VLN Velan Inc

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, 2021.

Highlights:

• Sales for the quarter amounted to $110.0 million, an increase of 38.4 million or 53.7% compared to the same quarter of the previous fiscal year. This quarter’s sales level represents the highest volume in the last seven quarters.
• Gross profit for the quarter of $35.9 million, or 32.6%, an increase of $13.8 million or 180 basis points from the same quarter of the previous year. The gross profit percentage of 30.5% for the first nine-month of the fiscal year is driven by an improved sales volume, a more profitable product mix, as well as the margin improvement activities undertaken over the past fiscal years within the scope of the V20 restructuring and transformation plan.
• Net income1 of $4.5 million and EBITDA2 of $13.3 million for the quarter. EBITDA2 is comparable to the same quarter last year which included a non-recurring gain of $9.6 million recognized on the disposal of one of the Company’s Montreal plants in the scope of the V20 transformation plan. The improved EBITDA2, when adjusted for the non-recurring gain, is explained primarily by an increased gross profit, driven by an improved sales volume and product mix, despite $2.7 million lower Canada Emergency Wage Subsidies («CEWS»).
• Strong order backlog2 of $543.0 million at the end of the quarter compared to $561.8 million at the end of the same quarter last year.
• Net new orders (“bookings”)2 of $88.4 million for the quarter, a decrease of $79.2 million or 47.3% compared to the same quarter of the previous fiscal year. The decrease for the quarter is primarily attributable to a generally lower level of bookings3 in the current quarter, coupled with large oil and gas and nuclear orders recorded in the third quarter of the previous year. The book-to-bill ratio2 for the nine-month period stands at an even 1.00.
• The Company’s net cash amounted to $65.8 million at the end of the quarter, a decrease of $2.3 million or 3.4% compared to the previous quarter of the current fiscal year. The Company used the cash primarily generated by its operations during the quarter to pay down $11.9 million of its revolving credit facility in order to reduce its overall debt load.

Bruno Carbonaro, CEO and President of Velan Inc., said, “I am very pleased to announce our strong results this quarter. Our quarterly sales of $110.0 million yielded a gross margin of 32.6% and brought our year-to-date sales to $286.4 million, which represents our highest sales volume since fiscal year 2016. The sales volume was achieved thanks to the delivery of large orders dedicated to the petrochemical and oil and gas markets by our North American and Italian operations. Our backlog2 remains high at $543.0 million, and our book-to-bill ratio2 remains at an even 1.00 when we consider the nine-month period.

On the Covid-19 front, we took the necessary measures in all our subsidiaries. The fifth wave is challenging for us, especially in Europe and North America, and we are taking all the necessary precautions to ensure our employees’ safety and wellbeing.

We are now shifting our focus to our fourth quarter, where we will continue to build on the momentum from the last two quarters.”

Financial Highlights

Three-month periods ended			Nine-month periods ended
(thousands of U.S. dollars, excluding per share amounts)	November 30, 2021	November 30, 2020	November 30, 2021	November 30, 2020
Sales	$109,971	$71,560	$286,393	$216,553
Gross profit	35,861	22,022	87,246	57,467
Gross profit %	32.6%	30.8%	30.5%	26.5%
Net income1	4,507	9,527	4,449	2,529
Net income1 per share – basic and diluted	0.21	0.44	0.21	0.12
EBITDA2	13,291	13,784	23,007	13,925
EBITDA2 per share – basic and diluted	0.62	0.64	1.07	0.65

Third Quarter Fiscal 2022 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the third quarter of fiscal 2021):

