Wescast Announces Strong First Quarter Results Despite Market Downturn
BRANTFORD, Ontario--April 24, 2001--Wescast Industries Inc. recorded strong earnings despite a downturn in the North American Automotive Industry."Our first quarter results were excellent, despite a 22% decrease in the Big 3 North American production, our increased market share yielded manifold sales equal to the first quarter of 2000, one of our strongest quarters ever." said Ray Finnie, C.E.O.
"Our investment in new foundry and machining capacity, new stainless steel process, engineering and development offices in Europe, and an even greater research and development thrust reduced the net earnings for this quarter, but these investments will provide a significant boost to future earnings."
Highlights
-- Wescast generated total sales of $100.7 million, very comparable to the $103.9 million in the same period of last year. During this period North American vehicle production declined 18% and the Big 3 declined 22%.
-- The strategies outlined at the end of the fourth quarter have proved effective with gross margins from its iron manifold operations in the range of 41%, before depreciation. This performance allows us to protect the investment in our well-trained employees who are vital to our continued growth and focus on cost control and continuous improvements.
-- Net earnings for the first quarter of 2001 were $16.8 million, compared to $20.5 million for the first quarter of 2000. Return on equity was 20% for the quarter. Fully diluted earnings per share were $1.28 compared to $1.53 in 2000. The previous year's earnings have been restated to conform to new accounting guidelines with respect to earnings per share and interim reporting. See the attached scheduled as well as Notes 2 and 9 to the Financial Statements.
-- Net cash and cash equivalents increased by over $10 million during the quarter, reflecting the strength of operations and effective working capital management. This will provide the financial capacity to continue our growth strategy and the flexibility to take advantage of opportunities as they arise.
Operations
While total sales for the quarter were $100.7 million, down 3% from the previous year at $103.9 million, sales generated from cast and machined iron manifolds actually increased slightly to $93.4 million from $93.2 million in 2000. This reflects increased market share that more than offset the decline. Other contributing factors were the increased penetration of higher value SiMo manifolds, up to 90% penetration from 85% in 2000 and increased machining penetration which reached 61.7% up from the 58.7% recorded in the comparable quarter of the previous year.
Our investment in the Stratford steel facility yielded over 26,000 manifolds shipped, with revenues of $3.7 million. There were no comparable sales in the previous year as the facility was still in a pre-production phase.
Tooling, prototype and other sales at $3.6 million, were below the $10.7 million recorded in the first quarter of 2000 when tooling and prototype programs were invoiced related to the significant market share increase we are now experiencing. This comparison reflects an extraordinary volume last year due to the significant number of program launches.
Total gross margin, including margin on manifold, tooling, prototype and other sales was $31.3 million or 31.1% of sales for the first quarter 2001, down $6.5 million compared to the $37.8 million or 36.4% for the same quarter last year. One should consider the following when comparing the results to last year:
-- Depreciation and amortization charges included in cost of sales increased approximately $2 million to $6.7 million this quarter as a result of the new facilities in Wingham and Stratford coming into commercial production this year.
-- The stainless steel operation in Stratford is continuing its ramp up. The operation recorded an operating loss, before depreciation, of $2 million. These results are a disappointment as the investment required to refine the manufacturing technology has exceeded the expectations we had several months ago. Significant progress continues to be made at this facility and additional senior resources are being focused on getting this commissioning on track as soon as possible.
Focusing on the cast and machined iron manifold business, the gross margin, before depreciation, was $38.2 million or 40.9% of sales in the first quarter of 2001. This compares favorably with the $39.8 million or 42.7% of sales recorded in the first quarter of 2000.
"The measures we announced at the end of last year were implemented very effectively by our workforce and leadership," states Ray Finnie. "We were able to do what we said we would do. The flexibility and efficiency in our operations even exceeded our expectations and the results prove this out. We are very gratified by the hard work of all our people to make this happen."
Operating earnings for the quarter were $23.6 million, down $7.6 million compared to the $31.2 million earned for the same period in 2000. This decrease is a result of the lower margin discussed above and the investments we are making in our strategy to create long-term growth including:
-- Increased selling, general and administrative expense of $630,000, primarily for the expansion of our global sales and design network.
