Annual report 2022
2022 Velan highlights
The operational team in Granby, Canada in front of two 20" Class 2500
metal-seated ball valves, part of a major order for an ebullated bed project.
Weighing approximately 15 tons each, the valves are the largest and
heaviest Securaseal® ball valves in terms of size and pressure class ever
designed, assembled, and tested in North America.
48 Cryogenic angle and straight regulating
globe valves installed in a liquid hydrogen
production plant located on the west coast
of the United States and manufactured by
Velan S.A.S., in France.
Velan Valves India’s cell manufacturing layout improves operational efficiency by reduced use of operational space, optimized
time usage, and overall equipment effectiveness.
Cover photo: 20" Class 2500 three-piece forged bolted body high pressure compact
ball valve installed in a floating production storage and offloading (FPSO) unit in
offshore service. Velan ABV has shipped over 7,000 valves in the last year.
Sales
Sales
2022 Financial highlights
Fiscal year ended February 28, 2022
Net income (loss) and EBITDA
Net income (loss)(2) and EBITDA(1)
(in millions of U.S. dollars)
(in millions of U.S. dollars)
450
400
350
300
250
200
150
100
50
0
2018
Consolidated
Overseas
U.S.A.
Canada
50
40
30
20
10
0
(10)
(20)
(30)
2018
2018
2019
2019
2020
2020
2021
2021
2022
2022
2019
2020
2021
2022
Net income (loss)(2)
EBITDA(1)
(in thousands of U.S. dollars, except per share amounts and number of employees)
Years Ended
Chiffres d’affaires
Feb 2022
Feb 2021
Feb 2020
Résultat net (perte nette) et BAIIA
Feb 2019
Feb 2018
Income statement data
Sales
Gross profit
Gross profit %
(en millions de dollars américains)
450
$411,242
134,969
32.8%
$302,063
80,539
26.7%
50
$371,625
88,134
(en millions de dollars américains)
23.7%
$366,865
85,595
23.3%
$337,963
70,861
21.0%
400
Administration costs
350
Income (loss) before income taxes
300
EBITDA(1)
250
EBITDA(1) %
EBITDA(1) per share
200
150
Net income (loss)(2)
100
Net income (loss)(2) %
Net income (loss)(2) per share(3)
50
Consolidé
Outre-mer
États-unis
113,039
36,176
39,599
9.6%
1.83
(21,141)
-5.1%
(0.98)
Canada
10
40
80,091
30
1,375
15,573
20
5.2%
0.72
0
2,867
0.9%
0.13
(10)
(20)
2018
2018
2020
0
Statement of financial position data
2018
2019
Net cash
Working capital
Property, plant and equipment
Total assets
Total long-term debt
Equity
Number of employees
Canada
United States
Europe
Asia
Total
2021
2022
$53,465
257,480
73,906
508,428
31,038
265,510
581
105
573
399
1,658
(30)
$62,953
249,686
96,327
580,833
58,091
300,221
546
109
557
469
1,681
85,189
(8,058)
6,522
1.8%
0.30
(16,390)
2019
2019
-4.4%
(0.76)
93,336
(7,695)
7,087
1.9%
0.33
(4,882)
-1.3%
(0.23)
2020
2020
2021
2021
Résultat net (perte nette)(2)
BAIIA(1)
$31,010
174,811
98,179
538,496
19,297
284,861
619
123
546
491
1,779
$40,866
207,777
83,537
524,357
21,851
308,833
716
140
522
481
1,859
87,713
(18,512)
(4,376)
-1.3%
(0.20)
(17,811)
2022
2022
-5.3%
(0.82)
$64,543
215,639
89,864
540,193
22,129
321,617
732
146
489
463
1,830
(1) Non-IFRS and/or supplementary financial measures – more information at page 84 of this annual report.
(2) Net income or loss refers to net income or loss attributable to Subordinate and Multiple Voting Shares.
(3) See note 20 in the Notes to the Consolidated Financial Statements.
1
Message from the Chair of the Board
Fiscal year ended February 28, 2022
Dear Shareholders,
My second year as chair of the board of Velan saw the company
produce truly impressive results, delivered in very demanding market
conditions. Not only were profits from operations outstanding but the
company’s improved cash flow enabled a sizable paydown of debt.
Our focus for this next year is on continuing our good momentum.
A company that can respond in such a way during the second
year of a pandemic should inspire confidence in its future and
deserves recognition. I’d like to begin then by recognizing the immense efforts of my colleagues around the world.
They achieved these remarkable results in an unprecedented global upheaval that had economic and social
consequences unseen in generations: remember that we are located in areas that were not spared the full force of
the covid pandemic – Italy, France, India, to name a few. I’m proud of our health and safety record during this time.
While doing this extraordinary work, we took care of one another. That says something important about our culture
across our global sites.
James A. Mannebach
Chair of the Board
Within this challenging context, our execution on our V20 transformation commitment improved sales, profitability
and cash flow, and set the base for future improvements in the three pillars of this program: strategic business units,
manufacturing footprint, and modernizing systems and process.
Our 5 customer-facing strategic business units, established in 2019, are ready to take a next step in growth beyond
their objectives as autonomous entities, towards a more collaborative global approach to customer needs. This year,
the combination of a resurgence of our core markets and our improved focus in our project businesses (among
others, navy and nuclear) exploited both our significant installed base and our highest quality products. In the coming
years, the combined strength of these business units will benefit from our extraordinary positioning in international
markets, including China. Continued integration and focus in select, strategic regions is critical for us to keep
our momentum.
This momentum also relies on the two other pillars of V20. We will continue to optimize global supply chain, which has
been tested by the pandemic, and our global manufacturing footprint. This is critical to maintain competitive costing
and compete in all strategic markets. As our business systems evolve and modernize, our speed and effectiveness
of decision making in the quotation process, pricing and quotations systems, and our project management, planning
and delivery systems, will complement the momentum generated by our business units.
2
Message from the Chair of the Board
Fiscal year ended February 28, 2022
This year also saw a leadership transition at Velan. Bruno Carbonaro, who had been President, assumed the title of
CEO on December 1, 2021, succeeding Yves Leduc, who had been the first non-family member to lead the company.
I would like to thank Yves for his transformational leadership over the seven years he was with the company. Our
success this year was enabled by his guidance of the company through some of its most challenging times, specifically
in our North American operations, helping us to emerge stronger and ready for the future.
Bruno is imminently qualified to take us to our next phase of development as a company, and he has my full support.
At the start of the fiscal year, he introduced an evolution of the global leadership team by adding senior roles that
would allow him to assume a truly global, strategic role. These roles include both regional leaders and a new position
in international operations, which will be held by Rob Velan, who will facilitate the essential relationship between our
international operations entities across Asia and Europe, and our five strategic business units.
In closing, I would again like to thank our colleagues around the world for your dedication, commitment and care in
these challenging times. Your passion for our shared work will set an example for us as we endeavor to maintain this
hard-fought momentum. I also thank two board members who will be stepping down from their responsibilities: Robert
Raich made a positive impact in his short time with us, and his contributions are much appreciated; William Sheffield
has been a board member at Velan since 2004 – acting as a trusted advisor to the Velan family while occupying
different Director roles, including Lead director when Tom Velan was Chair – whose impact over nearly twenty
years of service has been significant. On behalf of everyone at Velan, Bill, thank you. Finally, to our shareholders,
we are grateful for your continued support. These results speak to the benefits of the transformational effort you
saw us through. The momentum we have generated reinforces our confidence as we anticipate and welcome
Velan’s next step.
James A. Mannebach
Chair of the Board
3
Message from Chief Executive Officer and President
Fiscal year ended February 28, 2022
Important facts and numbers
•
$411 million in sales, best since FY16
• Gross profit of 32.8%
• EBITDA(1) 39.6M
• Backlog(1) over 500M
(In U.S. dollars, unless otherwise stated.)
The results Velan achieved this year are both strong and
promising, as they clearly point Velan in a positive direc-
tion. We are entering a new phase in the company’s
evolution. These are exciting times.
Coming from a long line of engineers and entrepre-
neurs, I both respect and understand what it means to
live and succeed in an entrepreneurial environment and
family. Before we discuss this past year, allow me to say
how truly honoured I am to be appointed by the Board of
Directors and the Velan Family to succeed Yves Leduc
Two 24" Class 2500 gate valves in Velan Valves (Suzhou)
plant to be installed in a refining and petrochemicals complex
in China. The project was a team effort with collaboration
between our plants in China, Korea, Italy, and Canada.
Bruno Carbonaro
Chief Executive Officer and President
as the company’s second non-family member Chief
Executive Officer. Being from outside of North America,
my appointment also sends the positive message that
the next phase in our company’s journey will be about
embracing a global mindset, and championing a culture
in which leaders, business units, manufacturing entities
and individuals can contribute from all over the world.
I take the helm of a company whose sales levels returned
this year to our 2016 performance levels, which spurred
a significant improvement in our gross profit (32.8%)
and our EBITDA, which more than doubled to 39.6M.
Our backlog reduced but remains healthy at 501M$.
The company also reduced its debt load by more than
half. Several factors external to the company’s operating
health contributed to an overall loss, which is discussed
in this report in greater detail. This, however, should
not overshadow the message that Velan has emerged
stronger from the pandemic. We managed short term
setbacks while consolidating our strengths, corrected
structural issues and built a strong leadership team,
which is prepared to take our next step.
This next step will involve stabilizing our business
performance, shifting our approach from a transforma-
tional mindset to one of steady improvements, learning
to coordinate even more effectively between our busi-
ness units, and continuing to turn our minds to stra-
tegic growth opportunities to be found in new regions,
new technological innovations, or new partnerships.
(1) Non-IFRS and/or supplementary financial measures – more information at page 84 of this annual report.
4
Message from Chief Executive Officer and President
Fiscal year ended February 28, 2022
This past fall, Velan’s plant in Lisbon Portugal welcomed former Velan CEO Yves Leduc and current Velan CEO,
Bruno Carbonaro at their facilities.
The future can already be seen in two actions Velan
undertook this year, for which all employees should be
proud (sidebar).
to our
The adjustments we have recently made
leadership structure follow in the same line as these two
achievements. The creation of three senior leadership
roles, one in North America, one in Europe, one for
International Operations, all reporting directly to the
CEO, and partnered with the CFO and Executive Vice-
President, Human Resources and General Counsel,
Corporate Secretary, make a senior leadership team that
will collaborate with a global mindset first. All business
units, operations and corporate functions will report into
one member of the senior team or the CEO.
This organizational structure is also agile and scal-
able, built to respond to future challenges, including the
consolidation of the valve industry and the significant
adaptations that will be called for in the energy sector in
the coming years. In short, while we are intent on stabi-
lizing our performance in FY23, we are poised to move,
adapt and grow.
We are at this place in no small part due to the leader-
ship Yves Leduc, who stepped away from his role as
CEO December 1, 2021, after seven years as the first
non-family member to lead Velan. While facing a rapid
evolution of our markets, Yves led the company through
a major transformation that succeeded in addressing
structural issues, revamping our business approach into
• Global cooperation: Velan delivered a large,
complex project order in China, which showed
our capacity to mobilize and coordinate several
different business units and manufacturing enti-
ties around a shared objective
• Technical innovation: Velan again showed its
world class innovative capabilities through our
leading-edge product solutions, with the expan-
sion of our ebullated bed product range and the
development of a very complex 34-inch gate
valve from our Severe service business unit
five distinct and successful business units, and creating
a solid global manufacturing footprint. On behalf of the
company, I thank him for his significant contribution to
our current and future success.
In conclusion, these are exciting times indeed at Velan.
Our performance in a year filled with significant chal-
lenges should provide us confidence as we move ahead.
I look forward to working with all my colleagues around
the world as we take our next step together.
Bruno Carbonaro
Chief Executive Officer and President
5
6
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fiscal year ended February 28, 2022
7
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
FISCAL 2022 HIGHLIGHTS1 AND OUTLOOK ON 2023
(thousands)
Operating data
Sales
Gross Profit
Net income (loss)2
Adjusted net income (loss)3
EBITDA3
Net income (loss) per share – Basic and Diluted
Adjusted net income (loss) per share – Basic and Diluted
Balance sheet data
Total assets
Total Long-Term Financial Liabilities
Shareholder Data
Cash dividends per share
- Multiple voting shares
-
Subordinate voting shares
Outstanding Shares at reporting date
- Multiple voting shares
-
Subordinate voting shares
For the reporting periods ended on
February 28,
2022
February 28,
2021
February 29,
2020
411,242
134,969
(21,141)
11,462
39,599
(0.98)
0.53
302,063
80,539
2,867
2,867
15,573
0.13
0.13
371,625
88,134
(16,390)
(16,390)
6,522
(0.76)
(0.76)
508,428
28,658
580,833
56,443
538,496
19,609
-
-
-
-
0.09
0.09
15,566,567
6,019,068
15,566,567
6,019,068
15,566,567
6,019,068
Sales for the year amounted to $411.2 million, an increase of 109.2 million or 36.1% compared to the previous
fiscal year. The sales volume for the fiscal year represents the highest level achieved since fiscal 2016.
Gross profit for the year of $135.0 million, or 32.8%, an increase of $54.4 million or 67.6% from the previous year.
The gross profit percentage for the year increased by 610 basis points from 26.7% to 32.8%. The gross profit
increase is first and foremost driven by the significantly increased sales volume. The improvement in gross profit
is also attributable to a more profitable product mix, margin improvement activities undertaken over the past fiscal
years in the scope of the V20 restructuring and transformation plan and a significant adjustment made to sales
(see Results of operations section).
The Company declared an eligible quarterly dividend of CA$0.03 per share based on its strong cash position at
the end of the quarter.
EBITDA3 of $39.6 million for the fiscal year. Adjusted net income3 and EBITDA3 more than doubled compared to
last year. The improved results were achieved despite receiving $11.1 million less Canada Emergency Wage
Subsidies («CEWS»).
Net loss2 of $21.1 million for the year compared to a net income2 of $2.9 million last year. Adjusted net income3
of $11.5 million.
1 All dollar amounts are denominated in U.S. dollars.
2 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
3 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
8
9
Management’s Discussion and Analysis Fiscal year ended February 28, 2022 Order backlog1 of $501.2 million at the end of the fiscal year, of which 64.2% of orders are deliverable within the next 12 months. Prior year order backlog totaled $562.5 million and included 60.2% of orders deliverable in the next 12 months. Net new orders (“bookings”)1 of $363.5 million for the year, a decrease of $63.1 million or 14.8% compared to the previous fiscal year. Fiscal 2021 was a stellar year in terms of bookings3 as the Company recorded significant nuclear and oil and gas orders. Fiscal 2022 bookings1 are nonetheless higher than the $340.4 million achieved in fiscal 2020. During the fiscal year, the Company used its net cash to reduce its debt load1, consisting of bank indebtedness and long-term debt, by more than half from $69.8 million to $31.6 million. The Company’s net cash amounted to $53.5 million at the end of the quarter, a decrease of $9.5 million or 15.1% compared to the previous fiscal year. 1 Non-IFRS and supplementary financial measures – additional specifications at the end of this report Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Outlook
Fiscal 2022 symbolized a new beginning for the Company with the naming of a new President and CEO, Bruno
Carbonaro, who quickly highlighted that the focus should remain on corporate strategy development and growth. The
Company also announced the completion of its ambitious V20 plan that yielded much improved results in the current
fiscal year. The plan, which represents the most important change in the Company’s history, was successfully
executed by a cross-functional team of experts and impacted mostly the Company’s North American and Indian
operations. The Company was able to deliver a solid performance in fiscal 2022 amid a pandemic context that came
with many challenges. Otherwise, at the mid point of the year, MRO sales started to pick-up as predicted at the
beginning of the fiscal year when signs of recovery for this segment had been identified. The demand in the
Company’s MRO and aftermarket segments are currently at pre-coronavirus (“COVID-19”) levels. The Company now
turns its attention to fiscal 2023 where a similar backlog, especially the portion shippable in the next year, needs to
be produced and delivered. The Company aims at building on the momentum achieved this year while working on
ways to mitigate the current supply chain constraints. Finally, the Company will continue to closely manage its working
capital, most importantly its accounts receivable and inventories.
Management continues to closely monitor the global situation surrounding the war in Ukraine, which has delayed
certain significant projects, and the COVID-19 pandemic, as well as taking proactive steps to ensure the well-being
and safety of its employees and the continuity of its operations and businesses. Furthermore, as Management
believes that the strength of its financial position would allow the Company to counter certain risks, there can be no
assurance that external outside economic and geopolitical factors will not materially adversely affect the Company’s
results of operations or financial condition. Such factors include, but are not limited to foreign currency fluctuations,
in particular the Canadian dollar and the euro against the U.S. dollar, commodity price fluctuations from both a
procurement (price of steel) and sales (price of oil) perspective. See Certain Risks That Could Affect Our Business
section for more details.
10
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
The following discussion provides an analysis of the consolidated operating results and financial position of Velan
Inc. (“the Company”) for the fiscal year ended February 28, 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 May 18, 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 and are included in
this report (see Certain Risks That Could Affect Our Business section). 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 1,658 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.
11
12
Management’s Discussion and Analysis Fiscal year ended February 28, 2022 RESULTS OF OPERATIONS (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the prior fiscal year) Three-month periods ended Fiscal year ended (thousands) February 28, 2022 February 28, 2021 Variance February 28, 2022 February 28, 2021 Variance Sales $124,849 $85,510 39,339 $411,242 $302,063 109,179 Gross profit 47,723 23,072 24,651 134,969 80,539 54,430 Administration costs 38,848 24,180 14,668 113,039 80,091 32,948 Restructuring and transformation costs (income) - 1,290 (1,290) - (3,930) 3,930 Income taxes 38,303 (2,311) 40,614 46,431 (822) 47,253 Net income (loss)1 (25,590) 338 (25,928) (21,141) 2,867 (24,008) Adjusted net income2 7,013 338 6,675 11,462 2,867 8,595 EBITDA2 16,592 1,648 14,944 39,599 15,573 24,026 Bookings2 77,097 80,932 (3,835) 363,451 426,595 (63,144) Period ending backlog2 of orders 501,224 562,493 (61,269) (as a percentage of sales) Gross profit 38.2% 27.0% 1,120 bpts 32.8% 26.7% 610 bpts (in dollars per share) Net income (loss)1 per share – basic and diluted (1.19) 0.02 (1.21) (0.98) 0.13 (1.11) Adjusted net income2 per share – basic and diluted 0.32 0.02 0.30 0.53 0.13 0.40 EBITDA2 per share – basic and diluted 0.77 0.08 0.69 1.83 0.72 1.11 Backlog2 As at (thousands) February 28, 2022 February 28, 2021 February 29, 2020 Backlog2 501,224 562,493 406,811 For delivery within the next twelve months 321,860 338,458 257,524 For delivery beyond the next twelve months 179,364 224,035 149,287 Percentage – beyond the next twelve months 35.8% 39.8% 36.7% As a result of sales outpacing bookings2 in the fiscal year, the Company’s book-to-bill ratio2 was 0.88 for the year. Furthermore, the total backlog2 decreased by $61.3 million or 10.9% since the beginning of the fiscal year, amounting to $501.2 million as at February 28, 2022. The reduction of the backlog2 is primarily due to a book-to-bill ratio2 below 1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares 2 Non-IFRS and supplementary financial measures – more information at the end of this report Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
1.00 combined with the weakening of the euro spot rate against the U.S. dollar since the beginning of the fiscal year.
