MONTREAL, July 11, 2019 (GLOBE NEWSWIRE) -- Velan Inc. (TSX: VLN) (the “Company”), a world-leading manufacturer of industrial valves, announced today its financial results for its first quarter ended May 31, 2019.
Highlights
- Sales of US$83.8 million for the quarter
- Net loss1 of US$5.8 million for the quarter
- Net new orders (“Bookings”) of US$64.2 million for the quarter
- Order backlog of US$423.3 million at the end of the quarter, of which US$140.9 million is scheduled for delivery beyond the next 12 months
- Net cash of US$39.4 million at the end of the quarter
| Three-month periods ended | ||||||
| May 31, | May 31, | |||||
| (millions of U.S. dollars, excluding per share amounts) | 2019 | 2018 | ||||
Sales | $83.8 | $77.9 | ||||
Gross Profit | 16.1 | 17.7 | ||||
| Gross profit % | 19.2% | 22.7% | ||||
EBITDA2 | (4.3) | (1.5) | ||||
| EBITDA2 per share – basic and diluted | (0.20) | (0.07) | ||||
Net loss1 | (5.8) | (3.7) | ||||
| Net loss1 per share – basic and diluted | (0.27) | (0.17) | ||||
First Quarter Fiscal 2020 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first quarter of fiscal 2019):
- Sales amounted to $83.8 million, an increase of $5.9 million or 7.6% from the prior year. Sales were positively impacted by an increase in shipments from the Company’s Korean, Italian and North American operations, which was partially offset by a decrease in shipments from the Company’s French operations. The increased sales volume for the quarter is primarily attributable to the higher number of orders booked in the prior fiscal year in the shorter lead time MRO business, which was partially offset by lower sales from the Company’s French operations due to the timing of the deliveries of certain of its large project orders which are scheduled for the later part of the fiscal year.
- Gross profit percentage decreased by 350 basis points from 22.7% to 19.2%. The decrease in the gross profit percentage is mainly attributable to a combination of temporary or non-recurring factors as well as to more structural business-related factors. Temporary or non-recurring factors include a product mix with a lower proportion of higher margin product sales caused by delays in shipments, such as nuclear valves from the Company’s French operations, spare parts, cost items and highly engineered severe service valves in the Company’s North American operations, all of which are expected to pick up later this fiscal year. The more structural factors causing the decline in gross margin include the shipment of technically complex orders with lower margins entered prior to this fiscal year. Overall, the Company is still delivering the backlog built since the end of fiscal year 2018, which carries the significantly reduced margins experienced in the Company’s North American project manufacturing business, a heavy trend observed and reported in the last three years. Carrying over this legacy backlog means that the first quarter margins do not yet reflect the impact of the number of measures launched in the last months 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 will be completed.
- Net loss1 amounted to $5.8 million or $0.27 per share compared to $3.7 million or $0.17 per share last year. The increase in net loss1 is primarily attributable to the Company’s lower margins despite a higher sales volume.
- EBITDA2 amounted to a negative $4.3 million or a negative $0.20 per share compared to a negative $1.5 million or a negative $0.07 per share last year. The $2.8 million decrease in EBITDA2 is primarily attributable to a lower gross profit percentage caused by the shipment of large lower margin orders combined with an unfavorable product mix.
- Administration costs amounted to $23.5 million, an increase of $1.3 million or 5.9% compared to last year. The increase is primarily attributable to a $0.9 million provision regarding the settlement of a product claim that was filed against the Company in a prior fiscal year. The increase is also attributable to a $0.5 million investment in the Company’s transformation and reorganization initiative, V20, which was announced during the prior fiscal year. Excluding these expenses, the Company’s administration costs slightly decreased compared to the prior year.
- Net new orders received (“bookings”) amounted to $64.2 million, a decrease of $22.0 million or 25.5% compared to last year. This decrease is due primarily to lower orders booked by the Company’s North American operations which had seen an unusually high surge of non-project valve re-stocking orders from our 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 in bookings is also due to lower project orders booked by the Company’s French operations.
- The Company ended the period with a backlog of $423.3 million, a decrease of $26.4 million or 5.9% since the beginning of the current fiscal year. The decrease in backlog is primarily attributable to the weak book-to-bill ratio of 0.77 in the quarter and the weakening of the euro spot rate against the U.S. dollar over the course of the current quarter.
