SNE oil field, located 100 kms off the coast of Dakar, is the first oil discovery offshore
Senegal and one of the world’s biggest oil discoveries in the last ten years. All the
valves on this FPSO were manufactured by Velan ABV.
Velan designs, manufactures and markets on a worldwide basis a broad range
of industrial valves for use in critical applications. Velan provides solutions
to many industrial sectors including power generation, nuclear, oil and gas,
chemicals, LNG and cryogenics, pulp and paper, geothermal processes,
shipbuilding, defense, and carbon-neutral technologies.
Completion of one of the largest helium cryogenic valves
for cold box applications manufactured by Velan SAS.
A pallet of valves undergoes final inspection at Velan Montreal.
Fifteen 24-inch Class 1500 pressure seal gate valves as a part of
a large order at Velan India destined for a chemical company in
the Netherlands. These valves will be used in steam application.
Clean room at Velan Portugal.
Lapping of the ball with the seat at Velan Montreal.
1
The Company’s strategic goals include customer-driven operational
excellence and margin improvements, accelerated growth through
increased focus on key target markets where the Company has
distinct competitive advantages and continuously improving and
modernizing its systems and processes.
Torque bolting on a coker valve at Velan Montreal.
20-inch Class 600 gate valves
on the Velan China shop floor
destined for a power plant.
2
OPERATING RESULTS
• Sales of $346.8 million
• Gross profit of $93.2 million, or 26.9% of sales
• Net loss(1) of $19.7 million
BACKLOG(2) AND BOOKINGS(2)
• 5.8% backlog increase to $491.5 million
• Bookings of $374.5 million
• Book-to-bill(2) ratio of 1.08
SOLID FINANCIAL POSITION
• Cash and cash equivalents of $36.4 million
• Short-term investments of $5.3 million
• Long-term debt, including the current portion, of $28.8 million
FAVORABLE MARKET CONDITIONS AND COMPETITIVE
POSITION
• Backlog to be delivered in the next 12 months should produce
higher sales in fiscal 2025
• Global presence, diversified customer base, and focus on critical
applications are key competitive advantages
• Maintenance and repair activity on a large installed base of
equipment should continue to provide a steady revenue stream
(1) Net income or loss refer to net income or loss attributable to subordinate and multiple
voting shares.
(2) Non-IFRS measures – see reconciliations in the Non-IFRS and supplementary financial
measures section of the MD&A.
Velan concluded fiscal 2024 with strong fourth quarter results,
marked by heightened sales volume and healthy profit margins
on improved quality of execution. As a supplier of critical
equipment to essential industries, Velan is well positioned to
capture growth opportunities driven by the ongoing energy
transition and expand its reach in the flow control industry
based on an agile workforce, global presence and strong brand
recognition. Velan is clearly resuming its focus on growth and
is confident about its future opportunities worldwide.
FISCAL 2024
HIGHLIGHTS
Sales
371.6
370.4
411.2
302.1
346.8
(in millions of $)
Gross Profit
88.1
112.5
135.0
80.5
93.2
(in millions of $)
Backlog at period end
406.8
464.3
501.2
562.5
491.5
(in millions of $)
2
2020
2023
2022
2021
2024
2020
2023
2022
2021
2024
2020
2023
2022
2021
2024
3
(1) Net income or loss refer to net income or loss attributable to subordinate and multiple voting shares.
(2) Non-IFRS measures – see reconciliations in the Non-IFRS and supplementary financial measures section of the MD&A.
5-YEAR FINANCIAL
HIGHLIGHTS
For the years ended
Feb. 2024
Feb. 2023
Feb. 2022
Feb. 2021
Feb. 2020
(In thousands, except per share data)
$
$
$
$
$
OPERATING DATA
Sales
346,816
370,429
411,242
302,063
371,625
Gross profit
93,207
112,465
134,969
80,539
88,134
Net income (loss)(1)
(19,737)
(55,453)
(21,141)
2,867
(16,390)
Per share – basic and diluted
(0.91)
(2.57)
(0.98)
0.13
(0.76)
EBITDA(2)
5,306
(34,862)
39,599
15,573
6,522
Adjusted EBITDA(2)
17,780
21,092
39,599
11,643
16,088
BALANCE SHEET DATA
Net cash
36,445
50,253
53,465
62,953
31,010
Total assets
479,393
477,857
508,428
580,833
538,496
Long-term debt, including current portion
28,777
29,896
31,038
58,091
19,297
Equity
183,259
200,835
265,510
300,221
284,861
CASH FLOW DATA
Cash provided by operating activities
4,301
522
17,868
(9,095)
9,643
Free cash flow(2)
(2,538)
(3,848)
11,724
(18,905)
(660)
SHAREHOLDER DATA AND DIVIDEND
Cash dividends per share (in CA$)
Multiple and subordinate voting shares
0.03
0.03
—
—
0.09
Outstanding shares at reporting date
Multiple voting shares
15,566,567
15,566,567
15,566,567
15,566,567
15,566,567
Subordinate voting shares
6,019,068
6,019,068
6,019,068
6,019,068
6,019,068
BACKLOG AND BOOKINGS
Backlog at period end
491,525
464,337
501,224
562,493
406,800
Bookings
374,454
353,176
363,451
426,595
340,400
Book-to-bill ratio
1.08
0.95
0.88
1.41
0.92
All amounts expressed in this annual report are in US dollars, except as otherwise specified.
4
Fiscal 2024 proved to be a tale of two halves for Velan. The first half was marked
by a challenging global macroeconomic environment and the pending agreement
of a proposed transaction to acquire the Company. The second half began with a
regulatory authority ruling that terminated the proposed transaction, followed by a
significant sequential increase in bookings in the third and fourth quarters.
MESSAGE TO
SHAREHOLDERS
5
Altogether, gross profit totaled $93.2 million on sales of $346.8 million in fiscal 2024, while
our year-end order backlog stood at a $491.5 million driven by the solid bookings momentum.
Nearly three-quarters of this backlog is expected to be shipped within a 12-month period. As a
result, we fully expect the Company to return to growth mode in fiscal 2025.
Clearly, we navigated through difficult market conditions and management was distracted for
part of fiscal 2024 with matters around the proposed transaction. Having put this event behind
us, I firmly believe that we have regained momentum. As Chairman of the Board and newly
appointed CEO during the year, I embarked on a tour to gauge the perception of employees,
customers, and partners towards Velan. I returned emboldened by what I heard. The strength
of our brand, the quality of our products, and our positioning in the marketplace remain second
to none.
We are a global company with headquarters in Canada, not merely a Canadian company with
overseas operations. We have R&D centers in Montreal (Canada), Lyon (France), Lucca (Italy)
and Coimbatore (India), each developing innovative technologies to improve the performance
and reliability of its industrial valves to the benefit of our customers.
Our R&D approach has historically been customer-centric rather than technology-driven.
By this, I mean that nothing is created in a vacuum. Instead of ineffectively searching for
revolutionary breakthroughs, we develop true intimacy with our customers. Our engineers
take the time to understand each valve, and the ways that it can be engineered, to effectively
collaborate with the customer and devise a suitable solution to often very complex challenges.
Our research hubs are supported by 12 manufacturing facilities—three in North America, four
in Europe and five in Asia—along with two distribution centers. We view these assets as strong
competitive advantages in terms of offering a diverse product portfolio, at scale, and in a cost-
efficient manner.
KEY GROWTH MARKETS
Looking ahead to fiscal 2025 and beyond, we plan to increase our reach in high-growth sectors
like nuclear, defense, oil and gas, as well as liquefied natural gas (LNG). These niches, in which
we have sustained differentiation, are currently being buoyed by energy transition trends.
Delving deeper into environmental matters, many of our customers have stated carbon
emission reduction targets, such as reaching net zero global carbon dioxide (CO2) emissions
and are increasingly looking for energy-efficient solutions to reach these objectives. Velan is
directly aligned with this secular growth trend as we have dedicated significant resources to
environmentally driven solutions.
6
We are particularly heartened by evolving sentiment around nuclear power as it is critical
to reducing greenhouse gas emissions due to its clean properties: zero emissions and fully
recyclable. At the COP28 climate change conference in December 2023, more than 20
countries signed a joint declaration to triple nuclear power capacity by 2050. This landmark
event was followed by the first-ever Nuclear Energy Summit held in March 2024 in Belgium,
where representatives from 32 countries heralded a new era of cooperation to include nuclear
energy in the mix of renewables to reach net-zero objectives on time.
At Velan, our valves are the power industry’s choice for reliable nuclear service, boasting
a significant installed product base in nuclear power reactors worldwide and with over
50 years of uninterrupted experience. Velan is the leading valve supplier for all nuclear reactor
technologies.
Our expertise can be leveraged into modular reactors (SMRs), which are increasingly gaining
traction due to their reduced footprint, savings on costs and construction time and greater
safety. Velan’s longstanding experience in defense markets, particularly nuclear marine and
aircraft carrier propulsion, provides us with a leg up on the competition. For example, given
tight space considerations, marine reactors must be physically smaller and generate higher
power per unit of space than land-based reactors. As a result, valves are subject to greater
stress and must endure harsher conditions at sea, including salt-water corrosion. In short, our
entrenched presence in defense markets, namely meeting stringent requirements, make us the
ideal supplier for the growing SMR niche.
As for the oil and gas sector, it has been widely affected by global efforts to mitigate climate
change and protect the environment. Accordingly, we intend to leverage our extensive customer
base, which includes nearly 90% of North America’s oil refineries, as well as a growing presence
overseas, by providing engineered valves and steam traps that are the most reliable on the
market. We hold all major industry approvals in the oil and gas industry and our extensive global
customer list—from production, to distribution, to refining, to petrochemicals—continues to
grow.
Moving to LNG, it remains the cleanest of fossil fuels by producing 40% less CO2 than coal and
30% less than oil. Velan offers the most complete and technically advanced product line for
liquefied gases, research labs, and superconductivity for particle accelerators and aerospace.
We also provide valves for extreme low temperatures of -271°C, just above absolute zero.
Along with revenue contributions from other market niches, we expect maintenance, repair and
overhaul (MRO) activity on our extensive base of installed equipment to provide a recurring
revenue stream in upcoming years.
7
FOCUS ON CASH GENERATION
From an operating standpoint, we have implemented a series of actions to drive cash by
leveraging the global scale of our business, maximizing strategic procurement advantages,
and optimizing inventory management. We reported $4.3 million in cash flows from operating
activities in fiscal 2024, which clearly understates our real potential. Accordingly, improving
cash flow generation represents a key priority to sustain our growth ambitions in upcoming
years.
Improving our cash flows will bolster an already solid financial position. We closed fiscal 2024
with a positive net cash position, providing Velan with a distinct advantage in a relatively
high interest rate environment. Given this advantage, we are on solid ground to actively seek
growth opportunities to further expand our reach into new market niches and consolidate our
leadership in existing ones.
ADDITION TO BOARD OF DIRECTORS
Given my dual appointment as Chairman and CEO during the past year, a position on our Board
of Directors was left vacant. I am pleased to report that Daniel Desjardins has been appointed
to our Board as an independent director. Mr. Desjardins is an accomplished business lawyer and
executive with extensive expertise in business law, compliance and risk management as well as
decades of experience in financing and complex mergers and acquisitions at Bombardier Inc.
His legal and business acumen, along with longstanding knowledge of global markets, nicely
complement the skillset of the Board.
WRAP-UP
In closing, I am thankful to lead a high-quality leadership team at Velan. Through the collective
contributions of our leaders, along with the tireless work of more than 1,600 employees
worldwide, our brand remains revered throughout the industry.
Consequently, I would like to take this opportunity to sincerely thank our employees for their
dedication and resilience during what can best be described as an unusual year. I would also
like to express my appreciation to customers for their loyalty. Finally, many thanks to our
shareholders for supporting our long-term growth strategy.
James A. Mannebach
Chairman of the Board and Chief Executive Officer
8
Velan Head Office
Montreal, Canada
Velan Inc.
Granby, Canada
Velan Valve Corp.
Williston, U.S.A.
1
2
3
North America
1
2
3
WORLDWIDE PRESENCE
Velan is a world leader in steel industrial valves
operating 12 manufacturing plants worldwide
with approximately 1,641 employees. The
Company’s business strategy is to design,
manufacture, and market new and innovative
valves with emphasis on quality, safety, ease of
operation, and long service life.
Velan sells its valves worldwide and has been
successful in developing markets for its products
in approximately 70 countries.
$346.8M
Sales
Fiscal 2024 Geographical Sales*
Canada
United States
Italy
Others
France
18.7%
12.9%
33.6%
25.4%
9.3%
8
*
Defined as the country where the sale was recorded.
9
Válvulas
Industriais, Lda.
Lisbon, Portugal
Velan SAS
Lyon, France
Segault SAS
Mennecy, France
Velan ABV S.r.l.
Lucca, Italy
4
5
6
7
Europe
Velan Valves
India Pvt. Ltd.
Coimbatore, India
Velan Valve
(Suzhou) Co., Ltd.