Alternatively, the Company’s backlog1 deliverable within a year is at a similar level than last year.
Bookings1
Bookings1 for the quarter amounted to $77.1 million, a decrease of $3.8 million or 4.7%. Bookings1 for the fiscal year
amounted to $363.5 million, a decrease of $63.1 million or 14.8%. This decrease for the quarter is primarily
attributable to lower bookings1 in the Company’s European subsidiaries, primarily in the nuclear market, partially
offset by a strong booking performance in the Company’s North American operations, notably in terms of MRO orders.
The decrease for the fiscal year is primarily attributable to lower bookings1 in the Company’s French and Italian
operations, which both recorded significant nuclear and downstream oil and gas orders in the previous year. This
decrease was partially offset by a significantly higher amount of MRO orders recorded by the Company’s North
American operations in the current fiscal year. The Company is encouraged by the recovery of its MRO order
bookings1, which were severely impacted by the global pandemic at the end of the prior fiscal year, and ultimately
adversely affected the sales of the latter part of the previous fiscal year and the first half of the current fiscal year.
Sales
Sales for the quarter amounted to $124.8 million, an increase of $39.3 million or 46.0%. Sales for the fiscal year
amounted to 411.2 million, an increase of $109.2 million or 36.1%. Sales for both periods were positively impacted
by increased shipments by the Company’s North American, French and Italian operations of large orders recorded
in the previous fiscal year, primarily destined for the petrochemical, nuclear and oil and gas markets respectively.
The Company’s sales were also positively impacted by a revaluation of its provision for performance guarantees of
$8.8 million for the quarter and $13.2 million for the fiscal year. Additionally, the positive trend in terms of quarterly
MRO sales continued this quarter due to the higher bookings1 of such orders in the first half of the current fiscal year.
This positive trend has allowed the Company’s quarterly sales to build momentum as the year progressed.
*Geographical third-party sales are defined as the country where the sale was recorded.
1 Non-IFRS and supplementary financial measures – more information at the end of this report
13
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Gross profit
Gross profit for the quarter amounted to $47.7 million, an increase of $24.7 million or 106.8%. Gross profit for the
fiscal year amounted to $135.0 million, an increase of $54.4 million or 67.6%. The gross profit percentage for the
quarter of 38.2% is an increase of 1,120 basis points compared to the same period last year, while the gross profit
percentage for the fiscal year of 32.8% represents an increase of 610 basis points compared to last year. The
improvement in gross profit for both periods is primarily attributable to the higher sales volume, which helped to cover
the Company’s fixed production overhead costs more efficiently. The Company’s improved margins are also
stemming from the delivery of a product mix with a greater proportion of higher margin product sales as well as margin
improvement activities implemented over the course of the past fiscal years within the scope of the V20 restructuring
and transformation plan. The gross profit also benefited from a positive revaluation of the Company’s provision for
performance guarantees of $8.8 million for the quarter and $13.2 million for the fiscal year. Additionally, the
Company’s gross profit for the fiscal year benefited from $6.1 million of 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 the Canadian dollar when compared to similar movements from the previous year. Finally, the increase
in gross profit percentage was such that it could more than offset the impact of a lower amount of CEWS of $1.3
million for the quarter and $5.9 million for the fiscal year compared to last year. The subsidies are allocated between
cost of sales and administration costs.
Administration costs
Administration costs for the quarter amounted to $38.8 million, an increase of $14.7 million or 60.7%. Administration
costs for the fiscal year amounted to 113.0 million, an increase of $32.9 million or 41.1%. The increase in
administration costs for both periods is primarily attributable to a non-recurring $13.1 million increase in the costs
related to the Company’s ongoing asbestos litigation in order to revise, based on new estimates, the assessment of
the provision that would account for all outstanding litigations rather than only settled amounts. The increase in
administration costs is also attributable to a general increase in administration expenses, such as travel expenses,
marketing and office maintenance costs that significantly decreased when the global pandemic broke out in 2020
and an increase in sales commissions for both periods due to the higher sales volume. Finally, the increase in
administration costs is also attributable to a decrease of $1.0 million for the quarter and $4.7 million for the fiscal year
of CEWS compared to last year. The subsidies are allocated between cost of sales and administration costs.
EBITDA1
EBITDA1 for the quarter amounted to $16.6 million or $0.77 per share compared to $1.6 million or $0.08 per share
last year. EBITDA1 for the fiscal year amounted to $39.6 million or $1.83 per share compared to $15.6 million or $0.72
per share last year. The favorable movements in EBITDA1 for both periods are primarily attributable to:
An increase in gross profit of $24.7 million, from 27.0% to 38.2.% for the quarter and $54.4 million, from
26.7% to 32.8% for the fiscal year, primarily due to a higher sales volume and the delivery of a favorable
product mix, while reflecting the improved margins resulting from the Company’s targeted efforts under V20,
described earlier. The Company’s gross profit for both periods also benefited from favorable reevaluations
of its provision for performance guarantees as explained in the previous section as well as favorable
movements in unrealized foreign exchange translation in the fiscal year when compared to last year.
A $4.6 million non-recurring net gain, after minority interests, on the disposal of the Company’s investment
in Juwon Special Steel Co. Ltd. in the fourth quarter of the current fiscal year (see Cash flows section for
more details on the transactions), and;
A reduction in other expenses of $2.7 million for the fiscal year primarily due to land clean-up costs of a
former factory incurred in the second quarter of the prior fiscal year.
1 Non-IFRS and supplementary financial measures – more information at the end of this report
14
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
The favorable movements mentioned previously, were partially offset by an increase in administration costs of $14.7
million for the quarter and $32.9 million for the fiscal year for the reasons mentioned in the previous section.
EBITDA1 for the quarter was positively impacted by the absence of restructuring and transformation costs which
totaled $1.3 million in the final quarter of the previous year. EBITDA1 for the fiscal year was negatively impacted by
the absence of restructuring and transformation income which totaled $3.9 million in the previous year. The
restructuring and transformation income in the prior fiscal year resulted primarily from a $9.6 million gain recognized
on the disposal of one of the Company’s Montreal plants, an integral part of the North American manufacturing
footprint optimization plan which was planned in the scope of V20.
Income taxes
(thousands, excluding percentages)
Income tax at statutory rate
Tax effects of:
Difference in statutory tax rates in foreign jurisdictions
Non-deductible (taxable) foreign exchange losses (gains)
Non-taxable portion of taxable capital gain
Losses (utilized) not (previously) tax effected
Derecognition of deferred tax assets
Other differences
Income tax expense (recovery)
Three-month periods ended
February 28,
2021
%
February 28,
2022
%
$
$
6,429
26.5
(621)
26.5
(421)
(764)
-
775
32,603
(319)
38,303
(1.7)
(3.2)
-
3.2
134.4
(1.3)
157.9
69
90
(798)
(295)
-
(756)
(2,311)
(2.9)
(3.9)
34.0
12.6
-
32.3
98.6
The unfavorable movement in the Company’s income tax expense in the current quarter and fiscal year is primarily
attributable to the derecognition of deferred tax assets approach in the fourth quarter of the current fiscal year. The
current year conservative write-off brings the total unrecognized deferred income tax assets to $44.5 million in respect
of non-capital losses amounting to $173.6 million that can be carried forward to reduce taxable profits in future years.
These losses expire between 2038 and indefinitely.
(thousands, excluding percentages)
Income tax at statutory rate
Tax effects of:
February 28,
2022
%
$
Fiscal years ended
February 28,
2021
%
$
9,587
26.5
364
26.5
Difference in statutory tax rates in foreign jurisdictions
Non-deductible (taxable) foreign exchange losses (gains)
Non-taxable portion of taxable capital gain
Losses not tax effected
Derecognition of deferred tax assets
Other differences
130
(613)
-
4,941
32,603
(217)
0.4
(1.7)
-
13.7
90.1
(0.6)
Income tax expense (recovery)
46,431
128.3
469
(274)
(798)
478
-
(1,061)
(822)
34.1
(19.9)
(58.0)
34.7
-
(77.2)
(59.8)
1 Non-IFRS and supplementary financial measures – more information at the end of this report
15
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Net loss1 and Adjusted net income2
Net loss1 for the quarter amounted to $25.6 million or $1.19 per share compared to a net income1 of $0.3 million or
$0.02 per share last year. Net loss1 for the fiscal year amounted to $21.1 million or $0.98 per share compared to a
net income1 of $2.9 million or $0.13 per share last year. The net losses1 for the quarter and the fiscal year were
significantly impacted by a $32.6 million non-cash tax adjustment to derecognize a portion of the Company’s deferred
tax asset. Excluding this non-cash tax adjustment, the Company’s adjusted net income2 for the quarter amounted to
$7.0 million or $0.32 per share compared to a net income1 of $0.3 million or $0.02 per share last year. The Company’s
adjusted net income2 for the fiscal year amounted to $11.5 million or $0.53 per share compared to a net income1 of
$2.9 million or $0.13 per share last year. The movements in the Company’s adjusted results were primarily
attributable to the same factors as explained in the EBITDA2 section, coupled with unfavorable movements in income
taxes.
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 ended in May, August, November and February
(in thousands of U.S. dollars, excluding per share amounts)
February
2022
November
2021
August
2021
May
2021
February
2021
November
2020
QUARTERS ENDED
May
2020
August
2020
Sales
$124,849
$109,971 $101,893 $74,529
$85,510
$71,560
$68,340
$76,653
Net income (loss)1
Net income (loss)1 per
share
(25,590)
4,507
5,015
(5,073)
338
9,527
(5,112)
(1,886)
- Basic and diluted
(1.19)
0.21
0.23
(0.24)
0.02
0.44
(0.24)
(0.09)
Adjusted net income
(loss)2
Adjusted net income
(loss)2 per share
7,013
4,507
5,015
(5,073)
338
9,527
(5,112)
(1,886)
- Basic and diluted
0.32
0.21
0.23
(0.24)
0.02
0.44
(0.24)
(0.09)
1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
2 Non-IFRS and supplementary financial measures – more information at the end of this report
16
17
Management’s Discussion and Analysis Fiscal year ended February 28, 2022 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. As at February 28, 2022 (thousands) Carrying value $ Less than 1 year $ 1 to 3 years $ 4 to 5 years $ After 5 years $ Total $ Long-term debt 31,038 8,818 6,694 4,026 17,937 37,475 Long-term lease liabilities 12,433 1,589 2,128 1,372 11,760 16,849 Accounts payable and accrued liabilities 80,503 80,503 - - - 80,503 Customer deposits 71,483 41,344 24,655 1,659 3,825 71,483 Bank indebtedness and short-term bank loans 550 550 - - - 550 Derivative liabilities 560 560 - - - 560 At the end of the current fiscal year, the Company did not have any outstanding purchase commitments with foreign suppliers due within one year which were covered by letters of credit. At the end of the previous fiscal year, the Company had outstanding purchase commitments with foreign suppliers, due within one year, amounting to $3.6 million, which were covered by letters of credit. On February 28, 2022, the Company’s order backlog1 was 501.2 million and its net cash, subject to certain local exchange control restrictions, plus unused credit facilities amounted to $156.1 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 overcome the remaining lingering effects of the COVID-19 pandemic on the world’s economy. 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 February 28, 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. 1 Non-IFRS and supplementary financial measures – more information at the end of this report Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Cash flows - quarter and fiscal year ended February 28, 2022
(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:
(thousands)
Net Cash – Beginning of period
Change in net cash – held for sale
Cash provided (used) by operating activities
Cash provided (used) by investing activities
Cash provided (used) by financing activities
Effect of exchange rate differences on cash
Net Cash – End of period
Three-month periods ended
Fiscal years ended
February 28,
2022
February 28,
2021
February 28,
2022
February 28,
2021
65,837
2,144
7,876
(5,766)
(16,467)
(159)
53,465
73,020
62,953
31,010
-
(16,845)
(1,681)
8,157
302
62,953
-
17,868
(26)
(23,519)
(3,811)
53,465
-
(9,095)
2,901
33,099
5,038
62,953
On December 15, 2021, the Company disposed of its investment in Juwon Special Steel Co. Ltd. (“Juwon”), a
50%-owned Korean foundry. Prior to the disposal of Juwon, the subsidiary sold a land and a plant located in Busan,
South Korea, to secure the necessary transaction funding resulting in a net gain after minority interests of $4.6 million
for the Company.
1
1 Non-IFRS and supplementary financial measures – more information at the end of this report
18
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Operating activities
The favorable movement in cash provided by operating activities for the quarter and the fiscal year is primarily
attributable to an improved EBITDA1 combined with a non-cash increase in long-term provisions (see Results from
operations section), partially offset by the gain on the disposal of Juwon Special Steel Co. Ltd to reconcile net loss to
cash provided by operating activities. Changes in non-cash working capital items were favorable for the quarter and
unfavorable for the fiscal year when compared to the same periods from the prior year.
The changes in non-cash working capital items were as follow:
(thousands)
Accounts receivable
Inventories
Income tax recoverable
Deposits and prepaid expenses
Accounts payable and accrued liabilities
Income tax payable
Customer deposits
Provisions
Net Cash – End of period
Three-month periods ended
Fiscal years ended
February 28,
2022
February 28,
2021
February 28,
2022
February 28,
2021
(7,785)
5,787
297
1,806
(8,197)
1,571
1,457
(7,194)
(12,258)
(14,076)
(11,026)
68
(410)
11,423
975
4,208
(4,732)
(13,570)
11,080
(28,020)
803
1,031
(3,119)
2,166
11,602
(12,572)
(17,029)
8,441
(26,130)
(922)
(3,031)
10,928
(108)
11,009
(7,399)
(7,212)
For the quarter ended February 28, 2022, the negative non-cash working capital movements were principally due to:
An increase in accounts receivable due to the higher sales output for the quarter which occurred
predominantly at the end of the quarter,
A decrease in accounts payable and accrued liabilities due to the timing of payments, especially related to
the higher inventory purchases made in the first half of the year, and;
A decrease in provision for performance guarantees primarily due to a significant adjustment recorded in
the current quarter (see Results from operations section).
These negative movements were partially offset by a decrease in inventories in reaction to the reduction of the
backlog1 in the quarter.
For the fiscal year ended February 28, 2022, the negative non-cash working capital movements were mainly due to:
An increase in inventories necessary to deliver the improved backlog1 at the beginning of the year, and;
A reduction in provision for performance guarantees primarily due to a significant adjustment recorded in
the current quarter (see Results from operations section).
These negative movements were partially offset by:
A decrease in accounts receivable mainly due to increased collections of prior quarter accounts, and;
A higher amount of customer deposits collected on certain large orders by the Company’s French and Italian
operations.
1 Non-IFRS and supplementary financial measures – more information at the end of this report
19
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Investing activities
Cash provided by investing activities for the quarter and the fiscal year was primarily due to proceeds on disposals
of property, plant and equipment, partially offset by the net cash disposal resulting from the sale of Juwon Special
Steel Co. Ltd., additions in property, plant and equipment and an increase in short-term investments. Proceeds on
disposals of property, plant and equipment for the quarter and fiscal year were primarily related to the final payment
received regarding the $27.0 million net sale of a land and foundry in South Korea as explained at the beginning of
the section. Cash provided by investing activities for the fiscal year was also due to the reception of a deposit related
to the aforementioned sale in the third quarter of the current fiscal year as well as proceeds on disposal of property,
plant and equipment related to the sale of a vacant land that used to host a production plant of the Company’s North
American operations. The plant’s operations had already been transferred in fiscal 2017 to other plants, and the
building was demolished.
In the previous year’s third quarter, the Company sold one of its Montreal manufacturing plants. The sale was an
integral part of the North American manufacturing footprint optimization plan which was planned in the scope of its
restructuring and transformation plan. The net proceeds for the disposition of the building and the land were $12.4
million, while the net book value of the assets was $2.8 million which resulted in a gain of $9.6 million.
The fluctuations in additions to property, plant and equipment for any period when compared to the prior year is due
to the timing of the receipts of certain equipment. Otherwise, additions to property, plant and equipment were higher
in the previous year’s quarter and fiscal year due to the investments required to complete the V20 project.
Financing activities
During the current quarter, the company paid back the remaining $16.5 million drawn on its revolving credit facility,
bringing the net paid-down amount for the fiscal year to $22.1 million. The Company’s revolving credit facility has
been fully reimbursed at the end of the fiscal year.
During the quarter, while the Company continued to pay down its outstanding long-term debt, its French operations
borrowed $1.6 million in the form of an unsecured bank loan bearing monthly interest payments at a yearly interest
rate of 0.25%, expiring in 2027. During the course of the fiscal year, its North American operations borrowed $5.9
million in the form of a secured mortgage loan bearing monthly interest payments at a yearly interest rate of 3.80%,
with principal payments beginning in October 2021 and repayable over 20 years.
During the previous fiscal year, the Company’s North American operations borrowed $11.6 million in the form of a
secured mortgage loan bearing monthly interest payments at a yearly interest rate of 3.80%, with principal payments
beginning in October 2021 and repayable over 15 years. Additionally, its Italian subsidiary secured three new
long-term debt issuances with two financial institutions as part of the measures and initiatives put in place by the
Italian government to support companies during the pandemic. Specifically, the subsidiary borrowed $3.6 million in
the form of unsecured bank loans, bearing interest between 1.00% and 1.25%, with principal repayments beginning
in 2021 and 2022 and repayable in monthly and quarterly installments, expiring in 2025 and 2026.
