Exco Technologies Ltd
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Good day, ladies and gentlemen, and welcome to the Exco Technologies Limited Second Quarter Results 2018. [Operator Instructions] Also, as a reminder, this conference call is being recorded. I'd now like to turn the call over to your host to Darren Kirk, Chief Operating Officer. You may proceed.
Thank you, Dylan. Good morning, ladies and gentlemen. Welcome to Exco Technologies Limited Fiscal 2018 Second Quarter Conference Call. I am Darren Kirk, Chief Operating Officer of Exco. I will lead off with an operations overview. Drew Knight, our CFO, will then review the financial results. Brian Robbins, our President and CEO; and Paul Riganelli, our EVP, Legal and Compliance, are also on the line and will participate in the Q&A period. There are a number of analysts, shareholders and brokers on the line with us today. In addition, call-in details have been widely disseminated to the public through the news release process. This call is also being simultaneously webcast at our website where we will -- where we have also posted a short presentation that we will reference. We welcome all participants this morning. The format of this conference call will be the same as in the past. After the presentation, we will take questions. [Operator Instructions] You should have all received our news release by now. If not, it is available at our website at www.excocorp.com or www.sedar.com.Before we begin, I would like to make some comments about forward-looking information. In yesterday's news release and on Page 2 of the presentation, you'll find cautionary notes in that regard. While I won't repeat the content of the cautionary notes, we do claim their protection for any forward-looking information that we might disclose on this conference call today. For further information, you can also refer to the risk factors and assumptions contained in our latest annual report and our annual information form, both of which are available on the SEDAR website or from the company. We disclaim any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. In summary, I would describe the quarter as mixed. Our overall results continue to improve for the second consecutive quarter and we made decent progress with our various operational initiatives, but we also faced a number of headwinds year-over-year, including lower automotive production volumes, input cost inflation, adverse foreign currency rates and additional costs necessary to better position some of our businesses for improvement into the medium term. For more detail on the quarter, I'll start on Slide 3 with the North American businesses within our Automotive Solutions segment. Here, of course, we are talking about the combined results of Polytech, Neocon and AFX. Overall, industry's light-vehicle production in North America was off by 4% during the quarter. This reflected a 20% decline in the production of passenger cars and a 4% growth in the production of trucks and utility vehicles. As we've indicated in the past, our overall exposure to cars is about 50% in North America compared to 1/3 for the industry. This effectively gives our North American park businesses an exposure to an 8% decline in weighted auto production. On that basis, changes in vehicle production explain a little more than half of the 15% decline in revenue for these businesses year-over-year. Additional factors that drove the results include a relatively large inventory order fill in the prior year quarter that didn't repeat this year, unfavorable foreign exchange rate movements, isolated pricing pressures and modestly lower demand for certain of our accessory products. The aggregate of these factors, together with unfavorable product mix variants and some raw material cost inflation, pressured margins, producing a 310 basis point decline in pretax profit margins versus the prior quarter. I would note, however, that quoting activity for both new and existing products remains encouraging, and the weakness we experience with certain accessory products have not persisted in April. As well, sales for our North American parts businesses improved sequentially by 6% during the quarter and margins have begun to recover. We expect this trend will continue through our third quarter. Moving over to Europe on Slide 4. Auto production volumes remain healthy. Nonetheless, it remains a tale of 2 cities with respect to our operations there. Polydesign continues to perform very well with both organic revenue growth and margin expansion during -- driving the results higher. ALC's performance, however, suffered again this quarter as we continue to muddle through with a fairly large uneconomic program while digesting incremental costs associated with ramping up several new nonseat cover programs. It goes without saying that we are disappointed in ALC's results. And rest assured, we remain very focused on doing what is necessary to turn this operation around. To that end, the ramp up of new business, which started towards the end of Q2, will help. More so, we expect resolution to the unprofitable Audi seat cover contract within the next quarter. More broadly, however, both at ALC and within the segment overall, we are focused on repricing or scaling that exiting business with inadequate profitability. While this may pressure segment sales in the quarters ahead, it is expected to have a positive impact on segment profitability and margins.Now looking at the Casting and Extrusion segment on Slide 5 and starting with the large mould group. Revenue growth was decent despite FX headwinds as we began to ramp up activity on recent contract awards. Our new manufacturing cell continues to perform well, however, we have lots of improvement left to be realized. I would also note that we have recently installed similar equipment at the group's 2 other locations in Toledo, Ohio and Queretaro, Mexico providing additional capacity and flexibility. These investments have been made within our prior CapEx guidance for fiscal 2018. Profitability within the group didn't follow revenues higher during the quarter due to rising input cost inflations, foreign exchange headwinds, program experience and embedded conservatism with percentage completion accounting regarding the ramp up of new jobs. On to Slide 6. Our Extrusion group continued to demonstrate very solid results during the quarter with balanced demand growth across most of our plants. We continue to invest significant financial and management resources in the harmonization of our design and manufacturing processes across our various extrusion facilities. This initiative has beared much fruit since we began with -- in a couple of years ago, and yet we believe there is still much more potential for continued improvement into the medium term. Lastly, turning to capital. Sales were notably higher in the quarter as demand for the group's capital equipment continues to rebound. Profitability was nonetheless down and caused essentially all of the deterioration in the segment. Factors that drove the lower results include average foreign exchange rate movements, competitive pricing pressures, raw material price increases and a mix shift toward lower margin products. Capital has taken several measures to reverse the effects of these factors on its results, including price increases to offset raw material costs. The benefit of these initiatives really only started to become evident towards the end of the quarter, so we expect improvement in the quarters ahead. That concludes my remarks. Drew will now walk you through the financial aspects of the quarter. Drew?
