Velan Inc. (TSX:VLN), a world-leading manufacturer of industrial valves,
announced today its financial results for its fourth quarter and fiscal year
ended February 29, 2012.
Three months ended Fiscal years ended
------------------------------------------------
(millions of U.S. dollars, February February February February
excluding per share 29, 28, 29, 28,
amounts) 2012 2011 2012 2011
------------------------------------------------
Sales $117.8 $107.0 $437.1 $380.7
Gross Profit 23.0 29.6 87.3 101.4
Gross margin % 19.5% 27.7% 20.0% 26.6%
Net income (loss)
attributable to Multiple
and Subordinate Voting
Shares 5.9 7.1 7.9 21.2
Net income (loss) per share
- Basic 0.27 0.32 0.36 0.96
Diluted 0.27 0.31 0.36 0.95
Highlights
Fourth Quarter Fiscal 2012 (unless otherwise noted, all comparisons are to the
fourth quarter of fiscal 2011):
-- Net earnings(1) amounted to $5.9 million or $0.27 per share compared to
$7.1 million or $0.32 per share last year. Excluding the results of
Velan ABV S.p.A. ("ABV"), the effects of purchase price accounting and
currency impacts, the Company would have reported net earnings(1) of
$6.0 million or $0.27 per share in the current quarter compared to $8.2
million or $0.37 per share last year.
-- Net new orders received ("bookings") amounted to $125.9 million, an
increase of $0.2 million or 0.2% compared to last year. Excluding ABV
and currency impacts, bookings would have decreased by $11.7 million or
9.3%. Because the Company has a very large order backlog, it is quoting
long lead times, which is negatively impacting bookings for some
products. The Company ended the fiscal year with a backlog of $661.8
million; $617.1 million excluding ABV. The Company's backlog increased
by 20.8% when compared to the end of the previous fiscal year.
-- Sales amounted to $117.8 million, an increase of $10.8 million or 10.1%.
Excluding ABV and currency impacts, sales increased $4.4 million or
4.1%.
(1) Net earnings or loss refers to net income or loss attributable to
Subordinate and Multiple Voting Shares.
-- Gross margin decreased by 8.2 percentage points from 27.7% to 19.5%.
Excluding ABV, the effects of purchase price accounting and currency
impacts, gross margin would have decreased by 6.1 percentage points from
last year.
-- The Company generated net cash(1) from operations of $15.6 million. This
source of net cash(1) is primarily attributable to a decrease in
accounts receivable, which was driven by the collections in the quarter
of the
increased billings reported in the third quarter of the current year.
The Company ended the year with net cash(1) of $37.1 million.
Year-ended fiscal 2012 (unless otherwise noted, all amounts are in U.S. dollars
and all comparisons are to the prior fiscal year):
-- Net earnings(2) amounted to $7.9 million or $0.36 per share compared to
$21.2 million or $0.96 per share last year. Excluding ABV, the effects
of purchase price accounting and currency impacts, the Company would
have reported net earnings(1) of $12.5 million or $0.56 per share this
year compared to $14.3 million or $0.65 per share last year.
-- Net new orders received ("bookings") amounted to $529.0 million, an
increase of $78.9 million or 17.5% compared to last year. Excluding ABV
and currency impacts, the increase would have been $42.4 million or
9.4%.
-- Sales amounted to $437.1 million, an increase of $56.4 million or 14.8%.
Excluding ABV and currency impacts, sales increased $26.2 million or
6.9%.
-- Gross margin decreased by 6.6 percentage points from 26.6% to 20.0%.
Excluding ABV, the effects of purchase price accounting and currency
impacts, gross margin would have decreased by 1.8 percentage points.
-- The Company used net cash(1) from operations of $12.8 million. This use
of net cash(1) is primarily attributable to increased inventory
purchases to service the growing backlog.
-- Based on average exchange rates, the U.S. dollar weakened 2.8% 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. The euro
strengthened 5.0% against the U.S. dollar when compared to the same
period last year. This strengthening resulted in the Company's net
profits from its European subsidiaries being reported as higher U.S.
dollar amounts in the current year.
