Velan Inc. (TSE:VLN), a world-leading manufacturer of industrial valves,
announced today its financial results for its first quarter ended May 31, 2011.
Three months
ended
May 31
(millions of U.S. dollars, excluding per share
amounts) 2011 2010
---------------------------------------------------------------------------
Sales $105.0 $89.7
Gross Profit 21.3 24.3
Gross margin 20.3% 27.1%
Net income attributable to Multiple and Subordinate
Voting Shares 0.1 4.7
Net income per share - basic and fully diluted 0.01 0.21
Highlights
First Quarter 2012 (all comparisons versus first quarter fiscal 2011, unless
otherwise noted):
-- Acquisition of 70% of ABV Energy S.p.A., now Velan ABV ("ABV"), an
Italian manufacturer of engineered valves, actuators and control systems
supplied to energy markets.
-- Net income attributable to Multiple and Subordinate Voting Shares
amounted to $0.1 million. Excluding ABV, the effects of purchase price
accounting and unfavourable currency impacts, net income would have been
$1.7 million in the quarter. The unfavourable currency impacts in the
current quarter are mainly the result of translating the Company`s
Canadian dollar expenses into U.S. dollars. Net income was $4.7 million
last year; excluding currency benefits, primarily attributable to gains
on foreign currency derivatives, net income last year would have been
$2.0 million.
-- Net new orders received ("bookings) increased by $68.7 million or 101.0%
to $136.8 million. Excluding the impact of ABV and currency; the
increase would have been $21.2 million or 22.2%. The Company booked a
significant amount of project orders during the quarter which it
believes may be indicative of a strengthening in its key end user
markets. The Company ended the quarter with a record backlog of $600.0
million, $575.0 million excluding ABV.
-- Sales increased by $15.4 million or 17.1%. Excluding ABV, sales
increased $11.3 million or 12.6%.
-- Gross margin decreased by 6.8%. Excluding ABV and currency impacts,
gross margin would have decreased by 0.2%.
-- The Company used net cash(1)from operations of $1.5 million. This use of
net cash(1)was primarily attributable to increased inventory purchases,
required to service the Company's growing backlog.
-- Net cash(1)at quarter end amounted to $63.8 million; a decrease of $49.8
million during the quarter primarily attributable to the $37.2 million
of net cash(1)paid to acquire ABV.
-- Based on average exchange rates, the U.S. dollar weakened 5.4% against
the Canadian dollar when compared to the same period last year. This
weakening resulted in the Company`s Canadian dollar expenses being
reported as higher U.S. dollar amounts in the current year.
International Financial Reporting Standards "IFRS"
The Company's quarterly results are prepared in accordance with Canadian
Generally Accepted Accounting Principles ("GAAP") which now reflects the
adoption of IFRS. Adopting IFRS resulted in the Company changing its functional
currency from Canadian dollars to U.S. dollars. Additionally, the Company
elected to change its reporting currency to the U.S. dollar. This change has
been consistently applied to all financial information presented in this press
release, unless otherwise stated.
"This was a challenging quarter. Despite increase in sales, bookings and
backlog, our net earnings were down compared to last year," said Tom Velan,
President and CEO of Velan Inc. "Faced with significant material cost increases,
we have been raising our selling prices. For some of our product lines we still
face lower margins due to a combination of material cost increases and the
increase in all our Canadian costs in relation to our US dollar selling prices.
The weakness of the US dollar is an important concern for us as it results in
higher material costs and lower margins in all our plants that produce in a
country with strengthening currency but sell mainly in US dollars. We need to
raise our margin by increasing volume as well as continuing to make selective
price increases to cover cost increases."
"The increases in bookings, backlog and sales are good indications of an
improving global market for our products. We are starting our second quarter
with the highest backlog in our history and the challenge we faced last year due
to not enough orders has changed to the challenge of producing our orders as
quickly and profitably as possible."
"The acquisition of ABV is a great opportunity to help grow our sales and
earnings over the coming years. In the shorter term, purchase price accounting,
whereby part of goodwill is attributed to the assets (including inventory), will
reduce the contribution to our results. We are happy to see bookings of $8.1
million during the first month of our acquisition and we continue to be
optimistic about the sales growth potential for Velan ABV."
"We are pleased to have maintained a solid balance sheet," said John Ball, CFO
of Velan Inc., "and end the quarter with net cash(1)of $63.8 million after
having acquired ABV. We used cash in operating activities this quarter as we
needed to increase our inventory in relation to our growing backlog."