20
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
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 February 28, 2022 and 2021 are as follows:
Range of exchange rates
February 28,
2022
February 28,
2021
Gain (loss)
(in thousands of U.S. dollars)
February 28,
2022
$
February 28,
2021
$
Notional amount
(in thousands of indicated currency)
February 28,
2022
February 28,
2021
Foreign exchange forward contracts
Sell US$ for CA$ - 0 to 15 months
1.27-1.28
Buy US$ for CA$ - 0 to 15 months
Sell € for US$ - 0 to 12 months
Buy € for US$ - 0 to 12 months
1.25
1.15
1.13
1.30
1.22
1.22-1.24
1.16-1.20
(470)
301
(90)
252
(135)
48
(168)
148
US$50,000
US$22,000
US$50,000
US$22,000
€15,000
€15,000
€18,363
€18,363
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.
21
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
The following table provides a sensitivity analysis of the Company’s most significant foreign exchange exposures
related to its net position in the foreign currency financial instruments, which includes cash and cash equivalents,
short-term investments bank indebtedness, short-term bank loans, derivative financial instruments, accounts
receivable, accounts payable and accrued liabilities, customer deposits and long-term debt, including interest
payable. A hypothetical strengthening of 5.0% of the following currencies would have had the following impact for the
fiscal years ended February 28, 2022 and 2021:
(thousands)
Canadian dollar strengthening against the U.S. dollar
Euro strengthening against the U.S dollar
Net income (loss)
February 28,
2022
$
February 28,
2021
$
(1,284)
53
(1,429)
593
A hypothetical weakening of 5.0% of the above currencies would have had the opposite impact for both fiscal years.
For the purposes of the above analysis, foreign exchange exposure does not include the translation of subsidiaries
into the Company’s reporting currency. For those subsidiaries whose functional currency is other than the reporting
currency (U.S. dollar) of the Company, such exposure would impact other comprehensive income or loss.
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 February 28, 2022, three
(February 28, 2021 – five) customers accounted for more than 5% each of its trade accounts receivable, of which
one customer accounted for 10.8% (February 28, 2021 – 15.6%), and the Company’s ten largest customers
accounted for 55.7% (February 28, 2021 – 63.5%) of trade accounts receivable. In addition, there was one (February
28, 2021 – one) customer 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 standing 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.
22
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
The lifetime expected loss allowance for trade receivables was determined as follows:
(thousands)
Expected loss rate
Gross carrying amount
Loss allowance
(thousands)
Expected loss rate
Gross carrying amount
Loss allowance
Current
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
Total
As at February 28, 2022
0.059%
64,689
38
0.074%
17,995
13
0.088%
9,248
8
2.762%
16,285
450
108,217
509
Current
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
Total
As at February 28, 2021
0.287%
76,407
219
0.606%
19,630
119
0.682%
9,672
66
4.203%
17,653
742
123,362
1,146
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:
(thousands)
Current
Past due 0 to 30 days
Past due 31 to 90 days
Past due more than 90 days
Less: Loss allowance
Other receivables
Total accounts receivable
As at
February 28,
2022
$
February 28,
2021
$
64,689
17,995
9,248
16,285
108,217
(509)
107,708
8,126
115,834
76,407
19,630
9,672
17,653
123,362
(1,146)
122,216
13,157
135,373
23
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
The table below summarizes the movement in the allowance for doubtful accounts:
(thousands)
Balance – Beginning of the year
Loss allowance expense (reversal)
Recoveries of trade accounts receivables
Write-off of trade accounts receivable
Foreign exchange
Balance – End of the period
Fiscal years ended
February 28,
2022
$
February 28,
2021
$
1,146
321
(683)
(241)
(34)
509
2,002
(142)
(313)
(497)
96
1,146
Liquidity risk – see discussion in liquidity and capital resources section
INTERNAL CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is
gathered and reported to senior management, including the Chief Executive Officer (“CEO”), and the Chief Financial
Officer (“CFO”), in a timely manner so that appropriate decisions can be made regarding public disclosure.
The CEO and the CFO of the Company have evaluated, or caused the evaluation of, under their direct supervision,
the effectiveness of the Company’s disclosure controls and procedures (as defined in National Instrument 52-109 –
Certification of Disclosure in Issuer’s Annual and Interim Filings) as at February 28, 2022 and have concluded that
such disclosure controls and procedures were designed and operating effectively.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS.
Management has evaluated the design and effectiveness of its internal controls and procedures over financial
reporting (as defined in National Instrument 52-109 – Certification of Disclosure in Issuer’s Annual and Interim
Filings). The evaluation was based on the “Internal Control-Integrated Framework (2013)” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). This evaluation was performed by the CEO
and the CFO of the Company with the assistance of other Company Management and staff to the extent deemed
necessary. Based on this evaluation, the CEO and the CFO concluded that the internal controls and procedures
over financial reporting were appropriately designed and operating effectively as at February 28, 2022.
In spite of its evaluation, Management does recognize that any controls and procedures no matter how well designed
and operated, can only provide reasonable assurance and not absolute assurance of achieving the desired control
objectives. In the unforeseen event that lapses in the disclosure of internal controls and procedures occur and/or
mistakes happen of a material nature, the Company intends to take the steps necessary to minimize the
consequences thereof.
24
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company did not make any material changes to the design of internal control over financial reporting during the
year ended February 28, 2022 that have materially affected, or are reasonably likely to have materially affected, the
Company’s internal control over financial reporting.
CRITICAL ACCOUNTING ESTIMATES & ASSUMPTIONS
The Company’s significant accounting policies as described above are essential to understanding the Company’s
results of operations, financial positions 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. 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.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next fiscal year are addressed below:
Inventories
Inventories must be valued at the lower of cost and net realizable value. A writedown of inventory will occur when its
estimated market value less applicable variable selling expenses is below its carrying amount. This involves
significant management judgment and is based on the Company’s assessment of market conditions for its products
determined by historical usage, estimated future demand and, in some cases, the specific risk of loss on specifically
identified inventory. Any change in the assumptions used in assessing this valuation or selling costs could impact
the carrying amount of the inventory on the consolidated statement of financial position with a corresponding impact
made to cost of sales on the consolidated statement of income (loss).
Provisions
Provisions must be established for possible product warranty expenses. The Company estimates its warranty
exposure by taking into account past experience as well as any known technical problems and estimates of costs to
resolve these issues. The Company estimates its exposure under these obligations based on an analysis of all
identified or expected claims. Any change in the assumptions used could impact the value of the provision on the
consolidated statement of financial position with a corresponding impact made to cost of sales on the consolidated
statement of income (loss).
Provision for performance guarantees consist of possible late delivery and other contractual non-compliance
penalties or liquidated damages. The Company estimates the specific contractual terms, historical trends and
forward-looking performance risks. The Company estimates its exposure under these obligations based on an
analysis of all identified or expected claims. Any change in the assumptions used could impact the value of the
provision for performance guarantees on the consolidated statement of financial position with a corresponding impact
made to sales on the consolidated statement of income (loss).
Legal settlements provision estimates the liability related to all outstanding open cases in relations with the
Company’s ongoing asbestos ligations. The Company’s estimate of cost per claim takes into consideration a weighted
average of managements historical experience in settling those claims, a historical average in settling claims adjusted
25
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
to remove the years with the highest and lowest costs per claim, and average of cost per claim in the last three years.
This weighted average is applied to the number of claim outstanding at the end of the year to arrive at the estimate.
Any change in the assumptions used could impact the value of the legal provision on the consolidated statement of
financial position with a corresponding impact made to administration costs on the consolidated statement of income
(loss).
Impairment of non-financial assets
Assets that have an indefinite life, such as goodwill, are tested annually by the Company for impairment, or more
frequently if events or circumstances indicate there may be impairment. All other assets must be reviewed by the
Company at the end of each reporting period in order to determine whether there is an indication of possible
impairment. Determining whether there are indicators of potential impairment is a matter of significant judgment.
When determining the recoverable amount of a CGU, management prepares estimates based on assumptions such
as the weighted-average cost of capital, the Earnings before interest, taxes, depreciation and amortization (“EBITDA”)
margin and revenue growth. Any change in the assumptions used could impact the carrying amount first of any
goodwill allocated to the CGU and then to the other assets of the CGU on a pro rata basis of the carrying amount of
each asset in the CGU on the consolidated statement of financial position with a corresponding impact made to the
consolidated statement of income (loss).
Income taxes
The Company must estimate its income taxes in each jurisdiction in which it operates. This involves assessing the
probability of using net operating losses against future taxable income as well as evaluating positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation. In the event these
assessments are changed, there would be an adjustment to income tax expense with a corresponding adjustment to
income tax balances on the consolidated statement of financial position.
CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
COVID-19
Since December 2019, the COVID-19 global pandemic has caused temporary disruptions in the Company’s
production and supply chain which have materially adversely affected its business and financial results. The
economic slowdown triggered by the global pandemic, mainly in the oil and gas sector at the beginning of the previous
fiscal year, also translated in lower non-project valve sales for the Company. Nevertheless, the Company’s net order
bookings had shown a positive trend for the fiscal year ended February 28, 2021. As for fiscal year ended
February 28, 2022, following a softer first half of the year, MRO sales stated to pick-up at the mid point of the year
and reached pre-covid levels by year-end. The MRO segment had suffered the most from the economic slowdown
caused by the COVID-19 pandemic in the previous year, thereby causing its bookings to sharply fall. The Company
has implemented proactive measures to protect its global workforce and mitigate the numerous effects of the
pandemic, but given the ongoing dynamic nature of circumstances surrounding COVID-19, it is not possible to reliably
estimate the length, severity and long term impact the global pandemic may have on the Company’s results,
conditions and cash-flows. Therefore, the COVID-19 global pandemic should still be considered a risk factor.
In reaction to the COVID-19 pandemic, the Company applied for the Canada Emergency Wage Subsidy which
allowed the Company to avoid lay-offs that otherwise would have been necessary to blunt the financial impact of the
pandemic.
26
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
CONSOLIDATION
On December 15, 2021, the Company disposed of its investment in Juwon Special Steel Co. Ltd. (see Cash flows
section)
Until disposition, the Company consolidated the accounts of Juwon Special Steel Co. Ltd. in these consolidated
financial statements. It was determined that the Company had substantive rights over this structured entity that were
currently exercisable and for which there was no barrier, despite the fact that its percentage of ownership in this entity
was only 50%. These substantive rights were obtained through the shareholders’ agreement signed between the
Company and the non-controlling interest which gave the Company the ultimate decision right on any decision taken
for which both parties in the joint arrangement were not in agreement. As per the shareholders’ agreement, the Board
of Directors, representing the interests of shareholders, had responsibility to establish operating decisions (including
budgets), approve capital transactions and determine key management personnel remuneration. Consequently, the
Company, through its rights set out in the shareholders’ agreement, had substantive rights that gave it the ability to
direct the relevant activities of Juwon Special Steel Co. Ltd. while being exposed to variable returns. As such, it was
determined that this entity should be consolidated.
ACCOUNTING STANDARDS AND AMENDMENTS ADOPTED IN THE PERIOD
In August 2020, the International Accounting Standards Board (“IASB”) issued Interest Rate Benchmark Reform
(Phase 2), which amends IFRS 9 Financial instruments, IAS 39 Financial instruments: Recognition and
measurement, IFRS 7 Financial instruments: Disclosures and IFRS 16 Leases. The Phase 2 amendments address
issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement
with alternative benchmark rates. These amendments complement those issued in 2019 and focus on issues that
might affect financial reporting during the reform of an interest rate benchmark, including the effects of changes to
contractual cash flows arising from the replacement of an interest rate benchmark with an alternative benchmark
rate. This amendment was adopted effective March 1, 2021 and resulted in no material adjustments.
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.
27
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
CERTAIN RISKS THAT COULD AFFECT OUR BUSINESS
Debt restrictions
The Company’s operations are restricted by the terms of its debt, which could limit its ability to plan for or react to
market conditions, or to meet its capital needs. The Company’s credit facilities and the indenture governing its senior
notes include a number of significant restrictive covenants. These covenants restrict, under certain conditions, the
Company’s ability to:
incur debt;
sell assets, including capital stock in subsidiaries;
pay dividends on stock or redeem subordinated debt;
make investments;
guarantee other indebtedness;
enter into agreements that restrict dividends or other distributions from restricted subsidiaries;
enter into transactions with affiliates;
create or assume liens securing debt;
sell or transfer and leaseback transactions;
engage in mergers or consolidations; and
enter into a sale of all or substantially all of our assets.
These covenants could limit the Company’s ability to plan for or react to market conditions or to meet its capital needs.
The Company’s current credit facility contains other, more restrictive covenants, including financial covenants that
require it to achieve certain financial and operating results, and maintain compliance with specified financial ratios.
The Company’s ability to comply with these covenants and requirements may be affected by events beyond its
control, and it may have to curtail some of its operations and growth plans to maintain compliance. The restrictive
covenants contained in the Company’s senior note indenture, along with the Company’s credit facility, do not apply
to its joint ventures, minority investments and unrestricted subsidiaries.
Cyclical nature of end user markets
The demand for the Company’s products in any particular industry or market can vary significantly according to the
level of economic activity in that industry or market. These potential variations may be mitigated by the fact that the
Company’s sales are diversified geographically as well as by end user market. There can be no assurance that an
economic recession or downturns in certain industries or geographic locations, such as the current downturn in the
oil and gas industry, will not have a significant adverse effect on the Company’s sales.
The Company’s financial condition and results of operations may be adversely affected by commodity price volatility.
Crude oil and natural gas prices have fluctuated widely in the recent past and are subject to fluctuations in response
to relatively minor changes in supply, demand, market uncertainty and other factors that are beyond the Company’s
control. Crude oil and natural gas prices are impacted by a number of factors including, but not limited to: the global
supply of and demand for crude oil and natural gas; global economic conditions; the actions of the Organization of
Petroleum Exporting Countries (“OPEC”) and OPEC+; government regulation; political stability and geopolitical
factors; the ability to transport crude to markets; developments related to the market for liquefied natural gas; the
availability and prices of alternate fuel sources; and weather conditions.
In 2020 and 2021, global oil prices weakened materially as a result of the global outbreak of the coronavirus
("COVID-19"), compounded by OPEC+, led by Saudi Arabia and Russia, failing to reach an agreement on
constraining output. Recently, global oil prices have increased, namely as a result of the military conflict in Ukraine
and the related international economic sanctions imposed to Russia. Concerns over global economic conditions,
fluctuations in interest rates and foreign exchange rates, stock market volatility, energy costs, geopolitical issues,
OPEC+ actions, inflation, the availability and cost of credit, the deceleration of economic growth in China, trade
disputes between the United States and China, civil unrest in Venezuela and Iran and the outbreak of COVID-19
28
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
have contributed to increased economic uncertainty and diminished expectations for the global economy. Further
weakening of commodity prices could have a material adverse effect on the Company’s business, financial condition
and results of operations. The Company is exposed to the risk of inflation fluctuation.
Disease and Epidemics
The impact of disease and epidemics may have a negative impact on the Company and its performance and financial
position. In December 2019, a novel strain of coronavirus, known as “COVID-19” was identified in Wuhan, China. As
of March 20, 2020, COVID-19 had spread to over 100 countries and been declared a pandemic by the World Health
Organization. Since such time, several vaccines have been developed and approved for use by governmental health
authorities, each having demonstrated a certain level of effectiveness in reducing rates of COVID-19 infection and
spread and in reducing the severity of symptoms. Recently, however, the emergence of new COVID-19 variants,
including the Delta and Omicron variants, has renewed public health concerns and uncertainty regarding the future
trajectory of the pandemic. COVID-19 has resulted in, and renewed outbreaks of COVID-19 and its variants or new
epidemics could result in, health or other government authorities requiring the closure of offices or other businesses,
and could also result in a general economic decline. For example, such events may adversely impact economic
activity through disruption in supply and delivery chains. Moreover, the Company’s operations could be negatively
affected if personnel are affected by or quarantined as the result of, or in order to avoid, exposure to a contagious
illness. The Company has been designated as an “essential business” at this time, with minimal disruptions to
operations.
A resulting negative impact on economic fundamentals and consumer confidence may negatively impact market
value, increase market volatility, cause credit spreads to widen, and reduce liquidity, all of which could have an
adverse effect on the business of the Company. The duration of the business disruption and related financial impact
caused by a widespread health crisis cannot be reasonably estimated. The speed and extent of the spread of COVID-
19, and the duration and intensity of resulting business disruption and related financial and social impact, are
uncertain, and such adverse effects may be material. While governmental agencies and private sector participants
will seek to mitigate the adverse effects of this coronavirus, which may include such measures as heightened sanitary
practices, telecommuting, quarantine, curtailment or cessation of travel, and other restrictions, and the medical
community is seeking to develop vaccines and other treatment options, the efficacy of such measures is
uncertain. The Company’s operations and business results could be materially adversely affected. The extent to
which COVID-19 (or any other disease or epidemic) impacts business activity or investment results will depend on
future developments, which are highly uncertain and cannot be predicted, including new information which may
emerge concerning the severity of the coronavirus and the actions required to contain this coronavirus or treat its
impact, among others.
Competition
Competitive pressures in the Company’s markets could lead to a loss of market share, which could negatively impact
revenues, margins and net income. The Company also competes with manufacturers based in low wage countries
that offer valves at lower prices. There can be no assurance that the Company will be able to compete successfully
against its current or future competitors or that competition will not have a material adverse effect on the Company's
results of operations and financial condition.
Backlog
The Company’s order backlog consists of sales orders that are considered firm. It is also an indication of future sales
revenues. However, there can be no assurance that subsequent cancellations or scope adjustments will not occur,
that the order backlog will ultimately result in earnings, or when the related revenues and earnings from such order
backlog will be recognized.
29
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Dependence upon key personnel
The Company is dependent upon the abilities and experience of its executive officers and other key employees.
There can be no assurance that the Company can retain the services of such executive officers and key employees.
If several executive officers or other key employees were to leave the employ of the Company, its operations could
be adversely affected.
