Mr. Bruno Carbonaro reports

VELAN INC. REPORTS SOLID FOURTH QUARTER FINANCIAL RESULTS TO CLOSE FISCAL YEAR 2022/23

Velan Inc. has released its financial results for its fiscal year and fourth quarter ended Feb. 28, 2023. Dollar amounts are in U.S. dollars unless otherwise stated.

Highlights:

• On Feb. 10, 2023, Flowserve Corp., a leading provider of flow control products and services for the global infrastructure markets, and Velan announced that they have entered into a definitive agreement under which Flowserve will acquire Velan in an all-cash transaction valued at approximately $245-million ($329-million (Canadian)). The resolution relating to the transaction was approved by 99.99 per cent of the votes cast by all Velan shareholders.
• Sales for the quarter amounted to $115.1-million, a decrease of 9.7-million or 7.8 per cent compared with last year. The decrease in sales is primarily due to an $8.8-million reduction in the prior fiscal year of the company's provision for performance guarantees.
• Gross profit for the quarter was $39.9-million, a decrease of $7.8-million or 16.3 per cent from the previous year. The gross profit percentage for the quarter decreased by 350 basis points from 38.2 per cent to 34.7 per cent. The gross profit decrease is mainly due to the sales decrease.
• Throughout the last several years, the asbestos-related costs have shown an increasing trend. Following additional information obtained during the strategic review process and throughout the fourth quarter of the fiscal year, the company's management was able to estimate the impact of future unknown asbestos settlement costs. The result of this evaluation led to a non-recurring charge of $56.0-million to increase the company's asbestos provision. It is important to note that the asbestos provision does not provide for legal-related costs for defence.
• Net loss of $47.2-million for the quarter compared with $25.6-million last year. Adjusted net income was $8.8-million before a $56.0-million charge to increase the company's asbestos provision to reflect the potential settlement value of future unknown claims based on actuarial study.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $16.4-million for the quarter, a slight decrease of $100,000 or 0.7 per cent. The slight decrease in adjusted EBITDA for the quarter is primarily attributable to the previously explained decrease in gross profit, higher other expense and a $4.6-million non-recurring gain, after minority interests, on the disposal of the company's investment in Juwon Steel Co. Ltd. in the fourth quarter of the prior fiscal year. These negative movements were largely offset by a reduction in administration costs excluding the $56.0-million adjustment to the asbestos provision. It is important to note that the asbestos provision does not provide for legal-related costs for defence.
• Net new orders were $87.1-million for the quarter, an increase of $1.0-million or 13.0 per cent compared with the previous fiscal quarter.
• Order backlog was $464.3-million at the end of the fiscal year, of which 66.3 per cent of orders are deliverable within the next 12 months. Prior-year order backlog totalled $501.2-million and included 64.2 per cent of orders deliverable in the next 12 months. The weakening of the euro spot rate against the U.S. dollar since the beginning of the fiscal year represented $17.3-million of the decrease.
• During the quarter, the company generated $20.9-million of net cash primarily through its operating activities. The company's net cash amounted to $50.3-million at the end of the quarter, a decrease of $3.2-million or 6.0 per cent compared with the previous fiscal year. The overall available liquidity remains strong with $140.9-million of available cash on hand and facilities.
• The board declared an eligible quarterly dividend of three Canadian cents per share, payable on June 30, 2023, to all shareholders of record as at June 16, 2023.

Bruno Carbonaro, chief executive officer and president of Velan, said: "Fiscal 2023 was challenging as we faced various problems in terms of logistics and operations, especially in the first quarter, which impacted the delivery of several significant orders. We were, however, able to prudently manage the business while facing these headwinds and improve our results gradually as the year progressed. We reported a significant net loss this year due to an important increase of our asbestos provision that now provides for all estimated future settlement costs. Addressing these costs head on remains a top priority. Nevertheless, in the end, we were able to report an adjusted net income, as well as an adjusted EBITDA, the second highest since fiscal 2017. We continue to preserve our net cash, by managing diligently our working capital, as our overall liquidity remains solid. We also feel confident as we foresee a large opportunity base for future bookings. Finally, we will continue to work with Flowserve in order to ensure a successful closing of the transaction announced earlier this year in February."

Dividend

The board declared an eligible quarterly dividend of three Canadian cents per share, payable on June 30, 2023, to all shareholders of record as at June 16, 2023.

Conference call

Financial analysts, shareholders and other interested individuals are invited to attend the fourth quarter conference call to be held on Thursday, May 18, 2023, at 12 p.m. EDT. The toll-free call-in number is 1-800-954-0633, access code 22026910. The material that will be referenced during the conference call will be made available shortly before the event on the company's website under the investor relations section. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 22026910.

About Velan Inc.

Founded in Montreal in 1950, Velan is one of the world's leading manufacturers of industrial valves, with sales of $370.4-million in its last reported fiscal year. The company employs approximately 1,650 people and has manufacturing plants in nine countries. Velan is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

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