AGM 2020

Jul 9, 2020

Slides

Good afternoon, ladies and gentlemen, and welcome to the twenty twenty Annual Meeting of Shareholders of Vellin Incorporated. My name is Tom Vellen, and I will preside as chair of this annual meeting. It is my pleasure to welcome shareholders and others to this meeting. As you are aware, today's meeting is being held virtually. Although we are disappointed that we can't see each of you today, we adopted this approach to mitigate the risks to our shareholders, management, employees, and other stakeholders given the global COVID nineteen pandemic. This format allows registered shareholders and duly appointed proxy holders an equal opportunity to participate, ask questions, and vote regardless of physical location, which would otherwise be impossible in these unprecedented time. I now formally call the meeting to order in accordance with the bylaws of the corporation. We intend that the meeting be conducted efficiently and effectively, and I would ask for your cooperation in this regard. Instructions on how to ask questions and the voting procedure will appear on your screens. As with any new technology, unexpected glitches may occur, but our service providers for this platform at Lumi are very experienced at running this type of meeting and will help us out. As we move through our agenda to consider each formal item of business, I will give registered shareholders, appointed proxy holders, and guests an opportunity to ask questions. If you have a question, you may type it in the message section identified by the message icon on the top portion of your screen that will be present throughout the meeting. When entering your questions, we ask that you state your question as clearly as possible and specify the item of business that your question relates to so that we can ensure it is considered and addressed. During the formal business of the meeting, your question should be limited to the specific motion or item of business before the meeting at that time. All proper questions that are relevant to the item of business being discussed will be read out loud by John Ball and responded to while that item of business is before the meeting. Today's votes will be conducted by a poll. Every shareholder entitled to vote on the matter has one vote in respect of each share held by that shareholder. Shareholders who voted in advance of the meeting do not need to complete the ballot or take any further steps to cast their vote unless they wish to change their vote. If you do vote by ballot at today's meeting, then that will automatically revoke your prior vote or any prior proxy granted. On behalf of the board, I wish to express thanks to those shareholders who submitted their proxies in advance. Please note that only registered shareholders who held shares on 06/05/2020, which is the record date for the meeting, or validly appointed proxy holders are entitled to vote at this meeting. If you are not a registered shareholder or a duly appointed proxy holder, you are attending this meeting as a guest. Guests will be able to listen to the meeting and to ask questions, but not to vote during the formal part of the meeting. The poll for the election of directors will be open until we proceed to the following item of business on our agenda, the appointment of the auditor. Polls for the remaining items of business will then be open until the end of the formal portion of this meeting. I will provide results of voting at the end of the meeting based on information provided by our scrutineers. The final voting results will be released after the meeting in accordance with our usual practices, applicable laws, and stock exchange requirements, and will be available under our profile on SEDAR. We will now proceed with the formal business of the meeting. With the consent of the meeting, I appoint AST Trust Company acting through its representatives, mister Geli and mister Karakezi, to act as scrutineers of the meeting. The scrutineer has reported in its preliminary report on attendance that the aggregate number of shares represented in person or by proxy at this meeting is 18,468,540 shares or 96.28% of the total voting rights attached to the issued and outstanding shares of the corporation. A final scrutineer's report on attendance and voting will be filed with the records of this meeting. There are a number of items of business to be presented to the meeting. These matters were set out in the notice of meeting and the management information circular mailed to all shareholders. You will be asked today to: Receive the consolidated financial statements of the corporation for the financial year ended 02/29/2020, together with the auditor's report. Number two, elect the directors. Number three, appoint the external auditor and authorize the directors to set the external auditor's compensation. Four, ratify and confirm the resolution approving the unallocated options under the company's option plan. Five, adopt a resolution ratifying, confirming, and approving certain amendments to the company's bylaws. And six, transact such other business if any as may properly come before the meeting or any adjournment or postponement of the meeting. May the secretary confirm that proper notice of the meeting has been given? Yes, Mr. Chairman. Notice the meeting was given in accordance with the corporation's bylaws. The notice of meeting and management information circular were mailed to shareholders on the June 2020. And I am tabling an affidavit of mailing from the secretary of the corporation confirming mailing. I've been advised by the scrutineer that we have a quorum. I'll table the final scrutineer's report on attendance and voting once it is ready. Thank you. I'll ask the secretary of the meeting to read the text of the notice unless a motion is made to dispense him from doing so. Mister chairman, I so move. Does anyone second the motion? Mister chairman, I so move. I now declare this meeting to be properly constituted for the transaction of business. The next item of business is the presentation of our 2020 