Foreign currency exchange risks
Due to the geographic mix of the Company’s customers and its operations, the Company is exposed to foreign
currency exchange risk. The Company enters into foreign currency forward contracts in order to manage a portion of
its net exposure to foreign currencies. Such forward contracts contain an inherent credit risk related to default on
obligations by the counterparty, which the company mitigates by entering into contracts with sound financial
institutions that it anticipates will satisfy their obligations. Risk related to currency fluctuations could have a material
adverse effect on the Company's results of operations and its financial position.
Interest rate risk and debt financing
A portion of the Company’s liabilities consist of debt instruments that bear interest at variable rates. As such, the
Company is exposed to the risk of interest rate fluctuations. This risk could have an adverse effect on the Company’s
results of operations. At maturity of such instruments, the Company may also not be able to refinance such
instruments at terms favorable to the Company, or at all. In addition, the terms of the Company`s indebtedness
provide that, upon an event of default, such indebtedness becomes immediately due and payable. Failure to refinance
existing indebtedness on favorable terms or to comply with the terms of such indebtedness could have a material
adverse effect on the Company's results of operations and its financial position.
Availability and prices of raw materials
The price of raw materials, principally steel, represents a substantial portion of the cost of manufacturing the
Company’s products. Historically, there have been fluctuations in these raw material prices and, in some instances,
price movements have been volatile. There can be no certainty that the Company will be able to pass on increases
resulting from higher costs of raw materials to its customers through increases in selling prices, or otherwise absorb
such cost increases without negatively affecting its margins.
In addition, certain raw materials become, from time to time, in short supply for periods of time. Typically, these
shortages do not last long and the Company is usually able to ensure that its needs are met. However, there can be
no assurances that its sources of supply will be adequate to supply all of its needs on a timely basis, particularly in
the context of the global supply chain disruptions related to the Ukraine conflict.
Labour relations
A substantial portion of the Company’s workforce is covered by union agreements. The collective agreement for the
Montreal plant of the Company expires in 2022. Although the Company has been successful in the past in negotiating
renewals, there can be no assurance that this will continue. Failure to renegotiate these agreements could lead to
work disruptions or higher labour costs, which could negatively impact results.
Reliance on key suppliers
The Company has several key suppliers with whom it has invested in forging dies and casting patterns. While the
Company has alternate sources for most material purchases, the loss of a key supplier could impact negatively on
the Company.
Reliance on distributors and sales agents
The Company is directly affected by the ability of independent third-party distributors and sales agents retained by
the Company to sell its products in their respective markets. The Company’s continued success is thus dependent
30
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
on its ability to attract and retain the distributors and sales agents it requires to support its existing business and to
continue to grow.
Project undertakings
In competing for the sales of valves, the Company may enter into contracts that provide for the production of valves
at specified prices and in accordance with time schedules. These contracts may involve greater risks as a result of
unforeseen increases in costs and due to more stringent terms and conditions. Although contract terms may vary
from customer to customer, production delays and other performance issues may call for liquidated damages or other
penalties in case of non-performance or warranty issues due to the more stringent terms and conditions of such
contracts.
Political and economic risks associated with international sales and operations
Since the Company sells and manufactures its products worldwide, the business is subject to risks associated with
doing business internationally. Recently, there are uncertainties with regard to the outcome of the Ukraine conflict
and the continued global impact throughout the duration of the conflict. Election of protectionist governments or
implementation of protectionist trade policies could negatively impact the movement of goods, services, and people
across borders, including within North America. Uncertainty created by rapidly changing political circumstances may
impact the Company’s ability to plan effectively over the short- and medium-terms, until such time as policy changes
or new laws, if any, are implemented.
The Company’s business and operating results could also be adversely impacted by changes in tax laws, possibility
of expropriation and embargo, foreign exchange restrictions and political, military and/or terrorist disruptions or
changes in regulatory environments.
Ukraine Conflict
In February 2022, a military conflict began between Russia and Ukraine. Since the conflict has started, there have
been significant tensions between Russia and a number of countries including Canada, its NATO allies and other
European countries. These countries have been and will likely continue imposing a number of international economic
sanctions to Russia and its allies. The conflict has resulted in international instability with significant economical and
political impacts. Further deterioration of the conflict could have economic and geopolitical impacts on the Company,
its customers and its suppliers, and particularly on the Company’s numerous cross-border transactions. The
Company fully supports the current sanctions imposed on Russia and has strictly complied with them by stopping the
orders that were impacted by these sanctions. If the conflict persists, this will likely result in an increase in global
market volatility, global supply chain disruptions and inflation, which may have material adverse impact on the
Company’s business.
Force majeure events
Force majeure events are unforeseeable events or circumstances that occur beyond the control of the Company.
Such events include but are not limited to political unrest, war, terrorism, strikes, riots, and crime, as well as seismic
or severe weather related events such as earthquakes, hurricanes, tsunamis, tornadoes, ice storms, flooding and
volcanic eruptions. The risk of occurrence of a force majeure event is unpredictable and may result in delays or
cancellations of orders and deliveries to customers, delays in the receipt of materials from suppliers, damage to
facilities or equipment, personal injury or fatality, and possible legal liability.
Asbestos litigation
Two of the Company’s U.S. subsidiaries have been named as defendants in a number of pending lawsuits that seek
to recover damages for personal injury allegedly caused by exposure to asbestos-containing products manufactured
and sold in the past. Management believes it has a strong defense related to certain products that may have
contained an internal component containing asbestos which were placed in accordance with customer’s
specifications. Although it is defending these allegations vigorously, there can be no assurance that the Company
31
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
will prevail. Unfavorable rulings, judgments or settlement terms could have a material adverse impact on the
Company’s business, financial condition, results of operations and cash flows.
Product liability and other lawsuits
The Company, like other worldwide manufacturing companies, has been, and will continue to be, subject to a variety
of potential liability claims or other lawsuits connected with its business operations, including potential liabilities and
expenses associated with possible product defects or failures. While the Company maintains comprehensive general
liability insurance coverage which it considers to generally be in accordance with industry practice, such insurance
does not cover certain categories of claims (such as ongoing asbestos claims) to which the Company is subject.
Comprehensive general liability premiums have also increased significantly during the last several years. Accordingly,
the Company cannot be certain that comprehensive general liability insurance coverage will continue to be available
to it at a reasonable cost, or, if available, would be adequate to cover its liabilities.
Health and safety risk
The Company is committed to providing all employees, contractors, and visitors to its premises with a healthy and
safe work environment. The Company has implemented a program throughout its operations with policies and
procedures that must be followed to ensure that it meets all applicable health and safety laws, regulations, and
standards.
Environmental compliance matters
The Company’s operations and properties are subject to increasingly stringent laws and regulations relating to
environmental protection, including air and water discharges, waste management and disposal and employee safety.
Such laws and regulations both impose substantial fines for violations and mandate cessation of operations in certain
circumstances, the installation of costly pollution control equipment, or the undertaking of costly site remediation
activities. Furthermore, new laws and regulations, or stricter enforcement of existing laws and regulations, the
discovery of previously unknown contamination or the imposition of new clean up requirements could require the
Company to incur additional costs which could be significant.
Controls over disclosures and financial reporting
In accordance with National Instrument 52-109, the CEO and the CFO of the Company are responsible for designing,
maintaining, and evaluating the effectiveness of disclosure controls and procedures. The CEO and the CFO are also
responsible for the effective design of internal controls over financial reporting to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. A
system of controls is subject to certain inherent limitations and is partially based on the possibility or probability of
future events. Accordingly, a system of internal controls can provide only reasonable, and not absolute, assurance
of reaching the desired objectives.
Control of the Company
Velan Holding Co. Ltd. (the “Controlling Shareholder”) owns 15,566,567 Multiple Voting Shares representing, in the
aggregate, approximately 92.8% of the voting interests in the Company. Voting control enables the Controlling
Shareholder to determine all matters requiring shareholder approval. The Controlling Shareholder has advised the
Company that the disposition of the shares requires the consent of certain Velan family members and controlled
entities.
The Controlling Shareholder effectively has sufficient voting power to prevent a change in control of the Company,
which may negatively affect the price and liquidity of the Subordinated Voting Shares. The sale of a significant number
of Subordinate Voting Shares by the Controlling Shareholder pursuant to the exercise of the conversion right attached
to the Multiple Voting Shares may negatively impact upon the market price and liquidity of the Subordinate Voting
Shares.
32
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
Income and other tax risks
The Company operates in a number of different tax jurisdictions and has a significant amount of cross-border
purchase and sale transactions. The tax rules and regulations in various countries are becoming more complex.
There is a risk that one or more tax authorities could disagree with the tax treatment adopted by the Company,
resulting in defense costs and possible tax assessments.
Compliance with international laws
Due to the international nature of its operations, the Company is subject to differing systems of laws and regulations
which are often complex and differ from one country to the next. Such laws and regulations include but are not limited
to anti-bribery legislation, export and customs controls, foreign currency exchange controls, transfer pricing
regulations and economic sanctions imposed by governmental authorities. Failure to comply with such laws could
negatively impact earnings and may result in criminal, civil and administrative legal sanctions. The Company has
implemented policies and procedures to effect compliance with these laws by its employees and representatives.
Non-controlling interest
The Company’s operations in China and Taiwan, and certain of its operations in France and Korea are undertaken
with partners that are classified as non-controlling interest. The success of these operations depends on the
satisfactory performance of such partners in their obligations. The failure of such partners to perform their obligations
could impose additional financial and performance obligations on the Company that could negatively impact its
earnings and financial condition.
Cybersecurity
The Company’s information technology networks are critical to the day-to-day operation of its business, and include
information about its finances, employees, products, customers and suppliers. Cybersecurity risks are becoming
increasingly sophisticated, varied and numerous. The potential consequences of a material cybersecurity breach
could include loss of key information, reputational damage and disruption of operations, with consequential material
negative financial consequences. While the Company devotes substantial resources to maintaining and securing its
information technology networks, there can be no assurance that it will be able to prevent, detect or respond to a
potential breach of its information technology networks because of, among other things, the evolving nature of
cybersecurity threats, the difficulty in anticipating such threats and the difficulty in immediately detecting all such
threats. The failure to prevent, detect, or respond to a breach in the Company’s information technology networks
could have a material adverse impact on the Company’s business, financial condition, result of operations and cash
flows.
33
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
NON-IFRS AND SUPPLEMENTARY FINANCIAL MEASURES
In this MD&A, the Company 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. The Company has also
presented supplementary financial measures, reconciliations and definitions can be found below.
Adjusted net income, Earnings before interest, taxes, depreciation and amortization ("EBITDA"),
Debt Load and Free cash flow
(thousands, except amount per shares)
Net income (loss)1
Adjustment for:
Derecognition of deferred tax assets
Adjusted net income
Adjusted net income per share
-
Basic and diluted
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Finance costs – net
Income taxes (excluding Derecognition of deferred
tax asset)
EBITDA
EBITDA per share
-
Basic and diluted
Bank Indebtedness
Current portion of long-term debt
Long-term debt
Three-month periods ended
Fiscal year ended
February 28,
2022
$
February 28,
2021
$
February 28,
2022
$
February 28,
2021
$
(25,590)
338
(21,141)
2,867
32,603
7,013
-
32,603
-
338
11,462
2,867
0.32
0.02
0.53
0.13
2,401
753
725
5,700
2,632
646
343
9,591
2,318
2,400
10,148
2,514
866
(2,311)
13,828
(822)
16,592
1,648
39,599
15,573
0.77
0.08
1.83
0.72
500
8,111
22,927
11,735
9,902
48,189
500
8,111
22,927
11,735
9,902
48,189
Debt Load
31,538
69,826
31,538
69,826
Cash provided (used) by operating activities
Additions to property, plant and equipment
7,876
(1,196)
(16,845)
(2,299)
17,868
(6,144)
(9,095)
(9,810)
Free cash flow
6,680
(19,144)
11,724
(18,905)
1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
34
Management’s Discussion and Analysis
Fiscal year ended February 28, 2022
The term “Adjusted net income” is defined as net income or loss attributable to Subordinate and Multiple Voting
Shares plus de-recognition of deferred tax assets. The terms “Adjusted net income per share” is obtained by dividing
Adjusted net income 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.
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 MD&A are expressly qualified by this
cautionary statement.
The term “debt load” is defined as bank indebtedness, plus current portion of long-term debt, plus long-term debt.
The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
The term “Free cash flow” is defined as cash provided (used) by operating activities less additions to property, plant
and equipment. 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 ratio” 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.
35
36
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 28, 2022 and 2021
37
Independent auditor’s report
To the Shareholders of Velan Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Velan Inc. and its subsidiaries (together, the Company) as at February 28, 2022
and 2021, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards
Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at February 28, 2022 and 2021;
the consolidated statements of income (loss) for the years then ended;
the consolidated statements of comprehensive income (loss) for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l.
1250 René-Lévesque Boulevard West, Suite 2500, Montréal, Quebec, Canada H3B 4Y1
T: +1 514 205 5000, F: +1 514 876 1502
“PwC” refers to PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., an Ontario limited liability partnership.
38
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended February 28, 2022. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Measurement of the legal provision
Refer to note 2 – Summary of significant accounting
policies and note 12 – Provisions to the
consolidated financial statements.
The Company’s legal provision for asbestos-
containing products amounted to $17.5 million as at
February 28, 2022. Two of the Company’s US
subsidiaries have been named as one of the
defendants in a number of pending lawsuits that
seek to recover damages for personal injury
allegedly caused by exposure to the asbestos-
containing products manufactured and sold in
the past.
Provisions are recognized when the Company has
a present legal or constructive obligation as a result
of past events, it is probable that an outflow of
resources will be required to settle the obligation,
and the amount has been reliably estimated. To
reliably measure the legal provision, management
made a judgment in assessing the legal provision,
including assumptions related to management’s
historical experience in settling claims and the
weighted average cost per claim.
Our approach to addressing the matter included the
following procedures, among others:
Tested how management determined the legal
provision, which included the following:
Tested the appropriateness of the method
used by management and the
mathematical accuracy of the calculation.
Tested the underlying data used in the
calculation which included obtaining legal
confirmation in order to confirm the number
of claims outstanding at the end of
the year.
Evaluated the reasonableness of the
assumptions related to management’s
historical experience in settling claims and
the weighted average cost per claim by
considering the Company’s past
experience in dealing with these types
of claims.
39
Key audit matter
How our audit addressed the key audit matter
We considered this a key audit matter due to the
judgment made by management to assess the
measurement of the provision. This in turn resulted
in subjectivity and a high degree of audit effort in
performing procedures and evaluating audit
evidence relating to management’s historical
experience in settling claims and the weighted
average cost per claim.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information, and we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
40
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
41
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence and, where applicable,
related safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is
Jean-François Lecours.
/s/PricewaterhouseCoopers LLP1
Montréal, Quebec
May 18, 2022
1 CPA auditor, public accountancy permit No. A126402
42
Consolidated Statements of Financial Position
(in thousands of U.S. dollars)
Assets
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable (note 4)
Income taxes recoverable
Inventories (note 5)
Deposits and prepaid expenses
Derivative assets (note 23)
Non-current assets
Property, plant and equipment (note 7 and 8)
Intangible assets and goodwill (note 9)
Deferred income taxes (note 19)
Other assets
Total assets
Liabilities
Current liabilities
Bank indebtedness (note 10)
Accounts payable and accrued liabilities (note 11)
Income taxes payable
Customer deposits
Provisions (note 12)
Derivative liabilities (note 23)
Current portion of long-term lease liabilities (note 8)
Current portion of long-term debt (note 13)
Non-current liabilities
Long-term lease liabilities (note 8)
Long-term debt (note 13)
Income taxes payable
Deferred income taxes (note 19)
Customer deposits
Provisions (note 12)
Other liabilities
Total liabilities
Total equity
Total liabilities and equity
Commitments and contingencies (note 21)
As at
February 28,
February 28,
2022
$
2021
$
54,015
8,726
115,834
2,955
223,198
6,877
553
412,158
73,906
16,693
4,774
897
96,270
508,428
550
80,503
3,806
41,344
18,444
560
1,360
8,111
154,678
11,073
22,927
1,244
4,025
30,139
13,101
5,731
88,240
242,918
265,510
508,428
74,688
285
135,373
3,798
204,161
8,670
196
427,171
96,327
17,319
39,067
949
153,662
580,833
11,735
88,130
1,609
32,003
32,225
303
1,578
9,902
177,485
12,649
48,189
1,410
2,545
30,080
-
8,254
103,127
280,612
300,221
580,833
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
James A. Mannebach, Director
Bruno Carbonaro, Director
43
Consolidated Statements of Income (loss)
(in thousands of U.S. dollars, excluding per share amounts)
Sales (note 12 and 22)
Cost of sales (notes 5 and 15)
Gross profit
Administration costs (note 16)
Gain on disposal of Juwon Special Steel Co. Ltd. (note 6)
Restructuring and transformation
Other expense (income)
Operating profit
Finance income
Finance costs
Finance costs – net
Income before income taxes
Income tax expense (recovery) (note 19)
Net income (loss) for the year
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares
Non-controlling interest
Net income (loss) for the year
Fiscal years ended
February 28,
February 28,
2022
$
2021
$
411,242
302,063
276,273
221,524
134,969
80,539
113,039
(16,108)
-
(538)
38,576
392
(2,792)
(2,400)
36,176
46,431
(10,255)
(21,141)
10,886
(10,255)
80,091
-
(3,930)
2,137
2,241
1,037
(1,903)
(866)
1,375
(822)
2,197
2,867
(670)
2,197
Net income (loss) per Subordinate and Multiple Voting Share (note 20)
Basic and diluted
(0.98)
0.13
The accompanying notes are an integral part of these consolidated financial statements.
44
Consolidated Statements of Comprehensive Income (Loss)
(in thousands of U.S. dollars)
Fiscal years ended
February 28,
February 28,
2022
$
2021
$
Comprehensive income (loss)
Net income (loss) for the year
(10,255)
2,197
Other comprehensive income (loss)
Foreign currency translation
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares
Non-controlling interest
Comprehensive income (loss)
(11,159)
13,163
(21,414)
15,360
(32,260)
10,846
15,907
(547)
(21,414)
15,360
Other comprehensive income (loss) is composed solely of items that may be reclassified subsequently to the consolidated
statement of income (loss).
The accompanying notes are an integral part of these consolidated financial statements.
