Exco Technologies Limited (TSX-XTC) today
announced results for its first quarter ended December 31, 2023. In
addition, Exco announced a quarterly dividend of $0.105 per common
share which will be paid on March 28, 2024 to shareholders of
record on March 14, 2024. The dividend is an “eligible dividend” in
accordance with the Income Tax Act of Canada.
|
Three Months EndedDecember 31 |
(in $
thousands except per share amounts) |
|
|
|
|
|
2023 |
|
|
|
2022 |
|
Sales |
$ |
156,710 |
|
|
$ |
139,093 |
|
Net income for the period |
$ |
5,642 |
|
|
$ |
4,523 |
|
Earnings per share: Basic and
Diluted |
$ |
0.15 |
|
|
$ |
0.12 |
|
EBITDA |
$ |
18,061 |
|
|
$ |
15,181 |
|
“We achieved year over year growth in both
revenues and earnings again this quarter despite navigating through
difficult market conditions and pushing ahead with our various
investment initiatives,” said Darren Kirk, Exco’s President and
CEO. “I want to thank all Exco employees for their hard work and
commitment to working safely”.
Consolidated sales for the first quarter ended
December 31, 2023 were $156.7 million compared to $139.1 million in
the same quarter last year – an increase of $17.6 million, or 13%.
Foreign exchange rate movements increased sales $0.4 million in the
quarter primarily due to the strengthening EURO compared to the
Canadian dollar.
The Automotive Solutions segment reported sales
of $83.0 million in the first quarter – an increase of $12.8
million, or 18% from the same quarter last year. There was
virtually no impact of foreign exchange on sales for the quarter.
The sales increase was driven by new program launches and higher
vehicle production volumes. Combined North American and European
vehicle production was up approximately 5% compared to a year ago.
The revenue impact of the UAW strike action which was resolved by
late October was approximately $2 million. Adjusting for the strike
impact, sales were up at all four of the segment’s locations
compared to the prior year quarter. Looking forward, industry
growth may be tempered by rising interest rates, elevated vehicle
average transaction prices, rising dealer inventory levels, and
emerging indicators of a global recession. Vehicle sales however
remain encouraging (particularly in North America), dealer
inventory levels are well below historical norms and OEM incentives
are rising. Exco’s sales volumes will nonetheless benefit from
recent and future program launches that are expected to provide
ongoing growth in our content per vehicle. Quoting activity also
remains encouraging and we believe there is ample opportunity to
achieve our targeted growth objectives.
The Casting and Extrusion segment reported sales
of $73.7 million in the quarter – an increase of $4.9 million, or
7% from the same period last year. Similar to the automotive
segment, there was virtually no foreign exchange impact in the
quarter. Demand for our extrusion tooling was lower in the quarter
as the continued impact of higher interest rates and recessionary
conditions in certain end markets such as building and construction
and recreational vehicles caused an overall reduction in tooling
demand from extruders. Demand for extrusion tooling for automotive
and sustainable energy markets remains strong and growing, but the
building and construction market is the largest driver of extrusion
tooling. Demand for certain capital equipment sold by Castool
within the extrusion markets (such as containers and die ovens)
remains firm as extruders focus on various efficiency and
sustainability initiatives. Exco’s Management remains focused on
standardizing manufacturing processes, enhancing engineering depth
and centralizing critical support functions across its various
plants. As well, Management is focused on developing the benefits
of its new greenfield locations in Morocco and Mexico which provide
the opportunity to gain market share in Europe and Latin America
through better proximity to local customers. These initiatives have
reduced lead times, enhanced product quality, expanded product
breadth and increased capacity. In the die-cast market, which
primarily serves the automotive industry, demand and order flow for
new moulds, associated consumable tooling (shot sleeves, rods,
rings, tips, etc.) and rebuild work increased as industry vehicle
production recovers and new electric vehicles and more efficient
internal combustion engine/transmission platforms are launched. 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 with the rising adoption of giga-presses. Sales in the
quarter were also aided by price increases, which were implemented
to protect margins from higher input costs. Quoting activity
remains robust and our backlog for die cast moulds remains at
record levels.
The Company’s first quarter consolidated net
income increased to $5.6 million or earnings of $0.15 per share
compared to $4.5 million or earnings of $0.12 per share in the same
quarter last year. The effective income tax rate was 23.6% in the
current quarter compared 22.7% in the same quarter last year. The
change in income tax rate in the quarter was impacted by geographic
distribution and foreign tax rate differentials.
The Automotive Solutions segment reported pretax
profit of $8.1 million in the quarter – an increase of $0.9
million, or an increase of 12% over the same quarter last year. The
increase in pretax profit is largely attributable to higher sales
and better absorption of overheads. Production volumes continue to
experience challenges with supply chain constraints but the impact
to our operations of these factors continues to decline, leading to
the improved scheduling of labour and reduced expedited shipping
costs. Together with higher volumes from new program launches, this
has allowed the segment to benefit from improved efficiencies and
better absorption of fixed costs. Offsetting these factors were
higher raw material prices, rising labour costs in all
jurisdictions and foreign exchange headwinds. Labour costs in
Mexico have been particularly challenging in recent years and will
see added pressure in fiscal 2024 given the significant rise in
minimum wage levels. Although production volumes have largely
stabilized from a macroeconomic and global perspective, volumes in
the quarter were impacted by the UAW strike action and December
holiday shutdowns at certain OEMs. These shutdowns reduced
profitability as labour levels were maintained and production
inefficiencies were incurred for specific parts and programs. Apart
from these specific impacts, Management is cautiously optimistic
that its overall cost structure should improve margins in coming
quarters. 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 $3.6
million of pretax profit in the quarter – an increase of $1.7
million or 88% from the same quarter last year. The pretax profit
improvement is due to higher sales volumes, program pricing
improvements, favorable product mix and efficiency initiatives
within the Large Mould group; improved efficiency in the Extrusion
die business, including improvements at Halex and the elimination
of prior year one-time outsourcing costs needed at several
extrusion operations while in-house heat treatment equipment was
replaced. As well, there was improved absorption and efficiencies
at Castool’s heat treatment operation, stabilizing raw material and
labour costs, and lower Castool Morocco start up costs. Offsetting
these cost improvements were cash start-up losses at Castool’s new
operations in Mexico and a $0.8 million increase in segment
depreciation associated with recent capital expenditures.
