Velan Q4 2023 Earnings Call Transcript

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May 18, 2023

There are 3 speakers on the call.

Operator

Greetings, and welcome to the Valen, Inc. Q4 Financial Results Conference Call. As a reminder, this conference is being recorded Thursday, May 18, 2023. I would now like to turn the conference over to Josef Nedman Laperol

Speaker 1

Hi, everyone. Bruno Caboneros speaking. Thanks for joining our conference call today. Let's start with the usual disclaimer. The first section of the disclaimer mentions that the presentation provides an analysis of our consolidated results for the quarter ended February 28, 2023.

Speaker 1

The board approved these results yesterday on May 17, 2023. The second paragraph refers to non IFRS' explanatory financial results, which are reconciled at the last page of this presentation. Finally, the last paragraph refers to forward looking information, which are subject to risks and uncertainties and can't be guaranteed. The forward looking statements contained in this presentation are expressly qualified by discretionary statements. Now Let's proceed with the call.

Speaker 1

Welcome to our Q4 fiscal year 2023 conference call. I am joined today by Rishi Sharma, our CFO. This presentation will be made available shortly on our website in the Investor Relations section. I will start with a brief summary of our results. Then I'll pass the baton to Richie, who will further develop key different items.

Speaker 1

And then I will close with my closing comments. Please note that as mentioned at the beginning of the call, we will not be taking questions at the end of the call today. Let's have a look at our key highlights for the fiscal year 2023 Q4. We record sales of $115,100,000 Which is an improvement of EUR 19,900,000 and 20.9 percent versus the Q3 of the same fiscal year. However, it's a decrease of €9,700,000 versus the Q4 of fiscal year 2022.

Speaker 1

This and you should notice that last year, quarter 4 included a reversal of provision for performance guarantees that didn't occur this year. We reported a net loss For the quarter of €47,200,000 or $2.80 per share compared to a loss of €25,600,000 $1.19 per share last year. The net loss for the quarter is significantly impacted by a $56,000,000 charge to increase our asbestos provision to reflect the potential settlement value of future annual claims based on the macularial study. Vishnu will discuss more in detail the reasons for the increase of the asbestos provision later in the call. We report an adjusted net income for the quarter of 8,800,000 or $0.41 per share compared to 7,000,000 or per share last year.

Speaker 1

During the quarter, we generated $20,900,000 of net cash Our operating activities. Our net cash amounted at the end of the period to €50,300,000 a decrease of €3,200,000 or 6% compared to the previous fiscal year. The overall available liquidity remains strong with EUR 140,900,000 of available cash on hand and facilities. Finally, the board elected yesterday to declare a $0.03 per share dividend payable on June 30 to all shareholders of record at June 16. I now turn over the mic to Rishi, will come in more in detail at our performance.

Speaker 2

Thank you, Bruno. Good morning, everyone. Starting with the backlog, total backlog decreased by $36,900,000 or 7.4 percent since the beginning of the fiscal year amounted to $464,300,000 as at February 28, 2023. The reduction of the backlog is primarily due to the weakening of the euro spot rate against the U. S.

Speaker 2

Dollar since the beginning of the fiscal year, which represented 17,300,000 The lower than 1.0 book to bill ratio also caused a reduction in the backlog for the fiscal year. And it is important to note that the significant and sales activity for Q4 at $150,000,000 was also a partial reason for the overall reduction in the backlog. It's important to note that within 12 months, our backlog that needs to be shipped is relatively stable from last quarter of last year. Bookings for the quarter amounted to $87,100,000 an increase of $10,000,000 or 13%. The weakening of the euro average rate against the dollar on order bookings for our European operations resulted in a negative impact $3,600,000 in the 4th quarter compared to prior year.

Speaker 2

The increase in the quarter on bookings is attributable to Higher order intake in both our French and German subsidiaries, mostly related to the nuclear market, partially offset by lower bookings in our Italian operations, notably in notably in terms of downstream oil and gas orders.

Speaker 1

If we look at sales For

Speaker 2

the quarter, amounted to $115,000,000 or an increase from the previous quarter of $19,900,000 or 20.9 percent. This continues to show the ramp up quarter over quarter and a strong finish to the second half of the year relative to the softness started in the first. The sales volume does also reflect a decrease of $9,700,000 or 7.8% compared to the last quarter of the previous year. The weakening of the euro average rate against the U. S.