• Sales amounted to $110.0 million, an increase of $38.4 million or 53.7% for the quarter. Sales for the quarter were positively impacted by increased shipments by the Company’s North American and Italian operations of large orders primarily destined for the petrochemical and oil and gas markets respectively. Additionally, the Company’s MRO sales for the quarter improved compared to last year in reaction to the higher bookings of such orders recorded in the first half of the current fiscal year.
• Bookings2 amounted to $88.4 million, a decrease of $79.2 million or 47.3% for the quarter. This decrease is primarily attributable to a generally lower level of bookings, coupled with large oil and gas and nuclear orders recorded in the third quarter of the previous year by the Company’s Italian and French operations. The decrease for the quarter was partially offset by higher MRO orders recorded by the Company’s North American operations. The Company is encouraged by the recovery of its MRO order bookings, which were severely impacted by the global pandemic at the end of the prior fiscal year, and ultimately adversely affected the sales of the latter part of the previous fiscal year and the first half of the current fiscal year.
• Gross profit amounted to $35.9 million, an increase of $13.8 million or 62.8% for the quarter. The gross profit percentage for the quarter of 32.6% was an increase of 180 basis points compared to last year’s third quarter. The improvement in gross profit percentage for the quarter is primarily attributable to the higher sales volume, which helped to cover the Company’s fixed production overhead costs more efficiently. The Company’s improved margins are also stemming from the delivery of a product mix with a greater proportion of higher margin product sales as well as margin improvement activities implemented over the course of the past fiscal years within the scope of the V20 restructuring and transformation plan. The gross profit for the quarter also benefited from a positive reevaluation of the Company’s provision for performance guarantees caused by the successful negotiation of a customer claim during the quarter. Additionally, the Company’s gross profit benefited from favorable movements in unrealized foreign exchange translation primarily attributable to the fluctuation of the U.S. dollar against the euro and the Canadian dollar for the quarter when compared to the prior year. Finally, the increase in gross profit percentage was such that it could more than offset the impact of a lower amount of CEWS of $1.5 million for the quarter compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Net income1 for the quarter amounted to $4.5 million or $0.21 per share compared to $9.5 million or $0.44 per share last year. EBITDA2 for the quarter amounted to $13.3 million or $0.62 per share compared to $13.8 million or $0.64 per share last year. The decrease in EBITDA1 for the quarter was primarily due to the absence of restructuring and transformation income in the current quarter which totalled $8.1 million last year and resulted mainly from a $9.6 million gain recognized on the disposal of one of the Company’s Montreal plants, an integral part of the North American manufacturing footprint optimization plan which was planned in the scope of V20. The decrease was also due to an increase in administration costs of $7.1 million or 37.1% for the quarter which is primarily attributable to a decrease of $1.2 million in CEWS received by the Company compared to last year, an increase in sales commissions due to the higher sales volume and a general increase in administration expenses that had been significantly lowered when the global pandemic broke out last year. The subsidies are allocated between cost of sales and administration costs. On the other hand, the decrease in EBITDA2 for the quarter was partially offset by an increase in gross profit, thanks to the reasons mentioned above. The movement in the Company’s net income1 for the quarter was primarily attributable to the same factors as explained above, coupled with an unfavorable movement in income taxes and net finance costs.

First nine months Fiscal 2022 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first nine months of fiscal 2021):

