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Velan Inc. Reports Its First Quarter 2018/19 Financial Results

MONTREAL, July 12, 2018 (GLOBE NEWSWIRE) -- Velan Inc. (TSX:VLN) (the “Company”), a world-leading manufacturer of industrial valves, announced today its financial results for its first quarter ended May 31, 2018.

/EIN News/ -- Highlights

  • Sales of US$77.9 million for the quarter
  • Net loss1 of US$3.7 million for the quarter
  • Net new orders (“Bookings”) of US$86.2 million for the quarter
  • Order backlog of US$459.9 million at the end of the quarter, of which US$164.8 million is scheduled for delivery beyond the next 12 months
  • Net cash2 of US$47.9 million at the end of the quarter
  Three-month periods ended
  May 31,   May 31,  
(millions of U.S. dollars, excluding per share amounts)  2018    2017  
 

Sales
$ 77.9   $ 71.1  
             
Gross Profit   17.7     13.5  
Gross profit %   22.7 %   19.0 %
             
EBITDA2   (1.5 )    (2.5 )
EBITDA2 per share – basic and diluted   (0.07 )   (0.12 )
             
Net earnings (loss)1   (3.7 )   (4.3 )
Net earnings (loss)1 per share – basic and diluted   (0.17 )   (0.20 )

First Quarter Fiscal 2019 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first quarter of fiscal 2018):

  • Sales amounted to $77.9 million, an increase of $6.8 million or 9.6% from the prior year. Sales were positively impacted by an increase in shipments in the Company’s North American, French and Italian operations. Despite the higher sales volume for the quarter, delays in shipments of certain large project orders caused by various customer-related, supply chain and internal operational issues continued to be an issue. Fierce competition continues to have a negative impact in most of the Company’s markets which increased the importance for the Company to target discrete market segments where its engineering know-how and agile design capabilities can be a leverage for future growth.

  • Bookings amounted to $86.2 million, an increase of $14.0 million or 19.5% compared to last year. This increase is due primarily to higher orders booked by the Company’s North American and Italian subsidiaries, particularly in the oil and gas sector. The Company also noted an increase in non-project valve orders in the current quarter.

  • The Company ended the period with a backlog of $459.9 million, a decrease of $4.6 million or 1.0% since the beginning of the current fiscal year. Despite a positive book-to-bill ratio of 1.11 in the quarter, the decrease in backlog is primarily attributable to the weakening of the euro spot rate against the U.S. dollar over the course of the current quarter.

  • Gross profit percentage increased by 370 basis points from 19.0% to 22.7%. The increase in the gross profit percentage is mainly attributable to the higher sales volume as well as a product mix with a higher proportion of higher margin product sales, such as spare parts and cost items. However, the continued pressure on pricing continues to cause an erosion of the Company’s margins, particularly in its North American operations.

  • Administration costs amounted to $22.3 million, an increase of $3.2 million or 16.8% compared to last year. The increase is primarily attributable to the planned investment in sales force, engineering and information technology expenses as well as increased costs for freight to customers.

  • EBITDA1 amounted to a negative balance of $1.5 million or $0.07 per share compared to a negative balance of $2.5 million or $0.12 per share last year. The $1.0 million improvement in EBITDA1 is primarily attributable to a higher sales volume and a higher gross profit percentage.
  • Net loss1 amounted to $3.7 million or $0.17 per share compared to $4.3 million or $0.20 per share last year.  Despite a higher sales volume and improved margins, continued weakness in the Company’s North American operations dragged down its overall results, highlighting the need to accelerate its global cost reduction and transformation initiatives.

  • The Company ended the quarter with net cash1 of $47.9 million, a decrease of $13.1 million or 21.5% since the beginning of the current fiscal year. This decrease is primarily attributable to negative non-cash working capital movements of $6.2 million, dividend payments to shareholders and non-controlling interests of $2.5 million, and additions of property, plant and equipment of $2.0 million. Net cash1 was also negatively impacted by the weakening of the euro spot rate against the U.S. dollar over the course of the current quarter.

  • Foreign currency impacts:
    • Based on average exchange rates, the Euro strengthened 12.2% against the U.S. dollar when compared to the same period last year. This strengthening resulted in the Company’s net profits and bookings from its European subsidiaries being reported as higher U.S. dollar amounts in the current quarter.
    • Based on average exchange rates, the Canadian dollar strengthened 4.9% 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 net impact of the above currency swings was not significant on the Company’s net loss2.

“While we had a slight improvement in quarterly sales and margin over last year, as well as a positive book-to-bill ratio, we fully acknowledge the need to transform our business model and return to bottom line profitability, which is an ongoing process,” said John Ball, CFO of Velan Inc. “We are also placing renewed emphasis on treasury and working capital conservation as we manage through this challenging period.”