audited consolidated financial statements together with the auditor's report thereon. A copy of the 2020 annual report, which contains the audited consolidated financial statements and the auditor's report for the year ended 02/29/2020, has been mailed to each registered or beneficial shareholder who requested a copy. The board of directors has approved these financial statements, and the secretary will now table the annual report. The next item of business is the election of directors. The board has decided that eight directors will be elected at this meeting and has proposed eight nominees. Each proposed nominee's biography is included in the circular. I now declare the meeting open for nomination. May I have a nomination for the nominees proposed to be nominated by the board and by Vellin Holding? Mr. Chairman, I propose the following eight persons to act as directors of the corporation, Tom Vellen, Robert Vellen, Ivan Vellen, William Sheffield, Jacques Lautandres, Yves Lejuezuk, James Manabak, Dara Gronovsky, and move that they be elected directors to hold office until the next annual meeting of shareholders or until their successors are duly elected or appointed. Thank you. May I have a seconder? Mr. Chairman, I second the motion. Thank you. Are there any other shareholders wishing to make nominations for election as director? Come here. Declare the nominations closed. Is there any discussion on the matter? As a reminder, if you have a question relating to the motion nominating each of the directors, please type it in now. If there is no discussion, I now call for a vote on the motion. Please submit your vote on the Lumi platform. The poll for the election of directors will close in one minute. Thank you for voting. The next item on the agenda is the reappointment of the auditor for the ensuing year and the determination of the auditor's remuneration. May I have a motion with respect to the appointment of the auditor? Mister chairman, I move that the PricewaterhouseCoopers partnership of charter professional accountants be reappointed as auditors of the corporation until the next annual meeting of shareholders and that direct the directors be authorized to fix their compensation. Thank you. May I have a seconder? Mister chairman, I second the motion. Thank you. Is there any discussion on the matter? If you have any questions, please submit them now. If there's no discussion, I now call for a vote on the motion. Please submit your vote now. Thank you for voting. The next item of business is the approval of unallocated options under the option plan. The resolution set forth was included as schedule a to the notice of meeting. May I have a motion with respect to the resolution to approve the unallocated options under the option plan? Mister chairman, I move that the resolution approving the unallocated options under the option plan be ratified and confirmed. Thank you. May I have a seconder? Mister chairman, I second the motion. Thank you. Is there any discussion on the matter? If you have any questions, please submit them now. If there is no discussion, I now call for a vote on the motion. Please submit your vote now. Thank you for voting. The next item of business is the ratification, confirmation, and approval of amendments to the bylaws of the corporation. The resolution containing the proposed changes was included in the notice of meeting. The amendments allow the corporation to hold annual meetings entirely by telephonic, electronic, or other communication facility such as we are doing today. May I have a motion with respect to the amendments to the bylaws? Mister chairman, I move that the resolution ratifying, confirming, and approving amendments to the bylaws of the corporation be adopted. Thank you. May I have a second? Mister chairman, I second the motion. Thank you. Is there any discussion on the matter? If you have any questions, please submit them now. If there's no discussion, I now call for a vote on the motion. Please submit your vote now. This concludes the formal business of the meeting. Polls for all the items of business other than the election of directors will now close. Following the CEO's address, the Scrutineer will have completed its tally of the votes and will present the result. I would now propose to ask our CEO, Yves LeDuc, to provide an overview of our corporation's business since the beginning of the last fiscal year. Thank you, Tom, and thank you for all of you shareholders and guests attending this first virtual meeting in the history of the company. I will be speaking both in French and English and be presenting you shorter a version of a presentation that will be uploaded on our website next week. So you'll have an opportunity to go into further detail of a summary of what was a very exciting, intensive, and, filled year. I would say it's a milestone year, and we can start right away with the presentation with the first slide, please. So, 2020 is the seventieth anniversary of the company. And as we deployed V20 over the year, the benefits starting to come up, and we were able to deliver improved adjusted results, despite a very slow start. If you remember a year ago, we had a very difficult Q1 to report. Once again, our operations stood out. And I was saying to a colleague of mine in February, while I was seeing blue skies after a few years of difficult industry environment, and then suddenly, we were hit by COVID-nineteen. So I would say that we reacted, as you'll see, very swiftly to COVID nineteen, but we also have the benefits of a company that is in transformation right now and going in the right direction. And as a result of the moves that were made in the last year or two, we're, prepared for this economic shock. We're much more resilient and much more agile than we were before. So what I suggest is to jump into it with the next slide, please. This is our Chairman, Tom Vellen, addressing our shareholders, in our annual report and starting by mentioning that we are celebrating our seventieth anniversary. I think the history of the company, is a