MONTREAL, Oct. 10, 2019 (GLOBE NEWSWIRE) -- 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, 2019.

Highlights

• Sales of US$85.5 million for the quarter
• Net earnings¹ of US$1.4 million for the quarter
• EBITDA² of US$5.2 million for the quarter
• Net new orders (“Bookings”) of US$90.7 million for the quarter
• Order backlog of US$425.6 million at the end of the quarter, of which US$141.4 million is scheduled for delivery beyond the next 12 months
• Net cash of US$34.9 million at the end of the quarter

Second Quarter Fiscal 2020 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2019):  

• Sales amounted to $85.5 million, a decrease of $5.9 million or 6.5% from the prior year. Sales were negatively impacted by decreased shipments of certain large project orders in the Company’s North American and French operations due to customer-related issues and the timing of the delivery schedule for such orders, partially offset by an increase in shipments of large project orders in the Company’s Italian operations due to a record backlog of shippable orders at the beginning of the year.  The decrease of sales in the Company’s French operations is due to the timing of the deliveries of certain of its large project orders which are scheduled in the latter part of the fiscal year.
  
  
• Gross profit percentage increased by 460 basis points from 21.1% to 25.7%. The increase in the gross profit percentage is mainly attributable to a stronger proportion of higher margin product sales and an increased sales volume in the Company’s Italian operations, which allowed the subsidiary to cover its fixed costs more efficiently. This increase was partially offset by temporary or non-recurring factors such as delays in shipments in the Company’s French operations and a less efficient product mix in the Company’s North American project manufacturing business. The Company has noted an increase in the gross profit percentage of its North American operations in comparison to the first quarter of the current fiscal year.  The increase is primarily attributable to its MRO business.
  
  
• Net earnings¹ amounted to $1.4 million or $0.06 per share compared to a net loss of $2.4 million or $0.11 per share last year. The Company’s return to profitability for the quarter was achieved through improved margins as well as lowered administration costs of $1.4 million, partially offset by a lower sales volume.
  
  
• EBITDA² amounted to $5.2 million or $0.24 per share compared to $1.4 million or $0.06 per share last year. The $3.8 million improvement in EBITDA² is primarily attributable to a stronger gross margin percentage due to the shipment of higher margin orders combined with a reduction of administration costs, partially offset by an overall lower sales volume.
  
  
• Bookings amounted to $90.7 million, a decrease of $12.8 million or 12.4% compared to last year. This decrease is primarily attributable to lower order bookings by the Company’s Italian operations, which had record large project orders in the prior year. The Company’s project quotation activity has notably increased this year in sectors where margins are healthy, and concurrently decreased in other sectors where the Company experiences the most aggressive competition and where margins are much tighter. The shift is the result of deliberate screening that is expected to take effect gradually as the Company replaces its existing backlog with higher margin orders. The net decrease in bookings experienced in the last six months, which the Company’s plan aims to reverse, must be understood in this context.

First Half Year Fiscal 2020 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first half year of fiscal 2019):

• Sales amounted to $169.3 million, an increase of $0.1 million or 0.1% from the prior year. When compared to the prior half year period, the lower sales volume in the second quarter combined with the higher shipments of the first quarter left sales flat to the level of the prior fiscal year.   The increased shipments of certain large project orders booked in the prior fiscal year by the Company’s Italian operations was offset by the lowered sales volume recognized in the French and North American operations of the Company.
  
  
• Gross profit percentage increased by 60 basis points from 21.9% to 22.5%. This improvement is due to a higher sales volume and a stronger proportion of higher margin product sales in the Company’s Italian operations, partially offset by a lower sales volume and a less efficient product mix in the Company’s French and North American operations. Overall, the Company is still delivering its backlog which means that the margins do not yet reflect the impact of the number of measures launched in the last quarter under the Company’s V20 transformation plan. The combined effect of these measures is expected to gradually take effect in the course of this fiscal year and next year but the greater impact of the Company’s transformative V20 initiatives is only expected late in fiscal year 2021, when the task of reorganizing and reducing the Company’s North American footprint is planned to be completed.
  
  
• Net loss¹ amounted to $4.5 million or $0.21 per share compared to $6.2 million or $0.28 per share last year. The $1.7 million improvement is primarily attributable to a higher gross profit percentage, lowered finance costs and a higher recovery of income taxes.
  
  
• EBITDA² amounted to $0.9 million or $0.04 per share compared to a negative $0.1 million or $0.01 per share last year. The $1.0 million increase in EBITDA² is mainly attributable to the improved margin in the current fiscal year.
  
