Velan, a manufacturer of industrial valves, announced its financial results for its first quarter ended May 31, 2015. Net earnings amounted to $3.1 million or $0.14 per share compared to $4 million or $0.18 per share last year.
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The $0.9 million decrease in net earnings is primarily attributable to a lower gross profit percentage partially offset by decreased administration costs.
The company concluded labour negotiations with its Canadian unions in June 2015. The negative impact on net earnings of these negotiations and lockout in its first quarter was under $1 million. The company intends to recover this shortfall by the end of the current fiscal year.
Despite the production slowdown caused by the lockout, consolidated sales remained relatively stable in the quarter, amounting to $103.2 million, an increase of $0.1 million or 0.1%
Net new orders received, bookings, amounted to $81.8 million, a decrease of $35.8 million or 30.4% compared to last year. Excluding the effect of an order cancellation of $23.6 million in the quarter, bookings would have decreased by $12.2 million or 10.4%, which is primarily due to the negative Euro currency impact on the bookings in the company's European operations.
As a result of these factors, the company ended the quarter with a backlog of $410.4 million, a decrease of $27.4 million or 6.3% since the beginning of the current fiscal year.
Gross margin decreased by 2.9 percentage points from 25.7% to 22.8%. This decrease is mainly attributable to a product mix with a greater proportion of lower margin product sales, particularly large project orders.
Administration costs amounted to $19.2 million, a decrease of $2.1 million or 9.9%. The decrease is primarily attributable to a decrease in variable compensation-related costs and costs recognized in connection with the company's ongoing asbestos litigation.
The fluctuation in asbestos costs for the quarter is due more to the timing of settlement payments in these two periods rather than to changes in long-term trends.
The company ended the quarter with net cash of $61.3 million, a decrease of $14.3 million or 18.9% since the beginning of the current fiscal year. This decrease is primarily attributable to negative non- cash working capital movements, particularly an increase in accounts receivable and a decrease in customer deposits.
Based on average exchange rates, the Euro weakened 20.8% against the U.S. dollar when compared to the same period last year. This weakening 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 11.2% 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 unfavourable impact of the Euro decrease was generally offset by the favourable impact of the Canadian dollar decrease on the company's net earnings. ■