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, 2022.
Highlights:
- Sales for the quarter amounted to
$75.0 million, an increase of $0.5 million or 0.6% compared to the
same quarter of the previous fiscal year. Although comparable to
prior year’s first quarter performance, the Company continues to
navigate through a volatile market where certain shipments for the
quarter were delayed and are planned to be shipped later in the
year.
- Gross profit for the quarter
amounted to $20.1 million or 26.8%, stable compared to last year’s
$20.0 million of 26.8%. Gross profit improved for the quarter when
considering the absence of Canada Emergency Wage Subsidies («CEWS»)
compared to $0.6 million last year. Prior year’s gross profit
percentage without the subsidies would have been 26.1% compared to
26.8% for the current quarter.
- Net loss1 of $7.4 million and
negative EBITDA2 of $2.9 million for the quarter compared to a net
loss1 of $5.1 million and a negative EBITDA2 of $0.9 million last
year. The decrease in results is primarily attributable to an
increase in administration costs, namely freight out costs and the
absence of CEWS in the current quarter.
- Order backlog2 remains strong at
$506.0 million, an increase of $4.7 million or 0.9% since the
beginning of the year. The portion of the current backlog3
deliverable in the next twelve months is $339.2 million.
- Net new orders (“bookings”)2 of
$93.4 million for the quarter, representing a book-to-bill ratio2
of 1.25. The decrease in bookings2 of $22.9 million or 19.7%
compared to last year resulted mainly from the current
geo-political uncertainties which created slower project awards.
The Company nonetheless continues to observe a strong amount of
activity ongoing.
- The Company’s net cash amounted to
a solid $47.7 million at the end of the quarter, a decrease of $5.8
million since the beginning of the fiscal year. The decrease in net
cash for the quarter is primarily attributable to the lower EBITDA
for the quarter. The shifting of revenues and related gross
profits, as mentioned in the notes above have resulted in higher
work in process and finished goods inventories by $16.3
million.
Bruno Carbonaro, CEO of Velan Inc., said, “We
presented similar sales and gross profit as last year, but we were
impacted by certain market volatility and governmental
documentation delays which would have allowed us to realize
improved results. We are nonetheless working very hard to resolve
these delays, and as well are working on several strategic
initiatives such as growing our pipeline of new products and
improving our aftermarket business. Finally, we are always focusing
time and attention to improve our operational flexibility and
efficiency which is how we believe we can get to the next level in
terms of financial results.”
Financial Highlights
(thousands of U.S. dollars, excluding per share amounts) |
|
May 31,2022 |
|
|
May 31,2001 |
|
Sales |
$ |
75,005 |
|
$ |
74,529 |
|
Gross profit |
|
20,073 |
|
|
19,994 |
|
Gross profit % |
|
26.8 |
% |
|
26.8 |
% |
Net loss2 |
|
(7,352 |
) |
|
(5,073 |
) |
Net loss2 per share – basic and diluted |
|
(0.34 |
) |
|
(0.24 |
) |
EBITDA1 |
|
(2,878 |
) |
|
(941 |
) |
EBITDA1 per share – basic and diluted |
|
(0.13 |
) |
|
(0.04 |
) |
First Quarter Fiscal 2023
(unless otherwise noted, all amounts are in U.S. dollars and all
comparisons are to the first quarter of fiscal 2022):
- Sales were slightly higher for the
quarter, increasing by $0.5 million or 0.6% compared to the same
quarter last year. The increase in sales for the quarter is
primarily attributable to increased shipments of large orders in
the Company’s Italian operations, partially offset by reduced
shipments in the Company’s North American operations. Although
comparable to prior year’s first quarter performance, sales were
impacted in the quarter by supply chain delays, increased time to
obtain government export documentation and final commercial
negotiations on a handful of contracts. The revenues related to
these contracts are expected to be recovered throughout the
remainder of the fiscal year.
- Bookings2 amounted to $93.4
million, a decrease of $22.9 million or 19.7% compared to the first
quarter of last year. This decrease is primarily attributable to
upstream oil and gas and nuclear orders recorded in the Company’s
Italian and French operations. The current geo-political
uncertainties have created slower project awards resulting in lower
bookings2 for the Company in the current quarter. The Company
nonetheless continues to observe a strong amount of activity
ongoing.
- The total backlog2 increased by
$4.7 million or 0.9% since the beginning of the fiscal year,
amounting to $506.0 million at the end of the quarter. The increase
in backlog is primarily due to a strong book-to-bill ratio2 of 1.25
as a result of bookings outpacing sales in the current quarter.
