MONTREAL, Oct. 07, 2021 (GLOBE NEWSWIRE) -- 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, 2021.

Highlights:

• Sales for the quarter amounted to $101.9 million, an increase of 33.6 million or 49.1% compared to the same quarter of the previous fiscal year. This quarter’s sales level represents the highest volume in the last six quarters.
• Gross profit for the quarter of $31.4 million, or 30.8%, an increase of $14.3 million or 580 basis points from the same quarter of the previous year. The gross profit percentage of 29.1% for the first six-month of the fiscal year is the highest in recent history, a performance essentially driven by the improved sales volume, a more profitable product mix delivered, as well as the margin improvement activities undertaken over the past fiscal years within the scope of the V20 restructuring and transformation plan.
• Net income¹ of $5.0 million and EBITDA² of $10.7 million for the quarter represent a significant improvement compared to last year’s results. The better results are explained primarily by an increased gross profit, driven by an improved sales volume and product mix, despite notably lower Canada Emergency Wage Subsidies («CEWS»).
• Strong order backlog² of $575.8 million at the end of the quarter.
• Net new orders (“bookings”)² of $81.6 million for the quarter, a decrease of $19.7 million or 19.5% compared to the same quarter of the previous fiscal year. The Company’s book-to-bill ratio of 0.80 for the quarter has a stronger relation to the improved sales volume rather than the softer quarter in terms of bookings. Nonetheless, the book-to-bill ratio for the six-month period stands at a positive 1.12.
• The Company’s net cash amounted to $68.1 million at the end of the quarter, an increase of $5.2 million since the beginning of the fiscal year.

Yves Leduc, CEO of Velan Inc., said, “I am very pleased with our company’s best quarterly results in years, but I am certainly not surprised. We are seeing the convergence of many of the positive factors reported in previous quarters, whose effects had either been slowed by the global economic crisis or were simply expected to materialize over time.

Let’s start with our sales, growing near 50% over the same period last year. Our Italian operations were able to overcome most of the shipping hurdles experienced in the first quarter, we achieved notable progress in reducing our North American operations’ production delays caused by the many changes deployed during the first year of the pandemic, and both our Indian and Chinese operations are having a record production year. Still experiencing one of the highest backlogs in years, we did see a slower quarter in bookings, but they have outpaced billings in the first six months of the year and, good news, we are observing a recovery of our North American MRO business, as distributors are steadily increasing their stock.

Another important aspect of our performance is the sustained growth in our margins. The quarter’s gross margin and the first six months’ were the highest recorded in at least ten years, at respectively 30.8% and 29.1%, compared to 25% and 24.4% last year, and 23.3% at the end of fiscal year 2019 when our V20 plan was announced. Here again, there should be no surprise, as the main goal of the plan was to drive our North American operations’ margins up. And we are indeed meeting the goal through the elimination of significant structural costs in North America, the now completed transfer of our small forged valve production to India, and the much greater focus put on profitable orders from our new strategic businesses. As a result of those improvements and the growth in sales, to which each of our divisions is contributing, our EBITDA after six months improved by close to $10 million compared to the same period last year, despite lower Canadian federal subsidies and higher liability costs than last year to date.

In summary, thanks to the relentless efforts and resilience of our employees in the last years, we are laying the base for a return to profitable growth.

This does not mean we are out of the woods. On the coronavirus front, the global pandemic is far from over and we remain vigilant, committed to maintain our excellent record in keeping our work environment as safe as possible for our employees. Meanwhile, the negative effects of the economic crisis on global logistics and the price of metals are affecting our operations worldwide, and driving growth will require ruthless focus and execution as industry demand remains soft.

Aware of those challenges, we take nothing for granted and are moving ahead with confidence.”

