CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 28, 2023 and 2022
PricewaterhouseCoopers LLP
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, an Ontario limited liability partnership.
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, 2023
and 2022, 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, 2023 and 2022;
the consolidated statements of loss for the years then ended;
the consolidated statements of comprehensive 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.
1
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, 2023. 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
Asbestos provision
Refer to note 2 – Summary of significant accounting
policies and note 12 – Provisions to the
consolidated financial statements.
The Company’s asbestos provision amounted
to $73.3 million as at February 28, 2023. Two of the
Company’s US 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 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 a past event, it is probable that an outflow
of resources will be required to settle the obligation,
and the amount can be reliably estimated.
Management used an actuary (management’s
expert) to reliably measure the asbestos provision
which is based on the closed with indemnity (CWI)
claim decay method. Management used judgment
in measuring the asbestos provision, including
significant assumptions such as the expected
number of future claims, the projected average
CWI severity, the decay rate, the inflation rate and
the discount rate.
Our approach to addressing the matter included
the following procedures, among others:
Tested how management determined
the asbestos provision, which included
the following:
The work of management’s experts was
used in performing the procedures to
evaluate the reasonableness of the
asbestos provision. As a basis for using
this work, the competence, capabilities and
objectivity of management’s experts was
evaluated, the work performed was
understood and the appropriateness of
the work as audit evidence was evaluated.
The procedures performed also included
evaluation of the methods and assumptions
used by management’s experts, tests of the
data used by management’s experts and
an evaluation of their findings.
Professionals with specialized skill and
knowledge in the field of valuation assisted
in evaluating the reasonableness of the
expected number of future claims, the
projected average CWI severity and the
decay rate.
Evaluated the reasonableness of the
inflation rate by considering the historical
increase in cost per claims settled and
discount rate by considering evidence
obtained in other areas of the audit.
2
Key audit matter
How our audit addressed the key audit matter
We considered this a key audit matter due to the
judgment used by management to measure the
asbestos provision. This in turn resulted in
subjectivity and a high degree of audit effort in
performing procedures to test the asbestos
provision. The audit effort involved the use of
professionals with specialized skill and knowledge
in the field of valuation.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express 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, 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.
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.
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.
3
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.
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.
4
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 17, 2023
1 CPA auditor, public accountancy permit No. A126402
5
Bruno Carbonaro, Director
James A. Mannebach, Director
Consolidated Statements of Financial Position
(in thousands of U.S. dollars)
As at
February 28,
February 28,
2023
2022
$
$
Assets
Current assets
Cash and cash equivalents
50,513
54,015
Short-term investments
37
8,726
Accounts receivable (note 4)
121,053
115,834
Income taxes recoverable
6,195
2,955
Inventories (note 5)
202,649
223,198
Deposits and prepaid expenses
7,559
6,877
Derivative assets (note 23)
107
553
388,113
412,158
Non-current assets
Property, plant and equipment (note 7 and 8)
68,205
73,906
Intangible assets and goodwill (note 9)
16,153
16,693
Deferred income taxes (note 19)
4,663
4,774
Other assets
723
897
89,744
96,270
Total assets
477,857
508,428
Liabilities
Current liabilities
Bank indebtedness (note 10)
260
550
Accounts payable and accrued liabilities (note 11)
79,408
80,503
Income taxes payable
2,832
3,806
Customer deposits
28,201
41,344
Provisions (note 12)
16,485
18,444
Derivative liabilities (note 23)
299
560
Current portion of long-term lease liabilities (note 8)
1,298
1,360
Current portion of long-term debt (note 13)
8,177
8,111
136,960
154,678
Non-current liabilities
Long-term lease liabilities (note 8)
9,458
11,073
Long-term debt (note 13)
21,719
22,927
Income taxes payable
933
1,244
Deferred income taxes (note 19)
3,966
4,025
Customer deposits
27,937
30,139
Provisions (note 12)
70,924
13,101
Other liabilities
5,125
5,731
140,062
88,240
Total liabilities
277,022
242,918
Total equity
200,835
265,510
Total liabilities and equity
477,857
508,428
Commitments and contingencies (note 21)
The accompanying notes are an integral part of these consolidated financial statements.
6
Consolidated Statements of Loss
(in thousands of U.S. dollars, excluding per share amounts)
Fiscal years ended
February 28,
February 28,
2023
2022
$
$
Sales (note 12 and 22)
370,429
411,242
Cost of sales (notes 5 and 15)
257,964
276,273
Gross profit
112,465
134,969
Administration costs (note 16)
156,759
113,039
Gain on disposal of Juwon Special Steel Co. Ltd. (note 6)
-
(16,108)
Other expense (income)
1,568
(538)
Operating profit (loss)
(45,862)
38,576
Finance income
467
392
Finance costs
(2,019)
(2,792)
Finance costs – net
(1,552)
(2,400)
Income (loss) before income taxes
(47,414)
36,176
Income tax expense (note 19)
8,045
46,431
Net loss for the year
(55,459)
(10,255)
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares
(55,453)
(21,141)
Non-controlling interest
(6)
10,886
Net loss for the year
(55,459)
(10,255)
Net loss per Subordinate and Multiple Voting Share (note 20)
Basic and diluted
(2.57)
(0.98)
Dividends declared per Subordinate and Multiple
0.02
-
Voting Share
(CA$0.03)
(CA$-)
The accompanying notes are an integral part of these consolidated financial statements.