Yves Leduc, President and CEO of Velan Inc., said, “We believe our strategic direction is right and have been laying the foundation for the future in the midst of a shifting business environment. We are reducing complexity where it hinders our ability to drive improvements, as we sharpen our focus on products and markets with greater margins. As I stated in May, we are working to make important changes to improve our operating results.”

Dividend

The Board declared an eligible quarterly dividend of CDN$0.03 per share, payable on September 28, 2018, to all shareholders of record as at September 14, 2018.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the first quarter conference call to be held on Thursday, July 12, 2018, at 4:30 p.m. (EDT). The toll free call-in number is 1-800-672-0241, access code 21892120. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21892120.

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$338 million in its last reported fiscal year. The Company employs over 1,800 people and has manufacturing plants in 9 countries. Velan Inc. is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

Safe harbour statement

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 “EBITDA” is defined as net income or loss attributable to Subordinate and Multiple Voting Shares plus depreciation of property, plant & equipment, plus amortization of intangible assets, plus net finance costs plus income tax provision. Refer to the “Reconciliations of Non-IFRS Measures” section in the Company’s Management Discussion and Analysis included in its Interim Report for the quarter ended May 31, 2018 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 Management Discussion and Analysis included in its Interim Report for the quarter ended May 31, 2018 for a detailed calculation of this measure.

1 Net earnings or loss refers 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 May 31,   February 28,  
  2018   2018  
  $   $  
Assets    
     
Current assets    
Cash and cash equivalents   77,969     85,391  
Short-term investments   596     647  
Accounts receivable    132,076     137,382  
Income taxes recoverable    9,732     8,012  
Inventories   172,166     170,790  
Deposits and prepaid expenses   4,547     4,222  
Derivative assets   197     604  
    397,283     407,048  
     
Non-current assets    
Property, plant and equipment   88,395     89,864  
Intangible assets and goodwill   19,038     20,210  
Deferred income taxes   21,707     22,034  
Other assets    435     1,037  
     
    129,575     133,145  
     
Total assets   526,858     540,193  
     
Liabilities    
     
Current liabilities    
Bank indebtedness   26,342     20,848  
Short-term bank loans    1,039     1,074  
Accounts payable and accrued liabilities   63,217     63,441  
Income taxes payable   1,190     2,186  
Dividend payable   501     1,678  
Customer deposits   46,423     48,963  
Provisions    9,850     10,798  
Accrual for performance guarantees   31,187     32,655  
Derivative liabilities   1,685     1,615  
Current portion of long-term debt   7,496     8,151  
    188,930     191,409  
     
Non-current liabilities    
Long-term debt   13,763     13,978  
Income taxes payable   2,033     2,078  
Deferred income taxes   2,694     2,889  
Other liabilities   8,315     8,222  
     
    26,805     27,167  
     
Total liabilities   215,735     218,576  
     
Equity     
     
Equity attributable to the Subordinate and Multiple Voting shareholders    
Share capital   73,090     73,090  
Contributed surplus    6,061     6,057  
Retained earnings   252,476     256,668  
Accumulated other comprehensive income (loss)   (25,231 )   (19,790 )
    306,396     316,025  
     
Non-controlling interests   4,727     5,592  
     
Total equity   311,123     321,617  
     
Total liabilities and equity   526,858     540,193  
     


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 May 31
 
  2018   2017  
  $   $  
     
Sales    77,874     71,087  
     
Cost of sales   60,137     57,596  
     
Gross profit   17,737     13,491  
     
Administration costs   22,224     19,139  
Other expense (income)   (16 )   296  
     
Operating profit (loss)   (4,471 )   (5,944 )
     
Finance income   142     128  
Finance costs   174     152  
     
Finance income (costs) – net   (32 )   (24 )
     
Income (Loss) before income taxes   (4,503 )   (5,968 )
     
Income taxes   (829 )   (1,382 )
     
Net income (loss) for the period   (3,674 )   (4,586 )
     
Net income (loss) attributable to:    
Subordinate Voting Shares and Multiple Voting Shares   (3,727 )   (4,304 )
Non-controlling interest   53     (282 )
    (3,674 )   (4,586 )
     
Net income (loss) per Subordinate and Multiple Voting Share     
Basic   (0.17 )   (0.20 )
Diluted   (0.17 )   (0.20 )
     
     
Dividends declared per Subordinate and Multiple Voting Share  0.02     0.07   
   (CA$0.10  )  (CA$0.10  )
     
     
Total weighted average number of Subordinate and  Multiple Votng Shares    
Basic   21,621,935     21,665,337  
Diluted   21,621,935     21,665,337  
     


Velan Inc. 
Condensed Interim Consolidated Statements of Comprehensive Income (Loss) 
(Unaudited) 
(in thousands of U.S. dollars) 
         
    Three-month periods ended May 31
   
    2018   2017    
    $   $    
         
Comprehensive income (loss)        
         
