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spk00: Bonjour et bienvenue à la conférence téléphonique sur les résultats financiers du deuxième trimestre de l'année fiscale 2024 de Vélan, Inc. Greetings and welcome to the Vélan, Inc. Q2 of Fiscal Year 2024 Financial Results Conference Call. Pendant la présentation, nous participons sur un mode d'écoute seulement. Une période de questions suivra la présentation. Si vous citez de poser une question, appuyez sur le 1, sur le 4, sur le téléphone. The presentation of participants will be in a listen-only mode. Afterwards, we'll conduct a question-answer session. At that time, if you have a question, please press the 1 by the 4 on your telephone. Si lors de la conférence, vous avez besoin de parler à un téléphoniste, s'il vous plaît, appuyez sur le 3, sur le 0. If any time the conference should reach an operator, you may press the start or by the 0. We remind you that today's teleconference will be held on Friday, October 6, 2023. As a reminder, this conference is being recorded Friday, October 6, 2023. I now give the floor to Rishi Sharma, Chief Financial Officer. I would now like to turn the conference over now to Rishi Sharma, Chief Financial Officer. The floor is yours. Please go right ahead.
spk01: Thank you. Hello everyone. Thank you for joining our conference call. Let's start by discussing the disclaimer from our investor relations presentation, which is now available on our website in the investor relations section. As always, the first section mentions that the presentation provides an analysis of our consolidated results for the quarter ended August 31st, 2023. The board of directors approved these results yesterday, October 5th, 2023. The second paragraph refers to non-IFRS and supplementary financial measures, which are defined and reconciled at the end of this presentation. Finally, the last paragraph refers to forward-looking information, which are subject to risks and uncertainty and are not guaranteed. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. I will now pass it over to Bruno Carbonaro, CEO of Vela.
spk02: Thanks, Rishi, and hello, everyone. So now we'll record our 10 highlights for the second quarter of our fiscal year 2024. First of all, we report sales of 80.3 million, which is an improvement of about 20% versus the Q1 of the year, and a mild decrease of 4.7 million, or 5.6%. That is the second quarter of last year. It translated to a 3 million EBITDA, which is 1.6 million reported on the second quarter of last fiscal year. Most of the explanation is due to the changed way we account for our asbestos liability. But we need to notice that with $5 million less revenue than one year before, we can report about the same data when normalized for the antitrust cost, which means that we were serious about maintaining our margin at high level. This translates into a $2.1 million net loss for the border. We were able also to maintain our backlog at a higher level at 485.7 million. It's an increase since the beginning of the year of 21.3 million, partially explained by the revision of the foreign exchange between Europe and Denmark. We enjoyed a very nice cash position on our balance sheet. We have a very robust balance sheet. We have a net cash position of $39.4 million at the end of the quarter, despite a decrease of $19.3 million during the quarter due to the preparation for the budgeted ramp-up of our operations in Q3 and Q4 of the year. Last but not least, I wanted to share with you the fact that as a result of Folsom not obtaining the required regulatory approvals for France related to the acquisition of Vellan, they have informed the company that they intend to terminate the arrangement agreement on October 7th this year. I now pass on back the mic to Rishi to navigate you on some specifics of the board.
spk01: Thank you, Bruno, and hello again, everyone. I'll quickly start by saying, indeed, a disappointing outcome to the intended transaction, and as we all very well know, these things are never closed until there. We are very thankful to our teams who are tirelessly on the transaction, as well as managing our day-to-day business, ensuring quality and timely deliveries to our customers. We will now only look forward and not back. Our focus going forward remains fully on executing which $339 million is shippable in the next 12 months, giving us comfort on our projected revenue streams. The total backlog increased by $21.3 million, or 4.6% since the beginning of the fiscal year. The increase in backlog is primarily attributable to changes in the profile of scheduled backlog shipment dates. Our book-to-bill ratio of 1.1 for the half-year was driven in part by changes to the profile of the backlog delivery dates, as well as the securing of 71.5 million of new orders in the second quarter, or 163 million year-to-date. We continue to see stability in the Euro to USD spot rate, which resulted in a positive revaluation of our strong Euro-denominated backlog by 6.5 million. Now we will look at our sales. Sales amounted to $80.3 million for the quarter, decreasing by $4.7 million or 5.6% compared to the same quarter last year. However, an increase of approximately $13 million or 18.6% from the first quarter in the current fiscal year. If we compare the year-over-year decrease in sales, it is primarily attributable to lower shipments of large orders by our Italian operations and to a reduction of these orders booked in the previous fiscal year. The decrease in sales for the quarter was also caused by delays on certain shipments caused by customer and U.S. issues. Otherwise, the decrease was partially offset by the positive impact and the strengthening of the Euro average rate against the U.S. dollar