7
Consolidated Statements of Comprehensive Loss
(in thousands of U.S. dollars)
Fiscal years ended
February 28,
February 28,
2023
2022
$
$
Comprehensive loss
Net loss for the year
(55,459)
(10,255)
Other comprehensive loss
Foreign currency translation
(8,985)
(11,159)
Comprehensive loss
(64,444)
(21,414)
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares
(64,438)
(32,260)
Non-controlling interest
(6)
10,846
Comprehensive loss
(64,444)
(21,414)
Other comprehensive loss is composed solely of items that may be reclassified subsequently to the consolidated
statement of loss.
The accompanying notes are an integral part of these consolidated financial statements.
8
Consolidated Statements of Changes in Equity
(in thousands of U.S. dollars, excluding number of shares)
Equity attributable to the Subordinate and Multiple Voting shareholders
Share capital
Contributed
surplus
Accumulated
other
comprehensive
loss
Retained
earnings
Total
Non-controlling
interest
Total equity
Balance - February 28, 2021
72,695
6,260
(21,007)
239,136
297,084
3,137
300,221
Net income (loss) for the year
-
-
-
(21,141)
(21,141)
10,886
(10,255)
Other comprehensive loss
-
-
(11,119)
-
(11,119)
(40)
(11,159)
Comprehensive income (loss)
-
-
(11,119)
(21,141)
(32,260)
10,846
(21,414)
Disposal of non-controlling interests (note 6)
-
-
-
-
-
(12,454)
(12,454)
Dividends
Non-controlling interest
-
-
-
-
-
(843)
(843)
Balance - February 28, 2022
72,695
6,260
(32,126)
217,995
264,824
686
265,510
Net loss for the year
-
-
-
(55,453)
(55,453)
(6)
(55,459)
Other comprehensive loss
-
-
(8,985)
-
(8,985)
-
(8,985)
Comprehensive loss
-
-
(8,985)
(55,453)
(64,438)
(6)
(64,444)
Acquisition of non-controlling interests
-
-
-
-
-
266
266
Other
-
-
(97)
97
-
-
-
Dividends
Multiple Voting Shares
-
-
-
(366)
(366)
-
(366)
Subordinate Voting Shares
-
-
-
(131)
(131)
-
(131)
Balance - February 28, 2023
72,695
6,260
(41,208)
162,142
199,889
946
200,835
The accompanying notes are an integral part of these consolidated financial statements.
9
Consolidated Statements of Cash Flow
(in thousands of U.S. dollars)
Fiscal years ended
February 28,
February 28,
2023
2022
$
$
Cash flows from
Operating activities
Net loss for the year
(55,459)
(10,255)
Adjustments to reconcile net loss to cash provided by operating activities (note 25)
67,553
45,152
Changes in non-cash working capital items (note 26)
(11,572)
(17,029)
Cash provided by operating activities
522
17,868
Investing activities
Short-term investments
8,250
(8,708)
Additions to property, plant and equipment
(4,370)
(6,144)
Additions to intangible assets
(2,219)
(2,477)
Proceeds on disposal of property, plant and equipment, and intangible assets
185
30,183
Proceeds on disposal of Juwon Steel Co. Ltd. net of cash disposal
-
(12,684)
Net change in other assets
(87)
(196)
Cash provided (used) by investing activities
1,759
(26)
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders
(497)
-
Dividends paid to non-controlling interest
-
(843)
Acquisition of non-controlling interests
266
-
Net change in revolving credit facility
-
(22,132)
Increase in long-term debt
3,666
7,874
Repayment of long-term debt
(4,398)
(6,722)
Repayment of long-term lease liabilities
(1,657)
(1,696)
Cash used by financing activities
(2,620)
(23,519)
Effect of exchange rate differences on cash
(2,873)
(3,811)
Net change in cash during the year
(3,212)
(9,488)
Net cash – Beginning of the year
53,465
62,953
Net cash – End of the year
50,253
53,465
Net cash is composed of:
Cash and cash equivalents
50,513
54,015
Bank indebtedness
(260)
(550)
Net cash – End of the year
50,253
53,465
Supplementary information
Interest paid
(974)
(1,509)
Income taxes paid
(8,160)
(4,293)
The accompanying notes are an integral part of these consolidated financial statements.
10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 28, 2023 and 2022
(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 17, 2023.
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.
11
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
at weekly average rates throughout the year. Gains and losses arising on translation are included in the consolidated
statement of 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 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 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.
12
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.
13
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 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:
Method
Rate/term
Buildings
Declining balance
4% to 5%
Machinery and equipment/Furniture and fixtures
Declining balance
10% to 31%
Data processing equipment
Straight-line
3 years
Rolling stock
Declining balance
30%
Leasehold improvements
Straight-line
Over lease terms
14
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 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:
Method
Rate/term
Patents, products and designs
Straight-line
5 to 15 years
Customer lists
Straight-line
10 years
Non-compete agreements
Straight-line
5 years
Computer software
Straight-line
1 to 3 years
Government assistance
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 15 to 17.
Impairment of non-financial assets
Assets that have an indefinite life (e.g. goodwill or indefinite life intangible assets) are not subject to amortization are
tested annually for impairment (unless conditions that exempt annual testing are met), 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.
15
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 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.
16
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 measured
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 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.