Thanks, Darren. Good morning, ladies and gentlemen. My comments will cover Slides 8 to 16 of the presentation. Consolidated sales for the second quarter ended March 31 were $148.4 million, a decrease of 4% or $5.4 million compared to last year. The significant fluctuations in the U.S. dollar has impacted Exco's results during Q2, reducing revenue $3.7 million. This was offset by the euro increasing revenue $4.2 million. So overall, FX increased sales approximately $0.5 million. Excluding FX, the Casting and Extrusion group increased sales $3.7 million and the Automotive Solutions group declined by $9.6 million. As Darren noted, this is primarily due to the North American operations having a large pipeline fill in the 2017 comparative period, modestly lower vehicle volumes and temporary reduced demand for some accessory products. It appears that the Q3 demand for these accessories has been restored. Consolidated EBITDA for the second quarter totaled $19 million, a decrease of $4.4 million or 19%. The decline from prior year is reflected on Slide 11 and is primarily driven by lower sales in the Automotive Solutions segment, reflecting a $3.7 million decrease, including $0.8 million of increased losses at ALC, plus FX reduced EBITDA to $1.1 million. However, compared to Q1 2018, both segments have improved revenue and bottom line. Consolidated results for Q2 2018 yielded EPS of $0.25 per share versus $0.30 in the prior year quarter. EPS includes $0.05 of ALC losses in Q2 2018 versus $0.02 in 2017. The tax rate was reduced to 23% as a result of lower U.S. taxes and profit shifting toward low tax rate jurisdictions. Free cash flow was $2.9 million in Q2 and was lighter than usual due to working capital assessments. Strong liquidity is ongoing as represented by net debt to EBITDA at 0.2x. We expect free cash flow will improve materially through the remainder of the year. Turning to the Automotive Solutions segment on Slide 12. Sales in Q2 were $98.4 million, a decrease of $7.9 million or 7% over last year. As noted earlier, the decline is driven by the North American divisions, Polytech, Neocon and AFX, having 15% lower sales due to reduced volumes in comparison to a strong prior year Q2 and adverse FX movements. This is partially offset by increases in our European divisions, Polydesign and ALC, by 7% due to euro FX strengthening and new business launches. I've noted on Slide 13, our Automotive Solutions segment reported lower EBITDA of $12.5 million in Q2, a decrease of $4.3 million or 26% from the last year. The decrease in the quarter was driven by ALC losses widening by $0.8 million; FX losses of $0.6 million; the impact of lower sales of $2 million; and margin deterioration, excluding ALC, of $0.9 million. Reduced profitability was impacted by isolated cost inflation and cell price pressures which we expect to ease through various measures as the year progresses. Turning to Slide 14. In the Casting and Extrusion segment, revenue was $50 million for the second quarter, an increase of $2.5 million or 5% versus Q2 2017. All 3 businesses experienced revenue increases in the quarter though this was partially offset by FX rates reducing revenue by $1.2 million. The Casting and Extrusion segment recorded somewhat lower EBITDA in Q2, a decrease of $0.6 million or 7% from last year. Of this, the impact of FX reduced EBITDA by $0.4 million. Excluding FX, the large mould and Castool groups had slight EBITDA reduction, mostly off-set by improvements in the Extrusion group. Each division has experienced raw material cost inflation which hurt Q2 results in advance of implementing margin improvement actions to reduce costs and increase cell prices. Cash flow from operating activities was $7.9 million in Q2 and $20.2 million year-to-date despite significant investment in noncash working capital, which tends to be a seasonal adjustment after December. Improved cash flow is expected in the second half of 2018 through improved net income and decreased investment in working capital and CapEx intensity. Exco's balance sheet and liquidity remain very strong. Given the trailing 12-month EBITDA of $73 million, Exco's net debt to EBITDA is 0.2x. We expect our net debt position will steadily improve during 2018 through free cash flow generation in excess of our dividend payments. As such, the company's balance sheet and availability under the existing credit facility allows considerable flexibility. That concludes my comments. We can now transition to the Q&A portion of the call.