fantastic story of an entrepreneur immigrating to Quebec, and building a global company that has had a footprint now in every market of the, of the world. If we move to the next slide, a recent article in Valve World magazine has been written up with, lots of pictures. And Tom talks, extremely eloquently of what made the company such a success. We've developed products, for critical services. We've had strategic alliances with very prestigious organizations. And, we are relied upon as a supplier of valves for very, very difficult applications. Next slide, please. Significant changes in the business model came with also notable changes in our group of leaders. Business. Next slide, please. So let's talk about fiscal 'twenty. Our results were, if you can go to the next slide, announced back in May. I'll talk about, fiscal twenty twenty, although the world and most of our guests and shareholders listening in know what the year looked like, but and then talk briefly about our Q1 results. So in terms of sales, basically flat with fiscal 'nineteen, just a little higher, 1.3%. And you see that our bookings and backlog has also remained fairly steady. Next slide, please. In terms of how our sales balance across regions are actually quite balanced, and the geographic balance is actually also mirrored by a very balanced business portfolio. And I'll be saying a few words about the five strategic businesses that we operate. But as you see, The US remain a very strong market for us. Canada remains fairly, small at 10% compared to what it was, five, six years ago when the price of oil was in a hundred and twenty five, and Western Canada, was very, very dynamic market for us at the time. Now it's a it's a lot more stable around 10%, but you see that we're very strong in Europe and in Southeast Asia. We're benefiting from excellent bookings, record bookings from our Italian. Shortly interrupted. So I was talking about our balanced portfolio and balanced business across several geographies. Next slide, please. Results look like this. If you look at the blue bar, these are our net earnings, but the 2020 net earnings were affected by noncash tax adjustments of 8,200,000 and also the money spent in driving our v 20 efforts. If you look at the orange bar, you see that on that adjusted basis, we're driving for three straight years, quite notable improvements in our performance that are explained largely by reduced administration costs. We're reducing our overhead. We're improving our margins. And also, the benefits of V 20, which I'll be talking about, are kicking in. Next slide, please. This is our global footprint. If you click one more step, you'll see that Plant 27, which was announced a year ago to be the plant we've decided to close to consolidate our activities in the three remaining North American plants. The fact the matter is that we're ahead of our plan, and we'll be able to shut down operations in Plant 27 several months before, it was planned. And that also and, obviously, will bring additional overhead reduction benefits earlier than planned. So we're going to have a very strong global footprint, and that move obviously allows us to maximize our remaining capacity in North America. And I'll be talking about our manufacturing strategy going forward in a few minutes. Next slide, please. Total equity of $284,000,000 that's the equivalent of $18.13 per share. And I want to point out here that trading at less than USD 6, Canadian, we believe that our stock is significantly undervalued. Total assets, net cash, total long term debt, cash evolved nicely this year because of our efforts in managing cash from operations. Next slide. Next slide, please. If you look at our bookings, you see that they've gone down, after a good surge at the end of last year, in the last few months. But that is largely due to the fact that we're seeing, one of our five strategic business areas hit, quite hardly by, the current crisis. Distributors are ordering far fewer valves right now. In fact, they're they're not stocking up, in anticipation of a crisis that might go on, and the oil oil price driving that crisis being very low still. So you're seeing the MRO business has actually been on a steady decline for the last few months, and that has that's a big part of our business, and that that has influenced the trend, the global trend that you're seeing. But the truth of the matter is that we have areas of our business, namely nuclear, severe service, project manufacturing, which are still seeing healthy booking activities, and that's a reflection of what I referred to earlier as a very healthy, resilient, balanced business portfolio. Moving on, please. We've taken a lot of actions to strengthen our balance sheet. We have a cash action plan. The V20 initiative is driving a lot of, margin improvements, and reduction of costs. And the latest news, that we confirmed on Monday is the securing of a $22,500,000, asset mortgage loan from BDC, plus an extended line of credit of $65,000,000 to finance our working capital. We, believe we will not have to draw on, that facility to its maximum extent. But the good news is we have it now, and that provides us with a lot of resilience in, in the face of, an uncertain, economic environment. Moving on, please. Our response to COVID nine, 19, I'm quite proud of, if you move to the next slide, of how the whole organization reacted. And it's remarkable to see that our global footprint almost matches the itinerary of, the virus with a plant in China, two in Korea, two in Northern Italy one in Northern Italy, and we're in France. Northern Italy, as I said, Portugal, I mentioned, India, three plants in Canada, one in The US. So, the good news, if you move to the next slide, is that we've been seeing the crisis come probably earlier than most companies and that, as a result, we're able to react extremely swiftly, deploying and allowing work from home for pretty much every staff employee in the company and continue our operations with the strict necessary personnel in in the plants, establishing, social