Annual Management’s Discussion and Analysis Prepared as of November 29, 2023

CASTING AND EXTRUSION

AUTOMOTIVE SOLUTIONS

CASTING AND EXTRUSION

AUTOMOTIVE SOLUTIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related notes of Exco Technologies Limited (“Exco”, or “Company”) for the year ended September 30, 2023. This MD&A has been prepared as of November 29, 2023.

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.com or through the SEDAR website at www.sedarplus.ca.

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”). A reconciliation to these non-GAAP measures is provided within this MD&A. 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 represent management’s estimate of the investment in fixed assets that is required for the Company to continue operating at current capacity levels. Given the Company’s elevated planned capital spending on fixed assets for growth initiatives (including additional Greenfield locations, energy efficient heat treatment equipment and increased capacity) through the near term, the Company has modified its calculation of Free Cash Flow to include Maintenance Fixed Assets and not total fixed asset purchases. This change is meant to enable investors to better gauge the amount of generated cash flow that is available for these investments as well as acquisitions and/or returns to shareholders in the form of dividends or share buyback programs. 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.

CAUTIONARY STATEMENT

Information in this document relating to: projected light vehicle sales and production, original equipment manufacturer’s (OEM) capital investment levels, the rate and intensity of OEM development of all-electric or hybrid powertrain systems, the level of order backlog of the Company’s business units, contribution of our start-up business units, contribution of awarded programs yet to be launched, margin performance, financial performance of acquisitions and operating efficiencies are forward-looking statements. We use words such as "anticipate", "may", "will", "should", "expect", "believe", "estimate", “5-year target” and similar expressions to identify forward-looking information and statements especially with respect to growth, outlook and financial performance of the Company's business units, contribution of our start-up business units, contribution of awarded programs yet to be launched, margin performance, financial performance of acquisitions, liquidity, operating efficiencies, improvements in, expansion of and/or guidance or outlook as to future revenue, sales, production sales, margin, earnings, earnings per share, including the revised outlook for 2026.

Readers are cautioned not to place undue reliance on forward-looking statements found mainly in the MD&A section but also elsewhere throughout this document. These forward-looking statements are based on our plans, intentions or expectations which are based on, among other things, the impact of the global semiconductor shortage on automotive production volumes, the global economic recovery from the COVID-19 pandemic and containment of any future or similar outbreak of epidemic, pandemic, or contagious diseases that may emerge in the human population, which may have a material effect on how we and our customers operate our businesses and the duration and extent to which this

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will impact our future operating results, the impacts of the Russian invasion of Ukraine or the Israeli/Palestine conflicts on the global financial, energy and automotive markets, including increased supply chain risks, assumptions about the number of automobiles produced in North America and Europe, production mix between passenger cars and trucks, the number of extrusion dies required in North America, South America, and Europe, the rate of economic growth in North America, Europe and emerging market countries, investment by OEMs in drivetrain architecture and other initiatives intended to reduce fuel consumption and/or the weight of automobiles in response to rising climate risks, raw material prices, supply disruptions, economic conditions, inflation, currency fluctuations, trade restrictions, energy rationing in Europe, our ability to integrate acquisitions, our ability to continue increasing market share, or launch of new programs and the rate at which our current and future greenfield operations in Mexico and Morocco achieve sustained profitability, plans to address cyber security and its expected impact on Exco’s operations. These forward-looking statements include known and unknown risks, uncertainties, assumptions and other factors which may cause actual results or achievements to be materially different from those expressed or implied. For a more extensive discussion of Exco’s risks and uncertainties see the ‘Risks and Uncertainties’ section in this Annual Report and other reports and securities filings made by the Company. This information is available at www.sedarplus.ca.

While Exco believes that the expectations expressed by such forward-looking statements are reasonable, we cannot assure that they will be correct. In evaluating forward-looking information and statements, readers should carefully consider the various factors which could cause actual results or events to differ materially from those indicated in the forward-looking information and statements. Readers are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the Company will update its disclosure upon publication of each fiscal quarter’s financial results and otherwise disclaims any obligations to update publicly or otherwise revise any such factors or any of the forward-looking information or statements contained herein to reflect subsequent information, events or developments, changes in risk factors or otherwise.

MANAGEMENT’S DISCUSSION AND ANALYSIS

CORE BUSINESSES

Exco is a global designer, developer and manufacturer of dies, moulds, components and assemblies, and consumable equipment for the die-cast, extrusion and automotive industries. The Company reports in two operating segments.

The Casting and Extrusion segment designs, develops and manufactures tooling and consumable parts for both aluminum die-casting and aluminum extrusion machines. Operations are based in North America, South America, Europe, Thailand and Morocco and serve automotive and industrial markets around the world. Exco is a leader in most of its markets which principally consist of North America for die-cast tooling, Europe, North, Central and South America for extrusion tooling and globally for consumable tooling parts and related equipment. Across its markets, Exco is focused on further entrenching itself by reducing lead times and manufacturing costs through design and process enhancements. Major capital projects have been implemented in recent years to increase capacity, reduce lead times, further improve quality and reduce costs while pushing the envelope on innovation. Exco’s expansion into 3D printing tooling components in recent years is a good example of this. The Company is now a clear industry leader in the design, engineering and manufacturing of 3D printed tooling components globally. In the machine consumables market, Exco is leveraging its long tradition as a reliable, high-quality supplier of consumable components for the injection system of die-cast machines and aluminum extrusion presses by evaluating, coordinating and ultimately maximizing customers’ overall equipment performance and longevity.

The Automotive Solutions segment designs, develops and manufactures automotive interior trim components and assemblies primarily for passenger and light truck vehicles. The Polytech and Polydesign businesses manufacture synthetic net and other cargo restraint products, injection-moulded components, shift/ brake boots, related interior trim

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components and assemblies. Polydesign is also a manufacturer and/or finisher of injection moulded interior trim and instrument panel components, sun visors, seat covers, head rests and other cut and sew products. Neocon is a supplier of soft plastic trunk trays, rigid plastic trunk organizer systems, floor mats and bumper covers. AFX Industries is a tier 2 supplier of leather and leather-like interior trim components to the North American automotive market. AFX also supplies die cut leather sets for seating and many other interior trim applications as well as injection-molded, hand-sewn, machine-sewn and hand-wrapped interior trim components of all sorts. Automotive Solutions manufacturing facilities are located in Canada, the United States, Mexico, and Morocco supplying the automotive markets in North America, Europe and to a lesser extent, Asia.