[Operator Instructions] Our first question comes from David Tyerman of Cormac Security Inc.
So my first question is on the Casting and Extrusion margins. They were down sequentially, and you let -- identified a number of things. I'm just wondering, and in particular, I think, with respect to the large mould, you've got more business running through there yet lower margins in percentages. What's your feeling in terms of how much improvement is potential there and the timing on that?
Sure. David, it's Darren here. Yes, I think that the biggest factor that's driving margins down in the Casting and Extrusion segment and certainly with large mould business is the raw material cost inflation. And even to the extent that we're recapturing some of that inflation with higher prices, the net impact is an overall reduction in margins. We do, as you saw, have a ramp up in activity with solid top line growth but yet, the profitability hasn't followed. I think the reality is that we're at the front end of the ramp up of these several new programs so there's some inefficiency associated with that. And then there's just the ongoing efficiency drive with respect to the new manufacturing cell. This cell is working very well. We're very happy with the results but it's not an iPhone. It doesn't just come out of the box and work. There's some starts before -- it starts it up before it gets going smoothly. And we experienced some of that during the quarter but generally, we continue to expect to improve our efficiency and therefore improve the profitability within the large mould group as the quarters progress.
So would you expect to see margin expansion sequentially in the next quarter and the one we're in right now? Or is it possible that this process kind of drags along for a bit?
Well, I think given just the impact of raw material costs and uncertainties with FX movements, it's pretty clear that it's hard to guide on margins. I think what we would expect is a continued improvement in profitability within the segment for the Casting and Extrusion segment over the next several quarters.
So dollar is up. Percentage, hard to say. Is that the way to think of it?
Yes, we would focus on profitability and level of profitability, and we would expect improvement.
Our next question comes from Michael Glen of Macquarie.
Can you just touch on -- you touched on it in the commentary, Darren, but can you just discuss some of the steps you might take or how we should think about things progressing as you sort of look to remedy the unprofitable contract at ALC?
Sure. Really, I think it's either reprice or exit. And we're talking about the Audi seat cover program here, which we've highlighted for several quarters, first ramping up to volumes that were materially lower than what was expected. And then I think, second, what's evident is the variation in the seat covers that we provide under that program is significant. So we're never able to get sufficient scale with any of the various seat cover variations that we provide. And so we -- at this point, I think it looks more likely to be an exit than a reprice. And we would expect that resolution within the next quarter.
Okay. And then can you then remind us about what that might mean for a top line?
Top line, on an annual basis, is probably CAD 12 million, CAD 13 million but it's a negative margin. So while the top line may come down to that magnitude, we would expect profitability to improve.
Okay. And just one more. Can you just give a quick summary of what exactly where your largest, maybe your top 3, raw material exposures are? And then what items you're seeing the most pressure on, in particular?
So within the tooling group, Casting and Extrusion segment, it's primarily tools deal. Tools deal, various grades are used but generally, the price increases has been up kind of 25% plus or so in the last 8 months. And that sort of segment overall is probably somewhere around 30% of revenues for raw materials. So you can kind of do the math and see the magnitude there. We've also had some cost inflation on resin components within the Accessory business that started after Hurricane Harvey, which we highlighted last quarter. That had a magnitude of an increase of probably somewhere around $300,000 or $400,000 a quarter. We did see some relief on that in the current quarter as things continue to normalize but it's still hurting us year-over-year. We would expect that, that -- these are refinery cracks spreads that have kind of widened out in the aftermath of the Harvey, and so they come in but the underlying crude prices have come up to offset that slightly. But we would expect still continued improvement in the next quarter or 2 as we implement some various initiatives to offset that. I would say that those elements are the biggest factors that hurt us from the raw material side of things. Labor inflation is also a factor, quite frankly, in a lot of the tooling businesses. There's the scarcity of talent that we need. And therefore, it ultimately has an impact on inflation. That's actually just getting the people and getting them at the machine is the bigger issue.