17
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 net realisable value (which is the estimated selling price minus costs necessary to make the sell) 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
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 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 loss.
Asbestos provision
Asbestos provision estimates the liability related to all settlement costs on outstanding open and future cases in
relations with the Company’s ongoing asbestos litigations. During the year ended February 28, 2023, the Company
recorded the estimated settlement costs for unreported claims relating to its Asbestos legal claims. Previously, the
Company only recognized the estimated settlement costs relating to reported claims. With the assistance of an
actuary, the Company calculated the asbestos provision using the closed with indemnity (CWI) claim decay method
and a 6.0% discount rate with the following significant assumptions:
Expected number of future claims. A reasonably possible change of 1% has an impact on the total liability of
$706.
Projected average CWI severity. A reasonably possible change of 1% has an impact on the total liability of $706.
Decay rate represents the rate at which the number of claims will decrease. A reasonably possible change of 1%
has an impact on the total liability of $7,020.
The inflation rate. A reasonably possible change of 1% has an impact on the total liability of $6,313.
18
The Company’s estimate of the asbestos provision takes into consideration historical experience in settling those
claims and projects them in the future using three different methods of valuation. Any change in the assumptions
used could impact the value of the asbestos provision on the consolidated statement of financial position with a
corresponding impact made to administration costs on the consolidated statement of 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, revenue growth or the recoverable amount of each individual assets. Any change in the assumptions used
could impact the carrying amount of the CGU.
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
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.
3
New accounting standards and amendments
Accounting standards and amendments issued but not yet adopted
IAS 1 Presentation of financial statements requires that, for an entity to classify a liability as non-current, the entity
must have the right at the reporting date to defer settlement of the liability for at least twelve months after that date.
In January 2020, the Board issued the amendments Classification of liabilities as current or non-current to IAS 1
(2020 amendments). The 2020 amendments originally had an effective date for reporting periods beginning on or
after 1 January 2023. Applying the 2020 amendments, an entity does not have the right to defer settlement of a
liability—and thus classifies the liability as current—when the entity would not have complied with covenants based
on its circumstances at the reporting date, even if compliance with such covenants were tested only within twelve
months after that date.
The amendments issued in October 2022 clarify that covenants of loan arrangements which an entity must comply
with only after the reporting date would not affect classification of a liability as current or non-current at the reporting
19
date. However, those covenants that an entity is required to comply with on or before the reporting date would affect
classification as current or non-current, even if the covenant is only assessed after the entity’s reporting date.
The 2022 amendments introduce additional disclosure requirements. When an entity classifies a liability arising from
a loan arrangement as non-current and that liability is subject to the covenants which an entity is required to comply
with within twelve months of the reporting date, the entity shall disclose information in the notes that enables users
of financial statements to understand the risk that the liability could become repayable within twelve months of the
reporting period, including:
a) the carrying amount of the liability;
b) information about the covenants;
c) facts and circumstances, if any, that indicate the entity may have difficulty complying with the covenants. Such
facts and circumstances could also include the fact that the entity would not have complied with the covenants
based on its circumstances at the end of the reporting period
The amendments to IAS 1 are effective for annual reporting periods beginning on or after January 1, 2024 with earlier
adoption permitted and should be applied retrospectively. The Company does not expect the amendment to have a
significant impact on its consolidated financial statements.
4
Accounts receivable
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Trade accounts receivable
113,529
108,217
Loss allowance
(481)
(509)
Other accounts receivables
8,005
8,126
121,053
115,834
The table below summarizes the movements in the loss allowance:
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Balance – Beginning of year
509
1,146
Loss allowance expense (reversal)
46
321
Recoveries of trade accounts receivable
(47)
(683)
Write-off of trade accounts receivable
-
(241)
Foreign exchange
(27)
(34)
Balance – End of year
481
509
The loss allowance is included in the administration costs on the consolidated statement of loss.
Amounts charged to the loss allowance account are generally written off when there is not a reasonable expectation
of recovery.
20
5
Inventories
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Raw materials
36,223
48,381
Work in process and finished parts
128,670
136,221
Finished goods
37,756
38,596
202,649
223,198
As a result of variations in the ageing of its inventories, the Company recognized a net additional inventory provision
for the year of $4 (2022 – $3,479), including reversals of $10,769 (2022 – $4,911).
The net book value of inventories pledged as security under the Company’s long-term debt amounted to $91,007
(2022 – $98,306).
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, 2023. 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
Name of entity
Functional
currency
Country of
incorporation
2023
2022
2023
2022
Principal activities
Velan Valve Corp.
U.S. Dollar
U.S.A
100
100
-
-
Valve Manufacturer
Velan Ltd.
U.S. Dollar
Korea
100
100
-
-
Valve Manufacturer
Velan Gulf Manufacturing Co. Ltd.
Saudi Riyal
Saudi Arabia
60
-
40
-
Valve Manufacturer
Velan Valvulas Industriais Lda.
Euro
Portugal
100
100
-
-
Valve Manufacturer
Velan S.A.S.
Euro
France
100
100
-
-
Valve Manufacturer
Segault S.A.S.
Euro
France
75
75
25
25
Valve Manufacturer
Velan GmbH
Euro
Germany
100
100
-
-
Valve Distribution
Velan ABV S.r.l.
Euro
Italy
100
100
-
-
Valve Manufacturer
Velan Valvac Manufacturing Co. Ltd.