Suzhou, China
Velan Ltd.
Ansan City, South Korea
Velan-Valvac
Taichung, Taiwan
8
9
11
10
12
Asia
4
5
6
7
8
9
10
11
12
9
9
10
THE STRENGTH OF THE BRAND
Velan has become synonymous with quality, reliability and innovation
after serving customers for nearly 75 years in the global industrial steel
valve industry. Founded in 1950 by A.K. Velan, who had developed an
idea for a new steam trap, the company’s pioneering and entrepreneurial
spirit flourishes today through a portfolio of high-quality valves purpose-
built for diverse industrial applications.
Underlying this strong brand name has been a customer-centric approach that
prioritizes collaboration and customization. Velan’s commitment to delivering top-
quality valves designed to customers’ specific needs sets it apart from competitors
who often rely on lower-cost, standardized solutions. By working closely with
customers to understand their particular challenges, Velan develops unique
valves that meet the most stringent of requirements. Ultimately, this heightened
customer intimacy, combined with longstanding quality, reliability and innovation,
have strengthened the Velan brand worldwide.
Proud employees taking a pause at Velan’s facility in Montreal.
AK Velan - 1991 Canada Export Award
FISCAL YEAR ENDED FEBRUARY 29, 2024
MANAGEMENT’S DISCUSSION
AND ANALYSIS
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
The following discussion provides an analysis of the consolidated operating results and financial position of Velan
Inc. (“the Company”) for the fiscal year ended February 29, 2024. This MD&A should be read in conjunction with the
Company’s audited consolidated financial statements for the years ended February 29, 2024, and February 28, 2023.
The Company’s consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The significant accounting
policies upon which these consolidated financial statements have been prepared are detailed in Note 2 of the
Company’s audited consolidated financial statements. All foreign currency transactions, balances and overseas
operations have been converted to U.S. dollars, the Company’s reporting currency. This MD&A was approved by the
Board of Directors of the Company on May 16, 2024. Additional information relating to the Company, including the
Annual Information Form and Proxy Information Circular, can be found on SEDAR+ at www.sedarplus.ca.
NON-IFRS AND SUPPLEMENTARY FINANCIAL MEASURES
In this MD&A, the Company has presented measures of performance or financial condition which are not defined
under IFRS (“non-IFRS measures”) and are, therefore, unlikely to be comparable to similar measures presented by
other companies. These measures are used by management in assessing the operating results and financial
condition of the Company and are reconciled with the performance measures defined under IFRS. Reconciliations of
these amounts can be found at the end of this report. The Company has also presented supplementary financial
measures which are defined at the end of this report.
FORWARD-LOOKING INFORMATION
This MD&A may include forward-looking statements, which generally contain words like “should”, “believe”,
“anticipate”, “plan”, “may”, “will”, “expect”, “intend”, “continue” or “estimate” or the negatives of these terms or
variations of them or similar expressions, all of which are subject to risks and uncertainties. These risks and
uncertainties are disclosed in the Company’s filings with the appropriate securities commissions and are included in
this report (see Certain Risks That Could Affect Our Business section). While these statements are based on
management’s assumptions regarding historical trends, current conditions and expected future developments, as
well as other factors that it believes are reasonable and appropriate in the circumstances, no forward-looking
statement can be guaranteed and actual future results may differ materially from those expressed herein. The
Company disclaims any intention or obligation to update or revise any forward-looking statements contained herein
whether as a result of new information, future events or otherwise, except as required by the applicable securities
laws. The forward-looking statements contained in this report are expressly qualified by this cautionary statement.
ABOUT VELAN
The Company designs, manufactures and markets on a worldwide basis a broad range of industrial valves for use in
critical applications. Velan provides solutions to many industrial sectors including power generation, nuclear, oil and
gas, chemicals, LNG and cryogenics, pulp and paper, geothermal processes, shipbuilding, defense, and carbon-
neutral technologies. The Company is a world leader in steel industrial valves operating 12 manufacturing plants
worldwide with approximately 1,641 employees. The Company’s head office is located in Montreal, Canada. The
Company’s business strategy is to design, manufacture, and market new and innovative valves with emphasis on
quality, safety, ease of operation, and long service life. The Company’s strategic goals include, but are not limited to,
customer-driven operational excellence and margin improvements, accelerated growth through increased focus on
key target markets where the Company has distinct competitive advantages and continuously improving and
modernizing its systems and processes.
The consolidated financial statements of the Company include the North American operations comprising two
manufacturing plants in Canada, as well as one manufacturing plant and one distribution facility in the U.S. Significant
overseas operations include manufacturing plants in France, Italy, Portugal, Korea, Taiwan, India, and China. The
Company’s operations also include a sales operation in Germany.
12
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
THREE-YEAR FINANCIAL SUMMARY
(unless otherwise noted, all amounts are in U.S. dollars)
For the reporting period ended on
(thousands)
February 29,
2024
February 28,
2023
February 28,
2022
Operating data
Sales
346,816
370,429
411,242
Gross Profit
93,207
112,465
134,969
Net loss1
(19,737)
(55,453)
(21,141)
Adjusted net income (loss)2
(7,918)
501
11,462
EBITDA2
5,306
(34,862)
39,599
Adjusted EBITDA2
17,780
21,092
39,599
Net loss2 per share – basic and diluted
(0.91)
(2.57)
(0.98)
Adjusted net income (loss) per share – basic and diluted
(0.37)
0.02
0.53
Balance sheet data
Cash and cash equivalents
36,445
50,513
54,015
Total assets
479,393
477,857
508,428
Long-term debt, including current portion
28,777
29,896
31,038
Cash flow data
Cash provided by operating activities
4,301
522
17,868
Free cash flow2
(2,538)
(3,848)
11,724
Shareholder data
Cash dividends per share (in CA$)
-
Multiple voting shares
0.03
0.03
-
-
Subordinate voting shares
0.03
0.03
-
Outstanding Shares at reporting date
-
Multiple voting shares
15,566,567
15,566,567
15,566,567
-
Subordinate voting shares
6,019,068
6,019,068
6,019,068
Backlog2 and Bookings2
As at
(thousands)
February 29, 2024
February 28, 2023
February 28, 2022
$
%
$
%
$
%
Backlog2
491,525
464,337
501,224
For delivery within the next 12 months
360,669
73.4%
307,991
66.3%
321,860
64.2%
For delivery between 12 and 24 months
95,483
19.4%
n/a
n/a
n/a
n/a
For delivery between 24 and 36 months
17,064
3.5%
n/a
n/a
n/a
n/a
For delivery beyond 36 months
18,309
3.7%
n/a
n/a
n/a
n/a
Bookings2
374,454
353,176
363,451
Book-to-bill ratio2
1.08
0.95
0.88
1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
2 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
13
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
FISCAL 2024 HIGHLIGHTS
•
Order backlog1 of $491.5 million at the end of fiscal 2024, of which 73.4% is deliverable within the next 12 months,
up from $464.3 million a year earlier. Currency movements had a $5.6 million positive effect on backlog1.
•
Net new orders (“bookings”)1 of $374.5 million for the year, up $21.3 million or 6.0% from last year. The increase
reflects strong oil and gas orders recorded by Italian operations, partially offset by lower orders for North American
operations in the marine sector and for maintenance, repair and overhaul (“MRO”) activity. The strengthening of
the euro average rate against the U.S. dollar had a positive effect of $7.0 million on bookings1 during the year.
•
Sales for fiscal 2024 amounted to $346.8 million, a decrease of $23.6 million or 6.4% compared to the previous
fiscal year. Following lower year-over-year sales in the first nine months, strong fourth quarter sales were driven
by higher shipments by French and Italian operations for the defense and oil and gas markets, respectively. The
strengthening of the euro against the U.S. dollar had a positive effect of $3.8 million on sales during the year.
•
Gross profit for the year reached $93.2 million, versus $112.5 million last year. The decrease mainly reflects
lower business volume which impacted the absorption of fixed production overhead costs and a less favourable
product mix due to the execution of certain low margin projects. As a percentage of sales, gross profit was 26.9%
in fiscal 2024, compared to 30.4% in fiscal 2023.
•
Fiscal 2024 net loss2 was $19.7 million, compared to $55.5 million last year. Net loss2 for fiscal 2024 and 2023
include charges of $10.0 million and $56.0 million, respectively, to increase the Company’s asbestos provision
to reflect the potential settlement value of future claims not yet reported.
•
Adjusted EBITDA1 of $17.8 million in fiscal 2024 compared to $21.1 million in fiscal 2023. The decrease is
primarily attributable to the reduction in gross profit, partially offset by lower administration costs.
•
Cash and cash equivalents reached $36.4 million at the end of fiscal 2024, compared to $50.5 million a year
earlier.
OUTLOOK
The Company aims to build on the momentum gained in the second half of fiscal 2024, concluding the year on a solid
note with a growing order backlog1 and a book-to-bill1 ratio of 1.08. As at February 29, 2024, orders totaling $360.7
million, representing 73.4% of a total backlog1 of $491.5 million, are expected to be delivered in the next 12 months.
Given these orders, the Company expects to deliver annual sales in fiscal 2025 above the level achieved in fiscal
2024.
The Company is confident in its ability to secure future bookings1, as business activity in its main markets remains
healthy driven by solid prospects for the nuclear industry and sustained demand in the oil and gas industry, while
defense activity mirrors military spending around the world. Management will continue to closely monitor the global
situation, notably increased geopolitical tensions, and an uncertain macroeconomic environment in a context of higher
interest rates and inflation. These factors may delay the award of certain projects.
The Company’s financial position remains strong with a net cash position consisting of cash and cash equivalents of
$36.4 million. The Company will continue to manage diligently its working capital and capital investments to foster
free cash flow1 generation.
Furthermore, as Management believes that the strength of its financial position would allow the Company to counter
certain risks, there can be no assurance that external outside economic and geopolitical factors will not materially
adversely affect the Company’s results of operations or financial condition. Such factors include, but are not limited
to foreign currency fluctuations, in particular the Canadian dollar and the euro against the U.S. dollar, commodity
price fluctuations from both a procurement (price of steel) and sales (price of oil) perspective. See Certain Risks That
Could Affect Our Business section for more details.
1 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
2 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
14
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
FOURTH QUARTER RESULTS
• Bookings1 of $132.8 million, up significantly from $87.1 million last year and $78.3 million in the third quarter;
• Book-to-bill1 ratio of 1.13, versus 0.76 last year and 0.97 in the third quarter;
• Sales of $117.9 million, up $2.8 million or 2.4% from last year and up from $80.9 million in the third quarter;
• Gross profit of $38.4 million, or 32.6% of sales, compared to $39.9 million, or 34.7% of sales, last year;
• Net loss2 of $2.1 million compared to a net loss2 of $47.2 million last year, mainly due to increase the
Company’s asbestos provision to reflect the potential settlement value of future claims not yet reported.
FISCAL 2024 RESULTS
• Order backlog1 of $491.5 million at the end of the year, up $27.1 million or 5.9% from the end of last year;
• Bookings1 of $374.5 million, compared to $353.2 million in fiscal 2023;
• Book-to-bill1 ratio of 1.08, up from 0.95 in fiscal 2023;
• Sales of $346.8 million, down $23.6 million or 6.4% compared to fiscal 2023;
• Gross profit of $93.2 million, or 26.9% of sales, compared to $112.5 million, or 30.4% of sales, last year;
• Net loss2 of $19.7 million compared to a net loss2 of $55.5 million last year;
• Net cash of $36.4 million at the end of fiscal 2024, versus $50.3 million a year earlier.
RESULTS OF OPERATIONS
(unless otherwise noted, all amounts are in U.S. dollars)
Three-month periods ended
Twelve-month periods ended
(thousands)
February 29,
2024
February 28,
2023
Variance
February 29,
2024
February 28,
2023
Variance
Sales
$117,894
$115,141
$2,753
$346,816
$370,429
($23,613)
Gross profit
38,384
39,945
(1,561)
93,207
112,465
(19,258)
Administration costs
33,121
80,841
(47,720)
98,744
156,759
(58,015)
Income taxes
5,088
4,102
986
7,471
8,045
(574)
Net income (loss)2
(2,083)
(47,164)
45,081
(19,737)
(55,453)
35,716
Adjusted net income (loss)1
8,944
8,790
154
(7,918)
501
(8,419)
EBITDA1
8,482
(39,486)
47,968
5,306
(34,864)
40,170
Adjusted EBITDA1
19,879
16,468
3,411
17,780
21,092
(3,312)
Bookings1
132,825
87,085
45,740
374,454
353,176
21,278
Period end order backlog1
491,525
464,337
27,188
(as a percentage of sales)
Gross profit
32.6%
34.7%
-210 bpts
26.9%
30.4%
-350 bpts
(in dollars per share)
Net income (loss)2 per share –
basic and diluted
(0.10)
(2.18)
2.08
(0.91)
(2.57)
1.66
Adjusted net income (loss)1 per
share – basic and diluted
0.41
0.41
-
(0.37)
0.02
(0.39)
1 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
2 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
15
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Backlog1 and Bookings1
As at February 29, 2024, the backlog1 stood at $491.5 million, up $27.2 million, or 5.9%, from $464.3 million a year
earlier reflecting strong fourth quarter bookings1. As at February 29, 2024, 73.4% of the backlog1, representing orders
of $360.7 million, is deliverable in the next 12 months, versus 66.3% of last year’s backlog1. Currency movements
had a positive effect of $5.6 million on the backlog1 during the year.