45
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Consolidated Statements of Cash Flow
(in thousands of U.S. dollars)
Cash flows from
Operating activities
Net income (loss) for the year
Adjustments to reconcile net income (loss) to cash provided (used) by operating
activities (note 25)
Changes in non-cash working capital items (note 26)
Cash provided (used) by operating activities
Investing activities
Short-term investments
Additions to property, plant and equipment
Additions to intangible assets
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of Juwon Steel Co. Ltd. net of cash disposal
Net change in other assets
Cash provided (used) by investing activities
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders
Dividends paid to non-controlling interest
Short-term bank loans
Net change in revolving credit facility
Increase in long-term debt
Repayment of long-term debt
Repayment of long-term lease liabilities
Cash provided (used) by financing activities
Effect of exchange rate differences on cash
Net change in cash during the year
Net cash – Beginning of the year
Net cash – End of the year
Net cash is composed of:
Cash and cash equivalents
Bank indebtedness
Net cash – End of the year
Supplementary information
Interest paid
Income taxes paid
Fiscal years ended
February 28,
February 28,
2022
$
2021
$
(10,255)
45,152
(17,029)
17,868
(8,708)
(6,144)
(2,477)
30,183
(12,684)
(196)
(26)
-
(843)
-
(22,132)
7,874
(6,722)
(1,696)
(23,519)
(3,811)
(9,488)
62,953
53,465
54,015
(550)
53,465
(1,509)
(4,293)
2,197
(4,080)
(7,212)
(9,095)
342
(9,810)
(1,095)
13,738
-
(274)
2,901
(482)
-
(1,379)
22,132
18,195
(3,643)
(1,724)
33,099
5,038
31,943
31,010
62,953
74,688
(11,735)
62,953
(967)
(6,757)
The accompanying notes are an integral part of these consolidated financial statements.
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 28, 2022 and 2021
(in thousands of U.S. dollars, excluding number of shares and per share amounts)
1 General information and basis of preparation
These consolidated financial statements represent the consolidation of the accounts of Velan Inc. (the “Company”)
and its subsidiaries. The Company is an international manufacturer of industrial valves.
The Company is a public company listed on the Toronto Stock Exchange under the symbol “VLN”. It was incorporated
under the name Velan Engineering Ltd. on December 12, 1952 and continued under the Canada Business
Corporations Act on February 11, 1977. It changed its name to Velan Inc. on February 20, 1981. Velan Inc. maintains
its registered head office at 7007 Côte de Liesse, Montreal, Quebec, Canada, H4T 1G2. The Company’s ultimate
parent company is Velan Holdings Co. Ltd.
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”).
These consolidated financial statements were approved by the Company’s Board of Directors on May 18, 2022.
2 Summary of significant accounting policies
Functional and presentation currency
Functional currency is defined as the currency of the primary economic environment in which an entity operates.
Indicators for determining an entity’s functional currency are broken down into primary and secondary indicators.
Primary indicators include:
the currency of sales and cash inflows;
the currency of the country having primary influence over sales prices; and
the currency of expenses and cash outflows.
Primary indicators receive more weight than secondary indicators. If a functional currency can be determined based
on the primary indicators, the secondary indicators are not considered.
The functional and presentation currency of the Company is the U.S. dollar.
Consolidation
These consolidated financial statements represent the consolidation of the accounts of the Company and its
subsidiaries. Control exists when the Company is exposed to, or has rights to, variable returns from its involvement
with an investee, including a structured entity, and has the ability to affect those returns through its power to direct
the activities of an investee. Subsidiaries are fully consolidated from the date control has been transferred to the
Company and deconsolidated from the date control ceases.
All subsidiaries prepare their financial statements at the same reporting date as the Company except for Velan Valvac
Manufacturing Co. Ltd., which has a December 31 fiscal year-end. Consolidated earnings include the Company’s
share of the results of its operations to that date. Intercompany transactions, balances and unrealized gains or losses
on transactions between companies are eliminated.
Foreign currency transactions and balances
The Company and its subsidiaries translate foreign currency transactions and balances into their functional
currencies. Foreign currency is defined as any currency that is different from an individual entity’s functional currency.
Monetary assets and liabilities in foreign currencies are translated at year-end exchange rates. Non-monetary assets
are translated at rates prevailing at the transaction dates. Revenue and expenses in foreign currencies are translated
48
at weekly average rates throughout the year. Gains and losses arising on translation are included in the consolidated
statement of income (loss) for the year.
Translation of accounts of foreign subsidiaries
The financial statements of the Company’s foreign subsidiaries whose functional currency is not the U.S. dollar are
translated into U.S. dollars for reporting purposes. All assets and liabilities are translated at year-end rates, and
revenue and expenses at the average rate for the period. Resulting gains and losses are included in other
comprehensive loss for the year.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity. The Company’s financial assets comprise mainly cash and cash equivalents, short-term
investments, accounts receivable and derivative assets. The Company’s financial liabilities comprise mainly bank
indebtedness, short-term bank loans, accounts payable and accrued liabilities, customer deposits, long-term debt
and derivative liabilities.
The Company recognizes a financial instrument on its consolidated statement of financial position when the Company
becomes party to the contractual provisions of the financial instrument or non-financial derivative contract (see
Embedded derivatives). All financial instruments are initially recognized at fair value and subsequently measured at
amortized cost, fair value through other comprehensive income or fair value through profit and loss depending on the
Company’s business model for managing the financial assets and the contractual cash flow characteristics of the
financial asset. Except in very limited circumstances, the classification is not changed subsequent to initial
recognition.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been
transferred and the Company has transferred substantially all risks and rewards of ownership. Financial liabilities are
derecognized when the obligation underlying the liability has been discharged, cancelled or has expired.
Financial instruments classified at fair value through profit and loss
Derivative financial instruments are classified at fair value through profit and loss at each statement of financial
position date with the changes in fair value recorded in the consolidated statement of income (loss) in the year in
which these changes arise.
Financial instruments classified at amortized cost
The Company’s cash and cash equivalents, short-term investments and accounts receivable, bank indebtedness,
short-term bank loans, accounts payable and accrued liabilities, customer deposits and long-term debt, including
interest payable are financial instruments carried at amortized cost using the effective interest rate method. The
interest income or expense is included in the consolidated statement of income (loss) over the expected life of the
instrument.
The Company assesses the expected credit losses associated with its financial assets measured at amortized costs
at the end of every fiscal year. The impairment methodology applied depends on whether there has been a significant
increase in credit risk.
The Company applies the simplified approach permitted by IFRS 9 for trade receivables which requires the expected
lifetime losses to be recorded at initial recognition.
Embedded derivatives
Derivatives may be embedded in other financial instruments (the “host instrument”). Embedded derivatives are
treated as separate derivatives if their economic characteristics and risks are not closely related to those of the host
instrument, the terms of the embedded derivative are the same as those of a stand-alone derivative, and the
combined contract is not measured at fair value with changes in fair value recognized in profit and loss, nor designated
at fair value through profit or loss. In other words, if the derivative is embedded in a financial instrument classified at
fair value through profit and loss, it is not separated.
49
The Company and its subsidiaries enter into certain contracts for the purchase and sale of non-financial items that
are denominated in currencies other than their respective functional currencies. In cases where the foreign exchange
component is not leveraged and does not contain an option feature, the contract is denominated in the functional
currency of any substantial party to that contract, the currency in which the price of the related good or service that
is acquired or delivered is routinely denominated in commercial transactions around the world, the currency that is
commonly used in contracts to purchase or sell non-financial items in the economic environment in which the
transactions takes place, the embedded derivative is considered to be closely related to the host instrument and is
not accounted for separately.
The fair value of the embedded derivatives related to sales contracts is recorded in sales; purchase contracts are
recorded in cost of sales. On the consolidated statement of financial position, gains are recorded as derivative assets
and losses are recorded as derivative liabilities.
Transaction costs are expensed when incurred.
Fair value
Estimated fair values for financial instruments are designed to approximate amounts at which the instruments could
be exchanged in a current arm’s-length transaction between knowledgeable willing parties. The fair value of derivative
instruments is determined using valuation techniques.
The Company has evaluated the fair values of its financial instruments based on the current interest rate environment,
related market values and current pricing of financial instruments with comparable terms.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in
the ordinary course of the Company’s activities. Revenue is shown net of variable compensation such as returns,
rebates, discounts and provisions for performance guarantees.
Revenue is recognized when the 5-step approach dictated by IFRS 15 has been completed. The 5-steps leading to
revenue recognition are to identify the contract(s) with a customer, identify the performance obligations in the contract,
determine the transaction price, allocate the transaction price to the performance obligations in the contract, and
recognize revenue when (or as) the entity satisfies a performance obligation.
Sales of goods
Sales of goods are recognized when the Company has delivered products to the customer and there is no unfulfilled
obligation that could affect the customer’s acceptance of the products. Delivery of the products does not occur until
the products have been shipped to a specified location in accordance with the agreed-upon shipping terms, the
control, the risk of obsolescence and loss have been transferred to the customer, and either the customer has
accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Company
has objective evidence that all criteria for acceptance have been satisfied. Customers have a right to return faulty
products, and some products are sold with volume discounts. Sales are recorded based on the price specified in the
sales contract, net of the estimated volume discounts and returns at the time of sale. Accumulated experience is
used to estimate and provide for the discounts, returns and accruals for performance guarantees. The volume
discounts are assessed based on anticipated annual purchases.
Provision for performance guarantees are provisions that arise for possible late delivery and other contractual
non-compliance penalties or liquidated damages. It is recognized as a reduction of sales when the Company has a
present legal or constructive obligation as a result of a past event, and the amount has been reliably estimated.
Provision for performance guarantees is not recognized for costs that need to be incurred to operate in the future or
expected future operating losses.
Sales of services
Sales of services are recognized when the Company renders services.
Interest income
Interest income is recognized using the effective interest rate method.
50
Cash and cash equivalents
Cash and cash equivalents include cash on hand, cash in banks, other short-term highly liquid investments with
original maturities of three months or less, and bank indebtedness. Bank indebtedness is shown in current liabilities
on the consolidated statement of financial position.
Short-term investments
Short-term investments include all highly liquid investments with original maturities greater than three months but
less than one year.
Inventories
Inventories are valued at the lower of cost and net realizable value. Net realizable value is the estimated selling price
in the ordinary course of business, less applicable variable selling expenses. Cost of inventories is determined as
follows:
a) raw materials principally using the weighted average method except for items that are not ordinarily
interchangeable, in which case specific identification of their individual costs is used; and
b) work in process and finished goods using the raw material cost described in (a) plus applicable direct labour and
manufacturing overhead.
The value of obsolete or unmarketable inventory is based on the Company’s assessment of market conditions for its
products determined by historical usage, estimated future demand and, in some cases, the specific risk of loss on
specifically identified inventory. The write-down may be reversed if the circumstances which caused it no longer exist.
Property, plant and equipment
Property, plant and equipment are valued at acquisition or manufacturing costs less any related government
assistance, accumulated depreciation and any accumulated impairment losses. Acquisition costs include any
expenditure that is directly related to the acquisition of the item. Manufacturing costs include direct material and
labour costs plus applicable manufacturing overheads. Borrowing costs directly attributable to the acquisition,
construction or production of assets that necessarily take a substantial period of time to be ready for their intended
use are added to the cost of those assets, until such time as those assets are ready for their intended use.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Company and the cost
of the item can be reliably measured. The carrying amount of a replaced part is expensed as the parts are used. All
other repairs and maintenance are charged to the consolidated statement of income (loss) during the period in which
they are incurred.
Depreciation of assets commences when the assets are ready for their intended use. The assets’ residual values
and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Changes in expected
useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted
for by changing the depreciation period or method, as appropriate, and treated on a prospective basis as a change
in estimate.
Depreciation on the property, plant and equipment is determined principally using the following methods and annual
rates or terms:
Buildings
Machinery and equipment/Furniture and fixtures
Data processing equipment
Rolling stock
Leasehold improvements
Method
Rate/term
Declining balance
Declining balance
Straight-line
Declining balance
Straight-line
4% to 5%
10% to 31%
3 years
30%
Over lease terms
51
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the Company’s share of the net identifiable
assets of the acquired subsidiary at the date of acquisition. Goodwill is carried at cost less accumulated impairment
losses.
Intangible assets
Purchased intangible assets relate primarily to patents, products, designs, customer lists, non-compete agreements
and computer software. Internally generated intangible assets relate to development costs. Research and
development costs are expensed as incurred unless the development costs meet the criteria for deferral.
Amortization expense is recognized in the consolidated statement of income (loss) in the expense category consistent
with the function of the intangible asset. The assets’ useful lives are reviewed, and adjusted if appropriate, at the end
of each reporting period or more frequently if events or circumstances occur that would indicate a change in useful
life. Changes in expected useful life or the expected pattern of consumption of future economic benefits embodied in
the asset are accounted for by changing the amortization period or method, as appropriate, and treated on a
prospective basis as a change in estimate. Amortization is determined principally using the following methods and
terms:
Patents, products and designs
Customer lists
Non-compete agreements
Computer software
Government assistance
Method
Straight-line
Straight-line
Straight-line
Straight-line
Rate/term
5 to 15 years
10 years
5 years
1 to 3 years
Government assistance, in the form of wage subsidies and investment tax credits (“ITCs”), is accounted for using the
cost reduction method. Under this method, assistance relating to eligible expenditures is deducted from the cost of
the related assets or related expenses in the period in which the expenditures are incurred, provided there is
reasonable assurance of realization. The details of the wage subsidies received by the Company are disclosed in
notes 16 to 19.
Impairment of non-financial assets
Assets that have an indefinite life (e.g. goodwill or indefinite life intangible assets) are not subject to amortization and
are tested annually for impairment, or more frequently if events or circumstances indicate there may be impairment.
All other long-lived assets must be reviewed at the end of each reporting period in order to determine whether there
is an indication of possible impairment.
For the purposes of impairment testing, assets are grouped at the lowest levels for which there are separately
identifiable cash flows. A cash-generating unit (“CGU”) is the smallest group of assets that generates cash inflows
that are largely independent of the cash inflows from other assets or groups of assets. If an indication of impairment
exists, the recoverable amount of the CGU is estimated in order to determine the extent of the impairment loss, if
any. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable
amount. If the recoverable amount of the CGU is less than the carrying amount, the impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU on a pro
rata basis of the carrying amount of each asset in the CGU. The recoverable amount is the greater of an asset’s or
CGU’s fair value less costs of disposal and its value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset.
Goodwill is allocated to CGUs for the purpose of impairment testing based on the level at which it is monitored by
management. The allocation is made to those CGUs that are expected to benefit from the business combination in
which the goodwill arose.
52
Non-current and non-financial assets, other than goodwill, that have previously suffered an impairment loss are
reviewed for possible reversal of the impairment at each reporting date.
Income taxes
The provision for income taxes for the year comprises current and deferred income taxes. Taxes are recognized in
the consolidated statement of income (loss), except to the extent that it relates to items recognized in other
comprehensive income (loss) or directly in equity, in which case the taxes are recognized in other comprehensive
income (loss) or equity, respectively.
Current income taxes
The current income taxes charge is calculated on the basis of the tax laws enacted or substantively enacted at the
statement of financial position date in the countries where the Company generates taxable profits. When an asset is
transferred between entities within the consolidated group, the difference between the tax rates of the two entities is
recognized as a tax expense in the period in which the transfer occurs. Current taxes payable is recognized for any
taxes payable in the current period. Current tax liabilities are recognized for current taxes to the extent that they
remain unpaid for current and prior periods.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation and establishes provisions where appropriate. Uncertain income tax provisions
are recorded when probable and are recorded at the Company’s best estimate of the amount.
Deferred income taxes
Deferred income taxes are recognized using the liability method on temporary differences arising between the tax
bases of assets and liabilities and their carrying amount in the consolidated financial statements. However, the
deferred income taxes are not accounted for if they arise from initial recognition of an asset or liability in a transaction
other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or
loss. Deferred income taxes are determined using tax rates and laws that have been enacted or substantively enacted
by the statement of financial position date and are expected to apply when the related deferred income tax asset is
realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent
that it is probable that future taxable profit will be available against which the temporary differences can be used.
Deferred income tax assets are reviewed at each statement of financial position date and amended to the extent that
it is no longer probable that the related tax benefit will be realized.
Deferred income taxes are provided on temporary differences arising on investments in subsidiaries, except where
the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the
temporary difference will not reverse in the foreseeable future.
Current income tax assets and liabilities are offset when the Company has a legally enforceable right to offset the
recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously. Normally, the Company would only have a legally enforceable right to set off a current tax asset
against a current tax liability when they relate to income taxes levied by the same taxation authority and the taxation
authority permits the Company to make or receive a single net payment. Deferred income tax assets and liabilities
are offset when the Company has a legally enforceable right to set off current income tax assets against current
income tax liabilities and deferred income tax assets and liabilities related to income taxes levied by the same taxation
authority on either: (1) the same taxable entity; or (2) different taxable entities which intend either to settle current tax
liabilities and assets on a net basis, or to realize assets and settle the liabilities simultaneously, in each future period
in which significant amounts of deferred income tax liabilities or assets are expected to be settled or recovered.
Provisions
Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past
event, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been
reliably estimated. Provisions are not recognized for costs that need to be incurred to operate in the future or expected
future operating losses.
53
Provisions are measured at the present value of the expenditures required to settle the obligation using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
obligation.
Provision for performance guarantees is measured at the present value of the expenditures required to settle the
obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the obligation.
Leases
In situations where the Company is a lessee, it recognizes a right-of-use asset and a lease liability when the asset is
available for use. The right-of-use asset is measured at the amount of the lease liability adjusted for any initial direct
costs, prepaid lease payments, restoration costs, and any lease incentives received. The right-of-use asset is
depreciated over the shorter of the lease term and useful life of the asset using the straight-line method since it closely
reflects the expected pattern of consumption of the future economic benefits. The right-of-use asset may be
periodically reduced by impairment losses, if any, and adjusted for certain remeasurement of the lease liability.
The lease liability is measured at the present value of lease payments payable discounted using the implicit rate or
the Company’s incremental borrowing rate when the implicit rate cannot be determined. It is subsequently measure
at amortized cost using the effective interest method. It is remeasured when there is a change in future lease
payments arising from a change in an index, rate or estimate. Cash payments for the principal portion of the lease
liability are presented within the financial activities and the interest portion of the lease liability is presented within the
operating activities of the statement of cash flows.
