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Enter Symbol
or Name
USA
CA



Velan Inc
Symbol VLN
Shares Issued 6,207,268
Close 2016-01-13 C$ 14.50
Market Cap C$ 90,005,386
Recent Sedar Documents

Velan earns $3.66-million (U.S.) in fiscal Q3 2016

2016-01-13 16:04 ET - News Release

Mr. Tom Velan reports

VELAN INC. REPORTS ITS THIRD QUARTER 2015/16 FINANCIAL RESULTS

Velan Inc. today released its financial results for its third quarter ended Nov. 30, 2015.

Unless otherwise noted, all amounts are in U.S. dollars.

Highlights

  • Sales of $104-million for the quarter;
  • Adjusted net earnings of $5.2-million for the quarter;
  • Order backlog of $348.5-million at the end of the quarter;
  • Net order bookings of $89.5-million for the quarter;
  • Net cash of $69.5-million at the end of the quarter;
  • Returned $2.8-million to shareholders in the quarter and $7.5-million in the nine-month period by way of dividends and share repurchases.

                                 HIGHLIGHTS
          (in millions of U.S. dollars, excluding per-share amounts)

                                      Three-month period   Nine-month period 
                                                   ended               ended 
                                                 Nov. 30,            Nov. 30,

                                           2015     2014      2015      2014 

Sales                                    $104.0   $127.3    $318.7    $341.2 
Gross profit                               26.0     33.5      76.2      89.2 
Gross margin (%)                           25.0%    26.3%     23.9%     26.1%
Net income attributable to                                                  
subordinate and multiple                                                   
voting shares                               3.6      4.8      11.5      13.9 
Net income (loss) per share
Basic                                      0.16     0.22      0.52      0.63 
Diluted                                    0.16     0.22      0.52      0.63 

Third quarter fiscal 2016 (unless otherwise noted, all comparisons are with the third quarter of fiscal 2015):

  • Net earnings amounted to $3.6-million or 16 cents per share, compared with $4.8-million, or 22 cents per share, last year. Adjusted net earnings, which excludes from net earnings the aftertax impact of the restructuring costs incurred in the quarter, amounted to $5.2-million, or 23 cents per share, compared with $4.8-million, or 22 cents per share, last year. The $400,000 increase in adjusted net earnings was achieved despite a drop in sales and gross margin, which were offset by lower administration and net finance costs.
  • Net new orders received (bookings) amounted to $89.5-million, a decrease of $36.5-million, or 29 per cent, compared with last year. The continued weakness in the price of oil has had a negative impact on the company's order intake in some of its important markets, namely in the oil and gas industry and the energy sector.
  • Sales amounted to $104-million, a decrease of $23.3-million, or 18.3 per cent, compared with last year. The decrease in bookings over the last four quarters is having a negative impact on the company's shipments and billings. Anticipating this drop in sales, the company restructured its North American operations in the quarter with a work force reduction and plant consolidation, thus lowering its production and administrative overhead costs.
  • Gross margin decreased by 1.3 percentage points from 26.3 per cent to 25 per cent. This decrease is mainly attributable to a lower sales volume, which was partially offset by a decrease in direct labour and production overhead costs resulting from the restructuring described above.
  • Foreign currency impacts:
    • Based on average exchange rates, the euro weakened 5.4 per cent against the U.S. dollar when compared with the same period last year. This weakening resulted in the company's net profits, bookings, sales and backlog 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 7.6 per cent against the U.S. dollar when compared with 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 quarter.
    • The net impact of these currency swings was favourable to the company's results for the current quarter.

First nine months fiscal 2016 (unless otherwise noted, all comparisons are to the first nine months of fiscal 2015):

  • Net earnings amounted to $11.5-million, or 52 cents per share, compared with $13.9-million, or 63 cents per share, last year. Adjusted net earnings amounted to $13.1-million, or 59 cents per share, compared with $13.9-million, or 63 cents per share, last year. The $800,000 decrease in adjusted net earnings is primarily attributable to a lower gross profit percentage partially offset by decreased administration and net finance costs.
  • Sales amounted to $318.7-million, a decrease of $22.5-million, or 6.6 per cent, compared with last year. The decrease in bookings over the last four quarters is having a negative impact on the company's shipments and billings. Sales were also affected by a production slowdown caused by labour unrest and a lockout at the company's Canadian facilities during the first half of the current fiscal year.
  • Bookings amounted to $242.8-million, a decrease of $127.5-million, or 34.4 per cent, compared with last year. Excluding the effect of an order cancellation of $23.6-million in the first quarter, bookings would have decreased by $103.9-million, or 28.1 per cent, in the period. This decrease is mainly attributable to an economic downturn in some of the company's important markets, particularly the oil and gas industry and energy sector.
  • As a result of sales outpacing bookings in the period, the company ended the period with a backlog of $348.5-million, a decrease of $89.3-million, or 20.4 per cent, since the beginning of the current fiscal year.
  • Gross margin decreased by 2.2 percentage points from 26.1 per cent to 23.9 per cent. This decrease is attributable to a number of factors, including a lower sales volume and competitive bidding in a tighter market resulting in a greater proportion of lower margin product sales;
  • Administration costs amounted to $57.6-million, a decrease of $10.4-million, or 15.3 per cent. The decrease is primarily attributable to favourable currency swings resulting from a stronger U.S. dollar, a decrease in compensation-related costs and a decrease in costs recognized in connection with the company's continuing asbestos litigation. The fluctuation in asbestos-related costs for the period is due more to the timing of settlement payments in these two periods than to changes in long-term trends.
  • The company ended the period with net cash of $69.5-million, a decrease of $6.1-million, or 8.1 per cent, since the beginning of the current fiscal year. This decrease is primarily attributable to the company returning $7.5-million in cash to its shareholders over the nine-month period by way of dividends and share repurchases.
  • Foreign currency impacts:
    • Based on average exchange rates, the euro weakened 17.2 per cent against the U.S. dollar when compared with the same period last year. This weakening resulted in the company's net profits, bookings, sales and backlog from its European subsidiaries being reported as lower U.S. dollar amounts in the current period.
    • Based on average exchange rates, the Canadian dollar weakened 14 per cent against the U.S. dollar when compared with 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 unfavourable impact of the euro decrease was generally offset by the favourable impact of the Canadian dollar decrease on the company's net earnings.

