Exco Technologies Ltd
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Ladies and gentlemen, good afternoon. My name is Laurie Bennett. I'm the Chairman of the Board. I welcome you to this Annual and Special Meeting of the Shareholders of Exco Technologies Limited. I also welcome those listening to our broadcast through the Internet. I should also mention that we'll be taking questions from our webcast as well as from the floor and telephone. If those listening to this webcast have any questions, please submit them at any time during the presentation using the question box on the webcast console. Those listening on the telephone will be muted until the end of the formal presentations and then questions will be taken. We reserve the right to limit questions either in the interest of time or content. I also want to draw your attention to the cautionary statement on the slide. During the course of our presentations and subsequent question-and-answer sessions, forward-looking statements will most likely be made, and we'll read the entire cautionary statement, but for those listening by phone or Internet, it is substantially identical to that appearing at Pages 4 and 5 in our 2018 annual report. I will now proceed with the agenda for today's meeting. In accordance with the company bylaws, I will serve as Chairman of the meeting; and Drew Knight, Chief Financial Officer of the corporation, will act as secretary of the meeting. With your approval, I will ask TSX Trust Company representative, Mr. Steven Nguyen to act as scrutineer. Pursuant to the notice and access regulations, notice of the meeting was mailed to shareholders on December 27, 2018. And we have received an affidavit of the corporation's transfer agent as to its mailing. Unless someone wishes to have it read, I will ask for a motion to dispense with the reading of the notice.
I move that the notice calling the meeting be taken as read and approved.
Thank you, Janet.
I second the motion.
Thank you, [ Matt ]. You've heard the motion, all in favor? [Voting]
Contrary, if any? [Voting]
Carried. I direct that a copy of the notice together with the affidavit of mailing be kept with the records of this meeting.I have received a preliminary report of attendance from the scrutineer, which indicates that a quorum is present. Since we have a quorum, I declare that the meeting has been duly called and is properly constituted to transact any business appearing on the agenda. The secretary has tabled the minutes of the annual meeting of the shareholders, held on January 31, 2018, unless someone wishes to have them read, I will ask for a motion to approve the minutes and to dispense with the reading.
I move that the minutes of the annual meeting of shareholders, held on January 31, 2018, be approved and that the reading of the minutes be dispensed with.
Thank you, [ Matt. ]
I second the motion.
Thank you, Paul. You've heard the motion. All in favor? [Voting]
Contrary, if any? [Voting]
Carried. The next item of business is the presentation of the consolidated financial statements of the corporation, and its subsidiaries as at and for the year ended September 30, 2018, and the auditor's report thereon. Mr. Blake Langill, Blake, you're here? Okay. A partner with the firm of Ernst & Young LLP, the corporation's auditor, is here today and has advised me that he knows of no points which should be raised with the shareholders at the meeting. The annual report containing the financial statements and the auditor's report was made available to shareholders under the notice and access regulations at our SEDAR website, and our transfer agent TSX Trust Company website. Copies are also available here today. I would ask that you hold any questions until the end of the meeting, at which time we'll be pleased to respond. The secretary has tabled the financial statements and the auditor's report thereon, and I direct that a copy be kept with the records of this meeting. I propose to proceed with the votes on each of the election of directors, the appointment of the auditor, and the ratification of the advanced notice by-law by way of a show of hands as the proxies received show overwhelming support for management's recommendations. It is now an order to proceed with the election of directors. In today's meeting, 7 directors are to be elected. 5 of the 7 nominees are being renominated, and information regarding each of them and the 2 new nominees is set out in the information circular, which, again, was made available at our SEDAR website and our transfer agent's website. Copies are also available here today. Our 2 new nominees for the position of director are Darren Kirk and Anne Marie Turnbull. As you can see, the board is in transition. This year, 3 directors, myself, Phil and Nicole, are stepping down to both accommodate our new mandatory retirement age, that's Phil and me, that's not Nicole, of age 70 for independent directors and Exco senior management succession planning. With respect to succession planning, the board accepted at the meeting, this afternoon, to accept the retirement of Brian Robbins as President and CEO of Exco. He will become Executive Chairman and will remain on the board. To fill the vacancy, the board has approved Darren Kirk as President and CEO of Exco effective immediately. Congratulations, Darren. And he is also now standing for election as director. Darren has been a Senior Executive with Exco since 2015, initially, as Executive VP. And since January, 2018, as Chief Operating Officer. During that time, he has become familiar with Exco's various businesses, and his banking and credit rating background, before coming to Exco, has enabled him to quickly and effectively -- that's better, isn't it -- appreciate Exco's cash flow margins and capital allocation underpinnings. We have a new nominee, Anne Marie Turnbull, as President of AMT Associates Ltd., a firm which she founded in 2007, focusing on the assessment, development and coaching of executives as well as key operational and functional leaders. Before that, she spent her professional career in leadership roles of increasing responsibility at human resource and executive recruitment firms, including Egon Zehnder, Enns Partners and Towers Perrin. Anne graduated from the University of Toronto with an Honours B.A. and a Masters in Industrial Relations. We expect that she will make a healthy addition to our board, and given Exco now has in excess of 5,000 employees worldwide, fill a vital need on our board for human resource and executive compensation experience.
