Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial
valves, announced today its financial results for its second quarter ended
August 31, 2013.
Highlights
-- Record sales of US$120.7 million for the quarter
-- Net earnings(1) of US$4.9 million for the quarter
-- Order backlog of US$477.3 million at the end of the quarter
-- Order bookings of US$92.7 million for the quarter
-- Net cash(2) of US$28.5 million at the end of the quarter
Three-month periods ended Six-month periods ended
August 31 August 31
----------------------------------------------------
(millions of U.S.
dollars, excluding per
share amounts) 2013 2012 2013 2012
----------------------------------------------------
Sales $120.7 $108.4 $252.9 $224.3
Gross profit 30.1 26.0 60.8 50.1
Gross margin % 24.9% 24.0% 24.0% 22.3%
Net income (loss)
attributable to
Subordinate and
Multiple Voting Shares 4.9 3.3 10.7 4.0
Net income (loss) per
share - Basic 0.23 0.15 0.49 0.18
- Diluted 0.23 0.15 0.49 0.18
Second Quarter Fiscal 2014 (unless otherwise noted, all amounts are in U.S.
dollars and all comparisons are to the second quarter of fiscal 2013):
-- Net earnings(1) amounted to $4.9 million or $0.23 per share compared to
$3.3 million or $0.15 per share last year. The $1.6 million increase in
net earnings(1) is primarily attributable to higher sales volume and
improved gross profit margins.
-- Sales amounted to $120.7 million, an increase of $12.3 million or 11.3%.
The amount of sales for the current quarter is the highest amount ever
recorded for an August quarter end in the Company's history.
-- Net new orders received ("bookings") amounted to $92.7 million, an
increase of $0.3 million or 0.3% compared to last year.
-- Gross margin increased by 0.9 percentage points from 24.0% to 24.9%.
This increase is mainly attributable to the higher sales volume.
-- Administration costs remained relatively even at $21.4 million,
increasing $0.4 million or 1.9% from the prior year.
First Half Year Fiscal 2014 (unless otherwise noted, all comparisons are to the
first half year of fiscal 2013):
-- Net earnings(1) amounted to $10.7 million or $0.49 per share compared to
$4.0 million or $0.18 per share last year. The $6.7 million increase in
net earnings(1) is primarily attributable to higher sales volume,
improved gross profit margins and lower administration costs.
-- Sales amounted to $252.9 million, an increase of $28.6 million or 12.8%.
The increase in sales is primarily attributable to increased shipments
of certain large export project orders and higher spare parts sales.
-- Bookings amounted to $199.4 million, an increase of $9.3 million or 4.9%
compared to last year.
-- The Company ended the period with a backlog of $477.3 million, a
decrease of $53.7 million or 10.1% since the beginning of the current
fiscal year. This decrease is mainly attributable to the higher sales
output outpacing the higher bookings in the period.
-- Gross margin increased by 1.7 percentage points from 22.3% to 24.0%.
This increase is mainly attributable to higher sales volume and improved
efficiencies as a result of a higher margin product mix.
-- Administration costs amounted to $43.1 million, a decrease of $1.8
million or 4.0%. The decrease is primarily attributable to a decrease in
sales commissions and a decrease in costs recognized in connection with
the Company's ongoing asbestos litigation. The fluctuation in asbestos
costs is due more to the timing of settlement payments in the two
periods rather than to changes in long-term trends.
-- The Company generated net cash(2) from operations of $23.4 million in
the period. This source of net cash(2) was primarily attributable to
improved net earnings(1) and a decrease in inventory. The Company ended
the period with net cash(2) of $28.5 million, an increase of $8.7
million or 43.9% since the beginning of the current fiscal year.
-- Foreign currency impacts:
-- Based on average exchange rates, the euro strengthened 2.9% 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 period.
-- Based on average exchange rates, the Canadian dollar weakened 2.4%
against the U.S. dollar when compared to the same period last year.
This weakening resulted in the Company's Canadian dollar expenses
being reported as lower U.S. dollar amounts in the current period.
