Interim Report to the Shareholders
For the Six Months Ended March 31, 2022
Interim Report to the Shareholders
Interim Report to the Shareholders
For the Six Months Ended March 31, 2022
April 27, 2022 17:15 ET | Source: Exco Technologies Ltd.
TORONTO, April 27, 2022 (GLOBE NEWSWIRE) — Exco Technologies Limited (TSX-XTC, OTCQX-EXCOF) today announced results for its second quarter of fiscal 2022 ended March 31, 2022. In addition, Exco announced a quarterly dividend of $0.105 per common share which will be paid on June 30, 2022 to shareholders of record on June 16, 2022. The dividend is an “eligible dividend” in accordance with the Income Tax Act of Canada.
“Exco’s second quarter results reflect very challenging market conditions, but also demonstrate the strong demand for our various industry-leading products and solutions”, said Darren Kirk, Exco’s President and CEO. “We are taking the necessary actions to ensure our profitability continues to recover while continuing to push ahead with our various growth projects. We expect stronger results in the second half of our fiscal year.”
Consolidated sales for the second quarter ended March 31, 2022 were $119.3 million compared to $118.4 million in the same quarter last year — an increase of $0.9 million, or 1%. Excluding foreign exchange rate fluctuations sales increased 2% during the quarter.
The Automotive Solutions segment reported sales of $68.2 million in the second quarter — a decrease of $1.1 million, or 2% from the prior year quarter. Foreign exchange rate movements decreased segment sales by $1.3 million in the quarter. Excluding foreign exchange rate movements on Exco’s results, segment revenues were unchanged during the quarter. After adjusting for the impact of foreign exchange rate movements, the segment continues to perform well above IHS vehicle production estimates of negative 3% in North America and negative 18% in Europe in the quarter. Industry vehicle production volumes continue to be negatively impacted by supply chain disruptions (particularly the global semiconductor shortage), broad labour availability and logistical constraints. Additional supply chain dislocations have also arisen in Europe since February 2022 due to the Russian invasion of Ukraine. Segment sales were nonetheless supported by ongoing key program launches for both new and existing products, certain pricing actions taken to protect margins and favourable vehicle mix with these trends generally improving through the quarter. Quoting opportunities have also strengthened of late across the segment’s various businesses, which, together with pipeline launches, is expected to support continued gains in Exco’s content per vehicle.
The Casting and Extrusion segment reported sales of $51.1 million for the second quarter — an increase of $2.0 million or 4%, from the same period last year. Foreign exchange rate changes were negligible in the quarter. Within the segment, demand for our extrusion tooling (i.e. dies, dummy blocks, stems, etc.) and associated capital equipment (die ovens, containers, etc.) remained strong due to both industry growth, and ongoing market share gains. Exco has been increasing its manufacturing footprint in local markets in recent years, while focusing on standardizing manufacturing processes, enhancing engineering depth and centralizing support functions across its various plants. These initiatives have reduced lead times, enhanced product quality, expanded product breadth and increased capacity, all of which has supported market share gains. In the die-cast market, which primarily serves the automotive industry, demand has remained suppressed due to lower vehicle production volumes. Consequently, the Large Mould group has faced significantly lower rebuild work than typical. Demand for Exco’s industry leading additive (3D printed) tooling has continued to gain traction as customers focus on greater efficiency as the size and complexity of die cast tooling continues to increase. Sales were also aided by price increases which were implemented in order to protect margins from higher input costs. With respect to quoting activity, demand for new moulds, associated tooling (shot sleeves, rods, rings, tips, etc.) and rebuild work has recently picked up meaningfully as industry vehicle production recovers and new electric vehicles and more efficient internal combustion engine/transmission platforms are launched. Inventories and backlog continue to grow which is expected to bode well for sales through the remainder of fiscal 2022.
Consolidated net income for the second quarter was $5.1 million or basic and diluted earnings of $0.13 per share compared to $11.7 million or $0.30 per share in the same quarter last year — a decrease of net income of $6.6 million. The consolidated effective income tax rate of 23% in the current quarter increased from 22% from the prior year. The income tax rate was impacted by nondeductible losses from our Castool Morocco facility, geographic distribution, and foreign rate differentials.