Mr. Chairman, I have the pleasure of nominating Edward H. Kernaghan, Darren M. Kirk, Robert B. Magee; Colleen M. McMorrow; Paul E. Riganelli; Brian A. Robbins; and Anne Marie Turnbull, all of whom are Canadian citizens, as director of the corporation to hold office until the next annual meeting of shareholders or until their successors are duly elected or appointed.
Are there any further nominations? As there are no further nominations, I declare the nominations to be closed. We have 7 persons nominated for the 7 positions of director. May I have a motion to elect the 7 nominees?
I move that the 7 persons nominated be elected as directors of the corporation to hold office until the next annual meeting of shareholders or until their successors are elected or appointed, subject to the provisions of corporation's bylaws.
Thank you, [ Matt. ]
I second the motion.
Thank you, Janet. All in favor, please raise your hand. [Voting]
Contrary, if any? [Voting]
The motion is carried. I now declare that Edward H. Kernaghan, Darren M. Kirk, Robert E. Magee, Colleen M. McMorrow, Paul E. Riganelli, Brian A. Robbins and Anne Marie Turnbull have been duly elected directors of the corporation to hold office until the next annual meeting of shareholders, or until their successors are duly elected or appointed. We will now proceed with the appointment of the auditor and the authorization of the directors to fix their remuneration.
I move that Ernst & Young be appointed auditor of the corporation, to hold office until the next annual meeting of shareholders and that the directors of the corporation be authorized to fix its remuneration.
Thank you, Paul.
I second the motion.
Thank you, Janet. You've heard the motion. All in favor? [Voting]
Contrary, if any? [Voting]
The motion is carried. We'll now proceed with the ratification of the advance notice by-law, which was previously approved by the Board of Directors of the corporation on April 25, 2018, and is described on Page 17 of the information circular, which, again, was made available at our SEDAR website and our transfer agent's website. Copies are also available here today.
I move that the advance notice by-law, which was previously approved by the Board of Directors of the corporation on April 25, 2018 [indiscernible]
Thank you, Paul.
I second the motion.
Thank you, [ Matt ]. You've heard the motion. All in favor. [Voting]
Contrary, if any?[Voting]
Carried. I now call upon Mr. Darren Kirk, our newly appointed President and Chief Executive Officer, to comment on the corporation's performance. Darren? And best of luck in the new job.
Thank you, Laurie. Good afternoon, ladies and gentlemen. For the folks on the phone and webcast, my name is Darren Kirk, President and Chief Executive Officer of Exco. I'll use my first few slides to provide a summary overview of our results in fiscal 2018, and touch on our various strategic initiatives and market fundamentals. I'll then dig into the operational aspects of our first quarter of fiscal 2019 before I hand things over to Drew to discuss our Q1 financial highlights. Starting on Slide 6, you can see that Exco's fiscal 2018 revenues of $576 million, EBITDA of $77 million and adjusted earnings per share of $1 were modestly below our prior year results. While we had anticipated our adjusted EPS would climb to new heights, we are nonetheless pleased with our overall performance. During the past year, we were confronted with several challenges, but we remained focused on the fundamentals, making the significant investments, improving our overall efficiency, tackling costs and garnering a number of contract wins, all of which will benefit our future results. Moreover, in fiscal 2018, we further strengthened our balance sheet even as we returned almost half of our earnings to shareholders through dividends and share repurchases. The progress we achieved in fiscal '18 has given us more confidence than ever that we will achieve record adjusted earnings in the year ahead. On Slide 7, we see that despite the overall contraction in revenue and EBITDA for the year, we did record positive year-over-year trends sequentially, exiting the year with our highest Q4 earnings ever. Some of this progress was due to vehicle production weakness that was somewhat pronounced in our first quarter and comparables certainly became easier through the quarter -- through each quarter, but the positive trend also reflected the cumulative impact of cost actions, product launches and other initiatives we undertook throughout the year. Importantly, I would also point out that similar revenue and EBITDA growth patterns existed in both our Automotive Solutions and Casting and Extrusion segments, indicating the durability of these trends. Moving down to the operational level on Slide 8, we see the Automotive Solutions segment recorded a modest top line reduction, but also 80 basis points of margin contraction. This combination produced an 11% decrease in segment EBITDA, which totaled $52 million for the year. This outcome was the result of opposing trends in our North American and European operations. In North America, after several years of steady growth, our parts businesses collectively took a step backward in fiscal 2018 due to softer vehicle production volumes, the timing -- and the timing of program launches, but also due to increased pricing and cost pressures. We, nonetheless, continued to expand our overall product portfolio winning several new contracts, which will ultimately benefit our future results. Meanwhile, for the first time in several years, our European parts businesses were decently profitable. This occurred as Polydesign recorded higher contributions while losses at ALC Bulgaria shrank due in part to temporary pricing adjustments ALC received from its main customer. I'll have more to say on those businesses shortly. Now looking at our Casting and Extrusion segment on Slide 9. Fiscal 2018 saw decent revenue growth, but softer margins resulting in a very