-- The Indian rupee weakened 17.3% against the U.S. dollar when
comparing the spot rate at the beginning of the period to the period
end rate. This weakening resulted in the Company recording
significant unrealized foreign exchange losses in the current period
upon conversion of the U.S. dollar denominated loans payable by its
Indian subsidiary to various related parties.
-- The net impact of these three currency swings was generally
favourable to the Company's results since the positive impacts of
both a stronger euro and a weaker Canadian dollar outweighed the
negative impact of a weaker Indian rupee.
The Company is continuing with the business integration process at its Italian
subsidiary, Velan ABV S.p.A. ("ABV"). As part of this process, the Company
effectively increased its ownership percentage to 100% through a
recapitalization of ABV's corporate structure during the current quarter.
"We are pleased by the continued strong sales and margin results in our second
quarter, due in part to the shipment of some large projects from prior years,"
said John Ball, CFO of Velan Inc. "We are watching the rate of new order
bookings which has not kept pace with our sales this year, and are focused on
developing our backlog so as to maintain momentum for next year."
Tom Velan, President and CEO of Velan Inc. said, "We continued the positive
trend from our first quarter. We had record sales for this quarter and net
earnings(1) were up 47.3% from the same quarter last year. Our sales continued
to outpace our bookings so our backlog is down under $500 million. We are
intensifying our efforts to improve our bookings, especially on international
projects."
Dividend
The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per
share, payable on December 31, 2013, to all shareholders of record as at
December 16, 2013.
Conference call
Financial analysts, shareholders, and other interested individuals are invited
to attend the second quarter conference call to be held on October 9, 2013, at
4:30 PM (EDT). The toll free call-in number is 1-877-256-6025, access code
21675768. A recording of this conference call will be available for seven days
at 1-416-626-4100 or 1-800-558-5253, access code 21675768.
About Velan
Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves
with sales of over $500 million in its last reported fiscal year. The Company
employs over 2,000 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-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 "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 MD&A for a detailed calculation of this
measure.
(1) Net earnings or loss refer 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 August 31, February 28,
2013 2013
$ $
Assets
Current assets
Cash and cash equivalents 74,892 77,172
Short-term investments 2,631 398
Accounts receivable 136,988 134,374
Income taxes recoverable 7,231 7,672
Inventories 224,965 246,983
Deposits and prepaid expenses 6,418 6,048
Derivative assets 191 340
--------------------------------
453,316 472,987
Non-current assets
Property, plant and equipment 91,804 90,630
Intangible assets and goodwill 42,629 43,194
Deferred income taxes 11,104 11,226
Other assets 1,665 1,737
--------------------------------
147,202 146,787
--------------------------------
Total assets 600,518 619,774
--------------------------------
--------------------------------
Liabilities
Current liabilities
Bank indebtedness 40,939 48,580
Short-term bank loans 1,283 2,284
Accounts payable and accrued liabilities 67,309 78,431
Income tax payable 5,411 2,831
Dividend payable 1,666 1,701
Customer deposits 65,980 76,682
Provisions 6,992 6,345
Accrual for performance guarantees 31,562 28,525
Derivative liabilities 1,450 1,380
Current portion of long-term debt 10,487 10,463
Current portion of other liabilities - 1,951
--------------------------------
233,079 259,173
Non-current liabilities
Long-term debt 14,407 16,387
Deferred income taxes 7,824 8,035
Other liabilities 8,234 8,006
--------------------------------
30,465 32,428
--------------------------------
Total liabilities 263,544 291,601
--------------------------------
Equity
Equity attributable to the Subordinate and
Multiple Voting shareholders
Share capital 76,314 76,314
Contributed surplus 6,092 1,746
Retained earnings 257,431 250,129
Accumulated other comprehensive income
(loss) (9,055) (8,676)
--------------------------------
330,782 319,513
Non-controlling interest 6,192 8,660