The Automotive Solutions segment reported pretax profit of $6.2 million in the second quarter a decrease of $3.2 million from the prior year quarter. The segment’s lower pretax profit was due to unfavorable market driven product mix changes, higher material, logistics and labour costs, partially offset by certain pricing actions taken in the quarter. While customer orders and releases stabilized compared to prior quarters, sporadic and unreliable customer releases continued to impact production, increasing overhead and direct labour costs. These factors were intensified by reduced labour availability due to the increased prevalence of COVID-19 a well as the need to retain slack labour in anticipation of higher demand in the quarters ahead. Inflationary pressure particularly on petroleum based products, energy, freight and labour continue. Management remains focused on improving the efficiency of its operations and reducing its overall cost structure. Pricing discipline also remains a focus and new program awards include management’s expectations for higher future costs.
The Casting and Extrusion segment reported $2.7 million of pretax profit in the second quarter – a decrease of $4.7 million from the same quarter last year. The lower pretax profit was driven by reduced activity for rebuild work in the Large Mould group, the shipment of a number of new moulds, raw material and labour cost inflation, unfavorable market driven product mix shifts, start-up losses of Castool’s plant in Morocco (which opened in November 2021), reduced labour availability and higher overtime costs due to the spread of COVID-19. Segment pre-tax profitability was however higher sequentially and new business awards across the quarter were very strong, particularly for structural die-cast components and those for electric vehicle platforms. The Large Mould and Castool groups ended the quarter with backlogs approaching historic levels. Management remains focused on taking pricing action where possible to preserve margins, reducing its overall cost structure and improving manufacturing efficiencies. Such activities together with sales efforts are expected to improve segment profitability in future quarters.
Consolidated EBITDA for the second quarter totaled $12.5 million compared to $20.2 million in the same quarter last year — a decrease of $7.7 million, or 38%. Year-to-date, consolidated EBITDA totaled $21.9 million compared to $39.6 million last year – a decrease of $17.7 million, or 45%. For the quarter, EBITDA as a percentage of sales decreased to 10.5% compared to 17.1% the prior year driven by an improvement in segment margins in both the Casting & Extrusion segment (13% compared to 22%) and the Automotive Solutions segment (11% compared to 16%).
Exco generated cash from operating activities of $5.3 million during the quarter and $3.5 million of Free Cash Flow after $1.6 million in Maintenance Fixed Asset Additions. This cash flow, together with cash on hand was more than sufficient to fund fixed assets for growth initiatives of $9.1 million and $4.1 million of dividends. The growth initiatives include: a) new Castool production facilities in Morocco and Mexico. The Moroccan facility opened in November 2021 and the Mexican facility recently commenced construction. b) Investment in new heat treatment equipment in the tooling group to increase capacity, reduce emissions and enable us to in-source most of our requirements. c) Investments in the Large Mould group to upgrade its capabilities to handle moulds of extreme sizes which we expect will be increasingly demanded by most traditional and new OEMs. d) Investment in additional 3D printing machinery in our tooling group to meet strong customer demands. e) Expansion of two of our production facilities in the Automotive Solutions group to provide added capacity for awarded programs. Exco ended the year with $0.3 million in net cash and $125.3 million in available liquidity, including $26.3 million of balance sheet cash, continuing its practice of maintaining a very strong balance sheet and liquidity position.
During the first quarter, the Company signed a definitive agreement to acquire the extrusion dies business of Halex Holdings GmbH (“Halex® Extrusion Dies”). Halex Extrusion Dies was founded in 1990 and operates four key manufacturing locations — two in Germany and two in the northern industrial region of Italy. The company is the second largest manufacturer of aluminium extrusion dies in Europe and the continent’s leading supplier of complex extrusion dies. Halex will complement Exco’s six existing extrusion die operations, located in Canada, USA (2), Mexico, Colombia and Brazil. The acquisition will provide Exco with well-established and high-quality operations, manufacturing complex extrusion dies in Europe and will provide better support for the Company’s global customers.
The transaction is expected to close in the spring of 2022 and is valued at €40 million (C$58 million equivalent) on an enterprise value basis. It will be funded with a combination of cash on hand and available bank lines. Halex will add approximately €40 million in annual sales and is expected to be immediately accretive to Exco’s earnings per share. Exco will report the results of Halex within its Casting and Extrusion segment.