• Sales amounted to $286.4 million, an increase of $69.8 million or 32.3% for the nine-month period. Sales for the nine-month period were positively impacted by increased shipments by the Company’s North American and Italian operations of large orders primarily destined for the petrochemical and oil and gas markets respectively. The Company’s MRO sales for the nine-month period were nonetheless negatively affected by the persistent unfavorable market conditions triggered by the coronavirus (“COVID-19”) global pandemic which had significantly affected the Company’s distribution channels’ bookings in the previous fiscal year. The lower distribution channels’ bookings in the latter part of the prior year translated in lower shipments of such orders in the first half of the current year.
• Bookings2 amounted to $286.4 million, a decrease or $59.3 million of 17.2% for the nine-month period. The decrease is primarily attributable to a generally lower level of bookings in the current quarter coupled with large oil and gas and nuclear orders recorded in the third quarter of the previous year by the Company’s Italian and French operations. The decrease for the nine-month period was partially offset by higher MRO orders recorded by the Company’s North American operations.
• As a result of bookings2 being comparable to sales in the current nine-month period, the Company’s book-to-bill ratio2 was an even 1.00 for the period. Furthermore, the total backlog2 decreased by $19.5 million or 3.5% since the beginning of the fiscal year, amounting to $543.0 million as at November 30, 2021. The reduction of the backlog2 is primarily due to the weakening of the euro spot rate against the U.S. dollar since the beginning of the fiscal year.
• Gross profit amounted to $87.2 million, an increase of $29.8 million or 51.8% for the nine-month period. The gross profit of 30.5% represented an increase of 400 basis points compared to the same period last year. The improvement in gross profit percentage is primarily attributable to the higher sales volume, which helped to cover the Company’s fixed production overhead costs more efficiently. The Company’s improved margins are also stemming from the delivery of a product mix with a greater proportion of higher margin product sales as well as margin improvement activities implemented over the course of the past fiscal years within the scope of the V20 restructuring and transformation plan. The gross profit for the nine-month period also benefited from a positive reevaluation of the Company’s provision for performance guarantees caused by the successful negotiation of a customer claim during the quarter. Additionally, the Company’s gross profit benefited from favorable movements in unrealized foreign exchange translation primarily attributable to the fluctuation of the U.S. dollar against the euro and the Canadian dollar for the nine-month period when compared to the prior year. Finally, the increase in gross profit percentage was such that it could more than offset the impact of a lower amount of CEWS of $4.6 million for the nine-month period compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Net income1 for the nine-month period amounted to $4.4 million or $0.21 per share compared to $2.5 million or $0.12 per share in the prior period. EBITDA2 for the nine-month period amounted to $23.0 million or $1.07 per share compared to $13.9 million or $0.65 per share in the prior period. The improvement in EBITDA2 for the nine-month period is primarily attributable to an improved gross profit, largely due to an increased sales volume, while reflecting the notably improved product mix and margins resulting from the Company’s targeted efforts under V20, described earlier. The Company’s gross profit also benefited from favorable movements in unrealized foreign exchange translation for the nine-month period when compared to the prior year as well as a favorable reevaluation of the Company’s provision for performance guarantees. The improvement is also attributable to a reduction in other expenses of $3.1 million for the nine-month period primarily due to land clean-up costs of a former factory incurred in the second quarter of the prior year. On the other hand, these improvements were partially offset by the absence of restructuring and transformation income in the current nine-month period which totalled $5.2 million in the previous year. These improvements were also partially offset by an increase in administration costs of $18.3 million or 32.7% for the nine-month period, primarily attributable to a decrease of $3.8 million in CEWS received by the Company compared to last year, an increase in sales commissions due to the improved sales volume for the period, a general increase in administration expenses that had been significantly lowered when the global pandemic broke out last year as well as an increase of $1.2 million in the costs recognized in connection with the Company’s ongoing asbestos litigation. The favorable movements in the Company’s net income1 for the nine-month period was primarily attributable to the same factors as explained above coupled with an unfavorable movement in income taxes and net finance costs.

Dividend

At the end of fiscal 2020, the Board of Directors deemed appropriate to suspend the quarterly dividend.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the third quarter conference call to be held on Thursday, January 13, 2022, at 11:00 a.m. (EDT). The toll free call-in number is 1-800-954-0653, access code 22014449. Live content to support the discussion will be presented to participants at the following link for the duration of the call: https://cc.callinfo.com/r/1f7s6438qq8sv&eom. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 22014449.

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$302.1 million in its last reported fiscal year. The Company employs close to 1,700 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 and supplementary financial measures

In this press release, the Company has presented measures of performance or financial condition which are not defined under IFRS (“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 and are reconciled with the performance measures defined under IFRS. Company has also presented supplementary financial measures which are defined at the end of this report. Reconciliation and definition can be found on the next page.

Earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA")

Three-month periods ended			Nine-month periods ended
(thousands, except amount per shares)	November 30, 2021$	November 30, 2020$	November 30, 2021$	November 30, 2020$
Net income1	4,507	9,527	4,449	2,529
Adjustments for:
Depreciation of property, plant and equipment	2,382	2,541	7,190	7,516
Amortization of intangible assets	556	674	1,565	1,868
Finance costs – net	619	161	1,674	523
Income taxes	5,227	881	8,129	1,489
EBITDA	13,291	13,784	23,007	13,925
EBITDA per share
- Basic and diluted	0.62	0.64	1.07	0.65

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. The terms “EBITDA per share” is obtained by dividing EBITDA by the total amount of subordinate and multiple voting shares. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Definitions of supplementary financial measures

The term “Net new orders” or “bookings” is defined as firm orders, net of cancellations, recorded by the Company during a period. Bookings are impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the Company’s sales operation performance for a given period as well as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “backlog” is defined as the buildup of all outstanding bookings to be delivered by the Company. The Company’s backlog is impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the future operational challenges of the Company as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “book-to-bill ratio” is obtained by dividing bookings by sales. The measure provides an indication of the Company’s performance and outlook for a given period.

The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.  

____________________________________1 Net earnings or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares2 Non-IFRS and supplementary financial measures – see explanation above.

Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
		As at
	November 30, 2021	February 28, 2021
	$	$
Assets
Current assets
Cash and cash equivalents	66,687	74,688
Short-term investments	1,971	285
Accounts receivable	110,179	135,373
Income taxes recoverable	3,253	3,798
Inventories	229,466	204,161
Deposits and prepaid expenses	8,674	8,670
Derivative assets	278	196
Assets held for sale	19,213	-
	439,721	427,171
Non-current assets
Property, plant and equipment	75,496	96,327
Intangible assets and goodwill	16,387	17,319
Deferred income taxes	36,686	39,067
Other assets	717	949
	129,286	153,662
Total assets	569,007	580,833
Liabilities
Current liabilities
Bank indebtedness	850	11,735
Short-term bank loans	35	-
Accounts payable and accrued liabilities	91,425	90,840
Income taxes payable	2,288	1,609
Customer deposits	68,612	62,083
Provisions	22,800	29,515
Derivative liabilities	375	303
Liabilities held for sale	18,359	-
Current portion of long-term lease liabilities	1,454	1,578
Current portion of long-term debt	7,591	9,902
	213,789	207,565
Non-current liabilities
Long-term lease liabilities	11,505	12,649
Long-term debt	38,821	48,189
Income taxes payable	1,244	1,410
Deferred income taxes	2,251	2,545
Other liabilities	6,890	8,254
	60,711	73,047
Total liabilities	274,500	280,612
Total equity	294,507	300,221
Total liabilities and equity	569,007	580,833

Consolidated Statements of Income
(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, 2021		November 30, 2020			November 30, 2021		November 30, 2020
	$		$			$		$
Sales	109,971		71,560			286,393		216,553
Cost of sales	74,110		49,538			199,147		159,086
Gross profit	35,861		22,022			87,246		57,467
Administration costs	26,436		19,288			74,192		55,911
Restructuring and transformation income	-		(8,119	)		-		(5,220	)
Other expense (income)	(579	)	411			(537	)	2,535
Operating profit	10,004		10,442			13,591		4,241
Finance income	77		161			367		575
Finance costs	(696	)	(322	)		(2,041	)	(1,098	)
Finance costs – net	(619	)	(161	)		(1,674	)	(523	)
Income before income taxes	9,385		10,281			11,917		3,718
Income tax expense (recovery)	5,227		881			8,129		1,489
Net income for the period	4,158		9,400			3,788		2,229
Net income attributable to:
Subordinate Voting Shares and Multiple Voting Shares	4,507		9,527			4,449		2,529
Non-controlling interest	(349	)	(127	)		(661	)	(300	)
Net income for the period	4,158		9,400			3,788		2,229
Net income per Subordinate and Multiple Voting Share
Basic and diluted	0.21		0.44			0.21		0.12
Total weighted average number of Subordinate and
Multiple Voting Shares
Basic and diluted	21,585,635		21,585,635			21,585,635		21,585,635

Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended					Nine-month periods ended
	November 30, 2021		November 30, 2020		November 30, 2021		November 30, 2020
	$		$		$		$
Comprehensive income (loss)
Net income for the period	4,158		9,400		3,788		2,229
Other comprehensive income (loss)
Foreign currency translation	(6,080	)	490		(9,502	)	11,299
Comprehensive income (loss)	(1,922	)	9,890		(5,714	)	13,528
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares	(1,559	)	9,886		(5,007	)	13,663
Non-controlling interest	(363	)	4		(707	)	(135	)
Comprehensive income (loss)	(1,922	)	9,890		(5,714	)	13,528
Other comprehensive income (loss) is composed solely of items that may be reclassified subsequently to the consolidated statement of income (loss).