- The Company ended the quarter with net cash of $39.4 million, a decrease of $1.5 million or 3.7% since the beginning of the current fiscal year. This decrease is primarily attributable to investments in property, plant and equipment, dividend payments to shareholders and repayments of long-term debt and long-term lease liabilities, partially offset by cash provided by operating activities. 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 quarter.
- Foreign currency impacts:
- Based on average exchange rates, the Euro weakened 7.4% 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 4.2% 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 was not significant on the Company’s net loss1.
- Based on average exchange rates, the Euro weakened 7.4% 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.
“Our first quarter of Fiscal 2020 remained challenging with respect to improving margins primarily as a result of various product mix, competitive pricing and material cost factors,” said John Ball, CFO of Velan Inc. “On the other hand, our cash flow was good due to improved working capital. The other good news is that we started the year with a strong backlog, thanks to record orders in Italy and the recovering commodity market.”
Yves Leduc, President and CEO of Velan Inc., said, “We are not satisfied with the results for the first quarter of our fiscal year. We have experienced delays in shipping higher margin products in our North American and French operations, from which we expect to recover in the course of the year. The performance of our North American operations should also gradually improve as we replace last year’s backlog with new orders reflecting greater rigour in project selection and pricing. But 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 will be completed. Our priority is now execution, which involves driving change on several parallel fronts. The new business units are now in full flight and the Company is mobilized behind the plan.”
Dividend
The Board declared an eligible quarterly dividend of CDN$0.03 per share, payable on September 30, 2019, to all shareholders of record as at September 13, 2019.
Conference call
Financial analysts, shareholders, and other interested individuals are invited to attend the first quarter conference call to be held on Friday, July 12, 2019, at 11:00 a.m. (EDT). The toll free call-in number is 1-800-582-1443, access code 21926482. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21926482.
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 May 31, 2019 for a detailed calculation of this measure.
___________________________________
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.
| Velan Inc. | ||||
| Condensed Interim Consolidated Statements of Financial Position | ||||
| (Unaudited) | ||||
| (in thousands of U.S. dollars) | ||||
| As At | May 31, | February 28, | ||
| 2019 | 2019 | |||
| $ | $ | |||
| Assets | ||||
| Current assets | ||||
| Cash and cash equivalents | 72,597 | 70,673 | ||
| Short-term investments | 662 | 658 | ||
| Accounts receivable | 122,231 | 137,520 | ||
| Income taxes recoverable | 20,694 | 16,863 | ||
| Inventories | 171,257 | 165,583 | ||
| Deposits and prepaid expenses | 3,606 | 4,612 | ||
| Derivative assets | 13 | 189 | ||
| 391,060 | 396,098 | |||
| Non-current assets | ||||
| Property, plant and equipment | 95,622 | 83,537 | ||
| Intangible assets and goodwill | 17,304 | 18,146 | ||
| Deferred income taxes | 25,135 | 25,947 | ||
| Other assets | 615 | 629 | ||
| 138,676 | 128,259 | |||
| Total assets | 529,736 | 524,357 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Bank indebtedness | 33,200 | 29,807 | ||
| Short-term bank loans | 1,733 | 2,172 | ||
| Accounts payable and accrued liabilities | 76,474 | 74,910 | ||