Despite current macro-economic challenges, the overall outlook is very favorable across Exco’s various businesses into the medium term. Consumer demand for automotive vehicles is currently outstripping supply in most markets, which are constrained by a shortage of semiconductor chips and, to a lesser extent, other raw materials, components and availability of labour. Dealer inventory levels are near record lows, while average transaction prices for both new and used vehicles are at record highs and the average age of the broader fleet has continued to increase to an all-time high. This bodes well for higher levels of future vehicle production and the sales opportunity of Exco’s various automotive components and accessories once supply chains normalize. In addition, OEM’s are increasingly looking to the sale of higher margin accessory products as a means to enhance their own levels of profitability. Exco’s Automotive Solutions segment derives a significant amount of activity from such products and is a leader in the prototyping, development and marketing of the same. Moreover, the rapid movement towards an electrified fleet for both passenger and commercial vehicles is enticing new market entrants into the automotive market while causing traditional OEM incumbents to further differentiate their product offerings, all of which is driving above average opportunities for Exco.
With respect to Exco’s Casting and Extrusion segment, the intensifying global focus on environmental sustainability is creating significant growth drivers that are expected to persist through at least the next decade. Automotive OEMs are looking to light-weight metals such as aluminum to reduce vehicle weight and reduce carbon dioxide emissions. This trend is evident regardless of powertrain design — whether internal combustion engines, electric vehicles or hybrids. As well, a renewed focus on the efficiency of OEMs in their own manufacturing process is creating higher demand for advanced tooling that can contribute towards their profitability and sustainability goals. Certain new EV manufacturers have adopted the approach of utilizing much larger die cast machines to cast entire sub-frames of vehicles out of an aluminum based alloy rather than assemble numerous pieces of separately stamped and welded pieces of ferrous metal. Exco expects traditional OEMs will ultimately follow this trend and is positioning its operations to capitalize accordingly. Beyond the automotive industry, Exco’s extrusion tooling supports diverse end markets which are also seeing increased demand for aluminum driven by environmental trends, including energy efficient buildings, solar panels, etc.
On the cost side, inflationary pressures have intensified in recent quarters while prompt availability of various input materials, components and labour has become more challenging. We are offsetting these dynamics through various efficiency initiatives and taking pricing action where possible although there are typically several quarters of lag before the counter measures are evident.
The Russian invasion of Ukraine has added additional uncertainty to the global economy in recent months. And while Exco has essentially no direct exposure to either of these countries, Ukraine does feed into the European automotive markets and Europe has significant dependence on Russia for its energy needs.
Exco itself is also looking inwards with respect to ESG and sustainability trends to ensure its own operations are sustainable. We are investing significant capital to improve the efficiency and capacity of our own operations while lowering our own carbon footprint. In the first quarter we released our first Sustainability Report on our corporate website which is available at: www.excocorp.com/leadership/sustainability/.
Exco is currently targeting an organic compounded average annual growth rate of approximately 10% for revenues and slightly higher levels for EBITDA and Net Income through fiscal 2026, which is expected to produce an annual EPS of roughly $1.90 by the end of this timeframe. This target is expected to be achieved through the launch of new programs, general market growth, and also market share gains consistent with the Company’s operating history. Capital investments will remain elevated in the next few years in order to position the Company for the significant growth opportunities we see. Capital expenditures are expected to exceed $55 million for fiscal 2022.
For further information and prior year comparison please refer to the Company’s Second Quarter Financial Statements in the Investor Relations section posted at www.excocorp.com. Alternatively, please refer to www.sedar.com.
Non-IFRS Measures: In this News Release, reference may be made to EBITDA, EBITDA Margin, Pretax Profit, Free Cash Flow and Maintenance Fixed Asset Additions which are not measures of financial performance under International Financial Reporting Standards (“IFRS”). Exco calculates EBITDA as earnings before interest, taxes, depreciation, amortization and other expenses and EBITDA Margin as EBITDA divided by sales. Exco calculates Pretax Profit as segmented earnings before other income/expense, interest and taxes. Free Cash is calculated as cash provided by operating activities less interest paid and Maintenance Fixed Asset Additions. Maintenance Fixed Asset Additions represents investment in fixed assets that are required to continue current capacity levels. EBITDA, EBITDA Margin, Pretax Profit and Free Cash Flow are used by management, from time to time, to facilitate period-to-period operating comparisons and we believe some investors and analysts use these measures as well when evaluating Exco’s financial performance. These measures, as calculated by Exco, do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other issuers.
