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MONTREAL, Oct. 10, 2019 (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, 2019.

Highlights

• Sales of US$85.5 million for the quarter
• Net earnings¹of US$1.4 million for the quarter
• EBITDA² of US$5.2 million for the quarter
• Net new orders (“Bookings”) of US$90.7 million for the quarter
• Order backlog of US$425.6 million at the end of the quarter, of which US$141.4 million is scheduled for delivery beyond the next 12 months
• Net cash of US$34.9 million at the end of the quarter

(millions of U.S. dollars, excluding per share amounts)	Three-month periods ended August 31			Six-month periods ended August 31
	2019	2018		2019	2018
Sales	$85.5	$91.4		$169.3	$169.2
Gross Profit	22.0	19.3		38.1	37.1
Gross profit %	25.7%	21.1%		22.5%	21.9%
EBITDA2	5.2	1.4		0.9	(0.1)
EBITDA2 per share – basic and diluted	0.24	0.06		0.04	(0.01)
Net earnings (loss)1	1.4	(2.4)		(4.5)	(6.2)
Net earnings (loss)1 per share – basic and diluted	0.06	(0.11)		(0.21)	(0.28)

Second Quarter Fiscal 2020 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the second quarter of fiscal 2019):  

• Sales amounted to $85.5 million, a decrease of $5.9 million or 6.5% from the prior year. Sales were negatively impacted by decreased shipments of certain large project orders in the Company’s North American and French operations due to customer-related issues and the timing of the delivery schedule for such orders, partially offset by an increase in shipments of large project orders in the Company’s Italian operations due to a record backlog of shippable orders at the beginning of the year.  The decrease of sales in the Company’s French operations is due to the timing of the deliveries of certain of its large project orders which are scheduled in the latter part of the fiscal year.
• Gross profit percentage increased by 460 basis points from 21.1% to 25.7%. The increase in the gross profit percentage is mainly attributable to a stronger proportion of higher margin product sales and an increased sales volume in the Company’s Italian operations, which allowed the subsidiary to cover its fixed costs more efficiently. This increase was partially offset by temporary or non-recurring factors such as delays in shipments in the Company’s French operations and a less efficient product mix in the Company’s North American project manufacturing business. The Company has noted an increase in the gross profit percentage of its North American operations in comparison to the first quarter of the current fiscal year.  The increase is primarily attributable to its MRO business.
• Net earnings¹ amounted to $1.4 million or $0.06 per share compared to a net loss of $2.4 million or $0.11 per share last year. The Company’s return to profitability for the quarter was achieved through improved margins as well as lowered administration costs of $1.4 million, partially offset by a lower sales volume.
• EBITDA² amounted to $5.2 million or $0.24 per share compared to $1.4 million or $0.06 per share last year. The $3.8 million improvement in EBITDA² is primarily attributable to a stronger gross margin percentage due to the shipment of higher margin orders combined with a reduction of administration costs, partially offset by an overall lower sales volume.
• Bookings amounted to $90.7 million, a decrease of $12.8 million or 12.4% compared to last year. This decrease is primarily attributable to lower order bookings by the Company’s Italian operations, which had record large project orders in the prior year. The Company’s project quotation activity has notably increased this year in sectors where margins are healthy, and concurrently decreased in other sectors where the Company experiences the most aggressive competition and where margins are much tighter. The shift is the result of deliberate screening that is expected to take effect gradually as the Company replaces its existing backlog with higher margin orders. The net decrease in bookings experienced in the last six months, which the Company’s plan aims to reverse, must be understood in this context.

First Half Year Fiscal 2020 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first half year of fiscal 2019):