"Although this quarter was a challenge in respect to both order bookings and sales, management continued to take actions to improve the efficiency and profitability of the business," said John Ball, chief financial officer of Velan. "While the weakening Canadian dollar did help contribute to margins in North America, the increasingly competitive nature of the business, particularly in the hard-hit oil and gas sector, largely offset those gains."

Yves Leduc, president of Velan, said: "Confronted with a slumping global energy market, the strategic direction we have set earlier this year is to cut expenses and grow margins through operational improvements. Accordingly, in this last quarter, we have proceeded with an important restructuring initiative that is helping us manage a reduced backlog. It is also giving us the necessary headroom to carry out a number of elements of our strategic plan aimed at increasing our gross margin and delivery performance. While we are unsure as to the timing of the eventual market recovery, in the meantime we are actively targeting bottom-line improvements."

Tom Velan, chief executive officer of Velan, said: "We continued to buy back shares under our normal course issuer bid, and, in the quarter, we bought back 90,300 shares at an average price of $15.76 (Canadian) or $12.68 per share. On Nov. 30, 2015, our share price closed at $15.60 (Canadian) or $11.68 per share compared with our book value of $15.68 per share. We continue to pay an annual dividend of 40 Canadian cents per share. We will continue to buy shares under our NCIB as we consider it a good investment of our cash."

Dividend

The board declared an eligible quarterly dividend of 10 Canadian cents per share, payable on March 31, 2016, to all shareholders of record as at March 15, 2016.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the third quarter conference call to be held on Wednesday, Jan. 13, 2016, at 4:30 p.m. (EDT). The toll-free call-in number is 1-888-273-1350, access code 21802376. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21802376.

                                                                                                                                             
       CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS)     
                    (in thousands of U.S. dollars,
           excluding number of shares and per-share amounts)             

                        Three-month periods ended  Nine-month periods ended 
                                          Nov. 30,                  Nov. 30,
                                2015         2014         2015         2014  
                                                                           
Sales                       $104,002     $127,290     $318,739     $341,243 
Cost of sales                 77,988       93,807      242,527      252,022 
Gross profit                  26,014       33,483       76,212       89,221 
Administration costs          18,579       25,244       57,649       68,021 
Restructuring costs            2,150            -        2,150            - 
Other expense (income)           162          180          171          (36)
Operating profit (loss)        5,123        8,059       16,242       21,236 
Finance income                   213          264          713          780 
Finance costs                    173          638          740        1,270 
Finance income (costs) --                                                    
net                               40         (374)         (27)        (490)
Income (loss) before                                                        
income taxes                   5,163        7,685       16,215       20,746 
Provision for (recovery                                                     
of) income taxes               1,496        2,521        4,020        6,101 
Net income (loss) for                                                       
the period                     3,667        5,164       12,195       14,645 
Net income (loss)                                                           
attributable to                                                           
subordinate voting                                                          
shares and multiple                                                        
voting shares                  3,608        4,759       11,464       13,862 
Non-controlling interest          59          405          731          783 
                               3,667        5,164       12,195       14,645 
Net income (loss) per                                                       
subordinate and                                                            
multiple voting share                                                      
Basic                           0.16         0.22         0.52         0.63 
Diluted                         0.16         0.22         0.52         0.63
Dividends declared per                                                      
subordinate and                                                            
multiple                        0.07         0.09         0.23         0.27 
voting share                (CA$0.10)    (CA$0.10)    (CA$0.30)    (CA$0.30)    
Other comprehensive                                                         
income (loss)                                                              
Foreign currency                                                            
translation adjustment                                                     
on foreign operations                                                      
whose functional                                                           
currency is other than                                                     
the reporting currency                                                     
(U.S. dollar)                 (5,910)      (8,238)      (7,598)     (12,975)  
Comprehensive income                                                       
(loss)                        (2,243)      (3,074)       4,597        1,670 
Comprehensive income                                                        
(loss) attributable to                                                    
Subordinate voting                                                          
shares and multiple                                                        
voting shares                 (2,423)      (2,950)       4,105        1,145 
Non-controlling interest         180         (124)         492          525  
                              (2,243)      (3,074)       4,597        1,670

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