modest uptick in segment EBITDA. The top line strength was widespread with each of our 3 main tooling businesses contributing, and pretty much all 10 of our tooling plants demonstrating higher revenues. This performance, in turn, reflects solid end market demand, but also our own capacity growth, market share gains and ability to affect certain price increases, including the pass-through of higher raw material cost and steel tariffs. Relating to segment margins, essentially all of the deterioration was, again, driven by the Large Mould group for reasons that have been well articulated over the past couple of years. These reasons primarily include, pricing pressures, raw material cost inflation, unfavorable product mix, a few problem contracts and challenges getting our new manufacturing process to work at targeted levels of efficiency. On the positive side, we have tangibly seen these pressures begin to abate as we've entered fiscal 2019, and we expect continued improvement throughout the year. With regards to our Castool and Extrusion operations, it was encouraging to see that both these groups maintained relatively stable margins in fiscal 2018 despite realizing sharp growth -- revenue growth and meaningful input cost inflation. Turning to Slide 10, we see our free cash flow remained healthy in fiscal 2018 with a 36% conversion from EBITDA. The tax rate reduction in the U.S. near the beginning of the year certainly helped on this front, but we also grew our cash flows from jurisdictions that have lower tax rates. A higher conversion of EBITDA to free cash flow was hindered by robust levels of CapEx and an increase in working capital requirements. However, we expect a good portion of this working capital investment will reverse as we go through the remainder of fiscal 2019. I'd now like to touch on the fundamentals and strategic initiatives for our various businesses. As I've noted in the past, within our Automotive Solutions segment, we are generally focused on: one, improving various measures of diversity; two, growing our content per vehicle profitably; and 3, actively seeking acquisitions that can further enhance these measures. As it relates to our North American parts businesses, automotive production volumes have softened modestly from recent peaks, but are widely expected to remain near current levels through the next couple of years. Relatedly, demand for Polytech and Neocon's growing portfolio of innovative storage and protection products continues to expand across more vehicles and OEMs. As well, the trend toward leather as the interior trim of choice plays squarely into AFX's sweet spot. In Europe, we expect overall production volumes will be flat to slightly down this year. Nonetheless, Polydesign's operations in Morocco are sailing with the wind at its back. We established our presence there long ago, well before other industry players had awoken to the country's attractive labor market and proximity to Europe. With capacity and inflationary pressures building across Eastern Europe, Morocco is seeing an influx of quoting activity for which we are the go-to supplier. To capitalize on this opportunity, we continue to evaluate the possibility of expanding the size of Polydesign's facility in Morocco by about 50%. Moving on to our Casting and Extrusion segment, our strategic initiatives are broadly aimed at: one, solidifying our leading positions through investments in technology and productivity; and two, growing through greenfield investments in new markets. At the industry and company levels, the fundamentals for our tooling businesses remain very sound as demand for the aluminum products they help create continues to grow across many applications. This is particularly true, within the automotive industry, where an acute focus on vehicle light weighting is on a sustainable uptrend that will persist regardless of prevailing power train design or whether the vehicle is autonomous or not. Aluminum, however, is mostly used across the spectrum of the economy, providing meaningful diversification through our Extrusion and Castool groups. It is worth noting that despite the implementation of U.S. aluminum tariffs, overall shipments of North American aluminum extrusions have grown to record levels contributing to the solid results from each of these divisions. Consistent with our strategy, we continue to make the necessary investments in each of our tooling businesses to sustain our leading market positions and capitalize on these favorable trends. In our casting division, the sizable capital investment we made several years ago to radically transform the way we manufacture our large molds is finally bringing us the efficiency and capacity required. We are now capable of regularly producing molds in less than half the time as our old process, and capacity and reliability is improving daily. Further still, we continue to differentiate ourselves with our additive manufacturing capabilities, which is greatly enhancing the quality and performance of the molds beyond our competitors' reach. And our lead in the area of 3D powdered metal printing is clear, having denominated as the 2019 finalist for the automotive industry's prestigious PACE awards. As we continue to advance against our agenda, we are confident that the profitability of our Large Mould group will improve steadily. Elsewhere in the tooling group, we continue to benefit from the seasoning of our greenfield extrusions operations in Columbia, Texas and Brazil as well as Castool's operations in Thailand. In fiscal 2018, these operations grew their combined EBITDA by 40% even after the 100% increase recorded the prior year. Looking forward, our new extrusion plant in Mexico will be operational by this March, which will enable us to better penetrate the domestic market there. At Castool, it's systems approach to production continues to greatly improve the productivity of light metal extrusion and die casting operators globally. Through its heavily