• Sales amounted to $169.3 million, an increase of $0.1 million or 0.1% from the prior year. When compared to the prior half year period, the lower sales volume in the second quarter combined with the higher shipments of the first quarter left sales flat to the level of the prior fiscal year.   The increased shipments of certain large project orders booked in the prior fiscal year by the Company’s Italian operations was offset by the lowered sales volume recognized in the French and North American operations of the Company.
• Gross profit percentage increased by 60 basis points from 21.9% to 22.5%. This improvement is due to a higher sales volume and a stronger proportion of higher margin product sales in the Company’s Italian operations, partially offset by a lower sales volume and a less efficient product mix in the Company’s French and North American operations. Overall, the Company is still delivering its backlog which means that the margins do not yet reflect the impact of the number of measures launched in the last quarter under the Company’s V20 transformation plan. The combined effect of these measures is expected to gradually take effect in the course of this fiscal year and next year but the greater impact of the Company’s transformative V20 initiatives is only expected late in fiscal year 2021, when the task of reorganizing and reducing the Company’s North American footprint is planned to be completed.
• Net loss¹ amounted to $4.5 million or $0.21 per share compared to $6.2 million or $0.28 per share last year. The $1.7 million improvement is primarily attributable to a higher gross profit percentage, lowered finance costs and a higher recovery of income taxes.
• EBITDA² amounted to $0.9 million or $0.04 per share compared to a negative $0.1 million or $0.01 per share last year. The $1.0 million increase in EBITDA² is mainly attributable to the improved margin in the current fiscal year.
• Bookings amounted to $154.9 million, a decrease of $34.8 million or 18.3% compared to last year. This decrease is due primarily to lower order bookings by the Company’s North American operations which had seen an unusually high surge of non-project valve re-stocking orders from its distributors in the first quarter of the prior fiscal year. MRO distributor orders this fiscal year are expected to reflect a more normalized stock replenishment cycle.  The decrease is also due to lower large project orders booked by the Company’s Italian operations which had record project orders in the prior year.
• The Company ended the period with a backlog of $425.6 million, a decrease of $24.1 million or 5.4% since the beginning of the current fiscal year. The decrease in backlog is primarily attributable to the weak book-to-bill ratio of 0.91 in the quarter and the weakening of the euro spot rate against the U.S. dollar over the course of the current fiscal year.
• Administration costs amounted to $43.5 million, a decrease of $0.2 million or 0.5% compared to last year. The decrease in administration costs was achieved despite the recording of a $0.9 million provision regarding the settlement of a product claim that was filed against the Company in a prior fiscal year and a $1.0 million investment in the Company’s transformation and reorganization initiative, V20, which was announced during the prior fiscal year.  Excluding these costs, the reduction in administration costs is mainly attributable to the higher freight charges that were incurred in the prior fiscal year in order to air freight a large delayed order.
• The Company ended the period with net cash of $34.9 million, a decrease of $6.0 million or 14.7% since the beginning of the fiscal year. This decrease is primarily attributable to investments in property, plant and equipment, long-term debt and lease liabilities repayments, as well as to distributions to shareholders via dividends, partially offset by cash provided by operating activities and an increase in long-term debt.  Net cash was also negatively impacted by the weakening of the euro spot rate against the U.S. dollar over the course of the current year.
• Foreign currency impacts:
  • Based on average exchange rates, the Euro weakened 5.6% against the U.S. dollar when compared to the same period last year. This resulted in the Company’s net profits and bookings 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 2.5% against the U.S. dollar when compared to the same period last year. This resulted in the Company’s Canadian dollar expenses being reported as lower U.S. dollar amounts in the current quarter.
  • The net impact of the above currency swings did not have a significant impact on the Company’s net loss¹.

“Although Fiscal 2020 is a year of challenges as we reposition our North American manufacturing and sales operations, our second quarter results showed improvements over the same quarter last year, most notably in margin and SG&A costs,” said John Ball, CFO of Velan Inc. “We are working to conserve our working capital as the largest part of our North American manufacturing transformation is still ahead of us. Nonetheless, we are reinstituting our NCIB as we believe this is an effective use of our cash.”

Yves Leduc, President and CEO of Velan Inc., said, “We are on schedule with the restructuring and specialization of our North American manufacturing footprint and increasing the capacity of our Indian plant to make it ready for the transfer of commodity valves still manufactured in North America. Meanwhile our overseas operations are performing well and we are particularly pleased with the progress our Italian subsidiary has been making in the upstream oil and gas market after a few challenging years. Furthermore, the new strategic business units have definitely sharpened our focus on discrete market and end-user opportunities, planting the seeds for better profitable growth. Although we note progress on several fronts of our V20 transformation agenda, we are not satisfied yet, remembering that the most significant impact of the Company’s transformative V20 initiatives is only expected late next year, when the task of reorganizing and reducing the Company’s North American footprint is planned to be completed.”

Dividend

The Board declared an eligible quarterly dividend of CDN$0.03 per share, payable on December 27, 2019, to all shareholders of record as at December 12, 2019.

The Board of the Company has authorized today a normal course issuer bid to purchase for cancellation up to 151,384 Subordinate Voting Shares representing approximately 2.5 % of the outstanding Subordinate Voting Shares of the Company. The normal course issuer bid is subject to the approval of the Toronto Stock Exchange.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on Friday, October 11, 2019, at 11:00 a.m. (EDT). The toll free call-in number is 1‑800‑909-4197, access code 21930534. A recording of this conference call will be available for seven days at 1‑416‑626‑4100 or 1‑800‑558‑5253, access code 21930534.