distancing, sanitary measures. There's no book that was written on how to manage manufacturing operations in the midst of a pandemic. So I think we're we're learning very fast, and we've been quite fortunate so far, probably as a result of a bit of luck, but also all the good actions that, we've implemented of having had no infections yet in our operations. So that's we're knocking on wood, but I'm very proud of how fast we were able to react. We've kept in touch with our employees. I hold a weekly video with all of our employees with Bruno stepping in, here and then. So we're in touch with our employees. We're getting feedback from them. We're tracking their mood, their, and how they face from, from their home when when they're working from home, the difficult environment. And overall, I think we're faring very well. And as a result of all that, we've been able to manage, our our supply chain by mitigating the impact of the lockdown in India, and the travel restrictions, obviously. So overall, I I would say, and if you can see from the next two slides, pictures of a very dynamic company, stepping up and reacting to a very, very difficult crisis. You see a picture of me on the top left side. That's my weekly video recorded from home. China, sent out our Chinese operations sent out masks to the rest of our operations that we've been given to local, hospitals. On the next slide, you can see that, the distribution of a the land logo mask, made some kids very happy and some families here in Quebec. And, you can see that that we've written up the protocols and, deployed them across, across our plants worldwide. And we have a sharing of best practices that has never reached a level like that and levels of cooperation, which I think help us manage through this crisis. We can move on, please. Slide. The next slide. Increase the focus on our customers. What what did we do here? This is really about reorganizing around five strategic businesses. Two of them already existed, namely France, Nuclear and Upstream, Midstream for Italy. And our North American operations were were reorganized around project manufacturing, severe service and MRO. As a result of that, there's a lot more focus on market development on the end user customer. We've seen, in the course of the last eighteen months, our severe service and project manufacturing bookings go up quite nicely. Under the leadership of Rob Velen, MRO is opening new channels in Europe. Italy, as I said, recorded the highest bookings ever last year. That's the result of two, three years of really changing the way they attack the market. And the nuclear, business, led by our French operations, is bolstering its market leadership. The second, lever was the reorganizing of our manufacturing footprint. What we did there is basically, planned on closing one of our four plants and making the three remaining North American plants more specialized manufacturing centers. So Granby is gonna be focusing on multi turn valves. It becomes a center of gravity for the project manufacturing business. Montreal Plant 15 will be focusing on quarter turn valves and will become the core of our severe service, business. We're closing Plant 27. Will Williston becomes a center of excellence for nuclear and navy valves, but it will also be producing multi turn valves, to complement the Granby's. India, Portugal, Korea, Taiwan will be producing an increasing share of our commodity valves as we transfer a lot of the small forge valves to India. And the China plant is actually now being leveraged by the Italian business and becomes a low cost API six d, valve manufacturer as well for upstream, midstream business. Leaner, faster production model, what that mean is means that we're reducing our dependency on in house machining, and we're creating production cells, and we're keeping in house only what is strategic machining, leveraging, an existing global supplier network where we're asking them to take on more premachining. That's going on very well. We're on track here. Other words, we're making our business, simpler to manage, and and more focused. And don't forget that we're having more specialized manufacturing centers, and that basically will help create a model that is a lot, more agile. The fourth lever is transferring our commodity products to lower cost sites. So India is taking a much greater share and will be growing as a result of getting the smaller, valves we're producing here, small forged valves, and that's on track as well. And the last one, and I would move to the next slide, modernizing our systems and processes, you have our Valen business function map that we've set out two, three years ago. And against that function map, we've identified systems starting with our the redeployment of a renewed ERP system three years ago, VPM, IPPC, CPQ, lots of acronyms, and I can go on, but they all have to do with supporting important critical functions and processes in our company. VPM is the land project management, and we are seeing dramatic improvements in delivery performance, and they're being noticed by our customers. So the modernizing of our processes did not start a year ago. It was really three years ago, but it is part of V 20 transformation. Next slide, please. So just quickly, key market highlights. On the uploaded version of this presentation, you'll see a lot more details. But if I can steam through and go through each of our five strategic businesses, MRO aftermarket, project, severe service and navy, as you can see here, and then nuclear and special applications with manufacturing centers being not only in France, but also Williston, and the upstream, midstream oil and gas business, that's centered in Italy. So let's start with the project business. I'll give you one example of a major breakthrough. We're back in power, I would say, because, we had lost a bit of steam, no pun intended, in, the power business. You can move on to the next slide. Florida Power and Light. So that $157,000,000 dollars is actually the value of a contract that we have to supply them with valves