proprietary portfolio of products and exceptional value proposition, Castool continues to gain market share with both existing and new customers while enjoying a degree of pricing power. In order to keep up with expected demand growth, Castool is currently planning to expand its main facility on Uxbridge, Ontario, and it's now also exploring the potential for a new greenfield facility with proximity to Europe. I'd now like to leave 2018 and turn to the first quarter of fiscal 2019. Digging into these results, our Automotive Solutions segment recorded modestly higher top line and bottom line results in the quarter. Contributions, however, reversed from the trends evident in fiscal 2018 with our North American businesses performing well, while our European operations deteriorated due to higher losses at ALC. On that note, as I'm sure most of you know, ALC filed a voluntary liquidation petition earlier this month after failing to reach an agreement with its primary customer for continued price support. Given the increase in local operating cost and change in labor conditions over the last several years, ALC's operations had become unviable without improved pricing. While a disappointing outcome, there was simply no viable alternative. On the positive side, the elimination of ALC's lossmaking operations will immediately improve our go-forward results and free up management time for more productive activities. Drew will provide the financial impact of this development shortly. Turning to Polydesign, its operations, again, grew very strongly in the quarter as it benefited from ongoing product launches and underlying efficiency gains. Polydesign continues to see robust quoting activity, but like the rest of our businesses, remains focused on targeting higher-margin programs. Following the end of the quarter, Polydesign stopped producing the BMW mini seat covers, previously subcontracted from ALC. While the associated operational disruption will modestly dampen Polydesign's results in Q2, they will also provide near term capacity and likely enable its expansion plan to slip into early next year. Moving to our North American parts businesses, overall vehicle production volumes in North America were flat in the quarter versus the prior year. We have been actively bidding, winning and launching new programs at each of AFX, Polytech and Neocon with a focus on programs that have higher margin opportunities. Consequently, these businesses saw a collective improvement in revenue and margins during the quarter. As well, I would now describe our exposure to trucks and SUV on one hand and car platforms on the other hand as similar to the overall market, which is about 70-30. While we certainly continue to face isolated pricing and raw material cost pressures, these pressures are much less pronounced than what we experienced in fiscal 2018. I'd now like to provide an update on the labor front as it relates to Polytech and AFX operations in Mexico. During the month of January, both of these operations along with the several other manufacturers in the city of Matamoros, Mexico, experienced a strike by employees that lasted for about 2 weeks. The strikes occurred in conjunction with annual union wage negotiations and have now been settled by both Polytech and AFX. Resulting wage increases and incremental costs arising from the production curtailment, however, will adversely impact the results through the remainder of the year. We estimate this impact to be a reduction of our consolidated EBITDA margin by about 75 basis points from what we would otherwise expect in fiscal 2019. But owing to the one-time nature for much of these costs, we expect our margins will mostly recover the following year. Now looking at the Casting and Extrusion segment, and starting with our Large Mould group on Slide 16. Results there were firmer this quarter. Our operations benefited from efficiency improvements related to our prior CapEx spend. In particular, I would note that the vast majority of our insert volumes are now going through the new manufacturing cell. Product mix also improved in the quarter with the continued wind down of prior loss making jobs and greater volume of rebuild work. With our continued expected productivity improvements and our building activity and backlog remaining solid, we expect steady improvement in our Large Mould results through the remainder of the year. On Slide 17, our Extrusion group, again, demonstrated overall solid results during the quarter. Stronger results, however, were hampered by temporary inefficiencies at one of the group's plants. These inefficiencies, however, have begun to abate post-quarter end, and we expect the Extrusion group will resume a trend of profit growth in the quarters ahead. With the Extrusion group's harmonization initiative essentially concluded, we are now redoubling our efforts to turn our Brazilian operations profitable and ensure the successful startup of our Extrusion facility in Mexico. The Castool group also performed very well this quarter with higher sales and profits driven by widespread demand growth, both geographically as well as between the die cast and extrusion end markets. As I previously mentioned, Castool is planning to expand its main plants in Uxbridge to provide incremental capacity, and is also reviewing plans for an additional plant with proximity to Europe. Finally, my last slide reemphasizes a number of the factors I've just discussed. In summary, we expect the automotive industries in both North America and Europe will remain healthy through fiscal 2019, and we expect to achieve continued progress against our various strategic initiatives. While external pressures, including labor availability, trade developments, foreign exchange rates and raw material cost inflation present ongoing challenges, we continue to feel good about our prospects for reaching record adjusted EPS this year. That concludes my presentation. I'll now turn the podium over to Drew. Thank you.
