Exco Technologies : Q2-2022 Financial Statements

Unaudited Condensed Interim Report

to the shareholders

for the six months ended

March 31, 2022

CASTING AND EXTRUSION	AUTOMOTIVE SOLUTIONS

CONTENTS

1 Management Discussion and Analysis

10 Condensed Interim Consolidated Financial Statements

14 Notes to Condensed Interim Consolidated Financial Statements

	Three Months Ended	Six Months Ended
	March 31	March 31
(in $ thousands except per share amounts)
	2022	2021	2022	2021
Sales	$119,303	$118,360	$220,282	$239,762
Net income	$5,098	$11,734	$7,834	$22,650
Basic earnings per share	$0.13	$0.30	$0.20	$0.58
Diluted earnings per share	$0.13	$0.30	$0.20	$0.58
Weighted avg basic common shares o/s (000's)	39,161	39,270	39,161	39,270

The following management's interim discussion and analysis of operations and financial position are prepared as at April 27, 2022 and should be read in conjunction with the condensed interim consolidated financial statements as at and for the six months ended March 31, 2022 and 2021 and the consolidated financial statements and Management's Discussion and Analysis ("MD&A") in the Company's 2021 Annual Report.

This MD&A has been prepared by reference to the MD&A disclosure requirements established under National Instrument 51-102 "Continuous Disclosure Obligations" ("NI 51-102") of the Canadian Securities Administrators. Additional information regarding Exco, including copies of its continuous disclosure materials such as its annual information form, is available on its website at www.excocorp.comor through the SEDAR website at www.sedar.com.

Use of Non-IFRS Measures

In this MD&A, reference may be made to EBITDA, EBITDA Margin, Pretax Profit, Free Cash Flow and Maintenance Fixed Asset Additions which are not defined measures of financial performance under International Financial Reporting Standards ("IFRS"). Exco calculates EBITDA as earnings before interest, taxes, depreciation and amortization and EBITDA Margin as EBITDA divided by sales. Exco calculates Pretax Profit as segmented earnings before other income/expense, interest and taxes. Free Cash Flow is calculated as cash provided by operating activities less interest paid and Maintenance Fixed Asset Additions. Maintenance Fixed Asset Additions represents investment in fixed assets that are required to continue current capacity levels. EBITDA, EBITDA Margin, Pretax Profit and Free Cash Flow are used by management, from time to time, to facilitate period-to-period operating comparisons and we believe some investors and analysts use these measures as well when evaluating Exco's financial performance. These measures, as calculated by Exco, do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other issuers.

MANAGEMENT DISCUSSION AND ANALYSIS

Consolidated sales for the second quarter ended March 31, 2022 were $119.3 million compared to $118.4 million in the same quarter last year - an increase of $0.9 million, or 1%. Year-to-date sales were $220.3 million compared to $239.8 million the prior year - a decrease of $19.5 million or 8%. Excluding foreign

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exchange rate movements, consolidated sales in the quarter were higher by 2% compared to the prior year and lower by 6% year-to-date.

The Automotive Solutions segment reported sales of $68.2 million in the second quarter - a decrease of $1.1 million, or 2% from the prior year quarter. Year-to-date segment sales totaled $123.3 million - a decrease of $22.1 million, or 15% compared to last year. Foreign exchange rate movements decreased segment sales by $1.3 million in the quarter and $3.8 million on segment sales year-to-date. Excluding foreign exchange rate movements on Exco's results, segment revenues were unchanged during the quarter and lower by $18.3 million, or 13% year-to-date. After adjusting for the impact of foreign exchange rate movements, the segment continues to perform well above IHS vehicle production estimates of negative 3% in North America and negative 18% in Europe in the quarter. Industry vehicle production volumes continue to be negatively impacted by supply chain disruptions (particularly the global semiconductor shortage), broad labour availability and logistical constraints. Additional supply chain dislocations have also arisen in Europe since February 2022 due to the Russian invasion of Ukraine. Segment sales were nonetheless supported by ongoing key program launches for both new and existing products, certain pricing actions taken to protect margins and favourable vehicle mix with these trends generally improving through the quarter. Quoting opportunities have also strengthened of late across the segment's various businesses, which, together with pipeline launches, is expected to support continued gains in Exco's content per vehicle.