on sales, which amounted to $2.1 million for the quarter compared to the last fiscal year. Finally, sales for the quarter were also positively impacted by favorable revaluations of our provisions for performance guarantees, which are no longer payable, and volume rebate accruals. We will now look at profitability. EBITDA amounts to 3 million or 14 cents per share compared to 1.4 million or 6 cents per share last year, and also an increase of approximately 6.8 million compared to the first quarter of the current fiscal year. The favorable movement in EBITDA for the quarter is primarily attributable to a decrease in administration costs, partially offset by an increase in other expenses. If we look at administration costs, they amounted to $22.6 million for the quarter, a decrease of $2.1 million or 8.5%. The decrease in costs for the quarter is primarily attributable to the recording in the last quarter of the previous fiscal year of an asbestos provision related to potential settlement values of future unknown claims. The settlement expense amounted to $3.1 million in the second quarter of fiscal 2023. A decrease in administration costs for the quarter is also lower due to outbound freight costs which have now stabilized and sales conditions in relation to the lower sales volume. Finally, the increase to the quarter was partially offset by a general increase in amendment costs. The increase in other expenses is mainly due to an adjustment of a provision related to logistic costs. Gross profit for the year was relatively stable at $23.5 million versus $23.4 million. but the growth profit percentage improved by 150 basis points from 27.6 to 29.1%, which highlights our continued focus on strong execution of our backlog and the efficiency initiatives related to cost control. On the absolute values of gross profit, the slight decrease in gross profit in order is primarily due to the lower sales volume, which impacted the absorption of fixed production overhead costs, as well as the unfavorable unrealized foreign exchange translations related to the fluctuation the U.S. dollar against the Euro and the Canadian dollar when compared to similar movements from the previous year. The decrease in gross profit for the quarter was offset by an improved product mix as well as favorable revaluations of our provisions for performance guarantees and volume rebates. We will now move cash and liquidity. To start, our net cash and overall liquidity position remains strong at $39.4 million and $122 million respectively. Our net cash did decrease by $19.3 million since the beginning of the quarter, driven mostly by a free cash flow usage of $22.8 million. The unfavorable movement of cash used by operating activities for the quarter is primarily attributable to unfavorable movements in non-cash working capital items, partially offset by an increase in EBITDA. The negative non-cash working capital item movements for the quarter ended August 31, 2023, consisted primarily of an increase in accounts receivable, primarily due to the higher proportion of sales that occurred later in the quarter, an increase in inventories in reaction to the delivery schedule of certain large orders, and a decrease in AP and accrued liabilities due to the timing of payments, primarily related to previously purchased inventories for ongoing sales. With the current working capital profile, the company is now preparing for its projected wrap-up in Q3 and Q4. I will now pass it back to Bruno for his closing comments before we move to the Q&A session. Thank you.
spk02: Thanks, Richie. A couple of comments before opening the floor for questions. We show at the second quarter of fiscal year 24 an improvement versus not only the Q1 of the year, but also in terms of results of the Q2 of that year. We are now fully focused on the ramp-up that has been for the second half of the year. We will continue to manage our business predominantly as an independent company. Our main focus is on executing the backlog of $486 million at the same time as we are working on a strong pipeline of commercial opportunity. We also need to be very disciplined in the way we are managing our working cap with an increased collection of cash on our account receivables and reducing inventory due to the increase in shipments. We see a lot of new opportunities in new markets for North American commercial operations at the same time as there is a confirmed growth of legal business in France. Finally, I should say that we are extremely disappointed by the outcome of the inter-departmentalization discussions, and it's time for us now to revisit our corporate strategy to ensure that we can maximize the valuation for the shareholders. I now open the floor to questions.
spk00: Thank you very much. If you wish to register to ask a question, press 1 on the 4th on your phone. You will then hear a beep indicating that your question has been registered. If your question has already been answered and you wish to cancel, press 1 on the 3rd. And thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You hear a three-tone prompt to acknowledge your request. If your question has been answered, but you draw your registration, please press the 1 followed by the 3. One moment, please, for our first question. And once again, it is the 1-4 to register any questions or comments. Encore une fois, à titre de rappel, si vous aimeriez poser une question, appuyez sur le 1 64 maintenant. As a reminder, if you'd like to ask a question, please do so now by pressing the 1 or the 4 on your telephone keypad to ask a question. On a une question en ligne. We have another question coming in. The first question comes from the line of Stephen Takaxi, Leicester Asset Management. Go right ahead.
