Velan Inc. Reports its Year-End and Fourth Quarter 2013/14 Financial Results

Velan Inc. Reports its Year-End and Fourth Quarter 2013/14 Financial Results  MONTREAL, QUEBEC -- (Marketwired) -- 05/20/14 --   Velan Inc. (TSX: VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its fiscal year and fourth quarter ended February 28, 2014.  Highlights        --  Sales of US$489.3 million for the year  --  Net earnings(1) of US$29.4 million for the year  --  Order backlog of US$471.7 million at the end of the year  --  Order bookings of US$430.2 million for the year  --  Net cash(2) of US$67.7 million at the end of the year  --  Increase annual dividend payout by 25% to CDN$0.40 per share, effective     in June 2014                                      Three-month periods                                                                        ended    Fiscal years ended                                  -------------------------------------------- (millions of U.S. dollars,        February   February   February   February   excluding per share amounts)          28,        28,        28,        28,                                        2014       2013       2014       2013                                  -------------------------------------------- Sales                               $120.7     $142.1     $489.3     $500.6    Gross profit                          36.6       30.4      131.1      113.9  Gross profit %                        30.3%      21.4%      26.8%      22.8%   Net earnings (loss)(1)                10.4       (3.6)      29.4        6.2  Net earnings (loss)(1) per share                                              - Basic & Diluted                    0.47      (0.16)      1.34       0.28    Adjusted net operating                                                        results(2)                           10.4        6.1       29.4       15.8  Adjusted net operating                                                        results(2) per share - Basic &                                               Diluted                              0.47       0.28       1.34       0.72   Year-ended fiscal 2014 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the prior fiscal year):        --  Net earnings(1) amounted to $29.4 million or $1.34 per share compared to     $6.2 million or $0.28 per share last year. The $23.2 million increase in     net earnings(1) is primarily attributable to improved gross profit     margins and lower administration costs. Furthermore, net earnings(1) for     the prior year were significantly impacted by an $11.7 million non-cash     goodwill impairment charge related to the Company's then 70%-owned     Italian subsidiary, Velan ABV S.p.A. ("ABV"). Excluding this charge, as     well as other non-recurring items related to the ABV acquisition, the     Company's adjusted net operating results(2) would have been $29.4     million or $1.34 per share this year compared to $15.8 million or $0.72     per share last year.    --  Sales amounted to $489.3 million, a decrease of $11.3 million or 2.3%     from the record total achieved in the prior year. This decrease is     primarily attributable to a decrease in nuclear sales following the     Fukushima crisis which was partially offset by an increase in sales in     Canada to the Alberta oil and gas industry.     --  Net new orders received ("bookings") amounted to $430.2 million, an     increase of $60.1 million or 16.2% compared to last year. This increase     is primarily attributable to significant new orders booked with large     Indian customers. Since sales outpaced bookings, the Company ended the     current year with a backlog of $471.7 million, a decrease of $59.3     million or 11.2% from the end of the prior year.     --  Gross profit percentage increased by 4.0 percentage points from 22.8% to     26.8%. This increase is mainly attributable to improved efficiencies as     a result of a higher margin product mix, particularly spare part sales.    --  The Company generated net cash(2) from operations of $75.5 million. This     source of net cash(2) is primarily attributable to improved net     earnings(1) and a decrease in inventory. The Company ended the year with     net cash(2) of $67.7 million, an increase of $47.9 million or 241.9%     since the beginning of the current fiscal year.     --  The Company will modify its dividend policy by raising its annual     dividend payout from CDN$0.32 per share to CDN$0.40 per share. This     change will apply beginning with the next quarterly dividend payment     payable on June 30, 2014, to all shareholders of record as at June 16,     2014.     --  Foreign currency impacts:         --  Based on average exchange rates, the Euro strengthened 3.4% against         the U.S. dollar when compared to the same period last year. This         strengthening resulted in the Company's net profits from its         European subsidiaries being reported as higher U.S. dollar amounts         in the current fiscal year.         --  Based on average exchange rates, the Canadian dollar weakened 4.6%         against the U.S. dollar when compared to 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 fiscal         year.         --  The impact of these currency swings was favourable to the Company's         results for the current fiscal year.  Fourth Quarter Fiscal 2014 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the fourth quarter of fiscal 2013):        --  Net earnings(1) amounted to $10.4 million or $0.47 per share compared to     a net loss(1) of $3.6 million or $0.16 per share last year. Excluding     the goodwill impairment charge, as well as other non-recurring items     related to the ABV acquisition, the Company's adjusted net operating     results(2) would have been $10.4 million or $0.47 per share this year     compared to $6.1 million or $0.28 per share last year. The $4.3 million     increase in adjusted net operating results(2) is primarily attributable     to improved gross profit margins.    --  Sales amounted to $120.7 million, a decrease of $21.4 million or 15.1%     compared to last year.    --  Bookings amounted to $142.4 million, an increase of $45.7 million or     47.3% compared to last year.    --  Gross profit percentage improved by 8.9 percentage points from 21.4% to     30.3%. This increase is primarily attributable to a higher margin     product mix, particularly as a result of a higher proportion of spare     parts sales which generally generate higher gross profit as a percentage     of sales when compared to manufactured valves.    --  The Company generated net cash(2) from operations of $13.4 million in     the quarter. This source of net cash(2) was primarily attributable to     improved net earnings(1).    --  Foreign currency impacts:        --  Based on average exchange rates, the Euro strengthened 3.0% against         the U.S. dollar when compared to the same period last year. This         strengthening resulted in the Company's net profits from its         European subsidiaries being reported as higher U.S. dollar amounts         in the current quarter.        --  Based on average exchange rates, the Canadian dollar weakened 8.3%         against the U.S. dollar when compared to 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 impact of these currency swings was favourable to the Company's         results for the current quarter.   "Our fourth quarter provided a strong finish to fiscal 2014, with both good margins and flat administration costs contributing to the bottom line," said John Ball, CFO of Velan Inc. "While we are still feeling the after effects of Fukushima in our nuclear business, particularly in China, the tightening up of our quoted lead times is starting to help increase order intake and net bookings. We were also pleased with our advances into the Indian market, where we remain optimistic about longer term opportunities."  Tom Velan, President and CEO of Velan Inc. said, "I am glad to report our big improvement in earnings and cash flow. We have decided to increase our annual dividend to CDN$0.40 per share."  Dividend  The Board declared an eligible quarterly dividend of CDN$0.10 per share, payable on June 30, 2014, to all shareholders of record as at June 16, 2014.  Conference call  Financial analysts, shareholders, and other interested individuals are invited to attend the fourth quarter conference call to be held on May 20, 2014, at 4:30 PM (EDT). The toll free call-in number is 1-877-256-6025, access code 21717227. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21717227.  About Velan  Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of $489 million in its last reported fiscal year. The Company employs over 2,000 people and has manufacturing plants in 10 countries. Velan Inc. is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.  Safe harbour statement  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.  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 "adjusted net operating results" is defined as net income or loss attributable to Subordinate and Multiple Voting Shares excluding the goodwill impairment loss, the interest accretion adjustments, the positive fair value adjustments to the ABV purchase price proceeds payable, and the unrealized foreign exchange gain on the ABV purchase price proceeds payable. Refer to the "Reconciliations and Non-IFRS Measures" section in the Company's Management Discussion and Analysis ("MD&A") for a detailed calculation of this measure.  The term "net cash" is defined as cash and cash equivalents plus short-term investments less bank indebtedness, short-term bank loans, and current portion of long-term bank borrowings. Refer to the "Reconciliations of Non- IFRS Measures" section in the Company's MD&A for a detailed calculation of this measure.        (1) Net earnings or loss refer 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                                           February 28,   February 28,                                                          2014           2013                                                             $              $  Assets                                                                         Current assets                                                               Cash and cash equivalents                            106,716         77,172  Short-term investments                                   239            398  Accounts receivable                                  128,978        134,374  Income taxes recoverable                               5,465          7,672  Inventories                                          224,149        246,983  Deposits and prepaid expenses                          5,046          6,048  Derivative assets                                        498            340                                                ------------------------------                                                      471,091        472,987  Non-current assets                                                           Property, plant and equipment                         96,605         90,630  Intangible assets and goodwill                        43,359         43,194  Deferred income taxes                                 11,406         11,226  Other assets                                           1,693          1,737                                                ------------------------------                                                        153,063        146,787                                                ------------------------------ Total assets                                         624,154        619,774                                                ------------------------------                                               ------------------------------   Liabilities                                                                    Current liabilities                                                          Bank indebtedness                                     31,876         48,580  Short-term bank loans                                    916          2,284  Accounts payable and accrued liabilities              76,590         78,431  Income tax payable                                     4,158          2,831  Dividend payable                                       1,586          1,701  Customer deposits                                     66,842         76,682  Provisions                                             8,060          6,345  Accrual for performance guarantees                    33,842         28,525  Derivative liabilities                                 1,501          1,380  Current portion of long-term debt                     10,402         10,463  Current portion of other liabilities                       -          1,951                                                ------------------------------                                                      235,773        259,173  Non-current liabilities                                                      Long-term debt                                        11,685         16,387  Deferred income taxes                                  9,270          8,035  Other liabilities                                      8,307          8,006                                                ------------------------------                                                         29,262         32,428                                                ------------------------------ Total liabilities                                    265,035        291,601                                                ------------------------------   Equity                                                                         Equity attributable to the Subordinate and                                    Multiple Voting shareholders                                                Share capital                                         76,688         76,314  Contributed surplus                                    6,099          1,746  Retained earnings                                    272,867        250,129  Accumulated other comprehensive income (loss)         (3,589)        (8,676)                                               ------------------------------                                                      352,065        319,513    Non-controlling interest                               7,054          8,660                                                ------------------------------ Total equity                                         359,119        328,173                                                ------------------------------   Total liabilities and equity                         624,154        619,774                                                ------------------------------                                               ------------------------------   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            Fiscal years                                    ended February 28       ended February 28                                     2014        2013        2014        2013                                        $           $           $           $    Sales                           120,716     142,070     489,257     500,574  Cost of sales                    84,074     111,640     358,111     386,675                              ------------------------------------------------   Gross profit                     36,642      30,430     131,146     113,899    Administration costs             22,145      22,445      87,143      90,985  Goodwill impairment loss              -      11,700           -      11,700  Other expense (income)           (1,316)     (2,646)       (269)     (3,364)                             ------------------------------------------------   Operating profit (loss)          15,813      (1,069)     44,272      14,578    Finance income                      256         131         859         631  Finance costs                       682         614       2,369       3,191                              ------------------------------------------------ Finance income (costs) - net       (426)       (483)     (1,510)     (2,560)                             ------------------------------------------------ Income (Loss) before income                                                   tax                             15,387      (1,552)     42,762      12,018  Provision for (Recovery of)                                                   income tax                       4,733       1,967      11,759       5,284                              ------------------------------------------------   Net income (loss) for the                                                     period                          10,654      (3,519)     31,003       6,734                              ------------------------------------------------                             ------------------------------------------------   Net income (loss)                                                             attributable to:                                                            Subordinate Voting Shares                                                     and Multiple Voting Shares      10,392      (3,555)     29,400       6,169  Non-controlling interest            262          36       1,603         565                              ------------------------------------------------                                  10,654      (3,519)     31,003       6,734                              ------------------------------------------------                             ------------------------------------------------   Net income (loss) per                                                         Subordinate and Multiple                                                     Voting Share                                                                Basic                              0.47       (0.16)       1.34        0.28  Diluted                            0.47       (0.16)       1.34        0.28                              ------------------------------------------------                             ------------------------------------------------   Dividends declared per                                                        Subordinate and Multiple                                                     Voting Share                      0.08        0.08        0.31        0.32                                (CDN$0.08)  (CDN$0.08)  (CDN$0.32)  (CDN$0.32)                             ------------------------------------------------                             ------------------------------------------------   Total weighted average                                                        number of Subordinate and                                                    Multiple Voting Shares                                                      Basic                        21,958,768  22,019,568  21,936,714  22,019,568  Diluted                      21,962,693  22,030,325  21,936,714  22,031,563                              ------------------------------------------------                             ------------------------------------------------   Velan Inc.                                                                   Condensed Interim Consolidated Statements of Comprehensive Income (Loss)     (Unaudited)                                                                  (in thousands of U.S. dollars)                                               ----------------------------------------------------------------------------                                    Three-month periods         Fiscal years                                       ended February 28    ended February 28                                          2014      2013       2014      2013                                             $         $          $         $    Comprehensive income (loss)                                                    Net income (loss) for the period      10,654    (3,519)    31,003     6,734    Other comprehensive income (loss)                                            Foreign currency translation                                                  adjustment on foreign operations                                             whose functional currency is                                                 other than the reporting