Velan Inc. Reports its Second Quarter 2013/14 Financial Results

MONTREAL, QUEBEC--(Marketwired - Oct. 9, 2013) - Velan Inc. (TSX:VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its second quarter ended August 31, 2013.

Highlights

• Record sales of US$120.7 million for the quarter
• Net earnings¹ of US$4.9 million for the quarter
• Order backlog of US$477.3 million at the end of the quarter
• Order bookings of US$92.7 million for the quarter
• Net cash² of US$28.5 million at the end of the quarter

Second Quarter Fiscal 2014 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2013):

• Net earnings¹ amounted to $4.9 million or $0.23 per share compared to $3.3 million or $0.15 per share last year. The $1.6 million increase in net earnings¹ is primarily attributable to higher sales volume and improved gross profit margins.
  
  
• Sales amounted to $120.7 million, an increase of $12.3 million or 11.3%. The amount of sales for the current quarter is the highest amount ever recorded for an August quarter end in the Company's history.
  
  
• Net new orders received ("bookings") amounted to $92.7 million, an increase of $0.3 million or 0.3% compared to last year.
  
  
• Gross margin increased by 0.9 percentage points from 24.0% to 24.9%. This increase is mainly attributable to the higher sales volume.
  
  
• Administration costs remained relatively even at $21.4 million, increasing $0.4 million or 1.9% from the prior year.
  
  

First Half Year Fiscal 2014 (unless otherwise noted, all comparisons are to the first half year of fiscal 2013):

• Net earnings¹ amounted to $10.7 million or $0.49 per share compared to $4.0 million or $0.18 per share last year. The $6.7 million increase in net earnings¹ is primarily attributable to higher sales volume, improved gross profit margins and lower administration costs.
  
  
• Sales amounted to $252.9 million, an increase of $28.6 million or 12.8%. The increase in sales is primarily attributable to increased shipments of certain large export project orders and higher spare parts sales.
  
  
• Bookings amounted to $199.4 million, an increase of $9.3 million or 4.9% compared to last year.
  
  
• The Company ended the period with a backlog of $477.3 million, a decrease of $53.7 million or 10.1% since the beginning of the current fiscal year. This decrease is mainly attributable to the higher sales output outpacing the higher bookings in the period.
  
  
• Gross margin increased by 1.7 percentage points from 22.3% to 24.0%. This increase is mainly attributable to higher sales volume and improved efficiencies as a result of a higher margin product mix.
  
  
• Administration costs amounted to $43.1 million, a decrease of $1.8 million or 4.0%. The decrease is primarily attributable to a decrease in sales commissions and a decrease in costs recognized in connection with the Company's ongoing asbestos litigation. The fluctuation in asbestos costs is due more to the timing of settlement payments in the two periods rather than to changes in long-term trends.
  
  
• The Company generated net cash² from operations of $23.4 million in the period. This source of net cash² was primarily attributable to improved net earnings¹ and a decrease in inventory. The Company ended the period with net cash² of $28.5 million, an increase of $8.7 million or 43.9% since the beginning of the current fiscal year.
  
  
• Foreign currency impacts:
  
  
  • Based on average exchange rates, the euro strengthened 2.9% 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 period.
    
    
  • Based on average exchange rates, the Canadian dollar weakened 2.4% 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 period.
    
    
  • The Indian rupee weakened 17.3% against the U.S. dollar when comparing the spot rate at the beginning of the period to the period end rate. This weakening resulted in the Company recording significant unrealized foreign exchange losses in the current period upon conversion of the U.S. dollar denominated loans payable by its Indian subsidiary to various related parties.
    
    
  • The net impact of these three currency swings was generally favourable to the Company's results since the positive impacts of both a stronger euro and a weaker Canadian dollar outweighed the negative impact of a weaker Indian rupee.
    
    

The Company is continuing with the business integration process at its Italian subsidiary, Velan ABV S.p.A. ("ABV"). As part of this process, the Company effectively increased its ownership percentage to 100% through a recapitalization of ABV's corporate structure during the current quarter.

"We are pleased by the continued strong sales and margin results in our second quarter, due in part to the shipment of some large projects from prior years," said John Ball, CFO of Velan Inc. "We are watching the rate of new order bookings which has not kept pace with our sales this year, and are focused on developing our backlog so as to maintain momentum for next year."

Tom Velan, President and CEO of Velan Inc. said, "We continued the positive trend from our first quarter. We had record sales for this quarter and net earnings¹ were up 47.3% from the same quarter last year. Our sales continued to outpace our bookings so our backlog is down under $500 million. We are intensifying our efforts to improve our bookings, especially on international projects."

Dividend

The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per share, payable on December 31, 2013, to all shareholders of record as at December 16, 2013.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on October 9, 2013, at 4:30 PM (EDT). The toll free call-in number is 1-877-256-6025, access code 21675768. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21675768.

About Velan

Velan Inc. (www.velan.com) is a world-leading manufacturer of industrial valves with sales of over $500 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 "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.