VISION AND STRATEGY

The Company’s vision is “to be the benchmark for innovation, efficiency and quality in the industries we serve.” The Company’s mission is to “enhance the look and functionality of passenger vehicles and tool up light metal industries for superior performance.” Exco has pursued several key strategies to achieve sustainable revenue and earnings growth. These include: (1) strengthening our leadership and competitive position in our chosen markets through automation and technology, (2) minimizing our cost structure, (3) maintaining the bulk of our productive capacity in lower-cost jurisdictions and in close proximity to our customers’ operations, (4) diversifying our revenue base with new products and services that leverage our competitive strengths, and (5) capitalizing on organic and inorganic growth opportunities in both our existing and select developing markets – see “Marketplace opportunities and efficiency initiatives”, below.

Exco was founded on a commitment to excellence and a culture of entrepreneurship and dedication to ethical business practices. We encourage continuance of these traits by providing incentives for our managers to grow their business and giving our employees the latitude to push the envelope on innovation while adhering to our Code of Conduct.

MARKETPLACE OPPORTUNITIES AND EFFICIENCY INITIATIVES

In the automotive sector, Original Equipment Manufacturers (OEMs) continue to move towards electric or hybrid vehicles and to reduce vehicle weight in all passenger vehicles to improve fuel efficiency. Exco’s products form an integral part of this industry transformation.

Lightweight metals such as aluminum are increasingly displacing steel in order to make conventional (internal combustion engine) vehicles more environmentally friendly. As well, electric and hybrid vehicles make extensive use of aluminum components to reduce weight and therefore maximize battery range and performance. Exco’s Casting and Extrusion segment, which comprises 47% of total revenues, is especially well positioned to benefit from this ongoing transition.

More recently, die-cast aluminum components and associated tooling has been increasing significantly in both size and complexity. Tesla has pushed the envelope in this regard, using die-casting machines that are much larger than those used previously. This enables Tesla to cast entire subframes of the vehicle rather than assembling numerous stamped metal components in the body shop, creating significant manufacturing efficiency gains. Other traditional OEMs and tier foundries are following Tesla’s lead in using these larger die-cast machines (giga presses), and Exco expects there will be significant growth in this part of the market over the next several years.” Accordingly, we are making sizeable additional investments in our people, equipment and processes to remain a leading supplier in this market.

Our customers are also increasingly focused on improving their own productivity and our products are actively helping in this regard. For example, we design and incorporate 3D printed components into our moulds which greatly enhances

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the overall quality and performance of the die-cast process while reducing the use of steel, energy and transportation costs. Similarly, Castool has evolved their products and systems to provide less expensive, longer lasting, more energy efficient and safer products. The group focuses on making components and accessories that will increase the customers’ tooling life while ensuring less scrap and energy consumption. In doing so, we promote a higher energy and material efficiency in the value chain of production, while better service is being delivered to the end-consumer.

Our Automotive Solutions group, which manufactures various products for the interior passenger compartments and trunks of vehicles, is also a contributor to vehicle lightweighting trends. Exco’s Automotive Solutions segment typically makes products that are lighter in weight than competing products. For example, Neocon offers lightweight material options that are an ideal fit for vehicles regardless of powertrain. By incorporating a foaming additive during the extrusion process and creating air voids in the base layer, Neocon created a thermoplastic rubber (TPR) product that is 45% lighter than a traditional thermoplastic elastomer (TPE) injection molded alternative.

Exco is committed to running its facilities as efficiently as possible, delivering the same innovative, high-quality products to our customers with less energy, fewer materials and lower waste. In this regard, several of our businesses have achieved ISO 14001 certification, the international standard that specifies requirements for an effective environmental management system. More broadly, we remain focused on employing lean manufacturing principles to reduce and eliminate waste while also making substantial investments in new, energy efficient equipment. As well, our multi-plant footprint with standardized manufacturing processes provides superior capacity utilization and gives proximity to market which reduces carbon emissions through reduced transportation requirements. Several other innovative technological advancements and initiatives are being employed throughout the organization to help achieve our goals.

FISCAL 2023 OVERVIEW

Sales, Earnings and Strategic Investments

Fiscal 2023 consolidated sales were up 26% compared to the prior year driven by a 24% increase in the Casting and Extrusion segment and a 29% increase in the Automotive Solutions segment. Casting and Extrusion segment sales increased on the strength of demand for die-cast products (Large Mould and Castool) and a full-year sales inclusion from Halex compared to a 5-month sales inclusion in fiscal 2022. Automotive Solutions segment sales growth reflects the impact of new product launches, the full-year impact of products launched in fiscal 2022, and the improvement of global production volumes as the impact of semi-conductor shortages reduced, dealer inventories continue to be replenished and pent-up consumer demand is satisfied.

Strong sales were also supported by the Company’s various strategic growth initiatives. These initiatives are primarily driven by the increased adoption of electric and hybrid vehicles, the lightweighting of all passenger motor vehicles generally, the broader global environmental sustainability movement and the adoption of advanced die-cast and extrusion tooling to meet these global changes to manufacturing.

Earnings per share were $0.68 in fiscal 2023 compared to $0.49 in fiscal 2022 – a 39% increase. Pre-tax profits were up in both segments resulting from higher sales, more predictable volumes, improved labour and production efficiencies, and a focus on higher margin products. Higher pre-tax profits were partially offset by ongoing start-up losses at new operations, disruption to existing operations associated with installing new equipment and upgrading capabilities, and inflationary pressure on wages and materials generally.

During the year, the Company made significant investments in capital assets ($37.8 million), non-cash working capital ($9.1 million), human resources and training, and other resources to satisfy this growth. The impact of these

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investments – as well as sizeable start-up losses at newer operations – is suppressing near term profitability. But Exco expects these investments will provide meaningful profits over a multi-year horizon as operations season and increased scale is achieved. Below is the status of our key growth initiatives:

• Castool Morocco Greenfield Facility – This new plant officially opened in November 2021 and positions Castool to better penetrate the European die cast and extrusion consumable tooling markets. The plant is ramping up slowly to ensure top quality and showing good traction in markets that have sizeable opportunities.

• Castool Heat Treatment Operations (located within our existing Newmarket Large Mould facility) – Initial operations began in the Spring of 2022 and the last of the major equipment was installed in April 2023. This facility provides unmatched heat treating capabilities, particularly for larger tooling components, and enables the vertical integration for both Castool and Large Mould products. Additional benefits of this operation include: eliminating shipping and scheduling conflicts with third party suppliers; shorter lead times; increased quality control; and a significant reduction in the Company’s environmental footprint.

• Castool Mexico Greenfield Facility – The building has been completed and equipment installation continues. Opening ceremonies for this facility were in October 2023. This facility will increase manufacturing capacity and position Castool to better penetrate markets in Latin America and the southern US.

