2021 Annual Report
Markham, ON
Newmarket, ON
Uxbridge, ON
Chesterfield, MI
Toledo, OH
Dartmouth, NS
Wylie, TX
Matamoros
(2), MX
Queretaro (2), MX
Medellin, COLOMBIA
Kenitra
Tangier,
MOROCCO
PRODUCTION FACILITIES
Casting & Extrusion Technologies
Automotive Solutions
Chonburi,
THAILAND
Sorocaba,
BRAZIL
SALES
($ millions)
.
2
4
8
5
.
6
5
7
5
.
3
7
0
5
.
2
1
6
4
.
3
2
1
4
NET INCOME
($ millions)
DILUTED ADJUSTED
EARNINGS PER SHARE (1)
.
5
2
4
.
3
2
4
.
4
8
3
.
6
6
2
.
4
7
2
3
0
1
$
.
.
0
0
1
$
8
9
0
$
.
.
0
8
0
$
.
9
6
0
$
CASH FLOW
FROM OPERATING
ACTIVITIES (2)
($ millions)
.
7
4
6
.
7
4
6
.
8
2
6
.
1
5
5
.
5
9
4
17
18
19
20
21
17
18
19
20
21
17
18
19
20
21
17
18
19
20
21
(1) Earnings before other income/ expense (2) Before net change in non-cash working capital.
EXCO TOOLING SOLUTIONS
LETTER TO STAKEHOLDERS F2021
Powering the EV Revolution
More than eighteen months have passed since the
start of the pandemic that fundamentally reshaped
the way we live, work and socialize. And although the
world
impacts, Exco
continues to forge ahead strongly.
is still grappling with
its
In Fiscal 2021, we achieved very good financial results
despite severe macroeconomic headwinds that saw
microchip shortages and broader supply chain
challenges forcefully restrain global automotive
vehicle production. As well, we managed through
rising input costs and a stronger Canadian dollar,
which also crimped our results. Nonetheless, our full
year sales were up 12% compared to fiscal 2020, and
we delivered $0.98 earnings per share, a 42%
improvement compared to $0.69 last fiscal year.
Beyond our financial results, we bolstered the
foundation that will drive our future growth once
current constraints inevitably ease and as the electric
vehicle revolution continues to take hold. We laid out
and promoted our core Exco values, we enhanced our
employee code of conduct, and published our first
sustainability report. We also secured sizeable
program wins, realized significant productivity gains
and mapped out investment plans and a growth
agenda that we expect will enable our revenue,
EBITDA, and EPS to more than double in the next
five-year period.
ESG Strategic Priorities
Looking ahead, as Environmental, Social and
Governance (ESG) initiatives continue to intensify
across all industries, I am pleased to say that Exco’s
ESG strategic priorities are clear. We are very well
positioned to grow profitably and to contribute
positively to the global sustainability movement in
the years ahead.
This year, we engaged in a deeper dialogue about
these issues with our stakeholders than ever before,
as discussed
in our first Sustainability Report
published in December 2021. As highlighted in the
report, ESG factors are an integral part of our strategic
decision making and capital allocation decisions. Our
ESG strategic priorities are built upon our core values
and are designed to ensure that Exco achieves its
vision – to be the benchmark for innovation, efficien-
cy and quality in the industries we serve.
Sustainable Marketplace
Our businesses directly support the electric vehicle
towards
revolution and worldwide movement
reducing emissions. Consequently, as the world
continues to push towards social and environmental
sustainability, the future for our products has never
been brighter. An increase in the use of aluminum
across many industries is the primary driver of this
tailwind, particularly in the automotive industry, our
primary end market.
to make
conventional
As the automotive industry adapts to ever-tightening
fuel efficiency standards, lightweight metals are
increasingly displacing structural steel vehicle
components
(internal
combustion engine) vehicles more environmentally
friendly. As well, electric vehicles make extensive use
of aluminum components to reduce weight and
therefore maximize battery range. Exco’s Casting and
Extrusion segment is especially well positioned to
benefit from this transition, as we are a leading
producer of tools that shape lightweight metals and
we do not manufacture tooling for steel components.
Over the next several years, significant growth is
expected in the application of both extruded and
die-casted components according to a number of
independent market studies.
More recently, die-cast aluminum components and
associated tooling have been increasing significantly
in both size and complexity. Tesla has pushed the
envelope on this front, using massive die casting
machines (so called Giga presses) that are much
EXCO TECHNOLOGIES LIMITED
1
ANNUAL REPORT 2021
larger than those used previously. This enables Tesla
energy,
fewer materials and
lower waste. As
complex tooling, driven by the electric vehicle revolu-
Net Income. If achieved – as we expect – Exco’s
to cast entire subframes of the vehicle (so called Giga
discussed below, we are investing significant capital
tion and emission reduction goals.
castings) rather than assembling numerous stamped
to improve the efficiency of our own operations,
metal components
in the body shop, creating
lower our own carbon
footprint, and ensure
significant manufacturing efficiency gains. The
responsible and efficient use of materials. We are also
tooling required to facilitate this process is much
committed to operating in a socially conscious
larger and more complex, limiting the number of
manner, and above all, to taking great care of our
players able to compete effectively. Our Castool
people. Several of our businesses have achieved ISO
division is already the primary supplier of all shot-end
14001 certification, the international standard that
tooling for Tesla’s Giga presses globally, providing a
specifies requirements for an effective environmental
clear indication of the depth our organization has in
management system. Our additive manufacturing
the design and know-how required to meet the
process serves to minimize material use while
challenges of the industry. We expect traditional
delivering increased value to our customers, directly
OEMs will quickly follow Tesla’s lead in using these
supporting their own sustainability goals. More
larger die-cast machines as they transition to an EV
broadly, we remain focused on employing lean
future. Consequently, we are making significant
manufacturing principles to reduce and eliminate
additional investments in our people, equipment and
waste while also making substantial investments in
processes to remain a leading supplier.
Our Automotive Solutions group, which manufac-
tures products for both the interior and storage areas
of passenger vehicles also stands to benefit from
sustainability trends. Exco’s Automotive Solutions
segment typically makes products that are lighter in
weight than competing products and electric
vehicles generally have more cabin and storage
space for which our products are well suited.
In addition to global decarbonization, forces that
will drive growth for our Automotive Solutions
businesses include higher expected levels of future
vehicle production and rising Exco content per
vehicle. Helping this growth, OEMs are increasingly
new, energy efficient equipment. In order to further
minimize our environmental footprint, we also utilize
recycled material and
incorporate a material
recycling process into our facilities, where possible.
Moreover, our multi-plant
footprint gives us
proximity to market, which we believe contributes to
the resilience of our supply chains, while reducing
our carbon emissions.
Growth-oriented Capital Investment
Program
We remain focused on our capital asset and growth
strategies, and we made great progress in our key
strategic investments in fiscal 2021.
looking to the sale of higher margin accessory
We are pursuing an aggressive capital agenda within
products as a means to enhance their own profitabili-
our Casting and Extrusion Segment, to capture
ty and Exco is an industry leader for many of these
significant growth opportunities in the markets we
products.
Sustainable Operations
Exco is committed to running its facilities as efficient-
ly as possible, de¬livering the same innovative,
high-quality products to our customers with less
serve. This
is especially evident
in our Castool
division, which in November 2021 announced the
opening of our latest production facility in Kenitra,
Morocco. This new facility will enable Castool to
better serve its customers in Europe, the Middle East,
and Africa, and provide increased capacity to meet
the growing global demand for larger and more
Other projects within Castool include a new energy
efficient heat treatment plant located in our existing
Newmarket facility, which is expected to begin
operations in the Spring of 2022. As well, Castool is
moving forward with the construction of a new
greenfield facility
in Mexico, which will further
increase manufacturing capacity and allow us to
better serve the local market in Latin America.
During the year, our Large Mould Group made several
investments
in new equipment
to align
the
manufacturing processes within the group and to
position us to capture growth in the very large
die-cast segment. Installation of this equipment
began in fiscal 2021 and will continue throughout
annual revenue would grow to $750 million and
generate EPS of roughly $1.90
in fiscal 2026.
Consequently, you should expect our capital
expenditures will remain elevated in the next few
years to position us for this significant anticipated
growth. Fortunately, our cash flows remain strong
and our balance sheet retains exceptional financial
strength, which provides support for our goals.
Our people will always be our greatest
strength
bright.
Since our inception some 70 years ago, Exco has
become not just global, but world class. Despite
current industry challenges, our future looks very
fiscal 2022. In addition, this year, our Board approved
Our vision is to be the benchmark for innovation,
three new projects to enhance the Extrusion Group’s
efficiency and quality in the industries we serve. Our
heat treatment capabilities, all which will further
mission is to enhance the look and functionality of
minimize our environmental footprint, enhance
passenger vehicles and tool up light metal industries
quality, and enable a reduction in lead times once
for superior performance. Needless to say, we know
that our continued success in achieving our mission
and vision is only possible because of our employees.
And we have some of the most committed, talented
and high performing people. At Exco, our people will
always be our greatest strength – and I am deeply
grateful to our employees for their hard work, shared
belief in our core values, entrepreneurial spirit, and
commitment to always working safely.
completed in fiscal 2022.
In our Automotive Solutions segment we are adding
40,000 square feet of manufacturing space to accom-
modate the production of several new key programs,
which will together contribute over $65 million of
annual revenue once fully ramped up by the end of
fiscal 2022. Over and above this growth we expect to
maintain our longer-term track record of content per
vehicle growth in the 5-10% range. Of particular note,
much of the segment’s growth is being driven by
content on electric vehicles, which as I mentioned are
exceptionally well suited to our products.
With the benefit of these investments, the launch of
new programs, general market growth and also
market share gains consistent with our history, we
years Exco is currently targeting a compounded
average annual growth rate of approximately 10% for
revenues and slightly higher levels for EBITDA and
expect to achieve substantial growth. Over the next 5
President and CEO
Darren M. Kirk, MBA, CFA
Powering the EV Revolution
More than eighteen months have passed since the
start of the pandemic that fundamentally reshaped
the way we live, work and socialize. And although the
world
is still grappling with
its
impacts, Exco
continues to forge ahead strongly.
In Fiscal 2021, we achieved very good financial results
despite severe macroeconomic headwinds that saw
microchip shortages and broader supply chain
challenges forcefully restrain global automotive
vehicle production. As well, we managed through
rising input costs and a stronger Canadian dollar,
which also crimped our results. Nonetheless, our full
year sales were up 12% compared to fiscal 2020, and
we delivered $0.98 earnings per share, a 42%
improvement compared to $0.69 last fiscal year.
Beyond our financial results, we bolstered the
foundation that will drive our future growth once
current constraints inevitably ease and as the electric
vehicle revolution continues to take hold. We laid out
and promoted our core Exco values, we enhanced our
employee code of conduct, and published our first
sustainability report. We also secured sizeable
program wins, realized significant productivity gains
and mapped out investment plans and a growth
agenda that we expect will enable our revenue,
EBITDA, and EPS to more than double in the next
five-year period.
ESG Strategic Priorities
Looking ahead, as Environmental, Social and
Governance (ESG) initiatives continue to intensify
across all industries, I am pleased to say that Exco’s
ESG strategic priorities are clear. We are very well
positioned to grow profitably and to contribute
positively to the global sustainability movement in
the years ahead.
This year, we engaged in a deeper dialogue about
these issues with our stakeholders than ever before,
as discussed
in our first Sustainability Report
published in December 2021. As highlighted in the
report, ESG factors are an integral part of our strategic
decision making and capital allocation decisions. Our
ESG strategic priorities are built upon our core values
and are designed to ensure that Exco achieves its
vision – to be the benchmark for innovation, efficien-
cy and quality in the industries we serve.
Sustainable Marketplace
Our businesses directly support the electric vehicle
revolution and worldwide movement
towards
reducing emissions. Consequently, as the world
continues to push towards social and environmental
sustainability, the future for our products has never
been brighter. An increase in the use of aluminum
across many industries is the primary driver of this
tailwind, particularly in the automotive industry, our
primary end market.
As the automotive industry adapts to ever-tightening
fuel efficiency standards, lightweight metals are
increasingly displacing structural steel vehicle
components
to make
conventional
(internal
combustion engine) vehicles more environmentally
friendly. As well, electric vehicles make extensive use
of aluminum components to reduce weight and
therefore maximize battery range. Exco’s Casting and
Extrusion segment is especially well positioned to
benefit from this transition, as we are a leading
producer of tools that shape lightweight metals and
we do not manufacture tooling for steel components.
Over the next several years, significant growth is
expected in the application of both extruded and
die-casted components according to a number of
independent market studies.
More recently, die-cast aluminum components and
associated tooling have been increasing significantly
in both size and complexity. Tesla has pushed the
envelope on this front, using massive die casting
machines (so called Giga presses) that are much
LETTER TO STAKEHOLDERS F2021
larger than those used previously. This enables Tesla
to cast entire subframes of the vehicle (so called Giga
castings) rather than assembling numerous stamped
metal components
in the body shop, creating
significant manufacturing efficiency gains. The
tooling required to facilitate this process is much
larger and more complex, limiting the number of
players able to compete effectively. Our Castool
division is already the primary supplier of all shot-end
tooling for Tesla’s Giga presses globally, providing a
clear indication of the depth our organization has in
the design and know-how required to meet the
challenges of the industry. We expect traditional
OEMs will quickly follow Tesla’s lead in using these
larger die-cast machines as they transition to an EV
future. Consequently, we are making significant
additional investments in our people, equipment and
processes to remain a leading supplier.
Our Automotive Solutions group, which manufac-
tures products for both the interior and storage areas
of passenger vehicles also stands to benefit from
sustainability trends. Exco’s Automotive Solutions
segment typically makes products that are lighter in
weight than competing products and electric
vehicles generally have more cabin and storage
space for which our products are well suited.
In addition to global decarbonization, forces that
will drive growth for our Automotive Solutions
businesses include higher expected levels of future
vehicle production and rising Exco content per
vehicle. Helping this growth, OEMs are increasingly
looking to the sale of higher margin accessory
products as a means to enhance their own profitabili-
ty and Exco is an industry leader for many of these
products.
Sustainable Operations
Exco is committed to running its facilities as efficient-
ly as possible, de¬livering the same innovative,
high-quality products to our customers with less
fewer materials and
energy,
lower waste. As
discussed below, we are investing significant capital
to improve the efficiency of our own operations,
lower our own carbon
footprint, and ensure
responsible and efficient use of materials. We are also
committed to operating in a socially conscious
manner, and above all, to taking great care of our
people. Several of our businesses have achieved ISO
14001 certification, the international standard that
specifies requirements for an effective environmental
management system. Our additive manufacturing
process serves to minimize material use while
delivering increased value to our customers, directly
supporting their own sustainability goals. More
broadly, we remain focused on employing lean
manufacturing principles to reduce and eliminate
waste while also making substantial investments in
new, energy efficient equipment. In order to further
minimize our environmental footprint, we also utilize
incorporate a material
recycled material and
recycling process into our facilities, where possible.
Moreover, our multi-plant
footprint gives us
proximity to market, which we believe contributes to
the resilience of our supply chains, while reducing
our carbon emissions.
Growth-oriented Capital Investment
Program
We remain focused on our capital asset and growth
strategies, and we made great progress in our key
strategic investments in fiscal 2021.
is especially evident
We are pursuing an aggressive capital agenda within
our Casting and Extrusion Segment, to capture
significant growth opportunities in the markets we
in our Castool
serve. This
division, which in November 2021 announced the
opening of our latest production facility in Kenitra,
Morocco. This new facility will enable Castool to
better serve its customers in Europe, the Middle East,
and Africa, and provide increased capacity to meet
the growing global demand for larger and more
EXCO TECHNOLOGIES LIMITED
2
ANNUAL REPORT 2021
complex tooling, driven by the electric vehicle revolu-
Net Income. If achieved – as we expect – Exco’s
tion and emission reduction goals.
Other projects within Castool include a new energy
efficient heat treatment plant located in our existing
Newmarket facility, which is expected to begin
operations in the Spring of 2022. As well, Castool is
moving forward with the construction of a new
greenfield facility
in Mexico, which will further
increase manufacturing capacity and allow us to
better serve the local market in Latin America.
During the year, our Large Mould Group made several
investments
in new equipment
to align
the
manufacturing processes within the group and to
position us to capture growth in the very large
die-cast segment. Installation of this equipment
began in fiscal 2021 and will continue throughout
annual revenue would grow to $750 million and
generate EPS of roughly $1.90
in fiscal 2026.
Consequently, you should expect our capital
expenditures will remain elevated in the next few
years to position us for this significant anticipated
growth. Fortunately, our cash flows remain strong
and our balance sheet retains exceptional financial
strength, which provides support for our goals.
Our people will always be our greatest
strength
bright.
Since our inception some 70 years ago, Exco has
become not just global, but world class. Despite
current industry challenges, our future looks very
fiscal 2022. In addition, this year, our Board approved
Our vision is to be the benchmark for innovation,
three new projects to enhance the Extrusion Group’s
efficiency and quality in the industries we serve. Our
heat treatment capabilities, all which will further
mission is to enhance the look and functionality of
minimize our environmental footprint, enhance
passenger vehicles and tool up light metal industries
quality, and enable a reduction in lead times once
for superior performance. Needless to say, we know
that our continued success in achieving our mission
and vision is only possible because of our employees.
And we have some of the most committed, talented
and high performing people. At Exco, our people will
always be our greatest strength – and I am deeply
grateful to our employees for their hard work, shared
belief in our core values, entrepreneurial spirit, and
commitment to always working safely.
completed in fiscal 2022.
In our Automotive Solutions segment we are adding
40,000 square feet of manufacturing space to accom-
modate the production of several new key programs,
which will together contribute over $65 million of
annual revenue once fully ramped up by the end of
fiscal 2022. Over and above this growth we expect to
maintain our longer-term track record of content per
vehicle growth in the 5-10% range. Of particular note,
much of the segment’s growth is being driven by
content on electric vehicles, which as I mentioned are
exceptionally well suited to our products.
With the benefit of these investments, the launch of
new programs, general market growth and also
market share gains consistent with our history, we
years Exco is currently targeting a compounded
average annual growth rate of approximately 10% for
revenues and slightly higher levels for EBITDA and
expect to achieve substantial growth. Over the next 5
President and CEO
Darren M. Kirk, MBA, CFA
Powering the EV Revolution
More than eighteen months have passed since the
start of the pandemic that fundamentally reshaped
the way we live, work and socialize. And although the
world
is still grappling with
its
impacts, Exco
continues to forge ahead strongly.
