MONTREAL, QUEBEC--(Marketwire - Jan. 10, 2011) - Velan Inc. (TSX:VLN) today reported its financial results for the third quarter ended November 30, 2010.
SUMMARY OF RESULTS
(In millions of Canadian dollars, except per share amounts)
THREE MONTHS ENDED | NINE MONTHS ENDED | |||
NOVEMBER 30 | NOVEMBER 30 | |||
2010 | 2009 | 2010 | 2009 | |
Sales | 108.0 | 111.2 | 281.3 | 349.2 |
Net Earnings | 5.8 | 7.6 | 6.0 | 29.5 |
Earnings per Share | 0.26 | 0.34 | 0.27 | 1.32 |
Highlights
After weak results in the first two quarters, Velan reported improved financial results for the three months ended November 30, 2010. Sales for the quarter were $108.0 million, down 2.9% from last year's strong sales. The net earnings for the three months were $5.8 million, or $0.26 per share. For the nine months ended November 30, 2010, sales were $281.3 million and net earnings were $6.0 million, or $0.27 per share.
Sales, gross profit, and net earnings
Sales for the quarter reached $108.0 million, a 2.9% decrease from the same quarter last year. Excluding the impact of negative currency fluctuations, sales would have increased by $4.1 million or 3.7%. For the nine-month period ended November 30, 2010, sales were $281.3 million, which is $67.9 million or 19.4% lower than the previous year. Excluding the impact of negative currency fluctuations, the sales decrease would have been $38.1 million or 10.8%.
Although the Company reports in Canadian dollars, a majority of its sales is in US dollars and euros. The strong Canadian dollar relative to the U.S. dollar and euro resulted in reduced sales, profits, and bookings as recorded in Canadian dollars. Based on average exchange rates, the Canadian dollar strengthened by 4.3% and 9.9% against the U.S. dollar when compared to the three- and nine-month periods last year. The Canadian dollar strengthened by 13.7% and 17.6% against the euro when compared to the three- and nine-month periods last year. Sales decreased in almost all units except for the French operations, the result of a lower deliverable backlog of orders scheduled for this year.
The gross profit of the third quarter of $31.8 million, or 29.4% of sales, compared to a gross profit of $34.4 million, or 30.9% of sales, recorded last year. The gross profit for the nine months amounted to $72.5 million, or 25.8% of sales, this year compared to a gross profit of $116.0 million, or 33.2% of sales, recorded last year. Adjusted for the foreign currency impact, gross profit would have decreased 0.3% for both the three and nine month periods respectively. The principal factor negatively impacting the gross margin is the decreased fixed cost absorption resulting from the lower level of sales this year.
Net earnings for the quarter were $5.8 million, or $0.26 per share, compared to net earnings of $7.6 million, or $0.34 per share, in the prior year. Net earnings for the nine months amounted to $6.0 million, or $0.27 per share, compared to $29.5 million, or $1.32 per share, in the prior year. It should be noted that changes in the period end currency rates result in the unrealized gains or losses on the consolidation of the company's integrated subsidiaries. The Company recorded foreign exchange losses on the translation of integrated subsidiaries of $1.15 million and $1.37 million for the quarter and the nine months respectively, compared to losses of $1.23 million and $7.48 million for the corresponding periods of the prior year.
Strong balance sheet
The Company continues to build a strong balance sheet and ended the quarter with shareholders' equity of $342.4 million, or $15.43 per share. The Company's net cash, defined as cash and cash equivalents plus short-term investments less bank indebtedness and short- term bank loans, amounted to $99.9 million as at November 30, 2010, or $4.50 per share, a decrease of $3.9 million from February 28, 2010. Net cash required for operating activities amounted to $12.0 million for the quarter compared to $10.7 million generated by operations for the nine months.
Bookings and outlook
Order bookings improved significantly during the quarter and amounted to $157.1 million for the three months, a 60.6% increase over the $97.8 million recorded for the same quarter last year. Excluding a negative currency impact of $29.9 million for the nine-month period, the Company recorded order bookings of $365 million, a 20.3% increase over the $303.3 million recorded during the same period last year. The increase in bookings is mainly attributable to bookings for the nuclear power market, principally in the Company's French subsidiaries.
These orders typically have delivery dates of twelve months or longer from the date of order. The backlog as of November 30, 2010, was $556.6 million, of which $208.7 million is scheduled for shipment after November 2011.