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$366.9 million in its last reported fiscal year. The Company employs over 1,800 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 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 “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. Refer to the “Reconciliations of Non-IFRS Measures” section in the Company’s Management Discussion and Analysis included in its Interim Report for the quarter ended August 31, 2019 for a detailed calculation of this measure. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

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

Velan Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
(in thousands of U.S. dollars)
As At	August 31,	February 28,
	2019	2019
	$	$
Assets
Current assets
Cash and cash equivalents	78,267	70,673
Short-term investments	2,296	658
Accounts receivable	119,431	137,520
Income taxes recoverable	15,042	16,863
Inventories	176,035	165,583
Deposits and prepaid expenses	4,065	4,612
Derivative assets	8	189
	395,144	396,098
Non-current assets
Property, plant and equipment	95,981	83,537
Intangible assets and goodwill	16,760	18,146
Deferred income taxes	24,658	25,947
Other assets	509	629
	137,908	128,259
Total assets	533,052	524,357
Liabilities
Current liabilities
Bank indebtedness	43,357	29,807
Short-term bank loans	1,680	2,172
Accounts payable and accrued liabilities	66,355	74,910
Income taxes payable	1,235	495
Dividend payable	501	497
Customer deposits	43,164	40,240
Provisions	7,465	8,494
Accrual for performance guarantees	21,669	23,014
Derivative liabilities	12	83
Current portion of long-term debt	7,749	8,609
Current portion of long-term lease liabilities	1,411	–
	194,598	188,321
Non-current liabilities
Long-term debt	12,393	13,242
Long-term lease liabilities	13,872	–
Income taxes payable	1,742	1,742
Deferred income taxes	3,411	3,738
Other liabilities	8,239	8,481
	39,657	27,203
Total liabilities	234,255	215,524
Equity
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital	73,090	73,090
Contributed surplus	6,076	6,074
Retained earnings	249,185	254,606
Accumulated other comprehensive loss	(33,388)	(28,990)
	294,963	304,780
Non-controlling interest	3,834	4,053
Total equity	298,797	308,833
Total liabilities and equity	533,052	524,357

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 ended August 31					Six-month periods ended August 31
	2019		2018			2019		2018
	$		$			$		$
Sales	85,467		91,375			169,283		169,249
Cost of sales	63,485		72,032			131,207		132,169
Gross profit	21,982		19,343			38,076		37,080
Administration costs	19,995		21,460			43,458		43,684
Other expense (income)	4		(8	)		(53	)	(24	)
Operating profit (loss)	1,983		(2,109	)		(5,329	)	(6,580	)
Finance income	595		220			735		362
Finance costs	409		770			876		944
Finance income (costs) – net	186		(550	)		(141	)	(582	)
Income (Loss) before income taxes	2,169		(2,659	)		(5,470	)	(7,162	)
Provision for (Recovery of) income taxes	851		(104	)		(968	)	(933	)
Net income (loss) for the period	1,318		(2,555	)		(4,502	)	(6,229	)
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares	1,369		(2,438	)		(4,455	)	(6,165	)
Non-controlling interest	(51	)	(117	)		(47	)	(64	)
	1,318		(2,555	)		(4,502	)	(6,229	)
Net income (loss) per Subordinate and Multiple Voting Share
Basic	0.06		(0.11	)		(0.21	)	(0.28	)
Diluted	0.06		(0.11	)		(0.21	)	(0.28	)
Dividends declared per Subordinate and Multiple	0.02		0.02			0.04		0.05
Voting Share	(CA$0.03)		(CA$0.03)			(CA$0.06)		(CA$0.06)
Total weighted average number of Subordinate and
Multiple Voting Shares
Basic	21,621,935		21,621,935			21,621,935		21,621,935
Diluted	21,621,935		21,621,935			21,621,935		21,621,935

Velan Inc.
Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(in thousands of U.S. dollars)
	Three-month periods ended August 31					Six-month periods ended August 31
	2019		2018			2019		2018
	$		$			$		$
Comprehensive loss
Net income (loss) for the period	1,318		(2,555	)		(4,502	)	(6,229	)
Other comprehensive loss
Foreign currency translation adjustment on foreign operations whose functional currency is other than the reporting currency (U.S. dollar)	(1,719	)	(1,390	)		(4,570	)	(6,822	)
Comprehensive loss	(401	)	(3,945	)		(9,072	)	(13,051	)
Comprehensive loss attributable to:
Subordinate Voting Shares and Multiple Voting Shares	(316	)	(3,732	)		(8,853	)	(12,900	)
Non-controlling interest	(85	)	(213	)		(219	)	(151	)
	(401	)	(3,945	)		(9,072	)	(13,051	)
Other comprehensive loss is composed solely of items that may be reclassified subsequently to the consolidated statement of income (loss).