--------------------------------
Total equity 336,974 328,173
--------------------------------
Total liabilities and equity 600,518 619,774
--------------------------------
--------------------------------
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 Six-month periods ended
August 31 August 31
2013 2012 2013 2012
$ $ $ $
Sales 120,762 108,449 252,930 224,301
Cost of sales 90,685 82,433 192,174 174,173
----------------------------------------------------
Gross profit 30,077 26,016 60,756 50,128
Administration costs 21,349 21,023 43,097 44,948
Other expense (income) 976 98 1,014 (830)
----------------------------------------------------
Operating profit (loss) 7,752 4,895 16,645 6,010
Finance income 179 160 359 358
Finance costs 610 698 1,156 1,347
----------------------------------------------------
Finance income (costs) -
net (431) (538) (797) (989)
----------------------------------------------------
Income (Loss) before
income tax 7,321 4,357 15,848 5,021
Provision for (Recovery
of) income tax 2,093 941 4,338 896
----------------------------------------------------
Net income (loss) for
the period 5,228 3,416 11,510 4,125
----------------------------------------------------
----------------------------------------------------
Net income (loss)
attributable to:
Subordinate Voting
Shares and Multiple
Voting Shares 4,889 3,318 10,689 4,012
Non-controlling interest 339 98 821 113
5,228 3,416 11,510 4,125
----------------------------------------------------
----------------------------------------------------
Net income (loss) per
Subordinate and
Multiple Voting Share
Basic 0.23 0.15 0.49 0.18
Diluted 0.23 0.15 0.49 0.18
----------------------------------------------------
----------------------------------------------------
Dividends declared per
Subordinate and
Multiple Voting Share 0.08 0.08 0.16 0.16
(CDN$0.08) (CDN$0.08) (CDN$0.16) (CDN$0.16)
----------------------------------------------------
----------------------------------------------------
Total weighted average
number of Subordinate
and Multiple Voting
Shares
Basic 21,923,768 22,033,577 21,923,768 22,033,577
Diluted 21,935,818 22,038,797 21,935,754 22,043,135
----------------------------------------------------
----------------------------------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
Three-month periods ended Six-month periods ended
August 31 August 31
2013 2012 2013 2012
$ $ $ $
Comprehensive income
(loss)
Net income (loss) for
the period 5,228 3,416 11,510 4,125
Other comprehensive
income (loss
Foreign currency
translation adjustment
on foreign operations
whose functional
currency is other than
the U.S. dollar 1,884 1,455 662 (9,004)
----------------------------------------------------
Comprehensive income
(loss) 7,112 4,871 12,172 (4,879)
----------------------------------------------------
----------------------------------------------------
Comprehensive income
(loss) attributable to:
Subordinate Voting
Shares and Multiple
Voting Shares 6,701 4,611 11,447 (4,501)
Non-controlling interest 411 260 725 (378)
----------------------------------------------------
7,112 4,871 12,172 (4,879)
----------------------------------------------------
----------------------------------------------------
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
--------------------------------------------------------
Accu-
mulated
other
compre-
Number Contri- hensive
of Share buted income Retained
shares capital surplus (loss) earnings Total
--------------------------------------------------------
Balance - March 1,
2013 21,923,768 76,314 1,746 (8,676) 250,129 319,513
Net income (loss)
for the period - - - - 10,689 10,689
Other comprehensive
income (loss) - - - 758 - 758
--------------------------------------------------------
21,923,768 76,314 1,746 (7,918) 260,818 330,960
Effect of share-
based compensation - - 16 - - 16
Dividends
Multiple Voting
Shares - - - - (2,420) (2,420)
Subordinate Voting
Shares - - - - (967) (967)
Acquisition of non-
controlling
interest - - 4,330 (1,137) - 3,193
--------------------------------------------------------
Balance - August 31,
2013 21,923,768 76,314 6,092 (9,055) 257,431 330,782
--------------------------------------------------------
--------------------------------------------------------
Balance - March 1,
2012 22,148,968 78,764 1,871 (4,217) 250,951 327,369
Net income (loss)
for the period - - - - 4,012 4,012
Other comprehensive
income (loss) - - - (8,513) - (8,513)
