Good day, and thank you for standing by. Welcome to the Exco Technologies Limited fourth quarter results 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Darren Kirk, CEO of Exco. Please go ahead.
Thank you, Gigi. Good morning, ladies and gentlemen. Welcome to Exco Technologies fiscal 2021 fourth quarter conference call. I am Darren Kirk, CEO of Exco. I will lead off with an operations overview. Matthew Posno, our CFO, will then review the financial results before we open the call for questions. Before I begin, I would like to make some comments about forward-looking information. In yesterday's news release and on page two of the presentation that we have posted to our website, you'll find cautionary notes in that regard. While I won't repeat the contents, I want to emphasize that the cautionary notes apply to this discussion today. It was a challenging quarter, but we performed well, producing CAD 0.18 of earnings per share.
I must say our performance stands out against much weaker results shown by many other automotive suppliers in the current environment. It is a testament to what differentiates Exco, which I think is vastly underappreciated by the market. Our quarter capped off a year in which our results were also very decent 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 further crimped our results. Despite this, our full-year sales were up 12% compared to fiscal 2020, and we delivered CAD 0.98 of earnings per share, a 42% improvement compared to CAD 0.69 last fiscal year. I want to thank all of my Exco teammates for their fantastic efforts and, of course, commitment to working safely through such extreme circumstances.
Beyond our financial results, in fiscal 2021, 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 promoted our core Exco values. We enhanced our employee code of conduct and published our first sustainability report. We also secured sizable 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. Our businesses directly support the electric vehicle revolution and worldwide movement toward 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. One key trend that will continue to benefit Exco is the increasing size and complexity of die-cast aluminum components. Tesla has really pushed the envelope on this front using massive Giga Presses, which are much larger die-cast machines than those used previously. This enables Tesla to cast entire subframes of the vehicle in one shot with giga castings, rather than assemble numerous stamped metal components in the body shop, creating significant space and manufacturing efficiency gains. The tooling required to facilitate this process is very large and extremely 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.
This provides a clear indication of the depth we have in the design and know-how required to meet the challenges of the industry. We expect traditional OEMs will 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 aggressive capital agenda within our Casting and Extrusion segment is aimed at capturing growth from this development, but from higher expected demand for extrusion tooling across many industries. These investments are especially evident in our Castool division. In November 2021, Castool celebrated the opening of its latest production facility in Kenitra, Morocco. This new facility will enable Castool to better serve its customers in Europe, the Middle East, and Africa, while providing increased capacity to meet market demands.
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. This new equipment will be the largest in North America, providing us with unique capabilities for our internal needs. 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, Mexico, and Southern U.S. During the year, our Large Mould Group made several investments in new equipment to harmonize its manufacturing processes within the group, further improve its efficiency, and better position us to capture growth in the very large die-cast segment.
Installation of this equipment has commenced and will continue throughout fiscal 2022. In addition, our board approved three new projects in fiscal 2021 to enhance the Extrusion Group's heat treatment capabilities. All of these investments 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 sq ft of manufacturing space to accommodate the launch of several new key programs. These programs will together contribute annual revenue in excess of CAD 65 million 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 are exceptionally well suited for our products. In total, we expect our capital spending will approximate CAD 55 million in fiscal 2022, of which CAD 43 million is for growth initiatives. With the benefit of these investments, we expect to achieve substantial growth in the years ahead. As detailed in our last quarter, over the next five years, Exco is 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 CAD 750 million and generate EPS of roughly CAD 1.90 in fiscal 2026.
Turning to the quarter and looking first at our Automotive Solutions segment, overall vehicle production volumes in North America and Europe were materially lower year-over-year. Nonetheless, our foreign exchange-adjusted segment revenues were only down a tick and again exceeded industry growth by a significant margin. This reflects continuing gains in our content per vehicle at levels well above our historical track record. On both a year-over-year and sequential basis, our segment revenues were down slightly but well below levels we would have otherwise expected this quarter. This shortfall is mainly due to reduced vehicle production volumes as OEMs continued to be crimped by the shortage of microchips. As a result, North American and European vehicle production in the quarter was 25%-30% lower than a year ago.
Consumer sales were similarly constrained by the lack of supply, while sales incentives are declining and dealer inventory levels are now at record lows. This bodes well for a sustained period of higher vehicle production volumes once microchip supply issues ease, which we expect will begin to occur in the next couple of quarters. New program launches contributed to our results this quarter, and we also have high amounts of content on several vehicle models that are outperforming market trends. We did launch one additional key program this quarter, which will continue to contribute strongly to our results in the quarters and years ahead. Quoting activity has slowed somewhat but remains decent. We are seeing a number of important wins and sizable new opportunities, particularly with electric vehicles from both new and established OEMs.