• Large Mould Group Equipment Additions – Include expanded additive manufacturing (3D printing) capacity, increased crane capabilities to 100 tons, and added several medium and large 5-axis milling machines to capture growing demand in the “giga” die-cast market segment. All equipment is now installed and operational.

• Extrusion Group Heat Treatment – Added new heat treatment equipment to our extrusion plant in Mexico to eliminate outsourcing, increased heat treat capacity in our Texas plant, and replaced equipment in Markham with new energy efficient heat treat equipment. All equipment is now operational.

• Automotive Solutions Group – Expanded the Polytech and Neocon facilities (combined 40,000 square feet) to meet growing demand from significant program awards. The last of the equipment became operational in the second quarter of fiscal 2023.

• Halex acquisition completed May 2, 2022 - Halex is the second largest manufacturer of aluminum extrusion dies in Europe and the continent’s leading supplier of complex extrusion dies and complements Exco’s existing North and South American extrusion die operations. The acquisition provides Exco with well-established and highquality operations, more extensive opportunities to better support our global customers and grow in new markets. Work continues to integrate Halex into the Extrusion Group operations and realize synergies from the sharing of best practices.

Outlook

In late fiscal 2021, Exco announced it was targeting a compounded average annual growth rate (excluding acquisitions) of approximately 10% for revenues and slightly higher levels for EBITDA and Net Income through fiscal 2026, which was anticipated to produce approximately $750 million in annual Revenue, $120 million in annual EBITDA and an annual EPS of roughly $1.90 by the end of this timeframe. Exco has made significant progress towards achieving these targets since they were announced and continues to believe its Revenue and EBITDA targets remain obtainable. However, Exco revised its EPS target lower – to approximately $1.50 – to reflect the significant rise in interest rates as well as elevated levels of depreciation due to higher than planned capital expenditures associated with future growth initiatives. These Revenue, EBITDA and revised EPS targets are expected to be achieved through the launch of new programs, general market growth, and also market share gains consistent with the Company’s operating history. Capital expenditures are expected to be approximately $48 million for fiscal 2024.

Despite current macro-economic challenges, including tightening monetary conditions and strike-related production shut-downs in some North American OEM plants, the overall outlook is very favorable across Exco’s segments into the medium term. Consumer demand for automotive vehicles remains robust in most markets, despite supply

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constraints by strike-related activity in the US, a worldwide shortage of semiconductor chips and, to a lesser extent, availability of other raw materials, components and labour. Dealer inventory levels have been improving, but remain below historical norms, while average transaction prices for both new and used vehicles are near record highs and the average age of the broader fleet has continued to increase to an all-time high. This bodes well for higher levels of future vehicle production and the sales opportunity of Exco’s various automotive components and accessories as supply chains normalize. In addition, OEM’s are increasingly looking to the sale of higher margin accessory products as a means to enhance their own levels of profitability. Exco’s Automotive Solutions segment derives a significant amount of activity from such products and is a leader in the prototyping, development and marketing of the same. Moreover, the rapid movement towards an electrified and hybrid fleet for both passenger and commercial vehicles is enticing new market entrants into the automotive market while causing traditional OEM incumbents to further differentiate their product offerings, all of which is driving above average opportunities for Exco.

With respect to Exco’s Casting and Extrusion segment, the intensifying global focus on environmental sustainability has created significant growth drivers that are expected to persist through at least the next decade. Automotive OEMs are utilizing light-weight metals such as aluminum, in particular, to reduce vehicle weight and reduce carbon dioxide emissions. This trend is evident regardless of powertrain design - whether internal combustion engines, electric vehicles or hybrids. As well, a renewed focus on the efficiency of OEMs in their own manufacturing process is creating higher demand for advanced tooling that can enhance their profitability and sustainability goals. Certain OEM manufacturers have begun utilizing much larger die cast machines to cast entire vehicle sub-frames using aluminumbased alloy rather than stamping, welding, and assembling separate pieces of ferrous metal. Exco is in discussions with several traditional OEMs and their tier providers who appear likely to follow this trend. Exco is positioning its operations to capitalize on these changes accordingly. Beyond the automotive industry, Exco’s extrusion tooling supports diverse industrial end markets which are also seeing increased demand for aluminum driven by environmental trends, including energy efficient buildings, solar panels, etc.

On the cost side, inflationary pressures have intensified post COVID while prompt availability of various input materials, components and labour has become more challenging, though the intensity of these dynamics have generally moderated in fiscal 2023. We are offsetting these dynamics through various efficiency initiatives and taking pricing action where possible although there is typically several quarters of lag before the counter measures yield results.

The Russian invasion of Ukraine and the Israeli/Palestine conflict have added additional uncertainty to the global economy. And while Exco has essentially no direct exposure to these countries, Ukraine does feed into the European automotive market and Europe has traditionally depended on Russia for its energy needs. Similarly, the conflict in the Middle East creates the potential for a renewed rise in the price of oil and other commodities and could weigh on consumer sentiment.

Exco itself is also looking inwards with respect to ESG and sustainability trends to ensure its operations are sustainable. We are investing significant capital to improve the efficiency and capacity of our operations while lowering our carbon footprint. Our Sustainability Report is available on our corporate website at: www.excocorp.com/leadership/sustainability/.

RESULTS

Consolidated Results - Sales

Annual sales totalled $619.3 million compared to $489.9 million last year – an increase of $129.4 million or 26%. The increase reflects twelve months sales from Halex, strong demand for our die-cast products (Large Mould and Castool) and higher sales in the Automotive Solutions segment as automotive production volumes continued to

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increase and program launches generated higher content per vehicle for the Company. The US dollar averaged 5% higher ($1.35 versus $1.28) against the Canadian dollar over the year increasing sales by $22.1 million. The Euro averaged 4% higher ($1.44 versus $1.38) against the Canadian dollar over the year increasing sales by $5.9 million. Excluding the impact of foreign exchange gains, consolidated sales increased $101.4 million or 21%.

Selected Annual Information

The following table sets out selected financial data relating to the Company’s years ended September 30, 2023 and 2022. This financial data should be read in conjunction with the Company’s audited consolidated financial statements for these years:

Segment Sales

● Automotive Solutions Segment

Sales in this segment were $327.1 million – an increase of $73.2 million or 29% from the prior year. The net effect of exchange rate changes (Euro, US, and Canadian dollar) increased sales $15.6 million compared to the prior year. This strong level of organic sales increase was driven by the continued ramp up of newer programs, higher vehicle production volumes in North America and Europe, select pricing actions to compensate for inflationary pressures as well as favorable vehicle and product mix. The United Autoworkers Union’s (“UAW”) strike action, which began in mid September, had virtually no impact to the segment’s sales for fiscal 2023. This is due to the escalating strike methodology used by the UAW whereby limited OEM locations were impacted. Prior to the strike, there remained consistent customer demand for new vehicles and dealer inventory levels continued to be replenished. While the semiconductor chip shortages and other supply chain constraints continue to improve, industry growth may be tempered by recent strike actions, rising interest rates and emerging indicators of a global recession.