U.S. Dollar
Taiwan
90
90
10
10
Valve Manufacturer
Velan Valve (Suzhou) Co. Ltd.
U.S. Dollar
China
85
85
15
15
Valve Manufacturer
Velan Valves India Private Limited
Indian Rupee
India
100
100
-
-
Valve Manufacturer
b) Significant restrictions
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 13% (2022 – 16%) of the Company’s cash and cash equivalents and short-
21
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, 2023 was $6,258 (2022 – $8,825).
c) Non-controlling interests
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.
7
Property, plant and equipment
(thousands)
Land
$
Buildings
$
Machinery
&
equipment
$
Furnitures
& fixtures
$
Data
processing
equipment
$
Rolling
stock
$
Leasehold
improve-
ments
$
Right-of-
use
assets
(note 8)
$
Total
$
At February 28, 2021
Cost
26,501
56,184
141,940
8,797
7,876
2,583
3,117
17,221
264,219
Accumulated depreciation
-
(29,414)
(115,927)
(7,947)
(6,906)
(2,287)
(2,106)
(3,305)
(167,892)
26,501
26,770
26,013
850
970
296
1,011
13,916
96,327
Year ended February 28, 2022
Beginning balance
26,501
26,770
26,013
850
970
269
1,011
13,916
96,327
Additions
-
988
4,216
112
276
135
417
1,012
7,156
Modifications to lease terms
-
-
-
-
-
-
-
30
30
Disposals
(6,843)
(76)
(275)
-
(1)
(2)
-
(168)
(7,365)
Disposal of Juwon Special Steel
Co. Ltd.
(9,537)
(82)
(371)
(2)
-
(46)
-
(46)
(10,084)
Depreciation
-
(1,701)
(5,062)
(261)
(478)
(126)
(241)
(1,722)
(9,591)
Exchange differences
(551)
(392)
(580)
(28)
(24)
(9)
(83)
(900)
(2,567)
9,570
25,507
23,941
671
743
248
1,104
12,122
73,906
At February 28, 2022
Cost
9,570
54,341
134,591
8,490
7,992
2,033
3,297
16,336
236,650
Accumulated depreciation
-
(28,834)
(110,650)
(7,819)
(7,249)
(1,785)
(2,193)
(4,214)
(162,744)
9,570
25,507
23,941
671
743
248
1,104
12,122
73,906
Year ended February 28, 2023
Beginning balance
9,570
25,507
23,941
671
743
248
1,104
12,122
73,906
Additions
-
36
3,154
112
526
245
297
1,038
5,408
Modifications to lease terms
-
-
-
-
-
-
-
(110)
(110)
Disposals
-
(18)
(364)
-
(3)
-
-
(60)
(445)
Depreciation
-
(1,605)
(4,418)
(201)
(414)
(174)
(254)
(1,656)
(8,722)
Exchange differences
(194)
(381)
(508)
(26)
(14)
(11)
(63)
(635)
(1,832)
9,376
23,539
21,805
556
838
308
1,084
10,699
68,205
At February 28, 2023
Cost
9,376
53,249
132,784
8,404
4,244
2,057
3,382
15,806
229,302
Accumulated depreciation
-
(29,710)
(110,979)
(7,848)
(3,406)
(1,749)
(2,298)
(5,107)
(161,097)
9,376
23,539
21,805
556
838
308
1,084
10,699
68,205
22
Depreciation expense of $8,722 (2022 – $9,591) is included in the consolidated statement of loss: $7,019
(2022 – $7,751) in “cost of sales” and $1,703 (2022 – $1,840) in “administration costs”.
8
Leases
a) Right-of-use assets
Carrying value by asset class
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Land
5,616
6,565
Buildings
3,942
4,233
Furniture & Fixtures
-
9
Machinery & Equipment
133
192
Data Processing Equipment
92
104
Rolling Stock
916
1,019
10,699
12,122
Depreciation by asset class
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Land
103
119
Buildings
838
805
Furniture & Fixtures
8
13
Machinery & Equipment
112
100
Data Processing Equipment
48
55
Rolling Stock
547
630
1,656
1,722
b) Long-term lease liabilities
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Current portion of long-term lease liabilities
1,298
1,360
Long-term lease liabilities
9,458
11,073
10,756
12,433
23
Amounts recognized in the consolidated statement of loss:
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Expenses relating to short-term leases (included in “cost of sales”
and “administration costs”
417
296
Expenses relating to leases of low-value assets, excluding short-
term leases of low value (included in “cost of sales” and
“administration costs”)
177
131
Expenses related to variable lease payments (included in “cost of
sales” and “administration costs”)
189
179
Interest expenses (included in “finance costs”)
237
278
9
Intangible assets and goodwill
(thousands)
Goodwill
$
Computer
software
$
Patent,
products &
designs
$
Customer
lists
$
Data
processing
equipment
$
Total
$
At February 29, 2021
Cost
9,495
8,683
17,949
6,545
15
42,687
Accumulated amortization
-
(8,169)
(10,744)
(6,442)
(13)
(25,368)
9,495
514
7,205
103
2
17,319
Year ended February 28, 2022
Beginning balance
9,495
514
7,205
103
2
17,319
Additions
-
944
1,533
-
-
2,477
Amortization
-
(415)
(1,540)
(100)
-
(2,055)
Exchange differences
(707)
(59)
(279)
(3)
-
(1,048)
8,788
984
6,919
-
2
16,693
At February 28, 2022
Cost
8,788
9,243
18,535
6,058
15
42,639
Accumulated amortization
-
(8,259)
(11,616)
(6,058)
(13)
(25,946)
8,788
984
6,919
-
2
16,693
Year ended February 28, 2023
Beginning balance
8,788
984
6,919
-
2
16,693
Additions
-
223
1,996
-
-
2,219
Amortization
-
(385)
(1,636)
-
-
(2,021)
Exchange differences
(504)
(49)
(185)
-
-
(738)
8,284
773
7,094
-
2
16,153
At February 28, 2023
Cost
8,284
4,722
19,858
5,711
15
38,590
Accumulated amortization
-
(3,949)
(12,764)
(5,711)
(13)
(22,437)
8,284
773
7,094
-
2
16,153
24
Amortization expense of $2,021 (2022 – $2,055) is included in the consolidated statement of loss: $784 (2022 – $970)
in “cost of sales” and $1,237 (2022 – $1,085) in “administration costs”.