Financial Highlights

Second Quarter Fiscal 2022 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2021):

• Sales amounted to $101.9 million, an increase of $33.6 million or 49.1% for the quarter. Sales were positively impacted by the Company’s North American operations increased large project orders shipments primarily destined for the petrochemical and power markets. Sales were also positively impacted by the shipment of previously delayed orders by the Company’s Italian operations. The delays were due to various customer-related and global logistics factors.
• Bookings² amounted to $81.6 million, a decrease of $19.7 million or 19.5% for the quarter. This decrease is primarily attributable to lower large project orders recorded by the Company’s French and North American operations.
• Gross profit amounted to $31.4 million, an increase of $14.3 million or 84.1% for the quarter. The gross profit percentage for the quarter of 30.8% was an increase of 580 basis points compared to last year‘s second quarter. The improvement in gross profit percentage for the quarter is primarily attributable to the higher sales volume, which helped to cover the Company’s fixed production overhead costs more efficiently. The Company’s improved margins are also stemming from the margin improvement activities implemented over the course of the past fiscal years within the scope of the V20 restructuring and transformation plan. Additionally, the Company’s gross profit also benefited from favorable movements in unrealized foreign exchange translation primarily attributable to the fluctuation of the U.S. dollar against the euro and the Canadian dollar for the quarter when compared to the prior year. Finally, the increase in gross profit percentage was such that it could more than offset the impact of a lower amount of CEWS of $1.7 million for the quarter compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Net income¹ for the quarter amounted to $5.0 million or $0.23 per share compared to a net loss¹ of $5.1 million or $0.24 per share last year. EBITDA² for the quarter amounted to $10.7 million or $0.49 per share compared to a negative $2.5 million or $0.12 per share last year. The improvement in EBITDA² for the quarter is primarily attributable to an increase in gross profit, thanks to the reasons mentioned above, the absence of restructuring and transformation costs in the current fiscal year which totaled $1.7 million in the previous quarter and a reduction in other expenses of $1.4 million for the quarter due to land clean-up costs of a former factory incurred in the second quarter of the prior year. On the other hand, these improvements were partially offset by an increase in administration costs of $4.3 million or 21.8% for the quarter which is primarily attributable to a decrease of $1.4 million in CEWS received by the Company compared to last year, an increase in sales commissions due to the higher sales volume and a general increase in administration expenses that had been significantly lowered when the global pandemic broke out last year. The subsidies are allocated between cost of sales and administration costs. The favorable movement in the Company’s net income¹ for quarter was primarily attributable to the same factors as explained above coupled with an unfavorable movement in income taxes.

First Six months Fiscal 2022 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first six months of fiscal 2021):

• Sales amounted to $176.4 million, an increase of $31.4 million or 21.7% for the six-month period. Sales were positively impacted by the Company’s North American operations increased large project orders shipments primarily destined for the petrochemical and power markets. For the six-month period, the Company’s French operations were able to show an improved sales volume due to their strong performance in the first quarter of the current fiscal year. Finally, the Company’s MRO sales for the six-month period were negatively affected by the persistent unfavorable market conditions triggered by the novel coronavirus (“COVID-19”) global pandemic which has significantly affected the Company’s distribution channels’ bookings in the previous fiscal year. The lower distribution channels’ bookings in the latter part of the prior year translated in lower shipments of such orders in the first quarter of the current year.
  
• Bookings² amounted to $197.9 million, an increase or $19.9 million of 11.2% for the six-month period. The increase is primarily attributable to large project orders recorded by the Company’s Italian and North American operations, notably in the marine and oil and gas markets. The increase is also attributable to higher MRO orders recorded by the Company’s North American operations. The Company is encouraged by the recovery of its MRO order bookings, which were severely impacted by the global pandemic at the end of the prior fiscal year, and ultimately adversely affected the sales of its current fiscal year as explained in the prior paragraph. The increase in bookings for the six-month period was partially offset by a reduction in large project orders recorded by the Company’s French operations.
  