"The continued growth of both our sales and backlog, as well as the acquisition
of ABV, has absorbed much of our working capital this year", John Ball, CFO of
Velan Inc. said. "Notwithstanding these two factors, we continue to look for
ways of improving the efficiency of our working capital and we are pleased that
we ended the year with net cash(1) of $37.1 million and a strong balance sheet".
Tom Velan, President and CEO of Velan Inc. said, "The increases in bookings,
backlog, and sales for the year to date are good indications of an improving
global market for our products. We are starting our new year with a very strong
backlog and the challenge we faced last year due to insufficient orders has
changed to the challenge of producing our order backlog as quickly and
profitably as possible. We are investing in increasing our global manufacturing
capacity. Faced with significant material cost increases over the last two
years, we have been raising our selling prices. For some of our product lines,
we still face lower margins because material cost increases have risen faster
than selling prices. We need to raise our margins by increasing volume and
continuing to increase our prices where possible to cover cost increases.
(1) Non-GAAP measures - see explanation below.
(2) Net earnings or loss refers to net income or loss attributable to
Subordinate and Multiple Voting Shares.
"We were disappointed by the results from our acquisition of ABV. This was a
transition year for ABV, which had poor results due to a combination of some
underpriced orders, significant material cost increases, and the additional work
required to complete the acquisition, implement a new Enterprise Resource
Planning ("ERP") system, and establish the new manufacturing plant. We expect
improving results going forward as the new plant capacity is now in operation
and the new ERP system has been implemented. Also, ABV is starting this year
with more than double the backlog it had at the time of acquisition. We are
working with the management of ABV to help improve operations to increase both
output and profitability.
"We are continuing to take measures to improve our operational excellence and
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."
Dividend
The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per
share, payable on June 29, 2012, to all shareholders of record as at June 15,
2012.
Conference Call
Financial analysts, shareholders, and other interested individuals are invited
to attend the fourth quarter conference call to be held on May 17, 2012, at 4:30
PM (EST). The toll free call-in number is 1-888-628-4143, access code 21591591.
A recording of this conference call will be available for seven days at
1-416-626-4100 or 1-800-558-5253, access code 21591591.
About Velan
Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves
with sales of $437 million in its last reported fiscal year. The company employs
over 1,950 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.
SELECTED FINANCIAL INFORMATION
Reconciliation of Net Income (Loss) from Canadian GAAP to IFRS:
Fiscal Year Three Months
Ended Ended
(In thousands of indicated currency) February 28 February 28
2011 2011
$ $
Net Income (Loss) - GAAP in Canadian dollars 5,810 (207)
--------------------------------
--------------------------------
Net Income (Loss) - GAAP in U.S. dollars 5,665 (233)
IFRS Adjustments to net income (loss) in
U.S. dollars:
Change of functional currency to U.S.
dollar 14,819 5,617
Reclassification of Non-controlling
Interest 775 45
Income taxes - tax effect of above
differences 740 1,689
--------------------------------
Net Income (Loss) - IFRS in U.S. dollars 21,999 7,118
--------------------------------
--------------------------------
Reconciliation of Comprehensive Income (Loss) from Canadian GAAP to IFRS:
Fiscal Year Three Months
Ended Ended
(In thousands of indicated currency) February 28 February 28
2011 2011
$ $
Comprehensive Income (Loss) - GAAP in
Canadian dollars 1,976 (20)
--------------------------------
--------------------------------
Comprehensive Income (Loss) - GAAP in U.S.
dollars 1,907 (80)
IFRS Adjustments to comprehensive income
(loss) in U.S. dollars:
Change of functional currency to U.S.
dollar 21,091 10,488
Realized translation adjustment on
reduction of net investment in self-
sustaining operations (239) (2)
Reclassification of Non-controlling
Interest 845 60
Income taxes - tax effect of above
differences 740 1,689
--------------------------------
Comprehensive Income (Loss) - IFRS in U.S.
dollars 24,344 12,155
--------------------------------
--------------------------------
Reconciliation of Equity from Canadian GAAP to IFRS:
February 28 March 1,
(In thousands of indicated currency) 2011 2010
$ $
Equity - GAAP in Canadian dollars 340,627 346,184
--------------------------------
--------------------------------
Equity - GAAP in U.S. dollars 350,265 328,682
IFRS Adjustments to Equity in U.S. dollars:
Change of functional currency to U.S.
dollar (19,794) (13,469)
Reclassification of non-controlling
interest 4,025 4,954
Income taxes - tax effect of above
differences 3,227 2,439
--------------------------------
Equity - IFRS in U.S. dollars 337,723 322,606
--------------------------------
--------------------------------
Velan Inc.