As at February 28, 2023, the Company capitalized $1,787 (2022 – $1,533) of development costs, net of research
and development tax credits of $299 (2022 - $304), as patents, products and designs.
Goodwill impairment test as at February 28, 2023
The Company must test its goodwill for impairment annually, unless if the following conditions are met:
a) The assets and liabilities making up the unit have not changed significantly since the calculation of the
recoverable amount made in the previous period.
b) The most recent recoverable amount calculation resulted in an amount that exceeded the carrying amount of the
unit by a substantial margin.
c) Based on an analysis of events that have occurred and circumstances that have changed since the most recent
recoverable amount calculation, the likelihood that a current recoverable amount determination would be less
than the current carrying amount of the unit is remote.
All three conditions were met for Velan S.A.S. the Company’s French subsidiary, for the fiscal year ended
February 28, 2023. As a result, no impairment tests were conducted as the previously calculated recoverable amount
exceeded the carrying amount of Velan S.A.S.
10 Credit facilities
a) The Company has a facility with Export Development Canada of $27,000 (2022 – $24,000) for letters of credit
and letters of guarantee. As at February 28, 2023, $6,563 (2022 – $9,848) was drawn against this facility in the
form of letters of credit. The credit facility expires on November 30, 2023 and is renewed annually.
b) Foreign subsidiaries have the following credit facilities available as at February 28, 2023 totalling $57,738
(2022 - $67,351):
Credit facilities available
(thousands)
As at February 28, 2023
As at February 28, 2022
Borrowing Rates
European subsidiaries
$50,667 (€47,907)
$59,983 (€53,465)
0.70% to 9.36%
Korean subsidiaries
$3,373 (KW4,464,800)
$3,524 (KW4,235,400)
5.84% to 6.79%
Indian subsidiary
$2,299 (INR 190,000)
$2,516 (INR 190,000)
8.50%
Taiwanese subsidiary
$390 (NTD 12,000)
$535 (NTD 15,000)
1.93%
Chinese subsidiary
$1,009 (CNY 7,000)
$793 (CNY 5,000)
3.50%
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, 2023. 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 $2,220 (2022 – $2,576).
As at February 28, 2023, an amount of $260 (2022 – $550) was drawn against these secured credit facilities in the
form of demand operating lines of credit and bank overdrafts. An additional $11,192 (2022 – $9,566) was drawn
against these secured credit facilities in the form of letters of credit and letters of guarantee.
25
11 Account payable and accrued liabilities
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Trade accounts payable
39,898
34,306
Goods and services taxes payable
4,639
3,753
Commissions payable
2,571
2,209
Accrued liabilities
10,543
14,373
Accrued payroll expenses
20,889
24,190
Other
868
1,672
79,408
80,503
12 Provisions
(thousands)
Provision for
performance
guarantees
(note a)
$
Warranty
provision
(note b)
$
Asbestos
provision
(note c)
$
Other
provision
$
Total
$
Balance – February 28, 2021
18,815
7,141
2,710
3,559
32,225
Additions
2,168
3,072
19,924
2,298
27,462
Usage
(1,033)
(356)
(5,178)
(217)
(6,784)
Reversals
(16,646)
(2,001)
-
(1,523)
(20,170)
Exchange differences
(705)
(483)
-
-
(1,188)
Balance – February 28, 2022
2,599
7,373
17,456
4,117
31,545
Less: Current provision
2,599
7,373
4,355
4,117
18,444
Long-term provision
-
-
13,101
-
13,101
Additions
1,230
845
66,548
2,100
70,723
Usage
(881)
(318)
(8,861)
(485)
(10,545)
Reversals
(303)
(1,664)
(1,843)
-
(3,810)
Exchange differences
(110)
(394)
-
-
(504)
Balance – February 28, 2023
2,535
5,842
73,300
5,732
87,409
Less: Current provision
2,535
5,842
2,376
5,732
16,485
Long-term provision
-
-
70,924
-
70,924
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.
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.
26
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 asbestos provision estimates the potential liability related to all future
settlement costs taking into consideration, among other factors, past settlement experience and a projection of
future claims. For the year ended February 28, 2023, together with its process to sell the Company, management
finalized its assessment and analysis of unreported claims relating to the asbestos-containing products. As a
result of obtaining this information, an additional liability of $55,954 was recognized in “administration costs”. In
prior years, management was unable to reasonably obtain reliable information over unreported claims.
