Velan Inc. Reports Strong Fourth Quarter and Fiscal Year 2021/22 Financial Results and Reinstates Dividend

MONTREAL, May 18, 2022 (GLOBE NEWSWIRE) -- Velan Inc. (TSX: VLN) (the "Company"), a world-leading manufacturer of industrial valves, announced today its financial results for its fiscal year and fourth quarter ended February 28, 2022.

Highlights:

• Sales for the quarter amounted to $124.8 million, an increase of 39.3 million or 46.0% compared to last year.
• Gross profit for the quarter of $47.7 million, an increase of $24.7 million or 106.8% from the previous year. The gross profit percentage for the quarter increased by 1,120 basis points from 27.0% to 38.2%. The gross profit increase is first and foremost driven by the significantly increased sales volume.
• The Company declared an eligible quarterly dividend of CA$0.03 per share based on its strong cash position at the end of the quarter.
• EBITDA² of $16.6 million for the quarter, an increase of $14.9 million or 906.8%. The improved results were achieved despite receiving $2.3 million less Canada Emergency Wage Subsidies («CEWS»).
• Net loss¹ of $25.6 million for the quarter compared to a net income¹ of $0.3 million last year. Adjusted net income² of $7.0 million before a $32.6 million non-cash tax adjustment to derecognize a portion of the Company's deferred tax asset.
• Net new orders ("bookings")² of $77.1 million for the quarter, a decrease of $3.8 million or 4.7% compared to the previous fiscal quarter.
• Order backlog² of $501.2 million at the end of the fiscal year, of which 64.2% of orders are deliverable within the next 12 months. Prior year order backlog totaled $562.5 million and included 60.2% of orders deliverable in the next 12 months.
• During the fiscal year, the Company used its net cash to reduce its debt load, consisting of bank indebtedness and long-term debt, by more than half from $69.8 million to $31.6 million. The Company's net cash amounted to $53.5 million at the end of the quarter, a decrease of $9.5 million or 15.1% compared to the previous fiscal year.

Bruno Carbonaro, CEO and President of Velan Inc., said, "The results Velan achieved this year are strong. We are entering a new phase in the company's evolution. Our sales levels returned this year to our 2016 performance levels, which spurred a significant improvement in our gross profit of 32.8% and our EBITDA, which more than doubled to $39.6 million. Our backlog reduced but remains healthy at $501.2 million. The company also reduced its debt load by more than half. All these items illustrate that Velan has emerged stronger from the pandemic. We managed short term setbacks while consolidating our strengths, corrected structural issues and built a strong leadership team, which is prepared to take the next step. Finally, I would like to announce that Rishi Sharma will start as CFO of Velan on May 23, 2022 and take the opportunity to thank Benoit Alain, our soon to be former CFO, who has executed the transition perfectly."

Financial Highlights

Fourth Quarter Fiscal 2022 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the fourth quarter of fiscal 2021):