Quarterly Conference Call – April 28, 2022 at 10:30 a.m. (Toronto time):
To access the live audio webcast, please log on to www.excocorp.com, or https://edge.media-server.com/mmc/p/cuzbceqn a few minutes before the event. The conference call can also be accessed by dialling toll free at (866) 572-8261 or internationally at (703) 736-7448. The conference ID is 6584657.
For those unable to participate on April 28 2022, an archived version will be available on the Exco website.
|Exco Technologies Limited (TSX-XTC)
|Darren Kirk, President and CEO
|(905) 477-3065 Ext. 7233
About Exco Technologies Limited:
Exco Technologies Limited is a global supplier of innovative technologies servicing the die-cast, extrusion and automotive industries. Through our 16 strategic locations in 7 countries, we employ about 4,700 people and service a diverse and broad customer base.
Notice To Reader: Forward Looking Statements
This press release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws. We may use words such as “anticipate”, “may”, “will”, “should”, “expect”, “believe”, “estimate”, “5-year target” and similar expressions to identify forward-looking information and statements especially with respect to growth, outlook and financial performance of the Company’s business units, contribution of our start-up business units, contribution of awarded programs yet to be launched, margin performance, financial performance of acquisitions, liquidity, operating efficiencies, improvements in, expansion of and/or guidance or outlook as to future revenue, sales, production sales, margin, earnings, earnings per share, including the outlook for 2026, are forward-looking statements. These forward-looking statements include known and unknown risks, uncertainties, assumptions and other factors which may cause actual results or achievements to be materially different from those expressed or implied. These forward-looking statements are based on our plans, intentions or expectations which are based on, among other things, the current improving global economic recovery from the COVID-19 pandemic and containment of any future or similar outbreak of epidemic, pandemic, or contagious diseases that may emerge in the human population, which may have a material effect on how we and our customers operate our businesses and the duration and extent to which this will impact our future operating results, the impact of the Russian invasion of Ukraine on the global financial and automotive markets, including increased supply chain risks, assumptions about the number of automobiles produced in North America and Europe, production mix between passenger cars and trucks, the number of extrusion dies required in North America and South America, the rate of economic growth in North America, Europe and emerging market countries, investment by OEMs in drivetrain architecture and other initiatives intended to reduce fuel consumption and/or the weight of automobiles in response to rising climate risks, raw material prices, supply disruptions, economic conditions, inflation, currency fluctuations, trade restrictions, our ability to integrate acquisitions, our ability to continue increasing market share, or launch of new programs and the rate at which our current and future greenfield operations in Mexico and Morocco achieve sustained profitability. Readers are cautioned not to place undue reliance on forward-looking statements throughout this document and are also cautioned that the foregoing list of important factors is not exhaustive. The Company will update its disclosure upon publication of each fiscal quarter’s financial results and otherwise disclaims any obligations to update publicly or otherwise revise any such factors or any of the forward-looking information or statements contained herein to reflect subsequent information, events or developments, changes in risk factors or otherwise. For a more extensive discussion of Exco’s risks and uncertainties see the ‘Risks and Uncertainties’ section in our latest Annual Report, Annual Information Form (“AIF”) and other reports and securities filings made by the Company. This information is available at www.sedar.com or www.excocorp.com.
TORONTO, April 07, 2022 (GLOBE NEWSWIRE) — Exco Technologies Limited (TSX – XTC) today announced that it will report its financial results for the second quarter ended March 31, 2022 after the close of business on Wednesday April 27, 2022.
Exco’s management will hold a conference call to discuss the results on Thursday April 28, 2022 at 10:30 a.m. To access the live audio webcast, please log on to www.excocorp.com, or https://edge.media-server.com/mmc/p/cuzbceqn a few minutes before the event. The conference call can also be accessed by dialling toll free at (866) 572-8261 or internationally at (703) 736-7448. The conference ID is 6584657.
For those unable to participate on April 28, 2022, an archived version will be available until May 12, 2022 on the Exco website or by dialling toll free at (855) 859-2056 or internationally at (404) 537-3406. The conference ID is 6584657.
Exco Technologies Limited is a global supplier of innovative technologies servicing the die-cast, extrusion and automotive industries. Through our 16 strategic locations in 7 countries, we employ approximately 4,900 people and service a diverse and broad customer base.
|Exco Technologies Limited (TSX-XTC)
|Darren Kirk, President & Chief Executive Officer
|(905) 477-3065, Ext 7233