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

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MONTREAL, QUEBEC -- (Marketwired) -- 07/10/13 -- Velan Inc. (TSX: VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its first quarter ended May 31, 2013.

Highlights

-- Sales of US$132.2 million for the quarter-- Net earnings(1) of US$5.8 million for the quarter-- Order backlog of US$505.5 million at the end of the quarter-- Order bookings of US$106.7 million for the quarter-- Net cash(2) of US$36.3 million at the end of the quarter Three-month periods ended May 31, May 31,(millions of U.S. dollars, excluding per share amounts) 2013 2012 ------------------------------Sales $132.2 $115.9Gross Profit 30.7 24.1Gross margin % 23.2% 20.8%Net income (loss) attributable to Multiple and Subordinate Voting Shares 5.8 0.7Net income (loss) per share - Basic 0.26 0.03 Diluted 0.26 0.03



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

-- Net earnings(1) amounted to $5.8 million or $0.26 per share compared to $0.7 million or $0.03 per share last year. The $5.1 million increase in net earnings(1) is primarily attributable to higher sales volume, improved gross profit margins and lower administration costs.-- Sales amounted to $132.2 million, an increase of $16.3 million or 14.1%. The increase in sales is primarily attributable to increased shipments of certain large export project orders and higher spare parts sales.-- Net new orders received ("bookings") amounted to $106.7 million, an increase of $9.0 million or 9.2% compared to last year.-- The Company ended the quarter with a backlog of $505.5 million, a decrease of $25.5 million or 4.8% since the beginning of the current fiscal year. This decrease is mainly attributable to the higher sales output outpacing the higher net new orders in the quarter.-- Gross margin increased by 2.4 percentage points from 20.8% to 23.2%. This increase is mainly attributable to higher sales volume and improved efficiencies as a result of a more optimal product mix.-- Administration costs amounted to $21.7 million, a decrease of $2.2 million or 9.2%. 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 quarters rather than to changes in long-term trends.-- The Company generated net cash(2) from operations of $24.7 million in the quarter. This source of net cash(2) was primarily attributable to improved net earnings(1) and a decrease in inventory. The Company ended the quarter with net cash(2) of $36.3 million, an increase of $16.5 million or 83.3% since the beginning of the current fiscal year.-- Foreign currency impacts: -- Based on average exchange rates, the euro weakened 0.5% against the U.S. dollar when compared to the same period last year. This weakening resulted in the Company's net profits 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 2.0% 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 Korean won weakened 4.0% 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 foreign exchange losses in the current quarter upon conversion of the balance sheet of its Korean subsidiary whose functional currency is the U.S. dollar. -- The net impact of these three currency swings was generally favourable to the Company's quarterly results since the positive impact of the weaker Canadian dollar outweighed the negative impacts of both a weaker euro and a weaker Korean won.



"We are pleased with the general performance in the first quarter of our Fiscal 2014, although we are continuing to monitor the development of our order backlog both domestically and abroad," said John Ball, CFO of Velan Inc. "Working capital management and cash flow improved during the quarter, and foreign currency fluctuations, particularly with respect to the Euro, had less of an impact on our quarter to quarter results. We have continued our capital investment program both in North America and in Asia, as we modernize and expand our productive capacity."

Tom Velan, President and CEO of Velan Inc. said, "This was a very positive quarter with sales, net earnings(1) and net cash(2) all significantly increased compared to last year. We are continuing to take measures to improve our operational excellence and cost competitiveness, while strengthening our presence in international markets. We are working to build on the positive momentum to further improve our performance and operating results."

Dividend

The Board declared an eligible quarterly dividend of Canadian dollar $0.08 per share, payable on September 30, 2013, to all shareholders of record as at September 13, 2013.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the first quarter conference call to be held on July 10, 2013, at 4:30 PM (EDT). The toll free call-in number is 1-800-272-5460, access code 21662085. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558- 5253, access code 21662085.

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.

