Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Velan Q4 and full year 2025 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.
If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the two. Thank you. This call is being recorded today on May 22nd, 2025. I will now hand the conference over to your host today, Mr. Rishi Sharma, Chief Financial Officer. You may begin your conference.
Thank you, Operator. Bonjour, good morning, and thank you for joining us for our conference call. Let's start by discussing the disclaimer from our related IR presentation, which is available on our website in the Investor Relations section. As usual, the first section mentions that the presentation provides an analysis of our consolidated results for the fourth quarter and fiscal year ended February 28, 2025.
The Board of Directors approved these results yesterday, May 21, 2025. The second paragraph refers to non-IFRS and supplementary financial measures, which are defined and reconciled at the end of the presentation. The last paragraph covers forward-looking information, which is subject to risks and uncertainties that are not guaranteed to occur.
Forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Finally, unless indicated otherwise, all amounts are expressed in $ and all financial metrics discussed are from continuing operations. I would now like to turn the call over to Mr. James Mannebach, Chairman of the Board and CEO of Velan.
Thank you, Rishi. Good morning, good evening, good afternoon to everyone. Fiscal 2025 proved to be a vintage year for Velan, marked by strong profitable growth and key strategic initiatives that unlock significant shareholder value. From a financial standpoint, we achieved our objective of closing fiscal 2025 with sales of $295 million, up 14.1% over the prior year, while our gross profit improved by 770 basis points to 28.8%.
We generated adjusted EBITDA of $27.5 million, up sharply from $2.1 million a year ago. Importantly, we more than doubled our cash flow from operating activities to $26.5 million. From an operations perspective, the announced sale of our French subsidiaries and divestiture of asbestos-related liabilities represent key highlights. These strategic initiatives, which closed after the fiscal year-end, have strengthened our financial position and reduced substantially our risk profile.
First, we reached an agreement with Framatome for the sale of all of our French subsidiaries, Velan France and Cigal, for a total consideration of $208 million, including $184 million in cash. We expect to record a gain of approximately $96 million on this transaction in the first quarter of fiscal 2026, and under a favorable tax basis, the transaction will result in no tax consequences.
S econd, we closed an agreement with an affiliate of Global Risk Capital for the divestiture of our asbestos-related liabilities for $143 million. This transaction permanently removed all asbestos-related liabilities and obligations from our books and will indemnify us for legacy charges into the future.
Under existing accounting standards, we had to record charges totaling $100 million for the divestiture of the asbestos-related liabilities and all costs related to both transactions in the current fiscal year, whereas the gain on the sale of the French assets will, as noted, be recorded in the upcoming first quarter. In short, we have emerged after the closing of these two transactions with a sharper focus and stronger balance sheet.
V elan remains a global leader in the flow control industry, supported by a strong brand and an enviable reputation for designing custom-made solutions for very complex applications. Our activities will continue to benefit from strong momentum in nuclear energy, which is undergoing a multi-year growth cycle, while remaining firmly entrenched in other industrial markets that value our know-how and quality.
As for our balance sheet, net proceeds from the closing of these two transactions enabled us to raise our cash position to approximately $55 million on a pro forma basis. Given the solid financial position and mindful of our commitment of returning funds to shareholders, the Board of Directors yesterday approved the payment of a special dividend of CAD 0.30 per share, reflecting confidence in our outlook going forward.
This amount will be in addition to our regular dividend payment of CAD 0.03 per share. Moving to our fourth quarter results on slide five, sales increased nearly 3% year over year to $83.2 million, despite the volatile economic environment and uncertain trade disruptions looming over customers worldwide, largely driven by the tariff developments in the United States. Meanwhile, adjusted EBITDA was $3.6 million in the fourth quarter, down from last year, due in part to lower gross profit margin at mix.
Rishi will provide you with more details in his financial review. Shifting to targeted high-growth markets on slide six, Velan is poised to reach new heights by leveraging its proven strengths. We've been actively involved in the nuclear market for more than 55 years. We are well-positioned to take advantage of a dynamic sector brimming with new opportunities.
For example, several technology companies who are rolling out AI centers on a global basis have joined forces with either established energy providers or startups to deploy nuclear energy through emerging small modular reactor or SMR technologies, while other projects call for recommissioning of existing infrastructure. This is where Velan comes into play. Our recent signing of partnerships with leading actors in nuclear energy, such as Bruce Power, GE Hitachi, Westinghouse, and CANDU, bodes well for our proprietary valves on a long-term basis, as our know-how spans both SMRs and standard reactors.