-- Increased research and development expenditures of $386,000.
These factors were partly offset by reductions in the corporate tax rate and favourable exchange-translation gains, due to the weakening Canadian dollar. As a result, net income was $16.8 million or $1.28 per share fully diluted for the first quarter, compared to $20.5 million for the same quarter last year or $1.53 per share fully diluted.
Cash Flow
Operating cash flow was $31.4 million for the quarter compared to $12.0 million in 2000, up $19.4 million. This significant increase is largely attributable to improved working capital management, specifically in reduced trade and tooling receivables.
Capital expenditures for the quarter were $17.3 million, compared to $14.8 million for the same quarter last year. The Company's portion of capital expenditures for the construction of our new joint venture facility in Hungary amounted to $8.0 million. The other expenditures, totaling $9.3 million, were primarily incurred to expand our manufacturing and machining capacity and to sustain continuous improvements in all our facilities.
The Company has deferred $1.0 million of pre-production costs for the first quarter at its Stratford and Weslin facilities.
The net increase in cash for the quarter was $40.4 million compared to an increase of $27.0 million for the same quarter last year.
Balance Sheet and Financial Position
At April 1, 2001 the Company had $74.8 million in cash and short-term investments compared to $64.4 million at the end of 2000. Wescast continues to maintain a strong financial position to support future growth and to take advantage of additional opportunities as they arise.
Comparative Figures
The Company has changed its accounting policy with respect to the computation of earnings per share and restated certain first quarter 2000 amounts. Please refer to the notes to the financial statements for the details.
The following table provides an overview of the above mentioned highlights for the first quarter:
Wescast Industries Inc.
Q1 2001 Highlights
--------------------------------------------------------------------
--------------------------------------------------------------------
in millions of dollars, except per
share data and where otherwise noted Q1 2001 Q1 2000 % change
--------------------------------------------------------------------
Sales (before pre-production deferrals) 101.6 105.2 (3%)
--------------------------------------------------------------------
Sales (net of pre-production deferrals) 100.7 103.9 (3%)
--------------------------------------------------------------------
Net Earnings 16.8 20.5 (18%)
--------------------------------------------------------------------
EPS
basic 1.30 1.55 (16%)
fully diluted 1.28 1.53 (16%)
Sales Breakdown - dollars
(net of pre-production deferrals)
Casting & Machining 93.4 93.2 0%
Cast 67.3 69.7 (3%)
Internal Machining 25.6 22.8 12%
External Machining 0.5 0.7 (29%)
Tooling & prototype 3.6 8.9 (60%)
Magalloy pump sales 0.0 1.8 (100%)
Stainless steel 3.7 0.0
--------------------------------------------------------------------
Sales Breakdown - units (000's)
Ductile iron 0.3 0.6 (50%)
SiMO iron 3.4 3.4 0%
Stainless steel 0.1 0.0
Total before pre-production deferrals 3.8 4.0 (5%)
Unit sales during pre-production
period 0.0 0.1
Total after pre-production deferrals 3.8 3.9 (3%)
Sales Breakdown - percentage
SiMo Penetration 89.5% 85.0%
Internal Machining Penetration 61.7% 58.7%
--------------------------------------------------------------------
Gross Margin (before depreciation) 37.9 42.6 (11%)
Iron manifolds 38.2 39.8 (4%)
Stainless Steel Manifolds, Tooling,
prototypes & other (0.3) 2.8 (111%)
--------------------------------------------------------------------
Gross Margin % (before depreciation) 37.7% 41.0%
Iron manifolds 40.9% 42.7%
Stainless Steel Manifolds,
Tooling, prototypes & other (3.2%) 26.8%
--------------------------------------------------------------------
Gross Margin (after depreciation) 31.3 37.8 (17%)
Iron manifolds 32.0 35.2 (9%)
Stainless Steel Manifolds, Tooling,
prototypes & other (0.7) 2.6 (127%)
--------------------------------------------------------------------
Gross Margin % (after depreciation) 31.1% 36.4%
Iron manifolds 34.3% 37.8%
Stainless Steel Manifolds,
Tooling, prototypes & other (10.3%) 24.8%
--------------------------------------------------------------------
Depreciation and amortization
Depreciation and
amortization- cost of sales 6.7 4.8 40%
Depreciation - SG & A 0.6 0.6 0%
--------------------------------------------------------------------
Capital Expenditures 17.3 14.8 17%
--------------------------------------------------------------------
R&D 1.4 1.0 40%
--------------------------------------------------------------------
SG & A (% of sales) 6.2% 5.4%
--------------------------------------------------------------------
Tax Rate 34.7% 36.3%
--------------------------------------------------------------------
--------------------------------------------------------------------
Wescast Industries Inc. is the world's largest supplier of cast exhaust manifolds for passenger cars and light trucks. The Company designs, develops, casts, and machines high-quality iron and steel exhaust manifolds for automotive OEMs. Wescast operates seven production facilities in North America, and three sales and design offices in North America and Europe. The Company is recognized world wide for its quality products, innovative design solutions, and highly committed workforce. Wescast trades under the TSE symbol WCS.A as well as the NASDAQ symbol of WCST.