Velan Inc.Condensed Interim Consolidated Statements of Income (Loss)(Unaudited)(in thousands of U.S. dollars, excluding number of shares and per shareamounts)---------------------------------------------------------------------------- Three-month periods ended May 31, 2013 2012 $ $Sales 132,168 115,852Cost of sales 101,489 91,740 -------------------------------Gross profit 30,679 24,112Administration costs 21,748 23,925Other expense (income) 38 (928) -------------------------------Operating profit (loss) 8,893 1,115Finance income 180 198Finance costs 546 649 -------------------------------Finance income (costs) - net (366) (451) -------------------------------Income (Loss) before income tax 8,527 664Provision for (Recovery of) income tax 2,245 (45) -------------------------------Net income (loss) for the period 6,282 709 ------------------------------- -------------------------------Net income (loss) attributable to:Subordinate Voting Shares and Multiple Voting Shares 5,800 694Non-controlling interest 482 15 ------------------------------- 6,282 709 -------------------------------Net income (loss) per Subordinate and Multiple Voting ShareBasic 0.26 0.03Diluted 0.26 0.03 ------------------------------- -------------------------------Dividends declared per Subordinate and Multiple Voting Share 0.08 (CDN$0.08) 0.08 (CDN$0.08) ------------------------------- -------------------------------Total weighted average number of Subordinate and Multiple Voting SharesBasic 21,923,768 22,139,813Diluted 21,934,333 22,149,091 ------------------------------- -------------------------------Velan Inc.Condensed Interim Consolidated Statements of Comprehensive Income (Loss)(Unaudited)(in thousands of U.S. dollars)---------------------------------------------------------------------------- Three-month periods ended May 31, 2013 2012 $ $Comprehensive income (loss)Net income (loss) for the period 6,282 709Other comprehensive income (loss)Foreign currency translation adjustment on foreign operations whose functional currency is other than the U.S. dollar (1,222) (10,459) ------------------------------Comprehensive income (loss) 5,060 (9,750) ------------------------------ ------------------------------Comprehensive income (loss) attributable to:Subordinate Voting Shares and Multiple Voting Shares 4,746 (9,112)Non-controlling interest 314 (638) ------------------------------ 5,060 (9,750) ------------------------------ ------------------------------Velan Inc.Condensed Interim Consolidated Statements of Financial Position(Unaudited)(in thousands of U.S. dollars)---------------------------------------------------------------------------- FebruaryAs At May 31, 28, 2013 2013 $ $AssetsCurrent assetsCash and cash equivalents 84,359 77,172Short-term investments 1,551 398Accounts receivable 133,205 134,374Income taxes recoverable 7,420 7,672Inventories 232,925 246,983Deposits and prepaid expenses 6,854 6,048Derivative assets 192 340 ------------------------ 466,506 472,987Non-current assetsProperty, plant and equipment 91,249 90,630Intangible assets and goodwill 42,382 43,194Deferred income taxes 11,021 11,226Other assets 1,752 1,737 ------------------------ 146,404 146,787 ------------------------Total assets 612,910 619,774 ------------------------ ------------------------LiabilitiesCurrent liabilitiesBank indebtedness 41,716 48,580Short-term bank loans 1,106 2,284Accounts payable and accrued liabilities 80,025 78,431Income tax payable 3,825 2,831Dividend payable 1,692 1,701Customer deposits 73,020 76,682Provisions 7,061 6,345Accrual for performance guarantees 29,414 28,525Derivative liabilities 1,337 1,380Current portion of long-term debt 10,289 10,463Current portion of other liabilities - 1,951 ------------------------ 249,485 259,173Non-current liabilitiesLong-term debt 16,188 16,387Deferred income taxes 7,864 8,035Other liabilities 7,824 8,006 ------------------------ 31,876 32,428 ------------------------Total liabilities 281,361 291,601 ------------------------EquityEquity attributable to the Subordinate and Multiple Voting shareholdersShare capital 76,314 76,314Contributed surplus 1,754 1,746Retained earnings 254,237 250,129Accumulated other comprehensive income (loss) (9,730) (8,676) ------------------------ 322,575 319,513Non-controlling interest 8,974 8,660 ------------------------Total equity 331,549 328,173 ------------------------Total liabilities and equity 612,910 619,774 ------------------------ ------------------------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 ---------------------------------------------------------- Accum- ulated other compre- Number Contri- hensive of Share buted income