  
• Bookings amounted to $154.9 million, a decrease of $34.8 million or 18.3% compared to last year. This decrease is due primarily to lower order bookings by the Company’s North American operations which had seen an unusually high surge of non-project valve re-stocking orders from its distributors in the first quarter of the prior fiscal year. MRO distributor orders this fiscal year are expected to reflect a more normalized stock replenishment cycle.  The decrease is also due to lower large project orders booked by the Company’s Italian operations which had record project orders in the prior year.
  
  
• The Company ended the period with a backlog of $425.6 million, a decrease of $24.1 million or 5.4% since the beginning of the current fiscal year. The decrease in backlog is primarily attributable to the weak book-to-bill ratio of 0.91 in the quarter and the weakening of the euro spot rate against the U.S. dollar over the course of the current fiscal year.
  
  
• Administration costs amounted to $43.5 million, a decrease of $0.2 million or 0.5% compared to last year. The decrease in administration costs was achieved despite the recording of a $0.9 million provision regarding the settlement of a product claim that was filed against the Company in a prior fiscal year and a $1.0 million investment in the Company’s transformation and reorganization initiative, V20, which was announced during the prior fiscal year.  Excluding these costs, the reduction in administration costs is mainly attributable to the higher freight charges that were incurred in the prior fiscal year in order to air freight a large delayed order.
  
  
• The Company ended the period with net cash of $34.9 million, a decrease of $6.0 million or 14.7% since the beginning of the fiscal year. This decrease is primarily attributable to investments in property, plant and equipment, long-term debt and lease liabilities repayments, as well as to distributions to shareholders via dividends, partially offset by cash provided by operating activities and an increase in long-term debt.  Net cash was also negatively impacted by the weakening of the euro spot rate against the U.S. dollar over the course of the current year.
  
  
• Foreign currency impacts:
  
  
  • Based on average exchange rates, the Euro weakened 5.6% against the U.S. dollar when compared to the same period last year. This resulted in the Company’s net profits and bookings from its European subsidiaries being reported as lower U.S. dollar amounts in the current quarter.
    
    
  • Based on average exchange rates, the Canadian dollar weakened 2.5% against the U.S. dollar when compared to the same period last year. This resulted in the Company’s Canadian dollar expenses being reported as lower U.S. dollar amounts in the current quarter.
    
    
  • The net impact of the above currency swings did not have a significant impact on the Company’s net loss¹.

“Although Fiscal 2020 is a year of challenges as we reposition our North American manufacturing and sales operations, our second quarter results showed improvements over the same quarter last year, most notably in margin and SG&A costs,” said John Ball, CFO of Velan Inc. “We are working to conserve our working capital as the largest part of our North American manufacturing transformation is still ahead of us. Nonetheless, we are reinstituting our NCIB as we believe this is an effective use of our cash.”

Yves Leduc, President and CEO of Velan Inc., said, “We are on schedule with the restructuring and specialization of our North American manufacturing footprint and increasing the capacity of our Indian plant to make it ready for the transfer of commodity valves still manufactured in North America. Meanwhile our overseas operations are performing well and we are particularly pleased with the progress our Italian subsidiary has been making in the upstream oil and gas market after a few challenging years. Furthermore, the new strategic business units have definitely sharpened our focus on discrete market and end-user opportunities, planting the seeds for better profitable growth. Although we note progress on several fronts of our V20 transformation agenda, we are not satisfied yet, remembering that the most significant impact of the Company’s transformative V20 initiatives is only expected late next year, when the task of reorganizing and reducing the Company’s North American footprint is planned to be completed.”

Dividend

The Board declared an eligible quarterly dividend of CDN$0.03 per share, payable on December 27, 2019, to all shareholders of record as at December 12, 2019.

The Board of the Company has authorized today a normal course issuer bid to purchase for cancellation up to 151,384 Subordinate Voting Shares representing approximately 2.5 % of the outstanding Subordinate Voting Shares of the Company. The normal course issuer bid is subject to the approval of the Toronto Stock Exchange.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on Friday, October 11, 2019, at 11:00 a.m. (EDT). The toll free call-in number is 1‑800‑909-4197, access code 21930534. A recording of this conference call will be available for seven days at 1‑416‑626‑4100 or 1‑800‑558‑5253, access code 21930534.

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$366.9 million in its last reported fiscal year. The Company employs over 1,800 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 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 “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. Refer to the “Reconciliations of Non-IFRS Measures” section in the Company’s Management Discussion and Analysis included in its Interim Report for the quarter ended August 31, 2019 for a detailed calculation of this measure. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

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¹ Net earnings or loss refers to net income or loss attributable to Subordinate and Multiple Voting Shares.
² Non-IFRS measures – see explanation above.

For further information please contact:
Yves Leduc, President and Chief Executive Officer
or
John D. Ball, Chief Financial Officer
Tel: (514) 748-7743
Fax: (514) 748-8635
Web: www.velan.com