In Fiscal 2021, we achieved very good financial results
despite severe macroeconomic headwinds that saw
microchip shortages and broader supply chain
challenges forcefully restrain global automotive
vehicle production. As well, we managed through
rising input costs and a stronger Canadian dollar,
which also crimped our results. Nonetheless, our full
year sales were up 12% compared to fiscal 2020, and
we delivered $0.98 earnings per share, a 42%
improvement compared to $0.69 last fiscal year.
Beyond our financial results, we bolstered the
foundation that will drive our future growth once
current constraints inevitably ease and as the electric
vehicle revolution continues to take hold. We laid out
and promoted our core Exco values, we enhanced our
employee code of conduct, and published our first
sustainability report. We also secured sizeable
program wins, realized significant productivity gains
and mapped out investment plans and a growth
agenda that we expect will enable our revenue,
EBITDA, and EPS to more than double in the next
five-year period.
ESG Strategic Priorities
Looking ahead, as Environmental, Social and
Governance (ESG) initiatives continue to intensify
across all industries, I am pleased to say that Exco’s
ESG strategic priorities are clear. We are very well
positioned to grow profitably and to contribute
positively to the global sustainability movement in
the years ahead.
This year, we engaged in a deeper dialogue about
these issues with our stakeholders than ever before,
as discussed
in our first Sustainability Report
published in December 2021. As highlighted in the
report, ESG factors are an integral part of our strategic
decision making and capital allocation decisions. Our
ESG strategic priorities are built upon our core values
and are designed to ensure that Exco achieves its
vision – to be the benchmark for innovation, efficien-
cy and quality in the industries we serve.
Sustainable Marketplace
Our businesses directly support the electric vehicle
revolution and worldwide movement
towards
reducing emissions. Consequently, as the world
continues to push towards social and environmental
sustainability, the future for our products has never
been brighter. An increase in the use of aluminum
across many industries is the primary driver of this
tailwind, particularly in the automotive industry, our
primary end market.
As the automotive industry adapts to ever-tightening
fuel efficiency standards, lightweight metals are
increasingly displacing structural steel vehicle
components
to make
conventional
(internal
combustion engine) vehicles more environmentally
friendly. As well, electric vehicles make extensive use
of aluminum components to reduce weight and
therefore maximize battery range. Exco’s Casting and
Extrusion segment is especially well positioned to
benefit from this transition, as we are a leading
producer of tools that shape lightweight metals and
we do not manufacture tooling for steel components.
Over the next several years, significant growth is
expected in the application of both extruded and
die-casted components according to a number of
independent market studies.
More recently, die-cast aluminum components and
associated tooling have been increasing significantly
in both size and complexity. Tesla has pushed the
envelope on this front, using massive die casting
machines (so called Giga presses) that are much
larger than those used previously. This enables Tesla
energy,
fewer materials and
lower waste. As
to cast entire subframes of the vehicle (so called Giga
discussed below, we are investing significant capital
castings) rather than assembling numerous stamped
to improve the efficiency of our own operations,
metal components
in the body shop, creating
lower our own carbon
footprint, and ensure
significant manufacturing efficiency gains. The
responsible and efficient use of materials. We are also
tooling required to facilitate this process is much
committed to operating in a socially conscious
larger and more complex, limiting the number of
manner, and above all, to taking great care of our
players able to compete effectively. Our Castool
people. Several of our businesses have achieved ISO
division is already the primary supplier of all shot-end
14001 certification, the international standard that
tooling for Tesla’s Giga presses globally, providing a
specifies requirements for an effective environmental
clear indication of the depth our organization has in
management system. Our additive manufacturing
the design and know-how required to meet the
process serves to minimize material use while
challenges of the industry. We expect traditional
delivering increased value to our customers, directly
OEMs will quickly follow Tesla’s lead in using these
supporting their own sustainability goals. More
larger die-cast machines as they transition to an EV
broadly, we remain focused on employing lean
future. Consequently, we are making significant
manufacturing principles to reduce and eliminate
additional investments in our people, equipment and
waste while also making substantial investments in
processes to remain a leading supplier.
Our Automotive Solutions group, which manufac-
tures products for both the interior and storage areas
of passenger vehicles also stands to benefit from
sustainability trends. Exco’s Automotive Solutions
segment typically makes products that are lighter in
weight than competing products and electric
vehicles generally have more cabin and storage
space for which our products are well suited.
In addition to global decarbonization, forces that
will drive growth for our Automotive Solutions
businesses include higher expected levels of future
vehicle production and rising Exco content per
vehicle. Helping this growth, OEMs are increasingly
new, energy efficient equipment. In order to further
minimize our environmental footprint, we also utilize
recycled material and
incorporate a material
recycling process into our facilities, where possible.
Moreover, our multi-plant
footprint gives us
proximity to market, which we believe contributes to
the resilience of our supply chains, while reducing
our carbon emissions.
Growth-oriented Capital Investment
Program
We remain focused on our capital asset and growth
strategies, and we made great progress in our key
strategic investments in fiscal 2021.
looking to the sale of higher margin accessory
We are pursuing an aggressive capital agenda within
products as a means to enhance their own profitabili-
our Casting and Extrusion Segment, to capture
ty and Exco is an industry leader for many of these
significant growth opportunities in the markets we
products.
Sustainable Operations
Exco is committed to running its facilities as efficient-
ly as possible, de¬livering the same innovative,
high-quality products to our customers with less
serve. This
is especially evident
in our Castool
division, which in November 2021 announced the
opening of our latest production facility in Kenitra,
Morocco. This new facility will enable Castool to
better serve its customers in Europe, the Middle East,
and Africa, and provide increased capacity to meet
the growing global demand for larger and more
LETTER TO STAKEHOLDERS F2021
complex tooling, driven by the electric vehicle revolu-
tion and emission reduction goals.
Other projects within Castool include a new energy
efficient heat treatment plant located in our existing
Newmarket facility, which is expected to begin
operations in the Spring of 2022. As well, Castool is
moving forward with the construction of a new
greenfield facility
in Mexico, which will further
increase manufacturing capacity and allow us to
better serve the local market in Latin America.
to align
in new equipment
During the year, our Large Mould Group made several
the
investments
manufacturing processes within the group and to
position us to capture growth in the very large
die-cast segment. Installation of this equipment
began in fiscal 2021 and will continue throughout
fiscal 2022. In addition, this year, our Board approved
three new projects to enhance the Extrusion Group’s
heat treatment capabilities, all which will further
minimize our environmental footprint, enhance
quality, and enable a reduction in lead times once
completed in fiscal 2022.
In our Automotive Solutions segment we are adding
40,000 square feet of manufacturing space to accom-
modate the production of several new key programs,
which will together contribute over $65 million of
annual revenue once fully ramped up by the end of
fiscal 2022. Over and above this growth we expect to
maintain our longer-term track record of content per
vehicle growth in the 5-10% range. Of particular note,
much of the segment’s growth is being driven by
content on electric vehicles, which as I mentioned are
exceptionally well suited to our products.
With the benefit of these investments, the launch of
new programs, general market growth and also
market share gains consistent with our history, we
expect to achieve substantial growth. Over the next 5
years Exco is currently targeting a compounded
average annual growth rate of approximately 10% for
revenues and slightly higher levels for EBITDA and
Net Income. If achieved – as we expect – Exco’s
annual revenue would grow to $750 million and
in fiscal 2026.
generate EPS of roughly $1.90
Consequently, you should expect our capital
expenditures will remain elevated in the next few
years to position us for this significant anticipated
growth. Fortunately, our cash flows remain strong
and our balance sheet retains exceptional financial
strength, which provides support for our goals.
Our people will always be our greatest
strength
Since our inception some 70 years ago, Exco has
become not just global, but world class. Despite
current industry challenges, our future looks very
bright.
Our vision is to be the benchmark for innovation,
efficiency and quality in the industries we serve. Our
mission is to enhance the look and functionality of
passenger vehicles and tool up light metal industries
for superior performance. Needless to say, we know
that our continued success in achieving our mission
and vision is only possible because of our employees.
And we have some of the most committed, talented
and high performing people. At Exco, our people will
always be our greatest strength – and I am deeply
grateful to our employees for their hard work, shared
belief in our core values, entrepreneurial spirit, and
commitment to always working safely.
Darren M. Kirk, MBA, CFA
President and CEO
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ANNUAL REPORT 2021
CONTENTS
5
23
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Management’s Discussion and Analysis
Independent Auditor’s Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be
read in conjunction with the consolidated financial statements and related notes of Exco Technologies Limited
(“Exco”, or “Company”) for the year ended September 30, 2021. This MD&A has been prepared as of December 1,
2021.
This MD&A has been prepared by reference to the MD&A disclosure requirements established under National
Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102”) of the Canadian Securities Administrators.
Additional information regarding Exco, including copies of its continuous disclosure materials such as its Annual
Information Form, is available on its website at www.excocorp.com or through the SEDAR website at www.sedar.com.
In this MD&A, 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
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. 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. 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.
CAUTIONARY STATEMENT
Information in this document relating to: projected North American light vehicle sales and production, original
equipment manufacturer’s (OEM) capital investment levels, the rate and intensity of OEM development of all-electric
or hybrid powertrain systems, the level of order backlog 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 and operating efficiencies are forward-looking statements. We 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
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and/or guidance or outlook as to future revenue, sales, production sales, margin, earnings, earnings per share, including
the outlook for 2026.
Readers are cautioned not to place undue reliance on forward-looking statements found mainly in the MD&A section
but also elsewhere throughout this document. These forward-looking statements are based on our plans, intentions or
expectations which are based on, among other things, the impact of the global semiconductor shortage on automotive
production volumes, the 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, 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. 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. For a more extensive discussion of Exco’s risks and uncertainties
see the ‘Risks and Uncertainties’ section in this Annual Report and other reports and securities filings made by the
Company. This information is available at www.sedar.com.
While Exco believes that the expectations expressed by such forward-looking statements are reasonable, we cannot
assure that they will be correct. In evaluating forward-looking information and statements, readers should carefully
consider the various factors which could cause actual results or events to differ materially from those indicated in the
forward-looking information and statements. Readers are cautioned that the foregoing list of important factors is not
exhaustive. Furthermore, 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.
MANAGEMENT’S DISCUSSION AND ANALYSIS
CORE BUSINESSES
Exco is a global designer, developer and manufacturer of dies, moulds, components and assemblies, and consumable
equipment for the die-cast, extrusion and automotive industries. The Company reports in two business segments.
The Casting and Extrusion segment designs, develops and manufactures tooling and consumable parts for both
aluminum die-casting and aluminum extrusion machines. Operations are based in North America, South America,
Thailand and Morocco and serve automotive and industrial markets around the world. Exco is a leader in most of its
markets which principally consist of North America for die-cast tooling, North, Central and South America for
extrusion tooling and globally for consumable tooling parts and related equipment. Across its markets, Exco is focused
on further entrenching itself by reducing lead times and manufacturing costs through design and process
enhancements. Major capital projects have been implemented in recent years to increase capacity, reduce lead times,
further improve quality and reduce costs while pushing the envelope on innovation. Exco’s expansion into producing
tooling components additively in recent years is a good example of this. The Company is now a clear industry leader
in the design, engineering and manufacturing of 3D printed tooling components globally. In the machine consumables
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market, Exco is leveraging its long tradition as a reliable, high-quality supplier of consumable components for the
injection system of die-cast machines and aluminum extrusion presses by evaluating, coordinating and ultimately
maximizing customers’ overall equipment performance and longevity.
The Automotive Solutions segment designs, develops and manufactures automotive interior trim components and
assemblies primarily for passenger and light truck vehicles. The Polytech and Polydesign businesses manufacture
synthetic net and other cargo restraint products, injection-moulded components, shift/ brake boots, related interior trim
components and assemblies. Polydesign is also a manufacturer and/or finisher of injection moulded interior trim and
instrument panel components, sun visors, seat covers, head rests and other cut and sew products. Neocon is a supplier
of soft plastic trunk trays, rigid plastic trunk organizer systems, floor mats and bumper covers. AFX Industries is a
tier 2 supplier of leather and leather-like interior trim components to the North American automotive market. AFX
also supplies die cut leather sets for seating and many other interior trim applications as well as injection-molded,
hand-sewn, machine-sewn and hand-wrapped interior trim components of all sorts. Automotive Solutions
manufacturing facilities are located in Canada, the United States, Mexico, and Morocco supplying the automotive
markets in North America, Europe and to a lesser extent, Asia.
VISION AND STRATEGY
The Company’s vision is “to be the benchmark for innovation, efficiency and quality in the industries we serve.” The
Company’s mission is “we enhance the look and functionality of passenger vehicles and tool up light metal industries
for superior performance.” Exco has pursued several key strategies to achieve sustainable revenue and earnings
growth. These include: (1) strengthening our leadership and competitive position in our chosen markets through
automation and technology, (2) minimizing our cost structure, (3) maintaining the bulk of our productive capacity in
lower-cost jurisdictions and in close proximity to our customers’ operations, (4) diversifying our revenue base with
new products and services that leverage our competitive strengths, and (5) capitalizing on organic and inorganic
growth opportunities in both our existing and select developing markets – see “Marketplace opportunities and
efficiency initiatives”, below.
Exco was founded on a commitment to excellence and a culture of entrepreneurship and dedication to ethical business
practices. We encourage continuance of these traits by providing incentives for our managers to grow their business
and giving our employees the latitude to push the envelope on innovation while adhering to our Code of Conduct.
MARKETPLACE OPPORTUNITIES AND EFFICIENCY INITIATIVES
In the automotive sector, Original Equipment Manufacturers (OEMs) continue to move towards electric vehicles and
to make their vehicles lighter in weight for higher fuel efficiency. Exco’s products form an integral part of this industry
transformation.
Lightweight metals such as aluminum are increasingly displacing steel in order to make conventional (internal
combustion engine) vehicles more environmentally friendly. As well, electric vehicles make extensive use of
aluminum components to reduce weight and therefore maximize battery range. Exco’s Casting and Extrusion segment,
which comprises 43% of our revenues, is especially well positioned to benefit from this ongoing transition.
More recently, die-cast aluminum components and associated tooling has been increasing significantly in both size
and complexity. Tesla has pushed the envelope in this regard, using die casting machines that are much larger than
those used previously. This enables Tesla to cast entire subframes of the vehicle rather than assembling numerous
stamped metal components in the body shop, creating significant manufacturing efficiency gains. We expect
traditional OEMs will ultimately follow Tesla’s lead over time in using these larger die-cast machines, and we are
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making significant additional investments in our people, equipment and processes to remain a leading supplier in this
market.
Our customers are also increasingly focused on improving their own productivity and our products are actively helping
in this regard. For example, we are now regularly designing and incorporating 3D printed components into our moulds
which greatly enhances the overall quality and performance of the die-cast process while reducing the use of steel,
energy and transportation costs. Similarly, Castool has evolved their systems to provide less expensive, longer lasting,
more energy efficient and safer products. The group focuses on making components and accessories that will increase
the customers’ tooling life while ensuring less scrap and energy consumption. In doing so, we promote a higher energy
and material efficiency in the value chain of production, while the same service is being delivered to the end-consumer.
Our Automotive Solutions group, which manufactures products for the interior passenger compartments and trunks
of vehicles, is also a contributor to vehicle lightweighting trends. Exco’s Automotive Solutions segment typically
makes products that are lighter in weight than competing products. For example, Neocon offers lightweight material
options that are an ideal fit for vehicles regardless of powertrain. By incorporating a foaming additive during the
extrusion process and creating air voids in the base layer, Neocon created a thermoplastic rubber (TPR) product that
is 45% lighter than a traditional thermoplastic elastomer (TPE) injection molded floormat alternative.
Exco is committed to running its facilities as efficiently as possible, delivering the same innovative, high-quality
products to our customers with less energy, fewer materials and lower waste. In this regard, several of our businesses
have achieved ISO 14001 certification, the international standard that specifies requirements for an effective
environmental management system. More broadly, we remain focused on employing lean manufacturing principles
to reduce and eliminate waste while also making substantial investments in new, energy efficient equipment. As well,
our multi-plant footprint with standardized manufacturing processes provides superior capacity utilization and gives
proximity to market which reduces carbon emissions through reduced transportation requirements. Several other
technological advancements and initiatives are being employed throughout the organization to help achieve our goals.
2021 OVERVIEW
COVID-19
The economic impact of COVID-19 on the Company was less severe in fiscal 2021 compared to fiscal 2020. The risk
of “stay-at-home” orders and operational shut-downs existed around the globe, however, the majority of our operations
operated without such shut-downs. Our operations benefited from high vaccination adoption rates amongst employees
globally, governments and health care systems managing COVID-19 caseloads and contact tracing, and continued
focus within our operations to ensure the safety of our employees by developing policies and procedures to ensure
continuous operations and reduce the threat of potential outbreaks.
Sales and Earnings
Fiscal 2021 began with strong operational results from all divisions within both segments. North American and
European automotive production levels rebounded in late Q4 of fiscal 2020 as OEMs replenished historically low
inventory levels and ramped up production to meet consumer demands. This was reflected in the Company’s Q1 and
Q2 sales and earnings. Fiscal 2021 H1 sales and earnings were up 41% and 128% respectively compared to fiscal
2020 H2.
The first significant challenge to our Automotive Segment results was the February Texas winter storm that shut down
operations, reduced oil production for a number of weeks, and created resin shortages and premium pricing. This
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created challenges in procuring resins and similar polymer products. The storm impacted sales and earnings in the
second quarter and increased resin prices for months to follow.
The global semiconductor chip supply chain shortage negatively impacted automotive production around the world.
Virtually every OEM, every platform and model has been impacted by this issue. OEM production lines were idled
for weeks and months as they struggled to receive semiconductor chips. Customer releases to suppliers changed daily.
The impact of the semiconductor shortage did not materially impact the Automotive Segment until mid-March and
continued throughout the year. The Automotive segment sales dropped 20% between the first and second half of fiscal
2021 primarily due to the semiconductor chip shortage.