Retained shares capital surplus (loss) earnings Total ----------------------------------------------------------Balance - March 1, 2013 21,923,768 76,314 1,746 (8,676) 250,129 319,513Net income (loss) for the period - - - - 5,800 5,800Other comprehensive income (loss) - - - (1,054) - (1,054) ---------------------------------------------------------- 21,923,768 76,314 1,746 (9,730) 255,929 324,259Effect of share- based compensation - - 8 - - 8Dividends Multiple Voting Shares - - - - (1,220) (1,220) Subordinate Voting Shares - - - - (472) (472) ----------------------------------------------------------Balance - May 31, 2013 21,923,768 76,314 1,754 (9,730) 254,237 322,575 ---------------------------------------------------------- ----------------------------------------------------------Balance - March 1, 2012 22,148,968 78,764 1,871 (4,217) 250,951 327,369Net income (loss) for the period - - - - 694 694Other comprehensive income (loss) - - - (9,806) - (9,806) ---------------------------------------------------------- 22,148,968 78,764 1,871 (14,023) 251,645 318,257Effect of share- based compensation - - 14 - - 14Dividends Multiple Voting Shares - - - - (1,246) (1,246) Subordinate Voting Shares - - - - (455) (455)Share repurchase (10,400) (113) (13) - - (126) ----------------------------------------------------------Balance - May 31, 2012 22,138,568 78,651 1,872 (14,023) 249,944 316,444 ---------------------------------------------------------- ---------------------------------------------------------- Non-controlling Total interest equity ------------------------------------------Balance - March 1, 2013 8,660 328,173Net income (loss) for the period 482 6,282Other comprehensive income (loss) (168) (1,222) ------------------------------------------ 8,974 333,233Effect of share- based compensation - 8Dividends Multiple Voting Shares - (1,220) Subordinate Voting Shares - (472) ------------------------------------------Balance - May 31, 2013 8,974 331,549 ------------------------------------------ ------------------------------------------Balance - March 1, 2012 8,208 335,577Net income (loss) for the period 15 709Other comprehensive income (loss) (653) (10,459) ------------------------------------------ 7,570 325,827Effect of share- based compensation - 14Dividends Multiple Voting Shares - (1,246) Subordinate Voting Shares - (455)Share repurchase - (126) ------------------------------------------Balance - May 31, 2012 7,570 324,014 ------------------------------------------ ------------------------------------------Velan Inc.Condensed Interim Consolidated Statements of Cash Flows(Unaudited)(in thousands of U.S. dollars)---------------------------------------------------------------------------- For the three month periods ended May 31, 2013 2012Cash flows from $ $Operating activitiesNet income for the period 6,282 709Adjustments to reconcile net income to cash provided by operating activities 3,320 1,857Changes in non-cash working capital items 15,105 (21,769) ------------------------Cash provided (used) by operating activities 24,707 (19,203) ------------------------Investing activitiesShort -term investments (1,153) 736Additions to property, plant and equipment (4,223) (4,252)Additions to intangible assets (53) (58)Proceeds on disposal of property, plant and equipment, and intangible assets 87 392Net change in other assets (15) (134) ------------------------Cash provided (used) by investing activities (5,357) (3,316) ------------------------Financing activitiesDividends paid to Subordinate and Multiple Voting shareholders (1,701) (1,777)Repurchase of shares - (126)Payment of proceeds payable (1,960) -Short -term bank loans (1,178) 1,197Increase in long-term debt 1,391 20,092Repayment of long-term debt (1,719) (665) ------------------------Cash provided (used) by financing activities (5,167) 18,721 ------------------------Effect of exchange rate differences on cash (132) (784) ------------------------Net change in cash during the period 14,051 (4,582)Net cash - Beginning of the period 28,592 32,976 ------------------------Net cash - End of the period 42,643 28,394 ------------------------Net cash is composed of: Cash and cash equivalents 84,359 65,985 Bank indebtedness (41,716) (37,591) ------------------------ 42,643 28,394 ------------------------Supplementary informationInterest received (paid) (359) (349)Income taxes reimbursed (paid) 504 (1,339)





Contacts:
Tom Velan
President and Chief Executive Officer
(514) 748-7743
(514) 748-8635 (FAX)

John D. Ball
Chief Financial Officer
(514) 748-7743
(514) 748-8635 (FAX)
www.velan.com



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