During the year, overall industry vehicle production volumes increased by roughly 8% in North America and Europe on a combined basis. Overall the Automotive Solutions segment’s 23% increase in sales (excluding foreign exchange movements) was much stronger than the industry due to sales mix and new program launches, representing sizeable growth in content per vehicle. The segment’s four businesses continue to focus their efforts on launching substantial programs, quoting significant new opportunities on all vehicle types (EV, hybrid and ICE) from both tradition OEMs and new market entrants, further broadening customer diversification and targeting higher margin activity. Management sees significant opportunity for future growth supported by recent program wins and quoting activity for new programs in both North America and Europe and also continues to focus on pricing to protect margins. We expect the impact of the UAW strike in Q1 fiscal 2024 will be muted and we believe there is ample opportunity to achieve our targeted growth objectives.

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• Casting and Extrusion Segment

Sales in this segment were $292.2 million – an increase of $56.2 million or 24% from the prior year. Excluding the impact of foreign exchange, segment sales increased $43.9 million or 19% compared to fiscal 2022. The full year impact of the Halex acquisition contributed $33.1 million and the launch of Castool 90 (Morocco) provided incremental growth compared to fiscal 2022. In the die-cast market, which primarily serves the automotive industry, demand for new moulds, consumable tooling (shot sleeves, rods, rings, tips, etc.), rebuild work and additive printed tooling has continued to improve strongly as industry vehicle production recovers and new electric vehicles and more efficient internal combustion engine/transmission platforms are launched. Also, customer inventory levels increased

as expectations for vehicle production volumes improve. Our die-cast products are highly innovative and clearly gaining market share, particularly for tooling that is larger and more complex, which is the fastest growing portion of the die-cast market. Sales in the year were also aided by price increases, which were implemented to recover margins eroded by higher input costs. Quoting activity within the die-cast end market remains extremely robust while our backlog levels are at record highs, which is expected to bode well for sales into fiscal 2024.

Demand for our consumable extrusion tooling (i.e. dies, dummy blocks, stems, etc.) and associated capital equipment (die ovens, containers, etc.) remained relatively firm as the ultimate end markets for these products are extremely diverse and the application for extrusions in the automotive market is seeing robust growth. As well, Exco benefited from ongoing market share gains and access to new market territories associated with its various growth initiatives. Nonetheless, market demand within certain end markets, such as building and construction softened through the year due to rising interest rates and slowing macroeconomic conditions.

In addition to its capital asset growth agenda, Management remains focused on standardizing manufacturing processes, enhancing engineering depth and centralizing some support functions across its various plants. These initiatives have reduced lead times, enhanced product quality, expanded product breadth, increased capacity, and provided access to new geographies, all of which have supported market share gains.

Cost of Sales

On a consolidated basis, cost of sales totalled $488.7 million – an increase of $96.0 million or 24% from the prior year. Cost of sales as a percentage of sales was 79% compared to 80% in fiscal 2022. Prices for raw materials including petroleum/natural gas-based resins, leather goods, plastic products, and tool grade steel increased due to inflationary and macro economic pressures. The rate of inflation appeared to peak during the year and stabilized at most of the Company’s divisions in the second half. Management took pricing actions through the year such as negotiating price increases and implementing surcharges to partially offset the impact of cost increases. The success of these actions varied based on the type and length of the contract and the extent of the cost increases incurred. Direct labour wage increases were partially offset by manufacturing improvements and strategic fixed asset purchases to improve productivity which enabled direct labour as a percentage of sales to remain constant. Overhead costs increased with higher sales volume and inflationary conditions, including increased indirect wages, benefits, transportation and energy costs. However, as a percentage of sales, overhead costs decreased as the Company successfully improved manufacturing efficiencies at higher volumes.

Selling, General and Administrative Expenses

Selling, general and administrative expense in the current year increased to $56.3 million from $44.4 million last year, an increase of 27%. As a percentage of sales, selling, general and administrative costs remain consistent at 9%. Current year Selling, General and Administrative expenses increased due to higher sales commissions, tradeshows and related travel costs, increased compensation including incentive bonus expenses, 12-months of Halex costs, and

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$1 million of costs associated with second quarter cyber incident for administrative, legal and monitoring costs, which are not expected to recur in future.

Depreciation and Amortization

Consolidated depreciation expense was $27.2 million compared to $21.4 million the prior year. Depreciation expense within the Casting and Extrusion segment totalled $23.1 million in fiscal 2023 versus $18.2 million in fiscal 2022 and depreciation expense within the Automotive Solutions segment totalled $4.0 million versus $3.1 million last year. Amortization expense of $4.7 million in fiscal 2023 increased from $3.9 million from 2022. The carrying value of total intangible assets amounted to $30.6 million as at September 30, 2023 – down from $34.4 million a year ago. There were essentially no additions to intangible assets in fiscal 2023. The Company expects the annual amortization and depreciation expense will total approximately $4.6 million and $30.0 million respectively in fiscal 2024. Depreciation expense is anticipated to increase due to the launch of our Castool facility in Mexico, the full year impact of our Newmarket Heat treatment installation and other capital asset initiatives upgrading equipment across the Company.

Interest

Net interest expense in the current year totalled $8.1 million compared to $2.4 million in fiscal 2022. The increase is due to higher interest rates and the Company drawing on its committed credit facility compared to average cash balances in fiscal 2022. The increased debt is the result of the fiscal 2022 Halex acquisition, the build-up of Castool Mexico, the increased capital asset purchases and increases to the Company’s working capital to support the 26% increase in sales during the year.

Income Taxes

Exco’s effective income tax rate was 23.8% in fiscal 2023 compared to an effective income tax rate of 24.7% in fiscal 2022. The change in income tax rate is due to geographic distribution, foreign tax rate differentials and a shift in the proportion of earnings from jurisdictions with higher tax rates or minimum tax requirements.

Net Income

• Consolidated

The Company reported consolidated net income of $26.7 million or basic and diluted earnings of $0.68 per share in fiscal 2023, compared to consolidated net income of $19.0 million or basic and diluted earnings of $0.49 per share the prior year.