The Casting and Extrusion segment remained consistent all year. Negative impacts from the semiconductor chip
shortage were offset by strength in the Extrusion group and Castool’s ability to increase market share and develop
new customers. This segment was supported by a higher demand for aluminum globally driven by automotive light-
weighting, building construction, green energy, and a run-up in demand for consumer durables.
Additional challenges impacting Exco’s overall results include freight and transportation challenges, inflationary price
pressures and a strengthening Canadian dollar. Freight costs increased and shortages of trucks, containers and drivers
negatively challenged delivery dates. Inflationary price pressure on raw materials (steel, copper, leather goods and
resins), components and labour were experienced at various levels at all Exco operations.
In spite of these global manufacturing challenges and recessionary conditions caused by COVID-19, full year sales
and earnings were up 12% and 42% respectively compared to fiscal 2020 as we benefited from the recovery from
COVID-19 shut downs, sizeable past and ongoing investments, significant efficiency gains, market share gains, and
new product launches.
Capital Asset Expansion and Growth
As Exco rebounded from the COVID-19 challenges throughout fiscal 2021, the Company remained focused on its
capital asset and growth strategies. Investment in capital assets increased 65% in fiscal 2021 as the Company invested
$38 million in capital assets compared to $23 million in the prior year with approximately $28.4 million identified as
growth capital expenditures compared to $7.8 million in the prior year. The major projects identified during fiscal
2021 include:
• Castool Morocco – this new plant which was substantially completed by the end of the year will allow Castool to
better penetrate the European market. Although COVID-19 delayed the opening of this facility, management
estimates the delay was approximately 3-4 months.
• Castool Heat treatment - Situated within our existing Newmarket facility, management expects production will
begin in the Spring of 2022. This facility gives us the ability to process regular and oversized components, reduce
shipping and scheduling conflicts with third party suppliers, ensure faster delivery to our customers, increase
quality control, mitigate risks of relying on a third-party supplier for an essential process and the energy efficient
equipment reduces the Company’s carbon dioxide footprint.
• Castool Mexico – This greenfield facility was approved in fiscal 2021 and will begin construction in fiscal 2022.
This facility will be operational in fiscal 2023 and will increase manufacturing capacity and will better penetrate
the market in Mexico.
• Large Mould – During the year, the Large Mould group added a fourth additive machine and ordered small,
medium and large 5 axis machines for all locations to commonize manufacturing processes within the group and
positions us to capture growth in the very large die-cast segment. Installation of this equipment began in fiscal
2021 and will continue throughout fiscal 2022.
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• Extrusion group Heat Treatment – During fiscal 2021, management evaluated the Extrusion group’s heat treatment
capabilities and approved three projects: adding Heat treatment in Mexico, increasing capacity in Texas, and
replacing our Markham Heat treatment with energy efficient equipment. These changes will be completed in fiscal
2022.
• Automotive Solutions - the Polytech and Neocon facilities will be expanded (combined 40,000 square feet) to meet
the growing demand from our customers’ significant program awards. These projects were launched in fiscal 2021
and will be completed during fiscal 2022.
Outlook
The overall outlook is favorable across Exco’s various businesses. Consumer demand for automotive vehicles is
outstripping supply in most markets, constrained by a shortage of microchips and to a lesser extent other raw materials
and components. Dealer inventory levels remain near record lows, while average transaction prices 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, OEMs are selling higher margin accessory products that Automotive Solutions
develops as a means to enhance OEM profitability levels. 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 is enticing new market entrants into the automotive OEM
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. Tesla, in
particular, has adopted the approach of utilizing much larger die cast machines to cast entire vehicle sub-frames from
an aluminum based alloy rather than assemble numerous pieces of separately stamped and welded components of
ferrous metal. Exco expects traditional OEMs will follow this trend and is positioning its operations to capitalize
accordingly.
On the cost side, inflationary pressures have intensified in recent quarters while prompt availability of various input
materials and components has become more 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.
Exco 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 of our own operations and lower our own carbon
footprint.
Over the next 5 years Exco is currently targeting a compounded average annual growth rate of approximately 10% for
revenues and slightly higher levels for EBITDA and Net Income during this timeframe, producing annual EPS of
roughly $1.90 in fiscal 2026. 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
anticipate.
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ANNUAL REPORT 2021
Consolidated Results - Sales
Annual sales totalled $461.2 million compared to $412.3 million last year – an increase of $48.9 million or 12% over
last year. The increase reflects the economic recovery from the global impact of COVID-19 partially offset by
constraints to automotive production volumes due to supply chain disruptions. The US dollar averaged 7% lower
($1.26 versus $1.35) against the Canadian dollar over the year decreasing sales by $22.4 million. The Euro remained
relatively unchanged against the Canadian dollar over the prior year.
Selected Annual Information
The following table sets out selected financial data relating to the Company’s years ended September 30, 2021 and
2020. This financial data should be read in conjunction with the Company’s audited consolidated financial statements
for these years:
(in $ millions except per share amounts)
Sales
Net income for the year
Earnings per share from net income
Basic and diluted
Total assets
Cash dividend paid per share
EBITDA
Segment Sales
2021
$461.2
$38.4
$0.98
$430.1
$0.40
$70.1
2020
$412.3
$27.4
$0.69
$409.8
$0.38
$53.5
● Automotive Solutions Segment
Sales in this segment were $263.2 million – an increase of $32.1 million or 14% from the prior year. The sales increase
was driven by the market recovery from COVID-19 partially offset by the supply chain shortages of semiconductor
microchips and other global supply chain challenges. In fiscal 2021 there were no operations idled due to COVID-19
whereas three of the segment’s four businesses were completely shut down for two and a half months due to COVID-
19 government executive orders in fiscal 2020. The strengthening of the Canadian dollar versus the US dollar in fiscal
2021 compared to fiscal 2020 decreased segment sales in North America by $12.3 million. There was minimal impact
to European sales when converting the Euro to Canadian dollars in fiscal 2021 compared to fiscal 2020. Excluding
foreign exchange rate movements segment sales were higher by $44.4 million, or 19% compared to fiscal 2020.
During the year, overall industry vehicle production volumes were higher by roughly 4% in North America and Europe
on a combined basis as the rebound from COVID-19 was countered by the semiconductor chip shortage. Overall
Exco’s 19% increase in sales versus the industries 4% increase in production reflects the Company’s strong platform
and product mix. Despite the challenges from the semiconductor shortage on vehicle production, COVID-19, global
supply chain and freight challenges, segment sales were supported by a number of program launches for both new and
existing products, particularly at Polytech and Neocon. More broadly, the segment’s four businesses continue to focus
their efforts on launching substantial programs, quoting significant new opportunities from EV and new market
entrants, customer diversification and higher margin activity. Management sees continuing opportunity for future
growth supported by recent program wins and quoting activity for new programs in both North American and Europe.
• Casting and Extrusion Segment
Sales in this segment were $198.0 million – an increase of $16.8 million or 9% from the prior year. Excluding the
adverse impact of foreign exchange, segment sales increased $26.9 million or 15% compared to fiscal 2020. Sales in
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the Extrusion and Castool groups exceeded the prior year. There was considerable demand for extruded products,
particularly in the construction, auto and consumer goods industries, that drove up Extrusion group sales. The
Extrusion group increased its capacity through standardization which allowed it to move orders within the group to
ensure customer demands were met. In addition to winning market share from existing customers, the Castool group
continues to see significant growth from new customers using new large die-cast machines. Sales in the Large Mould
group in the first half of 2021 were down compared to the prior year, but second half sales rebounded and exceeded
second half 2020 sales and H1 fiscal 2021 sales. Timing of orders, COVID-19 challenges and vehicle production
delays due to semiconductor shortages negatively influenced the Large Mould group’s fiscal 2021 sales. Quoting
activity in the Large Mould group remains strong with the group diversifying its customer base. Double digit sales
growth from the Additive department continued as new and existing customers realized the benefits of additive
components. Additive parts improve the efficiency of our existing moulds. Where possible, the Casting and Extrusion
group took pricing actions to protect margins.
Cost of Sales
On a consolidated basis, cost of sales totalled $352.0 million – an increase of $28.2 million or 9% from the prior year.
Cost of sales as a percentage of sales decreased from 79% in fiscal 2020 to 76% in the current year. Raw materials
including petroleum/natural gas-based resins, leather goods, plastic products, and tool grade steel prices increased due
to inflationary and macro economic pressures. Raw material costs as a percentage of sales were consistent to the prior
year because of product and sales mix variances within the Company’s operating segments. Direct labour wage
increases were offset by manufacturing improvements and strategic fixed asset purchases that improve productivity.
Therefore direct labour as a percentage of sales remained constant for both operational segments. Overhead costs
increased with higher sales volume and activity, however with continued cost savings initiatives and improved
overhead absorption, overhead as a percentage of sales declined.
Selling, General and Administrative Expenses
Selling, general and administrative expense in the current year increased to $39.2 million from $35.2 million last year,
an increase of 11%. Current year Selling, General and Administrative expenses increased due to higher compensation,
incentives, commissions, severance expenses, and foreign exchange losses from a strengthening Canadian dollar.
These higher expenses were offset by lower selling and travel expenses for the year and the reversal of bad debt
provisions booked in fiscal 2020. Finally, fiscal 2020 Selling, General and Administrative expenses included
government subsidies of $7.0 million relating to COVID-19 assistance (as disclosed in Note 17) which reduced the
overall costs in 2020. The fiscal 2021 subsidies were only $0.5 million.
Depreciation and Amortization
Consolidated depreciation expense in fiscal 2021 of $17.4 million is consistent with the prior year. Depreciation
expense within the Casting and Extrusion segment totalled $14.0 million in fiscal 2021 versus $13.8 million in fiscal
2020 and depreciation expense within the Automotive Solutions segment totalled $3.4 million versus $3.5 million last
year. Amortization expense of $3.7 million in fiscal 2021 decreased slightly from $4.0 million from 2020. The
carrying value of total intangible assets amounted to $25.8 million as at September 30, 2021 - down from $30.5
million. The Company expects the annual amortization and depreciation expense will total approximately $3.6 million
and $20.3 million respectively in fiscal 2022. Depreciation expense is anticipated to increase due to the launch of our
Castool facility in Morocco and the Heat treatment expansion program (in Newmarket, Markham, Texas and Mexico).
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Interest
Net interest expense in the current year totalled $0.4 million in fiscal 2021 compared to $0.6 million in fiscal 2020.
This reduction is primary attributable to lower average debt levels in fiscal 2021 compared to fiscal 2020.
Income Taxes
Exco’s effective income tax rate was 20.9% in fiscal 2021 compared to an effective income tax rate of 12.7% in fiscal
2020. The lower effective income tax rate in fiscal 2020 was driven by the reversal of a $2.3 million deferred tax
liability relating to ALC. After adjusting for the fiscal 2020 year items, the effective tax rate in 2020 was 22.0% which
is consistent with fiscal 2021.
Net Income
• Consolidated
The Company reported consolidated net income of $38.4 million or basic and diluted earnings of $0.98 per share in
fiscal 2021, compared to consolidated net income of $27.4 million or basic and diluted earnings of $0.69 per share
the prior year.
• Automotive Solutions Segment (Operating Earnings)
The Automotive Solutions segment recorded Pretax income of $30.7 million for the year compared to $21.0 million
last year – an increase of $9.7 million or 46%. Included in the fiscal 2020 segment earnings was $2.3 million in
COVID-19 subsidies. Excluding these subsidies, earnings increased 64% compared to the prior year. The key
contributors to the increase in profitability include the partial recovery of automotive production volumes following
the impact of COVID-19 in 2020, the launch of new programs (mainly at Neocon and Polytech) offset by the global
supply chain issues including the semiconductor shortage, freight and transportation challenges, and increased raw
material costs impacting resins and leather. In fiscal 2020, 3 out of 4 production facilities were idled in the 3rd quarter
with limited ability for these plants to reduce labour costs in these periods due to a lack of government support in
Mexico and Morocco. Although in fiscal 2021 the segment experienced major fluctuations in production due to supply
chain challenges, our plants operated throughout the entire year. Furthermore, Polytech and Neocon launched
significant programs in the current year that contributed both to the top and bottom line of these divisions. AFX and
Polydesign also had new launches, however they were impacted more significantly by the supply chain disruption due
to their product mix and geographic location. Segment sales and profitability were very strong in the first and second
quarter of fiscal 2021 as the global economy filled pent up demand due to the impact of COVID-19 on production in
fiscal 2020. There was high demand and the vehicle inventories were low so sales were very strong in these quarters.
Starting in our third quarter, the impact of the semiconductor chip shortage and other supply chain challenges began
to emerge and our operations experienced unreliable volumes, customer releases were sporadic and orders were
constantly changing. Management worked diligently to contain expenses, was forced to increase inventory to be able
to react quickly to changing customer demands and endeavored to increase production efficiencies where possible to
maintain and grow margins.
Although there exists uncertainty relating to how the global supply chain challenges and COVID-19 will affect the
recovery of global automotive production volumes and the impact inflation may have on raw material and other costs
in the year ahead, management remains optimistic on the segment’s prospects for continued profitable growth. This
view is supported by extremely low vehicle inventory levels, strong customer demand for new vehicles, new material
program launches already won, and sustained existing program wins combined with decent quoting activity for new
business that maximizes our profitability.
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• Casting and Extrusion Segment (Operating Earnings)
Casting and Extrusion Pretax income was $25.7 million for the year compared to $18.0 million last year – an increase
of $7.7 million or 43%. Included in the fiscal 2020 segment earnings was $4.6 million in COVID-19 subsidies.
Excluding these subsidies, earnings increased 92% compared to the prior year. The Extrusion group operating
earnings were strong at all six locations. This growth is due to the steady performance at our flagship locations in
Markham and Michigan, in addition, the smaller locations grew significantly. These results validate historical capital
asset investments and centralizing procedures to ensure efficiencies and demonstrate the power of absorbing fixed
costs with steady sales performance. The Extrusion group was able to keep up with demand growth through the ability
to move manufacturing between operations based on capacity. Castool’s performance benefited from strong sales
with existing and new customers, timely capital asset investments which increased capacity and redesigning
manufacturing processes that allowed for operating efficiencies in the face of competition and pricing pressure.
Although quoting activity remained strong and the Large Mould group continued to diversify its customer base with
traditional OEM and new automotive customers, its earnings were down compared to the prior year. The group began
the process of standardizing manufacturing processes and capital assets across all three locations and centralizing
management functions. Generally, management remains focused on reducing this Segment’s overall cost structure,
improving manufacturing efficiencies and building new greenfield operations. Such activities together with higher
sales generally are expected to lead to improved segment profitability over time.
Corporate Segment (Operating Expense)
•
Corporate expense in the current year amounted to $7.4 million compared to $6.9 million in the prior year. The year
over year increase was primarily driven by increased incentive compensation, stock option, and foreign exchange
expenses in 2021 relative to 2020.
EBITDA
EBITDA in the current year amounted to $70.1 million compared to $53.5 million the prior year – an increase of $16.6
million or 31%. EBITDA margin increased to 15.2% compared to 13.0% from the prior year. EBITDA in the Casting
and Extrusion segment was $40.2 million, which was $7.8 million higher than in fiscal 2020. Casting and Extrusion
segment EBITDA margin increased to 20.3% from 17.9% the prior year. The Automotive Solution segment EBITDA
was $37.2 million, which was higher by $9.3 million, or 34% compared to fiscal 2020. The Automotive Solution
segment EBITDA margin increased to 14.1% in fiscal 2021 compared to 12.1% the prior year.
Quarterly Results
The following table sets out financial information for each of the eight fiscal quarters through to the fiscal year
ended September 30, 2021:
($ thousands except per share
amounts)
September 30,
2021
Sales
Net income
Earnings per share
Basic
Diluted
$106,442
$7,088
$0.18
$0.18
June 30,
2021
$114,967
$8,682
$0.22
$0.22
March 31,
2021
$118,360
$11,734
December 31,
2020
$121,402
$10,916
$0.30
$0.30
$0.28
$0.28
EXCO TECHNOLOGIES LIMITED
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($ thousands except per share
amounts)
September 30,
2020
Sales
Net income
Earnings per share
Basic
Diluted
$100,680
$10,719
$0.27
$0.27
June 30,
2020
$70,962
($848)
($0.02)
($0.02)
March 31,
2020
$120,244
$9,495
December 31,
2019
$120,423
$8,058
$0.24
$0.24
$0.20
$0.20
Exco typically experiences softer sales and profit in the first fiscal quarter, which coincides with our customers’ plant
shutdowns in North America during the Christmas season. Exco also experiences a slowdown in the fourth fiscal
quarter as North American customers typically schedule summer plant shutdowns and Exco’s European customers
typically curtail releases during the month of August to accommodate vacations.
Current year quarterly comparisons varied from these trends due to the impact of COVID-19 and the weakness in
automotive production due to the semiconductor supply issues. The first two quarters of the current year showed a
strong rebound in sales and profitability as the economy bounced back from the impacts of COVID-19 from the third
and fourth quarters in Fiscal 2020. The negative impact of the semiconductor shortage on automotive production and
the strengthening of the Canadian dollar resulted in lower sales and profitability in the third and fourth quarter
compared to the first two quarters in Fiscal 2021.
Fourth Quarter
In the fourth quarter, consolidated sales were $106.4 million – an increase of $5.7 million or 6% from the prior year.
Over the quarter the average USD/CAD exchange rate was 5% lower ($1.26 versus $1.33 last year) decreasing sales
by $4.2 million. The average EUR/ CAD exchange rate was 6% lower ($1.48 versus $1.57 last year) decreasing sales
by $0.8 million compared to the fourth quarter of fiscal 2020.
The Automotive Solutions segment experienced a 7% decrease in sales, or a reduction of $4.4 million, to $56.8 million
from $61.2 million in the fourth quarter of 2020. Excluding the impact of foreign exchange, segment sales dropped
$1.4 million or 2%. The sales decrease was driven by lower vehicle production volumes and the delay of program
launches due to supply chain disruptions including semiconductor chip shortages and transportation challenges.