Speaker 2

Dollar had a negative impact of $3,800,000 on our sales compared to last quarter last year. Sales for the quarter were also negatively impacted by decreased shipments by Italian operations on orders destined to the oil and gas markets. Our sales in the previous Q4 were also positively impacted by a reduction of our provision on performance and liquidated damage guarantees of 8,800,000 Finally, we've seen activity increase in the MRO business, which offset some of the decreases, mostly in the North American operations. If we look at EBITDA, let me start by mentioning The asbestos adjustment that we've taken for the quarter. Throughout several quarters, historical quarters and over the last several years, As we've seen, asbestos costs have shown an increasing trend.

Speaker 2

As you are aware, during our strategic process, And throughout the Q4 of the fiscal year, we were able to better estimate the impact of unknown asbestos settlement costs. This is a result of the information we obtained during the process and during the Q4. The result of this revaluation led to a non recurring one time charge of US56 $1,000,000 to increase our asbestos provision related specifically to settlement and indemnity costs. This provision increase does not relate to legal and defense costs related for those claims. Adjusted EBITDA for the quarter amounted to 16.5 or $0.76 per share compared to $16,600,000 or $0.77 per share last year.

Speaker 2

The slight decrease in adjusted EBITDA for the quarter is primarily attributable to a decrease in absolute gross profit, higher other expenses and a 4.6 million recurring gain after minority interest on the disposal last year of our investments in the G1 Steel Company. These negative movements in adjusted EBITDA were almost entirely offset by a reduction in administrative costs, excluding the previously discussed $56,000,000 adjustment to our asbestos program. If we look at gross profit, If we look at gross profit, gross profit for the quarter amounted to 39,900,000 an increase from the previous quarter of $11,000,000 or 37.9 percent, but a decrease of $7,800,000 or 16.3 percent compared to the last quarter of previous year. The gross profit percentage for the quarter of 34.7% was a decrease of 3 50 basis points compared to last year's final quarter. The gross profit percentage was negatively impacted by the favorable revaluation of the provision for the performance guarantees I just spoke about in the prior year.

Speaker 2

The decrease in gross profit percentage for the quarter is primarily attributable to the lower sales volume, which impacted the absorption of fixed production overhead costs. Additionally, our gross profit benefited from a favorable revaluation of our inventory provision based on new estimates relating to changes in market demand foreign exchange movements when compared to several movements similar movements from the prior year, which were primarily made up of unrealized foreign exchange translations related to the fluctuation of the U. S. Dollar against the euro and the Canadian dollar. The increase in other expense is primarily attributable to the recording of a 1,800,000 other provisions related to a commodity tax audit.

Speaker 2

Administration costs in the prior year included $13,100,000 charge increase the asbestos provision to account for all known renovations rather than for only settled amounts. Looking at the chart above the presentation, you've seen that administrative costs, excluding asbestos, were about $1,000,000 lower than the prior year's final quarter, showing the improvements that we put in place to offset and mitigate the asbestos cost that we experienced and reducing our administrative costs overall for the company. Moving on to cash, very strong quarter for us. We're very pleased with the results. Our net cash amounted to $50,300,000 at the end of the quarter, an increase of $20,900,000 or 71.4 percent compared to the previous quarter of the fiscal year.

Speaker 2

The increase is primarily due to the strong free cash flow generated for the quarter, which was highlighted by a healthy EBITDA and solid non cash working capital movements, mainly related to inventory. This $50,300,000 is a strong security for us as we enter into the ramp up quarters of Q1, Q2 of the new fiscal year. With that being said, I'll pass it back over to Bruno for closing comments and key priorities as we progress.

Speaker 1

Thanks, Ricky. My final comments are as follows. First, Our current backlog offers us a good visibility for the future. We are also working on a large space of commercial opportunities in various regions of the world. We continue to focus our efforts on the flawless and rigorous execution of our contracts.

Speaker 1

Our ultimate goal is to preserve our cash base and our strong liquidity. And last but not least, we continue to work with Flowserve to ensure the successful closing of the transaction announced earlier this year. Thanks for your attention.

Operator

That does conclude the conference call for today. We thank you for your participation and ask that you

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Velan Q4 2023
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