Advisory
Certain information regarding the Company set forth in this document, including management's assessment of the Company's future plans and operations, may constitute forward-looking statements under applicable securities law and necessarily involve risks associated with the automotive industry, production, marketing, and transportation such as loss of market, volatility of prices, currency fluctuations, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources; as a consequence, actual results may differ materially from those anticipated in the forward-looking statements.
A conference call has been arranged for:
April 24, 2001
3:00 p.m. EST
To participate, please dial (416) 641-6680
Wescast Industries Inc.
Consolidated Statement of Earnings and Retained Earnings (in
thousands of Canadian dollars, except per share amounts) (Unaudited
Canadian GAAP)
Three months ended
---------------------
April 1, April 2,
2001 2000
(Restated
Note 9)
---------------------
Sales $100,695 $103,867
Cost of sales 69,414 66,023
---------------------
Gross margin 31,281 37,844
Selling, general and administration 6,235 5,605
Research, development and design 1,435 1,049
---------------------
Operating earnings 23,611 31,190
Other (income) expense
Interest expense 121 99
Investment income (975) (970)
Other (income) and expenses (Note 6) (1,193) (129)
---------------------
Earnings before income taxes 25,658 32,190
Income taxes 8,903 11,678
---------------------
Net earnings $16,755 $20,512
---------------------
---------------------
Net earnings per share (Note 7)
- basic $1.30 $1.55
---------------------
---------------------
- fully diluted $1.28 $1.53
---------------------
---------------------
Retained earnings, beginning of period $238,052 $188,983
Net Earnings 16,755 20,512
Dividends paid (1,543) (1,588)
Excess of cost over assigned value of
Class A common shares purchased and cancelled (191) (0)
---------------------
Retained earnings, end of period $253,073 $207,907
---------------------
---------------------
Wescast Industries Inc.
Consolidated Balance Sheet
(in thousands of Canadian dollars) (Unaudited Canadian GAAP)
As at
---------------------
April 1, December 31,
2001 2000
---------------------
Current assets
Cash and cash equivalents $74,859 $34,428
Short-term investments 0 30,000
Receivables 58,621 63,849
Inventories 24,334 21,676
Prepaids 1,226 1,427
---------------------
159,040 151,380
Property and equipment (Note 4) 253,683 243,352
Other 15,020 14,645
---------------------
$427,743 $409,377
---------------------
---------------------
Current liabilities
Payables and accruals $38,739 $37,153
Income taxes payable 1,578 260
Current portion of long-term debt 3,106 4,001
---------------------
43,423 41,414
Long-term debt 4,828 4,622
Future income taxes 15,730 15,306
Employee benefits 6,939 6,661
---------------------
70,920 68,003
---------------------
Shareholders' equity
Capital stock (Note 5) 103,819 103,334
Retained earnings 253,073 238,052
Cumulative translation adjustment (69) (12)
---------------------
356,823 341,374
---------------------
$427,743 $409,377
---------------------
---------------------
Wescast Industries Inc.