The Company has elected to apply the recognition exemptions for short term leases and leases where the underlying
asset has a low value whereby payments made are charged to the consolidated statement of income (loss) on a
straight-line basis over the term of the lease.
Share-based compensation plans
Grants under the Company’s share-based compensation plans are accounted for in accordance with the fair
value-based method of accounting. The Company operates a share-based compensation plan under which it receives
services from employees as consideration for share options, performance share units (“PSUs”) and deferred share
units (“DSUs”).
Share options
The fair value of the employee services received in exchange for the grant of the options is amortized over the vesting
period as compensation expense, with a corresponding increase to contributed surplus. The total amount to be
expensed is determined by multiplying the number of options expected to vest with the fair value of one option as of
the grant date as determined by the Black-Scholes option pricing model. Remaining an employee of the Company
for a specified period of time is the only condition for vesting. Vesting typically occurs one-quarter per year over four
years from the grant date. This non-market performance condition is factored into the estimate of the number of
options expected to vest. If the number of options expected to vest differs from that originally expected, the expense
is adjusted accordingly. When options are exercised, the Company issues new shares. The proceeds received,
together with the amount recorded in contributed surplus, net of any directly attributable transaction costs, are
recorded in share capital.
PSUs and DSUs
PSUs and DSUs may be granted to certain of its independent directors and full-time employees as part of their
long-term compensation package entitling them to receive payout in cash based on the Company’s share price at the
relevant time. A liability for PSUs and DSUs is measured at fair value on the grant date and is subsequently adjusted
at each balance sheet date for changes in fair value according to the estimation made by management of the number
of PSUs and DSUs that will eventually vest. The liability is recognized to accounts payable and accrued liabilities
over the vesting period, with a corresponding charge to compensation expense.
54
Critical accounting estimates and assumptions
The Company’s significant accounting policies as described above are essential to understanding the Company’s
results of operations, financial positions 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. 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.
Inventories
Inventories must be valued at the lower of cost and net realizable value. A write-down of inventory will occur when
its estimated market value less applicable variable selling expenses is below its carrying amount. This involves
significant management judgment and is based on the Company’s assessment of market conditions for its products
determined by historical usage, estimated future demand and, in some cases, the specific risk of loss on specifically
identified inventory. Any change in the assumptions used in assessing this valuation or selling costs could impact
the carrying amount of the inventory on the consolidated statement of financial position with a corresponding impact
made to cost of sales on the consolidated statement of income (loss).
Warranty provisions
Provisions must be established for possible product warranty expenses. The Company estimates its warranty
exposure by taking into account past experience as well as any known technical problems and estimates of costs to
resolve these issues. The Company estimates its exposure under these obligations based on an analysis of all
identified or expected claims. Any change in the assumptions used could impact the value of the provision on the
consolidated statement of financial position with a corresponding impact made to cost of sales on the consolidated
statement of income (loss).
Provision for performance guarantees
Provision for performance guarantees consist of possible late delivery and other contractual non-compliance
penalties or liquidated damages. The Company estimates the specific contractual terms, historical trends and
forward-looking performance risks. The Company estimates its exposure under these obligations based on an
analysis of all identified or expected claims. Any change in the assumptions used could impact the value of the
provision for performance guarantees on the consolidated statement of financial position with a corresponding impact
made to sales on the consolidated statement of income (loss).
Legal provision
Legal settlements provision estimates the liability related to all outstanding open cases in relations with the
Company’s ongoing asbestos ligations. The Company’s estimate of cost per claim takes into consideration a weighted
average of managements historical experience in settling those claims, a historical average in settling claims adjusted
to remove the years with the highest and lowest costs per claim, and average of cost per claim in the last three years.
This weighted average is applied to the number of claim outstanding at the end of the year to arrive at the estimate.
Any change in the assumptions used could impact the value of the legal provision on the consolidated statement of
financial position with a corresponding impact made to administration costs on the consolidated statement of income
(loss).
Impairment of non-financial assets
Assets that have an indefinite life, such as goodwill, are tested annually by the Company for impairment, or more
frequently if events or circumstances indicate there may be impairment. All other assets must be reviewed by the
Company at the end of each reporting period in order to determine whether there is an indication of possible
impairment. Determining whether there are indicators of potential impairment is a matter of significant judgment.
When determining the recoverable amount of a CGU, management prepares estimates based on assumptions such
55
as the weighted-average cost of capital, the Earnings before interest, taxes, depreciation and amortization (“EBITDA”)
margin and revenue growth. Any change in the assumptions used could impact the carrying amount first of any
goodwill allocated to the CGU and then to the other assets of the CGU on a pro rata basis of the carrying amount of
each asset in the CGU on the consolidated statement of financial position with a corresponding impact made to the
consolidated statement of income (loss).
Income taxes
The Company must estimate its income taxes in each jurisdiction in which it operates. This involves assessing the
probability of using net operating losses against future taxable profits as well as evaluating positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation. In the event these
assessments are changed, there would be an adjustment to income tax expense with a corresponding adjustment to
income tax balances on the consolidated statement of financial position.
Critical judgements in applying the Company’s accounting policies
Novel coronavirus (“COVID-19”) global pandemic
Since December 2019, the COVID-19 global pandemic has caused temporary disruptions in the Company’s
production and supply chain which have materially adversely affected its business and financial results. The
economic slowdown triggered by the global pandemic, mainly in the oil and gas sector at the beginning of the previous
fiscal year, also translated in lower non-project valve sales for the Company. Nevertheless, the Company’s net order
bookings had shown a positive trend for the fiscal year ended February 28, 2021. As for fiscal year ended
February 28, 2022, following a softer first half of the year, MRO sales stated to pick-up at the midpoint of the year
and reached pre-covid levels by year-end. The MRO segment had suffered the most from the economic slowdown
caused by the COVID-19 pandemic in the previous year, thereby causing its bookings to sharply fall. The Company
has implemented proactive measures to protect its global workforce and mitigate the numerous effects of the
pandemic, but given the ongoing dynamic nature of circumstances surrounding COVID-19, it is not possible to reliably
estimate the length, severity and long term impact the global pandemic may have on the Company’s results,
conditions and cash-flows. Therefore, the COVID-19 global pandemic should still be considered a risk factor.
In reaction to the COVID-19 pandemic, the Company applied for the Canada Emergency Wage Subsidy which
allowed the Company to avoid lay-offs that otherwise would have been necessary to blunt the financial impact of the
pandemic. The details of the wage subsidies received by the Company are disclosed in notes 16 to 19.
Consolidation
On December 15, 2021, the Company disposed of its participation in Juwon Special Steel Co. Ltd. Refer to note 6 c)
for more information on the transactions and financial information at disposal date.
Until disposition, the Company consolidated the accounts of Juwon Special Steel Co. Ltd. in these consolidated
financial statements. It was determined that the Company had substantive rights over this structured entity that were
currently exercisable and for which there was no barrier, despite the fact that its percentage ownership in this entity
was only 50%. These substantive rights were obtained through the shareholders’ agreement signed between the
Company and the non-controlling interest which gave the Company the ultimate decision right on any decision taken
for which both parties in the joint arrangement were not in agreement. As per the shareholders’ agreement, the Board
of Directors, representing the interests of shareholders, had responsibility to establish operating decisions (including
budgets), approve capital transactions and determine key management personnel remuneration. Consequently, the
Company, through its rights set out in the shareholders’ agreement, had substantive rights that gave it the ability to
direct the relevant activities of Juwon Special Steel Co. Ltd. while being exposed to variable returns. As such, it was
determined that this entity should be consolidated.
56
3 New accounting standards and amendments
Accounting standards and amendments issued adopted in the year
In August 2020, the International Accounting Standards Board (“IASB”) issued Interest Rate Benchmark Reform
(Phase 2), which amends IFRS 9 Financial instruments, IAS 39 Financial instruments: Recognition and
measurement, IFRS 7 Financial instruments: Disclosures and IFRS 16 Leases. The Phase 2 amendments address
issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement
with alternative benchmark rates. These amendments complement those issued in 2019 and focus on issues that
might affect financial reporting during the reform of an interest rate benchmark, including the effects of changes to
contractual cash flows arising from the replacement of an interest rate benchmark with an alternative benchmark
rate. This amendment was adopted effective March 1, 2021 and resulted in no material adjustments.
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 statements 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.
4 Accounts receivable
(thousands)
Trade accounts receivable
Loss allowance
Other accounts receivables
As at
February 28,
2022
$
February 28,
2021
$
108,217
(509)
8,126
115,834
123,362
(1,146)
13,157
135,373
57
The table below summarizes the movements in the loss allowance:
(thousands)
Balance – Beginning of year
Loss allowance expense (reversal)
Recoveries of trade accounts receivable
Write-off of trade accounts receivable
Foreign exchange
Balance – End of year
As at
February 28,
2022
$
February 28,
2021
$
1,146
321
(683)
(241)
(34)
509
2,002
(142)
(313)
(497)
96
1,146
The loss allowance is included in the administration costs on the consolidated statement of income (loss).
Amounts charged to the loss allowance account are generally written off when there is not a reasonable expectation
of recovery.
5
Inventories
(thousands)
Raw materials
Work in process and finished parts
Finished goods
As at
February 28,
2022
$
February 28,
2021
$
48,381
136,221
38,596
223,198
40,404
118,553
45,204
204,161
As a result of variations in the ageing of its inventories, the Company recognized a net additional inventory provision
for the year of $3,479 (2021 – $3,843), including reversals of $4,911 (2021 – $6,601).
The net book value of inventories pledged as security under the Company’s long-term debt amounted to $98,306
(2021 – $103,235).
58
6 Subsidiaries and transactions with non-controlling interests
a)
Interest in subsidiaries
Set out below are the Company’s principal subsidiaries as at February 28, 2022. Unless otherwise stated, the
subsidiaries have share capital consisting solely of ordinary shares, which are held directly by the Company, and the
proportion of ownership interests held equals the voting rights held by the Company. The country of incorporation or
registration is also their principal place of business.
% of ownership
held by the
Company
% of ownership
held by the non-
controlling
interests
Functional
currency
Country of
incorporation
2022
2021
2022
2021
Principal activities
Name of entity
Velan Valve Corp.
Velan Ltd.
U.S. Dollar
U.S. Dollar
Juwon Special Steel Co. Ltd.
Korean Won
Velan Valvulas Industriais Lda.
Velan S.A.S.
Segault S.A.S.
Velan GmbH
Velan ABV S.r.l.
Euro
Euro
Euro
Euro
Euro
Velan Valvac Manufacturing Co. Ltd.
U.S. Dollar
Velan Valve (Suzhou) Co. Ltd.
U.S. Dollar
Velan Valves India Private Limited
Indian Rupee
b) Significant restrictions
U.S.A
Korea
Korea
Portugal
France
France
Germany
Italy
Taiwan
China
India
100
100
0
100
100
75
100
100
90
85
100
100
50
100
100
75
100
100
90
85
100
100
-
-
100
-
-
25
-
-
10
15
-
-
-
50
-
-
Valve Manufacture
Valve Manufacture
Foundry
Valve Manufacture
Valve Manufacture
25
Valve Manufacture
-
-
10
15
-
Valve Distribution
Valve Manufacture
Valve Manufacture
Valve Manufacture
Valve Manufacture
Cash and cash equivalents and short-term investments held in certain Asian countries are subject to local exchange
control regulations. These regulations provide for restrictions on exporting capital from those countries, other than
through normal dividends. However, such restrictions do not have a significant impact on the Company’s operations
and treasury management as less than 16% (2021 – 7%) of the Company’s cash and cash equivalents and short-
term investments are subject to such restrictions. The total amount of cash and cash equivalents and short-term
investments subject to such restrictions as at February 28, 2022 was $8,825 (2021 – $4,781).
c) Non-controlling interests
Set out below is summarized financial information for each subsidiary and structured entity that has non-controlling
interests that are material to the Company and for which the non-controlling interest is recognized as equity rather
than as a liability (see note 13(f)). The amounts disclosed for each subsidiary are before intercompany eliminations.
On December 15, 2021, the Company disposed of its investment in Juwon Special Steel Co. Ltd. (“Juwon”), a
50%-owned Korean foundry. Prior to the disposal of Juwon, the subsidiary sold a land and a plant located in Busan,
South Korea, for net proceeds of $27,011 which resulted in a gain on disposal of $22,986. With these proceeds,
Juwon purchased the Company’s investment for $3,387 which resulted in a loss on disposal of $6,878. The net gain
of $16,108 realized on the two transactions was presented on a net basis since both transactions were essentially
interrelated as one could not have occurred without the other. The net gain after minority interests amounted to
$4,615. The below financial statements are presented as at disposal date of December 15, 2021.
59
Summarized statements of financial position
(thousands)
Current assets
Current liabilities
Current net assets (liabilities)
Non-current assets
Non-current liabilities
Non-current net assets
Net assets
Accumulated non-controlling interest
Summarized statements of comprehensive income (loss)
(thousands)
Sales
Net income (loss) for the year
Other comprehensive income (loss)
Total comprehensive income (loss) for the year
Net income (loss) allocated to non-controlling interests
Dividends paid to non-controlling interests
Summarized statements of cash flows
(thousands)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate differences on cash
Net increase (decrease) in cash and cash equivalents
Juwon Special Steel Co. Ltd.
As at December 15,
2021
$
As at February 28,
2021
$
19,452
1,137
18,315
9,792
6,162
3,630
21,945
12,454
5,475
10,977
(5,502)
14,756
6,450
8,306
2,804
2,456
Juwon Special Steel Co. Ltd.
For the period ended
December 15, 2021
$
For the period ended
February 28, 2021
$
8,721
21,763
(933)
20,830
10,881
843
12,130
(1,801)
244
(1,557)
(698)
-
Juwon Special Steel Co. Ltd.
For the period ended
December 15, 2021
$
For the period ended
February 28, 2021
$
(2,374)
26,965
(2,685)
(461)
21,445
156
(324)
(711)
(344)
(1,223)
60
Land
$
Buildings
$
Machinery
&
equipment
$
Furnitures
& fixtures
$
Data
processing
equipment
$
Rolling
stock
$
Leasehold
improve-
ments
$
Right-of-
use
assets
(note 8)
$
Total
$
7 Property, plant and equipment
(thousands)
At February 29, 2020
Cost
25,298
56,518
151,576
Accumulated depreciation
-
(30,362)
(123,287)
25,298
26,156
28,289
Year ended February 28, 2021
Beginning balance
Additions
Modifications to lease terms
Disposals
Depreciation
Exchange differences
25,298
703
-
(576)
-
1,076
26,156
4,280
-
(2,484)
(1,643)
461
26,501
26,770
28,289
3,905
-
(1,423)
(5,464)
706
26,013
At February 28, 2021
Cost
26,501
56,184
141,940
Accumulated depreciation
-
(29,414)
(115,927)
26,501
26,770
26,013
Year ended February 28, 2022
Beginning balance
Additions
Modifications to lease terms
Disposals
Disposal of Juwon Special Steel
Co. Ltd.
Depreciation
Exchange differences
At February 28, 2022
Cost
Accumulated depreciation
26,501
26,770
-
-
(6,843)
(9,537)
-
(551)
9,570
988
-
(76)
(82)
(1,701)
(392)
25,507
26,013
4,216
-
(275)
(371)
(5,062)
(580)
23,941
8,428
(7,508)
920
920
200
-
(3)
(303)
36
850
8,797
(7,947)
850
850
112
-
-
(2)
(261)
(28)
671
7,669
2,868
2,798
16,895
272,050
(6,734)
(2,501)
(1,738)
(1,741)
(173,871)
935
367
1,060
15,154
98,179
935
587
-
-
367
64
-
(5)
(579)
(143)
27
970
13
296
1,606
15,154
71
-
-
(223)
103
631
(1,088)
(183)
1,195
1,011
13,916
98,179
10,441
(1,088)
(4,674)
3,617
96,327
(1,793)
(10,148)
7,876
2,583
3,117
17,221
264,219
(6,906)
(2,287)
(2,106)
(3,305)
(167,892)
970
296
1,011
13,916
96,327
970
276
-
(1)
-
269
135
-
(2)
(46)
(478)
(126)
(24)
743
(9)
248
1,011
13,916
417
1,012
-
-
-
30
(168)
(46)
(241)
(83)
(1,722)
(900)
1,104
12,122
96,327
7,156
30
(7,365)
(10,084)
(9,591)
(2,567)
73,906
9,570
54,341
134,591
-
(28,834)
(110,650)
9,570
25,507
23,941
8,490
(7,819)
671
7,992
2,033
3,297
16,336
236,650
(7,249)
(1,785)
(2,193)
(4,214)
(162,744)
743
248
1,104
12,122
73,906
Depreciation expense of $9,591 (2021 – $10,148) is included in the consolidated statement of income (loss): $7,751
(2021 – $8,222) in “cost of sales” and $1,840 (2021 – $1,926) in “administration costs”.