and support them in their maintenance efforts. That's a really interesting breakthrough because the valves we will supply to Florida Power and Light will actually replace also, competitors' valves. Next on. So severe service and navy, lots of movement happening there to begin with. If you can click, we're maintaining our strong position, in coker ball valves in refinery. That's the decoking sector of, refineries, and we're getting a lot of orders and, very well established in China. As you can see, I can come up with a number of other examples. The point is that coker, which is one of our flagships, is, is still doing well with the severe service business, but we're also growing in other severe service sectors. Next slide. So that's a great breakthrough, and you can move on. And I wanna talk about the Navy surge. So the last three, four years, the US government has decided to renew its, fleet of aircraft carriers, and, we're getting a very significant influx of new orders there. But this one is actually interesting because, this is a new product that, was supplied, by a competitor of ours, and that's we were told by the Navy that's the result of we being able to earn their trust in the last few years investing in project management systems that I alluded to earlier. Next slide, please. Nuclear, and I'll move on. So you have here, the example of a very well established French operation, in the nuclear, sector in China. So CGN is the operator, on behalf of the Chinese government. And so we've got a lot of orders in the last few years, from China for French operations. Move on to the next slide. Next slide. And here is the last nuclear submarine. It's the first of a series of six new generation nuclear attack submarines, and it was did its inaugurating navigation earlier this year. It contains a lot of valves produced by our two French subs. So that was an interesting, moment that made our French, colleagues very proud. Moving on to upstream, midstream. So, one of the reasons why ABB has been such such so successful last year is that they've been able to carve themselves a very strong niche in the FPSO market, floating, production, storage, and offloading. That's what it means. So, basically, these are boats that move and do the exploration from, the top of, from, from the sea the sea the surface of the sea. And we've got from a customer there significant orders, and this is one example. If you move on to the next page, it only not only covers ball valves where we have a center of excellence in Italy, but also axial, no slam, check nozzle valves. They look beautiful. And we've earned their trust in that new technology as well. Next slide, please. Next slide, please. Another example we've just introduced that's just, fresh out of the oven, a new, butterfly, valve from our TorxSeal family. We call it a TorxSeal two point zero. What you need to focus on on the drawing, you see the number one, there. That's a stem disc spline design on which the disc is fixed, and that design allows for a much more homogeneous distribution of the pressure from the disc to the ceiling, the gas the the the seat, which allows for a much more robust and leak leak proof ceiling. So that's been well recognized by the initial wave of customers we're after, and we're gonna be getting orders in the next few weeks as we're launching this product. This one this is a product intro one of the first, self generated product introduction in a few years, in the last few years, and, we expect to generate a lot of generic growth with more news of the sort that are coming out. So this concludes. I'm now ready to conclude and move on to the my my next page. If I summarize, my message, you may have heard a positive edge to my presentation. That's because a lot of good things are happening. But the, depth and, uncertainty of the crisis that's hitting the global economy right now is not lost at all on on the board. We're very, very conscious that, we're going into we've entered a very difficult, period. We don't know how long this is gonna last. We have the strength of a very balanced portfolio, and the combination of our actions have, made us ready to confront with the storm. We have a stronger balance sheet, as I said, and we're more resilient, thanks to the actions taken in the last couple of years. And who knows? This industry is going to go through, for sure, lots of reshaping. You're seeing it in every industry, and we wanna be ready to capture the opportunities that this may, bring. So my last word go goes to, our employees. There's a lot of disruption ahead of us, probably, but there's been a lot of change also internally in the last two years. I'm very proud of how our employees have, reacted, and they've proven their capacity to handle enormous change. So their resolve, inspires all of us. Thanks for your attention. Thank you, Yves, for an excellent review of the last year, and also thank you for your strong leadership during the COVID pandemic crisis and through the v twenty transformation. The scrutineer has presented the report and advises that all resolutions have been approved by at least a majority of votes cast at the meeting in person or by proxy as required. Accordingly, I declare that all resolutions have been carried. The final voting results will be released after the meeting in the usual format and will be available under our profile on SEDAR. Are there any questions now? We're taking a pause of one minute now to receive any questions that there might be. So you can enter them in writing on the Lumi site. Okay. Well, we didn't get any questions. I guess the presentation was self explanatory. So, anyway, thank you for your participation. May I now have a motion to conclude the meeting? Mister chairman, I move that the meeting be concluded. Thank you. May I have a seconder? Mister chairman, I second the motion. Thank you. Absent any objection, I declare the motion carried and the meeting terminated. Once again, I would like to thank everyone for their participation in this virtual meeting. Until next year. Thank you.