• Automotive Solutions Segment - Pretax profit

The Automotive Solutions segment recorded Pretax profit of $34.9 million for the year compared to $20.9 million last year – an increase of $13.9 million or 67%. The increase in pretax profit is attributable to higher sales, better absorption of overheads, and select pricing actions. This improvement was partially offset by inefficiencies caused by launch costs from new programs throughout the year, erratic OEM vehicle production, as well as higher labour costs and unfavorable foreign exchange rate movements, particularly in Mexico. Industry vehicle production volumes remain below pre-pandemic levels and ongoing supply chain challenges continue to influence production volumes, but these challenges lessened in the year while cost increases related to raw materials, wages, and transportation also moderated. Apart from the impact of the recent UAW strike, management is optimistic that its overall cost structure will return to targeted levels in the future as scheduling and predictability improves with strengthening volumes. Pricing discipline remains a focus and action is being taken on current programs where possible, though there is

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typically a lag of a few quarters before the benefit is realized. As well, new program awards are priced to reflect management’s expectations for higher future costs.

• Casting and Extrusion Segment - Pretax profit

Casting and Extrusion Pretax profit was $15.1 million for the year compared to $12.0 million last year – an increase of $3.1 million or 26%. Increased overhead absorption and production efficiencies due to stronger sales in the diecast market (including new moulds, rebuilds, consumable tooling and additive printed tooling) and improvements at Castool’s new operations in Morocco contributed positively to the results in the year. These positive contributions were moderately offset by a general slowdown in the extrusion die market driven primarily by higher interest rates negatively affecting the building and construction markets. Other offsetting factors were $5.5 million of higher depreciation, start-up costs at Castool’s Mexico facility and Heat Treat operations in Newmarket, as well as higher raw material, energy, freight and labour costs. Pre-tax profit was also impacted by roughly $0.6 million of one-time expenses recorded in the segment due to lost production time in the Large Mould group arising from the January 2023 cyber incident. Management expects to temper many of these costs over the coming quarters through efficiency improvements and pricing action, where possible. Margins will also benefit as newer operations mature and achieve greater scale and as utilization of new equipment that facilitates the manufacturing of large-scale die-cast tooling improves. The higher depreciation relates to the acquisition of Halex and the Company’s investment in new capital that will improve operations and provide access to new geographies to increase our market share. Castool’s new Mexican operation opened in October 2023. This operation is expected to ramp up quickly contributing to increased market share gains in both the die-cast and extrusion tooling markets in Mexico, Latin America and the Southern US. Management remains focused on reducing its overall cost structure and improving manufacturing efficiencies and expects such activities together with its sales efforts to continue improving segment profitability over time.

• Corporate Segment – Pretax loss

Corporate expense in the current year amounted to $7.4 million compared to $5.2 million in the prior year. The year over year increase was primarily driven by foreign exchange gains realized in fiscal 2022, higher incentive bonus and stock option expenses, and $1.0 million of legal and monitoring costs associated with the second quarter cyber incident which are not expected to continue in future years.

EBITDA

EBITDA in the current year amounted to $74.5 million compared to $53.0 million the prior year – an increase of $21.5 million or 41.0%. EBITDA margin increased to 12.0% compared to 10.8% from the prior year. EBITDA in the Casting and Extrusion segment was $39.6 million, which was $8.7 million higher or 28.0% than fiscal 2022. Casting and Extrusion segment EBITDA margin increased to 13.5% from 13.1% in the prior year. The Automotive Solution segment EBITDA was $42.2 million, which was higher by $15.0 million, or 55.0% compared to fiscal 2022. The Automotive Solution segment EBITDA margin increased to 12.9% in fiscal 2023 compared to 10.7% the prior year.

Quarterly Results

The following table sets out financial information for each of the eight fiscal quarters through to the fiscal year ended September 30, 2023:

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Exco typically experiences softer sales and profits in the first and fourth fiscal quarters, which coincides with our customers’ plant shutdowns during the holiday season and summer months. Since June 30, 2022, the quarterly results reflect the purchase of Halex and improvements in automotive production as supply chain disruptions (including global semi-conductor shortages) ease, partially offset by negative impacts from the Russian invasion of the Ukraine. Net income and Earnings per share were negatively impacted by higher depreciation, inflationary pressures, and interest costs associated with the Company’s strategic investments.

Fourth Quarter

In the fourth quarter, consolidated sales were $160.2 million – an increase of $19.7 million or 14% from the prior year. Foreign exchange rate movements increased sales by $4.8 million in the quarter.

The Automotive Solutions segment experienced a 33% increase in sales, or an increase of $21.6 million, to $87.6 million from $66.0 million in the fourth quarter of 2022. Excluding the impact of foreign exchange, segment sales increased $19.2 million, or 30%. Sales increased at all four of the segment’s operations. The sales increase was primarily driven by new program launches and to a lesser extent higher vehicle production volumes. North American vehicle production was up 9% compared to a year ago and European vehicle production was up 6%. During the fourth quarter, there was virtually no impact of the UAW strike action which started in mid September before being resolved by late October. Exco expects a muted impact from these strikes in its first quarter results in F2024. In the midterm, industry growth may be tempered by rising interest rates and emerging indicators of a global recession. Exco will nonetheless benefit from recent and future program launches that are expected to provide ongoing growth in our content per vehicle. Quoting activity remains encouraging and we believe there is ample opportunity to achieve our targeted growth objectives.

The Casting and Extrusion segment recorded sales of $72.6 million in the fourth quarter compared to $74.4 million last year – a decrease of $1.8 million or 2%. Excluding the impact of foreign exchange movements, the segment’s sales were down 6% for the quarter. Demand for our extrusion tooling was lower in the fourth quarter as the impact of higher interest rates and potential for a global recession reduced orders, mainly from the building and construction markets. Demand for extrusion tooling for automotive and sustainable energy markets remains strong and growing, but the building and construction market is the largest driver of extrusion tooling. Management remains focused on standardizing manufacturing processes, enhancing engineering depth and centralizing critical support functions across its various plants. These initiatives have reduced lead times, enhanced product quality, expanded product breadth and

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increased capacity, all of which position the extrusion group favourably in the future. In the die-cast market, which primarily serves the automotive industry, demand and order flow for new moulds, associated consumable tooling (shot sleeves, rods, rings, tips, etc.) and rebuild work continued to pick up 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 with the size and complexity of die-cast tooling continuing to increase. Sales in the quarter were also aided by price increases, which were implemented to protect margins from higher input costs. Also impacting revenue during the quarter was the considerable period over period variance to the recognition of revenue from some of the larger new-build moulds, which have high price points relative to other products in the segment. Quoting activity remains very robust and our backlogs remain at record levels, which is expected to bode well for sales into fiscal 2024.