Considering North American vehicle production was down 25% during the quarter compared to a year ago and
European vehicle production was down about 30%, this demonstrates the segment’s strength in terms of customer,
vehicle, and product mix. Polytech and Neocon sales were up compared to the prior year quarter due to the strength
of new program launches and product/vehicle mix. The supply chain disruption impacted Polydesign and AFX’s sales
to a greater extent due to product and vehicle mix at these operations. Looking forward, OEM vehicle production
volumes are likely to increase as the semiconductor chip shortage appears to be improving. Exco will additionally
benefit from several new program launches as well as de-stocked inventory levels of accessory products in customer
channels. Quoting activity remains encouraging and we see ample opportunity to maintain our longer term trend of
increasing our content per vehicle across our portfolio of businesses.
The Casting and Extrusion segment recorded sales of $49.6 million in the fourth quarter compared to $39.5 million
last year – an increase of $10.1 million or 26%. Excluding the negative impact of foreign exchange movements, the
segment’s sales were up 31% for the quarter. The Extrusion group experienced higher sales at all locations, reflecting
pricing action, demand for extrusion tools across all industry segments particularly in the building, automotive,
consumer durable goods and green energy sectors together with operational improvements that have continued to
reduce lead times contributing to market share gains. The Castool group’s revenues were higher for the quarter as
demand for die-cast consumable tooling and extrusion products was solid, with a slightly stronger demand for the die-
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
cast consumable tooling solutions leading the quarter. Castool growth was being driven by electric vehicle production
and held up despite lower industry vehicle production. Also, extrusion customers ordered capital equipment to keep
up with strong demand for aluminum extruded products. Castool continues to invest heavily in new equipment and
advance its proprietary tooling solutions which are increasingly required by customers as their manufactured
components increase in size and complexity and as they focus on improving their own productivity and efficiency.
The Large Mould group sales were up 34% from the prior year quarter with a mixture of new tools, die rebuilds and
solid additive sales representing key drivers of the results. New business from current and new customers was awarded
in the quarter; as a result, inventories and backlog continue to grow. Looking forward, quoting activity within all
groups in this segment is strong and will benefit as automotive production rebounds.
The Company’s fourth quarter consolidated net income decreased to $7.1 million or earnings of $0.18 per share
compared to $10.7 million or earnings of $0.27 per share in the same quarter last year – an EPS decrease of 33%. The
effective income tax rate was 27% in the current quarter compared to negative 3% in the same quarter last year. The
effective tax rate in the current period reflects the impact of non-taxable expenses in foreign jurisdictions and the
payment of franchise and state taxes. The tax rate in the prior year quarter reflects the reversal of $2.3 million of
deferred tax liabilities from resolved tax exposures and $0.3 million of R&D tax credits net of certain foreign tax
adjustments. Excluding these items, the effective tax rate was 22% in the prior year quarter.
Fourth quarter pre-tax earnings in the Automotive Solutions segment totalled $4.5 million, a decrease of $2.8 million
or 38% over the same quarter last year. Included in the prior year fourth quarter was COVID-19 wage subsidies of
$1.3 million. Fourth quarter Automotive sales are traditionally lower due to summer shutdowns and in the current
year quarter these were lower with the impact of the semiconductor shortage. In the prior year quarter, summer sales
were stronger due to increased volumes as the economy began to recover from COVID-19 and supply chains needed
to be re-stocked. The disruptions caused by the semiconductor shortage were unpredictable, making it very difficult
to manage operations efficiently. Our plants often build products based on releases only to be informed of cancelations
or delays. Other times, releases would be accelerated causing our operations to work overtime and incur expedited
shipping costs. These production and shipping challenges also created inefficiencies that increased overhead and
direct labour costs during the quarter. Furthermore, the segment incurred severance costs as lower demand for some
products required reorganization of labour. Management is optimistic that its overall cost structure will return to
relatively normal levels in future quarters as scheduling and predictability improves with strengthening volumes.
Pre-tax earnings in the Casting and Extrusion segment improved by $1.7 million or 40% over the same quarter last
year to $5.9 million. The earnings improvement was driven by increased contributions from the Extrusion and Castool
groups. The prior year quarter also included $2.7 million in COVID-19 subsidies. Excluding the impact of the
COVID-19 subsidies, the improvement over the prior year quarter is $4.4 million. The Extrusion group experienced
higher steel costs that were, in part, offset by direct labour improvements and increased absorption of overheads from
increased sales as manufacturing efficiencies flowed to the bottom line. Castool and the Large Mould group’s stronger
sales and product mix increased absorption of fixed costs to generate increased earnings. 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 fourth quarter recorded expenses of $0.7 million compared to $1.1 million last year
mainly due to foreign exchange gains in the current quarter compared to losses in the prior year period, partially offset
by higher compensation expenses incurred in the current quarter. As a result of the foregoing, consolidated EBITDA
in the quarter was $15.3 million (14.4% of sales) compared to $15.8 million (15.7% of sales) last year.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
FINANCIAL RESOURCES, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows from Operating Activities
Operating cash flow before net changes in non-cash working capital was $62.8 million in fiscal 2021 compared to
$49.5 million in fiscal 2020. The $13.3 million year over year increase was primarily driven by higher net income in
fiscal 2021. Net change in non-cash working capital was $15.0 million cash used in fiscal 2021 compared to $14.9
million cash provided last year. The year over year cash working capital variance was driven by higher inventories
due to rising costs, strong customer orders, new product launches and increasing quantities on hand to manage
fluctuations due to supply chain issues. Increases in accounts receivable were somewhat offset by increases in
accounts payable and accruals. The negative working capital variance reduced cash from operating activities to $47.8
million in fiscal 2021. This change in working capital was expected considering the significant reduction in working
capital experienced in fiscal 2020 due to the impact of COVID-19.
Cash Flows from Financing Activities
Cash used in financing activities amounted to $16.9 million compared to a use of $36.0 million in fiscal 2020 for a
year over year decrease of $19.1 million. The $16.9 million cash used reflects the dividend payment of $15.5 million
and an overall debt reduction of $1.0 million. The $19.1 million decrease in cash used in financing reflects the
voluntary suspension of the Normal Course Issuer Bid (fiscal 2020 the Company purchased $9.2 million in shares)
and a $10.0 million reduction in debt.
In addition to the obligations disclosed on its consolidated statements of financial position, Exco also enters into lease
arrangements from time to time. Exco owns all of its 16 manufacturing facilities and materially all of its production
equipment. The Company also leases sales and support centers in Troy and Port Huron, Michigan, and a warehouse
in Brownsville, Texas. The following table summarizes the Company’s significant short-term and long-term
commitments on an undiscounted basis:
(000’s)
Bank indebtedness
Trade accounts payable
Lease commitments
Purchase commitments
Capital expenditures
Total
$5,540
33,793
864
36,036
20,059
< 1 year
$5,540
33,793
418
36,036
20,059
1-3 years
-
-
417
-
-
Over 3 years
-
-
29
-
-
$96,292
$95,846
$417
$29
∗ Exco leases facilities, automotive, material handling vehicles and other miscellaneous office equipment. It is not Exco’s policy
to purchase these assets at the expiry of their terms but occasionally it may purchase the assets at the end of the lease terms when
the purchase options are favorable. Exco does not expect any material liquidity or capital resource impacts from these possible
purchases.
Cash Flows from Investing Activities - Capital Expenditures
Cash used in investing activities in the current year totalled $38.3 million compared to $22.1 million last year. The
increase in investing activities reflect the construction of our Castool Morocco facility, investments in the heat
treatment facility in Newmarket, upgrades to the Extrusion group’s heat treatment assets and other capital
improvement projects across the company to support growth initiatives.
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ANNUAL REPORT 2021
In fiscal 2022, Exco plans to invest approximately $55.0 million in capital expenditures of which roughly $12.0 million
is for maintenance capital expenditures and $43.0 million is for growth capital expenditures. The growth capital
expenditures include: new and expanded energy efficient Extrusion heat treatment equipment in multiple locations,
Castool energy efficient heat treatment equipment in Newmarket, Castool’s construction of a new plant in Mexico,
building expansion at Neocon’s existing plant in Halifax to support awarded business, upgraded machinery and
equipment within the Casting group to standardize group operations and enhance capabilities in anticipation of larger
and more complex die-cast tooling and components, as well as several other capital improvement projects.
We expect that in fiscal 2022 our cash flow from operations will exceed anticipated capital expenditures. Together
with our cash deposits and our unused credit lines we believe we have ample financial resources to fund our operating
and capital requirements.
Financial Position and Cash Balance
Exco’s financial position and liquidity remains strong. The Company’s conservative financial policies have served it
well throughout the years and has allowed it to take advantage of acquisition opportunities and further organic growth
investments as circumstances permit.
Exco’s net cash position was $18.6 million at September 30, 2021 compared to net cash of $26.6 million as at
September 30, 2020, representing a reduction of $8.0 million. The Company generated strong Free Cash Flow of $37.3
million and paid dividends of $15.5 million. Fiscal 2021 Growth capital expenditures of $28.4 million increased $20.6
million from $7.8 million in the prior year thereby reducing net cash at year end.
In addition to its cash balances of $24.1 million, Exco retains access to its $50.0 million committed credit facility,
which matures February 2023. Pursuant to the terms of the credit facility, Exco is required to maintain compliance
with certain financial covenants. The Company was in compliance with these covenants as of September 30, 2021.
Non-IFRS Measures
The following table provides a reconciliation of EBITDA, EBITDA margin and Free Cash Flow for the periods to the
Company’s IRFS measures as well as a reconciliation of cash provided by operating activities to free cash flow.
Net income
Provision for income tax
Pretax Profit
Depreciation
Amortization
Net interest expense
EBITDA
Sales
EBITDA margin
Twelve Months ended
September 30
(in $ thousands)
2021
$38,420
10,157
2020
$27,424
3,999
48,577
31,423
17,412
3,670
405
70,064
17,424
4,032
617
53,496
$461,171
$412,309
15.2%
13.0%
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ANNUAL REPORT 2021
Cash provided by operating activities
Interest
Maintenance fixed asset additions
Free Cash Flow
Outstanding Share Capital
$47,790
$64,418
(405)
(10,067)
$37,318
(617)
(15,299)
$48,502
As of September 30, 2021, the Company had 39,270,497 common shares outstanding. In addition, as of September
30, 2021, the Company had outstanding stock options for the purchase of up to 1,006,000 common shares at exercise
prices ranging from $8.29 to $10.48 per share.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies”,
to the consolidated financial statements included in this Report. The preparation of Exco’s financial statements in
conformity with International Financial Reporting Standards requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as well as the reported amount of revenue and
expenses during the reporting period.
Management estimates and expenses the fair value of stock-based compensation. This fair value is amortized to
earnings over the remaining vesting period using the Black-Scholes option pricing model. The Company believes that
the estimate of stock-based compensation is a “critical accounting estimate” because management is required to make
significant forward-looking assumptions including expected stock volatility, the change in expected dividend yields
and the expected option term. Currently the compensation expense is recorded in the selling, general and
administration category in the consolidated statements of income and comprehensive income.
We evaluate property, plant and equipment and other long-lived assets for impairment whenever indicators of
impairment exist. Indicators of impairment include reductions in profitability, budget shortfalls, prolonged operating
losses or a decision to dispose of, or otherwise change the use of, an existing fixed or other long-lived asset.
We believe that accounting estimates related to goodwill, property, plant and equipment and other long-lived asset
impairment assessments are “critical accounting estimates” because: (i) they are subject to a significant measurement
uncertainty and are susceptible to changes as management is required to make forward-looking assumptions regarding
the impact of improvement plans on current operations, in-sourcing and other new business opportunities, program
price and cost assumptions on current and future business, the timing of new program launches and future forecasted
production volumes; and (ii) any resulting impairment loss could have a material impact on our consolidated net
income and on the amount of assets reported on our consolidated statements of financial position.
RECENT ACCOUNTING CHANGES AND EFFECTIVE DATES
There were no accounting policy changes during the fiscal year ended September 30, 2021.
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer, together with other members of management, after
evaluating the effectiveness of the Company’s disclosure controls and procedures, have concluded that the Company’s
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
disclosure controls and procedures are adequate and effective as of September 30, 2021 in ensuring that material
information relating to the Company and its consolidated subsidiaries would have been known to them.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the most recent period, there have been no changes in the Company’s existing policies and procedures and
other processes that comprise its internal control over financial reporting, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer and Chief Financial Officer, together with other members of management, have designed
internal controls over financial reporting to provide reasonable assurance regarding the reliability of the Company’s
financial reporting and its compliance with the integrated framework issued by the Committee of Sponsoring
Organization of the Treadway Commission in its consolidated financial statements. The CEO and the CFO have
supervised management in the evaluation of the design and effectiveness of the Company’s internal controls over
financial reporting as at September 30, 2021 and believe the design and effectiveness of the internal controls to be
effective.
RISKS AND UNCERTAINTIES
OEMs have experienced strong consumer demand for vehicles in key markets as COVID-related restrictions have
eased. Yet global shortage of semiconductor chips continues to negatively impact global automotive production
volumes. The combination of strong sales and reduced production has resulted in low inventories of new vehicles.
OEMs have taken a number of actions in response to the semiconductor chip shortage, including: unplanned
shutdowns of production lines and/or plants; reductions in their vehicle production plans; and changes to their product
mix. These responses can result in a number of consequences at Exco such as: lower sales; production inefficiencies
due to production lines being stopped/restarted unexpectedly based on OEMs' production priorities; premium freight
costs to expedite shipments; and/or other unrecoverable costs. Furthermore, Tier 1 and 2 suppliers such as Exco may
face price increases from suppliers. While we expect to recover some of the lost production volumes, it remains unclear
when supply and demand for automotive semiconductor chips will rebalance and it continues to be difficult to predict
the full impact of the chip shortage.
There is a greater risk of inflationary price increases as economic activity rebounds in our primary production markets
and supply chains, especially for products sourced from Asia. During the year, we witnessed increasing commodity
costs for steel, aluminum and resin, as well as wage pressures in certain markets. These trends are expected to continue
in coming quarters and could expand to other areas. In some cases inputs may not be available in a timely manner.
The inability to offset inflationary price increases through continuous improvement actions, price increases or
adjustments on our own products or otherwise, could have an adverse effect on our earnings.
Despite increasing vaccination levels, the development and spread of highly-transmissible COVID-19 variants such
as the "Delta" variant creates continued risk of further disruptions to the automotive industry, including additional
mandatory stay-at-home orders or other restrictions. These orders may: restrict consumers' ability to purchase vehicles;
restrict production; cause elevated employee absenteeism; and lead to supply chain disruptions. Over the medium- to
long-term, the pandemic may result in societal changes that impact the automotive industry, positively or negatively,
including as a result of expanded work-from-home practices that reduce consumers' reliance on vehicles; and/or
increased reluctance by people to utilize modes of public transit and/or shared mobility.
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ANNUAL REPORT 2021
Exco’s Automotive Solutions segment services automotive component suppliers (and Tier 1 suppliers) around the
world. The results of this segment depend on demand for automobiles, the type of automobiles (which demand has
been shifting away from passenger cars towards SUV/ CUV’s in North America), the rate at which the electric vehicle
is more widely adopted and the level of automobile production. These factors can fluctuate significantly with
consumer confidence, general economic conditions, the cost and/or availability of consumer credit and gasoline, as
well as, the market share of individual OEM customers. Contraction and slowing GDP growth in emerging economies,
North America and Europe may also have a dampening effect on consumer demand for automobiles in these regions.
A significant portion of Exco’s receivables are with automotive customers. These customers have varying degrees of
financial strength which could ultimately impact the collectability of the respective receivable. The majority of these
receivables are with U.S. entities that can avail themselves of Chapter 11 protection from creditors in certain
circumstances and avoid payment of the Company’s receivables that are over 20 days from the date of the Chapter 11
filing. Exco’s receivables may also be with highly leveraged customers that may have recently merged or chosen to
leverage their balance sheet for tax purposes or otherwise increase their investment yield. Doing business with such
customers typically increases the risk of default and filing for bankruptcy protection. The Company uses its best
efforts to collect accounts receivable under 60 days but in some cases the terms may be notably longer and often in
other currencies thereby requiring Exco to bear the exchange rate risk. The Company often has the benefit of statutory
or common law liens on its products, however, it is not uncommon for significant receivables to be outstanding for
considerable periods, particularly in the large mould business.
In some cases, OEMs can decide to design the Company’s products out of the automobile (“de-contented”) or reduce
the trim level on which the Company’s products are installed for either aesthetic, cost or product redesign reasons.
While Exco believes its focus on evolving from component supplier to a designer and integrator of small assemblies
and sub-assemblies used in automotive and trunk interiors reduces the risk of de-contenting and trimming down
decisions, some of Automotive Solutions products are not critical components and may still be de-contented.
OEMs or their tiers may have excess production capacity or collective agreements which preclude efficient capacity
reduction during times of declining sales. In these cases, OEMs and/or their tiers may choose to fill their excess
capacity by taking production from their suppliers and manufacturing the parts themselves. This process of ‘in-
sourcing’ may have the impact of reducing the amount of business available to suppliers such as Exco.
Exco has a significant number of employees worldwide and accordingly availability of labour is critical and wages
are a major manufacturing input cost. While real wage increases have been relatively muted over the last decade,
especially in low-cost countries, this may not continue to be the case. In Mexico particularly, where Exco has
approximately half its employees at four production facilities, all of which are represented by national labor unions,
real wage increases may materially impact the Corporation’s financial performance.
Exco sells to its automotive customers pursuant to purchase orders which typically sets out price per unit but not
volumes or fixed terms. These purchase orders may be terminated at any time with limited recourse for compensation
or damages and pricing is typically adjusted downward from time to time in the form of ‘cost downs’. Termination
of purchase orders and ‘cost downs’ may impact Exco’s margin and overall earnings if not contemporaneously offset
by new business at better margin or cost reductions. Furthermore, in any given year, any number of programs will be
expiring. While Exco is constantly quoting on replacement programs or new programs, there is no assurance that these
new programs will be awarded or that if awarded, the pricing and margin will be comparable to those of programs
ending.
The Casting and Extrusion segment is a capital goods business. Interest rates, exchange rates, corporate capital
spending, the general economic climate, business confidence and the financial strength of our customers affect the
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ANNUAL REPORT 2021
demand for Exco’s dies, moulds and consumable parts for die-cast and extrusion machines. Abrupt changes in these
factors often bring about dramatic changes in demand and pricing. Exco believes that its broad product line,
geographic diversification and leadership position in its niche markets mitigate against this risk but some risk remains.