Tom Velan concluded, "We are encouraged by the positive trend in bookings and
backlog. We are continuing to take measures to broaden our product offering, to
improve our cost competitiveness, and to strengthen our presence in
international markets in order to improve our long-term performance and increase
the value of our company. In the shorter-term, we are focused on improved
execution of our large project order backlog to increase sales and improve
earnings."
(1)Non-GAAP measure - see explanation below
Dividend
The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per
share, payable on September 30, 2011, to all shareholders of record as at
September 15, 2011.
Annual General Meeting
Velan Inc. will be holding its Annual General Meeting at 11:00 a.m. on
Wednesday, August 3, 2011, at the Delta Centre-Ville, 777 University Street, St.
Jacques room, Montreal, Quebec.
Conference Call
Financial analysts, shareholders, and other interested individuals are invited
to attend the first quarter conference call to be held on August 2, 2011, at
4:30 PM (EST). The toll free call-in number is 1-800-268-2160, access code
21532681. A recording of this conference call will be available for seven days
at 1-416-626-4100 or 1-800-558- 5253, access code 21532681.
About Velan
Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves
with sales of $381 million in its last reported fiscal year. The company employs
over 1,800 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-GAAP measures
In this press release, the Company presented measures of performance and
financial condition which are not defined under Canadian GAAP ("non-GAAP
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.
Net cash is defined as cash and cash equivalents plus short-term investments
less bank indebtedness and short- term bank loans.
VELAN INC.
SELECTED FINANCIAL INFORMATION
Reconciliation of Net Income from Canadian GAAP to
IFRS:
-----------------------------------------------------
February 28 May 31
(In thousands of indicated currency) 2011 2010
$ $
Net Income - GAAP in Canadian dollars 5,810 1,074
-----------------------
Net Income - GAAP in U.S. dollars 5,665 1,057
IFRS Adjustments to net income in U.S. dollars:
Change of functional currency to U.S. dollar 14,819 4,022
Reclassification of Non-controlling Interest 775 322
Income taxes - tax effect of above differences 740 (381)
-----------------------
Net Income - IFRS in U.S. dollars 21,999 5,020
-----------------------
Reconciliation of Comprehensive Income from Canadian
GAAP to IFRS:
-----------------------------------------------------
February 28 May 31
(In thousands of indicated currency) 2011 2010
$ $
Comprehensive Income - GAAP in Canadian dollars 1,976 (5,950)
-----------------------
Comprehensive Income - GAAP in U.S. dollars 1,907 (5,811)
IFRS Adjustments to comprehensive income in U.S.
dollars:
Change of functional currency to U.S. dollar 21,091 3,374
Realized translation adjustment on reduction of net
investment in self-sustaining operations
(239) -
Income taxes - tax effect of above differences 740 (381)
-----------------------
Comprehensive Income - IFRS in U.S. dollars 23,499 (2,818)
----------------------
Reconciliation of Equity from Canadian
GAAP to IFRS::
----------------------------------------
February 28 May 31, March 1,
(In thousands of indicated currency) 2011 2010 2010
$ $ $
Equity - GAAP in Canadian dollars 340,627 338,463 346,184
-----------------------------------
Equity - GAAP in U.S. dollars 350,265 324,374 328,682
IFRS Adjustments to Equity in U.S.
dollars:
Change of functional currency to U.S.
dollar (19,794) (13,292) (13,469)
Reclassification of non-controlling
interest 4,025 5,162 4,954
Income taxes - tax effect of above
differences 3,227 2,021 2,439
-----------------------------------
Equity - IFRS in U.S. dollars 337,723 318,265 322,606
-----------------------------------
Velan Inc.
Interim Consolidated Statements of Income
(Unaudited)
(in thousands of U.S. dollars, excluding number of shares and per share
amounts)
---------------------------------------------------------------------------
For the three months ended May 31 2011 2010
$ $
(adjusted)
Sales 105,023 89,670
Cost of sales 83,761 65,377
------------------------
Gross profit 21,262 24,293
Administration cost 20,649 17,677
Other expense (income) 124 109
------------------------
Operating profit 489 6,507
Finance income 119 19
Finance costs 317 187
------------------------
Finance income (costs) - net (198) (168)
------------------------
Income before income tax 291 6,339
Income tax expense (recovery) (50) 1,319
------------------------
Net income for the period 341 5,020
-------------------------
-------------------------
Net income attributable to:
Subordinate Voting Shares and Multiple Voting
Shares 147 4,698
Non-controlling interest 194 322
341 5,020
------------------------
Net income per Subordinate and Multiple Voting
Share
Basic 0.01 0.21
Diluted 0.01 0.21
========================-
Dividends declared per Subordinate and Multiple
Voting Share
0.08 0.08
(CDN$0.08) (CDN$0.08)
-------------------------
-------------------------
Total weighted average Subordinate and Multiple
Voting Shares
Basic 22,194,014 22,230,086
Diluted 22,245,063 22,283,738
-------------------------
-------------------------
Velan Inc.