Bookings1 for the fourth quarter of fiscal 2024 amounted to $132.8 million, up 52.5% over bookings1 of $87.1 million
in the fourth quarter of fiscal 2023. The increase is mainly attributable to strong oil and gas bookings1 recorded by
the Company’s Italian operations and to higher orders recorded by North American operations, partially offset by the
timing of orders for the French subsidiary following strong bookings1 in the prior year. The strengthening of the euro
average rate against the U.S. dollar had a positive effect of $3.8 million on bookings1 during the quarter.
As a result of bookings1 outpacing sales, the Company’s book-to-bill ratio1 was 1.13 in the fourth quarter of fiscal
2024, compared to 0.76 in the corresponding period of fiscal 2023.
Fiscal 2024 bookings1 reached $374.5 million, an increase of $21.3 million or 6.0% compared to the previous year.
The increase reflects strong oil and gas orders recorded by Italian operations, partially offset by lower orders for North
American operations in the marine sector and for MRO activity. Currency movements had a positive effect of $7.0
million on bookings1 during the year.
As a result of bookings1 outpacing sales for the fiscal year, the Company’s book-to-bill ratio1 was 1.08 in fiscal 2024,
compared with 0.95 in fiscal 2023.
1 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
16
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Sales
*Geographical third-party sales are defined as the country where the sale was recorded.
Sales reached $117.9 million in the fourth quarter, an increase of $2.8 million or 2.4% compared to the same period
last year. The variation is mostly attributable to stronger shipments from the international operations. These factors
were partially offset by lower shipments from North American operations and shipping delays due to the situation in
the Red Sea. The strengthening of the euro average rate against the U.S. dollar had a $1.7 million positive effect on
sales for the quarter.
Sales for the fiscal year amounted to $346.8 million, a decrease of $23.6 million or 6.4% compared to last year. The
variation mainly reflects lower sales in North American and Italy, essentially due to the shipment of large orders in
the previous fiscal year, and to lower MRO sales in North America. These factors were partially offset by higher sales
by German operations. Currency movements had a $3.8 million positive effect on sales for the year.
Gross profit
For the fourth quarter, gross profit was $38.4 million, compared with $39.9 million a year ago. The variation reflects
a less favorable product mix this year compared to last due to the execution of certain low margin projects. Last
year’s gross profit also benefitted from a favorable revaluation of the inventory provision based on new estimates
relating to changes in market demand. As a percentage of sales, gross profit was 32.6%, versus 34.7% last year.
For the fiscal year, gross profit reached $93.2 million, versus $112.5 million last year. The variation reflects a lower
business volume which impacted the absorption of fixed production overhead costs and a less favorable product mix
due to the execution of certain low margin projects. As a percentage of sales, gross profit was 26.9%, compared to
30.4% last year.
Administration costs
Administration costs reached $33.1 million in the fourth quarter of fiscal 2024, compared to $80.8 million last year.
This year’s administration costs include a $10.0 million asbestos provision adjustment and restructuring charges of
$1.3 million mostly consisting of severances. Last year’s costs included a $56.0 million charge to increase the
Company’s asbestos provision to reflect the potential settlement value of future unknown claims. Excluding these
items, administration costs totaled $21.7 million, or 18.4% of sales, in the fourth quarter of fiscal 2024, versus $24.9
million, or 21.6% of sales, in the fourth quarter of fiscal 2023. The decrease is mostly due to lower expenses for the
North American operations and cost reduction initiatives throughout the Company’s operations.
For the fiscal year, administration costs amounted to $98.7 million, compared to $156.8 million in fiscal 2023. This
year’s costs include a $10.0 million asbestos provision adjustment, restructuring charges of $1.3 million, and
expenses of $1.2 million related to the proposed transaction. Last year’s costs included a $56.0 million charge to
17
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
increase the Company’s asbestos provision. Excluding these items, administration costs amounted to $86.3 million,
or 24.9% of sales, in fiscal 2024, versus $100.8 million, or 27.2% of sales, in fiscal 2023. In addition to the
aforementioned elements, the decrease also reflects lower sales commissions and freight costs.
Asbestos related costs
Management periodically estimates the impact of future unknown settlement costs based on current environment
and yield rates. The result of this evaluation led to a non-recurring charge of $56.0 million to increase the Company’s
provision in the fourth quarter of fiscal 2023. In the fourth quarter of fiscal 2024, a provision adjustment resulted in a
charge of $10.0 million to true-up the provision based on the latest estimate of amounts that may be paid. These
charges are included in administration costs, as per the section above.
EBITDA1 and Adjusted EBITDA1
EBITDA1 for the fourth quarter of fiscal 2024 amounted to $8.5 million compared to negative EBITDA1 of $39.5 million
for the same period a year ago. Excluding asbestos, restructuring and proposed transaction related costs, adjusted
EBITDA1 was $19.9 million in the fourth quarter of fiscal 2024, compared to $16.5 million a year earlier. This increase
reflects lower administration costs and a $1.7 million net reduction in other expenses, mainly related to a provision
related to a commodity tax audit last year. These factors were partially offset by a lower gross profit.
For the year, EBITDA1 amounted to $5.3 million compared to negative EBITDA1 of $34.9 million last year. Excluding
asbestos, restructuring and proposed transaction related costs, adjusted EBITDA1 for fiscal 2024 was $17.8 million,
versus $21.1 million in fiscal 2023. The decrease is primarily attributable to the previously explained decrease in
gross profit, partially offset by lower administration costs and other expenses.
Finance costs (net)
For the fourth quarter of fiscal 2024, net finance costs were $2.4 million, up from $0.5 million last year. The variation
reflects higher interest rates on the Company’s long-term debt compared to the prior year, as well as lower cash and
cash equivalents this year compared to last.
Net finance costs for the year amounted to $6.3 million ($4.5 million in implicit interest on long-term provision), versus
$1.6 million a year ago. The increase mainly stems from higher interest rates on the Company’s long-term debt
compared to the prior year.
Income taxes
Three-month periods ended
(thousands, excluding percentages)
February 29,
2024
February 28,
2023
$
%
$
%
Income tax at statutory rate
795
26.5
(11,425)
26.5
Tax effects of:
Difference in statutory tax rates in foreign jurisdictions
111
3.7
436
(1.0)
Non-deductible (taxable) foreign exchange losses (gains)
(216)
(26.2)
40
(0.1)
Losses not tax effected
3,159
105.3
14,290
(33.1)
Other differences
1,239
60.4
761
(1.8)
Income tax expense
5,088
169.7
4,102
(9.5)
1 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
18
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
The movement in the Company’s income tax expense in the current quarter and fiscal year is primarily attributable
to the derecognition of deferred tax assets approach in the fourth quarter of the previous fiscal year.
Fiscal years ended
(thousands, excluding percentages)
February 29,
2024
February 28,
2023
$
%
$
%
Income tax at statutory rate
(3,268)
26.5
(12,565)
26.5
Tax effects of:
Difference in statutory tax rates in foreign jurisdictions
378
(3.1)
486
(1.0)
Non-deductible (taxable) foreign exchange losses (gains)
(455)
3.7
754
(1.6)
Losses not tax effected
9,428
(76.5)
18,996
(40.1)
Other differences
1,388
(11.2)
374
(0.8)
Income tax expense
7,471
(60.6)
8,045
(17.0)
Net income (loss)1 and Adjusted net income (loss)2
Net loss1 for the quarter amounted to $2.1 million, or $0.10 per share, compared to a net loss1 of $47.2 million, or
$2.18 per share last year. Excluding the after-tax effect of asbestos, restructuring and proposed transaction related
costs, adjusted net income2 stood at $8.9 million, or $0.41 per share, compared to $8.8 million, or $0.41 per share,
last year. The variation is attributable to higher adjusted EBITDA2 partially offset by higher net finance costs and
income tax expense.
The net loss1 for the fiscal year amounted to $19.7 million or $0.91 per share compared to $55.5 million or $2.57 per
share last year. Excluding the after-tax effect of asbestos, restructuring and proposed transaction related costs,
adjusted net loss2 was $7.9 million, or $0.37 per share, in fiscal 2024, versus adjusted net income2 of $0.5 million, or
$0.02 per share, in fiscal 2023. The variation is due to lower adjusted EBITDA2 and higher net finance costs partially
offset by a lower income tax expense.
1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
2 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
19
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
SUMMARY OF QUARTERLY RESULTS
(unless otherwise noted, all amounts are in U.S. dollars)
Summary financial data derived from the Company’s unaudited financial statements from each of the eight most
recently completed quarters are as follows:
Quarters ended
(in thousands, excluding per
share amounts)
February
2024
November
2023
August
2023
May
2023
February
2023
November
2022
August
2022
May
2022
Sales
$117,894
$80,945
$80,318
$67,659
$115,141
$95,229
$85,054
$75,005
Net income (loss)1
(2,083)
(7,250)
(2,120)
(8,284)
(47,164)
2,739
(3,676)
(7,352)
per share – basic and
diluted
(0.10)
(0.34)
(0.10)
(0.38)
(2.18)
0.13
(0.17)
(0.34)
Adjusted net income (loss)2
8,944
(7,074)
(1,878)
(7,910)
8,790
2,739
(3,676)
(7,352)
per share – basic and
diluted
0.41
(0.33)
(0.09)
(0.37)
0.41
0.13
(0.17)
(0.34)
EBITDA2
8,482
(2,337)
2,958
(3,799)
(39,486)
6,135
1,365
(2,878)
Adjusted EBITDA2
19,879
(2,098)
3,289
(3,290)
16,468
6,135
1,365
(2,878)
FINANCIAL POSITION
Assets
As at February 29, 2024, total assets stood at $479.4 million, up slightly from $477.9 million as at February 28, 2023.
Current assets amounted to $387.0 million as at February 29, 2024, down slightly from $388.1 million a year earlier.
The variation mainly reflects a $14.1 million decrease in cash and cash equivalents and a $1.1 million decrease in
accounts receivable. These factors were partially offset by a $6.1 million increase in inventories, a $5.2 million
increase in short-term investments and a $2.9 million increase in deposits and prepaid expenses.
Non-current assets totalled $92.4 million as at February 29, 2024, up from $89.7 million last year. The variation stems
from a $1.7 million increase in the value of property plant and equipment, a $0.5 million increase in deferred income
taxes and a $0.4 million increase in the value of intangible assets and goodwill.
Liabilities
As at February 29, 2024, total liabilities amounted to $296.1 million, up from $277.0 million as at February 28, 2023.
Current liabilities stood at $160.4 million, up from $137.0 million. This variation is mainly attributable to a $16.2 million
increase in the current portion of the long-term debt (see liquidity and capital resources section below), a $8.8 million
increase in accounts payable and accrued liabilities, and a $2.2 million increase in customer deposits. These factors
were partially offset by a $2.4 million decrease in provisions and a $1.3 million decrease in income taxes payable.
The value of non-current liabilities decreased by $4.4 million to $151.8 million mainly reflecting diminution of long-
term debt by $17.4 million ($16.1 million of this diminution is a reclass from long-term to short-term) and increases of
$7.1 million and $3.1 million, respectively, in customer deposits and provisions.
1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
2 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
20
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Equity
As at February 29, 2024, total equity was $183.3 million, versus $200.8 million as at February 28, 2023. The variation
is attributable to a $20.2 million reduction in retained earnings, essentially mirroring the Company’s net loss for fiscal
2024, partially offset by a $2.5 million reduction in accumulated other comprehensive loss.
LIQUIDITY AND CAPITAL RESOURCES – a discussion of liquidity risk, credit facilities and
cash flows (unless otherwise noted, all dollar amounts are denominated in U.S. dollars)
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The
Company manages its liquidity risk by continually monitoring its future cash requirements. Cash flow forecasting is
performed in the operating entities and aggregated by the Company’s corporate finance team. The Company’s policy
is to maintain sufficient cash and cash equivalents and available credit facilities in order to meet its present and future
operational needs.
As at February 29, 2024
(thousands)
Carrying
value
$
Less than
1 year
$
1 to 3
years
$
4 to 5
years
$
After 5
years
$
Total
$
Long-term debt
28,777
29,601
3,405
1,112
-
34,118
Long-term lease liabilities
12,643
1,929
3,141
2,202
11,310
18,582
Accounts payable and accrued liabilities
88,230
88,230
-
-
-
88,230
Customer deposits
65,478
30,396
16,369
2,145
16,568
65,478
Derivative liabilities
26
26
-
-
-
26
As at February 29, 2024, the Company was in breach of one of its financial covenants ratio. The secured mortgage
bank loan is presented in current portion of long-term debt.