61
8 Leases
a) Right-of-use assets
Carrying value by asset class
(thousands)
Land
Buildings
Furniture & Fixtures
Machinery & Equipment
Data Processing Equipment
Rolling Stock
Depreciation by asset class
(thousands)
Land
Buildings
Furniture & Fixtures
Machinery & Equipment
Data Processing Equipment
Rolling Stock
b) Long-term lease liabilities
(thousands)
Current portion of long-term lease liabilities
Long-term lease liabilities
62
As at
February 28,
2022
$
February 28,
2021
$
6,565
4,233
9
192
104
1,019
7,219
5,177
22
258
165
1,075
12,122
13,916
As at
February 28,
2022
$
February 28,
2021
$
119
805
13
100
55
630
118
838
13
116
76
632
1,722
1,793
As at
February 28,
2022
$
February 28,
2021
$
1,360
11,073
12,433
1,578
12,649
14,227
Amounts recognized in the consolidated statement of income (loss):
(thousands)
Expenses relating to short-term leases (including in “cost of sales”
and “administration costs”
Expenses relating to leases of low-value assets, excluding short-
term leases of low value (included in “cost of sales” and
“administration costs”)
Expenses related to variable lease payments (included in “cost of
sales” and “administration costs”)
Interest expenses (included in “finance costs”)
9
Intangible assets and goodwill
For the years ended
February 28,
2022
$
February 28,
2021
$
296
272
131
179
278
125
127
356
(thousands)
At February 29, 2020
Cost
Accumulated depreciation
Year ended February 28, 2021
Beginning balance
Additions
Depreciation
Exchange differences
At February 28, 2021
Cost
Accumulated depreciation
Year ended February 28, 2022
Beginning balance
Additions
Depreciation
Exchange differences
At February 28, 2022
Cost
Accumulated depreciation
Goodwill
$
Computer
software
$
Patent,
products &
designs
$
Customer
lists
$
Data
processing
equipment
$
8,599
-
8,599
8,599
-
-
896
9,495
9,495
-
9,495
9,495
-
-
(707)
8,788
8,788
-
8,788
8,176
(7,630)
546
546
219
(209)
39
514
15,872
(8,557)
7,315
7,315
876
(1,421)
435
7,205
5,928
(5,242)
686
686
-
(626)
43
103
8,683
(8,169)
514
17,949
(10,744)
7,205
6,545
(6,442)
103
514
944
(415)
(59)
984
7,205
1,533
(1,540)
(279)
6,919
103
-
(100)
(3)
-
9,243
(8,259)
984
18,535
(11,616)
6,919
6,058
(6,058)
-
673
(671)
2
2
-
-
-
2
15
(13)
2
2
-
-
-
2
15
(13)
2
Total
$
39,248
(22,100)
17,148
17,148
1,095
(2,337)
1,413
17,319
42,687
(25,368)
17,319
17,319
2,477
(2,055)
(1,048)
16,693
42,639
(25,946)
16,693
63
Amortization expense of $2,055 (2021 – $2,337) is included in the consolidated statement of income (loss): $970
(2021 – $1,394) in “cost of sales” and $1,085 (2021 – $943) in “administration costs”.
As at February 28, 2022, the Company capitalized $1,533 (2021 – $876) of development costs, net of government
assistance of nil (2021 – $262), as patents, products and designs.
Goodwill impairment test as at February 28, 2022
In the context of its annual impairment testing, the Company completed its impairment analysis and assessed the
recoverability of the assets allocated to its various CGUs. The Company calculated the recoverable amounts of its
CGUs using valuation methods which were consistent with those used in prior years.
The Company tested for impairment the carrying amount of the goodwill associated with the CGU related to its French
subsidiary, Velan S.A.S., and determined that the recoverable amount significantly exceeded the carrying amount of
$57,044 by $59,146. Accordingly, no goodwill impairment loss was recorded for this CGU at February 28, 2022.
The recoverable amount was determined based on the fair value less costs of disposal approach using a discounted
cash flow model. The significant key assumptions are sales growth, EBITDA margin and discount rate.
10 Credit facilities
a) The Company has a facility with Export Development Canada of $24,000 (2021 – $28,100) for letters of credit
and letters of guarantee. As at February 28, 2022, $9,848 (2021 – $19,039) was drawn against this facility. The
credit facility expires on November 30, 2022 and is renewed annually.
b) Foreign subsidiaries and structured entities have the following credit facilities available as at February 28, 2022
totalling $67,351 (2021 - $86,546):
Credit facilities available
(thousands)
European subsidiaries
Korean subsidiaries
Indian subsidiary
Taiwanese subsidiary
Chinese subsidiary
Structured entity
As at February 28, 2022
$59,983 (€53,465)
As at February 28, 2021
$72,046 (€59,439)
$3,524 (KW4,235,400)
$3,590 (KW4,046,800)
$2,516 (INR 190,000)
$2,570 (INR 190,000)
$535 (NTD 15,000)
$534 (NTD 15,000)
$793 (CNY 5,000)
Nil
Borrowing Rates
0.02% to 6.58%
2.45% to 3.52%
8.50%
1.30%
3.85%
Nil
$7,806 (KW8,800,000)
2.48% to 3.08%
The above credit facilities are available by way of demand operating lines of credit, bank loans, guarantees, letters
of credit and foreign exchange forward contracts. They are secured by corporate guarantees. The majority of these
credit facilities have variable borrowing rates based on EURIBOR, KORIBOR, EONIA or prime rate. The borrowing
rates listed above are the rates in effect as at February 28, 2022. The terms of the above facilities range from annual
renewal to an indefinite term. The aggregate net book value of the assets pledged under the above credit facilities
amounted to $2,576 (2021 – $6,797).
As at February 28, 2022, an amount of $550 (2021 – $11,735) was drawn against these secured credit facilities in
the form of demand operating lines of credit and bank overdrafts. An additional $9,566 (2021 – $15,037) was drawn
against these secured credit facilities in the form of letters of credit and letters of guarantee.
64
11 Account payable and accrued liabilities
(thousands)
Trade accounts payable
Goods and services taxes payable
Commissions payable
Accrued liabilities
Accrued payroll expenses
Other
As at
February 28,
2022
$
February 28,
2021
$
34,306
3,753
2,209
14,373
24,190
1,672
80,503
37,080
1,500
1,834
22,926
21,673
3,117
88,130
12 Provisions
(thousands)
Provision for
performance
guarantees
(note a)
$
Warranty
provision
(note b)
$
Succession
provision
$
Legal
Provision
(note c)
$
Other
provision
$
Total
$
Balance – February 29, 2020
21,127
9,477
5,486
2,012
1,000
39,102
Additions
Usage
Reversals
Exchange differences
Balance – February 28, 2021
Additions
Usage
Reversals
Exchange differences
Balance – February 28, 2022
Less: Current provision
Long-term provision
2,029
(1,180)
(5,079)
1,918
18,815
2,168
(1,033)
(16,646)
(705)
2,599
2,599
-
2,464
(735)
(4,710)
645
7,141
3,072
(356)
(2,001)
(483)
7,373
7,373
-
-
(2,574)
(1,353)
-
1,559
998
(217)
(1,523)
-
817
817
-
5,390
(4,692)
-
-
2,710
19,924
(5,178)
-
-
17,456
4,355
13,101
1,000
-
-
-
2,000
1,300
-
-
-
3,300
3,300
-
10,883
(9,181)
(11,142)
2,563
32,225
27,462
(6,784)
(20,170)
(1,188)
31,545
18,444
13,101
a) The company’s provision for performance guarantees consists of possible late delivery and other contractual
non-compliance penalties or liquidated damages. Management’s best estimates considers the specific
contractual terms, past experience and a probability of potential cash outflows. For the year ended
February 28, 2022, based on past experience, the Company revised the accounting estimates used to assess its
provision. Accordingly, an amount of $13,223 was recorded in “sales”.
b) The Company offers various warranties to its customers. Management estimates the related provision for future
warranty claims based on historical warranty claim information, as well as recent trends that might suggest that
past cost information may differ from future claims. Factors that could impact the estimated claim information
include the success of the Company’s productivity and quality initiatives, as well as parts and labour costs.
65
c) Two of the Company’s U.S. subsidiaries have been named as defendants in a number of pending lawsuits that
seek to recover damages for personal injury allegedly caused by exposure to asbestos-containing products
manufactured and sold in the past. The legal provision estimates the potential liability related to all outstanding
open cases taking into consideration, among other factors, past settlement experience and the number of claims
outstanding. For the year ended February 28, 2022, the Company revised the assessment of the provision for
such claims, resulting in an addition to the provision of $13,101 which was recorded in “administration costs”.
13 Long-term debt
(thousands)
As at
February 28,
2022
$
February 28,
2021
$
Revolving credit facility (note a)
-
22,132
Canadian entity
Secured bank loan ($CAD 22,500; February 28, 2021 - $CAD
15,000) (note b)
French subsidiaries
Unsecured bank loan (€2,943; February 28, 2021 - €5,547) (note c)
Italian subsidiary
Unsecured bank loan (€2,869; February 28, 2021 - €3,000) (note d)
Unsecured state bank loan (€690; February 28, 2021 - €920)
(note e)
Korean structured entity
Secured bank loan (nil; February 28, 2021 – KW 7,064,400)
Other (note f)
Less: current portion
17,134
11,581
3,302
6,723
3,219
3,636
774
1,115
-
6,609
31,038
8,111
22,927
6,266
6,638
58,091
9,902
48,189
a) On July 3, 2020, the Company and its U.S. subsidiary company, Velan Valve Corp. secured new financing in the
form of a $65,000 multi-currency revolving credit facility subject to a borrowing base calculation and renewable
every three years. This revolving credit facility can be drawn in US dollars or Canadian dollars. Drawings bear
interest at either the US Base rate, US Prime rate, Canadian prime rate, CDOR or SOFR, plus a margin based
on the Company’s excess availability. Under the terms of the credit facility, the Company is required to satisfy a
restrictive covenant based on a financial ratio. As at February 28, 2022, the Company had drawn down nil (2021
- $22,132) on the revolving credit facility and had $3,980 (2021 - $5,436) in the form of outstanding letters of
credit and letters of guarantee on a total $49,365 (2021 - $55,518) borrowing availability. Furthermore, the
Company was in compliance with its covenant.
b) The secured mortgage bank loan of $17,134 ($CAD 22,500) bears interest at 3.80% with monthly principal
repayments of $75 and repayable over 20 years.
c) The unsecured bank loans total $3,302 (€2,943) and bear interest at a range of [0.25% - 0.53%]. Repayments
include monthly payments totalling $111. These loans expire between 2023 and 2027.
66
d) The unsecured bank loans total $3,219 (€2,869) and bear interest at a range of [1.00% - 1.25%]. Repayments
include monthly payments of $18 and quarterly payments of $184. These loans expire in 2025 and 2026.
e) The unsecured bank loan of $774 (€690) bears interest at 3.00% and is repayable in semi-annual payments of
$129, expires in 2024.
f)
Included in Other is an amount of $5,072 (€4,521) (February 28, 2021 – $5,380 (€4,438)) related to an
unconditional put option held by a minority shareholder in one of the Company’s subsidiary companies. This is
recognized as a liability instead of non-controlling interest. The liability is initially recognized as the non-controlling
interest’s share of the net identifiable assets of the subsidiary or structured entity. Subsequently, the liability is
carried at the amount of the present value of estimated future cash flows discounted at the original effective rate.
Adjustments to the carrying value are recorded as interest expense in the consolidated statement of income
(loss).
The aggregate net book value of the assets pledged as collateral under the revolving credit facility amounted to
$130,277 (2021 – $133,678) and under long-term debt agreements amounted to $17,134 (2021 – $28,832).
The carrying value of long-term debt approximates its fair value.
14 Share capital
a) Authorized – in unlimited number
Preferred Shares, issuable in series
Subordinate Voting Shares
Multiple Voting Shares (five votes per share), convertible into Subordinate Voting Shares
b) Issued
(thousands)
6,019,068 Subordinate Voting Shares
15,566,567 Multiple Voting Shares
As at
February 28,
2022
$
February 28,
2021
$
65,569
7,126
72,695
65,569
7,126
72,695
c) The Company established a fixed share option plan (the “Share Option Plan”) in 1996, amended in fiscal 2007,
to allow for the purchase of Subordinate Voting Shares by certain of its full-time employees, directors, officers
and consultants. The remaining outstanding options expired during the year ended February 28, 2021.
d) On July 13, 2017, the Company adopted a PSU plan allowing the Board of Directors, through its Corporate
Governance and Human Resources (“CGHR”) Committee, to grant PSUs to certain of its full-time employees. A
PSU is a notional unit whose value is based on the volume weighted average price of the Company’s Subordinate
Voting Shares on the Toronto Stock Exchange for the 20 trading days immediately preceding the grant date. The
PSU plan is non-dilutive since vested PSUs shall be settled solely in cash. Each PSU grant shall vest at the end
of a three-year performance cycle, which will normally start on March 1 of the year in which such PSU is granted
and end on the last day of February of the third year following such grant, subject to the achievement of certain
performance objectives over such cycle, as determined by the Company’s CGHR Committee.
As at February 28, 2021, the Company had no PSUs outstanding since they all expired at the end of fiscal year
2020.
e) On July 13, 2017, the Company adopted a DSU plan allowing the Board of Directors, through its CGHR
Committee, to grant DSUs to certain of its independent directors and full-time employees. A DSU is a notional
unit whose value is based on the volume weighted average price of the Company’s Subordinate Voting Shares
67
on the Toronto Stock Exchange for the 20 trading days immediately preceding the grant date. The DSU plan is
non-dilutive since vested DSUs shall be settled solely in cash.
Each DSU grant shall vest at the earlier of:
the sixth anniversary of its grant date; or
the day the holder of the DSU attains the retirement age, which, unless otherwise determined by the CGHR
Committee, is the earliest of age 65, or the age at which the combination of years of service at the Company plus
his or her age is equal to 75, being understood that the retirement age shall not be less than 55 years old.
Additionally, a grant made to an independent director will be deemed immediately vested.
Movements in outstanding DSUs and related expense were as follow:
(thousands)
In numbers of DSUs
Opening balance
Issued
Settled
Forfeited
Closing balance
DSU expense for the years
Fair value of vested outstanding DSUs, end of years
15 Cost of sales
(thousands)
Change in inventories of finished goods and work in progress
Raw materials and consumables used
Employee expenses, excluding scientific research investments tax
credits
Depreciation and amortization
Movement in inventory provisions – net
Foreign exchange loss
Other production overheads costs
For the years ended
February 28,
2022
$
February 28,
2021
$
76,925
32,813
-
(26,581)
83,157
$151
$412
45,268
37,681
(2,072)
(3,952)
76,925
$134
$261
For the years ended
February 28,
2022
$
February 28,
2021
$
(31,977)
200,111
(15,041)
137,913
70,550
8,722
3,479
1,395
23,993
58,266
9,616
3,843
4,311
22,616
276,273
221,524
During the fiscal year, the Company applied for the Canada Emergency Wage Subsidy of which $1,142 (2021 -
$7,024) was recorded in “Cost of sales”.
68
16 Administration costs
(thousands)
Employee expenses, excluding scientific research investments tax
credits expenses
Scientific research investment tax credits
Commissions
Freight to customers
Professional fees
Legal settlement costs (note 12)
Movement in loss allowance
Depreciation and amortization
Other
For the years ended
February 28,
2022
$
February 28,
2021
$
52,052
(1,594)
7,387
4,984
11,423
19,924
(362)
2,926
16,299
113,039
40,148
(1,614)
3,720
4,039
10,954
5,390
(455)
2,869
15,040
80,091
During the fiscal year, the Company applied for the Canada Emergency Wage Subsidy of which $905 (2021 - $5,659)
was recorded in “Administration costs”.
17 Employee expense
(thousands)
Wages and salaries
Social security costs
Scientific research investment tax credits
Share-based compensation
Costs relating to workforce reduction
Other
For the years ended
February 28,
2022
$
February 28,
2021
$
87,674
29,413
(1,594)
154
(430)
5,791
121,008
66,622
26,536
(1,614)
134
(1,208)
4,977
95,447
During the fiscal year, the Company applied for the Canada Emergency Wage Subsidy of which $2,047 (2021 -
$12,684) is included as a reduction of “Employee expenses”.
Compensation for executive and non-executive directors and certain members of senior management, including
salaries and other short-term benefits and share-based compensation in the form of DSUs amounted to $6,394 (2021
- $3,999) and is included as a reduction of “Employee expenses”.
69
18 Research and development expenses
Research and development expenses are included in cost of sales and administration costs and consist of
the following:
(thousands)
Research and development expenditures
Less: Scientific research investment tax credits
For the years ended
February 28,
2022
$
February 28,
2021
$
7,014
(1,594)
5,420
5,661
(1,614)
4,047
During the fiscal year, the Company applied for the Canada Emergency Wage Subsidy of which nil (2021 - $1,757)
was included in “Research and development expenditures”. The scientific research and development investment tax
credits were recorded net of this government assistance.
19
Income taxes
(thousands)
Current taxes
Deferred income taxes
Income tax expense (recovery)
For the years ended
February 28,
2022
$
February 28,
2021
$
10,796
35,635
46,431
5,476
(6,298)
(822)
The taxes on the Company’s income before taxes differ from the amount that would arise using the statutory tax rates
applicable to income of the consolidated entities as follows:
(thousands)
For the years ended
February 28,
2022
$
February 28,
2021
$
Income tax at statutory rate of 26.50%
9,587
364
Tax effects of:
Difference in statutory tax rates in foreign jurisdiction
Taxable foreign exchange gain
Derecognition of deferred tax assets
Non-taxable portion of taxable capital gain
Losses (utilized) not (previously) tax effected
Other differences
Income tax expense (recovery)
130
(613)
32,603
-
4,941
(217)
46,431
469
(274)
-
(798)
478
(1,061)
(822)
70
The analysis of deferred income tax assets and deferred income tax liabilities is as follows:
As at
February 28,
2022
$
February 28,
2021
$
2,559
2,215
30,743
8,324
(3,643)
(382)
749
(2,248)
(297)
36,522
As at
February 28,
2022
$
February 28,
2021
$
36,522
29,117
(35,635)
(138)
749
6,298
1,107
36,522
As at
February 28,
2022
$
February 28,
2021
$
(460)
(868)
849
-
1,304
-
(76)
749
(3,246)
(1,196)
12,785
4,356
3,715
17,127
2,981
36,522
(thousands)
Deferred income tax assets:
To be realized after more than 12 months
To be realized within 12 months
Deferred income taxes liabilities
To be realized after more than 12 months
To be realized within 12 months
Net deferred income tax asset
The movement of the net deferred income tax asset account is as follows:
(thousands)
Balance – Beginning of the year
Recovery (expense) of income taxes in the consolidated statement
of income (loss)
Exchange differences
Net deferred income tax asset
The significant components of the net deferred income tax asset are as follows:
(thousands)
Property, plant and equipment
Intangible assets
Non-deductible provisions and reserves
Investment tax credits
Inventories
Non-capital loss carryforwards
Other
Net deferred income tax asset
71
The Company did not recognize deferred income tax assets of $44,456 (2021 – $10,115) in respect of non-capital
losses amounting to $173,582 (2021 – $40,735) that can be carried forward to reduce taxable profits in future years.
These losses expire between 2038 and indefinitely.
The Company did not recognize deferred income tax assets of $1,282 (2021 – $383) in respect of capital losses
amounting to $9,673 (2021 – $2,892) that can be carried forward indefinitely against future taxable capital gains.
Deferred income tax liabilities of $5,594 (2021 – $5,025) have not been recognized for the withholding tax and other
taxes that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are not expected to
reverse in the foreseeable future. Unremitted earnings as at February 28, 2022 totalled $304,354 (2021 – $266,857).
