Velan Inc.
VLN
Delayed Toronto Stock Exchange - 09/21 11:40:00 pm
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Velan Inc. : Reports Its First Quarter 2018/19 Financial Results

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07/12/2018 | 09:14 pm

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.

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 AtMay 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 sharesShare capitalContributed surplusAccumulated
other
comprehensive
income (loss)
Retained earningsTotalNon-controlling interestTotal 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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Source: Velan Inc.

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