Interim Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
For the three months ended May 31 2011 2010
$ $
(adjusted)
Comprehensive income
Net income for the period 341 5,020
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment on foreign
operations whose functional currency is other than
the U.S. dollar
2,814 (7,630)
-----------------------
Comprehensive income 3,155 (2,610)
-----------------------
-----------------------
Comprehensive income attributable to:
Subordinate Voting Shares and Multiple Voting Shares 3,285 (2,818)
Non-controlling interest (130) 208
-----------------------
3,155 (2,610)
-----------------------
Velan Inc.
Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
---------------------------------------------------------------------------
As At May 31, February 28, March 1,
2011 2011 2010
$ $ $
(adjusted) (adjusted)
Assets
Current assets
Cash and cash equivalents 73,790 119,996 101,691
Short-term investments 124 87 295
Accounts receivable 104,749 94,495 86,756
Income taxes recoverable 7,403 5,007 3,301
Inventories 235,529 205,334 190,031
Deposits and prepaid expenses 3,544 3,875 5,672
Derivative assets 1,799 3,329 4,042
--------------------------------------
426,938 432,123 391,788
Non-current assets
Property, plant and equipment 73,667 65,559 64,697
Other assets 1,367 1,391 1,388
Intangible assets 63,399 10,720 10,616
Deferred income taxes 6,222 6,244 5,545
--------------------------------------
144,655 83,914 82,246
--------------------------------------
Total assets 571,593 516,037 474,034
--------------------------------------
--------------------------------------
Liabilities
Current liabilities
Bank indebtedness 7,987 5,634 2,500
Short-term bank loans 2,153 822 791
Accounts payable and accrued
liabilities 82,978 65,329 63,897
Income tax payable 1,861 1,832 4,505
Dividend payable 1,833 1,830 1,689
Customer deposits 73,492 73,054 55,403
Provisions 4,328 4,288 2,973
Accrual for performance guarantees 17,066 13,354 7,955
Derivative liabilities 994 447 1,077
Current portion of long-term debt 2,993 603 44
--------------------------------------
195,685 167,193 140,834
Non-current liabilities
Long-term debt 4,657 4,408 3,768
Other long-term liabilities 16,189 6,656 6,702
Deferred income taxes 7,665 57 124
--------------------------------------
28,511 11,121 10,594
--------------------------------------
Total liabilities 224,196 178,314 151,428
--------------------------------------
Equity
Equity attributable to the owners of
the parent
Share capital 79,251 79,271 79,651
Contributed surplus 1,898 1,898 1,936
Retained earnings 248,568 250,254 236,065
Accumulated other comprehensive loss 5,413 2,275 -
--------------------------------------
335,130 333,698 317,652
Non-controlling interest 12,267 4,025 4,954
--------------------------------------
Total shareholders' equity 347,397 337,723 322,606
--------------------------------------
Total liabilities and shareholders'
equity 571,800 516,037 474,034
--------------------------------------
--------------------------------------
Velan Inc.