currency                                            (U.S. dollar)                         1,265       152      6,311    (4,531)                                   ------------------------------------------   Comprehensive income (loss)           11,919    (3,367)    37,314     2,203                                    ------------------------------------------                                   ------------------------------------------   Comprehensive income (loss)                                                   attributable to:                                                            Subordinate Voting Shares and                                                 Multiple Voting Shares               11,696    (3,451)    35,624     1,710  Non-controlling interest                 223        84      1,690       493                                    ------------------------------------------                                         11,919    (3,367)    37,314     2,203                                    ------------------------------------------                                   ------------------------------------------   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                            -------------------------------------------------                                                                 Accumulated                                  Number                                other                                      of    Share  Contributed  comprehensive                                  shares  capital      surplus  income (loss)                             -------------------------------------------------   Balance - February 29, 2012 22,148,968   78,764        1,871         (4,217)   Net income (loss) for the                                                     period                              -        -            -              -  Other comprehensive income                                                    (loss)                              -        -            -         (4,459)                            -------------------------------------------------                               22,148,968   78,764        1,871         (8,676)   Effect of share-based                                                         compensation                        -        -           58              -  Dividends                                                                      Multiple Voting Shares             -        -            -              -    Subordinate Voting Shares          -        -            -              -    Non-controlling interest           -        -            -              -   Share repurchase             (225,200)  (2,450)        (183)             -                             -------------------------------------------------   Balance - February 28, 2013 21,923,768   76,314        1,746         (8,676)   Net income (loss) for the                                                     period                              -        -            -              -  Other comprehensive income                                                    (loss)                              -        -            -          6,224                             -------------------------------------------------                               21,923,768   76,314        1,746         (2,452)   Effect of share-based                                                         compensation                        -        -           23              -  Shares issued under Share                                                     Option Plan                    35,000      374            -              -  Dividends                                                                      Multiple Voting Shares             -        -            -              -    Subordinate Voting Shares          -        -            -              -    Non-controlling interest           -        -            -              -  Acquisition of non-                                                           controlling interest                -        -        4,330         (1,137)                            -------------------------------------------------   Balance - February 28, 2014 21,958,768   76,688        6,099         (3,589)                            -------------------------------------------------                            -------------------------------------------------                               Equity attributable to                                                          the Subordinate and                                                              Multiple Voting                                                                 shareholders                                                      ------------------------                                                                                    Non-                                             Retained             controlling        Total                                earnings       Total    interest       equity                             -------------------------------------------------   Balance - February 29, 2012    250,951     327,369       8,208      335,577    Net income (loss) for the                                                     period                          6,169       6,169         565        6,734  Other comprehensive income                                                    (loss)                              -      (4,459)        (72)      (4,531)                            -------------------------------------------------                                  257,120     329,079       8,701      337,780    Effect of share-based                                                         compensation                        -          58           -           58  Dividends                                                                      Multiple Voting Shares        (4,988)     (4,988)          -       (4,988)   Subordinate Voting Shares     (2,003)     (2,003)          -       (2,003)   Non-controlling interest           -           -         (41)         (41)  Share repurchase                    -      (2,633)          -       (2,633)                            -------------------------------------------------   Balance - February 28, 2013    250,129     319,513       8,660      328,173    Net income (loss) for the                                                     period                         29,400      29,400       1,603       31,003  Other comprehensive income                                                    (loss)                              -       6,224          87        6,311                             -------------------------------------------------                                  279,529     355,137      10,350      365,487    Effect of