On the cost side, our margins were relatively stable compared to Q3 but did slip from Q4 last year due mainly to reduced overhead absorption arising from lower vehicle production volumes. As well, we faced foreign exchange headwinds and heightened fluctuations in forecast versus actual order releases again this quarter. This occurred as our customers juggled their own production schedules in response to the chip shortage issue. These challenges were pushed down to the supply base and placed strain on our production planning process. Moreover, raw material cost increases ticked up further, and we faced various supply chain challenges of our own. These elements required us to be nimble and absorb a lot of extra costs related to overtime, material substitution, and expedited freight. In our Casting and Extrusion segment, we again had terrific results. Demand was strong in all three of our segment's business groups.
As I've mentioned several times before, the automotive industry's transformation towards electric vehicles and focus on reducing emissions is extremely positive for Exco's tooling business. We certainly saw the benefit in our results again this quarter. As OEMs make the change to greener vehicles and strive for greater manufacturing efficiency, there is an increased use of light metals and the demand for our associated tooling. There is also increasing demand for technical expertise at the supplier level as products become larger and more complex. This plays right into our strength. Again, as mentioned, Tesla with its Giga Press is a good example of this as they are now producing die-cast components that are much larger than anything produced previously.
Castool is the primary supplier for much of Tesla's shot end tooling for its Giga Presses and expects to expand this relationship as Tesla ramps up its new facilities in Texas and Berlin any week now. More broadly, we also expect to benefit from the trend towards larger and more complex castings across the industry as traditional OEMs inevitably pursue a similar process. In addition, there is a heightened focus on efficiency by all manufacturers for sustainability initiatives that will be very positive for the entirety of our tooling business. The extrusion market remained strong this quarter with high demand across the vast majority of end markets.
Our extrusion tooling ultimately supports a diverse range of applications, including residential and industrial building and construction, solar panels, consumer durable products, and various modes of transportation. This quarter, we again demonstrated we could keep up with sizable demand growth by utilizing equipment and labor more efficiently while leveraging the harmonized manufacturing process of our numerous group facilities. With regards to the latter, this initiative has allowed us to centralize certain processes such as programming and design and utilize our capacity on a network basis. All of this keeps our costs low, capacity high, and provides us with the ability to manufacture a quality product in a standardized manner. We are making significant strategic investments to further shrink lead times and drive down our operating costs by insourcing more of our own heat treat requirements, all while reducing our environmental footprint.
Our Large Mould Group performed well on the top line this quarter, although still suffered from reduced rebuild work due to lower automotive production. We did, however, have a number of program wins that will benefit future quarters. We are very bullish on the outlook of this business given the growing demand for large and complex die-cast components, coupled with our leading market position, full service capabilities, and view that supply chains will become more localized over time. As well, our additive business continues to perform strongly and is a critical differentiator, providing us with an unmatched competitive edge. This business is now contributing strongly to our results, and we are very optimistic on where this business will go.
Despite rising input costs, segment margins benefited in the quarter from absorption gains driven by higher sales, but more so by efficiency gains in the usage of both material and labor. This progress in part reflects our past and ongoing sizable investments in new equipment. Again, it is really driven by our people who continuously rethink the way of doing things and who push the envelope on innovation and product performance. In summary, we had a decent fourth quarter and year. Despite the significant challenges we all face today, we are very well-positioned to build on our results in the years ahead. With all of that, we know these goals can't be obtained without the dedication of our people. I'd again like to thank the entire team at Exco for their focus, hard work, and immense flexibility during the past quarter and year. That concludes my operations overview.
I will now pass the call over to Matthew to discuss the financial highlights of the quarter and year. Matthew?
Thanks, Darren. Good morning, ladies and gentlemen. Consolidated sales for the fourth quarter ended September 30 were CAD 106.4 million, an increase of CAD 5.7 million or 6% from the prior year. Fourth quarter sales at our Automotive Solutions segment decreased CAD 4.4 million or 7%. The Casting and Extrusion Group sales were up CAD 10.1 million or 26%. Over the quarter, exchange rate movements decreased sales by CAD 5 million. Annual sales totaled CAD 461.2 million compared to CAD 412 million last year, an increase of CAD 49 million or 12% over last year. Excluding the negative impact of exchange rate movements, full-year sales increased 17%.
Sales in the Automotive Solutions segment were CAD 263 million, an increase of CAD 32 million or 14%, and the sales in the Casting and Extrusion group were CAD 198 million, an increase of CAD 17 million or 9%. The quarterly and full-year sales improvements reflect the general economic recovery from the global impact of COVID-19, strong demand for extrusion and die-cast consumable tooling, an increase in customer base, and significant product launches. These are partially offset by constraints to automotive production volumes due to supply chain disruptions, particularly in the third and fourth quarters of the fiscal year. Consolidated net income in the fourth quarter was CAD 7.7 million, or earnings per share of CAD 0.18 compared to CAD 10.7 million, or earnings of CAD 0.27 per share the same quarter last year, an EPS decrease of 33%.