Exco is a global manufacturer which has organized its global production and logistics footprint based on, among other
things, the extent of duties/levies imposed on the import/export of our products and raw material inputs. Generally,
governments have been encouraging greater trade and more liberal access to their markets by reducing or eliminating
tariffs. This has benefited Exco over the years. More recently, certain governments have postured with a more
protectionist tone. Furthermore, USA/China trade negotiations have taken longer and appear more contentious than
originally expected and are currently ongoing. If governments pursue protectionist trade practises with respect to
automotive components or their raw materials or subassemblies, Exco may be prejudiced.
Exco has in 2010, 2011, 2013, 2014 and 2016 made five acquisitions (Allper AG, Exco Colombia, Extrusion Texas,
Automotive Leather Company and AFX Industries) and may make others in the future. Acquisitions inherently
involve risk. While Exco has concluded many acquisitions that have been very successful, there have also been
disappointing acquisitions which have adversely impacted earnings. Integration of acquired companies may not be
effective or timely especially with respect to operations in countries where Exco has not previously done business.
Exco’s Canadian operations negotiate sales contracts with customers in both Canadian and U.S. dollars and Euro. We
also purchase, where we can, raw material in these currencies. U.S. dollar and Euro purchases provide a natural hedge
against U.S. dollar and Euro sales of Exco’s Canadian operations. As for the remaining foreign exchange exposure
in these currencies not naturally hedged, Exco does not enter into forward contracts but prefers to incur U.S. dollar or
Euro debt, from time to time as appropriate. Despite these measures, Exco is structurally a net seller of U.S. dollars
and, to a lesser extent Euro, with increasing adverse financial impact as the U.S. dollar and Euro decline in value
against the Canadian dollar. While Exco has made considerable progress in reducing its reliance on U.S. dollar sales,
markets which Exco currently services may experience rising competition from imports which have become more
competitive as a result of foreign exchange movements.
Exco’s U.S. operations earn profits in U.S. dollars while our Canadian operations are exposed to fluctuations in the
value of the Canadian dollar relative to the U.S. dollar on U.S. dollar sales less purchases. For fiscal 2022, it is
estimated that Exco’s total corresponding U.S. dollar foreign exchange risk exposure before tax will amount to
approximately US$89.9 million. Therefore, if the Canadian dollar were to strengthen or weaken by $0.01 in fiscal
2022 from a baseline level of $1.22 USD/CAD, it is estimated that pre-tax profit would change by about $900 thousand
or about $701 thousand after tax. These estimates are based on historical norms and may be materially different in
2022 if customers deviate from their past practices.
Exco’s has four manufacturing operations in Mexico and accordingly incurs a portion of its labour and other expenses
in Mexican pesos. In turn, these Mexican pesos expenses are incurred to mainly support US dollar denominated sales.
Consequently, any strengthening of the Mexican pesos against the US dollar reduces our profitability, all other things
equal. In recognition of this risk, Exco hedges a portion of its Mexican pesos/ US dollar exposure with various foreign
exchange contacts and options. For fiscal 2022, we estimate our pesos exposure net of hedges and pesos denominated
sales to be approximately 327 million pesos. If the Mexican pesos were to strengthen or weaken by 1% versus the US
dollar from a baseline USD/MEX rate of 20:1, and further assuming the Canadian dollar strengthens or weakens
against the US dollar also by 1% from a baseline USD/CAD rate of 1.22, we estimate pre-tax profit would change by
$296 thousand or about $192 thousand after tax. These estimates are based on historical norms and may be materially
different in fiscal 2022 if customers deviate from their past practices.
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ANNUAL REPORT 2021
Exco also has manufacturing facilities in Colombia, Brazil, Thailand and Morocco and Exco’s presence in jurisdictions
such as these has generally been increasing in recent years. Some of these operations incur labor costs and often other
operating expenses in local currency. In several of these countries, sales contracts and major purchases such as material
and equipment are negotiated in U.S. dollars or Euro. In other countries, sales contracts and major purchases are
negotiated in local functional currencies as well. Major long-term fluctuations in the value of the local currencies
against the U.S. dollar and Euro have the potential to affect Exco’s operating results, retained earnings and value of
its investment in these countries. Exco may enter into forward contracts or ‘collar’ contracts from time to time in order
to protect itself from currency fluctuations. These contracts are derivative instruments which, depending on their
structure, may not qualify for hedge accounting treatment and accordingly may be ‘marked to market’ each quarter
and expensed if necessary. It is difficult to anticipate fluctuations in these local currencies in the event of major
economic, fiscal or political instability in these countries.
The cost of manufacturing our products is a critical factor in determining our success over the long term.
Manufacturing has generally expanded to developing countries where competing technologies and lower labor-cost
structures exist. Exco must compete against companies doing business in these developing countries. Exco has met
this challenge by manufacturing some labour-intensive products in Mexico, Thailand and Morocco; however, many
of our operations based in Canada and the U.S. must compete with products manufactured in lower-cost environments.
Although we have established and continue to enhance security controls intended to protect our IT systems and
infrastructure, there is no guarantee that such security measures will be effective in preventing unauthorized physical
access or cyber attacks. A significant breach of our IT systems could: result in theft of funds; cause disruptions in our
manufacturing operations; lead to the loss, destruction or inappropriate use of sensitive data; or result in theft of our,
our customers’ or our suppliers’ intellectual property or confidential information. The occurrence of any of the
foregoing could adversely affect our operations and/or reputation and could lead to claims against us that could have
a material adverse effect on our profitability.
EXCO TECHNOLOGIES LIMITED
22
ANNUAL REPORT 2021
Independent auditor’s report
To the Shareholders of Exco Technologies Limited
Opinion
We have audited the consolidated financial statements of Exco Technologies Limited and its subsidiaries (the “Group”),
which comprise the consolidated statements of financial position as at September 30, 2021 and 2020, and the
consolidated statements of income and comprehensive income, consolidated statements of changes in shareholders’
equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at September 30, 2021 and 2020 and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (“IFRS”).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report. We are independent of the Group in accordance with the ethical requirements that are
relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Key audit matter
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that
context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to this matter. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including the procedures performed to address the matter below,
provide the basis for our audit opinion on the accompanying consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
How our audit addressed the key audit matter
To test the estimated value in use of the Automotive
Solutions segment, our audit procedures included,
among others, assessing the reasonableness of
forecasted revenues and profit margins. We assessed
the historical accuracy of estimates on forecasted
revenue and profit margins to actual and historical
performance. We assessed the terminal growth rate by
comparing to long term inflation market rate. We
involved our valuation specialists to assess the
Group’s model, valuation methodology applied, and the
various inputs utilized in determining the discount rate
by referencing current industry, economic, and
comparable Group information, as well as Group and
cash-flow specific risk premiums. We assessed the
adequacy of the disclosures included in Note 6 of the
consolidated financial statements in relation to this
matter.
Key Audit Matter
Assessment of impairment of goodwill
As described in Note 6 to the Consolidated Financial
Statements, as at September 30, 2021 the Group has a
goodwill balance of $61.9 million related to the group of
cash generating units comprising the Automotive
Solutions segment.
The Group assesses at least annually, or at any time if an
indicator of impairment exists, whether there has been an
impairment loss in the carrying value of goodwill. An
impairment is recognized if the recoverable amount is less
than the carrying value of the Automotive Solutions
segment.
The Group determines the recoverable amount using a
value in use approach. Auditing the Group’s annual
goodwill impairment test was complex, given the degree
of subjectivity in evaluating the Group’s estimates and
assumptions in determining the recoverable amount of the
Automotive Solutions segment. Significant assumptions
included forecasted revenues and profit margins, terminal
growth rate, and the discount rate which are affected by
expectations about future market and economic
conditions.
Other information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual
Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information,
and in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and Annual Report prior to the date of this auditor’s report. If
based on the work we have performed, we conclude that there is a misstatement of this other information, we are
required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
Canadian generally accepted auditing standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness for of
the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
•
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on
the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
•
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Blake Langill.
Toronto, Canada
December 1, 2021
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
$(000)'s
As at
September 30, 2021 September 30, 2020
As at
ASSETS
Current
Cash and cash equivalents (note 8)
Accounts receivable (note 8)
Inventories (note 9)
Prepaid expenses and deposits
Derivative instruments (note 8)
Income taxes recoverable (note 13)
Total current assets
Property, plant and equipment, net (note 5)
Intangible assets, net (note 6)
Goodwill (note 6)
Deferred tax assets (note 13)
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (notes 4 and 8)
Trade accounts payable (note 8)
Accrued payroll liabilities (note 8)
Other accrued liabilities (note 8)
Derivative instruments (note 8)
Provisions (note 7)
Customer advance payments (note 8)
Long-term debt - current portion (notes 4 and 8)
Total current liabilities
Long-term debt - long-term portion (notes 4 and 8)
Deferred tax liabilities (note 13)
Total liabilities
Shareholders' equity
Share capital (note 3)
Contributed surplus (note 3)
Accumulated other comprehensive income (note 3)
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
$24,098
83,130
77,759
3,418
546
2,741
191,692
149,474
25,783
61,861
1,317
$430,127
$5,540
33,793
13,793
11,874
-
3,936
4,814
-
73,750
-
11,319
85,069
48,983
5,087
1,116
289,872
345,058
$430,127
$33,124
83,193
60,187
2,787
-
2,761
182,052
131,029
30,535
64,980
1,184
$409,780
$3,418
32,873
11,391
11,381
1,758
2,902
3,557
93
67,373
3,000
8,401
78,774
48,968
4,718
10,356
266,964
331,006
$409,780
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board:
Darren M. Kirk
President and
Chief Executive Officer
Brian A. Robbins
Director,
Executive Chairman
EXCO TECHNOLOGIES LIMITED
26
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
$(000)'s except for income per common share
Sales (note 11(A))
Cost of sales
Selling, general and administrative expenses (notes 3 and 17)
Depreciation (note 5)
Amortization (note 6)
Gain on disposal of property, plant and equipment (note 5)
Interest expense, net (note 16)
Income before income taxes
Provision for (recovery of) income taxes (note 13)
Current
Deferred
Net income for the year
Other comprehensive income (loss)
Items that may be reclassified to net income in subsequent periods:
Net unrealized gain (loss) on derivatives designated as cash flow hedges (notes 3 and 8)
Unrealized gain (loss) on foreign currency translation (note 3)
Comprehensive income
Income per common share
Basic
Diluted
Weighted average number of common shares outstanding (note 12)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
Years ended September 30
2020
$412,309
323,761
35,244
17,424
4,032
(192)
617
380,886
2021
$461,171
351,960
39,245
17,412
3,670
(98)
405
412,594
48,577
31,423
7,749
2,408
10,157
$38,420
1,699
(10,939)
(9,240)
$29,180
$0.98
$0.98
39,270
39,293
4,790
(791)
3,999
$27,424
(1,091)
1,967
876
$28,300
$0.69
$0.69
39,943
39,943
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
$(000)'s
Balance, September 30, 2019
Net income for the year
Dividends paid (note 3)
Stock option expense (note 3)
Repurchase of share capital (note 3)
Other comprehensive income (loss) (note 3)
Balance, September 30, 2020
Net income for the year
Dividends paid (note 3)
Stock option expense (note 3)
Issuance of share capital (note 3)
Other comprehensive income (loss) (note 3)
Balance, September 30, 2021
Accumulated other comprehensive income (loss)
Unrealized gain
Total
(loss) on
accumulated
foreign
other
currency
comprehensive
translation
income (loss)
$9,480
$9,687
-
-
-
-
-
-
-
-
876
1,967
10,356
11,654
-
-
-
-
-
-
-
-
(9,240)
(10,939)
$1,116
$715
Net unrealized
gain (loss) on
derivatives
designated as
cash flow hedges
($207)
-
-
-
-
(1,091)
(1,298)
-
-
-
-
1,699
$401
Retained
earnings
$262,120
27,424
(14,946)
-
(7,634)
-
266,964
38,420
(15,512)
-
-
-
$289,872
Total
shareholders'
equity
$326,487
$27,424
($14,946)
$369
($9,204)
$876
331,006
38,420
(15,512)
371
13
(9,240)
$345,058
Share
capital
$50,538
-
-
-
(1,570)
-
48,968
-
-
-
15
-
$48,983
Contributed
surplus
$4,349
-
-
369
-
-
4,718
-
-
371
(2)
-
$5,087
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
28
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
$(000)'s
OPERATING ACTIVITIES:
Net income for the year
Add (deduct) items not involving a current outlay of cash
Depreciation (note 5)
Amortization (note 6)
Stock-based compensation expense
Deferred income tax expense (recovery) (note 13)
Net interest expense (note 16)
Gain on disposal of property, plant and equipment
Net change in non-cash working capital (note 14)
Cash provided by operating activities
FINANCING ACTIVITIES:
Increase in bank indebtedness
Financing from long-term debt (note 4)
Repayment of long-term debt (note 4)
Interest paid, net
Dividends paid (note 3)
Repurchase of share capital (note 3)
Exercise of stock options (note 3)
Cash used in financing activities
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (note 5)
Purchase of intangible assets (note 6)
Proceeds on disposal of property, plant and equipment
Cash used in investing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash during the year
Cash, beginning of year
Cash, end of year
Years ended September 30
2020
2021
$38,420
$27,424
17,412
3,670
773
2,257
405
(98)
62,839
(15,049)
47,790
2,122
-
(3,093)
(405)
(15,512)
-
13
(16,875)
(38,426)
(287)
381
(38,332)
(1,609)
(9,026)
33,124
$24,098
17,424
4,032
453
(221)
617
(192)
49,537
14,881
64,418
2,840
20,000
(34,093)
(617)
(14,946)
(9,204)
-
(36,020)
(23,092)
(403)
1,386
(22,109)
347
6,636
26,488
$33,124
The accompanying notes are an integral part of these consolidated financial statements.
EXCO TECHNOLOGIES LIMITED
29
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
1. CORPORATE INFORMATION
Exco Technologies Limited (the “Company”) is a global designer, developer and manufacturer of dies, moulds,
components and assemblies, and consumable equipment for the die-cast, extrusion and automotive industries. Through
16 strategic locations in 7 countries, the Company services a diverse and broad customer base. The Company is
incorporated and domiciled in Canada. The registered office is located at 130 Spy Court, Markham, Ontario, Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are outlined below:
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Certain comparative figures have been reclassified to conform to the current year’s presentation.
The consolidated financial statements and accompanying notes as at and for the year ended September 30, 2021 were
authorized for issue by the Board of Directors on December 1, 2021.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and the entities controlled
by the Company, its subsidiaries. Control exists when the Company is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Company controls an investee if and only if the Company has all of the following: power over the
investee; exposure or rights to variable returns from its involvement with the investee; and the ability to use its power
over the investee to affect its returns. The financial statements of the subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases. All intercompany
transactions and balances have been eliminated on consolidation.
Functional and presentation currency
Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of
the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial
statements are presented in Canadian dollars, which is the Company’s functional currency.
Transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rates of
exchange at the consolidated statements of financial position dates. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss in
the consolidated statements of income and comprehensive income.
Translation of foreign operations
The results and financial position of group entities that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
• Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date
•
of the consolidated statements of financial position; and
Income and expenses for each statement of income and comprehensive income are translated at the exchange rates
prevailing at the dates of the transactions.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations are
recorded in other comprehensive income.
EXCO TECHNOLOGIES LIMITED
30
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
When a foreign operation is sold, exchange differences that were recorded in accumulated other comprehensive income
are recognized in the consolidated statements of income and comprehensive income as part of the gain or loss on sale.
Segment reporting
Management has determined the operating segments based on the information regularly reviewed for the purposes of
decision making, allocating resources and assessing performance by the Company’s chief operating decision maker,
which is the chief executive officer. Factors used to identify reportable segments include product categories, customers
served and geographical region of operations. The chief operating decision maker evaluates the financial performance
of its operating segments primarily based on net income before interest, other income (expense) and income tax
expense.
Interest in joint arrangement
The Company has an interest in a joint arrangement, whereby the parties to the arrangement have a contractual
arrangement that establishes joint control over the economic activities of the individual entity. As the arrangement is
considered to be a joint operation for accounting purposes, the Company recognized its share of the joint operation’s
assets, liabilities, revenues and expenses in the consolidated financial statements. The financial statements of the joint
operation are prepared for the same reporting period as the Company.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of the business combination is
measured as the aggregate of the fair values (at the date of exchange) of assets acquired and liabilities incurred or
assumed. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition
under IFRS 3, Business Combinations, are recognized at their fair values at the acquisition date. Acquisition costs are
expensed as incurred.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of
the business combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities recognized. If the Company’s interest in the fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognized immediately
in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Where goodwill has been allocated to a Cash-Generating Unit (“CGU”) or group of CGUs and part of the operation
within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of under
this circumstance is measured based on the relative fair values of the operation disposed of and the portion of the group
of CGU retained.
Critical judgments and use of estimates
The preparation of the consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the application of policies and reported amounts of assets, liabilities, revenue and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates.
The Company’s critical accounting estimates are affected as a result of the various ongoing economic and social impacts
of the COVID-19 global pandemic. There continues to be significant uncertainty as to the likely effects of this outbreak
which may, among other things, impact our employees, suppliers, and customers. It is not possible to predict the impact
COVID-19 will have on the Company, its financial position, and the results of operations in the future. The Company
is monitoring the future impact of the pandemic on all aspects of its business. Each quarter-end, management carries
out this assessment for indications that goodwill and other long-lived assets may be impaired. As part of this assessment
management performed an analysis on its CGUs and determined there were no adverse impacts that would lead to
indicators of impairment. As required, management will continue to assess these assumptions as the evolving COVID-
19 situation changes.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the review affects both current and future periods.
Significant accounts that require estimates as the basis for determining the stated amounts include accounting for
inventories, property, plant and equipment, contingent liabilities, income taxes, fair value of financial instruments and
stock option valuation.
Net realizable value of inventories is dependent upon the estimated selling price in the ordinary course of business, less
the estimated costs of completion and selling expenses based on prior experience and assessment of current market
conditions.
Depreciation and amortization of property, plant and equipment and intangible assets are dependent upon estimates of
useful lives, which are determined with the exercise of judgment. The assessment of any impairment of property, plant
and equipment and intangible assets is dependent upon estimates of recoverable amounts that take into account factors
such as economic and market conditions and the useful lives of assets.
