Velan Inc. (TSX:VLN), a world-leading manufacturer of industrial valves,
announced today its financial results for its third quarter ended November 30,
2011.
Three months Nine months
ended ended
November 30 November 30
(millions of U.S. dollars, excluding per
share amounts) 2011 2010 2011 2010
----------------------------------------------------------------------------
Sales $118.9 $105.7 $319.4 $273.7
Gross Profit 27.3 33.4 64.3 71.8
Gross margin 23.0% 31.6% 20.1% 26.2%
Net income (loss) attributable to
Multiple and Subordinate Voting Shares 4.0 11.9 2.0 14.2
Net income (loss) per share - basic and
fully diluted 0.18 0.54 0.09 0.64
Highlights
Third Quarter Fiscal 2012 (unless otherwise noted, all comparisons are to the
third quarter of fiscal 2011):
-- Net earnings(1) amounted to $4.0 million or $0.18 per share compared to
$11.9 million or $0.54 per share last year. Excluding the results of
Velan ABV ("ABV"), the effects of purchase price accounting and currency
impacts, the Company would have reported net earnings(1) of $6.4 million
or $0.29 per share in the current quarter compared to $6.8 million or
$0.30 per share last year.
-- Net new orders received ("bookings") amounted to $93.3 million, a
decrease of $65.2 million or 41.1% compared to last year. Excluding ABV
and currency impacts, the decrease was $45.0 million or 28.4%. 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 third quarter with a backlog of $653.6 million; $613.9
million excluding ABV. The Company's backlog increased by 18.1% and
19.3% when compared to November 2010 and February 2011, respectively.
-- Sales amounted to $118.9 million, an increase of $13.2 million or 12.5%.
Excluding ABV and currency impacts, sales increased $3.3 million or
3.1%.
-- Gross margin decreased by 8.6% from 31.6% to 23.0%. Excluding ABV, the
effects of purchase price accounting and currency impacts, gross margin
would have decreased by 0.3% from last year.
-- The Company used net cash(1) from operations of $14.0 million. This use
of net cash(1) is primarily attributable to an investment in non-cash
working capital, in particular an increase in accounts receivable
resulting from the increase in shipments in the quarter. The Company
ended the third quarter with net cash(1) of $28.7 million.
(1) Net earnings or loss refers to net income or loss attributable to
Subordinate and Multiple Voting Shares.
First nine months of fiscal 2012 (unless otherwise noted, all comparisons are to
the first nine months of fiscal 2011):
-- Net earnings(2) amounted to $2.0 million or $0.09 per share compared to
$14.2 million or $0.64 per share last year. Excluding ABV, the effects
of purchase price accounting and currency impacts, the Company would
have reported net earnings(2) of $7.4 million or $0.34 per share this
year compared to $6.1 million or $0.27 per share last year.
-- Bookings amounted to $403.1 million, an increase of $78.7 million or
24.3% compared to last year. Excluding ABV and currency impacts, the
increase would have been $54.1 million or 16.7%.
-- Sales amounted to $319.4 million, an increase of $45.7 million or 16.7%.
Excluding ABV and currency impacts, sales increased $21.8 million or
8.0%.
-- Gross margin decreased by 6.1% from 26.2% to 20.1%. Excluding ABV, the
effects of purchase price accounting and currency impacts, gross margin
would have decreased by 0.3%.
-- The Company used net cash(1) from operations of $28.4 million. This use
of net cash(1) is primarily attributable to increased inventory
purchases to service the growing backlog in the first half of the
current year, followed by increasing shipments resulting in higher
accounts receivable in the latter portion of the year.
-- Based on average exchange rates, the U.S. dollar weakened 4.2% 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.
"We had quarterly net earnings(2) of $4.0 million compared to $11.9 million in
the same quarter last year," said Tom Velan, President and CEO of Velan Inc.,
"but after adjusting for ABV, the effects of purchase price accounting for the
acquisition, and the currency impacts, we would have reported net earnings(2) of
$6.4 million in the current quarter compared to $6.8 million last year.
"Faced with significant material cost increases over the last year, we have been
selectively raising our selling prices. For some of our product lines we still
face lower margins due to the higher material cost increases. We need to raise
the margin by increasing volume as well as continuing to make selective price
increases to cover cost increases.