13 Long-term debt
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Revolving credit facility (note a)
-
-
Canadian entity
Secured bank loan ($CAD 20,906; February 28, 2022 - $CAD
22,500) (note b)
15,181
17,134
French subsidiaries
Unsecured bank loan (€3,183; February 28, 2022 - €2,943) (note c)
3,366
3,302
Italian subsidiary
Unsecured bank loan (€4,186; February 28, 2022 - €2,869) (note d)
4,427
3,219
Unsecured state bank loan (€460; February 28, 2022 - €690)
(note e)
487
774
Other (note f)
6,435
6,609
29,896
31,038
Less: current portion
8,177
8,111
21,719
22,927
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, 2023, the Company had drawn down nil
(2022 - nil) on the revolving credit facility and had $5,148 (2022 - $3,980) in the form of outstanding letters of
credit and letters of guarantee on a total of $49,511 (2022 - $49,365) borrowing availability. As at
February 28, 2023, the Company was in compliance with all of its covenant. This credit facility expires on
July 3, 2023. Management is currently negotiating an extension with the bank syndicate to push the expiry date
to December 31, 2023.
b) The secured mortgage bank loan of $15,181 ($CAD 20,906) bears interest at 3.80% with monthly principal
repayments of $75 and repayable over 20 years.
c) The unsecured bank loans total $3,366 (€3,183) and bear interest at a range of [0.25% - 2.95%]. Repayments
include monthly payments totalling $129. These loans expire between 2023 and 2028.
27
d) The unsecured bank loans total $4,427 (€4,186) and bear interest at a range of [Euribor+0.67% - Euribor+1.25%].
Repayments include monthly payments of $17 and quarterly payments of $283. These loans expire in 2025 and
2027.
e) The unsecured bank loan of $487 (€460) bears interest at Euribor+3.00% and is repayable in semi-annual
payments of $122, expires in 2024.
f)
Included in Other is an amount of $4,909 (€4,641) (February 28, 2022 – $5,072 (€4,521)) 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 loss.
The aggregate net book value of the assets pledged as collateral under the revolving credit facility amounted to
$130,936 (2022 – $130,277) and under long-term debt agreements amounted to $15,181 (2022 – $17,134).
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
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
6,019,068 Subordinate Voting Shares
65,569
65,569
15,566,567 Multiple Voting Shares
7,126
7,126
72,695
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, 2023, the Company had no PSUs outstanding.
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
28
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.
In the event of a change of control, the Committee as constituted immediately prior to the change in control shall
determine in its sole discretion the appropriate conversion, mitigation or redemption of DSUs taking into account
the terms and conditions of the change of control.
Movements in outstanding DSUs and related expense were as follow:
For the years ended
(thousands)
February 28,
2023
February 28,
2022
In numbers of DSUs
Opening balance
83,234
76,925
Issued
243
32,890
Settled
-
-
Forfeited
(9,303)
(26,581)
Closing balance
74,174
83,234
DSU expense for the years
$126
$151
Fair value of vested outstanding DSUs, end of years
$520
$412
15 Cost of sales
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Change in inventories of finished goods and work in progress
2,182
(31,977)
Raw materials and consumables used
159,960
200,111
Employee expenses, excluding scientific research investments tax credits
65,363
70,550
Depreciation and amortization
7,803
8,722
Movement in inventory provisions – net
4
3,479
Foreign exchange loss
1,453
1,395
Other production overheads costs
21,199
23,993
257,964
276,273
During the fiscal year, the Company applied for the Employee Retention Credit in the United States (2022 - Canada
Emergency Wage Subsidy) of which $1,017 (2022 - $1,142) was recorded as a reduction of “Cost of sales”.
29
16 Administration costs
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Employee expenses, excluding scientific research investments tax
credits expenses
48,931
52,052
Scientific research investment tax credits
(1,391)
(1,594)
Commissions
4,619
7,387
Freight to customers
7,042
4,984
Professional fees
9,369
11,423
Asbestos related settlement costs (note 12)
69,676
19,924
Movement in loss allowance
(1)
(362)
Depreciation and amortization
2,940
2,926
Other
15,574
16,299
156,759
113,039
During the fiscal year, the Company applied for the Employee Retention Credit in the United States (2022 - Canada
Emergency Wage Subsidy) of which $502 (2022 - $905) was recorded as a reduction of “Administration costs”.
17 Employee expense
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Wages and salaries
82,249
87,674
Social security costs
26,681
29,413
Scientific research investment tax credits
(1,391)
(1,594)
Share-based compensation
126
154
Other
5,238
5,361
112,903
121,008
During the fiscal year, the Company applied for the Employee Retention Credit in the United States (2022 - Canada
Emergency Wage Subsidy) of which $1,519 (2022 - $2,047) 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 $5,856
(2022 - $6,394).