The estimated useful lives of property, plant and equipment and intangible assets are reviewed on an annual basis.
Assessing the reasonableness of the estimated useful lives of property, plant and equipment and intangible assets
requires judgment and is based on currently available information. Property, plant and equipment and intangible assets
are also reviewed for potential impairment on a regular basis or whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
Changes in circumstances, such as technological advances and changes to business strategy, can result in actual useful
lives differing significantly from estimates. The assumptions used, including rates and methodologies, are reviewed
on an ongoing basis to ensure they continue to be appropriate. Revisions to the estimated useful lives of property,
plant and equipment and intangible assets or future cash flows constitute a change in accounting estimates and are
applied prospectively.
Income taxes are determined based on estimates of the Company’s current income taxes and estimates of deferred
income taxes resulting from temporary differences. Deferred tax assets are assessed to determine the likelihood
that they will be realized from future taxable income before they expire.
Impairment of non-financial assets exists when the carrying value of an asset or CGU exceeds its recoverable amount,
which is the higher of the fair value less costs of disposal and its value in use. The fair value less costs of disposal is
based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable
market prices less incremental costs for disposing of the asset. The value-in-use calculation is based on a discounted
cash flow (“DCF”) model. The cash flows are derived from the budget for the next three years and do not include
restructuring activities that the Company is not yet committed to or significant future investments that will enhance the
asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF
model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key
assumptions used to determine the recoverable amount for the CGUs, including a sensitivity analysis, are disclosed and
further explained in note 6.
Revenue recognition
The Company recognizes revenue primarily from two categories of goods: production contracts (including finished
production parts and assemblies, short-term die cast tooling contracts, extrusion and other tooling), and long-term large
die cast mould contracts.
Revenue for production contracts is recognized at the point in time control of the goods is transferred to the customer.
Control of finished production parts, assemblies and tooling transfers when the goods are shipped from the Company’s
manufacturing facilities to the customer.
Revenue for long-term large die cast mould contracts are also recognized at the point in time control of the goods is
transferred to the customer. Point in time recognition is used since these contracts do not contain an enforceable right
to payment that includes a reasonable profit margin.
EXCO TECHNOLOGIES LIMITED
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ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
A receivable is recognized when control of the goods transfer to the customer, as indicated above, and consideration is
unconditional. Payment terms are generally based on the customers’ payment schedules, which typically range from
30 to 90 days from invoice date.
A customer advance payment is recognized if a payment is received or payment is due (whichever is earlier) from a
customer before the Company transfers control of the production parts or large die cast moulds.
Share-based payments
The Company grants stock options to buy common shares of the Company to officers and employees. The Board of
Directors grants such options for periods of up to 10 years, with vesting periods determined at its sole discretion and at
prices equal to the average closing market prices for the five days preceding the date on which the options were granted.
The Company follows the fair value based method of accounting for stock-based compensation. The fair value of the
options is recognized as compensation expense in selling, general and administrative expenses in the consolidated
statements of income and comprehensive income over the vesting period with a corresponding increase to contributed
surplus. The contributed surplus balance is reduced as the options are exercised, and the amount initially recorded for
the options in contributed surplus is credited to share capital, along with the proceeds received on exercise.
The Company has a Deferred Share Unit (“DSU”) plan for Independent Directors. Under the DSU plan, a portion of
the quarterly remuneration of a director is credited to the director’s DSU account in the form of deferred share units on
the last business day of the quarter. The number of DSUs credited to the director’s account is determined by dividing
the portion of a director’s quarterly remuneration allocated to DSUs by the weighted average price of the common
share value traded in the last five business days of the quarter. DSUs are fully vested upon being credited to a director’s
DSU account. The DSUs will be redeemed by the Company in cash payable 60 days after the Independent Director
departs from the Board of Directors at the fair market value at the payment date. The fair value of DSUs is recognized
as compensation expense in selling, general and administrative expenses in the consolidated statements of income and
comprehensive income with the corresponding credit or debit to other accrued liabilities.
Income taxes
Income tax expense consists of current and deferred income taxes. Income tax expense is recognized in the consolidated
statements of income and comprehensive income.
Current income tax expense is the expected income taxes payable on the taxable income for the year, using tax rates
enacted or substantively enacted at year-end, adjusted for amendments to income taxes payable with regards to previous
years.
Deferred income taxes are recorded using the liability method. Under the liability method, deferred tax assets and
liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are
recognized to the extent that it is probable that taxable income will be available against which deductible timing
differences can be utilized.
Deferred income taxes are charged or credited in the consolidated statements of income and comprehensive income,
except when they relate to items credited or charged directly to equity, in which case the deferred income taxes are also
recorded in equity.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it
is no longer probable that all or part of the deferred income tax asset will be utilized. Unrecognized deferred
income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that
the benefit will be recovered.
EXCO TECHNOLOGIES LIMITED
33
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Cash and cash equivalents
Cash and cash equivalents include cash on hand, balances with banks and short-term deposits with remaining maturities
at their acquisition date of three months or less.
Property, plant and equipment
Machinery and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. All
direct costs related to the acquisition and installation of machinery and equipment are capitalized until the properties
to which they relate are capable of carrying out their intended use. Machinery and equipment are depreciated using the
declining balance method based on their estimated useful lives, which range from 4 to 20 years.
Other assets are recorded at cost less accumulated depreciation and accumulated impairment losses and are depreciated
using the straight-line method based on estimated useful lives of the assets, which generally range from 3 to 10 years,
with the exception of buildings, which have estimated useful lives of 30 years. Land is not depreciated.
Where an item of property, plant and equipment comprises major components with different useful lives, the
components are accounted for as separate items of property, plant and equipment.
The depreciation methods and useful lives are assessed annually or when critical events occur that may affect the useful
lives and expected pattern of consumption of economic benefits embodied in the asset.
Subsequent costs
Directly attributable expenses incurred for major capital projects are capitalized and no depreciation is recorded until
the asset is brought to a working condition for its intended use. Expenditures incurred to replace a component of an
item of property, plant and equipment that is accounted for separately, including major inspection and overhaul
expenditures, are capitalized when the cost is incurred or if it is probable that the future economic benefits will flow to
the business unit and the cost of the item can be measured reliably. The carrying amount of the replaced part is
derecognized.
The costs of day-to-day servicing are expensed as incurred. These costs are more commonly referred to as
“maintenance and repairs”.
Intangible assets
An intangible asset is defined as being identifiable, able to bring future economic benefits to the Company and
controlled by it. Intangible assets are recorded initially at cost and relate primarily to computer software, production
and technology rights and customer relationships. An intangible asset is recognized when it is probable that the expected
future economic benefits attributable to the asset will flow to the Company and the cost of the asset can be measured
reliably. Intangible assets with finite lives are amortized over their useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. Amortization is provided based on the
following estimated useful lives using the straight-line method:
Customer relationships: 5 to 15 years
Computer software and production and technology rights: 2 to 4 years
•
•
• Non-compete agreements: 5 years
•
Intangible assets acquired in a business acquisition are primarily customer relationships and are initially recorded at
fair value and subsequently at cost less amortization and impairment losses. Other intangible assets are comprised of
computer software and production and technology rights.
Trade name: 7 years
Identifiable intangible assets are recognized separately from goodwill.
Impairment of long-lived assets and goodwill
Impairment of long-lived assets
(i)
The Company’s property, plant and equipment and intangible assets are reviewed for indicators of impairment
as at each consolidated statements of financial position date. If indication of impairment exists, the recoverable
amount of the asset is calculated in order to determine if an impairment loss is required. If it is not possible to
EXCO TECHNOLOGIES LIMITED
34
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
estimate the recoverable amount of the individual asset, assets are grouped at the CGU level for the purpose
of assessing the recoverable amount. An impairment loss is recognized for any excess of the carrying amount
of the CGU over its recoverable amount. Impairment losses are recorded in the consolidated statements of
income in the period in which they occur. Impairment losses recognized in respect of CGUs are allocated first
to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount
of the other assets in the CGU on a pro rata basis.
The recoverable amount is the greater of the asset’s or CGUs fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is
determined for the CGU to which the asset belongs. In determining fair value less costs to dispose, recent
market transactions are taken into account, if available.
The Company bases its impairment calculation on detailed budgets that are prepared for each of the CGUs
and generally cover a period of three years. A long-term growth rate is calculated and applied to project future
cash flows after the third year.
A previous impairment loss is reversed if there is an indication that there has been a change in the estimates
used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation,
if no impairment loss had been recognized. The amount of the reversal is limited to the difference between
the current carrying amount and the amount which would been the carrying amount had the earlier impairment
not been recognized and amortization of that carrying amount had continued. The impairment reversal is
allocated on a pro-rata basis to the existing long-lived assets of the CGU based on their carrying amounts.
Impairment reversals are recorded in the consolidated statements of income in the period in which they occur.
(ii)
Impairment of goodwill
Goodwill is allocated to a CGU or a group of CGUs for the purpose of impairment testing based on the level
at which it is monitored by management. The Company monitors its goodwill at the level of its operating
segments and all of the goodwill as at September 30, 2021 and 2020 has been allocated to the Automotive
Solutions segment. Goodwill is tested for impairment annually or whenever there is an indicator that the CGU
group in which it resides may be impaired. Impairment is determined for goodwill by assessing the recoverable
amount of each CGU group to which the goodwill relates. Where the recoverable amount of the CGU group
is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill
cannot be reversed in future periods.
Inventories
Inventories, comprising raw materials, work in process, finished goods and production supplies, are valued at the lower
of cost and net realizable value. Cost is determined substantially on a first-in, first-out basis and an appropriate portion
of normal overhead expenditure and labour. Net realizable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and selling expenses. Obsolete, redundant and slow-moving stock
is identified and written down. When circumstances that previously caused inventories to be written down below cost
no longer exist, the amount of the write-down previously recorded is reversed.
Determination of fair value
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing
interests.
that market participants act
the asset or
their economic best
liability, assuming
in
A fair value measurement on a non-financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the
asset in its highest and best use.
EXCO TECHNOLOGIES LIMITED
35
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.
Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic
basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates
to an asset, the cost of the asset is reduced by the amount of the grant.
Financial instruments
The Company recognizes financial assets and financial liabilities initially at fair value and subsequently measures these
at either fair value or amortized cost based on their classification under IFRS 9 as described below:
Amortized cost:
The Company classifies financial assets held to collect contractual cash flows at amortized cost, including trade and
other receivables. The Company initially recognizes the carrying amount of such assets on the consolidated statement
of financial position at fair value plus directly attributable transaction costs, and subsequently measures these at
amortized cost using the effective interest rate method, less any impairment losses.
Fair value through profit or loss (“FVTPL”):
Financial assets and financial liabilities purchased or incurred, respectively, with the intention of generating earnings
in the near term, and derivatives other than cash flow hedges, are classified as FVTPL. This category includes cash and
cash equivalents, and derivative assets and derivative liabilities that do not qualify for hedge accounting. For items
classified as FVTPL, the Company initially recognizes such financial assets and liabilities on the consolidated statement
of financial position at fair value and recognizes subsequent changes in the consolidated statement of income and
comprehensive income. Transaction costs incurred are expensed in the consolidated statement of income and
comprehensive income.
Loans and borrowings:
The Company initially recognizes the carrying amount of such liabilities on the consolidated statement of financial
position at fair value net of directly attributable transaction costs. After initial recognition, they are subsequently
measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss
when the liabilities are derecognized as well as through the effective interest rate method amortization process.
Impairment of financial assets:
IFRS 9 replaces the “incurred loss” model in IAS 39 with a forward-looking “expected credit loss” (“ECL”) model.
The ECL model is used in determining the allowance for doubtful accounts as it relates to trade and other receivables.
The Company’s ECL model aligns with the simplified approach under IFRS 9, which measures lifetime ECL and
forward-looking information. The Company’s allowance is determined by historical experiences, and considers factors
including, the aging of the balances, the customer’s credit worthiness, and updates based on the current economic
conditions, expectation of bankruptcies, and the political and economic volatility in the markets/location of customers.
COVID-19 has increased the measurement uncertainty with respect to the determination of the allowance for doubtful
accounts.
Hedge Accounting:
The Company designates the change in fair value of the entire forward contract in the Company’s cash flow hedge
relationship in other comprehensive income (loss) to the extent the hedge continues to be highly effective. The related
other comprehensive income (loss) amounts are allocated to the consolidated statements of income in the same period
in which the hedged item affects earnings.
Provisions
As required under IAS 37, Provisions, Contingent Liabilities and Contingent Assets, provisions are recorded when a
present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the
EXCO TECHNOLOGIES LIMITED
36
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
obligation can be made.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation
at the consolidated statements of financial position dates, taking into account the risks and uncertainties surrounding
the obligation. Where a provision is measured using cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision
are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable can be measured reliably.
Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a
lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company
assesses whether the contract: involves the use of an identified asset; provides the right to obtain substantially all of the
economic benefits from the use of the asset throughout the period of use; and provides the right to direct the use of the
asset.
A right-of-use asset and lease liability are recorded on the date that the underlying asset is available for use, representing
the commencement date.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental
borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
•
•
•
•
•
fixed payments, including in-substance fixed payments;
variable lease payments that are tied to an index or rate defined in the contract;
amounts expected to be payable under a residual value guarantee;
the exercise price under a purchase option that the Company is reasonably likely to exercise; and
lease payments under an optional extension if the Company is reasonably certain to exercise the extension
option, and early termination penalties required under a termination of a lease unless the Company is
reasonably certain not to terminate early.
The lease liability is re-measured when there is a change in future lease payments arising from a change in an index or
rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value
guarantee, or if the Company changes its assessment of whether or not it will exercise a purchase, extension or
termination option. When the lease liability is re-measured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or to profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
The right-of-use asset is initially measured at cost, consisting of:
•
•
•
•
the initial measurement of the lease liability, adjusted for any lease payments made at or before the
commencement date;
any initial direct costs incurred; and
an estimate of costs to dismantle and remove the underlying asset or restore the site on which it is located; less
any lease incentives received.
The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement date to the earlier
of the end of the useful life of the asset or the end of the lease term. The lease term consists of the non-cancellable
period of the lease; periods covered by options to extend the lease, when the Company is reasonably certain to exercise
the option to extend; and periods covered by options to terminate the lease, when the Company is reasonably certain
EXCO TECHNOLOGIES LIMITED
37
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
not to exercise the option. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for
certain re-measurements of the lease liability as described above.
Employee future benefits
Leave pay
(i)
Employee entitlements to annual leave are recognized as they are earned by the employees. A provision,
stated at current cost, is made for the estimated liability at year-end.
(ii)
Termination benefits
The Company is subject to Mexican statutory laws and regulations governing Mexican employee termination
benefits. Employee future benefits include statutorily mandated accrued benefits payable to employees in the
event of termination in certain circumstances. Termination benefits are recognized as an expense and an
associated liability at the discounted value of the expected future payments.
Accounting standards issued but not yet adopted
All pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the
effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected
to be relevant to the Company’s financial statements is provided below. Certain other new standards, amendments and
interpretations to existing standards may have been issued but are not expected to have a material impact to the
Company’s financial statements.
IAS 37 Provisions, Contingent Liabilities, and Contingent Assets
Effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2022 the
IASB issued amendments to IAS 37 to clarify costs to be included when determining if a contract is onerous. The
Company is in the process of reviewing the standard to determine the impact on the consolidated financial statements.
IFRS 1 Presentation of Financial Statements, IFRS 8 Definition of Accounting Estimates
Effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2023 the
IASB issued amendments to IFRS 1 to allow a more general approach in classification of liabilities as current and non
current and IFRS 8 to distinguish between accounting policies and accounting estimates. The Company is in the process
of reviewing the standard to determine the impact on the consolidated financial statements.
3. SHAREHOLDERS’ EQUITY
Authorized
The Company’s authorized share capital consists of an unlimited number of common shares, an unlimited number of
non-voting preference shares issuable in one or more series and 275 special shares. None of these shares have par value.
Issued
The Company has not issued any non-voting preference shares or special shares. Changes to the issued common shares
are shown in the following table:
Issued and outstanding as at October 1, 2019
Purchased and cancelled pursuant to normal course issuer bid
Issued and outstanding as at September 30, 2020
Issued for cash under Stock Option Plan
Issued and outstanding as at September 30, 2021
Common Shares
Number of Shares
40,527,663
(1,258,666)
39,268,997
1,500
39,270,497
Stated
Value
$50,538
(1,570)
48,968
15
$48,983
EXCO TECHNOLOGIES LIMITED
38
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Accumulated other comprehensive income
Included in accumulated other comprehensive income in shareholders’ equity are gains and losses arising from the
translation of the Company’s foreign subsidiaries, net gains and losses on derivatives designated as cash flow hedges
and reclassification to income of net gains and losses on cash flow hedges as summarized in the following table:
Opening balance
Net unrealized gain (loss) on derivatives designated as cash flow hedges (1)
Unrealized gain (loss) on currency translation adjustments
Total other comprehensive income (loss) for the year
Closing balance
(1) Net of deferred taxes of $606 (2020 – $389).
2021
$10,356
1,699
(10,939)
(9,240)
$1,116
2020
$9,480
(1,091)
1,967
876
$10,356
Cash dividends
During the year, the Company paid four quarterly cash dividends totaling $15,512 (2020 – $14,946). The dividend rate
per quarter increased starting in the second quarter of the year from $0.095 to $0.10 per common share.
Stock Option Plan
The Company has a Stock Option Plan under which common shares may be acquired by employees and officers of the
Company. The following table shows the changes to the number of stock options outstanding during the year:
2021
2020
Number of
Options
957,000
280,000
(1,500)
(229,500)
1,006,000
Weighted
Average
Exercise
Price
$10.78
$8.29
$8.56
$14.56
$9.22
Number of
Options
785,400
277,500
-
(105,900)
957,000
Weighted
Average
Exercise Price
$11.49
$8.56
-
$10.25
$10.78
Balance, beginning of year
Granted
Exercised
Expired
Balance, end of year
The following table summarizes information about stock options outstanding and exercisable as at September 30, 2021:
Range of Exercise
Prices
$8.29 - $9.00
$9.01 - $10.00
$10.01 - $10.48
Number
Outstanding
551,000
140,000
315,000
Weighted Average
Remaining
Contractual Life
Options Outstanding
Weighted
Average
Exercise
Price
$8.42
$9.87
$10.33
years
years
years
4.16
2.66
1.11
Options Exercisable
Weighted
Average
Exercise
Price
$8.56
$9.87
$10.36
Number
Exercisable
53,000
56,000
224,000
$8.29 - $10.48
1,006,000
3.00
years
$9.22
333,000
$9.99
EXCO TECHNOLOGIES LIMITED
39
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The number of common shares available for future issuance of options as at September 30, 2021 is 1,067,838
(2020 – 1,118,338). The number of options outstanding together with those available for future issuance totals
2,073,838 (2020 – 2,075,338) or 5.3% (2020 – 5.2%) of the issued and outstanding common shares. The options are
granted for a term of 5 to 10 years, and the options vest at 20% at each anniversary date from the date of grant.
