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.
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Three Months EndedMarch 31 |
Six Months EndedMarch 31 |
(in $
thousands except per share amounts) |
|
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|
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|
2022 |
|
2021 |
|
2022 |
|
2021 |
Sales |
$ |
119,303 |
$ |
118,360 |
$ |
220,282 |
$ |
239,762 |
Net income for the period |
$ |
5,098 |
$ |
11,734 |
$ |
7,834 |
$ |
22,650 |
Earnings per share:Basic and
Diluted – Reported |
$ |
0.13 |
$ |
0.30 |
$ |
0.20 |
$ |
0.58 |
EBITDA |
$ |
12,538 |
$ |
20,264 |
$ |
21,855 |
$ |
39,556 |
“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.
Outlook
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.
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Source: |
Exco Technologies Limited (TSX-XTC) |
Contact: |
Darren Kirk, President and CEO |
Telephone: |
(905) 477-3065 Ext. 7233 |
Website: |
http://www.excocorp.com |
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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.
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