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Velan Inc
Symbol VLN
Shares Issued 6,019,068
Close 2023-01-11 C$ 5.59
Market Cap C$ 33,646,590
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Velan earns $2.73-million (U.S.) in Q3 2023

2023-01-11 16:26 ET - News Release

Mr. Bruno Carbonaro reports

VELAN INC. REPORTS SOLID THIRD QUARTER 2022/23 FINANCIAL RESULTS, WITH AN IMPROVING TREND IN BACKLOG, REVENUES AND PROFIT

Velan Inc. has released its financial results for its third quarter ended Nov. 30, 2022.

Highlights:

  • Sales for the quarter amounted to $95.2-million, a significant improvement of $10.2-million, or 12 per cent, compared with the previous quarter of the current fiscal year, but a decrease of $14.7-million, or 13.4 per cent, compared with the third quarter of the previous fiscal year. The decrease in sales for the quarter compared with the prior year is partly due to the weakened euro average rate against the U.S. dollar, combined with lower sales achieved by the company's Italian operations, in part due to a decrease in orders recorded by the subsidiary in prior periods, as well as a strong shipment performance in the prior year.
  • Gross profit for the quarter amounted to $29-million, or 30.4 per cent, a significant improvement of $5.5-million, or 280 basis points, compared with the second quarter of the current fiscal year, but a decrease compared with last year's $35.9-million, or 32.6 per cent. It is noteworthy that the gross profit for the nine-month period of the previous year was 30.1 per cent, net of government subsidies related to COVID-19.
  • Net income of $2.7-million and EBITDA (earnings before interest, taxes, depreciation and amortization) of $6.1-million for the quarter, a significant improvement compared with the prior quarter's net loss of $3.2-million and EBITDA of $1.4-million, but a decrease compared with a net income of $4.5-million and EBITDA of $13.3-million last year. The decrease in EBITDA is primarily attributable to the previously mentioned reduction in gross profit partially offset by a decrease in administration costs in the quarter.
  • Order backlog remains strong at $488.3-million, an increase of $11-million, or 2.3 per cent, over the prior quarter, but a decrease of $12.9-million, or 2.6 per cent, since the beginning of the year. However, this reduction is primarily attributable to the weakening of the euro spot rate against the U.S. dollar, and lower upstream oil and gas net new orders (bookings) for the nine-month period.
  • The portion of the current backlog deliverable in the next 12 months slightly increased to $336.2-million from $321.9-million from the year, while it decreased from $347.2-million when compared with the beginning of the quarter.
  • Bookings of $99.2-million for the quarter, an increase of $10.7-million, or 12.1 per cent, compared with last year. The increase in bookings compared with last year resulted mainly from large marine orders recorded in the company's North American operations. The company's book-to-bill ratio for the quarter and the nine-month period was favourable at 1.04.
  • The company's net cash amounted to $29.3-million at the end of the quarter, a decrease of $24.2-million since the beginning of the fiscal year. The decrease in net cash for the fiscal year is primarily attributable to the lower net income, combined with unfavourable non-cash working capital items and the continuing repayment of long-term debt. The overall available liquidity remains strong with $137.6-million of available cash on hand and facilities. The company's net cash remained stable when compared with the previous quarter of the current fiscal year.
  • The company continues its improvement trend by prudently navigating market and economic volatilities, managing operational throughput as it executes on its backlog and securing a strong level of new bookings across the majority of its business segments.

Bruno Carbonaro, chief executive officer and president of Velan, said: "We are happy to see that our financial results are starting to reflect all the countless efforts our teams have put in since the start of the year. As the volatility across various macroeconomic factors continues across the globe, we once again managed to improve our performance quarter-over-quarter by carefully planning and executing around the various economic, logistics, supply chain and operational issues we face. Our ramp-up on shipments and deliveries, and solid margins and bottom-line profit reflects that careful planning and execution. Our customer confidence is increasing, as evidenced by the strong bookings for the quarter, and creates the perfect opportunity for us to continue to improve on our operational and financial performance for all our stakeholders."

Third quarter fiscal 2023 and first nine months fiscal 2023 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the third quarter of fiscal 2022):