The effective income tax rate was 27% in the current quarter compared to -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 in the payment of franchise and state taxes. The tax rate in the prior year quarter reflects a reversal of CAD 2.6 million of deferred tax liabilities from resolved tax exposures and R&D tax credits. These two items increased earnings 7 cents last year. The Automotive Solutions segment experienced a 7% decrease in sales or a reduction of CAD 4.4 million to CAD 56.8 million. Excluding the impact of foreign exchange, the segment sales decreased CAD 1.4 million or only 2%.
The sales decline was driven by materially lower vehicle production volumes in both North America and Europe due to supply chain disruptions, including semiconductor chip shortages and logistical constraints. As Darren noticed earlier, North American and European vehicle production decreased 25% and 30% respectively during the quarter compared to a year ago. The segment's 7% sales decline in context with global vehicle production reduction reflects the benefits of sizable new program launches and favorable product mix, particularly at our Polytech and Neocon operations. Fourth quarter pre-tax earnings in the Automotive Solutions segment totaled CAD 4.5 million, which is a decrease of CAD 2.8 million or 38% over the same quarter last year. Included in the prior year quarter was COVID-19 wage subsidies of CAD 1.3 million.
Current period profitability was negatively impacted by lower sales volumes and higher costs associated with the semiconductor shortage. 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 sales were up 31% for the quarter. The sales increase was mainly driven by the recovery of general economic conditions due to the impact of COVID-19. The Extrusion, Large Mould and Castool group experienced higher sales from new and existing customers in the quarter. 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.
Excluding CAD 2.7 million in COVID-19 subsidies received last year, segment profitability improved by CAD 4.4 million. The earnings improvement was mainly driven by increased contributions from the Extrusion Group. This group benefited from higher volumes and prices, improved labor efficiencies and fixed overhead absorption, which offset higher costs. While higher sales at Castool and Large Mould group also positively impacted segment profitability, this benefit was countered by rising raw material prices, cost overruns with certain programs nearing completion, and initial expenses for Castool's new plant in Morocco. Exco generated cash from operating activities of CAD 7.3 million during the quarter and CAD 3.2 million of free cash flow after CAD 4 million in maintenance fixed asset additions and CAD 8 million in working capital investments.
This cash flow, together with cash on hand, was more than sufficient to fund fixed assets for growth initiatives of $7.7 million and $3.8 million in dividends. For the year, Exco generated free cash flow of $37.3 million and returned $15.5 million to shareholders through dividend payments. Exco ended the year with $18.6 million in net cash and $68.6 million in available liquidity, including $24.1 million of balance sheet cash. Exco's financial position remains very strong. As such, the company's balance sheet and availability under the existing credit facility allows considerable flexibility to support strategic initiatives. This, combined with our free cash flow, creates a foundation for management to pursue high-value growth capital expenditures, dividends, and other opportunities that may arise. That concludes my comments.
We can now transition to the Q&A portion of the call. Gigi?
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Ocampo from Cormark. Your line is now open.
Good morning, everyone.
Morning, David.
For your 2026 guidance, you also laid out the path for it to get to CAD 1 billion through M&A. Given all the supply chain disruptions that we're seeing today, are you starting to see more distressed assets become available for sale?
Yeah. You know, we are seeing some distressed assets come for sale, David, but we tend to pass on those opportunities pretty quickly. We don't intend to acquire companies that require kinda turnaround efforts. You know, while the deal flow availability is picking up, our appetite in that regard is very low.
Would you say that your near-term priorities are kind of your organic initiatives as opposed to going out in the marketplace and acquiring other assets?
Yeah, that's certainly our focus. You know, never say never on the acquisition front, but certainly front and center on our focus is our organic growth initiatives, of which we have several underway.
Yes. Then I guess the big concern for most people, including the auto parts guys and your peers, is the labor issues. Are you starting to see, you know, labor increases that are, you know, approaching 10%? Are you able to pass off those costs to your customers, or is that something that you have to eat while you're under those longer-term contracts?
I can't really give you a clear magnitude of the impact, but certainly, all input costs are going up, labor, materials, and other inputs. You know, in this business, it's extremely difficult to get a price increase out of your customer. We have had some success in our Extrusion Group at recapturing some of the raw material price increases, as well as in other pockets of the business. You know, by and large, we need to continue to push ahead with efficiency efforts in order to offset those pressures.