Subsequent to year-end, and prior to the release of these financial statements, the lender renounced its right to
demand repayment of the loan for the fiscal year ended February 29, 2024 and for the fiscal year ended February
28, 2025 until March 1, 2026, inclusively, provided the breach is solely due to the payment of asbestos claims and
related legal fees.
Accordingly, the secured mortgage bank loan will be re-classified as long-term debt on May 31, 2024.
At the end of the current fiscal year, the Company did not have any outstanding purchase commitments with foreign
suppliers due within one year which were covered by letters of credit.
On February 29, 2024, the Company’s order backlog1 was $491.5 million and its net cash, subject to certain local
exchange control restrictions, which it believes, along with future cash flows generated from operations, is sufficient
to meet its financial obligations, increase its capacity, satisfy its working capital requirements, and execute on its
business strategy. However, there can be no assurance that the risk of another sharp downturn in the economy will
not materially adversely affect the Company’s results of operations or financial condition.
As part of managing its liquidity risk, the Company also monitors the financial health of its key suppliers.
21
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Cash flows - quarter and fiscal year ended February 29, 2024
(unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to same period in the prior fiscal year)
The Company’s changes in net cash were as follows:
Three-month periods ended
Fiscal years ended
(thousands)
February 29,
2024
February 28,
2023
February 29,
2024
February 28,
2023
Net Cash – Beginning of period
26,362
29,311
50,253
53,465
Cash provided by operating activities
19,649
18,489
4,301
522
Cash provided (used) by investing activities
(9,198)
7,103
(14,127)
1,759
Cash used by financing activities
(385)
(4,850)
(4,661)
(2,620)
Effect of exchange rate differences on cash
17
200
679
(2,873)
Net Cash – End of period
36,445
50,253
36,445
50,253
Operating activities
For the three-month period ended February 29, 2024, cash provided by operating activities reached $19.6 million, up
from $18.5 million in the corresponding period a year earlier. The favorable movement in cash is attributable to higher
EBITDA1 and positive changes in non-cash working capital movements, partially offset by an unfavourable movement
in long-term provisions.
For the fiscal year ended February 29, 2024, cash provided by operating activities amounted to $4.3 million,
compared to $0.5 million in the previous year. The favorable movement in cash essentially reflects the factors
mentioned above.
1 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
22
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
The changes in non-cash working capital items were as follows:
Three-month periods ended
Fiscal years ended
(thousands)
February 29,
2024
February 28,
2023
February 29,
2024
February 28,
2023
Accounts receivable
(22,933)
(5,750)
2,596
(9,837)
Inventories
17,806
16,373
(4,254)
14,235
Income tax recoverable
944
1,189
112
(3,254)
Deposits and prepaid expenses
(1,545)
(140)
(2,754)
(916)
Accounts payable and accrued liabilities
13,636
(56)
7,958
1,845
Income tax payable
1,769
879
100
(1,100)
Customer deposits
3,555
(12,997)
8,556
(11,087)
Provisions
(4,163)
1,413
(2,500)
(1,458)
Changes in non-cash working capital items
9,069
911
9,814
(11,572)
For the quarter ended February 29, 2024, positive non-cash working capital movements were principally due to higher
fourth quarter sales which led to a decrease in inventories and an increase in accounts payable and accrued liabilities,
while higher bookings1 resulted in an increase in customer deposits. These factors were partially offset by an increase
in accounts receivable also attributable to higher fourth quarter sales.
For the fiscal year ended February 29, 2024, positive non-cash working capital movements reflected higher accounts
payable and accrued liabilities, as well as customer deposits for the reasons mentioned above. These factors were
partially offset by higher deposits and prepaid expenses, accounts receivable and inventories.
Investing activities
Cash used in investing activities for the quarter ended February 29, 2024, reached $9.2 million reflecting a $5.3
million increase in short-term investments, additions to property, plant and equipment of $2.9 million, and additions
to intangible assets totalling $1.2 million. For the quarter ended February 28, 2023, cash provided by investing
activities stood at $7.1 million as a $9.4 million increase in short-term investments was partially offset by additions to
property, plant and equipment of $1.4 million and additions to intangible assets of $0.9 million.
For the fiscal year ended February 29, 2024, cash used in investing activities amounted to $14.1 million as a result
of additions to property, plant and equipment of $6.8 million, an increase of $5.2 million in short-term investments, as
well as additions to intangible assets of $2.4 million. For the fiscal year ended February 28, 2023, cash provided by
investing activities stood at $1.8 million reflecting a $8.3 million increase in short-term investments partially offset by
additions to property, plant and equipment of $4.4 million and additions to intangible assets of $2.2 million.
Financing activities
During the fourth quarter of fiscal 2024, cash used by financing activities was $0.4 million as repayments of long-term
debt and lease liabilities of $1.1 million and $0.6 million, respectively, were offset by a $1.3 million increase in long-
term debt. In the fourth quarter of fiscal 2023, cash used by financing activities was $4.9 million essentially due to a
$5.4 million reduction in the revolving credit facility.
In fiscal 2024, cash used by financing activities was $4.7 million as repayments of long-term debt and lease liabilities
of $8.8 million and $1.9 million, respectively, were partially offset by increases in the revolving credit facility and long-
term debt of $5.0 million and $1.3 million, respectively. The reduction in long-term debt includes the purchase of the
25% minority interest in Segault S.A.S. on September 18, 2023 for $5.0 million (€4.7 million). The Company now
owns 100% of all the outstanding equity of Segault S.A.S. The unconditional put option held by the minority
1 Non-IFRS and supplementary financial measures – additional specifications at the end of this report
23
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
shareholder was previously included in the current portion of long-term debt of the statement of financial position. In
fiscal 2023, cash used by financing activities stood at $2.6 million as repayments of long-term debt and lease liabilities
of $4.4 million and $1.7 million, respectively, were partially offset by a $3.7 million increase in long-term debt.
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest
rate risk and fair value interest rate risk), credit risk and liquidity risk. The Company’s overall financial risk
management program focuses on mitigating unpredictable financial market risks and their potential adverse effects
on the Company’s financial performance.
The Company’s financial risk management is generally carried out by the corporate finance team, based on policies
approved by the Board of Directors. The identification, evaluation and hedging of the financial risks are the
responsibility of the corporate finance team in conjunction with the finance teams of the Company’s subsidiaries. The
Company uses derivative financial instruments to hedge certain risk exposures. Use of derivative financial
instruments is subject to a policy which requires that no derivative transaction be entered into for the purpose of
establishing a speculative or leveraged position (the corollary being that all derivative transactions are to be entered
into for risk management purposes only).
Market risk
Currency risk
Currency risk on financial instruments is the risk that the fair value of future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates. The Company operates internationally and is exposed to
foreign exchange risk arising from various currency exposures. Currency risk arises when future commercial
transactions and recognized assets and liabilities are denominated in a currency other than a company’s functional
currency. The Company has operations with different functional currencies, each of which will be exposed to currency
risk based on its specific functional currency.
When possible, the Company matches cash receipts in a foreign currency with cash disbursements in that same
currency. The remaining anticipated net exposure to foreign currencies is hedged. To hedge this exposure, the
Company uses foreign currency derivatives, primarily foreign exchange forward contracts. These derivatives are not
designated as hedges for accounting purposes.
The amounts outstanding as at February 29, 2024 and February 28, 2023 are as follows:
Range of exchange rates
Gain (loss)
(in thousands of U.S. dollars)
Notional amount
(in thousands of indicated currency)
February 29,
2024
February 28,
2023
February 29,
2024
February 28,
2023
February 29,
2024
February 28,
2023
Foreign exchange forward contracts
Sell US$ for CA$ - 0 to 15 months
-
1.32
-
107
-
US$40,000
Buy US$ for CA$ - 0 to 15 months
-
1.28
-
(299)
-
US$40,000
Sell € for US$ - 0 to 12 months
-
-
-
-
-
-
Buy € for US$ - 0 to 12 months
1.08 to 1.10
-
40
-
US$6,518
-
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
24
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
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 29, 2024, and February 28, 2023:
Net income (loss)
(thousands)
February 29,
2024
$
February 28,
2023
$
Canadian dollar strengthening against the U.S. dollar
(868)
(847)
Euro strengthening against the U.S dollar
(772)
(327)
Indian rupee strengthening against the U.S dollar
875
346
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 29, 2024, two
(2023 – four) customers accounted for more than 5% each of its trade accounts receivable, of which one customer
accounted for 7.6% (2023 – 15.0%) and the Company’s ten largest customers accounted for 41.3% (2023 – 60.4%)
of trade accounts receivable. In addition, one customer accounted for 8.9% of the Company’s sales (2023 – 13.4%).
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.
25
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
The lifetime expected loss allowance for trade receivables was determined as follows:
As at February 29, 2024
(thousands)
Current
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
Total
Expected loss rate
0.056%
0.071%
0.081%
1.814%
Gross carrying amount
81,030
12,600
7,426
9,041
110,097
Loss allowance
45
9
6
164
224
As at February 28, 2023
(thousands)
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
14,458
113,529
Loss allowance
108
14
10
349
481
The Company is also exposed to credit risk relating to derivative financial instruments, cash and cash equivalents
and short-term investments, which it manages by dealing with highly rated financial institutions. The Company’s
primary credit risk is limited to the carrying value of the trade accounts receivable and gains on derivative assets.The
table below summarizes the ageing of the trade accounts receivable:
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Current
81,030
83,118
Past due 0 to 30 days
12,600
9,961
Past due 31 to 90 days
7,426
5,902
Past due more than 90 days
9,041
14,548
110,097
113,529
Less: Loss allowance
(224)
(481)
109,873
113,048
Other receivables
10,041
8,005
Total accounts receivable
119,914
121,053
The table below summarizes the movement in the allowance for doubtful accounts:
Fiscal years ended
(thousands)
February 29,
2024
$
February 28,
2023
$
Balance – Beginning of the year
481
509
Loss allowance expense
68
46
Recoveries of trade accounts receivables
(228)
(47)
Write-off of trade accounts receivable
(98)
-
Foreign exchange
1
(27)
Balance – End of the period
224
481
26
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Liquidity risk – see discussion in liquidity and capital resources section.
INTERNAL CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is
gathered and reported to senior management, including the Chief Executive Officer (“CEO”), and the Chief Financial
Officer (“CFO”), in a timely manner so that appropriate decisions can be made regarding public disclosure.
The CEO and the CFO of the Company have evaluated, or caused the evaluation of, under their direct supervision,
the effectiveness of the Company’s disclosure controls and procedures (as defined in National Instrument
52 109 – Certification of Disclosure in Issuer’s Annual and Interim Filings) as at February 29, 2024 and have
concluded that such disclosure controls and procedures were designed and operating effectively.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS.
Management has evaluated the design and effectiveness of its internal controls and procedures over financial
reporting (as defined in National Instrument 52-109 – Certification of Disclosure in Issuer’s Annual and Interim
Filings). The evaluation was based on the “Internal Control-Integrated Framework (2013)” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). This evaluation was performed by the CEO
and the CFO of the Company with the assistance of other Company Management and staff to the extent deemed
necessary. Based on this evaluation, the CEO and the CFO concluded that the internal controls and procedures
over financial reporting were appropriately designed and operating effectively as at February 29, 2024.
In spite of its evaluation, Management does recognize that any controls and procedures no matter how well designed
and operated, can only provide reasonable assurance and not absolute assurance of achieving the desired control
objectives. In the unforeseen event that lapses in the disclosure of internal controls and procedures occur and/or
mistakes happen of a material nature, the Company intends to take the steps necessary to minimize the
consequences thereof.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company did not make any material changes to the design of internal control over financial reporting during the
year ended February 29, 2024 that have materially affected, or are reasonably likely to have materially affected, the
Company’s internal control over financial reporting.
CRITICAL ACCOUNTING ESTIMATES & ASSUMPTIONS
The Company’s significant accounting policies as described above are essential to understanding the Company’s
results of operations, financial positions and cash flows. Certain of these accounting policies require critical
accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which
may be for matters that are inherently uncertain and susceptible to change. The assumptions and estimates used
are based on parameters which are derived from the knowledge at the time of preparing the financial statements and
believed to be reasonable under the circumstances. In particular, the circumstances prevailing at this time and
assumptions as to the expected future development of the global and industry-specific environment were used to
estimate the Company’s future business performance. Where these conditions develop differently than assumed and
beyond the control of the Company, the actual results may differ from those anticipated. These estimates and
27
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimate is changed.
The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next fiscal year are addressed below:
Inventories
Inventories must be valued at the lower of cost and net realizable value. A 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.
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.
Asbestos provision estimates the liability related to all settlement costs on outstanding open and future cases in
relations with the Company’s ongoing litigations. With the assistance of an actuary, the Company calculated the
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. Based on the different scenarios analyzed by the Company, a change of 1%
in this assumption has an estimated impact on the total liability from $1,100 to $1,400.
