Velan Q2 2024 Earnings Call Transcript

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Provided by Quartr
October 6, 2023

There are 4 speakers on the call.

Operator

Greetings, and welcome to the Veron Inc. Q2 of Fiscal Year 20 24 Financial Results As a reminder, this conference is being recorded on Friday, October 6, 2023. I would now like to turn the conference over now to Rishi Sharma, Chief Financial Officer. La Parol Taboo, please go right ahead.

Speaker 1

Thank you, Nancy. Bonjour, hello, everyone. Thank you for joining our conference call. Let's start by discussing the disclaimer from our Investor Relations presentation, which is now available on our website in the Investor Relations section. As always, the first section mentioned that the presentation provides an analysis of our consolidated results for the quarter ended August 31, 2023.

Speaker 1

The Board of Directors approved these results yesterday, October 5, 2022. The second paragraph refers to non IFRS and supplementary financial measures, which are defined and reconciled at the end of this presentation. Finally, the last paragraph forward looking information, which are subject to risks and uncertainties and are not guarantees. The forward looking statements contained in this presentation are expressly qualified by this cautionary statement. I will now pass it over to Bruno Carbonaro, I will now pass it over to Bruno Carvedano, CEO of DelMar.

Speaker 2

Thanks, Richie, and hello, everyone. So now we will report our key highlights for the Q2 of our fiscal year 2024. First of all, we report sales of €18,300,000 which is an improvement of about 20% versus the Q1 of the year and a large decrease of €4,700,000 or 5.6% versus the Q2 of last year. It translated to a €3,000,000 EBITDA, which is €1,600,000 higher than the EBITDA on the 2nd quarter of the last fiscal year. Most of the explanation is due to the change When this accounts for our adjusted liabilities, we need to notice that this This translates into a EUR 2,100,000 net loss for the quarter.

Speaker 2

We were able also to maintain our backlog at the higher level at EUR 485,700,000. It's an increase since the beginning of the year of €21,300,000 partially explained by the revision of the We enjoy a very nice Cash position on our balance sheet, we have a very large balance sheet. We have a net cash position of €39,400,000 And at the end of the quarter, despite the decrease of €19,300,000 during the quarter due to the preparation for the projected ramp up of our operations in Q3 and Q4 of the year. Last but not least, I wanted to share with you the fact that as a result of Flowserve not obtaining the required on October 7 this year. I now pass on back the line to Michel to navigate you on some

Speaker 1

Thank you, Bruno, and hello again, everyone. I'll quickly start by saying indeed the disappointing outcome to the intended transaction. And as we all very well know, these things are never closed until there. We are very thankful to our teams who worked tirelessly on the transaction as well as managing our day to day business, ensuring quality and timely deliveries to our customers. We will now only look forward and not back.

Speaker 1

Our focus going forward remains fully on executing our strong backlog $485,700,000 of which $339,000,000 is shippable in the next 12 months giving us comfort on our projected revenue streams. The total backlog increased by $21,300,000 or 4.6 percent since the beginning of the fiscal year. The increase in backlog is primarily attributable to changes in the profile of scheduled backlog shipment dates. Our book to bill ratio of 1.1 for the half year was driven in part by changes to the profile of the backlog delivery dates as well as the securing of $71,500,000 of new orders in the 2nd quarter or $163,000,000 year to date. We continue to see stability in the euro to unithy spot rate, which resulted in a positive revaluation of our strong euro denominated backlog by 6.5 Now we will look at our sales.

Speaker 1

Sales amounted to $80,300,000 for the quarter, decreasing by $4,700,000 or 5.6 percent compared to the same quarter last year. However, an increase $13,000,000 or 18.6 percent from the Q1 in the current fiscal year. If we compare the year over year decrease in sales, It is primarily attributable to lower shipments of large orders by our Italian operations due to a reduction of these orders booked in the previous fiscal year. The decrease in sales for the quarter was also caused by delays on service shipments caused by customer or U. S.

Speaker 1

Issues. Otherwise, the decrease was partially offset by the positive impact and strengthening of the euro average rate against the U. S. Dollar on sales, which amounted to $2,100,000 for the quarter compared to the last fiscal year. Finally, sales for the quarter were also positively impacted by favorable revaluation provisions for performance guarantees, which are no longer payable and volume rebate accruals.