• Sales for the quarter amounted to $124.8 million, an increase of $39.3 million or 46.0%. Sales for the quarter were positively impacted by increased shipments by the Company's North American, French and Italian operations of large orders recorded in the previous fiscal year, primarily destined for the petrochemical, nuclear and oil and gas markets respectively. The Company's sales were also positively impacted by a revaluation of its provision for performance guarantees of $8.8 million. Additionally, the positive trend in terms of quarterly MRO sales continued this quarter due to the higher bookings¹ of such orders in the first half of the current fiscal year. This positive trend has allowed the Company's quarterly sales to build momentum as the year progressed.
• Bookings² for the quarter amounted to $77.1 million, a decrease of $3.8 million or 4.7%. This decrease for the quarter is primarily attributable to lower bookings² in the Company's European subsidiaries, primarily in the nuclear market, partially offset by a strong booking performance in the Company's North American operations, notably in terms of MRO orders.
• Gross profit for the quarter amounted to $47.7 million, an increase of $24.7 million or 106.8%. The gross profit percentage for the quarter of 38.2% was an increase of 1,120 basis points compared to last year's final quarter. The improvement in gross profit for the quarter is primarily attributable to the higher sales volume, which helped to cover the Company's fixed production overhead costs more efficiently. The Company's improved margins are also stemming from the delivery of a product mix with a greater proportion of higher margin product sales as well as margin improvement activities implemented over the course of the past fiscal years within the scope of the V20 restructuring and transformation plan. The gross profit also benefited from a positive revaluation of the Company's provision for performance guarantees of $8.8 million for the quarter. Finally, the increase in gross profit percentage was such that it could more than offset the impact of a lower amount of CEWS of $1.3 million for the quarter compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Administration costs for the quarter amounted to $38.8 million, an increase of $14.7 million or 60.7%. The increase in administration costs for the quarter is primarily attributable to a non-recurring $13.1 million increase in the costs related to the Company's ongoing asbestos litigation in order to revise, based on new estimates, the assessment of the provision that would account for all outstanding litigations rather than only settled amounts. The increase is also attributable to a general increase in administration expenses, such as travel expenses, marketing and office maintenance costs that significantly decreased when the global pandemic broke out in 2020 and an increase in sales commissions for the quarter due to the higher sales volume. Finally, the increase in administration costs is also attributable to a decrease of $1.0 million for the quarter of CEWS compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Net loss¹ for the quarter amounted to $25.6 million or $1.19 per share compared to a net income of $0.3 million or $0.02 per share last year. The net loss¹ for the quarter was significantly impacted by a $32.6 million non-cash tax adjustment to derecognize a portion of the Company's deferred tax asset. Excluding this non-cash tax adjustment, the Company's adjusted net income² for the quarter amounted to $7.0 million or $0.32 per share. EBITDA² for the quarter amounted to $16.6 million or $0.77 per share compared to $1.6 million or $0.08 per share last year. The increase in EBITDA² for the quarter is primarily due to an increase in gross profit, for the reasons mentioned previously, and a $4.6 million non-recurring net gain, after minority interests, on the disposal of the Company's investment in Juwon Special Steel Co. Ltd. in the fourth quarter of the current fiscal year. The improvement was also due to the absence of restructuring and transformation costs which totaled $1.3 million in the final quarter of the previous year. This improvement in EBITDA² was partially offset by an increase in administration costs as explained previously. The movement in the Company's adjusted net income² for the quarter was primarily attributable to the same factors as explained above, coupled with an unfavorable movement in income taxes.
  

Year ended Fiscal 2022 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the prior fiscal year):

• Sales for the fiscal year amounted to $411.2 million, an increase of $109.2 million or 36.1%. Sales for the year were positively impacted by increased shipments by the Company's North American, French and Italian operations of large orders recorded in the previous fiscal year, primarily destined for the petrochemical, nuclear and oil and gas markets respectively. The Company's sales were also positively impacted by a revaluation of its provision for performance guarantees of $13.2 million for the fiscal year.
• Bookings² for the fiscal year amounted to $363.5 million, a decrease of $63.1 million or 14.8%. The decrease for the fiscal year is primarily attributable to lower bookings² in the Company's French and Italian operations, which both recorded significant nuclear and downstream oil and gas orders in the previous year. This decrease was partially offset by a significantly higher amount of MRO orders recorded by the Company's North American operations in the current fiscal year. The Company is encouraged by the recovery of its MRO order bookings², which were severely impacted by the global pandemic at the end of the prior fiscal year, and ultimately adversely affected the sales of the latter part of the previous fiscal year and the first half of the current fiscal year.
• As a result of sales outpacing bookings² in the fiscal year, the Company's book-to-bill ratio² was 0.88 for the year. Furthermore, the total backlog² decreased by $61.3 million or 10.9% since the beginning of the fiscal year, amounting to $501.2 million as at February 28, 2022. The reduction of the backlog² is primarily due to a book-to-bill ratio² below 1.00 combined with the weakening of the euro spot rate against the U.S. dollar since the beginning of the fiscal year. Alternatively, the Company's backlog² deliverable within a year is at a similar level than last year.
• Gross profit for the fiscal year amounted to $135.0 million, an increase of $54.4 million or 67.6%. The gross profit of 32.8% represented an increase of 610 basis points compared to last year. The improvement in gross profit for the year is primarily attributable to the higher sales volume, which helped to cover the Company's fixed production overhead costs more efficiently. The Company's improved margins are also stemming from the delivery of a product mix with a greater proportion of higher margin product sales as well as margin improvement activities implemented over the course of the past fiscal years within the scope of the V20 restructuring and transformation plan. The gross profit also benefited from a positive revaluation of the Company's provision for performance guarantees of $13.2 million for the fiscal year. Additionally, the Company's gross profit for the fiscal year benefited from $6.1 million of favorable foreign exchange movements which were primarily made up of unrealized foreign exchange translations related to the fluctuation of the U.S. dollar against the euro and the Canadian dollar when compared to similar movements from the previous year. Finally, the increase in gross profit percentage was such that it could more than offset the impact of a lower amount of CEWS of $5.9 million for the fiscal year compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Administration costs for the year amounted to $113.0 million, an increase of $32.9 million or 41.1%. The increase in administration costs for the year is primarily attributable to a non-recurring $13.1 million increase in the costs related to the Company's ongoing asbestos litigation in order to revise, based on new estimates, the assessment of the provision that would account for all outstanding litigations rather than only settled amounts. The increase is also attributable to a general increase in administration expenses, such as travel expenses, marketing and office maintenance costs that significantly decreased when the global pandemic broke out in 2020 and an increase in sales commissions for the year due to the higher sales volume. Finally, the increase in administration costs is also attributable to a decrease of $4.7 million for the year of CEWS compared to last year. The subsidies are allocated between cost of sales and administration costs.
• Net loss¹ for the year amounted to $21.1 million or $0.98 per share compared to a net income¹ of $2.9 million or $0.13 per share last year. The net loss¹ for the year was significantly impacted by a $32.6 million non-cash tax adjustment to derecognize a portion of the Company's deferred tax asset. Excluding this non-cash tax adjustment, the Company's adjusted net income² for the year amounted to $11.5 million or $0.53 per share. EBITDA² for the year amounted to $39.6 million or $1.83 per share compared to $15.6 million or $0.72 per share last year. The increase in EBITDA² for the year is primarily due to an increase in gross profit, for the reasons mentioned previously, and a $4.6 million non-recurring net gain, after minority interests, on the disposal of the Company's investment in Juwon Special Steel Co. Ltd. in the fourth quarter of the current fiscal year. The improvement was also due to a reduction in other expenses of $2.7 million for the fiscal year primarily due to land clean-up costs of a former factory incurred in the second quarter of the prior fiscal year. This increase in EBITDA² was partially offset by an increase in administration costs as explained previously as well as the absence of restructuring and transformation income which totaled $3.9 million in the previous year. The restructuring and transformation income in the prior fiscal year resulted primarily from a $9.6 million gain recognized on the disposal of one of the Company's Montreal plants, an integral part of the North American manufacturing footprint optimization plan which was planned in the scope of V20. The movement in the Company's adjusted net income² for the year was primarily attributable to the same factors as explained above, coupled with an unfavorable movement in income taxes.