•
Projected average CWI severity. Based on the different scenarios analyzed by the Company, a change of 1% in
this assumption has an estimated impact on the total liability from $1,100 to $1,400.
•
Decay rate represents the rate at which the number of claims will decrease. Based on the different scenarios
analyzed by the Company, a change of 1% in this assumption has an estimated impact on the total liability from
$7,800 to $14,300.
•
The inflation rate. Based on the different scenarios analyzed by the Company, a change of 1% in this assumption
has an estimated impact on the total liability from $7,300 to $12,900.
The Company’s estimate of the 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 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.
28
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Income taxes
The Company must estimate its income taxes in each jurisdiction in which it operates. This involves assessing the
probability of using net operating losses against future taxable income as well as evaluating positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation. In the event these
assessments are changed, there would be an adjustment to income tax expense with a corresponding adjustment to
income tax balances on the consolidated statement of financial position.
CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
Critical judgements in applying the Company’s material policies
Deferred tax assets
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. The Company estimates that future taxable profits will be sufficient to realize this asset.
Going concern
The assessment of the Company’s ability to execute its future working capital requirements involves judgment.
Estimate and assumptions are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
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
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 continues its analysis but does not expect
the amendment to have a significant impact on its consolidated financial statements.
29
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Accounting standards and amendments issued and adopted
An IASB amendments has resulted in modifications to some paragraphs of the standard IAS 1, Presentation of
financial statements. These changes include the requirement for the entities to provide disclosures about their
material accounting policies rather than their significant accounting policies. The amendments to the standard have
been adopted by the Company as of March 1, 2023.
CERTAIN RISKS THAT COULD AFFECT THE COMPANY’S BUSINESS
Cyclical nature of end user markets, commodity price volatility and other macroeconomic factors
The demand for the Company’s products in any particular industry or market can vary significantly according to the
level of economic activity in that industry or market. These potential variations may be mitigated by the fact that the
Company’s sales are diversified geographically as well as by end user market. There can be no assurance that an
economic recession or downturns in certain industries or geographic locations, such as the current downturn in the
oil and gas industry, will not have a significant adverse effect on the Company’s sales.
The Company’s financial condition and results of operations may also be adversely affected by commodity price
volatility. Crude oil and natural gas prices have fluctuated widely in the recent past and are subject to fluctuations in
response to relatively minor changes in supply, demand, market uncertainty and other factors that are beyond the
Company’s control. Crude oil and natural gas prices are impacted by a number of factors including, but not limited
to: the global supply of and demand for crude oil and natural gas; global economic conditions; the actions of the
Organization of Petroleum Exporting Countries (“OPEC”) and OPEC+; government regulation; political stability and
geopolitical factors; the ability to transport crude to markets; developments related to the market for liquefied natural
gas; the availability and prices of alternate fuel sources; and weather conditions.
In 2020 and 2021, global oil prices weakened materially as a result of the global outbreak of coronavirus ("COVID-
19"), compounded by OPEC+, led by Saudi Arabia and Russia, failing to reach an agreement on constraining output.
Recently, global oil prices have increased, namely as a result of the military conflict in Ukraine and the related
international economic sanctions imposed on Russia. Concerns over global economic conditions, fluctuations in
interest rates and foreign exchange rates, stock market volatility, energy costs, geopolitical issues, OPEC+ actions,
inflation, the availability and cost of credit, the deceleration of economic growth in China, trade disputes between the
United States and China, civil unrest in Venezuela and Iran and the Middle east tensions and war have contributed
to increased economic uncertainty and diminished expectations for the global economy. Rapid variations of
commodity prices could have a material adverse effect on the Company’s business, financial condition and results of
operations. The Company is exposed to the risk of inflation fluctuation.
Asbestos litigation
Two of the Company’s U.S. subsidiaries have been named as defendants in a number of pending lawsuits that seek
to recover damages for personal injury allegedly caused by exposure to asbestos-containing products manufactured
and sold in the past. Management believes it has a strong defense related to certain products that may have
contained an internal component containing asbestos which were placed in accordance with customer’s
specifications. Although the Company is defending these allegations vigorously, there can be no assurance that it
will prevail. Unfavorable rulings, judgments or settlement terms could have a material adverse impact on the
Company’s business, financial condition, results of operations and cash flows.
Competition
Competitive pressures in the Company’s markets could lead to a loss of market share, which could negatively impact
revenues, margins and net income. The Company also competes with manufacturers based in low wage countries
that offer valves at lower prices. There can be no assurance that the Company will be able to compete successfully
against its current or future competitors or that competition will not have a material adverse effect on the Company's
results of operations and financial condition.
30
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Backlog
The Company’s order backlog consists of sales orders that are considered firm. It is also an indication of future sales
revenues. However, there can be no assurance that subsequent cancellations or scope adjustments will not occur,
that the order backlog will ultimately result in earnings, or when the related revenues and earnings from such order
backlog will be recognized.
Dependence upon key personnel
The Company is dependent upon the abilities and experience of its executive officers and other key employees.
There can be no assurance that the Company can retain the services of such executive officers and key employees.
If several executive officers or other key employees were to leave the employ of the Company, its operations could
be adversely affected.
Foreign currency exchange risks
Due to the geographic mix of the Company’s customers and its operations, the Company is exposed to foreign
currency exchange risk. The Company enters into foreign currency forward contracts in order to manage a portion of
its net exposure to foreign currencies. Such forward contracts contain an inherent credit risk related to default on
obligations by the counterparty, which the company mitigates by entering into contracts with sound financial
institutions that it anticipates will satisfy their obligations. Risk related to currency fluctuations could have a material
adverse effect on the Company's results of operations and its financial position.
Debt restrictions
The Company’s operations are restricted by the terms of its debt, which could limit its ability to plan for or react to
market conditions, or to meet its capital needs. The Company’s credit facilities and the indenture governing its senior
notes include a number of significant restrictive covenants. These covenants restrict, under certain conditions, the
Company’s ability to:
•
incur debt;
•
pay dividends on stock or redeem subordinated debt;
•
make investments;
•
sell assets, including capital stock in subsidiaries;
•
guarantee other indebtedness;
•
enter into agreements that restrict dividends or other distributions from restricted subsidiaries;
•
enter into transactions with affiliates;
•
create or assume liens securing debt;
•
sell or transfer and leaseback transactions;
•
engage in mergers or consolidations; and
•
enter into a sale of all or substantially all of our assets.
These covenants could limit the Company’s ability to plan for or react to market conditions or to meet its capital needs.
The Company’s current credit facility contains other, more restrictive covenants, including financial covenants that
require it to achieve certain financial and operating results, and maintain compliance with specified financial ratios.
The Company’s ability to comply with these covenants and requirements may be affected by events beyond its
control, and it may have to curtail some of its operations and growth plans to maintain compliance. The restrictive
covenants contained in the Company’s senior note indenture, along with the Company’s credit facility, do not apply
to its joint ventures, minority investments and unrestricted subsidiaries.
Interest rate risk and debt financing
A portion of the Company’s liabilities consist of debt instruments that bear interest at variable rates. As such, the
Company is exposed to the risk of interest rate fluctuations. This risk could have an adverse effect on the Company’s
results of operations. At maturity of such instruments, the Company may also not be able to refinance such
instruments at terms favorable to the Company, or at all. In addition, the terms of the Company`s indebtedness
31
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
provide that, upon an event of default, such indebtedness becomes immediately due and payable. Failure to refinance
existing indebtedness on favorable terms or to comply with the terms of such indebtedness could have a material
adverse effect on the Company's results of operations and its financial position.
Availability and prices of raw materials
The price of raw materials, principally steel, represents a substantial portion of the cost of manufacturing the
Company’s products. Historically, there have been fluctuations in these raw material prices and, in some instances,
price movements have been volatile. There can be no certainty that the Company will be able to pass on increases
resulting from higher costs of raw materials to its customers through increases in selling prices, or otherwise absorb
such cost increases without negatively affecting its margins.
In addition, certain raw materials become, from time to time, in short supply for periods of time. Typically, these
shortages do not last long and the Company is usually able to ensure that its needs are met. However, there can be
no assurances that its sources of supply will be adequate to supply all of its needs on a timely basis, particularly in
the context of the global supply chain disruptions related to the Ukraine conflict.
Labour relations
A substantial portion of the Company’s workforce is covered by union agreements. Some collective agreements of
the Company expires in 2024 and 2025. Although the Company has been successful in the past in negotiating
renewals, there can be no assurance that this will continue. Failure to renegotiate these agreements could lead to
work disruptions or higher labour costs, which could negatively impact results.
Reliance on key suppliers
The Company has several key suppliers with whom it has invested in forging dies and casting patterns. While the
Company has alternate sources for most material purchases, the loss of a key supplier could impact negatively on
the Company.
Reliance on distributors and sales agents
The Company is directly affected by the ability of independent third-party distributors and sales agents retained by
the Company to sell its products in their respective markets. The Company’s continued success is thus dependent
on its ability to attract and retain the distributors and sales agents it requires to support its existing business and to
continue to grow.
Project undertakings
In competing for the sale of valves, the Company may enter into contracts that provide for the production of valves
at specified prices and in accordance with certain time schedules. These contracts may involve greater risks as a
result of unforeseen increases in costs due to more stringent terms and conditions. Although contract terms may vary
from customer to customer, production delays and other performance issues may call for liquidated damages or other
penalties in case of non-performance or warranty issues due to the more stringent terms and conditions of such
contracts.
Political and economic risks associated with international sales and operations
Since the Company sells and manufactures its products worldwide, the business is subject to risks associated with
doing business internationally, including changed in the political and regulatory environment in the markets in which
the Company operates, which, among other things, result from changing priorities of governments and supranational
agencies. For example, the adoption of and/or continued support for protectionist trade policies could negatively
impact the movement of goods, services, and people across borders, including within North America and
consequently, the sales and profitability of the Company.
The Company’s business and operating results could also be adversely impacted by changes in tax laws from time
to time, possibility of expropriation and embargo, foreign exchange restrictions and political, military and/or terrorist
disruptions or changes in regulatory environments.
32
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Ukraine conflict
In February 2022, a military conflict began between Russia and Ukraine. Since the conflict has started, there have
been significant tensions between Russia and a number of countries including Canada, its NATO allies and other
European countries. These countries have been imposing and will likely continue to impose a number of international
economic sanctions on Russia and its allies. The conflict has resulted in international instability with significant
economical and political impacts. Further deterioration of the conflict could have economic and geopolitical impacts
on the Company, its customers and its suppliers, and particularly on the Company’s numerous cross-border
transactions. The Company fully supports the current sanctions imposed on Russia and has strictly complied with
them by stopping the orders that were affected by such sanctions. If the conflict persists, this will likely result in an
increase in global market volatility, global supply chain disruptions and inflation, which may have material adverse
impact on the Company’s business.
Force majeure events
Force majeure events are unforeseeable events or circumstances that occur beyond the control of the
Company. Such events include but are not limited to political unrest, war, terrorism, strikes, riots, and crime, as well
as seismic or severe weather-related events such as earthquakes, hurricanes, tsunamis, tornadoes, ice storms,
flooding and volcanic eruptions. The risk of occurrence of a force majeure event is unpredictable and may result in
delays or cancellations of orders and deliveries to customers, delays in the receipt of materials from suppliers,
damage to facilities or equipment, personal injury or fatality, and possible legal liability.
Product liability and other lawsuits
The Company, like other worldwide manufacturing companies, has been, and will continue to be, subject to a variety
of potential liability claims or other lawsuits connected with its business operations, including potential liabilities and
expenses associated with possible product defects or failures. While the Company maintains comprehensive general
liability insurance coverage which it considers to generally be in accordance with industry practice, such insurance
does not cover certain categories of claims (such as ongoing asbestos claims) to which the Company is subject.
Comprehensive general liability premiums have also increased significantly during the last several years. Accordingly,
the Company cannot be certain that comprehensive general liability insurance coverage will continue to be available
to it at a reasonable cost, or, if available, would be adequate to cover its liabilities.
Health and safety risk
The Company is committed to providing all employees, contractors, and visitors to its premises with a healthy and
safe work environment. The Company has implemented a program throughout its operations with policies and
procedures that must be followed to ensure that it meets all applicable health and safety laws, regulations, and
standards.
Environmental compliance matters
The Company’s operations and properties are subject to increasingly stringent laws and regulations relating to
environmental protection, including air and water discharges, waste management and disposal and employee safety.
Such laws and regulations both impose substantial fines for violations and mandate cessation of operations in certain
circumstances, the installation of costly pollution control equipment, or the undertaking of costly site remediation
activities. Furthermore, new laws and regulations, or stricter enforcement of existing laws and regulations, the
discovery of previously unknown contamination or the imposition of new clean up requirements could require the
Company to incur additional costs which could be significant.
Controls over disclosures and financial reporting
In accordance with National Instrument 52-109, the Chief Executive Officer and the Chief Financial Officer of the
Company are responsible for designing, maintaining, and evaluating the effectiveness of disclosure controls and
procedures. The Chief Executive Officer and the Chief Financial Officer are also responsible for the effective design
of internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with IFRS. A system of controls is subject to
33
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
certain inherent limitations and is partially based on the possibility or probability of future events. Accordingly, a
system of internal controls can provide only reasonable, and not absolute, assurance of reaching the desired
objectives.