Otherwise, the increase in backlog2 was negatively impacted by the
weakening of the euro spot rate against the U.S. dollar since the
beginning of the fiscal year which represented $12.8 million at the
end of the quarter.
- Gross profit remained stable for
the quarter, totaling $20.1 million or 26.8% compared to last
year’s $20.0 million or 26.8%. Gross profit remained stable due to
the delivery of a comparable sales profile to last year, a balanced
product mix, and continued focus on project delivery execution. The
Company’s gross profit also benefited from favorable foreign
exchange movements 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 when compared to
similar movements from the previous year. The gross profit in the
prior period was positively impacted by the recording of $0.6
million of CEWS while the Company did not qualify for such
subsidies in the current fiscal year. The subsidies were allocated
between cost of sales and administration costs. Prior year’s gross
profit percentage without CEWS would have been 26.1% compared to
26.8% for the current quarter.
- Administration costs for the
quarter amounted to $25.8 million, an increase of $2.0 million or
8.5%. The increase in administration costs for the quarter is
primarily attributable to 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 $0.4 million of CEWS while the
Company did not qualify for such subsidies in the current quarter.
The subsidies were allocated between cost of sales and
administration costs. The increase for the quarter was partially
offset by lower sales commissions recorded on the delivery of large
orders over the course of the quarter.
- Net loss1 amounted to $7.4 million
or $0.34 per share compared to $5.1 million or $0.24 per share last
year. EBITDA2 amounted to a negative $2.9 million or $0.13 per
share compared to a negative $0.9 million or $0.04 per share last
year. The unfavorable movement in EBITDA2 for the quarter is
primarily attributable to the previously explained increase in
administration costs. The movement in net loss1 was primarily
attributable to the same factors as EBITDA2 combined with
unfavorable movements in income taxes, partially offset by a
favorable movement in finance costs.
Dividend
For the current quarter, no dividend will be
declared. The Company will revisit the declaration of dividends in
subsequent quarters.
Conference call
Financial analysts, shareholders, and other
interested individuals are invited to attend the first quarter
conference call to be held on Friday, July 8, 2022, at 11:00 a.m.
(EDT). The toll free call-in number is 1-800-754-1346, access code
22019459. A recording of this conference call will be available for
seven days at 1-416-626-4100 or 1-800-558-5253, access code
22019459.
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$411.2 million in its last
reported fiscal year. The Company employs approximately 1,650
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.
Earnings (loss) before interest, taxes,
depreciation and amortization ("EBITDA")
Three-month
periods ended |
(thousands, except amount per shares) |
May 31, 2022
$ |
|
May 31, 2021
$ |
|
Net loss2 |
(7,352 |
) |
(5,073 |
) |
Adjustments for: |
|
|
Depreciation of property, plant and equipment |
2,161 |
|
2,414 |
|
Amortization of intangible assets |
568 |
|
558 |
|
Finance costs – net |
236 |
|
529 |
|
Income taxes |
1,509 |
|
631 |
|
EBITDA |
(2,878 |
) |
(941 |
) |
EBITDA per share |
|
|
- Basic and
diluted |
(0.13 |
) |
(0.04 |
) |
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 – additional specifications at
the end of this report
For further information please contact: Bruno
Carbonaro, Chief Executive Officer and President Tel: (438)
817-7593 or Rishi Sharma, Chief Financial Officer Tel: (438)
817-4430
MANAGEMENT’S DISCUSSION AND ANALYSIS
First quarter ended May 31, 2022
HIGHLIGHTS1
- Sales for the
quarter amounted to $75.0 million, an increase of $0.5 million or
0.6% compared to the same quarter of the previous fiscal year.
Although comparable to prior year’s first quarter performance, the
Company continues to navigate through a volatile market where
certain shipments for the quarter were delayed and are planned to
be shipped later in the year.
- Gross profit for
the quarter amounted to $20.1 million or 26.8%, stable compared to
last year’s $20.0 million of 26.8%. Gross profit improved for the
quarter when considering the absence of Canada Emergency Wage
Subsidies («CEWS») compared to $0.6 million last year. Prior year’s
gross profit percentage without the subsidies would have been 26.1%
compared to 26.8% for the current quarter.
- Net loss2 of
$7.4 million and negative EBITDA3 of $2.9 million
for the quarter compared to a net loss1 of $5.1
million and a negative EBITDA2 of $0.9 million
last year. The decrease in EIBTDA3 is primarily
attributable to an increase in administration costs, namely freight
out costs and the absence of CEWS in the current quarter.