Dividend

The Board declared an eligible quarterly dividend of CA$0.03 per share, payable on June 30, 2022, to all shareholders of record as at June 17, 2022.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the fourth quarter conference call to be held on Thursday, May 19, 2022, at 11:00 a.m. (EDT). The toll free call-in number is 1-877-337-6181, access code 22018746. Live content to support the discussion will be presented to participants at the following link for the duration of the call: https://cc.callinfo.com/r/1r2125b9wxrer&eom. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 22018746.

About Velan

Founded in Montreal in 1950, Velan Inc. (www.velan.com) is one of the world's leading manufacturers of industrial valves, with sales of US$411.2 million in its last reported fiscal year. The Company employs approximately 1,650 people and has manufacturing plants in 9 countries. Velan Inc. is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

Safe harbour statement

This news release 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, which are disclosed in the Company's filings with the appropriate securities commissions. 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 news release are expressly qualified by this cautionary statement.

Non-IFRS and supplementary financial measures

In this press release, 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. Company has also presented supplementary financial measures which are defined at the end of this report. Reconciliation and definition can be found below and on the next page.

Adjusted net income and Earnings before interest, taxes, depreciation and amortization ("EBITDA")

The term "Adjusted net income" is defined as net income or loss attributable to Subordinate and Multiple Voting Shares plus de-recognition of deferred tax assets. The terms "Adjusted net income per share" is obtained by dividing Adjusted net income by the total amount of subordinate and multiple voting shares. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

The term "EBITDA" is defined as net income or loss attributable to Subordinate and Multiple Voting Shares plus depreciation of property, plant & equipment, plus amortization of intangible assets, plus net finance costs plus income tax provision. The terms "EBITDA per share" is obtained by dividing EBITDA by the total amount of subordinate and multiple voting shares. The forward-looking statements contained in this press release 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 press release are expressly qualified by this cautionary statement.

¹ Net earnings or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares
² Non-IFRS and supplementary financial measures ? see explanation above

For further information please contact:
Bruno Carbonaro, Chief Executive Officer and President
Tel: (438) 817-7593
or
Benoit Alain, Chief Financial Officer
Tel: (438) 817-9957