Thanks, Darren. Good afternoon, ladies and gentlemen. My slides -- my comments will cover Slides 20 to 27 of the presentation. Consolidated sales for the first quarter ended December 31 were $142.1 million, an increase of 5% or $7.2 million compared to last year. Casting and Extrusion was the bright spot, with an increase of $4.6 million, while Automotive Solutions had an increase of $0.6 million before ALC's reduction of $1.9 million. FX fluctuations increased revenue by $4 million. Adjusted EBITDA for Q1 was $18.6 million, which is an increase of $1.3 million or 8%. C&E segment revenues were up 10% and EBITDA increased 3% before FX. Automotive segment revenues were down 1% and EBITDA decreased by 5% before FX. As previously telegraphed, ALC provided a pretax loss of $2.2 million before the balance sheet provision of $6.1 million. On Slide 21, during Q1, a provision was recorded against the net asset values at ALC such that Exco's equity position was reduced to nil. This provision was recorded as other expense in the amount of $6.1 million or $0.15 per share. EPS reported for Q1 was $0.09 compared to $0.21 last year. However, excluding the $0.15 ALC provision, adjusted EPS was $0.24. Free cash flow was negative $3.9 million in Q1, which is unusually low for Exco. This is partly due to CapEx being front end loaded during the fiscal year, but also due to working capital swings as a few divisions' sales are rebounding and requiring investments in inventory and trade receivables. We expect improvement in subsequent quarters. The balance sheet at December 31 is in a net debt position of $12.3 million, which includes $4.2 million at ALC. On Slide 22, as noted earlier, walking the revenue from fiscal '18 to fiscal '19, Casting and Extrusion had an increase of $4.6 million. FX increased revenue by $4 million while Automotive Solutions had an increase of $0.6 million before ALC's reduction of $1.9 million. Note that ALC's revenue was $19.8 million, so Q1 revenue was $122.3 million on a pro forma basis excluding ALC. On Slide 23, consolidated EBITDA for Q1 was $18.6 million, adjusted for the $6.1 million ALC provision. For Q1 2018, EBITDA was for -- pardon me, yes, the comparative period Q1 2018, EBITDA was $17.3 million. Pro forma the ALC liquidation, Q1 2019 adjusted EBITDA was $20.6 million and Q1 2018 EBITDA was $18.5 million, an increase of 11%. C&E and Automotive each increased EBITDA by $0.3 million and the corporate cost improved $0.2 million, though FX was the greatest contributor with a $1.3 million improvement toward EBITDA. Turning to the automotive segment on Slide 24, results were largely consistent versus prior year. Revenue was up 1%, EBITDA margin rate and EBITDA dollars were flat year-over-year, though pro forma ALC, EBITDA increased 8%. On Slide 25, the Casting and Extrusion segment was up 13% versus Q1 2018. Though there was some margin compression by 40 bps, EBITDA increased by 11%. Profitability improved to both the Castool group and the Large Mould group. In both cases, sales increased -- sales increases have helped overhead absorption. Product mix has improved and production has made efficiency gains. At the Extrusion group, profitability was stable despite manufacturing inefficiencies at one of its plants. On Slide 26, Exco's leverage and liquidity ratios remained strong and are enhanced when reporting pro forma for the ALC liquidation. Net debt to EBITDA is 0.1x and the balance sheet has cash of $13 million and the revolving line has $42 million available at December 31. Exco consistently generates free cash flow and in the near term, this cash will be used to repay debt and continue the share buybacks. Longer-term, our cash flows, along with cash and credit availability, allow considerable flexibility to support dividends and any strategic capital spending or acquisition activity should opportunities arise. That concludes my comments. I'll now call upon our Executive Chair, Brian Robbins.
I guess I have to get used to that new title. I don't know. Thank you, Darren, Drew. Well, it's been quite a journey, 48 years of full employment, an additional 5 when taking into account work terms during my time in engineering school. The world of machinery has sure changed. I've seen the advent of NC machining, CNC machining and finally, robotics. It's been a time of challenge and opportunities, and I guess we've seized it. We have today, over 5,000 employees based in 17 plants in 8 countries. I have to say it has been fun. I often feel sad when I hear people say they can't wait to retire because that tells me they didn't enjoy what they did most of their lives. What a waste. I can wait to retire and, frankly, I'm not retiring. I'll continue to be involved in all operations and strategy, perhaps less than before but I'm still a large shareholder. So I think Darren and the rest of the team understand how this business operates and how it flourishes. Now, enough about me. I'd like to acknowledge a long term employee, who has recently retired from Exco, and I think she did enjoy it. Bonnie Cartwright, who looks far too young to retire, has been with Exco for close to 40 years. Bonnie started years ago as an accounting clerk and continued to upgrade her education, taking evening courses, finally qualifying as a CPA. Her talent was noted early on as she moved steadily upward in the organization. In the late '80s, she was promoted to run our canalloy division, which also distributed the Hasco line of mold products. She restructured that business and it certainly needed it. Eliminating the steel distribution and grew the Hasco line. She took a money-losing business and turned it into a profitable boutique. In early 2000, a management change at Hasco provided our exit and Bonnie moved to the corporate office and got involved in M&A activities. She found time during that period to take an executive MBA as well. Bonnie oversaw several acquisitions and ultimately moved to manage our extrusion tooling business. She grew the business internationally, adding plants in Brazil, Colombia and Texas. Bonnie was never one to back away from a challenge. I have to wonder why she is retiring so young. Regardless, we wish you all the best in the next chapter of your life, Bonnie. We have a small token for you. We know you like to travel and hopefully, this helps accommodate. By the way, if anyone is aware of a manufacturing company looking for a well-qualified director, I would highly recommend Bonnie. Bonnie, could you come up? Far too young to retire. All the best, BonnieThe next item in my agenda is the President's Award, which we present every year. I guess we'll have to call it the Executive Chairman award in the future. To an outstanding employee for above and beyond effort. The recipient this year is a gentleman, Jai Singh. Jai joined Exco in 1984 and has therefore been at Exco for over 34 years. Jai started as a young design engineer, he is still young too, in Newmarket, and progressed over the years to ever more influential roles. Approximately 8 years ago, Jai accepted the role as General Manager of our Toledo, Ohio mold facility called Edco. This business had been neglected for years and we seriously considered closing it. As Jai volunteered to take on the task, we decided to give it another go. Jai, whose family lives in Toronto, sets off to Toledo every Monday morning and returns home at the end of every week, even in the winter. He has done an amazing job of reorganizing this business. He has rejuvenated the workforce, renovated the facility and replaced most of the machinery. It is now showing -- it is now a showplace of technology and consistently profitable. Congratulations. Unfortunately, Jai, if you'd please stand, the gentlemen. Unfortunately, Jai, the Rolex that we present is late in arriving -- the check's in the mail. It should, however, be here in the next month. All the best and thanks for your efforts, Jai. Now, turning to our Board of Directors, we have 3 directors retiring this year. The first is my daughter Nicole, who has been on the board for the last 6 years. Nicole, it's been a pleasure to have you on the board and I think a great opportunity for you to understand our business. Nicole, please come forward. All the best.