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 Fiscal years ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
$ $ $ $
Sales 117,784 107,028 437,135 380,706
Cost of sales 94,779 77,393 349,873 279,280
----------------------------------------------------
Gross profit 23,005 29,635 87,262 101,426
Administration cost 21,406 22,343 83,620 73,597
Other expense (income) (3,489) (253) (3,806) (601)
----------------------------------------------------
Operating profit (loss) 5,088 7,545 7,448 28,430
Finance income 88 187 318 571
Finance costs 633 106 1,669 577
----------------------------------------------------
Finance income (costs) -
net (545) 81 (1,351) (6)
----------------------------------------------------
Income (Loss) before
income tax 4,543 7,626 6,097 28,424
Income tax expense
(recovery) 145 508 348 6,425
----------------------------------------------------
Net income (loss) for
the period 4,398 7,118 5,749 21,999
----------------------------------------------------
----------------------------------------------------
Net income (loss)
attributable to:
Subordinate Voting
Shares and Multiple
Voting Shares 5,864 7,073 7,892 21,224
Non-controlling interest (1,466) 45 (2,143) 775
----------------------------------------------------
4,398 7,118 5,749 21,999
----------------------------------------------------
----------------------------------------------------
Net income (loss) per
Subordinate and
Multiple Voting Share
Basic 0.27 0.32 0.36 0.96
Diluted 0.27 0.31 0.36 0.95
----------------------------------------------------
----------------------------------------------------
Dividends declared per
Subordinate and 0.08 0.08 0.32 0.31
Multiple Voting Share (CDN$0.08) (CDN$0.08) (CDN$0.32) (CDN$0.32)
----------------------------------------------------
----------------------------------------------------
Velan Inc.
Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Fiscal years ended
February 29, February 28,February 29, February 28,
2012 2011 2012 2011
$ $ $ $
Comprehensive income
(loss)
Net income (loss) for
the period 4,398 7,118 5,749 21,999
Other comprehensive
income (loss)
Foreign currency
translation adjustment
on foreign operations
whose functional
currency is other than
the U.S. dollar (251) 5,037 (7,461) 2,345
----------------------------------------------------
Comprehensive income
(loss) 4,147 12,155 (1,712) 24,344
----------------------------------------------------
----------------------------------------------------
Comprehensive income
(loss) attributable to:
Subordinate Voting
Shares and Multiple
Voting Shares 5,490 12,095 1,400 23,499
Non-controlling interest (1,343) 60 (3,112) 845
----------------------------------------------------
4,147 12,155 (1,712) 24,344
----------------------------------------------------
----------------------------------------------------
Velan Inc.
Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At February 29, February 28, March 1,
2012 2011 2010
$ $ $
Assets
Current assets
Cash and cash equivalents 65,414 119,996 101,691
Short-term investments 4,954 87 295
Accounts receivable 111,856 94,495 86,756
Income taxes recoverable 9,682 5,007 3,301
Inventories 258,684 205,334 190,031
Deposits and prepaid expenses 6,209 3,875 5,672
Derivative assets 1,737 3,329 4,042
------------------------------------------
458,536 432,123 391,788
Non-current assets
Property, plant and equipment 72,961 64,622 63,931
Intangible assets and goodwill 58,845 11,657 11,382
Deferred income taxes 10,152 6,244 5,545
Other assets 1,476 1,391 1,388
------------------------------------------
143,434 83,914 82,246
------------------------------------------
Total assets 601,970 516,037 474,034
------------------------------------------
------------------------------------------
Liabilities
Current liabilities
Bank indebtedness 32,438 5,634 2,500
Short-term bank loans 858 822 791
Accounts payable and accrued
liabilities 82,088 65,329 63,897
Income tax payable 2,484 1,832 4,505
Dividend payable 1,791 1,830 1,689
Customer deposits 86,544 73,054 55,403
Provisions 5,149 4,288 2,973
Accrual for performance guarantees 21,679 13,354 7,955
Derivative liabilities 534 447 1,077
Current portion of long-term debt 1,696 603 44
Current portion of other
liabilities 5,753 - -
------------------------------------------
241,014 167,193 140,834
Non-current liabilities
Long-term debt 7,891 4,408 3,768
Deferred income taxes 8,270 57 124
Other liabilities 9,218 6,656 6,702
------------------------------------------
25,379 11,121 10,594
------------------------------------------
Total liabilities 266,393 178,314 151,428
------------------------------------------
Equity
Equity attributable to the
Subordinate and Multiple Voting
shareholders
Share capital 78,764 79,271 79,651
Contributed surplus 1,871 1,898 1,936
Retained earnings 250,951 250,254 236,065
Accumulated other comprehensive
income (loss) (4,217) 2,275 -
------------------------------------------
327,369 333,698 317,652
Non-controlling interest 8,208 4,025 4,954
------------------------------------------
Total equity 335,577 337,723 322,606
------------------------------------------
Total liabilities and equity 601,970 516,037 474,034
------------------------------------------
------------------------------------------
Velan Inc.
Interim Consolidated Statements of Changes in Equity
(Unaudited)
(in thousands of U.S. dollars)
Equity attributable to the Subordinate and Multiple
Voting shareholders
--------------------------------------------------------
Accumulated
other
comprehensive
Share Contributed income Retained
capital surplus (loss) earnings Total
--------------------------------------------------------
Balance - March 1,
2010 79,651 1,936 - 236,065 317,652
Net income for the
year - - - 21,224 21,224
Other comprehensive
income - - 2,275 - 2,275
--------------------------------------------------------
79,651 1,936 2,275 257,289 341,151
Effect of share-
based compensation - 63 - - 63
Dividends
Multiple Voting
Shares - - - (4,930) (4,930)
Subordinate Voting
Shares - - - (2,105) (2,105)
Non-controlling
interest - - - - -
Share repurchase (380) (101) - - (481)
--------------------------------------------------------
Balance - February
28, 2011 79,271 1,898 2,275 250,254 333,698
--------------------------------------------------------
--------------------------------------------------------
Balance - March 1,
2011 79,271 1,898 2,275 250,254 333,698
Net income (loss)
for the year - - - 7,892 7,892
Other comprehensive
loss - - (6,492) - (6,492)
--------------------------------------------------------
79,271 1,898 (4,217) 258,146 335,098
Effect of share-
based compensation - 71 - - 71
Dividends
Multiple Voting
Shares - - - (5,022) (5,022)
Subordinate Voting
Shares - - - (2,173) (2,173)
Non-controlling
interest - - - - -
Share repurchase (507) (98) - - (605)
Non-controlling
interest arising on
acquisition - - - - -
--------------------------------------------------------
Balance - February
29, 2012 78,764 1,871 (4,217) 250,951 327,369
--------------------------------------------------------
--------------------------------------------------------
Non-controlling Total
interest equity
--------------------------------------------------
Balance - March 1,
2010 4,954 322,606
Net income for the
year 775 21,999
Other comprehensive
income 70 2,345
--------------------------------------------------
5,799 346,950
Effect of share-
based compensation - 63
Dividends
Multiple Voting
Shares - (4,930)
Subordinate Voting
Shares - (2,105)
Non-controlling
interest (1,774) (1,774)