- Order
backlog3 remains strong at $506.0 million, an
increase of $4.7 million or 0.9% since the beginning of the year.
The portion of the current backlog3 deliverable in
the next twelve months is $339.2 million.
- Net new orders
(“bookings”)3 of $93.4 million for the quarter, representing a
book-to-bill ratio3 of 1.25. The decrease in
bookings3 of $22.9 million or 19.7% compared to
last year resulted mainly from the current geo-political
uncertainties which created slower project awards. The Company
nonetheless continues to observe a strong amount of activity
ongoing.
- The Company’s
net cash amounted to a solid $47.7 million at the end of the
quarter, a decrease of $5.8 million since the beginning of the
fiscal year. The decrease in net cash for the quarter is primarily
attributable to the lower EBITDA for the quarter. The shifting of
revenues and related gross profits, as mentioned in the notes above
have resulted in higher work in process and finished goods
inventories by $16.3 million.
The following discussion provides an analysis of
the consolidated operating results and financial position of Velan
Inc. (“the Company”) for the quarter ended May 31, 2022. This
MD&A should be read in conjunction with the Company’s audited
consolidated financial statements for the years ended February 28,
2022 and 2021. The Company’s consolidated financial statements have
been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board
(“IFRS”). The significant accounting policies upon which these
consolidated financial statements have been prepared are detailed
in Note 2 of the Company’s audited consolidated financial
statements. All foreign currency transactions, balances and
overseas operations have been converted to U.S. dollars, the
Company’s reporting currency. This MD&A was approved by the
Board of Directors of the Company on July 7, 2022. Additional
information relating to the Company, including the Annual
Information Form and Proxy Information Circular, can be found on
SEDAR at www.sedar.com.
NON-IFRS AND SUPPLEMENTARY FINANCIAL
MEASURES
In this MD&A, 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.
Reconciliations of these amounts can be found at the end of this
report. The Company has also presented supplementary financial
measures which are defined at the end of this report.
FORWARD-LOOKING INFORMATION
This MD&A 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. These risks and uncertainties 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
report are expressly qualified by this cautionary statement.
ABOUT VELAN
The Company designs, manufactures and markets on
a worldwide basis a broad range of industrial valves for use in
most industry applications including power generation, oil and gas,
refining and petrochemicals, chemicals, LNG and cryogenics, pulp
and paper, geothermal processes and shipbuilding. The Company is a
world leader in steel industrial valves operating 12 manufacturing
plants worldwide with 1,651 employees. The Company’s head office is
located in Montreal, Canada. The Company’s business strategy is to
design, manufacture, and market new and innovative valves with
emphasis on quality, safety, ease of operation, and long service
life. The Company’s strategic goals include, but are not limited
to, customer-driven operational excellence and margin improvements,
accelerated growth through increased focus on key target markets
where the Company has distinct competitive advantages and
continuously improving and modernizing its systems and
processes.
The consolidated financial statements of the
Company include the North American operations comprising two
manufacturing plants in Canada, as well as one manufacturing plant
and one distribution facility in the U.S. Significant overseas
operations include manufacturing plants in France, Italy, Portugal,
Korea, Taiwan, India, and China. The Company’s operations also
include a sales operation in Germany.
RESULTS OF OPERATIONS(unless otherwise noted,
all amounts are in U.S. dollars and all comparisons are to the
first quarter of the last fiscal year)
Three-month periods ended |
|
(thousands) |
|
May 31,2022 |
|
|
May 31,2021 |
|
Variance |
|
|
|
|
|
Sales |
$ |
75,005 |
|
$ |
74,529 |
|
476 |
|
Gross profit |
|
20,073 |
|
|
19,994 |
|
79 |
|
Administration costs |
|
25,812 |
|
|
23,779 |
|
2,033 |
|
Income taxes |
|
1,509 |
|
|
631 |
|
878 |
|
Net loss4 |
|
(7,352 |
) |
|
(5,073 |
) |
(2,279 |
) |
EBITDA5 |
|
(2,878 |
) |
|
(941 |
) |
(1,937 |
) |
Bookings2 |
|
93,446 |
|
|
116,374 |
|
(22,928 |
) |
Period ending backlog2 of orders |
|
505,950 |
|
|
607,162 |
|
(101,212 |
) |
(as
a percentage of sales) |
|
|
|
Gross profit |
|
26.8 |
% |
|
26.8 |
% |
- |
|
(in
dollars per share) |
|
|
|
Net loss1 per share – basic and
diluted |
|
(0.34 |
) |
|
(0.24 |
) |
(0.10 |
) |
EBITDA2 per share – basic and diluted |
|
(0.13 |
) |
|
(0.04 |
) |
(0.09 |
) |
Backlog2
|
|
|
|
|
As at |
|
(thousands) |
May 31,2022 |
|
February 28,2022 |
|
May 31,2021 |
|
|
|
|
|
Backlog2 |
505,950 |
|
501,224 |
|
607,162 |
|
For
delivery within the next twelve months |
339,214 |
|
321,860 |
|
360,414 |
|
For delivery beyond the next
twelve months |
166,736 |
|
179,364 |
|
246,748 |
|
Percentage – beyond the next
twelve months |
33.0 |
% |
35.8 |
% |
40.6 |
% |
The total backlog2 increased by $4.7 million or
0.9% since the beginning of the fiscal year, amounting to
$506.0 million at the end of the quarter. The increase in
backlog is primarily due to a strong book-to-bill ratio2 of 1.25 as
a result of bookings outpacing sales in the current quarter.