Our next question comes from Ben Jekic of GMP Securities.
Just a question on the ALC. Can you quantitatively or qualitatively illustrate sort of the expectations? So if you were to exit the Audi deal, I know you have some new volumes coming in, like what would that do to utilization? And would this $0.05 impact dissipate kind of over the next couple quarters or will it kind of penetrate into fiscal 2019?
So the 2 factors that we've called out there specifically are the unprofitable Audi contract and -- so that contract will probably still persist through much of Q3 but then hopefully go away for Q4 and beyond. And then -- and I'll get to the magnitude in a second but the other factor is this new business, nonseat cover business, that we've landed. That has really only started towards the end of the second quarter here. So we've been bearing all the costs associated with repositioning the business to accommodate it, and then all the inefficiencies at the front end have kind of been evidenced towards the end of this quarter, second quarter, and will probably still persist through the third quarter. Maybe not -- I wouldn't expect it all will be to the same degree as what we had in the second quarter but it will still be a drag on the third quarter. But then once we get beyond that, with the Audi contract gone, things should improve materially. I think that we still have work to do to return that segment for that business to profitability but we're taking steps to do that. Quoting activity for new business that will add further scale and diversity to ALC is ongoing. And there's a lot of quoting activity on that basis. And we would expect that will ultimately lead to additional program awards and profitable program awards which will eliminate the losses and at some point, return it to profitability. It won't happen overnight but it'll be progressive at this point.
Darren, could I add one note there? We probably have 300 people involved in that Audi program. And then you're probably aware of the situation in the Eastern Bloc. Unemployment in Bulgaria has gone from, 2 years ago, 12.5% to 5.5%. So getting qualified manpower is an issue these days. There is wage pressure. But by eliminating 300 people, we're obviously not going to truly eliminate the 300 people on the Audi program. We're going to eliminate the 300 worst performers that we have. So it will remedy very much our labor situation, which should impact the productivity and improvement on our other contracts.
Right. Okay, that's very helpful. And then just one last question. I think, Darren, last quarter, you were quoting some levels of your backlog in the Casting and Extrusion. I didn't see it done this quarter but do you have a number as to how robust your backlog is now?
No. It's not a practice that we wanted to get into on a quarterly basis. So we did call it out last quarter just because it was so material and had a material impact on the backlog. But I would say that the awards for our second quarter were essentially in line with the first quarter, continuing at a very high level.
Our next question comes from Peter Sklar of BMO Capital Markets.
On this Audi seat cover program, who negotiated that contract? Was that contract taken on before you acquired the company or did you negotiate that deal?
No, it's under our watch. The issue is the terms of the deal have changed significantly. So that's why we've gone back to Audi regarding the pricing of the deal. So they're looking for price concessions that we've been accruing for. And we're saying, well, the volume's running at half of what you quoted, plus the variance that we're dealing with because there's 2 suppliers, and the 1 -- the other supplier is getting all the black seat covers that are high runners, and we're getting all the oddball ones that are low runners. So there was a lot of changeover in efficiency.
We're Tier 2 and the other supplier is Tier 1. So he's ensuring that we get the crap and he gets the gold.
Right. But like when you negotiated this, was there not any like volume guarantees or any mix considerations in the contract?
No, there's no volume guarantee in most automotive contracts but -- so we're debating the pricing at this point. So it's -- it comes down to adjust the pricing or take the program is kind of where we're at.
And how would Audi replace you with the Tier 1? Take all the volume?
Yes, because the volume's half of what the expectation was.
It wouldn't be a material back -- item for them to absorb at this point.
Right. And just, Drew, just housekeeping. Like what's your tax rate going to be going forward? I noticed they're slower right now.
Yes, there were some adjustments this quarter because our interpretation of the U.S. tax legislation in Q1, we were a little conservative accruing for a few things. So I think going forward, it's going to be 24% to 24.5%. So there's a bit of a pick up this quarter.