The Company's President, Tom Velan, said "Even though we had better results this quarter, we continue to see this as a downturn year with lower sales and reduced margins. There have now been more positive trends in the global economy but this has not yet resulted in an upward trend for our company, with the exception of bookings in nuclear markets, which have been very strong. Although there are signs of improvement in our markets, we expect that it will take time for the capital-intensive project market to fully recover and we continue to experience fierce competition as competitors fight to maintain market share and sales volume.
"Despite the tough market environment since the fall of 2008, our backlog of orders and strong balance sheet put us in a good position to continue to cope with the impact of the downturn in our markets. We are a late-cycle company, so while many businesses had lower sales right after the financial crisis, we had good results for six quarters but are experiencing a downturn in this fiscal year. We are concerned by the slow recovery in our markets, by our lower non- nuclear order bookings, our lower margins, and by the strength of the Canadian dollar. We are focusing our efforts on pursuing business opportunities around the world in order to book enough good orders so we can have better results next fiscal year," he concluded.
Dividend
The Board declared an eligible quarterly dividend of $0.08 per share, payable on March 31, 2011, to all shareholders of record as at March 15, 2011.
Conference call
Financial analysts, shareholders, and other interested individuals are invited to attend the third- quarter conference call to be held on January 10, 2011, at 4:30 PM (ET). The toll free call-in number is 1-800-734-4208, access code 21502525. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21502525.
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.
J.D. Ball, CFO
Consolidated Statements of Earnings and Retained Earnings | |||||||||||||
Unaudited | Unaudited | ||||||||||||
Three months ended | Nine months ended | ||||||||||||
November 30 | November 30 | ||||||||||||
(in thousands of dollars, | |||||||||||||
excluding per share amounts) | 2010 | 2009 | 2010 | 2009 | |||||||||
Sales (note 3) | $ | 108,033 | $ | 111,205 | $ | 281,349 | $ | 349,150 | |||||
Cost of sales (notes 3 and 5) | 76,239 | 76,792 | 208,861 | 233,117 | |||||||||
Gross profit | 31,794 | 34,413 | 72,488 | 116,033 | |||||||||
Expenses (other income) | |||||||||||||
Engineering, selling, general and administrative and research (note 4) | 17,658 | 18,619 | 52,002 | 53,821 | |||||||||
Interest | |||||||||||||
Long-term debt | 101 | 61 | 238 | 253 | |||||||||
Other | 88 | 50 | 246 | 156 | |||||||||
Amortization of property, plant and equipment | 2,559 | 2,501 | 7,446 | 7,173 | |||||||||
Other expense (income) | 137 | (348 | ) | (454 | ) | (888 | ) | ||||||
Non-controlling interest | (175 | ) | 183 | 511 | 891 | ||||||||
Foreign exchange loss (gain) on translation of integrated subsidiaries | 1,147 | 1,233 | 1,374 | 7,479 | |||||||||
21,515 | 22,299 | 61,363 | 68,885 | ||||||||||
Earnings before income taxes | 10,279 | 12,114 | 11,125 | 47,148 | |||||||||
Provision for income taxes | 4,454 | 4,551 | 5,108 | 17,683 | |||||||||
Net earnings | $ | 5,825 | $ | 7,563 | $ | 6,017 | $ | 29,465 | |||||
Retained earnings - beginning | $ | 242,291 | $ | 235,590 | $ | 245,654 | $ | 217,251 | |||||
Net earnings | 5,825 | 7,563 | 6,017 | 29,465 | |||||||||
Dividends | |||||||||||||
Multiple Voting Shares | 1,245 | 1,246 | 3,735 | 3,736 | |||||||||
Subordinate Voting Shares | 531 | 532 | 1,596 | 1,605 | |||||||||
Retained earnings - ending | $ | 246,340 | $ | 241,375 | $ | 246,340 | $ | 241,375 | |||||
Earnings per share (note 2) | |||||||||||||
Basic | $ | 0.26 | $ | 0.34 | $ | 0.27 | $ | 1.32 | |||||
Diluted | $ | 0.26 | $ | 0.34 | $ | 0.27 | $ | 1.32 |
Consolidated Balance Sheets | |||||||
Unaudited | Unaudited | ||||||
November 30 | February 28 | ||||||
(in thousands of dollars) | 2010 | 2010 | |||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 104,847 | $ | 106,940 | |||
Short-term investments | 420 | 310 | |||||