Control of the Company
Velan Holding Co. Ltd. (the “Controlling Shareholder”) owns 15,566,567 Multiple Voting Shares representing, in the
aggregate, approximately 92.8% of the voting interests in the Company. Voting control enables the Controlling
Shareholder to determine all matters requiring shareholder approval. The Controlling Shareholder has advised the
Company that the disposition of the shares requires the consent of certain Velan family members and controlled
entities.
The Controlling Shareholder effectively has sufficient voting power to prevent a change in control of the Company,
which may negatively affect the price and liquidity of the Subordinate Voting Shares (as such term is defined herein).
The sale of a significant number of Subordinate Voting Shares by the Controlling Shareholder pursuant to the exercise
of the conversion right attached to the Multiple Voting Shares may negatively impact upon the market price and
liquidity of the Subordinate Voting Shares.
Income and other tax risks
The Company operates in a number of different tax jurisdictions and has a significant amount of cross-border
purchase and sale transactions. The tax rules and regulations in various countries are becoming more complex.
There is a risk that one or more tax authorities could disagree with the tax treatment adopted by the Company,
resulting in defense costs and possible tax assessments.
Compliance with international laws
Due to the international nature of its operations, the Company is subject to differing systems of laws and regulations
which are often complex and differ from one country to the next. Such laws and regulations include but are not limited
to anti-bribery legislation, export and customs controls, foreign currency exchange controls, transfer pricing
regulations and economic sanctions imposed by governmental authorities. Failure to comply with such laws could
negatively impact earnings and may result in criminal, civil and administrative legal sanctions. The Company has
implemented policies and procedures to effect compliance with these laws by its employees and representatives.
Non-controlling interest
The Company’s operations in China and Taiwan, and certain of its operations in France are undertaken with partners
that are classified as non-controlling interest. The success of these operations depends on the satisfactory
performance of such partners in their obligations. The failure of such partners to perform their obligations could
impose additional financial and performance obligations on the Company that could negatively impact its earnings
and financial condition.
Cybersecurity
The Company’s information technology networks are critical to the day-to-day operation of its business, and include
information about its finances, employees, products, customers and suppliers. Cybersecurity risks are becoming
increasingly sophisticated, varied and numerous. The potential consequences of a material cybersecurity breach
could include loss of key information, reputational damage and disruption of operations, with consequential material
negative financial consequences. While the Company devotes substantial resources to maintaining and securing its
information technology networks, there can be no assurance that the Company will be able to prevent, detect or
respond to a potential breach of its information technology networks because of, among other things, the evolving
nature of cybersecurity threats, the difficulty in anticipating such threats and the difficulty in immediately detecting all
such threats. The failure to prevent, detect or respond to a breach in the Company’s information technology networks
could have a material adverse impact on the Company’s business, financial condition, result of operations and cash
flows.
34
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
NON-IFRS AND SUPPLEMENTARY FINANCIAL MEASURES
In this MD&A, the Company presented measures of performance or financial condition which are not defined under
IFRS (“non-IFRS measures”) and are, therefore, unlikely to be comparable to similar measures presented by other
companies. These measures are used by management in assessing the operating results and financial condition of
the Company and are reconciled with the performance measures defined under IFRS. The Company has also
presented supplementary financial measures, reconciliations and definitions can be found below.
Adjusted net income, Adjusted net income per share, Earnings before interest, taxes, depreciation
and amortization ("EBITDA") and Adjusted EBITDA
Three-month periods ended
Fiscal years ended
(thousands, except amount per shares)
February 29,
2024
$
February 28,
2023
$
February 29,
2024
$
February 28,
2023
$
Reconciliation of net income (loss)1 to adjusted net
income (loss) & adjusted net income (loss) per share
Net income (loss)1
(2,083)
(47,164)
(19,737)
(55,453)
Adjustment for:
Proposed transaction related costs
108
-
900
-
Restructuring costs
919
-
919
-
Adjustment to asbestos provision
10,000
55,954
10,000
55,954
Adjusted net income (loss)
8,944
8,790
(7,918)
501
per share - basic and diluted
0.41
0.41
(0.37)
0.02
Reconciliation of net income (loss)1 to Adjusted
EBITDA
Net income (loss)1
(2,083)
(47,164)
(19,737)
(55,453)
Adjustments for:
Depreciation of property, plant and equipment
2,472
2,452
8,930
8,722
Amortization of intangible assets and financing costs
650
608
2,296
2,272
Finance costs – net
2,355
516
6,346
1,552
Income taxes
5,088
4,102
7,471
8,045
EBITDA
8,482
(39,486)
5,306
(34,862)
Adjustments for:
Proposed transaction related costs
147
-
1,224
-
Restructuring costs
1,250
-
1,250
-
Adjustment to asbestos provision
10,000
55,954
10,000
55,954
Adjusted EBITDA
19,879
16,468
17,780
21,092
1 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
35
Management’s Discussion and Analysis
Fiscal year ended February 29, 2024
Free cash flow
Three-month periods ended
Fiscal years ended
(thousands, except amount per shares)
February 29,
2024
$
February 28,
2023
$
February 29,
2024
$
February 28,
2023
$
Cash provided by operating activities
19,649
18,489
4,301
522
Additions to property, plant and equipment
(2,935)
(1,385)
(6,839)
(4,370)
Free cash flow
16,714
17,104
(2,538)
(3,848)
The term “Adjusted net income (loss)” is defined as net income or loss attributable to Subordinate and Multiple Voting
Shares plus adjustment, net of income taxes, for costs related to the proposed transaction, restructuring, and
asbestos provision. The terms “Adjusted net income (loss) per share” is obtained by dividing Adjusted net income
(loss) by the total amount of subordinate and multiple voting shares. The forward-looking statements contained in
this MD&A are expressly qualified by this cautionary statement.
The term “EBITDA” is defined as adjusted net income plus depreciation of property, plant & equipment, plus
amortization of intangible assets, plus net finance costs, plus income tax provision. The term “Adjusted EBITDA” is
defined as EBITDA plus adjustment for costs related to the proposed transaction, restructuring, and asbestos
provision. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary
statement.
The term “Free cash flow” is defined as cash provided by operating activities less additions to property, plant and
equipment. Free cash flow reflects the amount available to pay dividends to shareholders and debt service, including
the lease liabilities. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary
statement.
Definitions of supplementary financial measures
The term “Net new orders” or “bookings” is defined as firm orders, net of cancellations, recorded by the Company
during a period. Bookings are impacted by the fluctuation of foreign exchange rates for a given period. The measure
provides an indication of the Company’s sales operation performance for a given period, as well as well as an
expectation of future sales and cash flows to be achieved on these orders.
The term “backlog” is defined as the buildup of all outstanding bookings to be delivered by the Company. The
Company’s backlog is impacted by the fluctuation of foreign exchange rates for a given period. The measure provides
an indication of the future operational challenges of the Company as well as an expectation of future sales and cash
flows to be achieved on these orders.
The term “book-to-bill ratio” is obtained by dividing bookings by sales. The measure provides an indication of the
Company’s performance and outlook for a given period.
The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.
36
FOR THE YEARS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023
CONSOLIDATED FINANCIAL
STATEMENTS
PricewaterhouseCoopers LLP
1250 René-Lévesque Boulevard West, Suite 2500, Montréal, Quebec, Canada H3B 4Y1
T.: +1 514 205 5000, F.: +1 514 876 1502, Fax to mail: ca_montreal_main_fax@pwc.com
“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 29, 2024
and February 28, 2023, 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 Accounting Standards).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at February 29, 2024 and February 28, 2023;
the consolidated statements of loss for the years ended February 29, 2024 and February 28, 2023;
the consolidated statements of comprehensive loss for the years ended February 29, 2024 and
February 28, 2023;
the consolidated statements of changes in equity for the years ended February 29, 2024 and
February 28, 2023;
the consolidated statements of cash flow for the years ended February 29, 2024 and
February 28, 2023; and
the notes to the consolidated financial statements, comprising material accounting policy information
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.
38
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended February 29, 2024. 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 material accounting
policies and note 12 – Provisions to the
consolidated financial statements.
The Company’s asbestos provision amounted
to $78.2 million as at February 29, 2024. 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.
39
Key audit matter
How our audit addressed the key audit matter
We considered this a key audit matter due to
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, which we obtained prior to the date of this auditor’s report and the information,
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter
to those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS Accounting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
40
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
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.
41
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Jean-François
Lecours.
/s/PricewaterhouseCoopers LLP1
Montréal, Quebec
May 16, 2024
1 CPA auditor, public accountancy permit No. A126402
42
43
Consolidated Statements of Loss
(in thousands of U.S. dollars, excluding per share amounts)
Fiscal years ended
February 29,
February 28,
2024
2023
$
$
Sales (note 12 and 22)
346,816
370,429
Cost of sales (notes 5 and 15)
253,609
257,964
Gross profit
93,207
112,465
Administration costs (note 16)
98,744
156,759
Other expense (income)
448
1,568
Operating loss
(5,985)
(45,862)
Finance income
459
467
Finance costs
(6,805)
(2,019)
Finance costs – net
(6,346)
(1,552)
Loss before income taxes
(12,331)
(47,414)
Income tax expense (note 19)
7,471
8,045
Net loss for the year
(19,802)
(55,459)
Net loss attributable to:
Subordinate Voting Shares and Multiple Voting Shares
(19,737)
(55,453)
Non-controlling interest
(65)
(6)
Net loss for the year
(19,802)
(55,459)
Net loss per Subordinate and Multiple Voting Share (note 20)
Basic and diluted
(0.91)
(2.57)
Dividends declared per Subordinate and Multiple
0.02
0.02
Voting Share
(CA$0.03)
(CA$0.03)
The accompanying notes are an integral part of these consolidated financial statements.
44
Consolidated Statements of Comprehensive Loss
(in thousands of U.S. dollars)
Fiscal years ended
February 29,
February 28,
2024
2023
$
$
Comprehensive loss
Net loss for the year
(19,802)
(55,459)
Other comprehensive income (loss)
Foreign currency translation
2,516
(8,985)
Comprehensive loss
(17,286)
(64,444)
Comprehensive loss attributable to:
Subordinate Voting Shares and Multiple Voting Shares
(17,221)
(64,438)
Non-controlling interest
(65)
(6)
Comprehensive loss
(17,286)
(64,444)
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.
45
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, 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
Net loss for the year
-
-
-
(19,737)
(19,737)
(65)
(19,802)
Other comprehensive income
-
-
2,516
-
2,516
-
2,516
Comprehensive income (loss)
-
-
2,516
(19,737)
(17,221)
(65)
(17,286)
Acquisition of non-controlling interests
-
-
-
-
-
201
201
Dividends
Multiple Voting Shares
-
-
-
(354)
(354)
-
(354)
Subordinate Voting Shares
-
-
-
(137)
(137)
-
(137)
Balance - February 29, 2024
72,695
6,260
(38,692)
141,914
182,177
1,082
183,259
The accompanying notes are an integral part of these consolidated financial statements.
46
Consolidated Statements of Cash Flow
(in thousands of U.S. dollars)
Fiscal years ended
February 29,
February 28,
2024
2023
$
$
Cash flows from
Operating activities
Net loss for the year
(19,802)
(55,459)
Adjustments to reconcile net loss to cash provided by operating activities (note 25)
14,289
67,553
Changes in non-cash working capital items (note 26)
9,814
(11,572)
Cash provided by operating activities
4,301
522
Investing activities
Short-term investments
(5,232)
8,250
Additions to property, plant and equipment
(6,839)
(4,370)
Additions to intangible assets
(2,358)
(2,219)
Proceeds on disposal of property, plant and equipment, and intangible assets
(45)
185
Net change in other assets
347
(87)
Cash provided (used) by investing activities
(14,127)
1,759
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders
(491)
(497)
Acquisition of non-controlling interests
201
266
Net change in revolving credit facility
5,000
-
Increase in long-term debt
1,286
3,666
Repayment of long-term debt
(8,762)
(4,398)
Repayment of long-term lease liabilities
(1,895)
(1,657)
Cash used by financing activities
(4,661)
(2,620)
Effect of exchange rate differences on cash
679
(2,873)
Net change in cash during the year
(13,808)
(3,212)
Net cash – Beginning of the year
50,253
53,465
Net cash – End of the year
36,445
50,253
Net cash is composed of:
Cash and cash equivalents
36,445
50,513
Bank indebtedness
-
(260)
Net cash – End of the year
36,445
50,253
Supplementary information
Interest paid
(1,274)
(974)
Income taxes paid
(6,708)
(8,160)
The accompanying notes are an integral part of these consolidated financial statements.
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended February 29, 2024 and February 28, 2023
(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 (“IFRS Accounting Standards”) as issued by the International Accounting Standards Board
(“IASB”).