20 Earnings (loss) per share
a) Basic and diluted
Basic earnings (loss) per share is calculated by dividing the net income (loss) attributable to the Subordinate and
Multiple Voting shareholders by the weighted average number of Subordinate and Multiple Voting Shares outstanding
during the year.
(thousands)
Net income (loss) attributable to Subordinate and Multiple voting
shareholders
Weighted average number of Subordinate and Multiple voting
shares outstanding.
Basis and diluted earnings (loss) per share
For the years ended
February 28,
2022
$
February 28,
2021
$
(21,141)
2,867
21,585,635
$(0.98)
21,585,635
$0.13
Diluted earnings per share is calculated by adjusting the weighted average number of Subordinate and Multiple Voting
Shares outstanding to assume conversion of all dilutive potential Subordinate and Multiple Voting Shares. The
Company had one category of dilutive potential Subordinate and Multiple Voting Shares: stock options. The
remaining outstanding options expired during the year ended February 28, 2021.
72
21 Commitments
a)
In the normal course of business, the Company issues performance bond guarantees related to product warranty
and on-time as well as advance guarantees and bid bonds. As at February 28, 2022, the aggregate maximum
value of these guarantees, if exercised, amounted to $58,512 (2021 - $64,737). The guarantees expire as
follows:
(thousands)
February 28, 2023
February 29, 2024
February 28, 2025
February 28, 2026
February 28, 2027
Subsequent years
As at
February 28,
2022
$
26,571
14,714
3,027
1,885
2,734
9,581
58,512
b) The Company has outstanding purchase commitments with foreign suppliers, due within one year, amounting
to nil (2021 - $3,590 which were covered by letters of credit).
22 Segment reporting
The Company reflects its results under a single reportable operating segment. The geographic distribution of its sales
is as follows:
(thousands)
Sales
Customers -
Domestic
Export
Intercompany (export)
Property, plant and equipment
Intangible assets and goodwill
Other identifiable assets
Total identifiable assets
Canada
$
United
States
$
France
$
Italy
$
Other
$
Consolidation
adjustment
$
Consolidated
$
Fiscal year ended February 28, 2022
17,367
73,077
40,044
130,488
26,783
3,944
197,095
227,822
86,715
4,303
8,367
53,742
48,735
114
99,385 102,591
996
80,793
13,182
94,971
20,783
24,731
44,099
89,613
4,906
-
17,697
9,520
23,600 166,561
28,506 193,778
5,979
3,191
18,541
38
73,923 137,631
83,093 156,210
-
-
(105,806)
(105,806)
-
-
(180,981)
(180,981)
179,603
231,639
-
411,242
73,906
16,693
417,829
508,428
73
(thousands)
Sales
Customers -
Domestic
Export
Intercompany (export)
Property, plant and equipment
Intangible assets and goodwill
Other identifiable assets
Total identifiable assets
Canada
$
United
States
$
France
$
Italy
$
Other
$
Consolidation
adjustment
$
Consolidated
$
Fiscal year ended February 28, 2021
15,264
33,900
24,142
73,306
30,873
3,053
192,350
226,276
81,902
-
10,381
92,283
41,285
43.997
99
85,381
1,470
54,219
8
55,697
13.137
16,889
57,245
87,271
5,586
-
19,651
9,775
75,764 176,611
81,350 206,037
6,522
4,463
33,695
28
59,574 134,968
70,559 168,691
-
-
(91,875)
(91,875)
-
-
(172,080)
(172,080)
153,058
149,005
-
302,063
96,327
17,319
467,187
580,833
23 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).
Overview
The Company’s financial instruments and the nature of risks which they may be subject to are set out in the next
section.
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.
74
The amounts outstanding under derivatives contracts as at February 28, 2022 and 2021 are as follows:
Range of exchange rates
February 28,
2022
February 28,
2021
Fair value
(In thousands of U.S. dollars)
February 28,
2022
$
February 28,
2021
$
Notional amount
(In thousands indicated currency)
February 28,
2022
February 28,
2021
Foreign exchange forward contracts
Sell US$ for CA$ - 0 to 12 months
1.27-1.28
Buy US$ for CA$ - 0 to 12 months
Sell € for US$ – 0 to 12 months
Buy € for US$ – 0 to 12 months
1.25
1.15
1.13
1.3
1.22
1.22-1.24
1.16-1.20
(470)
301
(90)
252
(135)
48
(168)
148
US$50,000
US$50,000
€15,000
€15,000
US$22,000
US$22,000
€18,363
€18,363
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 (loss) 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.
The following table provides a sensitivity analysis of the Company’s most significant foreign exchange exposures
related to its net position in the foreign currency financial instruments, which includes cash and cash equivalents,
short-term investments bank indebtedness, short-term bank loans, derivative financial instruments, accounts
receivable, accounts payable and accrued liabilities, customer deposits, provision for performance guarantees and
long-term debt, including interest payable. A hypothetical strengthening of 5.0% of the following currencies would
have had the following impact for the fiscal years ended February 28, 2022 and 2021:
(thousands)
Canadian dollar strengthening against the U.S. dollar
Euro strengthening against the U.S. dollar
Net income (loss)
February 28,
2022
$
February 28,
2021
$
(1,284)
53
(1,429)
593
A hypothetical weakening of 5.0% of the above currencies would have had the opposite impact for both fiscal years.
For the purposes of the above analysis, foreign exchange exposure does not include the translation of subsidiaries
into the Company’s reporting currency. For those subsidiaries whose functional currency is other than the reporting
currency (U.S. dollar) of the Company, such exposure would impact other comprehensive income or loss.
Cash flow and fair value 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 February 28, 2022, three
(2021 – five) customers accounted for more than 5% each of its trade accounts receivable, of which one customer
accounted for 10.8% (2021 – 15.6%) and the Company’s ten largest customers accounted for 55.7% (2021 – 63.5%)
of trade accounts receivable. In addition, one customer accounted for 10.1% of the Company’s sales (2021 – 13.7%).
75
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 macroeconomic factors affecting the Company’s customers.
The lifetime expected loss allowance for trade receivables was determined as follows:
Expected loss rate
Gross carrying amount
Loss allowance
Expected loss rate
Gross carrying amount
Loss allowance
As at February 28, 2022
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
0.074%
17,995
13
0.088%
9,248
8
2.762%
16,285
450
Total
108,217
509
As at February 28, 2021
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
0.606%
19,630
119
0.682%
9,672
66
4.203%
17,653
742
Total
123,362
1,146
Current
0.059%
64,689
38
Current
0.287%
76,407
219
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.
Liquidity risk
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.
76
The following tables present the Company’s financial liabilities identified by type and future contractual dates of
payment as at:
Long-term debt
Long-term lease liabilities
Accounts payable and accrued
liabilities
Customer Deposits
Bank indebtedness and short-term
bank loans
Derivative liabilities
31,038
12,433
80,503
71,483
550
560
Carrying
value
$
Less than
1 Year
$
1 to 3
Years
$
6,694
2,128
8,818
1,589
80,503
41,344
-
24,655
550
560
-
-
Long-term debt
Long-term lease liabilities
Accounts payable and accrued
liabilities
Customer Deposits
Bank indebtedness and short-term
bank loans
Derivative liabilities
Carrying
value
$
Less than
1 Year
$
58,091
14,227
88,130
62,083
11,375
303
10,436
1,852
88,130
32,003
11,735
303
1 to 3
Years
$
36,620
2,554
-
24,845
-
-
Fair value of financial instruments
The fair value hierarchy has the following levels:
4 to 5
Years
$
4,026
1,372
-
1,659
-
-
4 to 5
Years
$
8,319
1,535
-
1,877
-
-
As at February 28, 2022
After 5
Years
$
17,937
11,760
-
3,825
-
-
Total
$
37,475
16,849
82,263
71,483
550
560
As at February 28, 2021
After 5
Years
$
10,212
13,327
-
3,358
-
-
Total
$
61,587
19,268
88,130
62,083
11,735
303
Level 1 –
Level 2 –
quoted market prices in active markets for identical assets or liabilities;
inputs other than quoted market prices included in Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices); and
Level 3 –
unobservable inputs such as inputs for the asset or liability that are not based on observable
market data. The level in the fair value hierarchy within which the fair value measurement is categorized in its
entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its
entirety.
77
The fair value of financial assets and financial liabilities on the condensed interim consolidated statements of financial
position are as follows:
(thousands)
Financial position classification and nature
Assets
Derivative assets
Liabilities
Derivative liabilities
(thousands)
Financial position classification and nature
Assets
Derivative assets
Liabilities
Derivative liabilities
Total
$
Level 1
$
As at February 28, 2022
Level 3
$
Level 2
$
553
560
-
-
553
560
-
-
Total
$
Level 1
$
As at February 28, 2021
Level 3
$
Level 2
$
196
303
-
-
196
303
-
-
Fair value measurements of the Company’s derivative assets and liabilities are classified under Level 2 because
such measurements are determined using published market prices or estimates based on observable inputs such as
interest rates, yield curves, and spot and future exchange rates. The carrying value of the Company’s financial
instruments is considered to approximate fair value, unless otherwise indicated.
24 Capital management
The Company’s capital management strategy is designed to maintain strong liquidity in order to pursue its organic
growth strategy, undertake selective acquisitions and provide an appropriate investment return to its shareholders
while taking a conservative approach to financial leveraging.
The Company’s financial strategy is designed to meet the objectives stated above and to respond to changes in
economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust its capital
structure, the Company may issue or repurchase shares, raise or repay debt, vary the amount of dividends paid to
shareholders or undertake any other activities it considers appropriate under the circumstances.
The Company monitors capital on the basis of its total debt-to-equity ratio. Total debt consists of all interest-bearing
debt, and equity is defined as total equity.
78
The total debt-to-equity ratio was as follows:
(thousands)
Bank indebtedness
Current portion of long-term lease liabilities
Current portion of long-term debt
Long-term lease liabilities
Long-term debt
Total debt
Equity
Total debt-to-equity ratio
As at
February 28,
2022
$
February 28,
2021
$
550
1,360
8,111
11,073
22,927
44,021
265,510
16.6%
11,735
1,578
9,902
12,649
48,189
84,053
300,221
28.0%
The Company’s objective is to conservatively manage the total debt-to-equity ratio and to maintain funding capacity
for potential opportunities.
The Company’s financial objectives and strategy as described above have remained unchanged since the last
reporting period. These objectives and strategies are reviewed annually or more frequently if the need arises.
The Company is in compliance with all covenants related to its debt and is not subject to any capital requirements
imposed by a regulator.
25 Adjustments to reconcile net income to cash provided (used) from operating activities
(thousands)
Depreciation of property, plant and equipment
Amortization of intangible assets
Amortization of financing costs
Deferred income taxes
Gain on disposal of property, plant and equipment and Juwon Special Steel Co. Ltd.
Net change in long-term provisions
Net change in derivative assets and liabilities
Net change in other liabilities
Fiscal periods ended
February 28,
2022
$
February 28,
2021
$
9,591
2,055
263
35,635
(16,108)
14,699
(100)
(883)
45,152
10,148
2,337
177
(6,298)
(9,248)
-
(507)
(689)
(4,080)
79
26 Changes in non-cash working capital items
(thousands)
Accounts receivable
Inventories
Income taxes recoverable
Deposits and prepaid expenses
Accounts payable and accrued liabilities
Income taxes payable
Customer deposits
Provisions
Fiscal periods ended
February 28,
2022
$
February 28,
2021
$
11,080
(28,020)
803
1,031
(3,119)
2,166
11,602
(12,572)
(17,029)
8,441
(26,130)
(922)
(3,031)
10,928
(108)
11,009
(7,399)
(7,212)
Total
$
27 Debt from financing activities reconciliation
(thousands)
Short-term
bank loans
$
Long-term
lease liabilities
$
Long-term
debt
$
Balance - February 29, 2020
1,379
15,343
19,297
36,019
Cash inflows
Cash outflows
Foreign exchange adjustments
Other non-cash movements
Balance - February 28, 2021
Cash inflows
Cash outflows
Foreign exchange adjustments
Disposal of Juwon Special Steel Co. Ltd.
Other non-cash movements
Balance - February 28, 2022
-
(1,711)
1,206
(611)
14,227
-
(1,696)
(912)
(48)
862
12,433
40,327
(3,643)
2,529
(419)
58,091
7,874
(28,854)
(891)
(5,182)
-
31,038
40,327
(6,733)
3,735
(1,030)
72,318
7,874
(30,550)
(1,803)
(5,230)
862
43,471
-
(1,379)
-
-
-
-
-
-
-
-
-
80
Shareholder information
Head office
7007 Côte-de-Liesse
Montreal, Quebec, Canada H4T 1G2
Website
www.velan.com
Investor relations
Benoit Alain
Chief Financial Officer
7007 Côte-de-Liesse, Montreal, Quebec, Canada H4T 1G2
Tel.: (438) 817-9957
Fax: (514) 748-8635
Auditors
PricewaterhouseCoopers LLP
Transfer agent
TSX Trust Company
Shares outstanding as at February 28, 2022
6,019,068 Subordinate Voting Shares
15,566,567 Multiple Voting Shares
Listing
Symbol: VLN
Price range
High CA $11.25
CA $7.55
Low
Closing on February 28, 2022: CA $9.66
Annual meeting
The Annual Meeting of Shareholders will be held July 7, 2022, at 3:00 p.m.
in a virtual only format, via online live webcast.
81
Velan Directors and Officers
Dahra Granovsky(2)(3)
Director & President of the
Corporation Governance and
Human Resources Committee
Toronto, Ontario, Canada
Director since: 2019
Suzanne Blanchet(3)
Director & President of the Audit
Committee
La Prairie, Québec, Canada
Director since: 2021
Robert Raich(3)
Director
Montréal, Québec, Canada
Director since: 2021
Edward Kernaghan(2)
Director
Toronto, Ontario, Canada
Director since: 2021
Bruno Carbonaro
Director
Paris, France
President since: 2019
Corporate Directors
James A. Mannebach(2)
Chair of the Corporation
St. Louis, Missouri, United States
Director since: 2018
Rob Velan
Vice-Chairman
Montréal, Québec, Canada
Director since: 2013
Tom Velan(1)
Director
Montréal, Québec, Canada
Director since: 1976
Ivan Velan
Director
Montréal, Québec, Canada
Director since: 1970
William Sheffield(2)(3)
Director
Toronto, Ontario, Canada
Director since: 2004
(1) Holds the same respective offices with Velan Valve Corp. as with Velan.
(2) Member of the Corporation Governance and Human Resources Committee.
(3) Member of the Audit Committee.
82
Velan Directors and Officers
Corporate Officers
B. Carbonaro
President and Chief Executive Officer
B. Alain
P. Poirier
R. Velan
Chief Financial Officer
Chief Operations Officer, North America
Executive Vice-President, International Operations
S. Bruckert
Executive Vice-President, Human Resources and General Counsel, Corporate Secretary
D. Tran
Executive Vice-President, General Manager, Severe Service
L. Pefferkorn
Executive Vice-President, General Manager, Projects
B. Holt
S. Velan
Executive Vice-President, General Manager, MRO
Chief Information Officer
V. Apostolescu
Vice-President, Quality Assurance
J. Calabrese
Vice-President, Technical Sales, Multi-Turn Products
H. Houde
Vice-President, Strategic Supply Chain
P. Dion
Y. Lauzé
G. Perez
Senior Vice-President, Sales, Process Industries
Vice-President, Engineering
Vice-President, Product Technology and Strategic Initiatives
P. Sabbagh
Vice-President, Project Management
D. Velan
Vice-President, Marketing
R. Sossoyan
Vice-President, Treasury
E. Nataf
Vice-President, Finance
83
NON-IFRS AND SUPPLEMENTARY FINANCIAL MEASURES
In this annual report, the Company 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. The Company
has also presented supplementary financial measures, reconciliations and definitions can be found below.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
(thousands, except amount per shares)
February 28,
2022
$
February 28,
2021
$
February 29,
2020
$
February 28,
2019
$
February 28,
2018
$
Net income (loss)1
(21,141)
2,867
(16,390)
(4,882)
(17,811)
Fiscal years ended
Adjustments for:
Depreciation of property, plant and
equipment
Amortization of intangible assets
Finance costs – net
Income taxes
EBITDA
EBITDA per share
9,591
2,318
2,400
46,431
10,148
2,514
866
(822)
10,803
2,177
1,389
8,543
11,566
2,009
695
(2,301)
11,035
1,842
197
361
39,599
15,573
6,522
7,087
(4,376)
-
Basic and diluted
1.83
0.72
0.30
0.33
(0.20)
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 annual report 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 ratio” 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 annual report are expressly qualified by this cautionary statement.
1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
84
2022 Velan global network
Head Office
An extensive global network
Montreal, QC, Canada
Velan Inc.
• 12 production facilities
• 3 plants in North America
• 4 plants in Europe
• 5 plants in Asia
• 2 stocking and distribution centers
• Hundreds of distributors worldwide
• Over 60 service shops worldwide
Manufacturing
- North America
Manufacturing
- Europe
Manufacturing
- Asia
Distribution centers
Montreal, QC, Canada
Velan Inc.
Lyon, France
Velan S.A.S.
Plant 1: Ansan City, South Korea
Velan Ltd.
Willich, Germany
Velan GmbH
Granby, QC, Canada
Velan Inc.
Mennecy, France
Segault S.A.S.
Plant 2: Ansan City, South Korea
Velan Ltd.
Houston, TX, U.S.A.
VelTEX
Williston, VT, USA
Velan Valve Corp.
Lisbon, Portugal
Velan Valvulas Industriais, Lda.
Taichung, Taiwan
Velan-Valvac
Lucca, Italy
Velan ABV S.r.l.
Suzhou, China
Velan Valve (Suzhou) Co. Ltd.
Coimbatore, India
Velan Valves India Private Ltd.
A world leader in industrial valve design and manufacturing
supplying to:
• Fossil, nuclear, and cogeneration power
• Oil and gas
• Refining and petrochemicals
• Chemicals
• Pulp and paper
• Subsea
• LNG and cryogenics
• Marine
• Mining
Pour une version française de ce
rapport annuel, adressez-vous à:
Velan inc.
7007, chemin de la Côte-de-Liesse,
Montréal (Québec) H4T 1G2
Canada
Tél. : +1 514-748-7743
Téléc. : +1 514-748-8635
www.velan.com