - - - -
Other comprehensive income
(loss) - - - (7,359)
-----------------------------------------------
21,939,168 76,475 6,064 (35,011)
Effect of share-based
compensation - - 77 -
Shares issued under Share
Option Plan 14,267 227 (227) -
Dividends
Multiple Voting Shares - - - -
Subordinate Voting Shares - - - -
Non-controlling interest - - - -
Share repurchase (179,600) (1,957) - -
Acquisition of non-
controlling interest - - - -
-----------------------------------------------
Balance - November 30, 2015 21,773,835 74,745 5,914 (35,011)
-----------------------------------------------
-----------------------------------------------
Balance - February 28, 2014 21,958,768 76,688 6,099 (3,589)
Net income (loss) for the
period - - - -
Other comprehensive income
(loss) - - - (12,717)
-----------------------------------------------
21,958,768 76,688 6,099 (16,306)
Effect of share-based
compensation - - 6 -
Dividends
Multiple Voting Shares - - - -
Subordinate Voting Shares - - - -
Non-controlling interest - - - -
Share repurchase (18,600) (202) (51) -
-----------------------------------------------
Balance - November 30, 2014 21,940,168 76,486 6,054 (16,306)
-----------------------------------------------
-----------------------------------------------
Equity attributable to
the Subordinate and
Multiple Voting
shareholders
----------------------
Non-
Retained controlling Total
earnings Total interest equity
-----------------------------------------------
Balance - February 28, 2015 283,724 338,611 6,482 345,093
Net income (loss) for the
period 11,464 11,464 731 12,195
Other comprehensive income
(loss) - (7,359) (239) (7,598)
-----------------------------------------------
295,188 342,716 6,974 349,690
Effect of share-based
compensation - 77 - 77
Shares issued under Share
Option Plan - - - -
Dividends
Multiple Voting Shares (3,670) (3,670) - (3,670)
Subordinate Voting Shares (1,376) (1,376) - (1,376)
Non-controlling interest - - (139) (139)
Share repurchase (414) (2,371) - (2,371)
Acquisition of non-
controlling interest - - (890) (890)
-----------------------------------------------
Balance - November 30, 2015 289,728 335,376 5,945 341,321
-----------------------------------------------
-----------------------------------------------
Balance - February 28, 2014 272,867 352,065 7,054 359,119
Net income (loss) for the
period 13,862 13,862 783 14,645
Other comprehensive income
(loss) - (12,717) (258) (12,975)
-----------------------------------------------
286,729 353,210 7,579 360,789
Effect of share-based
compensation - 6 - 6
Dividends
Multiple Voting Shares (4,208) (4,208) - (4,208)
Subordinate Voting Shares (1,722) (1,722) - (1,722)
Non-controlling interest - - (86) (86)
Share repurchase (39) (292) - (292)
-----------------------------------------------
Balance - November 30, 2014 280,760 346,994 7,493 354,487
-----------------------------------------------
-----------------------------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
Three-month periods Nine-month periods
ended ended
November 30 November 30
2015 2014 2015 2014
$ $ $ $
Cash flows from
Operating activities
Net income for the period 3,667 5,164 12,195 14,645
Adjustments to reconcile net
income to cash provided by 2,935 6,125 8,342 13,511
operating activities
Changes in non-cash working
capital items 8,480 (3,231) (7,929) (3,447)
------------------------------------------------
Cash provided (used) by
operating activities 15,082 8,058 12,608 24,709
------------------------------------------------
Investing activities
Short-term investments (969) 490 (1,786) (79)
Additions to property, plant
and equipment (3,588) (4,543) (7,714) (10,263)
Additions to intangible
assets (53) (107) (180) (400)
Proceeds on disposal of
property, plant and
equipment, and intangible 60 32 150 160
assets
Acquisition of non-
controlling interest - - (890) -
Net change in other assets (940) 288 (1,448) 455
------------------------------------------------
Cash provided (used) by
investing activities (5,490) (3,840) (11,868) (10,127)
------------------------------------------------
Financing activities
Dividends paid to
Subordinate and Multiple (1,650) (1,978) (5,170) (5,598)
Voting shareholders
Dividends paid to non-
controlling interest - (86) (139) (86)
Repurchase of shares (1,145) (16) (2,371) (292)
Short-term bank loans (302) 296 (930) 867
Increase in long-term debt 1,125 - 7,134 -
Repayment of long-term debt (1,692) (1,468) (5,916) (4,867)
------------------------------------------------
Cash provided (used) by
financing activities (3,664) (3,252) (7,392) (9,976)
------------------------------------------------
Effect of exchange rate
differences on cash (4,488) (2,275) (3,626) (5,376)
------------------------------------------------
Net change in cash during
the period 1,440 (1,309) (10,278) (770)
Net cash - Beginning of the
period 72,244 75,379 83,962 74,840
------------------------------------------------
Net cash - End of the period 73,684 74,070 73,684 74,070
------------------------------------------------
------------------------------------------------
Net cash is composed of:
Cash and cash equivalents 81,392 89,430 81,392 89,430
Bank indebtedness (7,708) (15,360) (7,708) (15,360)
------------------------------------------------
73,684 74,070 73,684 74,070
------------------------------------------------
------------------------------------------------
Supplementary information
Interest received (paid) 99 (35) 100 (101)
Income taxes reimbursed
(paid) (2,198) (2,717) (6,047) (5,403)
Contacts:
VELAN Inc.
Tom Velan
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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