| Income taxes payable | 481 | 495 | ||
| Dividend payable | 501 | 497 | ||
| Customer deposits | 39,176 | 40,240 | ||
| Provisions | 7,657 | 8,494 | ||
| Accrual for performance guarantees | 22,375 | 23,014 | ||
| Derivative liabilities | 246 | 83 | ||
| Current portion of long-term debt | 8,120 | 8,609 | ||
| Current portion of long-term lease liabilities | 1,266 | - | ||
| 191,229 | 188,321 | |||
| Non-current liabilities | ||||
| Long-term debt | 12,264 | 13,242 | ||
| Long-term lease liabilities | 13,295 | - | ||
| Income taxes payable | 2,033 | 1,742 | ||
| Deferred income taxes | 3,551 | 3,738 | ||
| Other liabilities | 7,682 | 8,481 | ||
| 38,825 | 27,203 | |||
| Total liabilities | 230,054 | 215,524 | ||
| Equity | ||||
| Equity attributable to the Subordinate and Multiple Voting shareholders | ||||
| Share capital | 73,090 | 73,090 | ||
| Contributed surplus | 6,075 | 6,074 | ||
| Retained earnings | 248,301 | 254,606 | ||
| Accumulated other comprehensive income (loss) | (31,703 | ) | (28,990 | ) |
| 295,763 | 304,780 | |||
| Non-controlling interests | 3,919 | 4,053 | ||
| Total equity | 299,682 | 308,833 | ||
| Total liabilities and equity | 529,736 | 524,357 | ||
| 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 May 31 | ||||
| 2019 | 2018 | |||
| $ | $ | |||
| Sales | 83,816 | 77,874 | ||
| Cost of sales | 67,722 | 60,137 | ||
| Gross profit | 16,094 | 17,737 | ||
| Administration costs | 23,463 | 22,224 | ||
| Other income | (57 | ) | (16 | ) |
| Operating loss | (7,312 | ) | (4,471 | ) |
| Finance income | 140 | 142 | ||
| Finance costs | 467 | 174 | ||
| Finance costs – net | (327 | ) | (32 | ) |
| Loss before income taxes | (7,639 | ) | (4,503 | ) |
| Income taxes | (1,819 | ) | (829 | ) |
| Net loss for the period | (5,820 | ) | (3,674 | ) |
| Net loss attributable to: | ||||
| Subordinate Voting Shares and Multiple Voting Shares | (5,824 | ) | (3,727 | ) |
| Non-controlling interest | 4 | 53 | ||
| (5,820 | ) | (3,674 | ) | |
| Net loss per Subordinate and Multiple Voting Share | ||||
| Basic | (0.27 | ) | (0.17 | ) |
| Diluted | (0.27 | ) | (0.17 | ) |
| Dividends declared per Subordinate and Multiple Voting Share | 0.02 | 0.02 | ||
| (CA$0.03) | (CA$0.03) | |||
| Total weighted average number of Subordinate and Multiple Votng Shares | ||||
| Basic | 21,621,935 | 21,621,935 | ||
| Diluted | 21,621,935 | 21,621,935 | ||
| Velan Inc. | ||||
| Condensed Interim Consolidated Statements of Comprehensive Income (Loss) | ||||
| (Unaudited) | ||||
| (in thousands of U.S. dollars) | ||||
| Three-month periods ended May 31 | ||||
| 2019 | 2018 | |||
| $ | $ | |||
| Comprehensive loss | ||||
| Net loss for the period | (5,820 | ) | (3,674 | ) |
| Other comprehensive loss | ||||
| Foreign currency translation adjustment on foreign operations whose functional currency is | ||||
| other than the reporting currency (U.S. dollar) | (2,851 | ) | (5,432 | ) |
| Comprehensive loss | (8,671 | ) | (9,106 | ) |
| Comprehensive income (loss) attributable to: | ||||
| Subordinate Voting Shares and Multiple Voting Shares | (8,537 | ) | (9,168 | ) |
| Non-controlling interest | (134 | ) | 62 | |
| (8,671 | ) | (9,106 | ) | |
| Other comprehensive income (loss) is composed solely of items that may be reclassified subsequently to the consolidated statement of loss. | ||||
| 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 | |||||||||||||
| Number of shares | Share capital | Contributed surplus | Accumulated other comprehensive income (loss) | Retained earnings | Total | Non- controlling interest | Total equity | ||||||
| Balance - February 28, 2019 | 21,621,935 | 73,090 | 6,074 | (28,990 | ) | 254,606 | 304,780 | 4,053 | 308,833 | ||||
| Net income (loss) for the period | - | - | - | - | (5,824 | ) | (5,824 | ) | 4 | (5,820 | ) | ||