The Company’s fourth quarter consolidated net income increased to $9.2 million or earnings of $0.24 per share compared to $5.6 million or earnings of $0.14 per share in the same quarter last year. The effective income tax rate was 25% in the current quarter compared 26% in the same quarter last year. The change in income tax rate in the quarter was impacted by geographic distribution and foreign tax rate differentials.

Fourth quarter pre-tax earnings in the Automotive Solutions segment totalled $10.0 million, an increase of $3.5 million or 54% over the same quarter last year. Although production volumes continue to experience some challenges with semiconductor and supply chain constraints, the impact of these factors has reduced considerably. This has allowed all four businesses to benefit from improved efficiencies and absorption of fixed costs to offset the higher raw material and labour costs experienced in recent years. In addition, the stabilized production volumes mean improvements to scheduling and managing labour downtime, fewer expedited shipping and overtime costs experienced by this segment. Apart from UAW strike-related impacts, Management is cautiously optimistic that its cost structures have improved to relatively normal levels such that margins should improve with strengthening and stabilizing volumes.

Fourth quarter pre-tax earnings in the Casting and Extrusion segment totalled $5.3 million, an increase of $2.8 million or 108% over the same quarter last year. The pretax profit improvement is due to improved efficiency in the Extrusion die business, including improvements at Halex and the elimination of fiscal 2022 one-time costs associated with outsourcing due to the extrusion heat treatment implementation. As well, there was improved absorption and efficiencies as Castool’s heat treatment operation ramps up, stabilizing raw material and labour costs, and lower Castool Morocco start up costs. Program pricing and mix has also improved in the Large Mould group as demand has picked up in recent quarters while efficiency initiatives continue to take hold. Offsetting these reduced costs is a $0.5 million increase in depreciation costs associated with the increased capital expenditures and start-up losses at Castool’s new operations in Mexico. Management remains focused on reducing its overall cost structure and improving manufacturing efficiencies and expects such activities together with its sales efforts should lead to improved segment profitability over time.

The Corporate segment in the fourth quarter recorded expenses of $0.8 million compared to $0.1 million last year due to higher compensation expenses in the current quarter and higher foreign exchange gains in fiscal 2022. As a result of the foregoing, consolidated EBITDA in the quarter was $22.9 million (14.3% of sales) compared to $16.5 million (11.8% of sales) last year.

FINANCIAL RESOURCES, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows from Operating Activities

Operating cash flow before net changes in non-cash working capital was $70.2 million in fiscal 2023 compared to $49.7 million in fiscal 2022. The $20.5 million year over year increase was driven by higher net income, interest,

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deferred income tax, depreciation and amortization expenses in fiscal 2023. Net change in non-cash working capital was $12.1 million cash used in fiscal 2023 compared to $26.2 million cash used last year. Cash used for working capital was driven by higher accounts receivable associated with higher fourth quarter sales, increased inventory reflecting the strength of our backlog and ramping up new facilities, partially offset by increases in customer advance payments and income taxes payable. After adjusting for non-cash working capital, Cash provided by operating activities increased to $58.2 million in fiscal 2023 compared to $23.5 million in the prior year.

Cash Flows from Financing Activities

Cash used in financing activities amounted to $21.8 million compared to cash provided by $80.0 million in fiscal 2022. The Company paid $8.1 million in interest, $16.3 million in dividends, partially offset by debt increasing by $2.6 million. The prior year $80.0 million cash provided reflected the $95.0 million increase in long-term debt associated with the Company’s purchase of Halex and strategic capital asset purchases, offset by dividends, share buybacks and interest payments.

Exco enters into lease arrangements from time to time. Exco owns 20 of its 21 manufacturing facilities and materially all of its production equipment. The Company also leases sales and support centers in Troy and Port Huron, Michigan, a warehouse in Brownsville, Texas, and the operating facility in Weissenburg Germany. The following table summarizes the Company’s significant short-term and long-term commitments on an undiscounted basis:

∗ Exco leases facilities, automotive, material handling vehicles and other miscellaneous office equipment. It is not Exco’s policy to purchase these assets at the expiry of their terms but occasionally it may purchase the assets at the end of the lease terms when the purchase options are favorable. Exco does not expect any material liquidity or capital resource impacts from these possible purchases.

Cash Flows from Investing Activities - Capital Expenditures

Cash used in investing activities in the current year totalled $37.8 million compared to $110.4 million last year. The decrease reflects the $39.0 million investment in capital assets in fiscal 2023 compared to $53.5 million in the prior year and the Company’s $57.6 million purchase of Halex in fiscal 2022. The decrease in capital asset purchases reflect the completion of our Castool Mexico facility, the heat treatment facility in Newmarket, and various other capital improvement projects across the Company to support growth initiatives. Many of these initiatives began in fiscal 2022 and continued into fiscal 2023.

In fiscal 2024, Exco plans to invest approximately $48.5 million in capital expenditures of which roughly $24.4 million is for growth capital expenditures and $24.1 million is for Maintenance Fixed Asset Additions. Major initiatives in fiscal 2024 include replacing the inefficient existing heat treatment furnaces with high efficiency vacuum equipment in our Michigan facility, new additive equipment within our Large Mould business to meet customer demand, additional multi-axis milling equipment in several locations and new equipment in our Automotive Solutions segment to support anticipated sales growth. Included in the 2024 estimate is $7.2 million in carryforward projects including

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completion of the heat treat installations in Newmarket, new machinery for Halex in Europe, and equipment for our Castool facility in Mexico.

Financial Position and Cash Balance

The Company’s conservative financial policies have served it well throughout the years and have allowed it to take advantage of acquisition opportunities and make strategic organic growth investments proactively to meet market changes.

Exco’s net debt was $94.2 million on September 30, 2023 compared to $90.3 million the prior year. The Company generated Free Cash Flow of $35.4 million, paid dividends of $16.3 million and made growth capital expenditures of $23.1 million resulting in a modest increase in net debt of $3.9 million.

As at September 30, 2023, Exco retained access to $43.0 million of its $153 million committed banking facility. Pursuant to the terms of the credit facility, Exco is required to maintain compliance with certain financial covenants. The Company was in compliance with these covenants as of September 30, 2023.

Non-IFRS Measures

The following tables reconcile EBITDA, EBITDA margin and Free Cash Flow for the periods to the Company’s IRFS measures, cash provided by operating activities to free cash flow, and segment EBITDA disclosures:

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Outstanding Share Capital

As of September 30, 2023, the Company had 38,912,464 common shares issued and outstanding and stock options outstanding to purchase up to 1,106,500 common shares at exercise prices ranging from $7.97 to $9.87 per share.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies”, to the consolidated financial statements included in this Report. The preparation of Exco’s Consolidated financial statements in conformity with International Financial Reporting Standards requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amount of revenue and expenses during the reporting period.