"As we explained in our last annual report, similar to some other U.S. valve
manufacturers, two of our U.S. subsidiaries have been named as defendants in a
number of pending lawsuits brought on behalf of individuals seeking to recover
damages for their alleged asbestos exposure. These lawsuits are related to
products manufactured and sold many years ago. Our costs related to these
asbestos lawsuits for the quarter were $1.4 million compared to $1.2 million
last year. We strongly believe that our products, which were supplied with
encapsulated packing and gaskets in accordance with valve industry practice and
customer mandated specifications, did not contribute to any asbestos-related
sicknesses. We have independent laboratory test results that support this
conclusion. We think that any asbestos-related health problems were caused by
friable, asbestos-containing products such as the spray application of asbestos
insulation and the process of removing asbestos from buildings or confined
spaces, which resulted in heavy concentrations of asbestos fibers in the air.
Unfortunately, the responsible companies are no longer in existence so
plaintiffs are pursuing pump and valve manufacturers like Velan. We will
continue to vigorously defend against these claims, but given the ongoing course
of asbestos litigation in the U.S. and the unpredictability of jury trials, it
is not possible to make an estimate of our legal and other costs related to
these claims.
(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.
"The increases in bookings, backlog and sales for the year to date are good
indications of an improving global market for our products. At the same time, we
are concerned by weakness in the U.S. economy and persistent problems in Europe
with concerns about the stability of the euro. These factors are increasing the
risk of another sharp downturn in the global economy. Fortunately, we are
starting our fourth quarter 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.
"I think that the acquisition of ABV Energy is a great opportunity for us to
help grow our sales and earnings over the coming years. In the shorter term, the
accounting treatment, whereby part of the purchase price is attributed to the
assets (including inventory) as a purchase price adjustment, will reduce the
contribution to our results. We are working to help improve operations to
increase output and profitability. Velan ABV had another soft quarter, but we
expect improving results going forward as the new plant capacity goes into
operation during the fourth quarter as well as increases in sales based on the
higher bookings and backlog."
Tom Velan concluded, "We are continuing to take measures to broaden our product
offering, 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 March 30, 2012, to all shareholders of record as at March 15,
2012.
Conference Call
Financial analysts, shareholders, and other interested individuals are invited
to attend the third quarter conference call to be held on January 11, 2012, at
4:30 PM (EST). The toll free call-in number is 1-800-268-5851, access code
21567127. A recording of this conference call will be available for seven days
at 1-416-626-4100 or 1-800- 558-5253, access code 21567127.
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.
SELECTED FINANCIAL INFORMATION
Reconciliation of Net Income (Loss) from Canadian GAAP to IFRS:
Fiscal Year Three Months Nine Months
Ended Ended Ended
(In thousands of indicated currency) February 28 November 30 November 30
2011 2010 2010
$ $ $
Net Income (Loss) - GAAP in Canadian
dollars 5,810 5,825 6,017
--------------------------------------
--------------------------------------
Net Income (Loss) - GAAP in U.S.
dollars 5,665 5,678 5,898
IFRS Adjustments to net income (loss)
in U.S. dollars:
Change of functional currency to
U.S. dollar 14,819 5,797 9,202
Reclassification of Non-controlling
Interest 775 62 730
Income taxes - tax effect of above
differences 740 451 (949)
--------------------------------------
Net Income (Loss) - IFRS in U.S.
dollars 21,999 11,988 14,881
--------------------------------------
--------------------------------------
Reconciliation of Comprehensive Income (Loss) from Canadian GAAP to IFRS:
Fiscal Year Three Months Nine Months
Ended Ended Ended
(In thousands of indicated currency) February 28 November 30 November 30
2011 2010 2010
$ $ $
Comprehensive Income (Loss) - GAAP in
Canadian dollars 1,976 4,870 1,996
---------------------------------------
---------------------------------------
Comprehensive Income (Loss) - GAAP in
U.S. dollars 1,907 4,739 1,987
IFRS Adjustments to comprehensive
income (loss) in U.S. dollars:
Change of functional currency to
U.S. dollar 21,091 8,956 10,603
Realized translation adjustment on
reduction of net investment in (239) (237) (237)
self-sustaining operations
Reclassification of Non-controlling
Interest 845 230 785
Income taxes - tax effect of above
differences 740 451 (949)
---------------------------------------
Comprehensive Income (Loss) - IFRS in
U.S. dollars 24,344 14,139 12,189
---------------------------------------
---------------------------------------
Reconciliation of Equity from Canadian GAAP to IFRS:
February 28 November 30, March 1,
(In thousands of indicated currency) 2011 2010 2010
$ $ $
Equity - GAAP in Canadian dollars 340,627 342,439 346,184
--------------------------------------
Equity - GAAP in U.S. dollars 350,265 333,295 328,682
IFRS Adjustments to Equity in U.S.