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
	Number of shares	Share capital	Contributed surplus	Accumulated other comprehensive loss		Retained earnings		Total		Non-controlling interest		Total equity
Balance – February 28, 2019	21,621,935	73,090	6,074	(28,990	)	254,606		304,780		4,053		308,833
Net loss for the period	–	–	–	–		(4,455	)	(4,455	)	(47	)	(4,502	)
Other comprehensive loss	–	–	–	(4,398	)	–		(4,398	)	(172	)	(4,570	)
	21,621,935	73,090	6,074	(33,388	)	250,151		295,927		3,834		299,761
Effect of share-based compensation	–	–	2	–		–		2		–		2
Dividends
Multiple Voting Shares	–	–	–	–		(696	)	(696	)	–		(696	)
Subordinate Voting Shares	–	–	–	–		(270	)	(270	)	–		(270	)
Non-controlling interest	–	–	–	–		–		–		–		–
Balance – August 31, 2019	21,621,935	73,090	6,076	(33,388	)	249,185		294,963		3,834		298,797
Balance – February 28, 2018	21,621,935	73,090	6,057	(19,790	)	256,668		316,025		5,592		321,617
Adjustment related to the transition to IFRS 15						4,741		4,741		–		4,741
Adjusted balance – March 1, 2018	21,621,935	73,090	6,057	(19,790	)	261,409		320,766		5,592		326,358
Net loss for the period	–	–	–	–		(6,165	)	(6,165	)	(64	)	(6,229	)
Other comprehensive income	–	–	–	(6,735	)	–		(6,735	)	(87	)	(6,822	)
	21,621,935	73,090	6,057	(26,525	)	255,244		307,866		5,441		313,307
Effect of share-based compensation	–	–	9	–		–		9		–		9
Dividends
Multiple Voting Shares	–	–	–	–		(685	)	(685	)	–		(685	)
Subordinate Voting Shares	–	–	–	–		(264	)	(264	)	–		(264	)
Non-controlling interest	–	–	–	–		–		–		(927	)	(927	)
Balance – August 31, 2018	21,621,935	73,090	6,066	(26,525	)	254,295		306,926		4,514		311,440

Velan Inc.
Condensed Interim Consolidated Statements of Cash Flow
(Unaudited)
(in thousands of U.S. dollars)
	Three-month periods ended August 31					Six-month periods ended August 31
	2019		2018			2019		2018
	$		$			$		$
Cash flows from
Operating activities
Net income (loss) for the period	1,318		(2,555	)		(4,502	)	(6,229	)
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities	4,230		3,453			6,913		7,003
Changes in non-cash working capital items	(4,315	)	2,225			544		(3,980	)
Cash provided (used) by operating activities	1,233		3,123			2,955		(3,206	)
Investing activities
Short-term investments	(1,634	)	438			(1,638	)	489
Additions to property, plant and equipment	(966	)	(3,278	)		(1,714	)	(5,290	)
Additions to intangible assets	(111	)	(3	)		(133	)	(99	)
Proceeds on disposal of property, plant and equipment, and intangible assets	7		115			39		125
Net change in other assets	(1,341	)	51			(1,328	)	578
Cash used by investing activities	(4,045	)	(2,677	)		(4,774	)	(4,197	)
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders	(486	)	(488	)		(962	)	(2,130	)
Dividends paid to non-controlling interest	–		–			–		(927	)
Short-term bank loans	(53	)	1,020			(492	)	985
Increase in long-term debt	1,122		–			1,122		607
Repayment of long-term debt	(1,143	)	(1,268	)		(1,859	)	(1,930	)
Repayment of long-term lease liabilities	(262	)	–			(658	)	–
Cash used by financing activities	(822	)	(736	)		(2,849	)	(3,395	)
Effect of exchange rate differences on cash	(853	)	(3	)		(1,288	)	(2,411	)
Net change in cash during the period	(4,487	)	(293	)		(5,956	)	(13,209	)
Net cash – Beginning of the period	39,397		51,627			40,866		64,543
Net cash – End of the period	34,910		51,334			34,910		51,334
Net cash is composed of:
Cash and cash equivalents	78,267		70,114			78,267		70,114
Bank indebtedness	(43,357	)	(18,780	)		(43,357	)	(18,780	)
	34,910		51,334			34,910		51,334
Supplementary information
Interest paid	179		132			458		168
Income taxes paid	1,676		2,421			3,507		4,354

For further information please contact:
Yves Leduc, President and Chief Executive Officer
or
John D. Ball, Chief Financial Officer
Tel: (514) 748-7743
Fax: (514) 748-8635
Web: www.velan.com