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 in the first quarter
recorded expenses of $2.2 million compared to $1.5 million last
year due to higher foreign exchange losses relating to the
strengthening Canadian dollar on balance sheet accounts, as well as
higher short and long-term incentive plan costs. As a result of the
foregoing, consolidated EBITDA in the quarter was $18.1 million
(11.5% of sales) compared to $15.2 million (10.9% of sales) last
year.
Operating cash flow before net changes in
working capital was $16.5 million in the quarter compared to $14.2
million in the prior year quarter. The $2.3 million improvement was
driven by a $1.1 million increase in net income, a $1.0 million
increase in depreciation and amortization, and a $0.4 million
increase in interest expense. Non-cash working capital consumed
$3.6 million of cash in the quarter compared to $3.4 million in the
same quarter last year. The non-cash working capital movements were
driven by lower accounts payable and accruals partially offset by
accounts receivable collections. Investment in fixed assets of
$11.9 million compared to $7.4 million in the prior year quarter.
Included in the current quarter was $4.2 million in growth capital.
The increased total investment related to timing of equipment
purchases and the completion of major projects. Exco ended the
quarter with $99.7 million in net debt. The Company had $36.9
million in available liquidity under its banking facilities at
December 31, 2023.
Outlook
In late fiscal 2021, Exco announced it was
targeting a compounded average annual growth rate (excluding
acquisitions) of approximately 10% for revenues and slightly higher
levels for EBITDA and Net Income through fiscal 2026, which was
anticipated to produce approximately $750 million annual revenue,
$120 million annual EBITDA and annual EPS of roughly $1.90 by the
end of this timeframe. Exco has made significant progress towards
achieving these targets since they were announced and continues to
believe its revenue and EBITDA targets remain obtainable. However,
management has since revised its EPS target lower – to
approximately $1.50 – to reflect the significant rise in interest
rates as well as elevated levels of depreciation due to higher than
planned capital expenditures associated with future growth
initiatives. These revenue, EBITDA and revised EPS targets are
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 expenditures are expected to
be approximately $48 million for fiscal 2024.
Despite current macro-economic challenges,
including tightening monetary conditions and strike-related
production shut-downs in some North American OEM plants in
September and October 2023, the overall outlook is very favorable
across Exco’s segments into the medium term. Consumer demand for
automotive vehicles remains robust in most markets, despite supply
constraints, a worldwide shortage of semiconductor chips and, to a
lesser extent, availability of other raw materials, components and
labour. Dealer inventory levels have been increasing, while average
transaction prices for both new and used vehicles are near record
highs and the average age of the broader fleet has continued to
increase. This bodes well for higher levels of future vehicle
production and the sales opportunity of Exco’s various automotive
components and accessories as 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 and hybrid
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 has created significant growth drivers that are
expected to persist through at least the next decade. Automotive
OEMs are utilizing light-weight metals such as aluminum, in
particular, 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 enhance their profitability and sustainability
goals. Certain OEM manufacturers have begun utilizing much larger
die cast machines to cast entire vehicle sub-frames using
aluminum-based alloy rather than stamping, welding, and assembling
separate pieces of ferrous metal. Exco is in discussions with
several traditional OEMs and their tier providers who appear likely
to follow this trend. Accordingly, Exco is positioning its
operations to capitalize on these changes. Beyond the automotive
industry, Exco’s extrusion tooling supports diverse industrial 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 post COVID while prompt availability of various input
materials, components and labour has become more challenging. The
intensity of these dynamics have generally moderated in recent
quarters with the exception of labour costs in Mexico, which
continue to see significant increases. 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 yield results.
The Russian invasion of Ukraine and the
Israeli/Palestine conflict have added additional uncertainty to the
global economy. And while Exco has essentially no direct exposure
to these countries, Ukraine does feed into the European automotive
market and Europe has traditionally depended on Russia for its
energy needs. Similarly, the conflict in the Middle East creates
the potential for a renewed rise in the price of oil and other
commodities as well as logistics costs and could weigh on consumer
sentiment.
Exco itself is also looking inwards with respect
to ESG and sustainability trends to ensure its operations are
sustainable. We are investing significant capital to improve the
efficiency and capacity of our operations while lowering our 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 Financial
Statements in the Investor Relations section posted at
www.excocorp.com. Alternatively, please refer to
www.sedarplus.ca.
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 –
Thursday February 1, 2024 at 10:00am (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/h4ntxy9c 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/BIe7f88b004fdf421bbb953189681d8f51
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, 2024, an archived
version will be available on the Exco website until February 15,
2024.
|
Source: |
Exco
Technologies Limited (TSX-XTC) |
|
Contact: |
Darren Kirk, President and CEO |
|
Telephone: |
(905) 477-3065 Ext. 7233 |
|
Website: |
http://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 21 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 revised 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.sedarplus.ca or www.excocorp.com.
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