The Casting and Extrusion segment reported sales of $51.1 million for the second quarter - an increase of $2.0 million or 4%, from the same period last year. Year-to-date, the segment reported sales of $97.0 million

• an increase of $2.6 million, or 3%. Foreign exchange rate changes were negligible in the quarter ($0.2 million) and a $1.6 million reduction to sales year-to-date. Within the segment, demand for our extrusion tooling (ie dies, dummy blocks, stems, etc) and associated capital equipment (die ovens, containers, etc) remained strong due to both industry growth, and ongoing market share gains. Demand for extrusion tools covers many industrial sectors including building and construction, large truck, electric vehicles, and many green energy sectors, all of which are focused on reducing energy intensity and reducing emissions. In anticipation of these trends intensifying, Exco has been increasing its manufacturing footprint in local markets in recent years, while focusing on standardizing manufacturing processes, enhancing engineering depth and centralizing support functions across its various plants. These initiatives have reduced lead times, enhanced product quality, expanded product breadth and increased capacity, all of which has supported market share gains. In the die-cast market, which primarily serves the automotive industry, demand has remained suppressed due to lower vehicle production volumes, which in turn, is due mainly to broader supply chain constraints. These constraints have been amplified by customer inventory destocking activity in recent quarters, particularly in the large mould segment, which has faced significantly lower rebuild work than typical. Demand and order flow for new moulds, associated tooling (shot sleeves, rods, rings, tips, etc) and even rebuild work however has recently picked up meaningfully as industry vehicle production recovers and new electric vehicles and more efficient internal combustion engine/ transmission platforms are launched. In addition, demand for Exco's industry leading additive (3D printed) tooling has continued to gain significant traction as customers focus on greater efficiency as the size and complexity of die cast tooling continues to increase. Sales were also aided by price increases which were implemented in order to protect margins from higher input costs. With respect to quoting activity, longer lead time items continue to see elevated demand for future activity (particularly large moulds) and inventories and backlog continue to grow which is expected to bode well for sales through the remainder of fiscal 2022.

Consolidated net income for the second quarter was $5.1 million or basic and diluted earnings of $0.13 per share compared to $11.7 million or $0.30 per share in the same quarter last year - a decrease of net income of $6.6 million. Year-to-date, consolidated net income was $7.8 million or $0.20 per basic share compared to $22.7 million or $0. 58 per basic share last year - a decrease in net income of 14.9%. The consolidated effective income tax rate of 23% in the current quarter increased from 22% from the prior year. Year-to-date, the consolidated effective income tax rate was 24% compared to 22% last year. The income tax rate in the

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quarter and year-to-date was impacted by nondeductible losses from our Castool Morocco facility, geographic distribution, and foreign rate differentials.

The Automotive Solutions segment reported pretax profit of $6.2 million in the second quarter a decrease of $3.2 million from the prior year quarter. Year-to-date, the segment reported pretax profit of $9.6 million - a decrease of $11.4 million compared to the prior year period. The segment's lower pretax profit was due to unfavorable market driven product mix changes, higher material, logistics and labour costs, partially offset by certain pricing actions taken in the quarter. Reduced industry vehicle production continued to cause inefficiencies within our operations. While customer orders and releases stabilized compared to prior quarters, sporadic and unreliable customer releases continued to impact production, increasing overhead and direct labour costs. These factors were intensified by reduced labour availability at certain of our facilities due to the increased prevalence of COVID-19 as well as the need to retain slack labour in anticipation of higher demand in the quarters ahead. Inflationary pressure continues to be a challenge in this segment particularly on petroleum-based products (resins, plastics, rubber), energy, freight and labour. Management remains focused on improving the efficiency of its operations and reducing its overall cost structure. Pricing discipline remains a focus and actions are being taken on current programs where possible, though there is typically a lag of a few quarters before the impact is realized. As well, new program awards are priced to reflect management's expectations for higher future costs.

The Casting and Extrusion segment reported $2.7 million of pretax profit in the second quarter - a decrease of $4.7 million from the same quarter last year. Year-to-date, the segment reported pretax profit of $4.7 million - a decrease of $7.3 million compared to the prior year period. The lower pretax profit was driven by reduced activity for rebuild work in the Large Mould group coupled with the shipment of a number of new moulds. New mould programs can often have low to negative margins at the onset due to front-end inefficiencies that are improved as subsequent moulds are delivered. As well, profitability was negatively impacted by raw material and labour cost inflation before price increases were implemented, unfavorable market driven product mix shifts, start-up losses of Castool's plant in Morocco (which opened in November 2021), reduced labour availability and higher overtime costs across the three business units due to the spread of COVID-19. Segment pre-tax profitability was however higher sequentially and new business awards across the quarter were very strong, particularly for structural die-cast components and those for electric vehicle platforms. The Large Mould and Castool groups ended the quarter with backlogs approaching historic levels. Management remains focused on taking pricing action where possible to preserve margins, reducing its overall cost structure and improving manufacturing efficiencies. Such activities together with sales efforts are expected to improve segment profitability in future quarters.