Thank you.
This is like Christmas, isn't it? Secondly, Phil Matthews has been on our board for 8 years and was Chair of the Audit Committee for all those years. Phil, thanks for your contribution and dedication. We wish you all the best as well. And finally, Laurie Bennett. Laurie is retiring after being Chairman of the Board for over 14 years. My God, time flies, doesn't it? So why are you retiring? Laurie has been a close personal friend and a strong proponent of governance over those years. Laurie, thanks for your contribution and let's make sure we continue to see each other regularly in the future. Let's finalize this, the retirements and acknowledgments. In closing, I would like to say that I look forward to working closely with Darren in the coming years as we have in the past 3 years. I believe that Darren has come to understand the magic sauce that has been Exco's success and the importance of decentralization and empowering the divisional management. I intend to continue my involvement for the foreseeable future and look forward to many more fulfilling years. Now my last task for the day is to -- I think we have another slide here. No? Ah, there we are. It's to announce our dividend policy for the coming year. I'm pleased to say we will be increasing the quarterly dividend by 6% to $0.09 per share. You can see on the display graph, our dividend performance over the past 9 years. Not bad, while continuing to grow the business as well as free cash flow. Thank you. We'll now entertain questions. Darren?
Okay, questions?
Nav Malik, Industrial Alliance. I just wanted to ask your capital program for the upcoming year. Maybe if you could quantify or elaborate and specifically, where you see the focus in terms of opportunities, whether it be the Automotive Solutions side or the Casting and Extrusion segment.
So I think as you know, last quarter, we announced that we plan to spend about $35 million of CapEx in fiscal 2019, but I think on the call, we also acknowledged that we tend to come up short and we're likely to come up short this year. I'd still say that, that is true. I mean, we had 3 CapEx programs on the block for this year of magnitude. One was the Moroccan plant expansion; the second was an addition at Castool's Uxbridge facility and the heat treat; and the third is the Mexican extrusion plant. So the Mexican extrusion plant is basically done. The Moroccan expansion, as I mentioned in my comments, is likely to slip into next year. And Castool is still going ahead with their expansion, but not the heat treat component because they need the room in order to satisfy the demand that's coming at them for their existing business. So I think when you put it all in, we'll probably come out, I don't now, $25 million, a little bit higher this year, but not the $35 million. But then, once you get into next year, I think we're looking at a lot of opportunity for CapEx, greenfield investments, particularly in the Casting and Extrusion side of the business. We've mentioned that Castool is eyeing a new plant with proximity to Europe. That will probably cost $10 million to $15 million or so, and we are still evaluating plans to do something with our heat treat needs for the broader tooling business, and that will likely hit next year as well. So I think this year and next year, we'd be looking at $25 million this year and maybe higher next year.
I'm [ David Peters ], I'm a shareholder. I would like to ask you the actual and threatened tariffs by the U.S. government, how has that impacted your business? And perhaps, how are you dealing with this?
Sure. So of the tariffs, we're really impacted by steel tariffs, aluminum tariffs are for our customers [ who elect ] them. And most of our operations in the tooling business are in -- are outside of the U.S., but our customers and our competitors are predominantly in the U.S. So from that standpoint, we avoid the tariffs and then we export into the U.S. under NAFTA without any tariff duties. So we're on a relative advantage. And then with respect to our U.S. operations, which do have to bear the steel tariffs. They have been quite successfully passing on those tariffs on to customers. I mean, not 100%, but good coverage. And I think it seems to be okay. I mean, our results were very strong in 2018. The first quarter results for the segment were very strong. North American extrusion product demand is at a high point in its history. But the longer these tariffs go on, the longer end market demand could weaken because of it, but we haven't seen that yet.
And Darren, on the ALC, now that it's pretty well wrapped up, looking at it in retrospect, what are the key lessons to be learned to make sure Exco doesn't have to deal with that kind of situation again?
Well, it was an acquisition that wasn't big in numbers, right? It was $25 million or so, but then we probably lost that much over the ensuing years. And this was a single product, a new product to Exco. We had done seat covers before but not of this magnitude. And so it was a faraway jurisdiction, different time zone, different country. And there was a lot of risk, I think, when you look back on it that were probably part -- probably the cause for what -- how it ended up. But also, I think it was -- the company, the guys that we bought it from were not honest, and that was also equally a big factor in this. But I think we're going to make acquisitions, we're going to make investments and we're going to win more than we're going to lose and that's our track record. This one just didn't work out.