Stock-based compensation
Stock-based compensation resulting from applying the Black-Scholes option pricing model to the Company’s Stock
Option Plan was $371 for the year ended September 30, 2021 (2020 – $369). All stock-based compensation has been
recorded in selling, general and administrative expenses. The weighted average assumptions used to measure the fair
value of stock options and the weighted average fair value of options granted during the years ended September 30,
2021 and 2020 are as follows:
Risk-free interest rates
Expected dividend yield
Expected volatility
Expected time until exercise
Weighted average fair value of the options granted
2021
0.49%
4.54%
32.96%
5.50 years
$1.46
2020
1.50%
4.12%
30.19%
5.50 years
$1.55
DSU Plan
The Company has a DSU plan under which members of the Company's Board of Directors who are not management
receive a portion of their annual retainers and fees in the form of DSUs, which are classified as other accrued liabilities.
The DSUs vest on the date they are granted and are settled in cash upon termination of Board service. This is a cash-
settled compensation arrangement.
During the year ended September 30, 2021, the Company granted 12,884 DSUs (2020 – 19,921 DSUs) and redeemed
no DSUs (2020 – no DSUs). During the year ended September 30, 2021 the Company recorded stock-based
compensation expense of $402 (2019 – $84) related to awards under the DSU plan with a corresponding adjustment to
other accrued liabilities. As at September 30, 2021, 93,861 DSUs were outstanding with a carrying value of $937
recorded in other accrued liabilities.
Contributed surplus
Contributed surplus consists of accumulated stock option expense less the carrying amount of the options that have
been exercised and reclassified to share capital. The following is a continuity schedule of contributed surplus:
Balance, beginning of year
Stock option expense
Exercise of stock options
Balance, end of year
2021
$4,718
371
(2)
$5,087
2020
$4,349
369
-
$4,718
Normal course issuer bid
In each of February 2021, 2020 and 2019, the Company received approval from the Toronto Stock Exchange for a
normal course issuer bid for the following 12-month period. The Company’s Board of Directors authorized the purchase
of up to 1,960,00, 2,000,000 and 2,100,000 common shares under each of these normal course issuer bids, respectively,
which represented approximately 5% of the Company’s outstanding common shares at each approval date. During the
year, no common shares were re-purchased under these normal course issuer bids. During 2020, under these normal
course issuer bids 1,258,666 common shares were re-purchased for a total cost of $9,204. The stated cost to repurchase
the common shares in 2020 exceeded their stated value by $7,634 which was charged against retained earnings.
EXCO TECHNOLOGIES LIMITED
40
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
4. BANK INDEBTEDNESS AND LONG-TERM DEBT
The operating lines are available in US dollars, Canadian dollars, and Euros at variable rates ranging from prime minus
0.5% to prime plus 0.5%. The Company’s JP Morgan credit facilities are collateralized by a general security agreement
over its North American assets.
Utilizations
Facilities Current
Long-term
Unused and
Available
JP Morgan, credit facility (Canada, USA)
JP Morgan, operating line (Europe)
$50,000
$4,948
2,664
592
$52,664
$5,540
$-
-
$-
Prime rate in Canada
Prime rate in USA
Prime rate in Eurozone
2021
2.45%
3.25%
0.00%
$45,052
2,072
$47,124
2020
2.45%
3.25%
0.00%
On February 7, 2020, the Company closed an amendment to renew the $50,000 Committed Revolving Credit Facility
with JP Morgan Chase Bank N.A., of which $4,948 was utilized as at September 30, 2021 (2020 - $5,793). The facility
has a three-year term and there are no specific repayment terms prior to maturity. The facility is collateralized by a
general security agreement covering all assets of the Company’s Canadian and US subsidiaries with the exception of
real property.
The Credit Facility is available to fund working capital, capital expenditures and other general corporate purposes of
the Company and its subsidiaries, including acquisitions. Interest rates vary based on prime, bankers’ acceptance, CDOR
or Euribor base rates plus a relevant margin depending on the level of the Company’s net leverage ratio. Pursuant to the
terms of the credit agreement, the Company is required to maintain compliance with a net worth covenant. The Company
was in compliance with these covenants as at September 30, 2021.
Additionally, the Company maintains a operating line facility with JP Morgan Chase Bank N.A. London Branch related
to any needs for Euro currency. In March 2021 the facility was increased from EUR1.55 million to EUR 1.8 million.
The facility totals $2,664 (EUR 1.8 million) and bears interest based on Euribor. The Company had utilized $592 as at
September 30, 2021 (2020 – $625).
The components of long-term debt are as follows:
Bank debt
Promissory note
Subtotal
Less: current portion
Long-term debt, long-term portion
September 30, 2021
$-
-
-
-
$-
September 30, 2020
$3,000
93
3,093
(93)
$3,000
EXCO TECHNOLOGIES LIMITED
41
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
5. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance as at
September 30, 2019
Initial recognition of IFRS 16 assets
Additions
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2020
Additions
Reclassification
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2021
Accumulated depreciation and
impairment losses
Balance as at
September 30, 2019
Depreciation for the year
Less: disposals
Foreign exchange movement
Balance as at
September 30, 2020
Depreciation for the year
Less: disposals
Reclassification
Foreign exchange movement
Balance as at
September 30, 2021
Carrying amounts
As at September 30, 2020
As at September 30, 2021
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Right of
Use
Assets
Total
$203,928
-
5,101
8,076
(9,899)
(1,362)
205,844
3,608
17,909
(7,380)
(3,548)
$24,407
-
916
1,075
(3,685)
(172)
22,541
1,077
954
(959)
(432)
$75,263
-
691
3,812
(37)
(366)
$11,978
-
896
-
-
(290)
$6,552
-
15,407
(12,963)
-
(40)
$- $322,128
1,687
23,092
-
(13,650)
(2,184)
1,687
81
-
(29)
46
79,363
843
744
(251)
(1,626)
12,584
-
-
-
(199)
8,956
32,749
(19,607)
-
(94)
1,785
149
-
(263)
(71)
331,073
38,426
-
(8,853)
(5,970)
$216,433
$23,181
$79,073
$12,385
$22,004
$1,600 $354,676
Machinery
and
Equipment
Tools Buildings
Land
Assets under
Construction
Right of
Use
Assets
Total
$140,567
11,708
(8,754)
(286)
$18,294
1,979
(3,661)
(66)
$36,480
3,172
(14)
94
143,235
11,849
(7,172)
62
(2,533)
16,546
2,029
(954)
-
(391)
39,732
3,061
(251)
(62)
(736)
$145,441
$17,230
$41,744
$ -
-
-
-
-
-
-
-
-
$-
$-
-
-
-
$-
565
(28)
(6)
$195,341
17,424
(12,457)
(264)
-
-
-
-
-
531
473
(197)
-
(20)
200,044
17,412
(8,574)
-
(3,680)
$-
$787
$205,202
$62,609
$70,992
$5,995
$5,951
$39,631
$12,584
$8,956
$1,254 $131,029
$37,329
$12,385
$22,004
$813 $149,474
As at September 30, 2021, the Company had deposits for machinery and equipment and buildings under construction
totaling $22,004 (2020 – $8,956). These assets are not being depreciated because they are under construction and not
available for use.
EXCO TECHNOLOGIES LIMITED
42
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
6. INTANGIBLE ASSETS AND GOODWILL
Cost
Balance as at September 30, 2019
Additions
Less: disposals
Reclassifications
Foreign exchange movement
Balance as at September 30, 2020
Additions
Less: disposals
Reclassification
Foreign exchange movement
Balance as at September 30, 2021
Accumulated amortization
and impairment losses
Balance as at September 30, 2019
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2020
Amortization for the year
Less: disposals
Foreign exchange movement
Balance as at September 30, 2021
Carrying amounts
As at September 30, 2020
As at September 30, 2021
Computer
Software
and Other
Acquisition
Intangibles**
Assets under
Construction
(Software)
Total
Intangible
Assets Goodwill
$21,326
275
(13,471)
192
(32)
8,290
216
(202)
104
(170)
$8,238
$47,224
-
-
-
330
47,554
-
-
-
(1,981)
$45,573
$106
128
-
(192)
4
46
71
-
(104)
(3)
$10
$68,656
403
(13,471)
-
302
55,890
287
(202)
-
(2,154)
$62,834
-
-
-
2,146
64,980
-
-
-
(3,119)
$53,821
$61,861
Computer
Software
and Other
Acquisition
Intangibles**
Assets under
Construction
(Software)
Total
Intangible
Assets Goodwill
$19,974
755
(13,471)
(30)
7,228
591
(198)
(157)
$7,464
$14,791
3,277
-
59
18,127
3,079
-
(632)
$20,574
$-
-
-
-
-
-
-
-
$-
$34,765
4,032
(13,471)
29
25,355
3,670
(198)
(789)
$28,038
$-
-
-
-
-
-
-
-
$-
$1,062
$774
$29,427
$24,999
$46
$10
$30,535
$25,783
$64,980
$61,861
**Acquisition intangibles are comprised of customer relationships and trade names resulting from business acquisitions
and the purchase price allocation thereof.
Impairment testing of goodwill
The Company performed the annual impairment test of goodwill allocated to the Automotive Solutions segment as at
September 30, 2021. The recoverable amount has been determined based on a value-in-use calculation using cash flow
projections from financial budgets approved by senior management covering a three-year period. Cash flow beyond the
three-year period was extrapolated using a 2% growth rate, which represents the expected growth in the global economy.
The discount rate applied to future cash flows was 10.1%. As a result of the analysis, management determined there
was no impairment.
EXCO TECHNOLOGIES LIMITED
43
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Key assumptions to value-in-use calculations
The calculation of the value-in-use for the Automotive Solutions segment is most sensitive to the following
assumptions:
- Discount rates
- Growth rate to extrapolate cash flows beyond the budget period
- Forecasted revenue and profit margins during the budget period
The discount rate used represents the current market assessment of the risks specific to the Automotive Solutions
segment, taking into consideration the time value of money and individual risks of the underlying assets that have not
been incorporated in the cash flow estimates. The discount rate is derived from the group of CGU’s weighted average
cost of capital, taking into account both debt and equity. The cost of equity is derived from the expected return on
investment by the Company’s shareholders. The cost of debt is based on the interest-bearing borrowing the Company
is obliged to service. Segment-specific risk is incorporated by applying different debt to equity ratios.
Sensitivity to changes in assumptions
Management has performed sensitivities on the assumptions used in the value in use calculations, and the recoverable
amount still exceeds the carrying values.
7. PROVISIONS
The following table outlines the provisions at the dates of the consolidated statements of financial position and changes
to the provisions during the reporting periods.
Severance
Warranties
September 30, 2021
$3,492
444
$3,936
September 30, 2020
$2,579
323
$2,902
The fair value of the above provisions is management’s best estimate based on information available. The ultimate
amounts of the payments approximate the provision amounts and the timing of payments is expected to be within the
next twelve months. There is no reimbursement expected for any of these provisions.
The movement in the provision accounts is as follows:
Closing balance, as at September 30, 2019
Additions
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30, 2020
Additions
Utilized
Reversals
Foreign exchange differences
Closing balance, as at September 30, 2021
Severance
$2,474
1,312
(683)
(387)
(137)
$2,579
2,117
(1,094)
(127)
17
$3,492
Warranties
$198
124
-
-
1
$323
189
-
(66)
(2)
$444
Total
$2,672
1,436
(683)
(387)
(136)
$2,902
2,306
(1,094)
(193)
15
$3,936
EXCO TECHNOLOGIES LIMITED
44
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
8. FINANCIAL INSTRUMENTS
The Company classifies its financial instruments as follows:
Cash and cash equivalents
Accounts receivable
Trade accounts payable
Bank indebtedness
Customer advance payments
Accrued liabilities
Derivative instruments
Long-term debt
Financial assets – held for trading measured at fair value
Financial assets – measured at amortized cost
Financial liabilities – measured at amortized cost
Financial liabilities – measured at amortized cost
Financial liabilities – financial liabilities measured at amortized cost
Financial liabilities – financial liabilities measured at amortized cost
Financial liabilities – held for trading measured at fair value
Financial liabilities – measured at amortized cost
Foreign exchange contracts
The Company entered into a series of Collars extending through to September 10, 2024 and designated them as cash
flow hedges against Mexican payroll and other local Mexican costs. The total amount of these Collars is 648.0 million
Mexican pesos (2020 – 636.0 million Mexican pesos). The selling price ranges from 21.646 to 24.27 Mexican pesos to
each US dollar. In addition, there is a series of collars extending through January 14, 2023 to convert $9.7 million CAD
to USD and Euro. These Collars have been designated as a cash flow hedge against capital equipment purchases in
USD and Euro.
Management estimates that a cumulative gain of $546 (2020 – loss of $1,758) would be realized if these Collars were
terminated on September 30, 2021. Net of deferred taxes of $145, the cumulative gain of $401 is recorded in other
comprehensive income. During the year, the estimated fair value gain of $1,699, net of deferred taxes of $606 (2020 –
loss of $1,091 net of deferred taxes of $389) has been included in other comprehensive income, and the cumulative gain
of $546 is recorded in the consolidated statements of financial position under the caption derivative instruments.
Risks and uncertainties
The Company, through its financial assets and liabilities, is exposed to various risks. The following analysis provides a
measurement of the risks and how they are managed:
a) Credit risk
Credit risk is the risk of an unexpected loss if a customer or third party fails to meet its contractual obligations. The
Company’s primary credit risk is its outstanding trade accounts receivable. The carrying amount of its outstanding trade
accounts receivable represents the Company’s estimate of its maximum credit exposure. The Company regularly
monitors its credit risk exposure and takes steps such as credit approval procedures, establishing credit limits, utilizing
credit assessments and monitoring practices to mitigate the likelihood of these exposures from resulting in an actual
loss. The carrying amount of the trade accounts receivable disclosed in the consolidated statements of financial position
is net of allowance for doubtful accounts. Allowance for doubtful accounts is estimated using the expected credit loss
model. The Company uses historical experience, and considers factors including, the aging of balances, the customer’s
credit worthiness, updates based on the current economic conditions, expectations of bankruptcies, and the political and
economic volatility in the markets/locations of customers to estimate the allowance. Subsequent recoveries of amounts
previously written off are credited against operating expenses in the consolidated statements of income and
comprehensive income. As at September 30, 2021, the accounts receivable balance (net of allowance for doubtful
accounts) is $83,130 (2020 – $83,193) and the Company’s five largest trade debtors accounted for 30.2% of the total
accounts receivable balance (2020 – 37.1%).
EXCO TECHNOLOGIES LIMITED
45
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The following table presents a breakdown of the Company’s accounts receivable balances:
Trade accounts receivable
Employee receivable
Sales tax receivable
Other
Less: allowance for doubtful accounts
Total accounts receivable, net
The aging of trade accounts receivable balances is as follows:
Not past due
Past due 1-30 days
Past due 31-60 days
Past due 61-90 days
Past due over 90 days
Less: allowance for doubtful accounts
Total trade accounts receivable, net
The movement in the allowance for doubtful accounts is as follows:
September 30, 2021
$82,193
181
1,843
311
(1,398)
September 30, 2020
$83,436
323
2,474
899
(3,939)
$83,130
$83,193
September 30, 2021
$70,409
7,969
2,285
1,296
234
(1,398)
September 30, 2020
$74,229
6,654
1,641
267
645
(3,939)
$80,795
$79,497
Opening balance
Additions
Utilized
Reversal
Exchange differences
Closing balance
September 30, 2021
$3,939
352
(186)
(2,659)
(48)
$1,398
September 30, 2020
$840
3,809
(658)
(63)
11
$3,939
b) Liquidity risk
Liquidity risk refers to the possibility that the Company may not be able to meet its financial obligations as they come
due. The Company manages its liquidity risk by minimizing its financial leverage and arranging credit facilities in order
to ensure sufficient funds are available to meet its financial obligations. This is achieved by continuously monitoring
cash flows from its operating, investing and financing activities. As at September 30, 2021, the Company has a net
cash balance of $18,558 (2020 – $26,613) and unused credit facilities of $47,124 (2020 – $46,005).
In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum
payments. The following tables summarize the Company’s significant commitments on an undiscounted basis and
corresponding maturities:
EXCO TECHNOLOGIES LIMITED
46
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Bank indebtedness
Trade accounts payable
Operating leases
Purchase commitments
Capital expenditures
Bank indebtedness
Trade accounts payable
Long-term debt
Operating leases
Purchase commitments
Capital expenditures
Total
$5,540
33,793
864
36,036
20,059
$96,292
Total
$3,418
32,873
3,093
1,331
29,844
2,594
September 30, 2021
< 1 Year
$5,540
33,793
418
36,036
20,059
$95,846
1-3 Years
$-
-
417
-
-
$417
September 30, 2020
< 1 Year
$3,418
32,873
93
510
29,844
2,594
1-3 Years
$-
-
3,000
808
-
-
Over 3 Years
$-
-
29
-
-
$29
Over 3 Years
$-
-
-
13
-
-
$73,153
$69,332
$3,808
$13
c) Foreign exchange risk
The Company operates in Canada with subsidiaries located in the United States, Mexico, Colombia, Brazil, Thailand,
and Morocco. It is exposed to foreign exchange transaction and translation risk through its operating activities.
Unfavourable changes in the exchange rates may affect the operating results and shareholders’ equity of the Company.