Otherwise, the increase in backlog2 was negatively impacted by the
weakening of the euro spot rate against the U.S. dollar since the
beginning of the fiscal year which represented $12.8 million at the
end of the quarter.Bookings6
Bookings1 amounted to $93.4 million, a decrease
of $22.9 million or 19.7% compared to the first quarter of last
year. This decrease is primarily attributable to upstream oil and
gas and nuclear orders recorded in the Company’s Italian and French
operations. The current geo-political uncertainties have created
slower project awards resulting in lower bookings1 for the Company
in the current quarter. The Company nonetheless continues to
observe a strong amount of activity ongoing.
Sales
Sales were slightly higher for the quarter,
increasing by $0.5 million or 0.6% compared to the same quarter
last year. The increase in sales for the quarter is primarily
attributable to increased shipments of large orders in the
Company’s Italian operations, partially offset by reduced shipments
in the Company’s North American operations. Although comparable to
prior year’s first quarter performance, sales were impacted in the
quarter by supply chain delays, increased time to obtain government
export documentation and final commercial negotiations on a handful
of contracts. The revenues related to these contracts are expected
to be recovered throughout the remainder of the fiscal year.
Gross profit
Gross profit remained stable for quarter,
totaling $20.1 million or 26.8% compared to last year’s $20.0
million or 26.8%. Gross profit remained stable due to the delivery
of a comparable sales profile to last year, a balanced product mix,
and continued focus on project delivery execution. The Company’s
gross profit also benefited from favorable foreign exchange
movements 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 when compared to similar
movements from the previous year. The gross profit in the prior
period was positively impacted by the recording of $0.6 million of
CEWS while the Company did not qualify for such subsidies in the
current fiscal year. The subsidies were allocated between cost of
sales and administration costs. Prior year’s gross profit
percentage without CEWS would have been 26.1% compared to 26.8% for
the current quarter.
Administration costs
Administration costs for the quarter amounted to
$25.8 million, an increase of $2.0 million or 8.5%. The increase in
administration costs for the quarter is primarily attributable to
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 $0.4 million of CEWS while the Company did not qualify
for such subsidies in the current quarter. The subsidies were
allocated between cost of sales and administration costs. The
increase for the quarter was partially offset by lower sales
commissions recorded on the delivery of large orders over the
course of the quarter.
EBITDA1
EBITDA1 amounted to negative $2.9 million or
$0.13 per share compared to a negative $0.9 million or $0.04 per
share last year. The unfavorable movement in EBITDA1 for the
quarter is primarily attributable to the previously explained
increase in administration costs.
Income taxes
|
Three-month
periods ended |
|
(thousands, excluding percentages) |
May
31, 2022 |
|
May
31, 2021 |
|
|
$ |
|
% |
|
$ |
|
% |
|
|
|
|
|
|
|
|
|
|
Income tax at statutory rate |
(1,546 |
) |
26.5 |
|
(1,175 |
) |
26.5 |
|
Tax effects of: |
|
|
|
|
Difference in statutory tax rates
in foreign jurisdictions |
52 |
|
(0.9 |
) |
114 |
|
(2.5 |
) |
Non-deductible (taxable) foreign
exchange losses (gains) |
267 |
|
(4.6 |
) |
(77 |
) |
1.7 |
|
Unrecognized tax losses |
2,855 |
|
(48.9 |
) |
1,939 |
|
(43.7 |
) |
Benefit attributable to a
financing structure |
(67 |
) |
1.1 |
|
(66 |
) |
1.5 |
|
Other differences |
(52 |
) |
0.9 |
|
(104 |
) |
2.3 |
|
Income tax expense |
1,509 |
|
(25.9 |
) |
631 |
|
(14.2 |
) |
Net loss7
Net loss1 amounted to $7.4 million or $0.34 per
share compared to a net loss1 of $5.1 million or $0.24 per share
last year. The movement in net loss1 was primarily attributable to
the same factors as explained in the EBITDA8 section combined with
unfavorable movements in income taxes, partially offset by a
favorable movement in finance costs.