Share repurchase - (481)
--------------------------------------------------
Balance - February
28, 2011 4,025 337,723
--------------------------------------------------
--------------------------------------------------
Balance - March 1,
2011 4,025 337,723
Net income (loss)
for the year (2,143) 5,749
Other comprehensive
loss (969) (7,461)
--------------------------------------------------
913 336,011
Effect of share-
based compensation - 71
Dividends
Multiple Voting
Shares - (5,022)
Subordinate Voting
Shares - (2,173)
Non-controlling
interest (948) (948)
Share repurchase - (605)
Non-controlling
interest arising on
acquisition 8,243 8,243
--------------------------------------------------
Balance - February
29, 2012 8,208 335,577
--------------------------------------------------
--------------------------------------------------
Velan Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods ended Fiscal years ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
Cash flows from $ $ $ $
Operating activities
Net income (loss)
for the period 4,398 7,118 5,749 21,999
Adjustments to
reconcile net
income (loss) to
cash provided by
operating
activities -
Depreciation of
property, plant
and equipment 2,451 2,038 8,847 8,146
Amortization of
intangible assets 494 228 4,330 813
Deferred income
taxes (2,417) (2,318) (2,929) (987)
Share-based
compensation
expense 21 10 71 63
Loss (Gain) on
disposal of
property, plant
and equipment (25) (448) (14) (472)
Interest accretion
on proceeds
payable 244 - 946 -
Income from fair
value adjustment
of proceeds
payable (2,230) - (2,230) -
Unrealized foreign
exchange gain on
proceeds payable (978) - (978) -
Net change in
other long-term
liabilities 790 451 684 (46)
--------------------------------------------------------
2,748 7,079 14,476 29,516
--------------------------------------------------------
Changes in non-cash
working capital
items
Accounts
receivable 15,786 (8,646) (8,515) (7,781)
Inventories (11,260) (543) (38,421) (15,385)
Income taxes
recoverable 481 (1,123) (4,758) (1,715)
Deposits and
prepaid expenses (1,541) 1,881 (1,903) 1,787
Derivative assets (463) (120) 1,564 709
Accounts payable
and accrued
liabilities 3,908 6,256 4,741 1,424
Income taxes
payable 317 (1,059) 115 (2,687)
Customer deposits 2,538 10,995 11,139 17,555
Provisions 1,356 1,052 846 1,308
Accrual for
performance
guarantees 3,233 2,109 7,863 5,370
Derivative
liabilities (1,503) 203 85 (633)
--------------------------------------------------------
12,852 11,005 (27,244) (48)
--------------------------------------------------------
Cash provided (used)
by operating
activities 15,600 18,084 (12,768) 29,468
--------------------------------------------------------
Investing activities
Short-term
investments (3,440) 322 (4,867) 208
Additions to
property, plant and
equipment (3,770) (3,318) (12,710) (8,657)
Proceeds on disposal
of property, plant
and equipment 39 447 100 653
Additions to
intangible assets (1,102) (424) (1,840) (973)
Net change in other
assets (235) 80 (87) (3)
Business acquisition
- net of cash
acquired - - (37,281) -
--------------------------------------------------------
Cash provided (used)
by investing
activities (8,508) (2,893) (56,685) (8,772)
--------------------------------------------------------
Financing activities
Dividends paid to
Subordinate and
Multiple Voting
shareholders (1,781) (1,752) (7,234) (6,894)
Dividends paid to
non-controlling
interest (864) 40 (948) (1,774)
Repurchase of shares (217) (26) (605) (481)
Short-term bank
loans 11 13 (4,831) 31
Increase in long-
term debt 609 1,001 5,221 1,001
Repayment of long-
term debt (366) 2 (3,002) (87)
--------------------------------------------------------
Cash provided (used)
by investing
activities (2,608) (722) (11,399) (8,204)
--------------------------------------------------------
Effect of exchange
rate differences on
cash 503 2,118 (534) 2,679
--------------------------------------------------------
Net change in cash
during the period 4,987 16,587 (81,386) 15,171
Net cash - Beginning
of period 27,989 97,775 114,362 99,191
--------------------------------------------------------
Net cash - End of
period 32,976 114,362 32,976 114,362
--------------------------------------------------------
Net cash is composed
of:
Cash and cash
equivalents 65,414 119,996 65,414 119,996
Bank indebtedness (32,438) (5,634) (32,438) (5,634)
--------------------------------------------------------
32,976 114,362 32,976 114,362
--------------------------------------------------------
Supplementary
information
Interest received
(paid) 197 (133) (555) (219)
Income taxes
received (paid) (888) (6,597) (6,742) (11,355)
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