I guess asked more directly, like, is it possible for you guys to get into the 15% EBITDA margin range again, given all the inflationary pressures that you're seeing?
You know, with time, I certainly expect so. You know, in the Automotive Solutions segment, you know, that's kind of our target, and overall on a consolidated basis, a little bit higher than that. You know, where the margin goes in the near term is very difficult to say. We're confident that we're making the right investments and decisions to recapture and maintain that margin at those levels on a longer term basis.
Okay. That's it for me. I'll hand the line over.
Thanks, David.
Thank you. Our next question comes from the line of Peter Sklar from BMO Capital. Your line is now open.
Okay. Darren, I'm just trying to understand, make sure I understand how you see the opportunity for vehicle electrification. If I was to summarize at a very high level, you know, the auto solutions business will carry on because all the things they do are required on battery electric vehicles. On the tooling side, like as you say, the structural parts are gonna become big and complex, so like Newmarket and your large die-cast mould capabilities will play a role in that. At the same time, there'll be all the associated consumables which will be satisfied by Castool. Is that kind of how you're thinking about it?
Yeah. No, that's exactly right, Peter. You know, as I've mentioned here, Tesla's really taken the lead and really changed the way that vehicles are manufactured, and they've had tremendous success with that. We can see it in our order flow, and as they ramp up these new plants, that order flow will be expected to increase further. We do see clear evidence that many of the traditional OEMs are in deep dialogue with these large OEM die-cast machine builders to implement their own Giga Presses. I expect that as they transition to an electric vehicle future, that they will pursue similar means of producing the vehicle structure with these large Giga cast machines.
Okay. On Tesla specifically, like you talked about, you know, how this is an opportunity that you're satisfying, you know, with Castool, but like who is doing their large moulds and, you know, for these big presses and did you get a piece of that and did you bid on it and kind of what's the backdrop there? Like, why is Newmarket not the supplier for Tesla of these large moulds?
Well, I mean, I'm not gonna speak to who's providing those moulds today, but I will say that you know, all of our divisions are involved with Tesla at some level. You know, they are an important and growing customer across the board, and we see significant opportunity to expand on that.
Okay. Then like just on this transition to vehicle electrification, I think the way it's gonna play out is that your traditional large mould business, which is, you know, making moulds for transmission case covers and engine blocks is gonna wind down. You know, making moulds for these big complex structural parts is going to wind up. How do you know that, you know, five years from now that it's all gonna balance out? Do you know what I mean? Like how do you know you're not gonna have a big dip until all these mould, you know, electrification moulds fill in the gap as traditional ICE engines wind down?
Yeah. Well, you know, we can see it based on kind of the order flow of high-pressure die-cast machines and what's going on at that supplier level, either from the OEMs direct or through the tiers. We can see that there's you know, significant demand for additions to die-cast machines. I think, you know, at a high level that you're probably gonna have, you know. The internal combustion engine is not going away overnight. You know, it's gonna be around for a long period of time. The OEMs are continuing to reconfigure transmissions and engines into more efficient formats.
moulds are gonna be required both for initial moulds and rebuild work on the powertrain side and internal combustion engine for you know at least five years and you know likely for a decade. Even as that happens the structural mould demand is going higher. That's not just for electric vehicles but also for internal combustion engines as well. We are working on a number of moulds and mould components for structural components for internal combustion engines. There is a big tailwind here for the next several years that I think is gonna support overall growth in that business at least through the next five years and likely beyond.
Okay. Another area, why is Castool so strong? Because Castool is selling consumables, and as you point out, global vehicle production volumes are down 20%-25%. I would have thought Castool would have taken a dip, but by your comments, like Castool seems to be doing really well.
Yeah, I agree. They're doing fantastic. I think that, you know, if vehicle production was normalized, that they would be doing even stronger. They are taking market share. They have an incredible team. They have incredible products. They're really capturing a lot of market growth, not just on the die cast side, but also on the extrusion side as well. Extrusion presses are also becoming much bigger, much more complex, and there's a focus on efficiency like never before across all of these industries. Castool's products and services facilitate that improvement right down the chain.
Okay. Just lastly, you've mentioned also that the extrusion tooling business has been very strong. I'm just curious, like what sectors of the economy are you seeing that strength coming from?
It's coming across the board. Automotive is a real big driver. More and more extrusions are going into automotive as vehicles need to be made lighter. You know, as that happens, automotive has the need for the tightest tolerance of any industry. Having a quality product that facilitates a good quality and efficient extrusion is paramount. We're picking up market share over and above market growth due to that. Yeah, again, it's really coming across the board, you know, that the extrusion demand is highly diversified. I mean, they're going into solar panels and high- speed rail and, you know, everything.
Okay. Thanks for your comments.
Thanks, Peter.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. At this time, I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.