  • Backlog:
    • The total backlog decreased by $12.9-million, or 2.6 per cent, since the beginning of the fiscal year, settling at $488.3-million at the end of the quarter. The decrease in backlog is primarily attributable to the weakening of the euro spot rate against the U.S. dollar since the beginning of the fiscal year, which represented $22.2-million for the nine-month period.
    • The decrease since the beginning of the fiscal year was partially offset by a positive book-to-bill ratio of 1.04 as a result of bookings outpacing sales.
  • Bookings:
    • Bookings for the quarter amounted to $99.2-million, an increase of $10.7-million, or 12.1 per cent, compared with the third quarter of last year. Bookings for the nine-month period amounted to $266.1-million, a decrease of $20.3-million, or 7.1 per cent, compared with the prior fiscal year.
    • The weakening of the euro average rate against the U.S. dollar on order bookings for the company's European operations resulted in a negative impact of $5.1-million in the third quarter, and $13.1-million on the nine-month period, compared with the prior year. Additionally, the decrease in bookings for the nine-month period is also attributable to lower large orders recorded in the company's Italian and Portuguese operations. The decrease for the nine-month period was partially offset by a strong bookings quarter from the company's North American operations, which recorded significant marine orders.
    • The decrease for both periods is also attributable to the disposal of the company's Korean foundry at the end of the previous fiscal year. The Korean foundry had recorded $1.2-million of bookings in the second quarter of the previous fiscal year and $5.5-million for the nine-month period of the same year.
  • Sales:
    • Sales amounted to $95.2-million for the quarter, decreasing by $14.7-million or 13.4 per cent, compared with the same quarter last year. Sales for the nine-month period totalled $255.3-million, a decrease of $31.1-million, or 10.86 per cent, compared with the last fiscal year.
    • The negative effect of the weakening of the euro average rate against the U.S. dollar on sales for the quarter amounted to $4.9-million and $15.9-million for the nine-month period compared with the third quarter and first nine months of last fiscal year, respectively.
    • The decrease in sales for both periods is also attributable to the delivery of significant orders by the company's Italian operations destined to the upstream oil and gas sector in the prior fiscal year, combined with lower bookings and also the timing effect thereof.
    • Finally, the decrease for the quarter was partially offset by the recognition of a $10.9-million order which could not be recorded in the previous quarter due to logistics delays.
  • Gross profit:
    • Gross profit for the quarter amounted to $29-million, a decrease of $6.9-million, or 19.2 per cent, compared with the same quarter last year. Gross profit for the nine-month period amounted to $72.5-million, a decrease of $14.7-million, or 16.9 per cent, compared with the same period last year. The gross profit percentage for the quarter of 30.4 per cent was a decrease of 220 basis points compared with last year's third quarter, while the gross profit percentage for the nine-month period of 28.4 per cent represented a decrease of 210 basis points compared with the same period last year.
    • The gross profit in the prior year was positively impacted by the recording of $1.1-million for the nine-month period of COVID-19 subsidies which, when removed, resulted in gross profit of 30.1 per cent for the nine-month period.
    • The decrease in gross profit percentage for both periods is primarily attributable to the lower sales volume which impacted the absorption of fixed production overhead costs. The decrease in gross profit percentage was also due to the unfavourable effect of the product mix delivered. Additionally, the company's gross profit for the quarter was negatively impacted by unfavourable foreign exchange movements, when compared with similar movements from the previous year, which were primarily made up of unrealized foreign exchange translations related to the fluctuation of the U.S. dollar against the euro and Canadian dollar. These foreign exchange movements were favourable in the nine-month period.
  • Administration costs:
    • Administration costs for the quarter amounted to $25.4-million, a decrease of $1-million, or 3.8 per cent. Administration costs for the nine-month period amounted to $75.9-million, an increase of $1.7-million, or 2.3 per cent. Administration costs for both periods were negatively affected by an increase in the company's long-term asbestos provision, as well as higher outbound freight costs caused by the current global supply chain issues which are impacting freight costs and shipping delays.
    • The administration costs in the prior year benefited from the recording of $900,000 for the nine-month period of CEWS (Canada emergency wage subsidy). The movement for both periods were favourably impacted by lower sales commissions recorded on the delivery of large orders and a general reduction in remaining administration costs.
  • EBITDA:
    • EBITDA for the quarter amounted to $6.1-million, or 28 cents per share, compared with $13.3-million, or 62 cents per share, last year. EBITDA for the nine-month period amounted to $4.6-million, or 21 cents per share, compared with $23-million, or $1.07 per share, last year. The unfavourable movements in EBITDA for both periods are primarily attributable to the previously explained decrease in gross profit combined with an increase in administration costs for the nine-month period.
    • The decrease in EBITDA for the quarter was partially offset by a reduction in administration costs. A portion of the effects on the EBITDA caused by the weakening of the euro against the U.S. dollar were hedged by the company.
  • Net income:
    • Net income amounted to $2.7-million, or 13 cents per share, compared with $4.5-million, or 21 cents per share, last year. Net loss for the nine-month period amounted to $8.3-million, or 38 cents per share, compared with a net income of $4.4-million, or 21 cents per share, last year.
    • The negative movement in the company's results was primarily attributable to the same factors as explained in the EBITDA section, partially offset by favourable movements in income taxes and in finance costs for both periods.

Dividend

For the current quarter, no dividend will be declared. The company will revisit the declaration of dividends in subsequent quarters.

Conference call

The company will hold an analyst call on Thursday, Jan. 12, 2023, at 11 a.m. (ET) to discuss the results. The call may be accessed by dialling 1-800-954-0599 and quoting the reservation No. 22024886. The material that will be referenced during the conference call will be made available shortly before the event on the company's website under the investor relations section. There will be PostView available for seven days following this conference call. The numbers are as follows: 1-416-626-4100 or 1-800-558-5253. Enter reservation No. 22024886 then follow the system prompts.

About Velan Inc.

Founded in Montreal in 1950, Velan is one of the world's leading manufacturers of industrial valves, with sales of $411.2-million (U.S.) in its last reported fiscal year. The company employs 1,664 people and has manufacturing plants in nine countries.

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