Speaker 1

We will now look at profitability. EBITDA amounts to $3,000,000 or $0.14 per share compared to $1,400,000 or $0.06 per share last year and also an increase of approximately $6,800,000 compared to the Q1 of the current fiscal year. The favorable movement in EBITDA for the quarter primarily attributable to a decrease in administration costs, partially offset by an increase in other expenses. If we look at administration costs, They announced it to $22,600,000 for the quarter, a decrease of $2,100,000 or 8.5 percent. The decrease in cost for the quarter primarily attributable to the recording in the last quarter of the previous fiscal year of an asbestos provision related to potential settlement values of future unknown claims.

Speaker 1

Settlement expense amounted to $3,100,000 in the Q2 of fiscal 2023. The decrease in administration costs for the quarter is also lower due to outbound freight costs, which have now stabilized and sales commissions in relation to the lower sales volume. Finally, the was partially offset by a general increase in the cost. The increase in other expenses is mainly due to an adjustment of a provision related to logistic Gross profit for the year was relatively stable at $23,500,000 versus 23,400,000 but the gross profit percentage improved by 150 basis points from 27.6% to 29.1%, which highlights our continued focus on strong execution of our backlog and the efficiency initiatives related to cost control. On the absolute value of gross profit, the slight decrease in gross profit for the quarter is primarily due to the lower sales volume, which impacted the absorption of fixed production overhead costs as well as the unfavorable unrealized foreign exchange translations related to the fluctuation of the U.

Speaker 1

S. Dollar against the euro and the Canadian dollar when compared to similar movements from the previous year. The decrease in gross profit for the quarter was offset by an improved product mix as well as favorable revaluations of our provisions for performance guarantees and volume rebates.

Speaker 2

We will now move Cash and liquidity.

Speaker 1

To start, our net cash and overall liquidity position remains strong at $39,400,000 122,000,000 respectively. Our net cash did decrease by $19,300,000 since the beginning of the quarter, driven mostly by a free cash flow usage of 22.8 $1,000,000 The unfavorable movement in cash used by operating activities for the quarter is primarily attributable to unfavorable movements in non cash working capital items, partially offset by an increase in EBITDA. The negative non cash working capital item movements for quarter ended August 31, 2023 consisted primarily of an increase in accounts receivable, primarily due to the higher proportion of sales that occurred later in the quarter. An increase in inventories in reaction to the delivery schedule of certain large orders and a decrease in AP and accrued liability due to the timing of payments primarily related to the previously purchased inventories for ongoing future discussions. With the current working capital profile, the company is now preparing for projected ramp

Speaker 2

up in Q3 and Q4.

Speaker 1

I will now pass it back to Bruno for his closing comments before we move to the Q and A session. Thank you.

Speaker 2

Thanks, Rishi. A couple of comments before opening the floor for questions. We show at the Q2 of 2020 4 an improvement versus not only the Q1 of the year, but also in terms of results of the Q2 of last year. We are now fully focused On the ramp of CapEx purchases for the second half of the year, we will continue to manage our business at the same time as we are working on a strong pipeline of commercial opportunity. We'll also be very disciplined in the way we are managing our working capital with an increased collection of cash on our total receivables and reducing inventory due to the investment shipments.

Speaker 2

We see a lot of new opportunities in new markets I should say that we are extremely disappointed by the outcome of the Internet generation in sports news. And it's time for us now to revisit our corporate strategy to ensure that we can maximize the value creation for the shareholders.

Speaker 1

I now open the floor to questions.

Operator

Our first question comes from the line of Steven Tecnassy, Nephros Asset Management. Go right ahead.

Speaker 3

Yes. Hi, Bruno and Rishi. Yes, very disappointing outcome. I know partly beyond your control. So I gather that there'll be other Alternatives to look at to maximize shareholder value.

Speaker 3

Can you sort of Give us an idea of why the transaction was blocked by the French government and what sort of strategy going forward The company might pursue to maximize shareholder value. And if in the meantime, a share buyback wouldn't be a smart thing to do.