Okay. And then, sorry, going back to the large mould business. I thought that the objective of this capital plan was to shorten time frame for manufacturing, so therefore, you could put more volume through the plant? But we're not seeing any additional volume. So is it just the business is not there to push through more volume? Or what's going on?
I would say we're certainly seeing more volume, and we've seen top line growth year-over-year in the high-single digits. And so there's some mix issue there with pricing for the individual programs. But overall, I wouldn't say that the volume of activity this quarter has got -- it's really higher price in the last quarter. So that top line growth you're seeing is indicative of high price. And then as I mentioned earlier, there's still inefficient piece with that manufacturing cell. And as we continue to ring out those inefficiencies, we'll effectively continue to add capacity. The last thing I would say is that we have added similar type equipment to the other 2 locations within the large mould group, and those really just kind of got turned on at the end of the quarter, and that's more capacity within the group. And that capacity has been there to absorb the volume that we see coming at us.
But may I add, Peter, we are seeing, and you're quite aware, there's been price compression. And so we're probably putting through more tools at a lower price. And the only way to combat that is to shorten delivery times in order to not have to compete purely on price. And we are doing that. So certainly, there is more volume going through. And I think as time goes on, we'll probably add another 3 more of those machines identical to the fleet we've stalled. It is producing but I understand your comment. Just we don't tell you how many units we ship, we tell how many dollars we ship.
Our next question comes from Michael Doumet of Scotiabank.
I'm just trying to maybe better understand the cadence of the margin headwinds from higher resin prices and higher steel prices. I would think that your higher resin price is already running through your P&L but steel prices have only just recently moved up. So I mean is it possible to assume that there -- we see more pressure before we see an improvement?
Well, I think that we have been focused on price increases more broadly within the C&E segments and at cap tool in particular to recapture some of this raw material or tool steel pricing headwind. We've been -- it's only come up recently but it's up 25% in 8 months, which is basically 3 quarters. So we've been living with it. The various businesses, to one degree or another have responded with pricing action but there's catch-up here. And some of the pricing increases has really only occurred toward the end of our second quarter. So we haven't -- we've been absorbing higher raw material cost increases but we haven't yet had the benefit of price increases to offset that, which we should start to see in the third quarter and beyond.
Okay, that's helpful. And maybe just on the flip side, in terms of how much steel you have in inventory. I mean, how many months of steel do you typically hold?
Usually just a couple of months' worth.
Well, frankly, a couple of weeks. We don't carry a couple months, it's probably a couple of weeks. But I think the good news, Michael, is we're putting some price increases and we're getting the price increases and we're not losing business from it. So that's an interesting dynamic. There have been very low-price increases in the last 8 years.
Yes, maybe just to expand there, Brian. I mean what mechanisms do you have for price increases? If it's contractual or not, how do you usually deal with this with your customers?
Well, I mean, a lot of our pricing is book pricing. And so I mean the order cycle, like on Extrusion tools, is 10 days. But at any point in time, we can go back in and revise pricing, and we've done that. And on the longer-term contracts and some of them are annual or biannual, we have gone back and simply pleaded our case and then gotten our price increases. So if you talked price increases to customers a year or 2 ago, they would have slammed the door in your face. But I think everyone and all of us are seeing it. They say there's not much inflation in the economy but let me tell you, there sure is.
Yes. Okay, that's helpful. And maybe for the Neocon business as it relates to resin prices. I mean any mechanisms there as well? Or maybe you can talk to the length of the contract before you can renegotiate pricing?
I mentioned that the resin factor was probably about $300,000 a quarter. And we have our own proprietary blend of polymers that we use for a lot of these Neocons products. And we're focused on looking at those proprietary blends in order to see what we can do in order to get the input cost down.
Our next question comes from David Tyerman of Cormark Securities Inc.
Yes. So just a couple of follow ups. So just on the ALC. Once you have resolution of the Audi seat cover contract and you got the ramp up of the business you got so far are done. So say Q4, I don't know, maybe still later than that, but somewhere in that time frame, what kind of profit level would we be at? Would we be making money out of ALC? Or would it still be losing money but just a lot less?
I think that just on those 2 items, we would probably still be losing money, albeit not nearly at the magnitude that's been evidenced in the last couple of quarters. I think that we still have a need to demonstrate more efficiency with the Mini program there. The pricing for that program has -- is also thin. I did reference in my preamble that we're focused on repricing business. And that is -- got inadequate profitability generally. And what we'll continue to look at the various programs within all of our businesses with the expectation of improving profitability. ALC is no exception.