Since I appointed -- let me turn this on over here. It's turned on. I think one of the biggest mistakes we've made with ALC, and we didn't have a lot of business with BMW. So we looked at it and we said oh God, these guys are big with BMW. They were not only big with BMW, they were 100% BMW. And so it was far too concentrated a business and too large a number with one customer. And the people we bought it from, shame on us, they were crooks but that's our problem because the world's full of crooks. But that concentration of business, I think if we look at another acquisition and quite frankly, we're not looking at any right now, we're looking to grow organically. That's a big factor, so we certainly did learn something.
And why was would the customer not give you the pricing release in Bulgaria?
I think the takeaway is that Bulgaria became an expensive country to do business. And I suppose that you can conclude that the customers found another supplier that's at a lower price and we wish them luck.
And then just the last question, this is very long-term strategic. So 10 years from now, as we go to battery electric vehicles, what happens to the large -- the business up here in Newmarket, which is doing, I believe, molds for transmission cases and engine blocks, which will no longer be required? And so, what's your thinking? And how are you going to transition that business?
So you're correct that the majority of the mold work that the engineering plant does work for us or for powertrain. And when we get to an electric vehicle world, it won't be powertrain molds that are required. But there's still going to be a lot of molds that are required for battery boxes and structural components in the vehicle. In fact, there will be more demand for molds for structural and battery box and those types of components than there is for powertrain. And we do have exposure to structural molds. I'd say that our track record has not been as great as it is with power train. So for the foreseeable future, there is just so much power train work coming at us that, that is what we're focusing on. But at the same time, we are winning programs for structural components and we're getting more experience with that. And I think when the market turns, it's going to be quite a ways off in my thinking. We're going to be ready to capitalize on it.
Ben Jekic from GMP. A couple of questions, first one is on Extrusion. This business was very strong in fiscal 2018. There were some hiccups this quarter. Can you elaborate on that in the sense, is it a one-off event or something macro?
We think it's a one-off event. We think that the end market is strong and the Extrusion group had decent results this year, it's just not -- weren't the results of strong growth that we'd become accustomed to. And really, the fact that -- the reason was is one of the plants underperformed. And this is a short cycle business where you get an order and within a couple of weeks, you've got to deliver the die. And to the extent that you have a slip up in operations, then you may not get the next order, you fall behind, and I think that's kind of what happened. October and November were pretty decent. We slipped a bit in November, we paid the price in December, but things are back on track now in January.
Okay. My second question is, again, kind of going 10 years forward. A few years ago, you guys had a message of reducing your overall capital intensity in the company. Now you're investing in Castool. Is there -- are you going to look at future growth kind of more opportunistically? Or is there still a long-term view that maybe would like to reduce capital intensity?
Well, I mean, we're going to spend the money where it makes sense and get -- where we can get the return. I don't think that we would pull back on spending money just for the sake of it. I mean, if there's an opportunity out there to put up a new plant and get an acceptable return, then we're going to go for it. If you look at our collective experience with our greenfields to date, as I mentioned, I mean, those -- the EBITDA for that group went up 100% in '17 and then it went up a further 40% in fiscal '18. And so they've been good investments for us and we're at the point now where we see additional opportunity, primarily on the Castool side of the business. And we're not going to hold back CapEx where we can achieve a profitable growth.
And my last question is in -- with regards to the Castool investment, you several times referred to it as proximity to Europe. If you don't want to elaborate on the exact location where you're looking to set up a facility, can you maybe speak a little bit about the opportunity that you want to achieve with that investment?
Well, I won't talk about the location yet until we're ready. But part of the problem in Europe is Castool has a systems approach to its business where they sell the capital equipment and then they sell the consumable components on the back end, kind of like a razor-razor blade type business. And some of the capital type sales are not really available to Castool in Europe by virtue of the lead time that's required to ship components from Canada or Thailand. And so if Castool is able to have a plant and participate more in the capital part of that equation in Europe because they would have proximity, then they'll also get those sales, but then also the consumable sales from those customers on the back end. So we think it's a pretty good growth opportunity.
This is Daniela from Macquarie Capital. So I have a couple questions. First with ALC behind you, can you speak a little bit more about what you're looking for from an M&A perspective going forward?
I think, on the M&A front, there is nothing that is likely to happen anytime soon. I think getting ALC fixed and put behind us one way or the other was a criteria before we would move forward with an acquisition. But just because that event has now happened, it doesn't mandatorily mean that we will. We are focused on these greenfield-type investments, and we do have a pretty full CapEx pipeline as we've just been talking about here. So while the balance sheet can certainly support it, we are always looking and talking to industry participants, but I don't think it's something that we need to -- and we don't feel urgent about pursuing.
Great. And then my second question, you talked about raw materials as a headwind, but can you discuss exactly what the 2 biggest raw material exposures are for both segments and what you are seeing in terms of pricing pressures? And then can you quantify how much of a headwind commodities will be in 2019?