In order to mitigate the foreign currency exposure, the Company reduces part of its foreign exchange risk by sourcing
a significant portion of its manufacturing inputs in the currency that its sales are denominated in. In addition to the
above natural hedge, the Company also uses Collars to hedge cash outflows for the Mexican payroll and other local
Mexican costs. These Collars are designated as cash flow hedges. The resulting gain or loss on the valuation of these
financial instruments is recognized in other comprehensive income. The Company does not mitigate the translation risk
exposure of its foreign operations due to the fact that these investments are considered to be long-term in nature.
With all other variables held constant, the following tables outline the Company’s annual foreign exchange exposure at
one percent fluctuation between various currencies compared with the average annual exchange rate.
Income before income taxes
Other comprehensive income
Income before income taxes
Other comprehensive income
1% Fluctuation
USD vs. CAD
1% Fluctuation
EUR vs. CAD
1% Fluctuation
MXP vs. CAD
+/- $1,349
+/- $3,156
+/- $4
+/- $429
+/- $3
+/- $166
1% Fluctuation
COP vs. CAD
1% Fluctuation
BRL vs. CAD
+/- $10
+/- $78
+/- $1
+/- $39
d) Interest rate risk
The Company’s exposure to interest rate risk relates to its net cash position, variable rate credit facilities and variable
rate long-term debt. The Company mitigates its interest rate risk exposure by reducing or eliminating its overall debt
EXCO TECHNOLOGIES LIMITED
47
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
position. Net income or loss is sensitive to the impact of a change in interest rates on the average balance of interest-
bearing financial liabilities during the year.
e) Fair value
Fair value represents point-in-time estimates that may change in subsequent reporting periods due to market conditions
or other factors. Presented below is a comparison of the fair value of each financial instrument to its carrying value.
Due to their short-term nature, the fair value of cash and cash equivalents, accounts receivable, trade accounts payable
and customer advance payments are assumed to approximate their carrying value.
The fair values of derivative instruments that are not traded in an active market, such as over-the-counter foreign
exchange options and Collars, are determined using quoted forward exchange rates as at the consolidated statements of
financial position dates and are Level 2 instruments.
The estimated fair value of long-term debt approximates its carrying value as the instruments’ terms and interest rate
are market based.
During the year ended September 30, 2021, there were no transfers between Level 1 and Level 2 fair value
measurements.
The carrying value and fair value of all financial instruments are as follows:
Cash and cash equivalents
Accounts receivable
Trade accounts payable
Bank indebtedness
Customer advance payments
Accrued liabilities
Derivative instruments
Long-term debt
9. INVENTORIES
Raw materials
Work in process
Finished goods
Production supplies
Less: obsolescence provision
September 30, 2021
September 30, 2020
Carrying Amount
of Asset
(Liability)
$24,098
83,130
(33,793)
(5,540)
(4,814)
(25,667)
546
$-
Fair Value of
Asset
(Liability)
$24,098
83,130
(33,793)
(5,540)
(4,814)
(25,667)
546
$-
Carrying Amount
of Asset
(Liability)
$33,124
83,193
(32,873)
(3,418)
(3,557)
(22,772)
(1,758)
($3,093)
Fair Value of
Asset
(Liability)
$33,124
83,193
(32,873)
(3,418)
(3,557)
(22,772)
(1,758)
($3,093)
September 30, 2021
$38,210
22,741
16,778
3,847
(3,817)
$77,759
September 30, 2020
$30,237
19,279
12,326
2,691
(4,346)
$60,187
EXCO TECHNOLOGIES LIMITED
48
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The movement in the obsolescence provision accounts is as follows:
Opening balance
Additions
Utilized
Reversals
Exchange differences
Closing balance
September 30, 2021
$4,346
1,495
(1,690)
(224)
(110)
$3,817
September 30, 2020
$3,263
2,174
(568)
(584)
61
$4,346
During the year, inventories of $196,415 (2020 – $179,652) were expensed, of which $1,495 was from the write-downs
of inventories (2020 – $1,203), with reversal of write-downs of $224 (2020 – $584).
10. CAPITAL MANAGEMENT
The Company defines capital as net debt and shareholders’ equity. As at September 30, 2021, total managed capital
amounted to $345,058 (2020 – $331,006), consisting of shareholders’ equity of $345,058 (2020 – $331,006).
The Company’s objectives when managing capital are to:
• utilize short-term funding sources to manage its working capital requirements and fund capital expenditures required
to execute its operating and strategic plans; and
• maintain low overall debt levels relative to shareholders’ equity with a strong bias for short-term debt in order to
minimize the cost of capital and allow maximum flexibility to respond to current and future industry, market and
economic risks and opportunities.
The following ratios are used by the Company to monitor its capital:
Net debt to equity ratio
Net debt to Adjusted EBITDA ratio
September 30, 2021
September 30, 2020
0.00:1
0.00:1
0.00:1
0.00:1
The following table details the net debt calculation used in the net debt to equity ratio as at the years ended as
indicated:
Bank indebtedness and long-term debt
Less: cash and cash equivalents
Net debt
September 30, 2021
$5,540
September 30, 2020
$6,511
(24,098)
nil
(33,124)
nil
The net debt to Adjusted EBITDA ratio is calculated by dividing the net debt by Adjusted EBITDA, and the Company
calculates Adjusted EBITDA as earnings before other income/(expense), interest, taxes, depreciation and amortization.
Based on the current funds available and the expected cash flows from operations, management believes that the
Company has sufficient funds to meet its liquidity requirements.
The Company is not subject to any capital requirement imposed by regulators; however, the Company must adhere to
a net worth covenant related to the terms of its bank credit facility. As at September 30, 2021, the Company was in
compliance with the required financial covenants.
EXCO TECHNOLOGIES LIMITED
49
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
11. OTHER INFORMATION
A. SEGMENTED INFORMATION
Business segments
The Company operates in two business segments: Casting and Extrusion and Automotive Solutions. The accounting
policies followed in the operating segments are consistent with those outlined in note 2 to the consolidated financial
statements.
The Casting and Extrusion segment designs and engineers tooling and other manufacturing equipment. Its operations
are substantially for automotive and other industrial markets in North America.
The Automotive Solutions segment produces automotive interior components and assemblies primarily for seating,
cargo storage and restraint for sale to automotive manufacturers and Tier 1 suppliers (suppliers to automakers).
The Company evaluates the performance of its operating segments primarily based on net income before interest, other
income (expense) and income tax expense.
The Corporate segment involves administrative expenses that are not directly related to the business activities of the
above two operating segments.
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment pre-tax income (loss) before interest
Net interest expense
Income before income taxes
Property, plant and equipment additions
Property, plant and equipment, net
Intangible asset additions
Intangible assets, net
Goodwill
Total assets
Total liabilities
Casting
and
Extrusion
$207,449
(9,479)
197,970
13,964
487
25,734
35,300
124,322
228
664
-
233,089
36,030
2021
Automotive
Solutions Corporate
Total
$265,085
(1,884)
263,201
3,359
3,183
30,682
3,126
23,899
59
25,119
61,861
208,070
44,246
$-
-
-
89
-
(7,434)
-
1,253
-
-
-
(11,032)
4,793
$472,534
(11,363)
461,171
17,412
3,670
48,982
(405)
48,577
38,426
149,474
287
25,783
61,861
430,127
85,069
EXCO TECHNOLOGIES LIMITED
50
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Sales
Intercompany sales
Net sales
Depreciation
Amortization
Segment pre-tax income (loss) before interest
Net interest expense
Income before income taxes
Initial recognition of right of use assets
Property, plant and equipment additions
Property, plant and equipment, net
Intangible asset additions
Intangible assets, net
Goodwill
Total assets
Total liabilities
Geographic and customer information
Sales
Canada
United States
Europe
Mexico
South America
Asia
Other
Casting
and
Extrusion
$189,489
(8,274)
181,215
13,834
607
17,998
Automotive
Solutions
$231,613
(519)
231,094
3,478
3,424
20,970
389
20,371
104,498
397
933
-
200,228
28,809
1,266
2,721
25,189
6
29,602
64,980
219,600
41,034
2020
Corporate
Total
$-
-
-
112
1
(6,928)
32
-
1,342
-
-
-
(10,048)
8,931
$421,102
(8,793)
412,309
17,424
4,032
32,040
(617)
31,423
1,687
23,092
131,029
403
30,535
64,980
409,780
78,774
2021
$27,309
284,819
72,749
50,262
8,447
9,316
8,269
$461,171
2020
$19,906
255,160
65,622
52,306
6,229
7,094
5,992
$412,309
In 2021 the total revenue to the Company’s largest 2 customers accounted for 5.7% and 5.5% (2020 – 6.0% and 5.6%)
of total sales. The accounts receivable pertaining to these customers were $3,304 and $2,789 at year-end (2020 – $5,879
and $4,629). The allocation of sales to the geographic categories is based upon the customer location where the product
is shipped. In 2021, the Company’s largest 2 customers were from the Automotive Solutions segment and the Casting
and Extrusion segment (2020 – the Company’s largest 2 customers were from the Casting and Extrusion segment and
the Automotive Solutions segment).
EXCO TECHNOLOGIES LIMITED
51
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
Property, plant and equipment, net
Canada
United States
Mexico
South America
Thailand
Morocco
September 30, 2021
$64,243
30,582
23,059
6,015
5,878
19,697
September 30, 2020
$50,619
31,489
22,675
6,857
6,643
12,746
$149,474
$131,029
Property, plant and equipment are attributed to the country in which they are located.
Intangible assets, net
Canada
United States
Mexico
South America
Thailand
Europe
Morocco
September 30, 2021
$441
25,139
4
107
4
-
88
September 30, 2020
$717
29,553
17
148
8
-
92
$25,783
$30,535
B. EMPLOYEE FUTURE BENEFITS
The Company accrues employee future benefits for its Mexican and Thailand employees. In Mexico these benefits
consist of a one-time payment equivalent to 12 days of wages for each year of service (at the employee’s most recent
salary, but not to exceed twice the legal minimum wage), payable to all employees with 15 or more years of service, as
well as to certain employees terminated involuntarily prior to vesting of their seniority premium benefit. Under Mexican
labour laws, the Company also provides statutorily mandated severance benefits to its employees terminated under
certain circumstances. Such benefits consist of a one-time payment of three months’ wages upon involuntary
termination without just cause. In Thailand the severance benefit varies from 1 to 10 months dependent on length of
service.
The liability associated with the seniority and termination benefits is calculated as the present value of expected future
payments and amounted to $2,314 as at September 30, 2021 (2020 – $1,877) and is recorded under the caption other
accrued liabilities on the consolidated statements of financial position. In determining the expected future payments,
assumptions regarding employee turnover rates, inflation, minimum wage increases and expected salary levels are
required and are subject to review and change.
C. COMPENSATION OF KEY MANAGEMENT PERSONNEL
The remuneration of directors and other members of key management personnel during the years ended
September 30, 2021 and 2020 were as follows:
Salaries and cash incentives (i)
Directors’ fees
Share-based awards (ii)
September 30, 2021
September 30, 2020
$4,241
270
130
$4,641
$3,329
270
130
$3,729
EXCO TECHNOLOGIES LIMITED
52
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
i) Key management personnel were not paid post-employment benefits, termination benefits, or other long-term benefits
during the years ended September 30, 2021 and 2020.
ii) Share-based payments are director share units granted to directors and the fair value of stock options granted to
key management personnel.
12. INCOME PER COMMON SHARE
Income per common share is calculated using net income and the monthly weighted average number of common shares
outstanding of 39,269,959 (2020 – 39,942,880). Any potential common shares for which the effect is anti-dilutive have
not been reflected in the calculation of diluted income per share. The dilution effect from the outstanding stock options
on diluted weighted average number of common shares outstanding for 2021 is 22,680 (2020 – nil).
13. INCOME TAXES
The consolidated effective income tax rate for 2021 was 20.9% (2020 – 12.7%) per the following tables. The lower
income tax rate in 2020 was favourably impacted by the reversal of a $2,311 deferred tax liability relating to ALC as a
result of a resolved tax exposure in the fourth quarter and the recognition of research and development tax credits.
Excluding these items the effective tax rate would have been 22%.
Income before income taxes
Income tax expense at Canadian statutory rates
Manufacturing and processing deduction
Foreign rate differential
Non-taxable income net of non-deductible expenses
Losses not tax effected
Other
Reported income tax expense
100.0%
27.2%
(0.8%)
(1.1%)
(5.7%)
0.7%
0.6%
20.9%
2021
$48,577
13,218
(384)
(555)
(2,783)
350
311
$10,157
2020
Income before income taxes
$31,423
100.0%
Income tax expense at Canadian statutory rates
Manufacturing and processing deduction
Foreign rate differential
Non-taxable income net of non-deductible expenses
Reversal of deferred tax liability
Losses not tax effected
Other
Reported income tax expense
8,704
(302)
(266)
(2,062)
(2,311)
276
(40)
$3,999
27.7%
(1.0%)
(0.8%)
(6.6%)
(7.4%)
0.9%
(0.1%)
12.7%
EXCO TECHNOLOGIES LIMITED
53
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
The major components of income tax expense are as follows:
Current income tax expense
Based on taxable income for the year
Deferred income tax expense (recovery)
Origination, reversal of temporary differences and losses not
recognized
Reported income tax expense
Deferred income tax assets and liabilities consist of the following temporary differences:
Deferred tax assets
Tax benefit of loss carry forward
Items not currently deductible for income tax purposes
Deferred tax liabilities
Tax depreciation in excess of book depreciation
Unrealized revenue and foreign exchange
Investment in subsidiaries
Net deferred income tax liabilities
14. CONSOLIDATED STATEMENTS OF CASH FLOWS
2021
2020
$7,749
$4,790
2,408
$10,157
(791)
$3,999
2021
2020
$613
704
1,317
(7,767)
92
(3,644)
(11,319)
($10,002)
$636
548
1,184
(5,424)
61
(3,038)
(8,401)
($7,217)
Net change in non-cash working capital
The net change in non-cash working capital balances related to operations consists of the following:
Accounts receivable
Inventories
Prepaid expenses and deposits
Trade accounts payable
Accrued payroll liabilities
Other accrued liabilities
Provisions
Customer advance payments
Income taxes recoverable
2021
($3,519)
(18,191)
(668)
1,795
2,742
482
1,034
1,317
(41)
($15,049)
2020
$12,287
12,894
85
(11,686)
(1,350)
1,453
230
1,854
(886)
$14,881
EXCO TECHNOLOGIES LIMITED
54
ANNUAL REPORT 2021
EXCO TECHNOLOGIES LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
$(000)’s except per share amounts
15. CONTINGENT LIABILITIES
In the ordinary course of business, the Company may be contingently liable for litigation and claims with customers,
suppliers and former employees. On an ongoing basis, the Company assesses the likelihood of any adverse judgments
or outcomes to these matters as well as potential ranges of probable costs and losses, and a determination of the provision
required, if any, for these contingencies is made after analysis of each individual issue.
During 2018, the Company agreed with a customer (the “Customer”) to utilize a government-sponsored third party (the
“Third Party”) tool financing program (the “Program”). The Program allows the Company to receive payment from the
Third Party in advance (the “Advance Payments”) of either tool delivery or the Customer’s receipt of payment from the
Original Equipment Manufacturer (the “OEM”). The Customer is obligated to pay all costs of the Program including
principal and interest. The Third Party retains recourse against the Company if the Customer fails to repay the Advance
Payments to the Third Party within 24 months of the Advance Payment. As at September 30, 2021 no repayments were
overdue ($2020 – $439). The Company has been indemnified by the Customer in this regard and expects recourse
against it to be extinguished in the normal course of business upon the Customer’s receipt of payment from the OEM.
The Advance Payments paid to the Company under this Program for the year ended September 30, 2021 amounted to
$2,069 (2020 – $3,960) and related liabilities and receivables were not recorded on the Company’s consolidated
statements of financial position. Repayments made in the current year amounted to $5,928 (2020 – $2,856). As at
September 30, 2021 the balance outstanding under the Program was $5,393.
There are no material contingent liabilities as at September 30, 2021 (2020 – nil).
16. INTEREST EXPENSE
The following table outlines the interest expense (income) incurred (earned) during the year:
Interest expense on bank indebtedness and long-term debt
Interest income on deposits
Net interest expense
17. GOVERNMENT ASSISTANCE
September 30, 2021
September 30, 2020
$428
(23)
$405
$632
(15)
$617
As a result of the impact of COVID-19, the Company has applied to multiple government assistance programs. During
the year ended September 30, 2021 the Company recorded $500 (2020 – $7,003) of assistance which was recorded as
a reduction of selling, general and administrative expense. The amount of assistance receivable as at September 30,
2021 was nil (2020 – $648).
EXCO TECHNOLOGIES LIMITED
55
ANNUAL REPORT 2021
CORPORATE INFORMATION
Board of Directors
Transfer Agent and Registrar
Edward H. Kernaghan, MSc
Executive Vice President
Kernaghan & Partners Ltd.
Darren M. Kirk, MBA, CFA
President and CEO of the Company
Robert B. Magee, PEng
Chairman
Woodbridge Group
Colleen M. McMorrow, FCPA, FCA, ICD.D
Corporate Director
TSX Trust Company
301 – 100 Adelaide Street West
Toronto, Ontario M5H 4H1
Phone: 416.361.0930
www.tsxtrust.com
______________________________
Auditors
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
______________________________
Paul E. Riganelli, MA, MBA, LLB
Executive Vice President of the Company
Stock Listings
Brian A. Robbins, PEng
Executive Chairman of the Company
Anne Marie Turnbull
President, AMT Associates Ltd.
______________________________
Corporate Officers
Brian A. Robbins, PEng
Executive Chairman
Darren M. Kirk, MBA, CFA
President and CEO
Matthew Posno, CPA, CA, MBA
Chief Financial Officer & VP Finance
Secretary
Paul E. Riganelli, MA, MBA, LLB
Executive Vice President
TSX: XTC, OTCQX: EXCOF
______________________________
Corporate Office
Exco Technologies Limited
130 Spy Court, 2nd Floor
Markham, Ontario L3R 5H6
Phone: 905.477.3065
www.excocorp.com
______________________________
F2021 Annual General
Meeting of Shareholders
Wednesday, January 26, 2022
at 4:30 pm. (Toronto Time)
Virtual Meeting: Live Webcast
https://virtual-meetings.tsxtrust.com/1235
w w w . e x c o c o r p . c o m
T S X :X T C, O T C Q X: E X C O F