LIQUIDITY AND CAPITAL RESOURCES – a
discussion of liquidity risk, credit facilities, cash flows and
proposed transactions (unless otherwise noted, all dollar
amounts are denominated in U.S. dollars)
Liquidity risk is the risk that the Company will
not be able to meet its financial obligations as they come due. The
Company manages its liquidity risk by continually monitoring its
future cash requirements. Cash flow forecasting is performed in the
operating entities and aggregated by the Company’s corporate
finance team. The Company’s policy is to maintain sufficient cash
and cash equivalents and available credit facilities in order to
meet its present and future operational needs.
On May 31, 2022, the Company’s order backlog2
was $506.0 million and its net cash plus unused credit facilities
amounted to $164.9 million, which it believes, along with future
cash flows generated from operations, is sufficient to meet its
financial obligations, increase its capacity, satisfy its working
capital requirements, and execute on its business strategy. The
Company also believes that its unused credit facilities are
sufficient to navigate through lingering COVID-19 impacts and the
conflict in Ukraine. However, there can be no assurance that the
risk of another sharp downturn in the economy will not materially
adversely affect the Company’s results of operations or financial
condition. As at May 31, 2022, the Company is in compliance with
all covenants related to its debt and credit facilities.
As part of managing its liquidity risk, the
Company also monitors the financial health of its key suppliers. As
at May 31, 2022, the Company does not see undue risk as a
result of this assessment.
Cash flows - quarter
ended May 31, 2022 compared to the quarter ended May 31,
2021(unless otherwise noted, all amounts are in U.S.
dollars and all comparisons are to same period in the prior fiscal
year)
The Company’s changes in net cash were as follows:
|
Three-month periods ended |
(thousands) |
May 31,2022 |
|
May 31,2021 |
|
|
|
Net Cash – Beginning of
period |
53,465 |
|
62,953 |
Cash provided (used) by operating
activities |
(3,065 |
) |
895 |
Cash provided (used) by investing
activities |
(2,187 |
) |
907 |
Cash provided by financing
activities |
1,221 |
|
6,046 |
Effect of exchange rate differences on cash |
(1,782 |
) |
436 |
Net Cash – End of period |
47,652 |
|
71,237 |
Operating activities
The unfavorable movement in cash used by
operating activities for the quarter is primarily attributable to
the decrease in EBITDA combined with a reduction in long-term
customer deposits, partially offset by a favorable movement in
non-cash working capital items.
The changes in non-cash working capital items
were as follow:
|
Three-month periods ended |
(thousands) |
May 31,2022 |
|
May 31,2021 |
|
|
|
|
Accounts receivable |
14,062 |
|
14,985 |
|
Income taxes recoverable |
(561 |
) |
(910 |
) |
Inventories |
(10,173 |
) |
(31,207 |
) |
Deposits and prepaid
expenses |
(302 |
) |
(2,455 |
) |
Accounts payable and accrued
liabilities |
413 |
|
14,830 |
|
Income taxes payable |
(1,098 |
) |
(152 |
) |
Customer deposits |
3,790 |
|
8,747 |
|
Provisions |
(98 |
) |
(289 |
) |
Changes in non-cash working capital items |
6,033 |
|
3,549 |
|
The positive non-cash working capital movements
for the quarter ended May 31, 2022 consisted primarily of:
- A decrease in
accounts receivable primarily due to increased collections of prior
year accounts;
- A higher amount
of short-term customer deposits collected on certain large project
orders by the Company’s French operations.
The negative non-cash working capital movements
for the quarter ended May 31, 2022 were primarily due to an
increase in inventories required for the increase in the backlog
combined with shipment delays explained under sales in the Results
of operations section.
Investing activities
Cash used by investing activities for the
quarter was primarily due to an increase in short-term investments
and additions to property, plant and equipment. The fluctuation in
additions to property, plant and equipment for the current quarter
is primarily attributable to the timing of the receipts of certain
equipment.
Financing activities
During the quarter, the Company’s Italian
operations borrowed $2.2 million in the form of unsecured bank
loans, bearing annual interest between 0.67% and 0.71%, repayable
quarterly and expiring in fiscal 2027.