So on the Casting and Extrusion side, tool steel is the biggest raw material exposure and the price of tool steel has been going up to through '18. I think it's leveled off a bit as we've gone into the first quarter of '19, but we have recaptured a lot of that cost increase by passing on the price to customers. It's had a dampening impact in margins because we're passing along at a cost, but we are recapturing a lot of that. On the Automotive Solutions side of the business, I would say that resin is really where the exposure is there. And likewise, we went through 2018, we started off and we had the Hurricane Harvey hit the Gulf Coast and a bunch of the refineries went down and cracks spread flew out and the price went up and no sooner did that get corrected than the underlying WTI or oil price went up. And we've obviously seen the retreat in that. But these things take a while to come through the supply chain. So I think where we did have a lot of raw material cost inflation in 2018, it's been certainly less pronounced early in fiscal '19. And in fact, if things stay where they are, we might end up getting a little bit of relief.
I'm a retail investor and I have a comment on the communication style and a question about the release of press releases from the company. So the communication style, in November, the company -- November 26 said that the company, to quote: "ALS's (sic) [ ALC's ] results clearly demonstrate progress with efforts to turnaround that business units? performance." The summary said that continued progress with those efforts. And I appreciate the company's honesty about what happened in Bulgaria, but when you read that as outside of the management team and the Board of Directors, you feel that there is optimism ahead, that things could turn around. And then suddenly 2 months later, we're liquidating or they voluntarily are liquidating the company. So my suggestion is -- a comment is that if you're going to communicate what's going on, try to make it more realistic. People understand that the world is not perfect, but when you give an optimistic statement like that, we don't expect it to be liquidating the company in 2 months later. So that's just a comment from the retail investors side. My question on the press release distribution is, again, if you're not involved in the management team, you're not the majority shareholders, you rely on the public information on what's happening with the company. And I, like a number of other people, go to the TMX website and the company posts its quarterly reports and its annual reports there, but the one on the Bulgarian liquidation didn't appear on the TMX site. And I just happen to find it on the Exco site itself, your press releases on your company's site but it's not there on the TMX. So my question I guess is, or suggestion as well is, why wasn't it there? And can you make sure that, that sort of information is available to retail investors?
Yes. I can take that question. So we followed the normal process, working with our service provider that gets things over the wire for wire releases and then posts everything on SEDAR. So I'm not sure exactly what happened why it wouldn't have been posted on the TMX site, but I will follow-up on that and so maybe after the meeting, I'll get you an answer for that.
Sure, thank you. And I guess just another feedback. The SEDAR site is available, but it is more complex to navigate for retail investors if you're not using it every day. The information is there, I understand that but for us, for most things at the higher level it's just easy to get it off that sort of public sites for TMX.
Yes, and it is disclosed on our site as well, but I'll check into that TMX.
I'd just like to respond to your first comment because I don't want to leave the impression that we were misconstruing the situation at ALC in Bulgaria. We had -- we were being kept afloat by our primary customer who was giving us price support, and that price support was coming through the third -- our third quarter and through our fourth quarter, and we still expected it to be coming further. And so when they pulled the plug on that, they pulled the plug on ALC but we were not expecting that to come when we made that comment in November.
David Ocampo, Cormark Securities. My first question is on Large Mould. I was wondering if you can provide us with a competitive update and what you're seeing in the environment, particularly out of Europe and domestically.
I would say that the competitive situation has not been as intense as it was several years ago when the European tool makers came into the North American market and brought the price structure down. The price structure has -- it certainly stabilized and in some respects, has recovered very slightly. But that competitive price pressure that we were experiencing that was forever pushing prices down has stabilized. And really, what that means is we're not planning for the prices to go back up, but we got to become more efficient and that's why there's been such a big push on this CapEx efficiency program up in Newmarket and it's been a bit painful that it's been a long time coming, but we're there. And I think we're now expecting improvement in profitability not from price but from reduced cost, more efficiency.
Are you starting to see customers come back, the customers that you've lost to the European competitors?
Well, I'd say that some of the jobs that we lost, we wish our competitors luck at the price that they got it at. And there is still ample business out there for us to quote on in business that we think is at an acceptable margin at this point. So we wouldn't -- we didn't lose any big customers. In fact, we were aggressively trying to get some customer diversity -- further customer diversity, and we took on some programs that we lost money on. And you saw that last quarter when we had some losses that really depressed the results in the Large Mould group. And now that those programs are done and shipped and the Large Mould profitability started to recover this quarter.
Darren, if I could just add one point there. I called it disruption in our pricing in the Mould business came from one private equity outfit who bought a mold maker in Germany and decided that they could dominate the world. And I think they've learned a lesson. They underbid the prices by 30% or 40% and they're no longer doing that. In fact, we hardly even hear from them now. So I think it was a reckless private equity outfit.
Any other questions? Okay. I guess I will turn things back over to Laurie, if there's no further questions.
My job is simply to terminate the meeting. As there is no further business to be brought before the meeting, can I ask for a motion to terminate?
I move that the meeting terminate.
Thank you, Janet.
I second the motion.
Thank you, [ Matt ]. All in favor? Any against? Carried. Thank you very much for your attention.
When are you going to retire?
I'm retired.