30
18 Research and development expenses
Research and development expenses are included in cost of sales and administration costs and consist of the
following:
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Research and development expenditures
6,181
7,014
Less: Scientific research investment tax credits
(1,391)
(1,594)
4,790
5,420
19 Income taxes
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Current taxes
8,072
10,796
Deferred income taxes
(27)
35,635
Income tax expense
8,045
46,431
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:
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Income tax at statutory rate of 26.50%
(12,565)
9,587
Tax effects of:
Difference in statutory tax rates in foreign jurisdiction
486
130
Non-deductible (taxable) foreign exchange losses (gains)
754
(613)
Derecognition of deferred tax assets
-
32,603
Deferred tax assets not recognized
18,996
4,941
Other differences
374
(217)
Income tax expense
8,045
46,431
31
The analysis of deferred income tax assets and deferred income tax liabilities is as follows:
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Deferred income tax assets:
To be realized after more than 12 months
1,889
2,559
To be realized within 12 months
2,774
2,215
Deferred income taxes liabilities
To be realized after more than 12 months
(3,823)
(3,643)
To be realized within 12 months
(143)
(382)
Net deferred income tax asset
697
749
The movement of the net deferred income tax asset account is as follows:
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Balance – Beginning of the year
749
36,522
Recovery of income taxes in the consolidated statement of loss
(27)
(35,635)
Exchange differences
(25)
(138)
Net deferred income tax asset
697
749
The significant components of the net deferred income tax asset are as follows:
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Property, plant and equipment
(400)
(460)
Intangible assets
(621)
(868)
Non-deductible provisions and reserves
604
849
Investment tax credits
-
-
Inventories
1,129
1,304
Non-capital loss carryforwards
408
-
Other
(423)
(76)
Net deferred income tax asset
697
749
32
The Company did not recognize deferred income tax assets of $39,520 (2022 – $44,456) in respect of non-capital
losses amounting to $152,001 (2022 – $149,516) 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 $1,129 (2022 – $1,282) in respect of capital losses
amounting to $8,520 (2022 – $9,673) that can be carried forward indefinitely against future taxable capital gains.
Deferred income tax liabilities of $5,945 (2022 – $5,594) 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, 2023 totalled $329,402 (2022 – $304,354).
20 Loss per share
a) Basic and diluted
Basic loss per share is calculated by dividing the net loss attributable to the Subordinate and Multiple Voting
shareholders by the weighted average number of Subordinate and Multiple Voting Shares outstanding during the
year.
For the years ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Net loss attributable to Subordinate and Multiple voting
shareholders
(55,453)
(21,141)
Weighted average number of Subordinate and Multiple voting
shares outstanding.
21,585,635
21,585,635
Basis and diluted loss per share
$(2.57)
$(0.98)
Diluted loss 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.
33
21 Commitments
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, 2023, the aggregate maximum value
of these guarantees, if exercised, amounted to $46,937 (2022 - $58,512). The guarantees expire as follows:
As at
(thousands)
February 28,
2023
$
February 29, 2024
24,835
February 28, 2025
8,242
February 28, 2026
2,172
February 28, 2027
2,293
February 29, 2028
1,839
Subsequent years
7,556
46,937
22 Segment reporting
The Company reflects its results under a single reportable operating segment. The geographic distribution of its sales
is as follows:
Fiscal year ended February 28, 2023
(thousands)
Canada
$
United
States
$
France
$
Italy
$
Other
$
Consolidation
adjustment
$
Consolidated
$
Sales
Customers -
Domestic
22,144
124,413
46,239
181
11,083
-
204,060
Export
38,867
11,321
44,501
51,213
20,467
-
166,369
Intercompany (export)
59,702
10,513
72
2,924
61,239
(134,450)
-
120,713
146,247
90,812
54,318
92,789
(134,450)
370,429
Property, plant and equipment
25,125
4,170
15,809
5,497
17,604
-
68,205
Intangible assets and goodwill
4,762
-
8,796
2,527
68
-
16,153
Other identifiable assets
207,437
32,801
158,133
64,559
132,237
(201,668)
393,499
Total identifiable assets
237,324
36,971
182,738
72,583
149,909
(201,668)
477,857
34
Fiscal year ended February 28, 2022
(thousands)
Canada
$
United
States
$
France
$
Italy
$
Other
$
Consolidation
adjustment
$
Consolidated
$
Sales
Customers -
Domestic
17,367
86,715
53,742
996
20,783
-
179,603
Export
73,077
4,303
48,735
80,793
24,731
-
231,639
Intercompany (export)
40,044
8,367
114
13,182
44,099
(105,806)
-
130,488
99,385
102,591
94,971
89,613
(105,806)
411,242
Property, plant and equipment
26,783
4,906
17,697
5,979
18,541
-
73,906
Intangible assets and goodwill
3,944
-
9,520
3,191
38
-
16,693
Other identifiable assets
197,095
23,600
166,561
73,923
137,631
(180,981)
417,829
Total identifiable assets
227,822
28,506
193,778
83,093
156,210
(180,981)
508,428
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.