dollars:
Change of functional currency to
U.S. dollar (19,794) (9,224) (13,469)
Reclassification of non-controlling
interest 4,025 3,925 4,954
Income taxes - tax effect of above
differences 3,227 (602) 2,439
--------------------------------------
Equity - IFRS in U.S. dollars 337,723 327,394 322,606
--------------------------------------
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 Nine-month
periods ended periods ended
November 30 November 30
2011 2010 2011 2010
$ $ $ $
Sales 118,939 105,653 319,351 273,678
Cost of sales 91,652 72,224 255,094 201,887
------------------------------------------------
Gross profit 27,287 33,429 64,257 71,791
Administration cost 21,634 17,681 62,214 51,254
Other expense (income) (101) (2) (317) (348)
------------------------------------------------
Operating profit (loss) 5,754 15,750 2,360 20,885
Finance income 69 155 230 384
Finance costs 213 34 1,036 471
------------------------------------------------
Finance income (costs) - net (144) 121 (806) (87)
------------------------------------------------
Income (Loss) before income
tax 5,610 15,871 1,554 20,798
Income tax expense
(recovery) 1,778 3,883 203 5,917
------------------------------------------------
Net income (loss) for the
period 3,832 11,988 1,351 14,881
------------------------------------------------
------------------------------------------------
Net income (loss)
attributable to:
Subordinate Voting Shares
and Multiple Voting Shares 3,992 11,926 2,028 14,151
Non-controlling interest (160) 62 (677) 730
------------------------------------------------
3,832 11,988 1,351 14,881
------------------------------------------------
------------------------------------------------
Net income (loss) per
Subordinate andMultiple
Voting Share
Basic 0.18 0.54 0.09 0.64
Diluted 0.18 0.54 0.09 0.64
------------------------------------------------
------------------------------------------------
Dividends declared per
Subordinate andMultiple 0.07 0.07 0.24 0.23
Voting Share (CDN$0.08) (CDN$0.08) (CDN$0.24) (CDN$0.24)
------------------------------------------------
------------------------------------------------
Total weighted average
Subordinate and Multiple
Voting Shares
Basic 22,180,538 22,213,841 22,180,538 22,213,841
Diluted 22,197,471 22,242,135 22,218,713 22,251,879
------------------------------------------------
------------------------------------------------
Velan Inc.
Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
Three-month Nine-month
periods periods
ended ended
November 30 November 30
2011 2010 2011 2010
$ $ $ $
Comprehensive income (loss)
Net income (loss) for the period 3,832 11,988 1,351 14,881
Other comprehensive income (loss), net
of tax
Foreign currency translation adjustment
on foreign operations whose functional
currency is other than the U.S. dollar (11,055) 2,151 (7,210) (2,692)
----------------- -----------------
Comprehensive income (loss) (7,223) 14,139 (5,859) 12,189
------------------------------------
------------------------------------
Comprehensive income (loss) attributable
to:
Subordinate Voting Shares and Multiple
Voting Shares (6,117) 13,909 (4,090) 11,404
Non-controlling interest (1,106) 230 (1,769) 785
----------------- -----------------
(7,223) 14,139 (5,859) 12,189
------------------------------------
------------------------------------
Velan Inc.
Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At November 30, February 28, March 1,
2011 2011 2010
$ $ $
Assets
Current assets
Cash and cash equivalents 49,822 119,996 101,691
Short-term investments 1,514 87 295
Accounts receivable 127,555 94,495 86,756
Income taxes recoverable 10,195 5,007 3,301
Inventories 248,306 205,334 190,031
Deposits and prepaid expenses 4,697 3,875 5,672
Derivative assets 1,282 3,329 4,042
443,371 432,123 391,788
Non-current assets
Property, plant and equipment 70,784 64,622 63,931
Other assets 1,242 1,391 1,388
Intangible assets and goodwill 58,214 11,657 11,382
Deferred income taxes 7,368 6,244 5,545
------------------------------------
137,608 83,914 82,246
------------------------------------
Total assets 580,979 516,037 474,034
------------------------------------
------------------------------------
Liabilities
Current liabilities
Bank indebtedness 21,833 5,634 2,500
Short-term bank loans 847 822 791
Accounts payable and accrued liabilities 78,103 65,329 63,897
Income tax payable 2,167 1,832 4,505
Dividend payable 1,811 1,830 1,689
Customer deposits 83,890 73,054 55,403
Provisions 3,783 4,288 2,973
Accrual for performance guarantees 18,350 13,354 7,955
Derivative liabilities 2,051 447 1,077
Current portion of long-term debt 952 603 44
Current portion of other long-term
liabilities 5,610 - -
------------------------------------
219,397 167,193 140,834
Non-current liabilities
Long-term debt 8,137 4,408 3,768
Other long-term liabilities 10,802 6,656 6,702
Deferred income taxes 8,262 57 124
------------------------------------
27,201 11,121 10,594
------------------------------------
Total liabilities 246,598 178,314 151,428
------------------------------------
Equity
Equity attributable to the Subordinate
and Multiple Voting shareholders
Share capital 78,969 79,271 79,651
Contributed surplus 1,863 1,898 1,936
Retained earnings 246,848 250,254 236,065
Accumulated other comprehensive income (3,843) 2,275 -
------------------------------------
323,837 333,698 317,652
Non-controlling interest 10,544 4,025 4,954
------------------------------------
Total equity 334,381 337,723 322,606
------------------------------------
Total liabilities and equity 580,979 516,037 474,034
------------------------------------
------------------------------------
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
Number of Share Contributed comprehensive
shares capital surplus income
-----------------------------------------------
Balance -Beginning of period 22,195,568 79,271 1,898 2,275
Net income (loss) for the
period - - - -
Other comprehensive income
(loss) - - - (6,118)
-----------------------------------------------
22,195,568 79,271 1,898 (3,843)
Effect of share-based
compensation - - 50 -
Dividends
Multiple Voting Shares - - - -
Subordinate Voting Shares - - - -
Non-controlling interest - - - -
Share repurchase (27,800) (302) (85) -
Non-controlling interest
arising on acquisition - - - -
-----------------------------------------------
As at November 30, 2011 22,167,768 78,969 1,863 (3,843)
-----------------------------------------------
Equity attributable to the Subordinate and Multiple Voting shareholders
---------------------------------------------------------------------------
Non-
Retained controlling
earnings Total interest Total equity
----------------------------------------------
Balance -Beginning of period 250,254 333,698 4,025 337,723
Net income (loss) for the
period 2,028 2,028 (677) 1,351
Other comprehensive income
(loss) - (6,118) (1,092) (7,210)
----------------------------------------------
252,282 329,608 2,256 331,864
Effect of share-based
compensation - 50 - 50
Dividends
Multiple Voting Shares (3,852) (3,852) - (3,852)
Subordinate Voting Shares (1,582) (1,582) - (1,582)
Non-controlling interest - - (84) (84)
Share repurchase - (387) - (387)
Non-controlling interest
arising on acquisition - - 8,372 8,372
----------------------------------------------
As at November 30, 2011 246,848 323,837 10,544 334,381
----------------------------------------------
Equity attributable to the Subordinate and Multiple Voting shareholders
----------------------------------------------------------------------------
Accumulated
other
Number of Share Contributed comprehensive
shares capital surplus income
-----------------------------------------------
Balance -Beginning of period 22,230,468 79,651 1,936 -
Net income (loss) for the
period - - - -
Other comprehensive income
(loss) - - - (2,747)
-----------------------------------------------
22,230,468 79,651 1,936 (2,747)
Effect of share-based
compensation - - 53 -
Dividends
Multiple Voting Shares - - - -
Subordinate Voting Shares - - - -
Non-controlling interest - - - -
Share repurchase (31,900) (358) (97) -
-----------------------------------------------
As at November 30, 2010 22,198,568 79,293 1,892 (2,747)
-----------------------------------------------
-----------------------------------------------
Equity attributable to the Subordinate and Multiple Voting shareholders