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
	Share capital	Contributed surplus	Accumulated other comprehensive loss		Retained earnings	Total		Non-controlling interest		Total equity
Balance - February 29, 2020	72,695	6,260	(34,047	)	236,269	281,177		3,684		284,861
Net income for the period	-	-	-		2,529	2,529		(300	)	2,229
Other comprehensive income	-	-	11,134		-	11,134		165		11,299
Balance - November 30, 2020	72,695	6,260	(22,913	)	238,798	294,840		3,549		298,389
Balance - February 28, 2021	72,695	6,260	(21,007	)	239,136	297,084		3,137		300,221
Net income for the period	-	-	-		4,449	4,449		(661	)	3,788
Other comprehensive loss	-	-	(9,456	)	-	(9,456	)	(46	)	(9,502	)
Balance - November 30, 2021	72,695	6,260	(30,463	)	243,585	292,077		2,430		294,507

Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended						Nine-month periods ended
	November 30, 2021		November 30, 2020			November 30, 2021		November 30, 2020
	$		$			$		$
Cash flows from
Operating activities
Net income for the period	4,158		9,400			3,788		2,229
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities	4,918		(6,096	)		10,975		(837	)
Changes in non-cash working capital items	(1,512	)	(14,657	)		(4,771	)	6,358
Cash provided (used) by operating activities	7,564		(11,353	)		9,992		7,750
Investing activities
Short-term investments	(268	)	327			(1,686	)	(200	)
Additions to property, plant and equipment	(1,379	)	(3,575	)		(4,948	)	(7,511	)
Additions to intangible assets	(520	)	(470	)		(1,330	)	(993	)
Proceeds on disposal of property, plant and equipment, and intangible assets	10,597		12,683			13,729		13,712
Net change in other assets	2		63			(25	)	(426	)
Cash provided by investing activities	8,432		9,028			5,740		4,582
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders	-		-			-		(482	)
Short-term bank loans	35		5,913			35		4,536
Net change in revolving credit facility	(11,872	)	(9,537	)		(5,624	)	10,798
Increase in long-term debt	-		-			5,889		14,305
Repayment of long-term debt	(1,522	)	(873	)		(6,068	)	(2,931	)
Repayment of long-term lease liabilities	(427	)	(428	)		(1,284	)	(1,284	)
Cash provided (used) by financing activities	(13,786	)	(4,925	)		(7,052	)	24,942
Effect of exchange rate differences on cash	(2,360	)	(430	)		(3,652	)	4,736
Change in cash and cash equivalents from reclassification of cash and cash equivalents as held of sale	(2,144	)	-			(2,144	)	-
Net change in cash during the period	(2,294	)	(7,680	)		2,884		42,010
Net cash – Beginning of the period	68,131		80,700			62,953		31,010
Net cash – End of the period	65,837		73,020			65,837		73,020
Net cash is composed of:
Cash and cash equivalents	66,687		79,961			66,687		79,961
Bank indebtedness	(850	)	(6,941	)		(850	)	(6,941	)
Net cash – End of the period	65,837		73,020			65,837		73,020
Supplementary information
Interest received (paid)	(526	)	(482	)		(1,360	)	(945	)
Income taxes reimbursed (paid)	(1,782	)	(3,039	)		(3,366	)	(5,548	)

For further information please contact:Bruno Carbonaro, Chief Executive Officer and PresidentTel: (438) 817-7593orBenoit Alain, Chief Financial OfficerTel: (438) 817-9957