Net income (loss) for the period     (3,674 )   (4,586 )  
         
Other comprehensive income (loss)        
Foreign currency translation adjustment on foreign operations whose functional currency is        
  other than the reporting currency (U.S. dollar)     (5,432 )   6,273    
         
Comprehensive income (loss)     (9,106 )   1,687    
         
Comprehensive income (loss) attributable to:        
Subordinate Voting Shares and Multiple Voting Shares     (9,168 )   1,926    
Non-controlling interest     62     (239 )  
         
      (9,106 )   1,687    
         


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      
  Number of shares Share capital Contributed surplus Accumulated
other
comprehensive
income (loss)
Retained earnings Total Non-controlling interest Total equity  
                   
Balance - February 28, 2018   21,621,935     73,090     6,057   (19,790 )   256,668     316,025     5,592     321,617    
                   
Net income (loss) for the period   -      -      -    -      (3,727 )   (3,727 )   53     (3,674 )  
Other comprehensive income (loss)   -      -      -    (5,441 )   -      (5,441 )   9     (5,432 )  
                   
    21,621,935     73,090     6,057   (25,231 )   252,941     306,857     5,654     312,511    
                   
Effect of share-based compensation   -      -      4   -      -      4     -      4    
Dividends                  
  Multiple Voting Shares   -      -      -    -      (335 )   (335 )   -      (335 )  
  Subordinate Voting Shares   -      -      -    -      (130 )   (130 )   -      (130 )  
  Non-controlling interest   -      -      -    -      -      -      (927 )   (927 )  
                   
Balance - May 31, 2018   21,621,935     73,090     6,061   (25,231 )   252,476     306,396     4,727     311,123    
                   
                   
Balance - February 28, 2017   21,667,235     73,584     6,017   (35,550 )   281,343     325,394     6,517     331,911    
                   
Net income (loss) for the period   -      -      -    -      (4,304 )   (4,304 )   (282 )   (4,586 )  
Other comprehensive income (loss)   -      -      -    6,230     -      6,230     43     6,273    
                   
    21,667,235     73,584     6,017   (29,320 )   277,039     327,320     6,278     333,598    
                   
Effect of share-based compensation   -      -      9   -      -      9     -      9    
Share repurchase   (2,500 )   (27 )   -    -      (7 )   (34 )   -      (34 )  
Dividends                  
  Multiple Voting Shares   -      -      -    -      (1,163 )   (1,163 )   -      (1,163 )  
  Subordinate Voting Shares   -      -      -    -      (445 )   (445 )   -      (445 )  
                   
Balance - May 31, 2017   21,664,735     73,557     6,026   (29,320 )   275,424     325,687     6,278     331,965    
                   


Velan Inc. 
Condensed Interim Consolidated Statements of Cash Flow 
(Unaudited) 
(in thousands of U.S. dollars) 
       
  Three-month periods ended May 31
   
  2018   2017    
  $   $    
       
Cash flows from      
       
Operating activities       
Net loss for the period   (3,674 )   (4,586 )  
Adjustments to reconcile net loss to cash provided by (used in) operating activities   3,550     5,345    
Changes in non-cash working capital items   (6,205 )   (10,862 )  
Cash provided by (used in) operating activities    (6,329 )   (10,103 )  
       
Investing activities       
Short-term investments   51     (524 )  
Additions to property, plant and equipment   (2,012 )   (1,587 )  
Additions to intangible assets   (96 )   (147 )  
Proceeds on disposal of property, plant and equipment, and intangible assets   10     59    
Net change in other assets   527     55    
Cash provided by (used in) investing activities    (1,520 )   (2,144 )  
       
Financing activities       
Dividends paid to Subordinate and Multiple Voting shareholders   (1,642 )   (1,631 )  
Dividends paid to non-controlling interest   (927 )   -     
Repurchase of shares   -      (34 )  
Short-term bank loans   (35 )   (255 )  
Increase in long-term debt   607     -     
Repayment of long-term debt   (662 )   (738 )  
Cash provided by (used in) financing activities    (2,659 )   (2,658 )  
       
Effect of exchange rate differences on cash    (2,408 )   3,298    
       
Net change in cash during the period   (12,916 )   (11,607 )  
       
Net cash – Beginning of the period   64,543     76,227    
       
Net cash – End of the period   51,627     64,620    
       
Net cash is composed of:      
  Cash and cash equivalents   77,969     87,360    
  Bank indebtedness   (26,342 )   (22,740 )  
       
    51,627     64,620    
       
Supplementary information      
Interest received (paid)   (36 )   (19 )  
Income taxes reimbursed (paid)   (1,933 )   (1,552 )  
       

For further information please contact:
Yves Leduc, President & Chief Executive Officer
or
John D. Ball, Chief Financial Officer
Tel: (514) 748-7743
Fax: (514) 748-8635
Web:  www.velan.com

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