Management estimates and expenses the fair value of stock-based compensation. This fair value (as determined by the Black-Scholes option pricing model) is charged to earnings over the remaining vesting period. The Company believes that the estimate of stock-based compensation is a “critical accounting estimate” because management is required to make significant forward-looking assumptions including expected stock volatility, the change in expected dividend yields and the expected option term. Currently the compensation expense is recorded in the selling, general and administration category in the consolidated statements of income and comprehensive income.

We evaluate property, plant and equipment and other long-lived assets for impairment whenever indicators of impairment exist. Indicators of impairment include reductions in profitability, budget shortfalls, prolonged operating losses or a decision to dispose of, or otherwise change the use of, an existing fixed or other long-lived asset.

We believe that accounting estimates related to goodwill, property, plant and equipment and other long-lived asset impairment assessments are “critical accounting estimates” because: (i) they are subject to a significant measurement uncertainty and are susceptible to changes as management is required to make forward-looking assumptions regarding the impact of improvement plans on current operations, in-sourcing and other new business opportunities, program price and cost assumptions on current and future business, the timing of new program launches and future forecasted production volumes; and (ii) any resulting impairment loss could have a material impact on our consolidated net income and on the amount of assets reported on our consolidated statements of financial position.

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RECENT ACCOUNTING CHANGES AND EFFECTIVE DATES

There were no accounting policy changes during the year ended September 30, 2023 that have a material impact to the Company’s reporting. Refer to Note 2 to the consolidated financial statements for information pertaining to the accounting changes and issued accounting pronouncements effective in future years.

DISCLOSURE CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer, together with other members of management, after evaluating the effectiveness of the Company’s disclosure controls and procedures, have concluded that the Company’s disclosure controls and procedures are adequate and effective as of September 30, 2023 in ensuring that material information relating to the Company and its consolidated subsidiaries would have been known to them.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the most recent period, there have been no changes in the Company’s existing policies and procedures and other processes that comprise its internal control over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Chief Executive Officer and Chief Financial Officer, together with other members of management, have designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of the Company’s financial reporting and its compliance with the integrated framework issued by the Committee of Sponsoring Organization of the Treadway Commission. The CEO and the CFO have supervised management in the evaluation of the design and effectiveness of the Company’s internal controls over financial reporting as at September 30, 2023 and believe the design and effectiveness of the internal controls to be effective.

RISKS AND UNCERTAINTIES

As automotive production has become more reliant on global suppliers for components, the impact that critical components can have on global vehicle production volumes can disrupt worldwide production. In recent years the semiconductor chip shortage disrupted every OEM and automotive supplier to various degrees. Although the global semiconductor supply chain has improved in fiscal 2023, the industry remains vulnerable that other materials or parts can negatively impact global vehicle production. The impact to the industry may include: unplanned shutdowns of production lines and/or plants; reductions in their vehicle production plans; and changes to their product mix. These responses can result in a number of consequences at Exco such as: lower sales; production inefficiencies due to production lines being stopped/restarted unexpectedly based on OEMs' production priorities; premium freight costs to expedite shipments; and/or other unrecoverable costs. Furthermore, Tier 1 and 2 suppliers such as Exco may face price increases from suppliers. Over time we expect to recover some of the lost production volumes, however, it remains unclear what the next critical component will be and difficult to predict the full impact of these items.

Geopolitical risk and international conflict (such as the conflicts between Russia and Ukraine or Israeli and Palestine) have the potential to exacerbate a number of risks described elsewhere in these Risk Factors, including: disruption of vehicle production and supply chains; worsening the current critical supply chain components (like semiconductor chips since Russia and Ukraine are global suppliers of neon gas and palladium used in chip production); exacerbating energy shortages and driving energy prices higher (particularly oil and natural gas); constraining the supply of aluminum, palladium or other commodity metals required in automotive production; and increased cybersecurity threats. In response to these conflicts, a number of countries, including the U.S. and European Union member states,

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have taken actions such as: imposition of sanctions on regions and leaders and other individuals; restrictions on banking and international trade; and other measures, with further restrictions likely as these conflicts continue. Exco does not have manufacturing operations in these regions. However, Exco’s global footprint creates the opportunity that our operations may be impacted by these sanctions or other side effects of these conflicts.

There is a greater risk of inflationary price increases as economic activity rebounds in our primary production markets and supply chains. In recent years, we witnessed increasing commodity costs for steel, aluminum and resin. Tight labour markets, low unemployment rates, and increasing collective bargaining pressures may drive wage pressures up which will increase the risk for inflationary pressure in certain markets. These trends are expected to continue in coming quarters and could expand to other areas. In some cases inputs may not be available in a timely manner. The inability to offset inflationary price increases through continuous improvement actions, price increases or adjustments on our own products or otherwise, could have an adverse effect on our earnings.

Global pandemics caused by viruses or other diseases (such as COVID-19) create continued risk of further disruptions to the automotive and manufacturing industry, including additional mandatory stay-at-home orders or other restrictions. These orders may: restrict consumers' ability to purchase vehicles; restrict production; cause elevated employee absenteeism; and lead to supply chain disruptions. Over the medium- to long-term, the pandemic may result in societal changes that impact the automotive industry, positively or negatively, including as a result of expanded work-from-home practices that reduce consumers' reliance on vehicles; and/or increased reluctance by people to utilize modes of public transit and/or shared mobility.

Exco’s Automotive Solutions segment services automotive component suppliers (and Tier 1 suppliers) around the world. The results of this segment depend on demand for automobiles, the type of automobiles (which demand has been shifting away from passenger cars towards SUV/ CUV’s in North America), the rate at which the electric vehicle is more widely adopted and the level of automobile production. These factors can fluctuate significantly with consumer confidence, general economic conditions, the cost and/or availability of consumer credit and gasoline, as well as, the market share of individual OEM customers. Contraction and slowing GDP growth in emerging economies, North America and Europe may also have a dampening effect on consumer demand for automobiles in these regions.