These consolidated financial statements were approved by the Company’s Board of Directors on May 16, 2024.
2
Summary of material 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.
48
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.
49
The Company and its subsidiaries enter into certain contracts for the purchase and sale of non-financial items that
are denominated in currencies other than their respective functional currencies. In cases where the foreign exchange
component is not leveraged and does not contain an option feature, the contract is denominated in the functional
currency of any substantial party to that contract, the currency in which the price of the related good or service that
is acquired or delivered is routinely denominated in commercial transactions around the world, the currency that is
commonly used in contracts to purchase or sell non-financial items in the economic environment in which the
transactions takes place, the embedded derivative is considered to be closely related to the host instrument and is
not accounted for separately.
The fair value of the embedded derivatives related to sales contracts is recorded in sales; purchase contracts are
recorded in cost of sales. On the consolidated statement of financial position, gains are recorded as derivative assets
and losses are recorded as derivative liabilities.
Transaction costs are expensed when incurred.
Fair value
Estimated fair values for financial instruments are designed to approximate amounts at which the instruments could
be exchanged in a current arm’s-length transaction between knowledgeable willing parties. The fair value of derivative
instruments is determined using valuation techniques.
The Company has evaluated the fair values of its financial instruments based on the current interest rate environment,
related market values and current pricing of financial instruments with comparable terms.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in
the ordinary course of the Company’s activities. Revenue is shown net of variable compensation such as returns,
rebates, discounts and provisions for performance guarantees.
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.
Sales of services
Sales of services are recognized as the services are rendered, considering their acceptance by the Company's
customers.
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.
50
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
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 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.
51
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
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.
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.
52
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.
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.
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.
53
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.
Critical accounting estimates and assumptions
The Company’s material 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
54
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.
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. 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. Based on the different scenarios analyzed by the Company, a change of 1%
in this assumption has an estimated impact on the total liability from $1,100 to $1,400.
•
Projected average CWI severity. Based on the different scenarios analyzed by the Company, a change of 1% in
this assumption has an estimated impact on the total liability from $1,100 to $1,400.
•
Decay rate represents the rate at which the number of claims will decrease. Based on the different scenarios
analyzed by the Company, a change of 1% in this assumption has an estimated impact on the total liability from
$7,800 to $14,300.
•
The inflation rate. Based on the different scenarios analyzed by the Company, a change of 1% in this assumption
has an estimated impact on the total liability from $7,300 to $12,900.
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.
55
Critical judgements in applying the Company’s material policies
Deferred tax assets
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. The Company estimates that future taxable profits will be sufficient to realize this asset.
Going concern
The assessment of the Company’s ability to execute its future working capital requirements involves judgment.
Estimate and assumptions are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances. Refer to note 23
on the liquidity risk.
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
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 continues its analysis but does not expect
the amendment to have a significant impact on its consolidated financial statements.
Accounting standards and amendments issued and adopted
An IASB amendments has resulted in modifications to some paragraphs of the standard IAS 1, Presentation of
financial statements. These changes include the requirement for the entities to provide disclosures about their
material accounting policies rather than their significant accounting policies. The amendments to the standard have
been adopted by the Company as of March 1, 2023.
56
4
Accounts receivable
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Trade accounts receivable
110,097
113,529
Loss allowance
(224)
(481)
Other accounts receivables
10,041
8,005
119,914
121,053
The table below summarizes the movements in the loss allowance:
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Balance – Beginning of year
481
509
Loss allowance expense (reversal)
68
46
Recoveries of trade accounts receivable
(228)
(47)
Write-off of trade accounts receivable
(98)
-
Foreign exchange
1
(27)
Balance – End of year
224
481
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.
5
Inventories
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Raw materials
33,208
36,223
Work in process and finished parts
134,678
128,670
Finished goods
40,816
37,756
208,702
202,649
As a result of variations in the ageing of its inventories, the Company recognized a net additional inventory provision
for the year of $2,030(2023 – $4), including reversals of $9,723 (2023 – $10,769).
The net book value of inventories pledged as security under the Company’s long-term debt amounted to $86,424
(2023 – $91,007).
57
6
Subsidiaries and transactions with non-controlling interests
a)
Interest in subsidiaries
Set out below are the Company’s principal subsidiaries as at February 29, 2024. 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
2024
2023
2024
2023
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
60
40
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
100
75
-
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
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, 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
58
Year ended February 29, 2024
Beginning balance
9,376
23,539
21,805
556
838
308
1,084
10,699
68,205
Additions
-
797
4,911
179
382
66
498
3,436
10,269
Modifications to lease terms
-
-
-
-
-
-
-
222
222
Disposals
-
-
(75)
-
-
-
-
(264)
(339)
Depreciation
-
(1,528)
(4,608)
(135)
(432)
(140)
(307)
(1,780)
(8,930)
Exchange differences
36
80
124
5
7
1
23
215
491
9,412
22,888
22,157
605
795
235
1,298
12,528
69,918
At February 29, 2024
Cost
9,412
54,291
136,721
8,604
4,557
2,002
3,915
17,790
237,292
Accumulated depreciation
-
(31,403)
(114,564)
(7,999)
(3,762)
(1,767)
(2,617)
(5,262)
(167,374)
9,412
22,888
22,157
605
795
235
1,298
12,528
69,918
Depreciation expense of $8,930 (2023 – $8,722) is included in the consolidated statement of loss: $7,190
(2023 – $7,019) in “cost of sales” and $1,740 (2023 – $1,703) in “administration costs”.
8
Leases
a) Right-of-use assets
Carrying value by asset class
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Land
5,537
5,616
Buildings
Furniture & Fixtures
5,373
24
3,942
-
Machinery & Equipment
384
133
Data Processing Equipment
50
92
Rolling Stock
1,160
916
12,528
10,699
59
Depreciation by asset class
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Land
199
103
Buildings
883
838
Furniture & Fixtures
5
8
Machinery & Equipment
119
112
Data Processing Equipment
42
48
Rolling Stock
532
547
1,780
1,656
b)
Long-term lease liabilities
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Current portion of long-term lease liabilities
1,607
1,298
Long-term lease liabilities
11,036
9,458
12,643
10,756
Amounts recognized in the consolidated statement of loss:
Fiscal years ended
(thousands)
February 29,
2024 $
February 28,
2023 $
Expenses relating to short-term leases (included in “cost of sales”
and “administration costs”
281
417
Expenses relating to leases of low-value assets, excluding short-
term leases of low value (included in “cost of sales” and
“administration costs”)
122
177
Expenses related to variable lease payments (included in “cost of
sales” and “administration costs”)
189
189
Interest expenses (included in “finance costs”)
315
237
60
9
Intangible assets and goodwill
(thousands)
Goodwill
$
Computer
software
$
Patent,
products &
designs
$
Others
$
Total
$
At February 28, 2022
Cost
8,788
9,243
18,535
6,073
42,639
Accumulated amortization
-
(8,259)
(11,616)
(6,071)
(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
5,726
38,590
Accumulated amortization
-
(3,949)
(12,764)
(5,724)
(22,437)
8,284
773
7,094
2
16,153
Year ended February 29, 2024
Beginning balance
8,284
773
7,094
2
16,153
Additions
-
290
2,067
-
2,357
Amortization
-
(357)
(1,858)
-
(2,215)
Exchange differences
179
14
55
-
248
8,463
720
7,358
2
16,543
At February 29, 2024
Cost
8,463
5,069
22,169
5,849
41,548
Accumulated amortization
-
(4,349)
(14,811)
(5,847)
(25,007)
8,463
720
7,358
2
16,543
Amortization expense of $2,215 (2023 – $2,021) is included in the consolidated statement of loss: $803 (2022 – $784)
in “cost of sales” and $1,412 (2022 – $1,237) in “administration costs”.
As at February 29, 2024, the Company capitalized $2,067 (2023 – $1,787) of development costs, net of research
and development tax credits of $317 (2023 - $299), as patents, products and designs.
Goodwill impairment test as at February 29, 2024
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.
61
All three conditions were met for Velan S.A.S. the Company’s French subsidiary, for the fiscal year ended
February 29, 2024. 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 $12,000 (2023 – $27,000) for letters of credit
and letters of guarantee. As at February 29, 2024, $3,810 (2023 – $6,563) was drawn against this facility in the
form of letters of credit. The credit facility expires on November 30, 2024, and is renewed annually.
b)
Foreign subsidiaries have the following credit facilities available as at February 29, 2024. These facilities are only
available for the subsidiary that entered the facility.
Credit facilities available
(thousands)
As at February 29, 2024
As at February 28, 2023
Borrowing Rates
European subsidiaries
$55,887 (€51,733)
$50,667 (€47,907)
0.70% to 5.86%
Korean subsidiaries
$3,365 (KW4,498,000)
$3,373 (KW4,464,800)
5.10% to 7.99%
Indian subsidiary
$2,744 (INR 227,000)
$2,299 (INR 190,000)
7.00%
Taiwanese subsidiary
$383 (NTD 12,000)
$390 (NTD 12,000)
2.053%
Chinese subsidiary
$980 (CNY 7,000)
$1,009 (CNY 7,000)
3.25%
The majority of the facilities are available in the form of letter of credit. They are secured by corporate guarantees.
Most 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 29, 2024. 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 $1,792 (2023 – $2,220).
An amount of $16,044 (2023 – $11,192) was drawn against these secured credit facilities in the form of letters of
credit and letters of guarantee.
11 Account payable and accrued liabilities
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Trade accounts payable
46,294
39,898
Goods and services taxes payable
5,139
4,639
Commissions payable
1,404
2,571
Accrued liabilities
14,413
10,543
Accrued payroll expenses
19,997
20,889
Other
983
868
88,230
79,408
62
12 Provisions
(thousands)
Provision for
performance
guarantees
(note a)
$
Warranty
provision
(note b)
$
Asbestos
provision
(note c)
$
Other
provision
$
Total
$
Balance – February 28, 2022
2,599
7,373
17,456
4,117
31,545
Additions
1,230
845
66,548
2,100
70,723
Payments
(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
Additions
1,714
748
10,000
600
13,062
Accretion
-
-
4,497
-
4,497
Payments
(823)
(100)
(9,597)
(3,932)
(14,452)
Reversals
(756)
(1,724)
-
-
(2,480)
Exchange differences
35
116
-
-
151
Balance – February 29, 2024
2,705
4,882
78,200
2,400
88,187
Less: Current provision
2,705
4,882
4,142
2,400
14,129
Long-term provision
-
-
74,058
-
74,058
a)
The Company’s provision for performance guarantees consists of possible late delivery and other contractual
noncompliance 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.
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.
63
13 Long-term debt
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Revolving credit facility (note a)
5,000
-
Canadian entity
Secured bank loan ($CAD 19,561; February 28, 2023 - $CAD
20,906) (note b)
14,415
15,181
French subsidiaries
Unsecured bank loan (€3,240; February 28, 2023 - €3,183) (note c)
3,500
3,366
Italian subsidiary
Unsecured bank loan (€2,914; February 28, 2023 - €4,186) (note d)
3,148
4,427
Unsecured state bank loan (€230; February 28, 2023 - €460)
(note e)
248
487
Other (note f)
2,466
6,435
28,777
29,896
Less: current portion
24,431
8,177
4,346
21,719
a)
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, Term CORRA 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 29, 2024, the Company had drawn down $5,000
(2023 - nil) on the revolving credit facility and had $3,810 (2023 - $5,148) in the form of outstanding letters of
credit and letters of guarantee on a total of $49,046 (2023 - $49,511) borrowing availability. The facility matures
on May 31, 2024, however, subsequent to year-end and prior to the issuance of the financial statements,
Management negotiated an extension until August 30, 2024, which makes the total availability of $41,546.
b)
The secured mortgage bank loan of $14,415 ($CAD 19,561) bears interest at 3.55% with principal repayments
of $69 repayable over 18 years. As at February 29, 2024, the Company was in breach of one of its financial
covenants ratio. The secured mortgage bank loan is presented in current portion of long-term debt.
Subsequent to year-end, and prior to the release of these financial statements, the lender renounced its right to
demand repayment of the loan for the fiscal year ended February 29, 2024 and for the fiscal year ended February
28, 2025 until March 1, 2026, inclusively, provided the breach is solely due to the payment of asbestos claims
and related legal fees.
Accordingly, the secured mortgage bank loan will be re-classified as long-term debt on May 31, 2024.
c)
The unsecured bank loans total $3,500 (€3,240) and bear an interest range of [0.25% - 3.52%]. Repayments
include monthly payments totalling $101. These loans expire between 2027 and 2029.
d)
The unsecured bank loans total $3,148 (€2,914) bears interest at a range of [Euribor + 0.67% - Euribor + 1.25%].
Repayments include monthly payments of $18 and quarterly payments of $291. These loans expire in 2025 and
2027.