Additionally, our large installed base of valves at existing reactors holds much promise through life extension projects, as well as maintenance, repair, and overhaul activities. As a result, we expect an acceleration in nuclear orders over the next few years. This surge may alter our backlog profile, with a larger proportion of our orders to be delivered over an extended period.
The sheer size of these deals and margin profiles that reflect greater complexity will benefit our business for many years to come. Turning to slide seven, on the defense side, we expect a gain from heightened spending worldwide as sovereign states address national security concerns. Our deep knowledge of nuclear, marine, and aircraft carrier propulsion technologies remains unmatched, especially when valves are subject to greater stress and harsher conditions at sea, all within a greatly reduced available footprint.
We also offer the most complete technically advanced product line for applications at extreme temperatures. This includes valves designed for extremely low temperatures in liquefied natural gas applications, the cleanest of fossil fuels, as well as for hydrogen processed operating at high temperature. These are growth sectors for Velan, driven by efforts to safeguard the environment.
In oil and gas, we boast a 90% market penetration at refineries in North America and an expanding presence overseas. Supplying the most reliable engineered valves and steam traps represents a key differentiator for Velan, as customers worldwide seek lower emissions and better safety. In addition, and importantly, our vast installed base provides significant opportunities for MRO activities and spare parts.
For instance, we recently established a joint venture in Saudi Arabia to further strengthen our presence in the Middle East, the largest market for oil field valves, and early wins validate the significant potential of our investment, as do our growing order quotation backlog. Finally, we have built a strong presence in mining regions experiencing robust activity such as Southeast Asia, Australia, and South America. We notably see tremendous potential for our expanding titanium valve line that can withstand highly corrosive environments.
Turning to my summary on slide eight, Velan delivered an outstanding performance in fiscal 2025, both from a financial and operational point of view. The company is very well positioned to benefit from increased demand for energy, which should drive momentum for clean sources, and most particularly nuclear, where our solid reputation is firmly entrenched in other industrial markets around the world.
While a portion of our business is exposed to tariffs, particularly some products imported into the U.S., we are well underway to execute plans designed to further optimize our global production capabilities and are evaluating alternative sources for raw materials and components as we work with suppliers to ensure we maintain a strong competitive position. As we celebrate our 75th anniversary, Velan enters fiscal 2026 with a sharper focus and improved balance sheet.
We've significantly improved our market cap by approximately CAD 250,000,000 in 2025, behind strong results, the sale of our French subsidiaries, and the divestiture of asbestos-related liabilities. Consequently, we are highly optimistic that we can further unlock shareholder value in 2026 and beyond through our continued strong execution. I now turn the call over to Rishi for his financial review.
Thank you, James. Please turn to slide 10. Our order backlog reached $274.9 million at the end of the fourth quarter of 2025, down 3.1% from the beginning of the fiscal year. It should be noted that currency fluctuations had a negative impact of $12.7 million on the value of the backlog during the fiscal year. Excluding FX, we recorded a slight increase in the backlog as increased nuclear orders in North America were partially offset by a decline in oil and gas orders in Italy following strong orders last year.
At year-end, over 82% of the backlog, representing orders of $225.7 million, was deliverable within the next 12 months. As Jim mentioned, over time, we expect a shift in the mix in the backlog due to a heavier concentration of long-term nuclear orders. Bookings totaled $292.5 million in fiscal 2025, up from $288.7 million in fiscal 2024.
Bookings were particularly strong in the year, especially related to the nuclear market and MRO activities in North America, as well as oil and gas bookings reported by our German operations. In the fourth quarter, lower year-over-year bookings of $62 million reflect the timing of orders for our Italian operations due to project delays in the year versus strong oil and gas orders last year and lower bookings in North America.
These were partially offset by increased orders from our Chinese operations. Still, bookings were up sequentially from the third quarter. Turning to our P&L on slide 11, fiscal 2025 sales exceeded $295 million, representing a solid 14.1% increase over the last year, driven by shipments from our Italian operations for the oil and gas industry and higher volume from our German businesses related to oil refineries.
These factors were partially offset by slightly lower sales in North America and other international markets. By customer geographic location, North America remained our principal market in fiscal 2025, accounting for 54% of sales. Asia-Pacific was our second-largest revenue-generating region, with 22% of sales, while Europe was third at 13%.
Fourth quarter sales totaled $83.2 million, up 2.9% from $80.8 million a year ago, essentially reflecting the factors mentioned earlier, as well as lower MRO sales in North America. Turning to slide 12, gross profits for the year increased significantly to $84.9 million, up from $54.6 million last year, while the margin improved by 770 basis points to 28.8%, driven by higher volume and a more favorable product mix this year versus last year.