share-based                                                         compensation                        -          23           -           23  Shares issued under Share                                                     Option Plan                         -         374           -          374  Dividends                                                                      Multiple Voting Shares        (4,760)     (4,760)          -       (4,760)   Subordinate Voting Shares     (1,902)     (1,902)          -       (1,902)   Non-controlling interest           -           -        (103)        (103) Acquisition of non-                                                           controlling interest                -       3,193      (3,193)           -                             -------------------------------------------------   Balance - February 28, 2014    272,867     352,065       7,054      359,119                             -------------------------------------------------                            -------------------------------------------------   Velan Inc.                                                                   Condensed Interim Consolidated Statements of Cash Flow                       (Unaudited)                                                                  (in thousands of U.S. dollars)                                               ----------------------------------------------------------------------------                                   Three-month periods          Fiscal years                                      ended February 28     ended February 28                                        2014       2013       2014       2013                                           $          $          $          $    Cash flows from                                                                Operating activities                                                         Net income for the period           10,654     (3,519)    31,003      6,734  Adjustments to reconcile net                                                  income to cash provided by                                                   operating activities                5,059     14,656     15,890     23,389  Changes in non-cash working                                                   capital items                      (2,328)    11,913     28,566    (15,711)                                 -------------------------------------------- Cash provided (used) by                                                       operating activities               13,385     23,050     75,459     14,412                                  --------------------------------------------   Investing activities                                                         Short-term investments               1,937      1,881        159      4,556  Additions to property, plant and                                              equipment                          (3,262)    (5,811)   (17,953)   (28,452) Additions to intangible assets        (132)      (279)      (397)      (684) Proceeds on disposal of                                                       property, plant and equipment,                                               and intangible assets                 309        521        396        905  Net change in other assets              53         (3)        44       (270)                                 -------------------------------------------- Cash provided (used) by                                                       investing activities               (1,095)    (3,691)   (17,751)   (23,945)                                 --------------------------------------------   Financing activities                                                         Dividends paid to Subordinate                                                 and Multiple Voting                                                          shareholders                       (1,655)    (1,780)    (6,777)    (7,081) Dividends paid to non-                                                        controlling interest                    -          -       (103)       (41) Shares issued under Share Option                                              Plan                                    -          -        374          -  Repurchase of shares                     -       (217)         -     (2,633) Payment of proceeds payable              -       (560)    (1,960)    (3,465) Short-term bank loans                 (339)       172     (1,368)     1,426  Increase in long-term debt               -        342      2,654     21,057  Repayment of long-term debt         (1,847)    (1,772)    (8,430)    (4,478)                                 -------------------------------------------- Cash provided (used) by                                                       financing activities               (3,841)    (3,815)   (15,610)     4,785                                  --------------------------------------------   Effect of exchange rate                                                       differences on cash                 1,494      1,124      4,150        364                                  --------------------------------------------   Net change in cash during the                                                 period                              9,943     16,668     46,248     (4,384)   Net cash - Beginning of the                                                   period                             64,897     11,924     28,592     32,976                                  --------------------------------------------   Net cash - End of the period        74,840     28,592     74,840     28,592                                  --------------------------------------------                                 --------------------------------------------   Net cash is composed of:                                                       Cash and cash equivalents        106,716     77,172    106,716     77,172    Bank indebtedness                (31,876)   (48,580)   (31,876)   (48,580)                                 --------------------------------------------                                       74,840     28,592     74,840     28,592                                  --------------------------------------------                                 --------------------------------------------   Supplementary information                                                    Interest received (paid)              (329)      (546)    (1,062)    (1,895) Income taxes reimbursed (paid)         776        240     (1,697)    (2,042)     Contacts: VELAN Inc. Tom Velan President and Chief Executive Officer (514) 748-7743 (514) 748-8635 (FAX)  VELAN Inc. John D. Ball Chief Financial Officer (514) 748-7743 (514) 748-8635 (FAX) www.velan.com