FINANCIAL INSTRUMENTS AND FINANCIAL RISK
MANAGEMENT
The Company’s activities expose it to a variety
of financial risks: market risk (including currency risk, cash flow
interest rate risk and fair value interest rate risk), credit risk
and liquidity risk. The Company’s overall financial risk management
program focuses on mitigating unpredictable financial market risks
and their potential adverse effects on the Company’s financial
performance.
The Company’s financial risk management is
generally carried out by the corporate finance team, based on
policies approved by the Board of Directors. The identification,
evaluation and hedging of the financial risks are the
responsibility of the corporate finance team in conjunction with
the finance teams of the Company’s subsidiaries. The Company uses
derivative financial instruments to hedge certain risk exposures.
Use of derivative financial instruments is subject to a policy
which requires that no derivative transaction be entered into for
the purpose of establishing a speculative or leveraged position
(the corollary being that all derivative transactions are to be
entered into for risk management purposes only).
Market risk
Currency risk
Currency risk on financial instruments is the
risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange
rates. The Company operates internationally and is exposed to
foreign exchange risk arising from various currency exposures.
Currency risk arises when future commercial transactions and
recognized assets and liabilities are denominated in a currency
other than a company’s functional currency. The Company has
operations with different functional currencies, each of which will
be exposed to currency risk based on its specific functional
currency.
When possible, the Company matches cash receipts
in a foreign currency with cash disbursements in that same
currency. The remaining anticipated net exposure to foreign
currencies is hedged. To hedge this exposure, the Company uses
foreign currency derivatives, primarily foreign exchange forward
contracts. These derivatives are not designated as hedges for
accounting purposes.
The amounts outstanding as at May 31, 2022 and
February 28, 2022 are as follows:
|
Range of exchange rates |
Gain (loss)(in thousands of U.S. dollars) |
Notional amount(in thousands of indicated
currency) |
|
May 31,2022 |
February 28,2022 |
May 31,2022$ |
February 28,2022$ |
May 31,2022 |
February 28,2022 |
Foreign exchange forward contracts |
|
|
|
|
|
|
Sell US$ for CA$ - 0 to 12 months |
1.27-1.28 |
1.27-1.28 |
(152 |
) |
(470 |
) |
US$37,500 |
US$50,000 |
Buy US$ for CA$ - 0 to 12 months |
1.25 |
1.25 |
88 |
|
301 |
|
US$37,500 |
US$50,000 |
Sell € for US$ – 0 to 12 months |
1.15 |
1.15 |
(1 |
) |
(90 |
) |
€11,250 |
€15,000 |
Buy € for US$ – 0 to 12 months |
1.13 |
1.13 |
562 |
|
252 |
|
€11,250 |
€15,000 |
Foreign exchange forward contracts are contracts
whereby the Company has the obligation to sell or buy the
currencies at the strike price. The fair value of the foreign
currency instruments is recorded in the consolidated statement of
income and reflects the estimated amounts the Company would have
paid or received to settle these contracts as at the financial
position date. Unrealized gains are recorded as derivative assets
and unrealized losses as derivative liabilities on the consolidated
statement of financial position.
Interest rate risk
The Company’s exposure to interest rate risk is
related primarily to its credit facilities, long-term debt and cash
and cash equivalents. Items at variable rates expose the Company to
cash flow interest rate risk, and items at fixed rates expose the
Company to fair value interest rate risk. The Company’s long-term
debt and credit facilities predominantly bear interest, and its
cash and cash equivalents earn interest at variable rates. An
assumed 0.5% change in interest rates would have no significant
impact on the Company’s net income or cash flows.
Credit risk
Credit risk is the risk of an unexpected loss if
a customer or counterparty to a financial instrument fails to meet
its contractual obligations. Credit risk arises primarily from the
Company’s trade accounts receivable.
The Company’s credit risk related to its trade
accounts receivable is concentrated. As at May 31, 2022, three
(February 28, 2022 – three) customers accounted for more
than 5% each of its trade accounts receivable, of which one
customer accounted for 13.7% (February 28, 2022 – 10.8%), and the
Company’s ten largest customers accounted for 59.9% (February 28,
2022 – 55.7%) of trade accounts receivable. In addition, there was
two customers (May 31, 2022 – nil) that accounted for more than 10%
of the Company’s sales.
In order to mitigate its credit risk, the
Company performs a continual evaluation of its customers’ credit
and performs specific evaluation procedures on all its new
customers. In performing its evaluation, the Company analyzes the
ageing of accounts receivable, historical payment patterns,
customer creditworthiness and current economic trends. A specific
credit limit is established for each customer and reviewed
periodically. For some trade accounts receivable, the Company may
obtain security in the form of credit insurance which can be called
upon if the counterparty is in default under the terms of the
agreement.