In the fourth quarter, gross profit was $19.8 million versus $22.4 million last year, resulting from a less favorable mix due to MRO sales that were lower, higher provisions for aging inventory. As a percentage of sales, gross profit was 23.8% in Q4 2025 compared to 27.7% for the same quarter last year. Administration costs were $68.6 million in fiscal 2025, or 23.2% of sales, versus $62.6 million, or 24.2% of sales last year.
The year-over-year increase reflects higher sales commissions due to greater business volume, higher freight costs, higher short-term incentives related to the strong performance in fiscal 2025, and the non-cash impact of a significant increase in our share price on the company's long-term incentive plan. For the same reasons, administration costs totaled $20.3 million, or 24.3% of sales, in Q4 2025 compared to $16.1 million, or 19.9% of sales a year ago.
I would like to point out that the incentive plans had a combined impact of $3.4 million in the fourth quarter of 2025. Excluding these items, the year-over-year increase in administrative costs was less than $1 million. Turning to slide 13, adjusted EBITDA, which excludes restructuring expenses, amounted to $27.5 million in fiscal 2025, up significantly from $2.1 million in 2024, reflecting mainly the increase in gross profit.
In the fourth quarter, adjusted EBITDA was $3.6 million compared to $9.3 million last year due to lower gross profit and higher administrative costs. Adjusted net income totaled $6.6 million in fiscal 2025, marking a strong turnaround from an adjusted net loss of $15.7 million in fiscal 2020. In the fourth quarter, adjusted net loss was $4.9 million compared to adjusted net income of $3.7 million last year, essentially due to lower EBITDA.
Moving to cash flows on slide 14, cash provided by operating activities amounted to $26.5 million in fiscal 2025, up from $12.5 million last year, driven by higher profitability and positive changes in working capital. Our financial position remained solid at year-end, as at February 28, 2025, the company held cash and cash equivalents of $34.9 million.
Long-term debt, including the current portion, amounted to $16.2 million, and bank indebtedness was $2.5 million. As James mentioned, our pro forma cash position following the closing of the two transactions is approximately $55 million. This strong cash position, coupled with continued healthy operating cash flow, will allow us to invest in our operations to support long-term profitable growth and seek strategic acquisitions that will expand reach in our niche markets.
We are also happy that we announced yesterday that we have entered into new credit facilities totaling $35 million to support further growth and ambitions. These facilities will be available over a three-year period. Finally, as noted earlier, we declared a special dividend of CAD 0.30 per share, bringing the total current quarterly dividend to CAD 0.33 per share, payable on June 30, 2025, to shareholders of record on June 16, 2025. I would now like to turn the call back over to the operator for the Q&A session. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Sebastian Charla with Agave Capital. Your line is now open.
Good morning. Thank you for taking my questions.
Good morning. Thank you.
My first question is regarding the gross margins. I know there's noise in the quarter with old inventory, but with the recent French divestiture, is 30% still a fair ballpark to include in our models?
I think it's a good question. I think as we've talked about in past quarters, we have our ABV business in Italy that operates at a bit different profile from the rest of the company in that it's not as completely vertically integrated as the rest of the business.
As ABV grows to a larger percentage of the overall business, now without the French businesses in the mix, I think you might see some basis point reduction in the combined gross margin, the consolidated gross margin for the business. The thing about ABV that's important to recognize too is it operates very leanly in terms of not only its production costs, but also its OpEx.
When we get down to the EBITDA, it's a much more interesting view, as well as its return on total invested capital is quite strong, given that we don't have to buy the requisite machine tools and things of that nature that you'd normally see in a vertically integrated operation. I think for modeling, you can probably look to some basis points lower than what we've reported in the past just because of the mix. Does that answer your question?
Yeah, definitely. Perhaps if I can follow up on this, regarding in North America, USMCA, from my understanding, valves are eligible to the USMCA tariff exemption, but can you comment on if Velan is on track for getting those? I've seen in other manufacturing companies that even though they were eligible, they did not necessarily meet the documentation and processes requirements.
Right. Right. So our business is so USMCA, which I think is what you're referring to.
Oh, yes. Right.
Yeah, is the successor to NAFTA, right? The agreement is still in place. Again, another very good question. The tariffs announced by the Trump administration, at the outset, there was concern that they would not honor, the United States would not honor the agreement, the USMCA agreement. Okay? That would have been a bit more interesting for us, we'll put it that way.