Consolidated Statement of Cash Flows
(in thousands of Canadian dollars)
(Unaudited Canadian GAAP)
Three months ended
---------------------
April 1, April 2,
2001 2000
(Restated
Note 9)
---------------------
Cash derived from (applied to)
Operating
Net earnings $16,755 $20,512
Add (deduct) items not requiring cash:
Depreciation and amortization 7,305 5,370
Amortization of bond issue costs 2 3
Future income taxes 424 1,640
Loss on disposal of equipment 655 16
Employee benefits 461 335
---------------------
25,602 27,876
Change in non-cash working capital (Note 8) 5,776 (15,890)
---------------------
31,378 11,986
---------------------
Financing
Issue of long-term debt 206 1,012
Repayment of long-term debt (1,289) (9)
Payment of obligations under capital lease (163) (140)
Employee benefits paid (183) (130)
Issuance of share capital under Employee
Share Purchase Plan 182 198
Employee share loan repayments 252 13
Issuance of share capital under Stock
Option Plan 230 47
Repurchase of common shares (340) 0
Dividends paid (1,543) (1,588)
---------------------
(2,648) (597)
---------------------
Investing
Purchase of property, equipment
and other assets (17,309) (14,785)
Restricted cash from long-term debt 0 340
Deferred pre-production costs (1,009) (4,156)
Redemption of short-term investments 30,000 34,209
Proceeds on disposal of equipment 19 17
---------------------
11,701 15,625
---------------------
Net increase in cash and cash equivalents 40,431 27,014
Cash and cash equivalents
Beginning of period 34,428 43,164
---------------------
End of period $74,859 $70,178
---------------------
---------------------
Wescast Industries Inc.
Notes to the Consolidated Financial Statements (in thousands of Canadian dollars, except per share amounts) (Unaudited Canadian GAAP)
Note 1. Basis of presentation
The disclosures in these interim financial statements do not conform in all respects to the requirements of generally accepted accounting principles for annual financial statements. These interim financial statements should be read in conjunction with the most recent annual financial statements for the year ended December 31, 2000.
Note 2. Accounting policies
These interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements except for:
The company changed its accounting policy with respect to the computation of earnings per share to that issued by the Canadian Institute of Chartered Accountants in December 2000. The main effect of the change to the Company's financial statements is in the calculation of fully diluted earnings per share which is now calculated using the treasury stock method instead of the imputed interest method. This change in accounting policy has been applied on a retroactive basis and the comparative numbers have been restated accordingly. The effect of this change is an increase in the fully diluted earnings per share for the quarter ended April 2, 2000 of $0.05.
Note 3. Interest in jointly controlled entities
The following is the company's proportionate share of the major components of its jointly controlled entities (before eliminations):
April 1, December 31,
2001 2000
---------------------
Balance Sheet
Current assets $15,910 $15,193
Long-term assets 24,811 15,731
Current liabilities 16,646 19,848
Long-term liabilities 3,870 3,681
Equity 20,205 7,395
---------------------
---------------------
Statement of earnings
Sales 3,561 16,794
Cost of sales and expenses 3,694 17,723
Net loss (133) (929)
---------------------
---------------------
Statement of cash flows
Cash derived from (applied to)
Cash flows from operating activities (884) 335
Cash flows from financing activities 11,866 11,208
Cash flows from investing activities ($9,021) ($11,211)
Note 4. Property and Equipment
April 1, December 31,
2001 2000
---------------------
Land $4,319 $3,311
Buildings and improvements 109,761 107,448
Machinery, equipment and vehicles 263,919 250,169
---------------------
377,999 360,928
---------------------
Accumulated Depreciation
Buildings and improvements 13,029 12,100
Machinery, equipment and vehicles 111,287 105,476
---------------------
124,316 117,576
---------------------
Net Book Value
Land 4,319 3,311
Buildings and improvements 96,732 95,348
Machinery, equipment and vehicles 152,632 144,693
---------------------
$253,683 $243,352
---------------------
---------------------
Note 5. Capital Stock
Authorized
Unlimited Preference shares, no par value
Unlimited Class A subordinate voting common shares, no par value
9,000,000 Class B multiple voting common shares, no par value
April 1, December 31,
2001 2000
---------------------
Issued and outstanding
5,400,401 Class A Common Shares
(2000 - 5,383,749) $91,240 $90,755
7,466,907 Class B Common shares
(2000 - 7,466,907) 12,579 12,579
---------------------
$103,819 $103,334
---------------------
---------------------
Note 6. Other (income) and expenses
Three months ended
April 1, 2001 April 2, 2000
-----------------------------
Foreign exchange translation
(gain) loss ($1,796) ($129)
Loss on disposal of equipment and other 603 0
-----------------------------
($1,193) ($129)
-----------------------------
-----------------------------
Note 7. Earnings per common share
Basic earnings per share is calculated based on the weighted
average number of common shares outstanding (2001- 12,858,414 shares;
2000 - 13,231,371 shares). Fully diluted earnings per share is
calculated based on the fully diluted weighted average number of
common shares outstanding (2001 - 13,104,561; 2000 - 13,396,693
shares).