The Company applies the IFRS 9 simplified
approach to measure expected credit losses using a lifetime
expected credit loss allowance for trade receivables. The expected
credit loss rates are based on the Company’s historical credit
losses experienced over the last fiscal year prior to period end.
The historical rates are then adjusted for current and
forward-looking information on macro-economic factors affecting the
Company’s customers.
The Company is also exposed to credit risk
relating to derivative financial instruments, cash and cash
equivalents and short-term investments, which it manages by dealing
with highly rated financial institutions. The Company’s primary
credit risk is limited to the carrying value of the trade accounts
receivable and gains on derivative assets.
The table below summarizes the ageing of the
trade accounts receivable as at:
|
As at |
(thousands) |
May 31,2022$ |
|
February 28,2022$ |
|
|
|
|
Current |
49,963 |
|
64,689 |
|
Past due 0 to 30 days |
9,735 |
|
17,995 |
|
Past due 31 to 90 days |
16,394 |
|
9,248 |
|
Past
due more than 90 days |
14,858 |
|
16,285 |
|
|
90,950 |
|
108,217 |
|
Less:
Loss allowance |
(488 |
) |
(509 |
) |
|
90,462 |
|
107,708 |
|
Other
receivables |
8,124 |
|
8,126 |
|
Total accounts receivable |
98,586 |
|
115,834 |
|
The table below summarizes the movement in the
allowance for doubtful accounts:
|
Three-month periods ended |
(thousands) |
May 31,2022$ |
|
May 31,
2021$ |
|
|
|
|
Balance – Beginning of the
year |
509 |
|
1,146 |
|
Loss allowance expense |
8 |
|
- |
|
Recoveries of trade accounts
receivables |
- |
|
(22 |
) |
Write-off of trade accounts
receivable |
(16 |
) |
(55 |
) |
Foreign
exchange |
(13 |
) |
12 |
|
Balance – End of the period |
488 |
|
1,081 |
|
Liquidity risk – see discussion
in liquidity and capital resources section
CERTAIN RISKS THAT COULD AFFECT OUR
BUSINESS
The Company lists the various risks that could
affect its business in the year-end version of its MD&A. The
Company continuously monitors and evaluates such risks, with
particular current focus on the COVID-19 pandemic, the Ukraine
conflict and the ongoing labour union negotiation in Montreal and
Granby. The Company has no changes to report as at
May 31, 2022.
INTERNAL CONTROLS AND
PROCEDURES
In accordance with National Instrument 52-109 –
Certification of Disclosure in Issuer’s Annual and Interim Filings,
disclosure controls and procedures have been designed to provide
reasonable assurance that the information presented in the
Company’s interim and annual reports to shareholders is accumulated
and communicated to management on a timely basis, including the
Chief Executive Officer and the Chief Financial Officer, in order
for appropriate decisions to be made in regards to disclosures.
Internal controls over financial reporting have also been designed
to provide reasonable assurance regarding the reliability of the
financial reporting and the preparation of financial statements in
accordance with IFRS.
The Company did not make any changes to the
design of internal controls over financial reporting during the
three-month period ended May 31, 2022 that have materially
affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
CRITICAL ACCOUNTING ESTIMATES &
JUDGEMENTS
The Company’s financial statements are prepared
in accordance with IFRS as issued by the IASB. The Company’s
significant accounting policies as described in notes 2 and 3 of
the Company’s audited consolidated financial statements are
essential to understanding the Company’s financial positions,
results of operations and cash flows. Certain of these accounting
policies require critical accounting estimates that involve complex
and subjective judgments and the use of assumptions, some of which
may be for matters that are inherently uncertain and susceptible to
change. The assumptions and estimates used are based on parameters
which are derived from the knowledge at the time of preparing the
financial statements and believed to be reasonable under the
circumstances. In particular, the circumstances prevailing at this
time and assumptions as to the expected future development of the
global and industry-specific environment were used to estimate the
Company’s future business performance. Where these conditions
develop differently than assumed and beyond the control of the
Company, the actual results may differ from those anticipated (see
Forward-looking information section above). These estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the
estimate is changed. There were no significant changes made to
critical accounting estimates during the past two fiscal years.
There have been no material changes from those
identified in the annual MD&A.