Subsequent to the initial announcements, they confirmed that the provisions and the protections afforded under USMCA compliance would be honored, all right? What that amounted to, and significant, the vast majority of our products that we ship down from Canada into the United States markets are USMCA compliant and therefore are not subject to these additional tariffs, right?
Now, what is also interesting as we've looked at this, though, strangely enough, as all of this focus has come about on tariffs, of course, we're looking at all of our operations to make sure, and I commented on this in the opening remarks, that we're optimizing our global manufacturing footprint. We can shift production and have over years to our advantage from one of our sites, say, in India or Korea or Canada or the United States. We have tremendous flexibility in our production capability.
Again, coming back specifically to your point, USMCA is currently being honored by the United States, and the vast majority of our product shipping from Canada into the U.S. is USMCA compliant and therefore not subject to these additional tariffs.
Perfect. That's super clear. Perhaps the last one for me before I return the cue. Last year, if I remember correctly, I think it was September, you swiftly resolved the situation at the Williston plant regarding labor agreements. I understand the other plants in North America, but also in the rest of the world, probably are on their own timelines. I'm wondering if it's possible to get just a general sense of the upcoming timelines around the network of plants.
Yeah. Let's look internationally first. In Italy, there's the contract, the union contract there. It's a little bit different in the international markets than it is in Canada. Suffice to say, the Italian contract will be resolved sometime in the next couple of months. That's a rough timeline, okay? It's more or less structured by federal mandate. As we look to Canada, our plants here, the contracts will be renewed in the coming months.
We've enjoyed good labor relations with our workers, our union workers here and in Granby for many, many years. In fact, strangely enough, I was just meeting with our union president here this morning. It was just a haphazard meeting. We enjoy the relationship, and we look to a successful outcome, probably over the span of the normal negotiation, last probably through late summer, early fall, something like that.
Got it. Thank you. That's it for me for now, and congrats again on the big closings in the recent months.
Thank you. Appreciate it.
Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Alex Ciarnelli with SM Investors. Your line is now open.
Yes. Hi, good morning. Thank you for taking my question. Sorry if this might have already been asked. I was off the call for a few minutes. I'm just wondering, because of tariffs, because of some talks, let's say the relationship between Canada and the U.S. might not be as good as it was a few months back.
Do you think that this might have an impact on deals, strategic acquisitions between a Canadian company, U.S. company, especially if it deals with strategic sector, or this is on the ground as business as usual? That is the first one. The second question is, as in the press release, you're looking at making strategic acquisition in niche markets. I'm not sure if you could give some more color about those niche markets. Thank you.
Sure. The first question is, well, it depends on how good your crystal ball is. I think your characterization of strained relations between the United States and Canada, in my mind, is something that passes quickly enough. You've got now, or we've got now in Canada, a confirmed political leader that I think has shown early signs of good working relations with the president and the United States.
I don't really see over the long term, as we sit here today, particular concerns in terms of if there were investors in the United States looking to do deals in Canada. Time will tell, of course. I don't see that we would be any more or less subject to scrutiny or whatever if we were looking for deals in the United States than otherwise would have been the case.
As far as strategic investments, one of the things that's quite interesting is with the closing of the two transactions that we announced and the formidable cash reserves that we merged with, as well as the new financing package that Rishi commented on in his remarks, we have a considerable and growing resource base to look at strategic acquisitions.
When we were in the midst of the French divestiture, as well as the divestiture of our asbestos liability, you can imagine that consumed a considerable amount of resources. Throughout, we've been looking, as I've commented on in past calls, at strategic opportunities that can further strengthen our position in the niche markets, the demanding markets that we focus on. That would be the way I see it now. My remarks concerning the political situation between Canada and the United States is as good as anybody else's, I guess.
All right. Thank you. Appreciate it.
Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to James for closing remarks.
Thank you, operator. It's been quite a wrap-up to the prior fiscal year. I wanted, before signing off, to comment on the tremendous efforts put forth by the Velan colleagues to close these two transactions and deliver such a robust year. This was especially true, as you can imagine, of our financial team led by Rishi, an outstanding job by the whole team over the last six, nine months.
It's been an amazing, amazing run. We're very, very excited about the future now, free from distractions, specifically of asbestos. Again, my appreciation and thanks to all the colleagues across Velan worldwide, as well as our shareholders. With no further questions, we'll sign off. We appreciate your interest in our company and your support, of course. Thank you very much, and you guys have a great day. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.