64
e) The unsecured bank loan of $248 (€230) bears interest of Euribor + 3.00% and is repayable in semi-annual
payments of $124. The loan expires in 2024.
f)
Included in Other is an amount of $2,466 (¥67,298) (February 28, 2023 – $4,909 (€4,641)) 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 aggregate net book value of the assets pledged as collateral under the revolving credit facility amounted to
$120,966 (2023 – $130,936) and under long-term debt agreements amounted to $14,415 (2023 – $15,181).
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 29,
2024
$
February 28,
2023
$
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 has 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 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.
65
Movements in outstanding DSUs and related expense were as follow:
For the years ended
(thousands)
February 29,
2024
February 28,
2023
In numbers of DSUs
Opening balance
74,174
83,234
Issued
103,917
243
Settled
(17,618)
-
Forfeited
(9,424)
(9,303)
Closing balance
151,049
74,174
DSU expense for the years
($361)
$126
Fair value of vested outstanding DSUs, end of years
$163
$520
15 Cost of sales
For the years ended
(thousands)
February 29
2024
$
February 28,
2023
$
Change in inventories of finished goods and work in progress
(7,379)
2,182
Raw materials and consumables used
162,881
159,960
Employee expenses, excluding scientific research investments tax credits
67,634
65,363
Depreciation and amortization
7,991
7,803
Movement in inventory provisions – net
2,030
4
Foreign exchange loss
(415)
1,453
Other production overheads costs
20,867
21,199
253,609
257,964
66
16 Administration costs
For the years ended
(thousands)
February 29,
2024
$
February 28,
2023
$
Employee expenses, excluding scientific research investments tax
credits expenses
50,915
48,931
Scientific research investment tax credits
(1,406)
(1,391)
Commissions
3,570
4,619
Freight to customers
3,652
7,042
Professional fees
8,170
9,369
Asbestos related settlement costs (note 12)
14,255
69,676
Movement in loss allowance
(160)
(1)
Depreciation and amortization
3,235
2,940
Other
16,513
15,574
98,744
156,759
17 Employee expense
For the years ended
(thousands)
February 29,
2024
$
February 28,
2023
$
Wages and salaries
84,065
82,249
Social security costs
28,205
26,681
Scientific research investment tax credits
(1,406)
(1,391)
Share-based compensation
(15)
126
Other
6,294
5,238
117,143
112,903
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 $5,513
(2023 - $5,856).
67
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 29,
2024
$
February 28,
2023
$
Research and development expenditures
6,064
6,181
Less: Scientific research investment tax credits
(1,331)
(1,391)
4,733
4,790
19 Income taxes
For the years ended
(thousands)
February 29,
2024
$
February 28,
2023
$
Current taxes
8,557
8,072
Deferred income taxes
(1,086)
(27)
Income tax expense
7,471
8,045
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 29,
2024
$
February 28,
2023
$
Income tax at statutory rate of 26.50%
(3,268)
(12,565)
Tax effects of:
Difference in statutory tax rates in foreign jurisdiction
378
486
Non-deductible (taxable) foreign exchange losses (gains)
(455)
754
Derecognition of deferred tax assets
-
-
Deferred tax assets not recognized
9,428
18,996
Other differences
1,388
374
Income tax expense
7,471
8,045
68
The analysis of deferred income tax assets and deferred income tax liabilities is as follows:
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Deferred income tax assets:
To be realized after more than 12 months
3,230
1,889
To be realized within 12 months
1,962
2,774
Deferred income taxes liabilities
To be realized after more than 12 months
(3,325)
(3,823)
To be realized within 12 months
(137)
(143)
Net deferred income tax asset
1,731
697
The movement of the net deferred income tax asset account is as follows:
As at
(thousands)
February 29
2024
$
February 28,
2023
$
Balance – Beginning of the year
697
749
Recovery of income taxes in the consolidated statement of loss
1,051
(27)
Exchange differences
(17)
(25)
Net deferred income tax asset
1,731
697
The significant components of the net deferred income tax asset are as follows:
As at
(thousands)
February 29,
2024
$
February 28,
2023
$
Property, plant and equipment
(418)
(400)
Intangible assets
-
(621)
Non-deductible provisions and reserves
565
604
Investment tax credits
-
-
Inventories
369
1,129
Non-capital loss carry forwards
1,615
408
Other
(400)
(423)
Net deferred income tax asset
1,731
697
69
The Company did not recognize deferred income tax assets of $41,923 (2023 – $39,520) in respect of non-capital
losses amounting to $161,368 (2023 – $152,001) that can be carried forward to reduce taxable profits in future years.
These losses expire between 2038 and indefinitely.
Deferred income tax liabilities of $6,472 (2023 – $5,945) 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 29, 2024 totalled $337,668 (2023 – $329,402).
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 29,
2024
$
February 28,
2023
$
Net loss attributable to Subordinate and Multiple voting
shareholders
(19,737)
(55,453)
Weighted average number of Subordinate and Multiple voting
shares outstanding.
21,585,635
21,585,635
Basis and diluted loss per share
$(0.91)
$(2.57)
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 does not have any dilutive potential Subordinate and Multiple Voting Shares.
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 29, 2024, the aggregate maximum value
of these guarantees, if exercised, amounted to $47,725 (2023 - $46,937). The guarantees expire as follows:
As at
(thousands)
February 29, 2024
$
February 28, 2025
12,161
February 28, 2026
17,597
February 28, 2027
6,089
February 29, 2028
2,699
February 28, 2029
2,264
Subsequent years
6,915
47,725
70
22 Segment reporting
The Company reflects its results under a single operating and reportable segment. The geographic distribution of its
sales is as follows:
Fiscal year ended February 29, 2024
(thousands)
Canada
$
United
States
$
France
$
Italy
$
Other
$
Consolidation
adjustment
$
Consolidated
$
Sales
Customers -
Domestic
29,566
116,229
49,688
5,313
9,851
-
210,647
Export
35,349
448
38,475
39,477
22,420
-
136,169
Intercompany (export)
50,489
9,267
459
-
57,948
(118,163)
-
115,404
125,944
88,622
44,790
90,219
(118,163)
346,816
Property, plant and equipment
23,893
5,967
16,772
5,033
18,253
-
69,918
Intangible assets and goodwill
5,614
-
8,967
1,912
49
-
16,543
Other identifiable assets
256,866
30,243
168,469
70,437
139,407
(272,490)
392,932
Total identifiable assets
286,373
36,210
194,208
77,383
157,711
(272,490)
479,393
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
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
71
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.
The amounts outstanding under derivatives contracts as at February 29, 2024 and 2023 are as follows:
Range of exchange rates
Fair value
(In thousands of U.S. dollars)
Notional amount
(In thousands indicated currency)
February 29,
2024
February 28,
2023
February 29,
2024
$
February 28,
2023
$
February 29,
2024
February 28,
2023
Foreign exchange forward contracts
Sell US$ for CA$ - 0 to 12 months
-
1.32
-
107
-
US$40,000
Buy US$ for CA$ - 0 to 12 months
-
1.38
-
(299)
-
US$40,000
Sell US$ for € – 0 to 12 months
-
-
-
-
-
-
Buy US$ for € – 0 to 12 months
1.08 to 1.10
-
40
-
US$6,518
-
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 29, 2024 and February 28, 2023:
72
Net income (loss)
(thousands)
February 29,
2024
$
February 28,
2023
$
Canadian dollar strengthening against the U.S. dollar
(868)
(847)
Euro strengthening against the U.S. dollar
(772)
(327)
Indian rupee strengthening against the U.S. dollar
875
346
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 29, 2024, two
(2023 – four) customers accounted for more than 5% each of its trade accounts receivable, of which one customer
accounted for 7.6% (2023 – 15.0%) and the Company’s ten largest customers accounted for 41.3% (2023 – 60.4%)
of trade accounts receivable. In addition, one customer accounted for 8.9% of the Company’s sales (2023 – 13.4%).
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 29, 2024
Current
Past due more
than 30 days
Past due 31 to
90 days
Past due more
than 90 days
Total
Expected loss rate
0.056%
0.071%
0.081%
1.814%
Gross carrying amount
81,030
12,600
7,426
9,041
110,097
Loss allowance
45
9
6
164
224
73
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
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.
As at February 29, 2024 the Company has cash and cash equivalents of $36,445 and working capital (current assets
minus current liabilities) surplus of $226,623; it has incurred net losses of $19,802 for the year then ended. As
described in note 13 to the consolidated financial statements, the Company was in breach of a financial covenant,
the consolidated fixed charges coverage ratio, on the Canadian secured bank loan with a balance of $14,415 at that
date. Refer to note 13 for more details.
Furthermore, subsequent to February 29, 2024, the Company successfully extended its revolving credit facility,
originally maturing on May 31, 2024 to August 30, 2024. The Company is currently analyzing different refinancing
scenarios for renewing its revolving credit facility.
The following tables present the Company’s financial liabilities identified by type and future contractual dates of
payment based on contractual terms in place as at:
As at February 29, 2024
Carrying
value
$
Less than
1 Year
$
1 to 3
Years
$
4 to 5
Years
$
After 5
Years
$
Total
$
Long-term debt
28,777
29,601
3,405
1,112
-
34,118
Long-term lease liabilities
12,643
1,929
3,141
2,202
11,310
18,582
Accounts payable and accrued
liabilities
88,230
88,230
-
-
-
88,230
Customer Deposits
65,478
30,396
16,369
2,145
16,568
65,478
Derivative liabilities
26
26
-
-
-
26
74
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
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.
The fair value of financial assets and financial liabilities on the condensed interim consolidated statements of financial
position are as follows:
As at February 29, 2024
(thousands)
Total
$
Level 1
$
Level 2
$
Level 3
$
Financial position classification and nature
Assets
Derivative assets
125
-
125
-
Liabilities
Derivative liabilities
26
-
26
-
75
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
-
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 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.
The total debt-to-equity ratio was as follows:
As at
(thousands)
February 29, 2024
$
February 28, 2023
$
Bank indebtedness
-
260
Current portion of long-term lease liabilities
1,607
1,298
Current portion of long-term debt
24,431
8,177
Long-term lease liabilities
11,036
9,458
Long-term debt
4,346
21,719
Total debt
41,420
40,912
Equity
183,259
200,835
Total debt-to-equity ratio
22.6%
20.4%
The Company’s objective is to conservatively manage the total debt-to-equity ratio and to maintain funding capacity
for potential opportunities.
76
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.
As at February 29, 2024, the Company was in breach of one of its financial covenants ratio. This breach also triggered
cross-default of the revolving credit facility as well as the Export Development Canada facility which is comprised of
letters of credit amounting to $3,810, which guarantees the letter of credit issued under the revolving credit facility,
that are not recorded as financial liabilities on the consolidated statement of financial position. The term loan and the
revolving credit facility are presented in the current portion of long-term debt.
The Company is in default due to failure to meet one of its financial covenants, see note 23 relating to the liquidity
risk.
25 Adjustments to reconcile net loss to cash provided from operating activities
Fiscal periods ended
(thousands)
February 29,
2024
$
February 28,
2023
$
Depreciation of property, plant and equipment
8,930
8,722
Amortization of intangible assets
2,232
2,021
Amortization of financing costs
64
251
Deferred income taxes
(1,086)
(27)
Gain (loss) on disposal of property, plant and equipment
(272)
200
Net change in long-term provisions and customer deposits
4,422
56,721
Net change in derivative assets and liabilities
(291)
185
Net change in other liabilities
290
(520)
14,289
67,553
26 Changes in non-cash working capital items
Fiscal periods ended
(thousands)
February 29,
2024
$
February 28,
2023
$
Accounts receivable
2,596
(9,837)
Inventories
(4,254)
14,235
Income taxes recoverable
112
(3,254)
Deposits and prepaid expenses
(2,754)
(916)
Accounts payable and accrued liabilities
7,958
1,845
Income taxes payable
100
(1,100)
Customer deposits
8,556
(11,087)
Provisions
(2,500)
(1,458)
9,814
(11,572)
77
27 Debt from financing activities reconciliation
(thousands)
Long-term
lease liabilities
$
Long-term
debt
$
Total
$
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
Cash inflows
-
7,481
7,481
Cash outflows
(1,895)
(8,762)
(10,657)
Foreign exchange adjustments
235
163
(398)
Other non-cash movements
3,548
-
3,548
Balance - February 29, 2024
12,644
28,778
41,422
78
Head Office
7007 Côte-de-Liesse
Montreal, Quebec
Canada H4T 1G2
Investor Relations
Rishi Sharma
Chief Financial and Administrative Officer
Tel.: (514) 748-7743
Fax: (514) 908-0108
Auditors
PricewaterhouseCoopers LLP
Transfer agent
TSX Trust Company
Shares outstanding as at February 29, 2024
6,019,068 Subordinate Voting Shares and
15,666,567 Multiple Voting Shares
Listing
Symbol: VLN
Closing price on May 17, 2024: CA $5.86
Annual Meeting
The Annual Meeting of Shareholders will be held at the Velan Head Office on July 11, 2024, at 4:30 p.m.
CORPORATE
INFORMATION
Head Office
7007 Côte-de-Liesse
Montreal, Quebec
Canada H4T 1G2