Speaker 1

Yes. Hi, Steven. So on the first question, Wilfrig for FOLFIRRI, Foster, obviously, was the He was the lead for obtaining all regulatory approvals. So it was their filing with the French government managed with our support. As communicated by the representative of the French Ministry today and yesterday, there were certain risks that the French government understood would come with the transaction taking over and their response was that those risks are not fully addressed.

Speaker 1

I mean, that's the most I could say to help with the feedback that we've The French Minister of Economy's office. 2, absolutely, I mean, we are already moving. We're going to look at What other strategies we have? I think we need to focus on the business fundamentals. Post the $500,000,000 backlog is still very solid and stable for us.

Speaker 1

We have a lot of opportunities in the pipeline for this. So our strategy is going to focus around refocusing our attention on the business, the execution and and some of the opportunities we have there. 3, share buyback subject to board approvals and Looking at the different options, I think everything is well and could be considered. At this time, though, however, we do have nothing to confirm or to indicate that, that is immediate plan, bearing in mind that the announcement of the transaction being refused was just yesterday.

Speaker 3

I know they're now on 75%, correct me if I'm wrong. And the family or the employees own the other 25% of the founder. So was it strictly that operation that was the objection? And

Speaker 1

How big of a division or subsidiary

Speaker 3

is that in the scheme of the whole company?

Speaker 1

Yes. So first on the Seguin minority interest, as part of our subsequent event notes and the financial statements, See that we repurchased the 25% minority stake. So that transaction was closed post Q2 closing. So Valan is now 100 percent equity owner of the Sebo business. 2, if you look on the presentation of our on the investor presentation, you'll see that the French business in total represents Quarter 30% of the overall business of Bellarm Inc.

Speaker 1

And that fluctuates from quarter to quarter depending on the So it's about 25% to 30% when we look at the total.

Speaker 3

Of the top line?

Speaker 2

Top line, yes.

Speaker 3

Okay. And so what was the purchase price of the 25%? What sort of multiple was paid on that?

Speaker 1

So if you recall it, it was not multiple based. It was based on an agreement in place on the acquisition of CIBO by And it was equity movements, so propelling movements that gave total purchase price of the 25% to about 4,600,000 So the valuation on CIMO based on that approach, both on approach variations.

Speaker 3

So it wasn't based really on results?

Speaker 2

Well, I mean, the

Speaker 1

equity value that moved through historical results, yes, but future loan falls and all that was 5% for

Speaker 3

Okay. And when was that buyout complete exactly?

Speaker 2

I believe it was September 10,

Speaker 1

2018. We have announced it in Q1 as a subsequent event that the option is exercised the put option is exercised for us to buy back at the stake and it was closed basically 15 days ago, so from 18th September.

Speaker 3

Right. Okay. So was that option exercised in the context of trying to get a deal done?

Speaker 1

No, I think it's unrelated.

Speaker 3

Sorry?

Speaker 1

Unrelated.

Speaker 3

Unrelated, okay. And did you disclose the price for the amount for the 25%?

Speaker 1

Yes, it's in the notes.

Speaker 3

All right. So but again, I gather the French government has no objection to the FELA is still Controlling it, there was more an American thing, if I understood correctly.

Speaker 1

Yes. Again, we control SAS, we control, say, both the flow serve application was what was rejected. So I only know There

Speaker 3

were rumors at one point that private equity was looking at buying Sego. Is there an attempt to Sell it on a separate basis to the highest bidder, obviously, it would have to be a French company.

Speaker 1

I don't think we're there yet. I mean, like we discussed just earlier, when we look at the strategy for growth and maximizing value, So anything can come back on the table, but or present itself on the table. I won't comment on anything.

Speaker 3

Right, So I gather, so the emphasis is obviously a focus on continuing to improve the operations and the margins, etcetera, etcetera. And also possibly look at other ways of maximizing shareholder value should they present themselves.

Speaker 1

Yes. And one thing I'll add is when you go through due diligence as comprehensive as we did, as we disclosed in the circular, Learn also a lot about the company and where there's opportunities to improve and become more efficient. The direction and the objective obviously was the close transaction That didn't work. So now we can take a lot of what we learned about the company and try to put actions in place to be better.

Speaker 3

Right, right. Okay. All right. Thank you very much.

Speaker 2

We

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Earnings Conference Call
Velan Q2 2024
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