spk03: Yeah. Hi, Bruno and Rishi. Yeah, very disappointing outcome. I know partly beyond your control. So, you know, I gather that there'll be other challenges alternatives to look at to maximize shareholder value. Can you give us an idea of why the transaction was blocked by the French government and what sort of strategy going forward the company might pursue to maximize shareholder value and if in the meantime a share buyback wouldn't be a smart thing to do?
spk01: Yeah, I see that. So on the first question, for full clarity, FOSTER obviously was the lead for obtaining all regulatory approvals. It was their filing with the French government with our support. As communicated by the representative of the French ministry today and yesterday, there were certain risks that the French government understood would come with the transaction of FOSTER taking over. on these office. Two, absolutely. I mean, you know, we are regrouping. We're going to look at what other strategies we have. I think, you know, we need to focus on the business fundamentals. Close to $500 million backlog is still very solid and stable for us. We have a lot of opportunities in the pipeline for bids. So, you know, our strategy is going to focus around refocusing our attention on the business, the execution, and, you know, some of the opportunities we have there. Three, share buyback, you know, subject to board approvals and looking at the different options, I think, you know, everything will and could be considered. At this time, however, we have nothing to confirm or to communicate that that is an immediate plan, bearing in mind that the announcement of the transaction being refused was just yesterday.
spk03: Mm-hmm. But I gather the... Could you just give us some color on how big the... French operations are so go, I know they'll own 75%, and correct me if I'm wrong, and the family or the employees own the other 25% or the founder. So was it strictly that operation that was the objection and how big of a division or subsidiary is that in the scheme of the whole company?
spk01: Yeah, so first on the CIGO minority interest, as part of our subsequent event notes in the financial statements, you'll see that we repurchased the 25% minority stake. So that transaction was closed post Q2 closing. So Valant is now 100% equity owner of the CIGO business. Two, if you look on the investor presentation, You'll see that the French business in total, you know, represents a quarter to 30% of the overall business of Bellarmine Inc. And that fluctuates from quarter to quarter depending on the timing of delivery. So it's about 25% to 30% when you look at the total value.
spk03: Of the top line? Top line, yeah. All right, okay. And so, what was the purchase price of the 25%? What sort of multiple was paid on that?
spk01: So, if you recall, it was not multiple-based. It was based on an agreement in place on the acquisition of Siggo by Verlaine, and it was equity movements or book value movements that gave a total purchase price of the 25% to about €4.6 million, I believe. So, the valuation on Siggo based on
spk03: So it wasn't based really on results?
spk01: Well, I mean, the equity value moved through historical results, yes, but future multiples and all that were not.
spk03: Okay. And when was that buyout complete exactly?
spk01: I believe it was September 10th or 18th. Yeah. We had announced it in Q1 as a subsequent event that the option was exercised, the put option was exercised. for us to buy back the stake, and it was closed basically 15 days ago, so from the 18th of September.
spk03: Right, okay. So was that, you know, option exercised in the context of trying to get a deal done?
spk01: No, I think it's unrelated.
spk03: Sorry? Unrelated. Unrelated, okay. And did you disclose the price or the amount for the 25%?
spk01: Yeah, it's in the notes. It's in the subsequent event notes to our financials. I think it's all the way at the end.
spk03: It's actually right at note 20 or something like that. All right. So, but I gather the French government has no objection to the fellow who's still controlling it. It was more an American thing, if I understood correctly.
spk01: Yeah, again, we control SAS, we control SIGO, closer of application was what was rejected.
spk03: There were rumors at one point that private equity was looking at buying CIGO. Is there an attempt to sell it on a separate basis to the highest bidder? It obviously would have to be a French company.
spk01: I don't think we're there yet. Like we discussed just earlier, when we look at the strategy for growth and maximizing value, So anything can come back on the table or present itself on the table. I won't comment.
spk03: Right, right. So I gather the emphasis is obviously a focus on continuing to improve the operations and the margins, et cetera, et cetera, and also possibly look at other ways of maximizing shareholder value should they present themselves.
spk01: Yeah, and one thing on that is when you go through a due diligence process as comprehensive as we did,
spk03: Right, right, okay. All right, thank you very much. Thank you.
spk00: Thank you. Once again, as another reminder, if you'd like to ask any questions or have any comments, you may do so now by pressing the 1 for Weather 4 on your telephone keypad. We have a number of questions on the line, so thank you very much. That does conclude the conference call for today. We thank you for your participation. We ask you to please disconnect your lines and have a great day, everyone.
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