| Other comprehensive loss | - | - | - | (2,713 | ) | - | (2,713 | ) | (138 | ) | (2,851 | ) | |
| 21,621,935 | 73,090 | 6,074 | (31,703 | ) | 248,782 | 296,243 | 3,919 | 300,162 | |||||
| Effect of share-based compensation | - | - | 1 | - | - | 1 | - | 1 | |||||
| Dividends | |||||||||||||
| Multiple Voting Shares | - | - | - | - | (346 | ) | (346 | ) | - | (346 | ) | ||
| Subordinate Voting Shares | - | - | - | - | (135 | ) | (135 | ) | - | (135 | ) | ||
| Balance - May 31, 2019 | 21,621,935 | 73,090 | 6,075 | (31,703 | ) | 248,301 | 295,763 | 3,919 | 299,682 | ||||
| Balance - February 28, 2018 | 21,621,935 | 73,090 | 6,057 | (19,790 | ) | 256,668 | 316,025 | 5,592 | 321,617 | ||||
| Adjustment related to the transition to IFRS 15 | - | - | - | - | 4,741 | 4,741 | - | 4,741 | |||||
| Adjusted balance - March 1, 2018 | 21,621,935 | 73,090 | 6,057 | (19,790 | ) | 261,409 | 320,766 | 5,592 | 326,358 | ||||
| Net income (loss) for the period | - | - | - | - | (3,727 | ) | (3,727 | ) | 53 | (3,674 | ) | ||
| Other comprehensive income (loss) | - | - | - | (5,441 | ) | - | (5,441 | ) | 9 | (5,432 | ) | ||
| 21,621,935 | 73,090 | 6,057 | (25,231 | ) | 257,682 | 311,598 | 5,654 | 317,252 | |||||
| Effect of share-based compensation | - | - | 4 | - | - | 4 | - | 4 | |||||
| Dividends | |||||||||||||
| Multiple Voting Shares | - | - | - | - | (335 | ) | (335 | ) | - | (335 | ) | ||
| Subordinate Voting Shares | - | - | - | - | (130 | ) | (130 | ) | - | (130 | ) | ||
| Non-controlling interest | - | - | - | - | - | - | (927 | ) | (927 | ) | |||
| Balance - May 31, 2018 | 21,621,935 | 73,090 | 6,061 | (25,231 | ) | 257,217 | 311,137 | 4,727 | 315,864 | ||||
| Velan Inc. | ||||
| Condensed Interim Consolidated Statements of Cash Flow | ||||
| (Unaudited) | ||||
| (in thousands of U.S. dollars) | ||||
| Three-month periods ended May 31 | ||||
| 2019 | 2018 | |||
| $ | $ | |||
| Cash flows from | ||||
| Operating activities | ||||
| Net loss for the period | (5,820 | ) | (3,674 | ) |
| Adjustments to reconcile net loss to cash provided by (used in) operating activities | 2,683 | 3,550 | ||
| Changes in non-cash working capital items | 4,859 | (6,205 | ) | |
| Cash provided by (used in) operating activities | 1,722 | (6,329 | ) | |
| Investing activities | ||||
| Short-term investments | (4 | ) | 51 | |
| Additions to property, plant and equipment | (748 | ) | (2,012 | ) |
| Additions to intangible assets | (22 | ) | (96 | ) |
| Proceeds on disposal of property, plant and equipment, and intangible assets | 32 | 10 | ||
| Net change in other assets | 13 | 527 | ||
| Cash used in investing activities | (729 | ) | (1,520 | ) |
| Financing activities | ||||
| Dividends paid to Subordinate and Multiple Voting shareholders | (476 | ) | (1,642 | ) |
| Dividends paid to non-controlling interest | - | (927 | ) | |
| Short-term bank loans | (439 | ) | (35 | ) |
| Increase in long-term debt | - | 607 | ||
| Repayment of long-term debt | (716 | ) | (662 | ) |
| Repayment of long-term lease liabilities | (396 | ) | - | |
| Cash used in financing activities | (2,027 | ) | (2,659 | ) |
| Effect of exchange rate differences on cash | (435 | ) | (2,408 | ) |
| Net change in cash during the period | (1,469 | ) | (12,916 | ) |
| Net cash – Beginning of the period | 40,866 | 64,543 | ||
| Net cash – End of the period | 39,397 | 51,627 | ||
| Net cash is composed of: | ||||
| Cash and cash equivalents | 72,597 | 77,969 | ||
| Bank indebtedness | (33,200 | ) | (26,342 | ) |
| 39,397 | 51,627 | |||
| Supplementary information | ||||
| Interest paid | 279 | 36 | ||
| Income taxes paid | 1,831 | 1,933 | ||
For further information please contact:
Yves Leduc, President & Chief Executive Officer
or
John D. Ball, Chief Financial Officer
Tel: (514) 748-7743
Fax: (514) 748-8635
Web: www.velan.com