--------------------------------------------------------------------------
Non-
Retained controlling
earnings Total interest Total equity
----------------------------------------------
Balance -Beginning of period 236,065 317,652 4,954 322,606
Net income (loss) for the
period 14,151 14,151 730 14,881
Other comprehensive income
(loss) - (2,747) 55 (2,692)
----------------------------------------------
250,216 329,056 5,739 334,795
Effect of share-based
compensation - 53 - 53
Dividends
Multiple Voting Shares (3,633) (3,633) - (3,633)
Subordinate Voting Shares (1,552) (1,552) - (1,552)
Non-controlling interest - - (1,814) (1,814)
Share repurchase - (455) - (455)
----------------------------------------------
As at November 30, 2010 245,031 323,469 3,925 327,394
----------------------------------------------
----------------------------------------------
Velan Inc.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. dollars)
Three-month periods Nine-month periods
ended November 30 ended November 30
2011 2010 2011 2010
Cash flows from $ $ $ $
Operating activities
Net income (loss) for the period 3,832 11,988 1,351 14,881
Adjustments to reconcile net
profit to cash provided operating
activities
Amortization of property, plant
and equipment 2,172 1,947 6,396 6,108
Amortization of intangible assets 1,478 246 3,836 585
Deferred income taxes 430 (563) (512) 1,331
Share-based compensation expense 33 16 50 53
Loss (Gain) on disposal of
property, plant and equipment (39) 57 11 (24)
Amortization of present value
discount on other long-term
liabilities 291 - 702 -
Net change in other long-term
liabilities (734) (172) (106) (497)
----------------------------------------
----------------------------------------
7,463 13,519 11,728 22,437
----------------------------------------
----------------------------------------
Changes in non-cash working capital
items
Accounts receivable (20,336) (24,522) (24,301) 865
Inventories (2,250) (6,243) (27,161) (14,842)
Income taxes recoverable (835) 2,101 (5,239) (592)
Deposits and prepaid expenses 67 1,144 (362) (94)
Derivative assets (865) (2,000) 2,027 829
Accounts payable and accrued
liabilities 189 3,392 833 (4,832)
Income taxes payable 550 971 (202) (1,628)
Customer deposits 3,150 71 8,601 6,560
Provisions (463) 469 (510) 256
Accrual for performance guarantees (1,272) 1,881 4,630 3,261
Derivative liabilities 565 (991) 1,588 (836)
----------------------------------------
----------------------------------------
(21,500) (23,727) (40,096) (11,053)
----------------------------------------
----------------------------------------
Cash provided (used) by operating
activities (14,037) (10,208) (28,368) 11,384
----------------------------------------
----------------------------------------
Investing activities
Short-term investments (776) (67) (1,427) (114)
Additions to property, plant and
equipment (1,563) (1,932) (8,940) (5,339)
Proceeds on disposal of property,
plant and equipment 34 2 61 206
Additions to intangible assets (93) (191) (738) (549)
Net change in other assets 131 (49) 148 (83)
Business acquisition - net of cash
acquired - - (37,281) -
----------------------------------------
----------------------------------------
Cash provided (used) by investing
activities (2,267) (2,237) (48,177) (5,879)
----------------------------------------
----------------------------------------
Financing activities
Dividends paid to Subordinate and
Multiple Voting shareholders (1,773) (1,681) (5,453) (5,142)
Dividends paid to non-controlling
interest - (1,777) (84) (1,814)
Repurchase of shares (109) (217) (388) (455)
Short-term bank loans - 16 (4,842) 18
Increase in long-term debt 388 - 4,612 -
Repayment of long-term debt (2,579) (70) (2,636) (89)
----------------------------------------
----------------------------------------
Cash provided (used) by investing
activities (4,073) (3,729) (8,791) (7,482)
----------------------------------------
----------------------------------------
Effect of exchange rate differences
on cash (1,349) 2,803 (1,037) 561
----------------------------------------
----------------------------------------
Net change in cash during the period (21,726) (13,371) (86,373) (1,416)
Net cash - Beginning of period 49,715 111,146 114,362 99,191
----------------------------------------
----------------------------------------
Net cash - End of period 27,989 97,775 27,989 97,775
----------------------------------------
----------------------------------------
Net cash is composed of:
Cash and cash equivalents 49,822 102,231 49,822 102,231
Bank indebtedness (21,833) (4,456) (21,833) (4,456)
----------------------------------------
----------------------------------------
27,989 97,775 27,989 97,775
----------------------------------------
----------------------------------------
Supplementary information
Interest received (paid) (647) 11 (752) (86)
Income taxes received (paid) (1,835) (719) (5,854) (4,758)
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