Exco Technologies Limited (TSX-XTC, OTCQX-EXCOF)
today announced results for its first quarter of fiscal 2023 ended
December 31, 2022. In addition, Exco announced a quarterly dividend
of $0.105 per common share which will be paid on March 31, 2023 to
shareholders of record on March 17, 2023. The dividend is an
“eligible dividend” in accordance with the Income Tax Act of
Canada.
|
Three Months ended December 31 |
(in $ millions
except per share amounts) |
|
|
|
2022 |
|
2021 |
Sales |
$139.1 |
$101.0 |
Net income for the period |
$4.5 |
$2.7 |
Earnings per share |
|
|
Basic and Diluted – Reported |
$0.12 |
$0.07 |
EBITDA |
$15.2 |
$9.3 |
“Exco’s results showed strong improvement as automotive industry
supply constraints continue to ease,” said Darren Kirk, Exco’s
President and CEO. “While global macro conditions are certainly
slowing, we believe our various capital investment and margin
enhancement activities will enable our results to continue to
improve through the balance of the year,” added Kirk.
Consolidated sales for the first quarter ended
December 31, 2022 were $139.1 million compared to $101.0 million in
the same quarter last year – an increase of $38.1 million or 38%.
Foreign exchange rate movements increased sales $6.1 million in the
quarter primarily due to the strengthening US dollar compared to
the Canadian dollar (strengthened 7.5%)
The Automotive Solutions segment reported sales
of $70.3 million in the first quarter – an increase of $15.1
million, or 27% from the same quarter last year. Adjusting for the
impact of foreign exchange movements, sales increased 21%. The
sales increase was driven by higher vehicle production volumes and
fewer program launch delays as supply chain disruptions eased in
the quarter. North American industry vehicle production was up 8%
compared to a year ago and European industry vehicle production was
up 4%. Sales increased at all four of the segment’s operations as
we benefited from higher production volumes and the continued ramp
up in new programs. Looking forward, OEM vehicle production volumes
are expected to increase as the semiconductor chip shortages and
other supply chain constraints continue to improve. While industry
growth may be tempered by rising interest rates and emerging
indicators of a global recession, there remains significant pent-up
customer demand for new vehicles and dealer inventory levels are
expected to be replenished from historically low levels. As well,
Exco will benefit from recent and future program launches that are
expected to provide growth in our content per vehicle. Quoting
activity remains encouraging and we believe there is ample
opportunity to achieve our targeted growth objectives.
The Casting and Extrusion segment reported sales
of $68.8 million in the quarter – an increase of $23.0 million, or
50% from the same period last year. Excluding the $2.6 million
positive impact of foreign exchange, sales increased 45% compared
to the prior year quarter. Halex sales were $11.6 million, but they
remained below potential due to December holidays, the Russian
conflict in Ukraine, and weakening economic conditions in Europe.
Demand for our extrusion tooling and associated capital equipment
outside of Europe remained relatively strong due to both industry
growth and ongoing market share gains, although we did see signs of
market activity slowing through the quarter. Management remains
focused on standardizing manufacturing processes, enhancing
engineering depth and centralizing some 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 and order flow for new moulds, associated consumable tooling
and rebuild work has continued to improve as industry vehicle
production recovers and new electric vehicles and more efficient
internal combustion engine/transmission platforms are launched. As
well, customer inventory levels increased as expectations for
higher vehicle production volumes improves. In addition, demand for
Exco’s additive (3D printed) tooling continues its strong
contribution as customers focus on greater efficiency with the size
and complexity of die cast tooling continuing to increase. Sales in
the quarter were also aided by price increases, which were
implemented in order to protect margins from higher input costs.
Quoting activity within the die-cast end market remains very robust
and our backlogs remain firm, which is expected to bode well for
sales into fiscal 2023.
Consolidated net income for the first quarter
was $4.5 million or basic and diluted earnings of $0.12 per share
compared to $2.7 million or $0.07 per share in the same quarter
last year. The consolidated effective income tax rate for the
current quarter was 22.7% compared to 26.1% the prior year period.
The change in the income tax rate in the current year quarter was
impacted by geographic distribution and foreign rate
differentials.
The Automotive Solutions segment reported pretax
profit of $7.2 million in the quarter – an increase of $3.8
million, or an increase of 112% over the same quarter last year.
The increase in pretax profit is largely attributable to higher
sales and better absorption of overheads. Although we continue to
experience disruptions from the supply chain issues including the
semiconductor shortages, the unpredictable production flow that has
plagued automotive volumes in North America and Europe over the
last two years have begun to stabilize. Volumes remain well below
pre-pandemic volumes, but production and efficiency challenges
alleviated during the quarter, while cost increases related to raw
materials, wages, and transportation also subsided during the
quarter. Management is cautiously optimistic that its overall cost
structure will return to relatively normal levels in future
quarters as scheduling and predictability improves with
strengthening volumes. Pricing discipline remains a focus and
action is being taken on current programs where possible, though
there is typically a lag of a few quarters before the impact is
realized. As well, new program awards are priced to reflect
management’s expectations for higher future costs.