Accounts receivable | 90,758 | 95,546 | |||||
Income taxes recoverable | 3,887 | 3,497 | |||||
Inventories | 212,173 | 206,472 | |||||
Deposits and prepaid expenses | 5,901 | 5,959 | |||||
Future income taxes | 4,594 | 4,735 | |||||
422,580 | 423,459 | ||||||
Future income taxes | 1,789 | 1,880 | |||||
Property, plant and equipment | 70,564 | 73,418 | |||||
Goodwill | 12,502 | 12,502 | |||||
Other assets | 1,488 | 1,438 | |||||
$ | 508,923 | $ | 512,697 | ||||
LIABILITIES | |||||||
Current liabilities | |||||||
Bank indebtedness | $ | 4,568 | $ | 2,630 | |||
Short-term bank loans | 832 | 833 | |||||
Accounts payable and accrued liabilities | 60,485 | 68,248 | |||||
Income taxes payable | 2,110 | 3,473 | |||||
Dividend payable | 1,778 | 1,778 | |||||
Customers' deposits | 63,753 | 58,146 | |||||
Provision for performance guarantees | 14,983 | 11,470 | |||||
Future income taxes | 895 | 907 | |||||
Current portion of long-term debt | 41 | 46 | |||||
149,445 | 147,531 | ||||||
Future income taxes | 3,768 | 3,834 | |||||
Long-term debt | 3,877 | 3,956 | |||||
Non-controlling interest | 3,009 | 4,149 | |||||
Other long-term liabilities | 6,385 | 7,043 | |||||
166,484 | 166,513 | ||||||
SHAREHOLDERS' EQUITY | |||||||
Capital stock (Note 6) | 107,583 | 108,073 | |||||
Contributed surplus (Note 6) | 2,096 | 2,016 | |||||
Retained earnings | 246,340 | 245,654 | |||||
Accumulated other comprehensive loss | (13,580 | ) | (9,559 | ) | |||
342,439 | 346,184 | ||||||
$ | 508,923 | $ | 512,697 |
Consolidated Statements of Cash Flows | |||||||||||||||
Unaudited | Unaudited | ||||||||||||||
Three months ended | Nine months ended | ||||||||||||||
November 30 | November 30 | ||||||||||||||
(in thousands of dollars) | 2010 | 2009 | 2010 | 2009 | |||||||||||
Cash provided from (required for): | |||||||||||||||
Operating activities | |||||||||||||||
Net earnings | $ | 5,825 | $ | 7,563 | $ | 6,017 | $ | 29,465 | |||||||
Items not affecting cash - | |||||||||||||||
Amortization | 2,559 | 2,501 | 7,446 | 7,173 | |||||||||||
Stock options expense | 16 | 43 | 54 | 170 | |||||||||||
Loss on disposal of property, plant and equipment | (17 | ) | - | (55 | ) | - | |||||||||
Realized foreign exchange translation adjustment | 488 | 488 | |||||||||||||
Non-controlling interest | (175 | ) | 183 | 511 | 891 | ||||||||||
Net change in other long-term liabilities | (442 | ) | (28 | ) | (699 | ) | 241 | ||||||||
8,254 | 10,262 | 13,762 | 37,940 | ||||||||||||
Net changes in non-cash working capital items | |||||||||||||||
Accounts receivable | (24,168 | ) | (3,613 | ) | 4,492 | 28,133 | |||||||||
Income taxes recoverable | 2,410 | (346 | ) | (414 | ) | 554 | |||||||||
Inventories | 318 | (9,889 | ) | (6,055 | ) | (12,349 | ) | ||||||||
Deposits and prepaid expenses | 1,458 | 689 | 54 | 3,620 | |||||||||||
Accounts payable and accrued liabilities | (570 | ) | 9,914 | (8,245 | ) | (20,103 | ) | ||||||||
Income taxes payable | 835 | 2,786 | (1,448 | ) | 11,812 | ||||||||||
Customers' deposits | (2,402 | ) | 845 | 5,259 | 5,508 | ||||||||||
Provision for performance guarantees | 1,896 | 355 | 3,295 | (319 | ) | ||||||||||
(20,223 | ) | 741 | (3,062 | ) | 16,856 | ||||||||||
(11,969 | ) | 11,003 | 10,700 | 54,796 | |||||||||||
Investing activities | |||||||||||||||
Short-term investments | (56 | ) | (302 | ) | (110 | ) | (224 | ) | |||||||
Additions to property, plant and equipment | (2,120 | ) | (3,247 | ) | (5,791 | ) | (9,876 | ) | |||||||
Proceeds on disposal of property, plant and equipment | 2 | - | 166 | - | |||||||||||
Net change in other assets | 8 | 34 | (53 | ) | 98 | ||||||||||
(2,166 | ) | (3,515 | ) | (5,788 | ) | (10,002 | ) | ||||||||
Financing activities | |||||||||||||||
Repurchase of Shares (note 6) | (221 | ) | (124 | ) | (464 | ) | (1,056 | ) | |||||||
Dividends | (1,776 | ) | (1,786 | ) | (5,331 | ) | (5,358 | ) | |||||||
Dividends to non-controlling interest | (1,828 | ) | - | (1,870 | ) | (85 | ) | ||||||||
Short-term bank loans | (12 | ) | (31 | ) | (1 | ) | (167 | ) | |||||||
Repayment of long-term debt | (69 | ) | - | (89 | ) | (1,057 | ) | ||||||||
(3,906 | ) | (1,941 | ) | (7,755 | ) | (7,723 | ) | ||||||||