During the first quarter, the Company signed a definitive agreement to acquire the extrusion dies business of Halex Holdings GmbH ("Halex® Extrusion Dies"). Halex Extrusion Dies was founded in 1990 and operates four key manufacturing locations - two in Germany and two in the northern industrial region of Italy. The company is the second largest manufacturer of aluminium extrusion dies in Europe and the continent's leading supplier of complex extrusion dies. Halex will complement Exco's six existing extrusion die operations, located in Canada, USA (2), Mexico, Colombia and Brazil. The acquisition will provide Exco with well-established and high-quality operations, manufacturing complex extrusion dies in Europe and will provide better support for the Company's global customers.

The transaction is expected to close in the spring of 2022 and is valued at €40 million (C$58 million equivalent) on an enterprise value basis. It will be funded with a combination of cash on hand and available bank lines. Halex will add approximately €40 million in annual sales and is expected to be immediately accretive to Exco's earnings per share. Exco will report the results of Halex within its Casting and Extrusion segment.

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The Corporate segment expenses were $2.0 million in the second quarter compared to $1.7 million in the prior year quarter. Year-to-date, Corporate expenses of $3.6 million were down slightly from the prior year at $3.9 million.

Consolidated EBITDA for the second quarter totaled $12.5 million compared to $20.2 million in the same quarter last year - a decrease of $7.7 million. Year-to-date, consolidated EBITDA totaled $21.9 million compared to $39.6 million last year - a decrease of $17.7 million. For the quarter, EBITDA as a percentage of sales decreased to 10.5% in the current period compared to 17.1% the prior year driven by a reduction in segment margins in both the Casting & Extrusion segment (13% compared to 22%) and the Automotive Solutions segment (11% compared to 16%).

Financial Resources, Liquidity and Capital Resources

Operating cash flow before net change in non-cash working capital totaled $11.0 million in the second quarter compared to $17.3 million in the same period last year. Year-to-date, operating cash flow before net change in non-working capital totaled $19.5 million compared to $33.7 million the prior year period. The year over year variance in the respective periods is primarily driven by Net Income, which was lower in the current quarter and year-to-date.Non-cash working capital consumed $5.7 million of cash in the current quarter compared to $5.4 million the prior year period. Year-to-date,non-cash working capital consumed $6.1 million of cash compared to $12.2 million the prior year period. The non-cash working capital movements were driven by increased current assets associated with stabilized sales and customer demand and a reduction in income tax liabilities. Consequently, net cash provided by operating activities amounted to $5.3 million in the current quarter compared to $11.9 million in the same quarter last year. Year-to-date, net cash provided by operating activities amounted to $13.3 million compared to $21.5 million the prior year period.

Cash provided by financing activities in the current quarter was $5.4 million compared to $3.3 million of cash used in the same quarter last year. Year-to-date, cash provided by financing activities totaled $10.5 million compared to $4.8 million used in the prior year period. Financing from long-term debt was used to reduce current bank indebtedness, pay dividends, and repurchase shares under the Normal Course Issuer Bid during the quarter.

Cash used in investing activities in the second quarter totaled $10.6 million compared to $5.0 million in the same quarter last year. Year-to-date, cash used in investing activities totaled $21.2 million compared to $10.0 million the prior year. The increase in investing reflects our continued focus on capital asset additions to support our various growth initiatives and market share gains. The growth initiatives include: a) new Castool production facilities in Morocco and Mexico. The Moroccan facility opened in November 2021 and the Mexican facility recently commenced construction. b) Investment in new heat treatment equipment in the tooling group to increase capacity, reduce emissions and enable us to in-source most of our requirements. c) Investments in the Large Mould group to upgrade its capabilities to handle moulds of extreme sizes which we expect will be increasingly demanded by most traditional and new OEMs. d) Investment in additional 3D printing machinery in our tooling group to meet strong customer demands. e) Expansion of two of our production facilities in the Automotive Solutions group to provide added capacity for awarded programs. During the quarter, capital asset additions related to growth initiatives totaled $9.1 million ($16.8 million year-to-date).

The Company's financial position and liquidity remain strong with net cash of $0.3 million as at March 31, 2022. The Company generated Free Cash Flow of $3.5 million and paid dividends of $4.1 million in the quarter. Current quarter growth capital expenditures of $9.1 million increased from $3.5 million in the prior year quarter. Year to date growth capital expenditures of $16.8 million increased from $7.5 million in the prior year thereby reducing net cash at the end of the period. Principal sources of liquidity include generated Free Cash Flow, $26.3 million of balance sheet cash and $99.0 million of unused availability under its $125

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