The Casting and Extrusion segment reported $1.9
million of pretax profit in the quarter – a decrease of $0.1
million from the same quarter last year. The pretax profit decline
was driven by higher depreciation ($1.9 million), start-up costs at
Castool’s heat treatment operations in Newmarket, continued
outsourced heat treat costs in our Extrusion tooling group while
new equipment is being installed, and higher raw material, energy,
freight and labour costs due to inflation, particularly in Europe.
Management expects to generate higher sales and eliminate many of
these costs over the coming quarters through efficiency
improvements and has also taken pricing action to recapture lost
margin where possible. The higher depreciation relates to the
acquisition of Halex and the Company’s investment in new capital
that will improve operations and provide access to new geographies
to increase our market share. Castool Morocco ramp-up is proceeding
favorably, but has been slower than anticipated due to the supply
chain constraints, inflation, and the Russian invasion of Ukraine.
Management remains focused on reducing its overall cost structure
and improving manufacturing efficiencies and expects such
activities together with its sales efforts should lead to improved
segment profitability over time.
The Corporate segment expenses were $1.5 million
in the quarter compared to $1.6 million in the prior year quarter.
Consolidated EBITDA for the first quarter totaled $15.2 million
compared to $9.3 million in the same quarter last year. EBITDA as a
percentage of sales increased to 10.9% in the current quarter
compared to 9.3% the prior year. The EBITDA margin in the Casting
and Extrusion segment was 11.1% compared to 12.9% last year while
the EBITDA margin in the Automotive Solutions segment was 12.8%
compared to 9.0% last year.
Exco generated cash from operating activities of
$10.8 million during the quarter and $5.6 million of Free Cash Flow
after $3.4 million in Maintenance Fixed Asset Additions. This free
cash flow, together with the Company’s cash balances was used to
fund fixed assets for growth initiatives of $4.0 million and $4.1
million of dividends. Exco ended the quarter with $18.0 million in
cash, $110.7 million in bank and long-term debt and $41.9 million
available in its credit facility, continuing Exco’s practice of
maintaining a strong balance sheet and liquidity position.
Outlook
Despite current macro-economic challenges,
including tightening monetary conditions, the overall outlook is
very favorable across Exco’s segments 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,
although increasing slightly, 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.
Traditional OEMs have started to adopt this trend and Exco 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 remain
elevated while prompt availability of various input materials,
components and labour remains challenging. We are offsetting these
dynamics through various efficiency initiatives and taking pricing
action where possible although there is typically several quarters
of lag before the counter measures are evident.
The Russian invasion of Ukraine has added
additional uncertainty to the global economy. 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. Our Sustainability Report is available on our
corporate website at:
www.excocorp.com/leadership/sustainability/.
For further information and prior year
comparison please refer to the Company’s First Quarter Condensed
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
defined measures of financial performance under International
Financial Reporting Standards (“IFRS”). Exco calculates EBITDA as
earnings before interest, taxes, depreciation and amortization and
EBITDA Margin as EBITDA divided by sales. Exco calculates Pretax
Profit as segmented earnings before other income/expense, interest
and taxes. Free Cash Flow is calculated as cash provided by
operating activities less interest paid and Maintenance Fixed Asset
Additions. Maintenance Fixed Asset Additions represents
management’s estimate of the investment in fixed assets that are
required for the Company to continue operating at current capacity
levels. Given the Company’s elevated planned capital spending on
fixed assets for growth initiatives (including additional
Greenfield locations, energy efficient heat treatment equipment and
increased capacity) through the near term, the Company has modified
its calculation of Free Cash Flow to include Maintenance Fixed
Assets and not total fixed asset purchases. This change is meant to
enable investors to better gauge the amount of generated cash flow
that is available for these investments as well as acquisitions
and/or returns to shareholders in the form of dividends or share
buyback programs. 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 –
February 1, 2023 at 10:00 a.m. (Toronto time):
To access the listen only live audio webcast,
please log on to www.excocorp.com, or
https://edge.media-server.com/mmc/p/dyjox52j a few minutes before
the event. Those interested in participating in the
question-and-answer conference call may register at
https://register.vevent.com/register/BI323ed3e33e424e70ab6828ee4ba00901
to receive the dial-in numbers and unique PIN to access the call.
It is recommended that you join 10 minutes prior to the event start
(although you may register and dial in at any time during the
call).
For those unable to participate on February 1, 2023, an archived
version will be available on the Exco website until February 15,
2023.
Source: |
Exco Technologies
Limited (TSX-XTC, OTCQX-EXCOF) |
Contact: |
Darren Kirk,
President and CEO |
Telephone: |
(905) 477-3065 Ext. 7233 |
Website: |
https://www.excocorp.com |
About Exco Technologies Limited:
Exco Technologies Limited is a global supplier
of innovative technologies servicing the die-cast, extrusion and
automotive industries. Through our 20 strategic locations in 9
countries, we employ approximately 5,000 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, energy and automotive markets, including
increased supply chain risks, assumptions about the demand for and
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, energy
rationing in Europe, 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.
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