Effect of exchange rate differences on cash and cash equivalents | (66 | ) | 701 | (1,188 | ) | (460 | ) | ||||||||
Net change in cash and cash equivalents | (18,107 | ) | 6,248 | (4,031 | ) | 36,611 | |||||||||
Net cash - beginning | 118,386 | 94,685 | 104,310 | 64,322 | |||||||||||
Net cash - ending | $ | 100,279 | $ | 100,933 | $ | 100,279 | $ | 100,933 | |||||||
Net cash includes cash and cash equivalents less bank indebtedness | |||||||||||||||
Interest paid amounted to : | (12 | ) | 22 | 89 | 146 | ||||||||||
Income tax paid amounted to: | 695 | 3,927 | 4,858 | 6,784 |
Consolidated Statements of Comprehensive Income | ||||||||||||||
Unaudited | Unaudited | |||||||||||||
Three months ended | Nine months ended | |||||||||||||
November 30 | November 30 | |||||||||||||
(in thousands of dollars) | 2010 | 2009 | 2010 | 2009 | ||||||||||
Net earnings | $ | 5,825 | $ | 7,563 | $ | 6,017 | $ | 29,465 | ||||||
Other comprehensive income (loss), net of tax | ||||||||||||||
Foreign currency translation adjustment on self-sustaining | ||||||||||||||
operations (non taxable) | (1,199 | ) | 201 | (4,265 | ) | (1,422 | ) | |||||||
Realized translation adjustment on the reduction of the net investment in self-sustaining foreign operations (non taxable) | 244 | - | 244 | - | ||||||||||
Comprehensive income | 4,870 | 7,764 | 1,996 | 28,043 | ||||||||||
Accumulated other comprehensive income (loss), net tax | ||||||||||||||
Accumulated other comprehensive income (loss), beginning of period | (12,625 | ) | (2,707 | ) | (9,559 | ) | (1,084 | ) | ||||||
Other comprehensive income (loss) for the period | (1,199 | ) | 201 | (4,265 | ) | (1,422 | ) | |||||||
Realized translation adjustment on the reduction of the net investment in self-sustaining foreign operations (non taxable) | 244 | - | 244 | - | ||||||||||
Accumulated other comprehensive income (loss), end of period | (13,580 | ) | (2,506 | ) | (13,580 | ) | (2,506 | ) |
Notes to Consolidated Financial Statements
November 30, 2010
(in thousands, excluding number of shares and per share amounts)
1. SUMMARY OF ACCOUNTING POLICIES
These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. They do not include all of the disclosures included in the company's annual consolidated financial statements and, as such, should be read in conjunction with the consolidated financial statements for the year ended February 28, 2010. In addition, an auditor has not performed a review of these interim consolidated financial statements.
These interim consolidated financial statements have been prepared using the same accounting policies as outlined in Note 1 of the consolidated financial statements for the year ended February 28, 2010, except for the following:
ACCOUNTING PRINCIPLES ISSUED BUT NOT YET IMPLEMENTED
Business combinations
The CICA issued Section 1582, "Business Combinations", which replaces Section 1581, "Business Combinations". The Section establishes standards for the accounting for a business combination. It provides the Canadian equivalent to International Financial Reporting Standard ("IFRS") 3 (Revised), "Business Combinations". The Section applies prospectively to business combinations for which the acquisition date is on or after the Company's annual reporting period beginning March 1, 2011. Earlier application is permitted. The Company is currently evaluating the impact of the adoption of this new accounting standard on its consolidated financial statements.
Consolidated financial statements and non-controlling interests
The CICA issued Section 1601, "Consolidated Financial Statements", and Section 1602, "Non-controlling Interests", which together replace Section 1600, "Consolidated Financial Statements". Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the corresponding provisions of International Accounting Standard 27 (Revised), "Consolidated and Separate Financial Statements". The standards are effective for the Company's annual reporting period beginning on March 1, 2011, although earlier adoption is permitted as of the beginning of a fiscal year. The Company is currently evaluating the impact of the adoption of these new accounting standards on its consolidated financial statements.
2. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated using the weighted average number of shares outstanding of 22,213,841 (November 30, 2009 – 22,264,101). The options do not have a dilutive effect.
3. FOREIGN EXCHANGE TRANSLATION
Foreign exchange gains (losses) realized on the translation of foreign currency balances and transactions during the period are included in sales and cost of sales and amounted to:
Three months ended | Nine months ended | |||||
November 30 | November 30 | |||||
2010 | 2009 | 2010 | 2009 | |||
$ | $ | $ | $ | |||
Sales | 218 | (417 | ) | 136 | (2,149 | ) |
Cost of Sales | 3,011 | 1,723 | 4,294 | 12,963 |
4. RESEARCH EXPENSE
Research Expenses included the following:
Three months ended | Nine months ended | |||
November 30 | November 30 | |||
2010 | 2009 | 2010 | 2009 | |
$ | $ | $ | $ | |
Research Expenditures | 1,837 | 1,121 | 5,623 | 4,972 |
Less: Scientific research tax credits | 603 | 275 | 1,795 | 1,687 |
1,234 | 846 | 3,828 | 3,285 |
5. INVENTORY
a) Inventory cost recorded as an expense amounted to:
Three months ended | Nine months ended | |||
November 30 | November 30 | |||
2010 | 2009 | 2010 | 2009 | |
$ | $ | $ | $ | |
Inventory Cost of Sales | 73,948 | 81,378 | 204,063 | 231,137 |
b) The net change in inventory provisions during the period amounted to:
Three months ended | Nine months ended | |||||||
November 30 | November 30 | |||||||
2010 | 2009 | 2010 | 2009 | |||||
$ | $ | $ | $ | |||||
Provision | 2,149 | 2,108 | 6,365 | 5,750 | ||||
Reversal | (1,167 | ) | (2,448 | ) | (3,926 | ) | (4,662 | ) |
Net | 982 | (340 | ) | 2,439 | 1,088 |
6. CAPITAL STOCK
a) Authorized – in unlimited number
- referred Shares, issuable in series
- Subordinate Voting Shares
- Multiple Voting Shares (five votes per share), convertible into Subordinate Voting Shares
b) Issued
Nov 30 | Feb 28 | |
2010 | 2010 | |
$ | $ | |
6,631,001 (Feb 2010 – 6,663,901) (note 6 c) Subordinate Voting Shares | 98,759 | 99,249 |
15,566,567 Multiple Voting Shares | 8,824 | 8,824 |
107,583 | 108,073 |
c) Pursuant to its Normal Course Issuer Bid, the company is entitled to repurchase for cancellation a maximum of 333,670 Subordinate Voting Shares during the twelve-month period ended October 20, 2011. During the quarter, 15,900 Subordinate Voting Shares were purchased for a cash consideration of $221 and cancelled. The amount by which the repurchase amount is below the stated capital of the shares has been credited to contributed surplus.
d) Stock Options
The fair value of the options is estimated as at the date of grant using an option pricing model with the following weighted average assumptions:
Risk-free interest rate | 3.17 % |
Expected dividend yield | 2.77 % |
Expected life of the options | 4.94 years |
Expected volatility | 28.99 % |
The weighted average fair value at grant date of the options is $2.46 per option.
A compensation cost of $16 (November 2009 - $43) for the quarter and $54 (November 2009 - $170) for the year to date was recorded in the statement of earnings and credited to contributed surplus.
The table below summarizes the status of the share option plan:
Three months ended November 30, 2010 | Nine months ended November 30, 2010 | |||||||
Number of Shares |
Weighted average exercise price ($) |
Weighted average contractual life |
Number of Shares |
Weighted average exercise price ($) |
Weighted average contractual life |
|||
Outstanding, beginning of period | 190,000 | 11.29 | 33.4 months | 193,333 | 11.28 | 38.8 months | ||
Granted | - | - | - | - | - | - | ||
Exercised | - | - | - | - | - | - | ||
Expired/Forfeited | - | - | - | 3,333 | 11.00 | - | ||
Outstanding, end of period | 190,000 | 11.29 | 30.4 months | 190,000 | 11.29 | 30.4 months | ||
Exercisable, end of period | 83,334 | 11.65 | 83,334 | 11.65 |
7. SEGMENT DISCLOSURE
Consistent with the prior year, the company reflects its results under a single reportable operating segment.
Contact Information: Velan Inc.
Tom Velan
President
514-748-7743
514-748-8635 (FAX)
or
Velan Inc.
John D. Ball
Chief Financial Officer
514-748-7743
514-748-8635 (FAX)
www.velan.com