Interim Consolidated Statements of Changes in Equity
(Unaudited)
(in thousands of U.S. dollars)
Equity attributable to the owners of the parent
---------------------------------------------------------
Accumu-
lated
other
Contri- compre-
Number of Share buted hensive Retained
shares capital surplus income earnings Total
---------------------------------------------------------
Balance -
Beginning of period
(adjusted) 22,195,568 79,271 1,898 2,275 250,254 333,698
Net income for the
period - - - - 147 147
Other comprehensive
income (loss) - - - 3,138 - 3,138
---------------------------------------------------------
22,195,568 79,271 1,898 5,413 250,401 336,983
Effect of share-
based
compensation - - 9 - - 9
Dividends
Multiple Voting
Shares - - - - (1,286) (1,286)
Subordinate
Voting Shares - - - - (547) (547)
Share repurchase (1,900) (20 ) (9) - - (29)
Non-controlling
interest arising
on acquisition - - - - - -
---------------------------------------------------------
---------------------------------------------------------
As at May 31, 2011 22,193,668 79,251 1,898 5,413 248,568 335,130
---------------------------------------------------------
---------------------------------------------------------
Equity attributable to the owners of
the parent
---------------------
Non-
control-
ling Total
interest equity
----------------------
Balance -
Beginning of period
(adjusted) 4,025 337,723
Net income for the
period 194 341
Other comprehensive
income (loss) (324) 2,814
----------------------
3,895 340,878
Effect of share-
based
compensation - 9
Dividends
Multiple Voting
Shares - (1,286)
Subordinate
Voting Shares - (547)
Share repurchase - (29)
Non-controlling
interest arising
on acquisition 8,372 8,372
=====================-
As at May 31, 2011 12,267 347,397
=====================-
Equity attributable to the owners of the parent
--------------------------------------------------------
Accumu-
lated
other
Contri- comprehe
Number of Share buted nsive Retained
shares capital surplus income earnings Total
--------------------------------------------------------
Balance -
Beginning of period
(adjusted) 22,230,468 79,651 1,936 - 236,065 317,652
Net income for the
period - - - - 4,698 4,698
Other comprehensive
income (loss) - - - (7,516) - (7,516)
--------------------------------------------------------
22,230,468 79,651 1,936 (7,516) 240,763 314,834
Effect of share-
based compensation - - 15 - - 15
Dividends
Multiple Voting
Shares - - - - (1,217) (1,217)
Subordinate Voting
Shares - - - - (522) (522)
Share repurchase (500) (5) (2) - - (7)
--------------------------------------------------------
As at May 31, 2010
(adjusted) 22,229,968 79,646 1,949 (15,032) 239,024 305,587
--------------------------------------------------------
--------------------------------------------------------
Equity attributable to the
owners of the parent
-----------------------------------------------------
Non-
Contri- control-
Number of Share buted ling
shares capital surplus interest Total equity
------------------------------------------------------
Balance -
Beginning of period
(adjusted) 22,230,468 79,651 1,936 4,954 322,606
Net income for the
period - - - 322 5,020
Other comprehensive
income (loss) - - - (114) (7,630)
------------------------------------------------------
22,230,468 79,651 1,936 5,162 319,996
Effect of share-
based compensation - - 15 - 15
Dividends
Multiple Voting
Shares - - - - (1,217)
Subordinate Voting
Shares - - - - (522)
Share repurchase (500) (5) (2) - (7)
------------------------------------------------------
As at May 31, 2010
(adjusted) 22,229,968 79,646 1,949 5,048 310,635
------------------------------------------------------
------------------------------------------------------
Velan Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
---------------------------------------------------------------------------
For the three months ended May 31 2011 2010
$ $
(adjusted)
Cash flows from
Operating activities 341 5,020
Net income for the period
Adjustments to reconcile net profit to cash
provided operating activities
Amortization of property, plant and equipment 2,251 2,334
Amortization of intangible assets 460 -
Deferred income taxes (60) 773
Share-based compensation expense 9 15
Loss (Gain) on disposal of property, plant
and equipment 19 (4)
Amortization of present value discount on
other long-term liabilities 106 -
Net change in other long-term liabilities 115 (546)
----------------------------
3,241 7,592
----------------------------
Changes in non-cash working capital items
Accounts receivable 299 14,881
Inventories (12,549) 2,091
Income taxes recoverable (2,141) 287
Deposits and prepaid expenses 879 283
Accounts payable and accrued liabilities 6,929 (3,696)
Income taxes payable (452) (1,269)
Customer deposits (1,530) (3,967)
Provisions and accrual for performance
guarantees 3,797 (905)
----------------------------
(4,768) 7,705
----------------------------
Cash provided (used) by operating activities (1,527) 15,297
----------------------------
Investing activities
Short-term investments (37) (15)
Additions to property, plant and equipment (4,480) (1,947)
Proceeds on disposal of property, plant and
equipment 8 142
Net change in other assets 27 (42)
Business acquisition - net of cash acquired (37,281) -
----------------------------
Cash provided (used) by investing activities (41,763) (1,862)
----------------------------
Financing activities
Dividends (1,830) (1,724)
Repurchase of shares (29) (7)
Short-term bank loans (3,536) (3)
Repayment of long-term debt (52) (19)
----------------------------
Cash provided (used) by investing activities (5,447) (1,753)
----------------------------
Effect of exchange rate differences on cash 178 (3,044)
----------------------------
Net change in cash during the period (48,559) 8,638
Net cash - Beginning of period 114,362 99,191
----------------------------
Net cash - End of period 65,803 107,829
----------------------------
----------------------------
Net cash is composed of:
Cash and cash equivalents 73,790 109,659
Bank indebtedness (7,987) (1,830)
----------------------------
65,803 107,829
----------------------------
----------------------------
Supplementary information
Interest received (paid) (51) (59)
Income taxes received (paid) (2,451) (959)
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