--------------------------------------------------------
22,148,968 78,764 1,871 (12,730) 254,963 322,868
Effect of share-
based compensation - - 29 - - 29
Dividends
Multiple Voting
Shares - - - - (2,478) (2,478)
Subordinate Voting
Shares - - - - (1,014) (1,014)
Share repurchase (177,200) (1,928) (142) - - (2,070)
--------------------------------------------------------
Balance - August 31,
2012 21,971,768 76,836 1,758 (12,730) 251,471 317,335
--------------------------------------------------------
--------------------------------------------------------
Non-
controlling Total
interest equity
--------------------------
Balance - March 1,
2013 8,660 328,173
Net income (loss)
for the period 821 11,510
Other comprehensive
income (loss) (96) 662
--------------------------
9,385 340,345
Effect of share-
based compensation - 16
Dividends
Multiple Voting
Shares - (2,420)
Subordinate Voting
Shares - (967)
Acquisition of non-
controlling
interest (3,193) -
--------------------------
Balance - August 31,
2013 6,192 336,974
--------------------------
--------------------------
Balance - March 1,
2012 8,208 335,577
Net income (loss)
for the period 113 4,125
Other comprehensive
income (loss) (491) (9,004)
--------------------------
7,830 330,698
Effect of share-
based compensation - 29
Dividends
Multiple Voting
Shares - (2,478)
Subordinate Voting
Shares - (1,014)
Share repurchase - (2,070)
--------------------------
Balance - August 31,
2012 7,830 325,165
--------------------------
--------------------------
Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
----------------------------------------------------------------------------
Three-month periods ended Six-month periods ended
August 31 August 31
2013 2012 2013 2012
$ $ $ $
Cash flows from
Operating activities
Net income for the
period 5,228 3,416 11,510 4,125
Adjustments to reconcile
net income to cash
provided by operating
activities 4,931 1,121 8,251 2,978
Changes in non-cash
working capital items (11,421) (9,233) 3,684 (31,002)
----------------------------------------------------
Cash provided (used) by
operating activities (1,262) (4,696) 23,445 (23,899)
----------------------------------------------------
Investing activities
Short-term investments (1,080) 1,561 (2,233) 2,297
Additions to property,
plant and equipment (3,975) (6,830) (8,198) (11,082)
Additions to intangible
assets (152) (208) (205) (266)
Proceeds on disposal of
property, plant and
equipment, and - 67 87 459
Net change in other
assets 87 (10) 72 (144)
----------------------------------------------------
Cash provided (used) by
investing activities (5,120) (5,420) (10,477) (8,736)
----------------------------------------------------
Financing activities
Dividends paid to
Subordinate and
Multiple Voting
shareholders (1,721) (1,723) (3,422) (3,500)
Repurchase of shares - (1,944) - (2,070)
Payment of proceeds
payable - (2,905) (1,960) (2,905)
Short-term bank loans 177 (94) (1,001) 1,103
Increase in long-term
debt 1,263 623 2,654 20,715
Repayment of long-term
debt (3,124) (292) (4,843) (957)
----------------------------------------------------
Cash provided (used) by
financing activities (3,405) (6,335) (8,572) 12,386
----------------------------------------------------
Effect of exchange rate
differences on cash 1,097 (485) 965 (1,269)
----------------------------------------------------
Net change in cash
during the period (8,690) (16,936) 5,361 (21,518)
Net cash - Beginning of
the period 42,643 28,394 28,592 32,976
----------------------------------------------------
Net cash - End of the
period 33,953 11,458 33,953 11,458
----------------------------------------------------
----------------------------------------------------
Net cash is composed of:
Cash and cash
equivalents 74,892 52,155 74,892 52,155
Bank indebtedness (40,939) (40,697) (40,939) (40,697)
----------------------------------------------------
33,953 11,458 33,953 11,458
----------------------------------------------------
----------------------------------------------------
Supplementary
information
Interest received (paid) (227) (511) (586) (860)
Income taxes reimbursed
(paid) (1,301) (1,636) (797) (2,975)
FOR FURTHER INFORMATION PLEASE CONTACT:
Tom Velan
President and Chief Executive Officer
(514) 748-7743
(514) 748-8635 (FAX)
www.velan.com
John D. Ball
Chief Financial Officer
(514) 748-7743
(514) 748-8635 (FAX)
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