ACCOUNTING STANDARDS AND AMENDMENTS
ISSUED BUT NOT YET ADOPTED
In January 2020, the International Accounting
Standards Board (“IASB”) issued Classification of Liabilities as
Current or Non-current (Amendments to IAS 1) providing a more
general approach to the classification of liabilities under IAS 1
based on the contractual arrangements in place at the reporting
date. The amendments in Classification of Liabilities as Current or
Non-current (Amendments to IAS 1) affect only the presentation of
liabilities in the statement of financial position, not the amount
or timing of recognition of any asset, liability income or
expenses, or the information that entities disclose about those
items. In July 2020, the IASB published Classification of
Liabilities as Current or Non-current – Deferral of Effective Date
(Amendment to IAS 1) deferring the effective date of the January
2020 amendments to IAS 1 by one year. The amendments to IAS 1 are
effective for annual reporting periods beginning on or after
January 1, 2023 with earlier adoption permitted. The Company is
currently evaluating the impact of these amendments on its
financial statements.
SUMMARY OF QUARTERLY RESULTS
Summary financial data derived from the
Company’s unaudited financial statements from each of the eight
most recently completed quarters are as follows:
For the quarters in months ending May,
August, November and February(in thousands of U.S.
dollars, excluding per share amounts)
|
|
|
|
QUARTERS ENDED |
|
May2022 |
February2022 |
November2021 |
August2021 |
May2021 |
February2021 |
November2020 |
August2020 |
Sales |
$75,005 |
$124,849 |
$109,971 |
$101,893 |
$74,529 |
$85,510 |
$71,560 |
$68,340 |
Net
earnings (loss)9 |
(7,352) |
(25,509) |
4,507 |
5,015 |
(5,073) |
338 |
9,527 |
(5,112) |
Net earnings (loss) 1 per
share |
|
|
|
|
|
|
|
|
- Basic and diluted |
(0.34) |
(1.19) |
0.21 |
0.23 |
(0.24) |
0.02 |
0.44 |
(0.24) |
EBITDA10 |
(2,878) |
16,592 |
13,291 |
10,657 |
(941) |
1,648 |
13,784 |
(2,497) |
EBITDA2 per share |
|
|
|
|
|
|
|
|
- Basic and diluted |
(0.13) |
0.77 |
0.62 |
0.49 |
(0.04) |
0.08 |
0.64 |
(0.12) |
NON-IFRS AND SUPPLEMENTARY FINANCIAL
MEASURES
In this MD&A, the Company has presented
measures of performance or financial condition which are not
defined under IFRS (“non-IFRS measures”) and are, therefore,
unlikely to be comparable to similar measures presented by other
companies. These measures are used by management in assessing the
operating results and financial condition of the Company and are
reconciled with the performance measures defined under IFRS.
Company has also presented supplementary financial measures which
are defined at the end of this report. Reconciliation and
definition can be found below.
Earnings before interest, taxes,
depreciation and amortization ("EBITDA")
Three-month periods ended |
(thousands, except amount per shares) |
May 31,2022$ |
|
May 31,2021$ |
|
|
|
|
Net loss11 |
(7,352 |
) |
(5,073 |
) |
|
|
|
Adjustments for: |
|
|
Depreciation of property, plant
and equipment |
2,161 |
|
2,414 |
|
Amortization of intangible
assets |
568 |
|
558 |
|
Finance costs – net |
236 |
|
529 |
|
Income taxes |
1,509 |
|
631 |
|
|
|
|
EBITDA |
(2,878 |
) |
(941 |
) |
EBITDA per share |
|
|
- Basic and
diluted |
(0.13 |
) |
(0.04 |
) |
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 taxes. 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 MD&A 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
MD&A are expressly qualified by this cautionary
statement.
________________________________________1 All
dollar amounts are denominated in U.S. dollars.2 Net earnings or
loss refer to net income or loss attributable to Subordinate and
Multiple Voting Shares3 Non-IFRS and supplementary financial
measures – additional specifications at the end of this report4 Net
earnings or loss refer to net income or loss attributable to
Subordinate and Multiple Voting Shares5 Non-IFRS and supplementary
financial measures – more information at the end of this report6
Non-IFRS and supplementary financial measures – more information at
the end of this report7 Net earnings or loss refer to net income or
loss attributable to Subordinate and Multiple Voting Shares8
Non-IFRS and supplementary financial measures – more information at
the end of this report9 Net earnings or loss refer to net income or
loss attributable to Subordinate and Multiple Voting Shares10
Non-IFRS and supplementary financial measures – more information at
the end of this report11 Net earnings or loss refer to net income
or loss attributable to Subordinate and Multiple Voting Shares
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