35
The amounts outstanding under derivatives contracts as at February 28, 2023 and 2022 are as follows:
Range of exchange rates
Fair value
(In thousands of U.S. dollars)
Notional amount
(In thousands indicated currency)
February 28,
2023
February 28,
2022
February 28,
2023
$
February 28,
2022
$
February 28,
2023
February 28,
2022
Foreign exchange forward contracts
Sell US$ for CA$ - 0 to 12 months
1.32
1.27-1.28
107
(470)
US$40,000
US$50,000
Buy US$ for CA$ - 0 to 12 months
1.38
1.25
(299)
301
US$40,000
US$50,000
Sell € for US$ – 0 to 12 months
-
1.15
-
(90)
-
€15,000
Buy € for US$ – 0 to 12 months
-
1.13
-
252
-
€15,000
Foreign exchange forward contracts are contracts whereby the Company has the obligation to sell or buy the
currencies at the strike price. The fair value of the foreign currency instruments is recorded in the consolidated
statement of 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, 2023 and 2022:
Net income (loss)
(thousands)
February 28,
2023
$
February 28,
2022
$
Canadian dollar strengthening against the U.S. dollar
(847)
(1,284)
Euro strengthening against the U.S. dollar
(327)
53
Indian rupee strengthening against the U.S. dollar
346
155
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, 2023, four
(2022 – three) customers accounted for more than 5% each of its trade accounts receivable, of which one customer
accounted for 15.0% (2022 – 10.8%) and the Company’s ten largest customers accounted for 60.4% (2022 – 55.7%)
of trade accounts receivable. In addition, one customer accounted for 13.4% of the Company’s sales (2022 – 10.1%).
36
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:
As at February 28, 2023
Current
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
Total
Expected loss rate
0.130%
0.141%
0.169%
2.399%
Gross carrying amount
83,118
9,961
5,902
14,548
113,529
Loss allowance
108
14
10
349
481
As at February 28, 2022
Current
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
Total
Expected loss rate
0.059%
0.074%
0.088%
2.762%
Gross carrying amount
64,689
17,995
9,248
16,285
108,217
Loss allowance
38
13
8
450
509
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.
37
The following tables present the Company’s financial liabilities identified by type and future contractual dates of
payment as at:
As at February 28, 2023
Carrying
value
$
Less than
1 Year
$
1 to 3
Years
$
4 to 5
Years
$
After 5
Years
$
Total
$
Long-term debt
29,896
8,840
6,609
4,156
15,814
35,419
Long-term lease liabilities
10,756
1,560
2,071
1,341
11,682
16,654
Accounts payable and accrued
liabilities
79,408
79,408
-
-
-
79,408
Customer Deposits
56,138
28,201
23,281
518
4,138
56,138
Bank indebtedness
260
260
-
-
-
260
Derivative liabilities
299
299
-
-
-
299
As at February 28, 2022
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
550
550
-
-
-
550
Derivative liabilities
560
560
-
-
-
560
Fair value of financial instruments
The fair value hierarchy has the following levels:
Level 1 –
quoted market prices in active markets for identical assets or liabilities;
Level 2 –
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.
38
The fair value of financial assets and financial liabilities on the condensed interim consolidated statements of financial
position are as follows:
As at February 28, 2023
(thousands)
Total
$
Level 1
$
Level 2
$
Level 3
$
Financial position classification and nature
Assets
Derivative assets
107
-
107
-
Liabilities
Derivative liabilities
299
-
299
-
As at February 28, 2022
(thousands)
Total
$
Level 1
$
Level 2
$
Level 3
$
Financial position classification and nature
Assets
Derivative assets
553
-
553
-
Liabilities
Derivative liabilities
560
-
560
-
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.
39
The total debt-to-equity ratio was as follows:
As at
(thousands)
February 28,
2023
$
February 28,
2022
$
Bank indebtedness
260
550
Current portion of long-term lease liabilities
1,298
1,360
Current portion of long-term debt
8,177
8,111
Long-term lease liabilities
9,458
11,073
Long-term debt
21,719
22,927
Total debt
40,912
44,021
Equity
200,835
265,510
Total debt-to-equity ratio
20.4%
16.6%
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 loss to cash provided from operating activities
Fiscal periods ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Depreciation of property, plant and equipment
8,722
9,591
Amortization of intangible assets
2,021
2,055
Amortization of financing costs
251
263
Deferred income taxes
(27)
35,635
Gain (loss) on disposal of property, plant and equipment and Juwon Special Steel Co. Ltd.
200
(16,108)
Net change in long-term provisions and customer deposits
56,721
14,699
Net change in derivative assets and liabilities
185
(100)
Net change in other liabilities
(520)
(883)
67,553
45,152
40
26 Changes in non-cash working capital items
Fiscal periods ended
(thousands)
February 28,
2023
$
February 28,
2022
$
Accounts receivable
(9,837)
11,080
Inventories
14,235
(28,020)
Income taxes recoverable
(3,254)
803
Deposits and prepaid expenses
(916)
1,031
Accounts payable and accrued liabilities
1,845
(3,119)
Income taxes payable
(1,100)
2,166
Customer deposits
(11,087)
11,602
Provisions
(1,458)
(12,572)
(11,572)
(17,029)
27 Debt from financing activities reconciliation
(thousands)
Long-term
lease liabilities
$
Long-term
debt
$
Total
$
Balance - February 28, 2021
14,227
58,091
72,318
Cash inflows
-
7,874
7,874
Cash outflows
(1,696)
(28,854)
(30,550)
Foreign exchange adjustments
(912)
(891)
(1,803)
Disposal of Juwon Special Steel Co. Ltd.
(48)
(5,182)
(5,230)
Other non-cash movements
862
-
862
Balance - February 28, 2022
12,433
31,038
43,471
Cash inflows
-
3,666
3,666
Cash outflows
(1,657)
(4,398)
(6,055)
Foreign exchange adjustments
(682)
(410)
(1,092)
Other non-cash movements
662
-
662
Balance - February 28, 2023
10,756
29,896
40,652
41