• As a result of bookings outpacing sales in the current six-month period, the Company’s book-to-bill ratio² was 1.12 for the period. Furthermore, the total backlog² increased by $13.3 million or 2.4% since the beginning of the fiscal year, amounting to $575.8 million as at August 31, 2021.
• Gross profit amounted to $51.4 million, an increase of $15.9 million or 45.0% for the six-month period. The gross profit for the first six-month period of 29.1% represented an increase of 470 basis points compared to the same period last year and is also the highest in recent history. The improvement in gross profit percentage is primarily attributable to the higher sales volume, which helped to cover the Company’s fixed production overhead costs more efficiently. The Company’s improved margins are also stemming from the margin improvement activities implemented over the course of the past fiscal years within the scope of the V20 restructuring and transformation plan. Additionally, the Company’s gross profit also benefited from favorable movements in unrealized foreign exchange translation primarily attributable to the fluctuation of the U.S. dollar against the euro and the Canadian dollar for the six-month period when compared to the prior year. Finally, the increase in gross profit percentage was such that it could more than offset the impact of a lower amount of CEWS of $3.1 million for the six-month period compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Net loss¹ for the six-month period amounted to $0.1 million or $0.00 per share compared to a net loss¹ of $7.0 million or $0.32 per share in the prior period. EBITDA² for the six-month period amounted to $9.7 million or $0.45 per share compared to $0.1 million or $0.01 per share in the prior period. The improvement in EBITDA² for the six-month period is primarily attributable to and improved gross profit, primarily due to an increased sales volume, while reflecting the notably improved product mix and margins resulting from the Company’s targeted efforts under V20, described earlier. The Company’s gross profit also benefited from favorable movements in unrealized foreign exchange translation for the six-month period when compared to the prior year. The improvement is also attributable to the absence of restructuring and transformation costs in the current fiscal year which totaled $2.9 million in the previous six-month period as well as a reduction in other expenses of $1.4 million for the six-month period primarily due to land clean-up costs of a former factory incurred in the second quarter of the prior year. On the other hand, these improvements were partially offset by an increase in administration costs of $10.4 million or 27.8% for the six-month period, primarily attributable to a decrease of $2.5 million in CEWS received by the Company compared to last year, an increase in sales commissions due to the improved sales volume for the period, a general increase in administration expenses that had been significantly lowered when the global pandemic broke out last year as well as an increase of $1.4 million in the costs recognized in connection with the Company’s ongoing asbestos litigation. The favorable movements in the Company’s net loss¹ for the six-month period was primarily attributable to the same factors as explained above coupled with an unfavorable movement in income taxes.

Dividend

At the end of fiscal 2020, the Board of Directors deemed appropriate to suspend the quarterly dividend. The decision remains unchanged and will be reviewed on a quarterly basis.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on Thursday, October 7, 2021, at 04:00 p.m. (EDT). The toll free call-in number is 1-800-768-2878, access code 21998213. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 21998213.

About Velan

Founded in Montreal in 1950, Velan Inc. (www.velan.com) is one of the world’s leading manufacturers of industrial valves, with sales of US$302.1 million in its last reported fiscal year. The Company employs close to 1,700 people and has manufacturing plants in 9 countries. Velan Inc. is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

Safe harbour statement

This news release may include forward-looking statements, which generally contain words like “should”, “believe”, “anticipate”, “plan”, “may”, “will”, “expect”, “intend”, “continue” or “estimate” or the negatives of these terms or variations of them or similar expressions, all of which are subject to risks and uncertainties, which are disclosed in the Company’s filings with the appropriate securities commissions. While these statements are based on management’s assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that it believes are reasonable and appropriate in the circumstances, no forward-looking statement can be guaranteed and actual future results may differ materially from those expressed herein. The Company disclaims any intention or obligation to update or revise any forward-looking statements contained herein whether as a result of new information, future events or otherwise, except as required by the applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Non-IFRS and supplementary financial measures

In this press release, the Company has presented measures of performance or financial condition which are not defined under IFRS (“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 and are reconciled with the performance measures defined under IFRS. Company has also presented supplementary financial measures which are defined at the end of this report. Reconciliation and definition can be found on the next page.

Net earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA")

The term “EBITDA” is defined as net income or loss attributable to Subordinate and Multiple Voting Shares plus depreciation of property, plant & equipment, plus amortization of intangible assets, plus net finance costs plus income tax provision. The terms “EBITDA per share” is obtained by dividing EBITDA by the total amount of subordinate and multiple voting shares. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Definitions of supplementary financial measures

The term “Net new orders” or “bookings” is defined as firm orders, net of cancellations, recorded by the Company during a period. Bookings are impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the Company’s sales operation performance for a given period as well as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “backlog” is defined as the buildup of all outstanding bookings to be delivered by the Company. The Company’s backlog is impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the future operational challenges of the Company as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “book-to-bill” is obtained by dividing bookings by sales. The measure provides an indication of the Company’s performance and outlook for a given period.

The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.  

¹ Net earnings or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
² Non-IFRS and supplementary financial measures – see explanation above.

For further information please contact:
Yves Leduc, Chief Executive Officer
Tel: (438) 817-9917
or
Benoit Alain, Chief Financial Officer
Tel: (514) 917-6454