Note 8. Consolidated statement of cash flows
The following is additional information to the statement of cash
flows.
Change in non-cash operating
working capital Three months ended
April 1, 2001 April 2, 2000
-----------------------------
Receivables $5,302 ($10,926)
Inventories (2,658) (1,715)
Prepaids 201 125
Payables and accruals 1,613 (2,366)
Income taxes payable 1,318 (1,008)
-----------------------------
$5,776 ($15,890)
-----------------------------
-----------------------------
Note 9. Comparative figures
The company has restated sales and cost of sales for the quarter ended April 2, 2000. Sales amounting to $1,361 earned during the pre-production period of new facilities have been offset against cost of sales. There is no effect on net earnings for the quarter ended April 2, 2000.
In 2000, the Company accrued certain annual expenses on a pro-rated basis quarterly throughout the year. The comparative figures have been restated to reflect the actual expenses incurred for the quarter ended April 2, 2000. The effect on the quarter ended April 2, 2000 is an increase in net earnings of $749 or $0.06 per share on a basic and fully diluted basis.
Wescast Industries Inc.
Restatement Analysis Schedule
2000
Quarter 1 Quarter 2
----------------------- -----------------------
EPS EPS
Earnings Fully Diluted Earnings Fully Diluted
----------------------- -----------------------
Net earnings, as
originally reported 19,763 1.42 19,155 1.38
Impact of changes to
interim reporting 1,176 0.09 1,176 0.09
----------------------- -----------------------
Restated earnings
before income taxes 20,939 1.51 20,331 1.47
Income taxes 427 0.03 416 0.03
----------------------- -----------------------
Restated net
earnings 20,512 1.48 19,915 1.44
-------- --------
-------- --------
Impact of change to
new (treasury) method 0.05 0.05
------------- -------------
Fully diluted EPS,
new method 1.53 1.49
------------- -------------
------------- -------------
Weighted average shares
- old method 14,123,284 14,075,398
Weighted average share
- new method 13,396,693 13,437,737
Quarter 3 Quarter 4
----------------------- -----------------------
EPS EPS
Earnings Fully Diluted Earnings Fully Diluted
----------------------- -----------------------
Net earnings, as
originally reported 13,493 1.00 14,639 1.08
Impact of changes to
interim reporting 402 0.03 (2,754) (0.21)
----------------------- -----------------------
Restated earnings
before income taxes 13,895 1.03 11,885 0.87
Income taxes 141 0.01 (984) (0.07)
----------------------- -----------------------
Restated net
earnings 13,754 1.02 12,869 0.94
-------- --------
-------- --------
Impact of change to
new (treasury) method 0.01 0.00
------------- -------------
Fully diluted EPS,
new method 1.03 0.94
------------- -------------
------------- -------------
Weighted average shares
- old method 13,927,338 13,807,175
Weighted average share
- new method 13,291,884 13,296,764
Total
-----------------------
EPS
Earnings Fully Diluted
-----------------------
Net earnings, as
originally reported 67,050 4.88
Impact of changes to
interim reporting 0 0.00
-----------------------
Restated earnings
before income taxes 67,050 4.88
Income taxes 0 (0.00)
-----------------------
Restated net
earnings 67,050 4.88
--------
--------
Impact of change to
new (treasury) method 0.11
-------------
Fully diluted EPS,
new method 4.99
-------------
-------------
Weighted average shares
- old method 13,966,966
Weighted average share
- new method 13,448,691