Okay. So for ALC to get the profit, either you need the Mini repriced, or it sounds like really you need some more business, which you're working on, and the opportunities there are decent. Is that a fair way of putting it?
Yes, that's probably fair.
Okay. And then just on the North American auto business. There's a lot of moving parts there. You've got the car segment down. It doesn't look like it's ever coming back, at least according to Ford. Material's negatively impacting you but it's something you're doing some work on that side to help. And FX hitting you. And maybe I'm missing something but I'm just wondering, so where do we go from here because some of these things are hard to fix or take time like the car part. So I'm just wondering, can you improve this area rapidly? Or again, is this going to take some time to really see significant percentage margin improvements?
Well, a big factor that hits the North American parts business year-over-year was this inventory pipeline fill in the second quarter of last year that, at the time, may not have been apparent to us but in hindsight, it is. And that was really only evident in the second quarter of last year. I think when you take that out of the mix, that -- the results kind of line up with what happened with overall production of vehicles year-over-year. There's -- penetration of the various accessory products is also something we look at. And I mentioned that some of the accessory products had weakness in our second quarter, but we're not seeing any secular trend there. In fact, in April and through what we've seen in April so far, there's been a rebound. So there's nothing that is inherently different within the business. It's -- we continue to innovate. There's a good pipeline of new products for both existing and new customers that we hope will ultimately drive content for vehicle higher, which is really what's driven this business over many years.
Darren, I could add? We're certainly not unbullish on our prospects in the North American market. I would say the contrary is the case. And there's been some fluctuation in some of these issues which explains some of the reductions in whatever but not unbullish at all.
Okay. But I guess what I'm thinking or what I'm wondering is when I think about margins, percentage margins for the business, North American auto, it sounds like it's not going to change a ton from where you were in the last quarter. Is that fair? Or do you think you've got some improvement because you got better accessory sales again? I mean the pipeline tail thing is a thing in the past [indiscernible].
I think we've got opportunity on the margin there. And the margin was down for that group of companies by 310 basis points year-over-year but it was up 110 basis points sequentially. And we think that certainly through the next quarter that things look pretty promising at this point for both top line growth and continuing margin expansion.
Okay. And the big driver on the margin expansion side would be your drivers?
Well, there's an inherent scale benefit as we -- sales increase at decent clip quarter-over-quarter and positive implications [indiscernible] issue for overhead and [ motion ].
Okay. So operating leverage.
[Operator Instructions] Our next question comes from Nav Malik of Industrial Alliance.
Just maybe on your existing mix of business outside of ALC. I'm just wondering if you have any programs or if you can quantify if there's any programs that are ending maybe over the next 6 to 12 months? And maybe what percentage of revenue kind of turns over in that regard?
We had some turnover in one of our -- a significant program in North America for the Honda Accord. And as that former model built out last year, that was a significant impact to our revenue and margin, frankly. But the divisions that were impacted at the launching programs in February and March, that essentially replaces that revenue and margin going forward.
And there's nothing of any magnitude inside the next several quarters that falls off that.
Okay. Okay. And just on your CapEx, I guess, you've got about -- or you're projecting maybe about $14 million or $15 million for the remainder of the year. Is that all basically maintenance related or is there any other growth-oriented CapEx in that?
We still -- and we have been spending a lot of money to upgrade the capital equipment in the Casting and Extrusion business, and there's still some of that in the second half. I would think, at this point, we'll probably come up light with regards to our spending versus that budget but there's no huge spending plan for anything. I think that in the second half, we may start to spend some money on the Mexican extrusion plant facility but most of that spending will come next year.
Okay. Okay. Actually, that kind of leads into my question on the Mexican facility. Have you decided to go ahead with that facility? Or I thought there were some potential that you may wait to kind of see what the resolution was with regard to NAFTA and that sort of thing?
We're going ahead with it. It's -- the CapEx spend is very manageable. We've got very high expectations for how that facility will expand and grow over time. The CapEx is probably somewhere in the $7 million to $8 million range to get it going. We've also got a reasonable book of business that we shifted to Mexico already out of Canada, or the U.S. that can provide a good base load out of the gate.
That business is for Mexican consumption. It's not for products that's exported back to North America.
[Operator Instructions] I show no further questions in the queue at this time. Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may all disconnect. Good day.