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
We seek Safe Harbor.
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