A significant portion of Exco’s receivables are with automotive customers. These customers have varying degrees of financial strength which could ultimately impact the collectability of the respective receivable. The majority of these receivables are with U.S. entities that can avail themselves of Chapter 11 protection from creditors in certain circumstances and avoid payment of the Company’s receivables that are over 20 days from the date of the Chapter 11 filing. Exco’s receivables may also be with highly leveraged customers that may have recently merged or chosen to leverage their balance sheet for tax purposes or otherwise increase their investment yield. Doing business with such customers typically increases the risk of default and filing for bankruptcy protection. The Company uses its best efforts to collect accounts receivable under 60 days but in some cases the terms may be notably longer and often in other currencies thereby requiring Exco to bear the exchange rate risk. The Company often has the benefit of statutory or common law liens on its products, however, it is not uncommon for significant receivables to be outstanding for considerable periods, particularly in the large mould business.

In some cases, OEMs can decide to design the Company’s products out of the automobile (“de-contented”) or reduce the trim level on which the Company’s products are installed for either aesthetic, cost or product redesign reasons. While Exco believes its focus on evolving from component supplier to a designer and integrator of small assemblies and sub-assemblies used in automotive and trunk interiors reduces the risk of de-contenting and trimming down decisions, some of Automotive Solutions products are not critical components and may still be de-contented.

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OEMs or their suppliers may have excess production capacity or collective agreements which preclude efficient capacity reduction during times of declining sales. In these cases, OEMs and/or their suppliers may choose to fill their excess capacity by taking production from their suppliers and manufacturing the parts themselves. This process of ‘insourcing’ may have the impact of reducing the amount of business available to suppliers such as Exco.

Exco has a significant number of employees worldwide and accordingly availability of labour is critical and wages are a major manufacturing input cost. In Mexico particularly, where Exco has approximately half its employees at five production facilities, all of which are represented by national labor unions, real wage increases may materially impact the Company’s financial performance.

Exco sells to its automotive customers pursuant to purchase orders which typically sets out price per unit but not volumes or fixed terms. These purchase orders may be terminated at any time with limited recourse for compensation or damages and pricing is typically adjusted downward from time to time in the form of ‘cost downs’. Termination of purchase orders and ‘cost downs’ may impact Exco’s margin and overall earnings if not contemporaneously offset by new business at better margin or cost reductions. Furthermore, in any given year, any number of programs will be expiring. While Exco is constantly quoting on replacement programs or new programs, there is no assurance that these new programs will be awarded or that if awarded, the pricing and margin will be comparable to those of programs ending.

The Casting and Extrusion segment is a capital goods business. Interest rates, exchange rates, corporate capital spending, the general economic climate, business confidence and the financial strength of our customers affect the demand for Exco’s dies, moulds and consumable parts for die-cast and extrusion machines. Abrupt changes in these factors often bring about dramatic changes in demand and pricing. Exco believes that its broad product line, geographic diversification and leadership position in its niche markets mitigate this risk.

Exco is a global manufacturer which has organized its global production and logistics footprint based on, among other things, the extent of duties/levies imposed on the import/export of our products and raw material inputs. Generally, governments have been encouraging greater trade and more liberal access to their markets by reducing or eliminating tariffs. This has benefited Exco over the years. Governments have postured with a more protectionist tone. Furthermore, USA/China trade negotiations have taken longer and appear more contentious than originally expected and are currently ongoing. If governments pursue protectionist trade practises with respect to automotive components or their raw materials or subassemblies, Exco may be prejudiced.

Exco has made six acquisitions in the last 13 years (Allper AG, Exco Colombia, Extrusion Texas, Automotive Leather Company, AFX Industries and Halex) and may make others in the future. Acquisitions inherently involve risk. While Exco has concluded many acquisitions that have been very successful, there have also been disappointing acquisitions which have adversely impacted earnings. Integration of acquired companies may not be effective or timely especially with respect to operations in countries where Exco has not previously done business.

Exco’s Canadian operations negotiate sales contracts with customers in both Canadian and U.S. dollars and Euro. We also purchase, where we can, raw material in these currencies. U.S. dollar and Euro purchases provide a natural partial hedge against U.S. dollar and Euro sales of Exco’s Canadian operations. As for the remaining foreign exchange exposure in these currencies not naturally hedged, Exco does not enter into forward contracts but prefers to incur U.S. dollar or Euro debt, from time to time as appropriate. Despite these measures, Exco is structurally a net seller of U.S. dollars and, to a lesser extent Euro, with increasing adverse financial impact as the U.S. dollar and Euro decline in value against the Canadian dollar. While Exco has made considerable progress in reducing its reliance on U.S. dollar sales, markets which Exco currently services may experience rising competition from imports which have become more competitive as a result of foreign exchange movements.

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Exco’s U.S. operations earn profits in U.S. dollars while our Canadian operations are exposed to fluctuations in the value of the Canadian dollar relative to the U.S. dollar on U.S. dollar sales less purchases. For fiscal 2024, it is estimated that Exco’s total corresponding U.S. dollar foreign exchange risk exposure before tax will amount to approximately US$80.1 million. Therefore, if the Canadian dollar were to strengthen or weaken by $0.01 in fiscal 2024 from a baseline level of $1.30 USD/CAD, it is estimated that pre-tax profit would change by about $978 thousand or about $763 thousand after tax. These estimates are based on historical norms and may be materially different in 2024 if customers deviate from their past practices.

Exco’s has five manufacturing operations in Mexico and accordingly incurs a portion of its labour and other expenses in Mexican pesos. In turn, these Mexican pesos expenses are incurred to mainly support US dollar denominated sales. Consequently, any strengthening of the Mexican pesos against the US dollar reduces our profitability, all other things equal. In recognition of this risk, Exco hedges a portion of its Mexican pesos/ US dollar exposure with various foreign exchange contacts and options. For fiscal 2024, we estimate our pesos exposure net of hedges and pesos denominated sales to be approximately 337 million pesos. If the Mexican pesos were to strengthen or weaken by 1% versus the US dollar from a baseline USD/MEX rate of 17.6:1, and further assuming the Canadian dollar strengthens or weakens against the US dollar also by 1% from a baseline USD/CAD rate of 1.30, we estimate pre-tax profit would change by $509 thousand or about $330 thousand after tax. These estimates are based on historical norms and may be materially different in fiscal 2024 if customers deviate from their past practices.

Exco also has manufacturing facilities in Colombia, Brazil, Thailand, Morocco and Europe and Exco’s presence in jurisdictions such as these has generally been increasing in recent years. Some of these operations incur labor costs and often other operating expenses in local currency. In several of these countries, sales contracts and major purchases such as material and equipment are negotiated in U.S. dollars or Euro. In other countries, sales contracts and major purchases are negotiated in local functional currencies as well. Major long-term fluctuations in the value of the local currencies against the U.S. dollar and Euro have the potential to affect Exco’s operating results, retained earnings and value of its investment in these countries. Exco may enter into forward contracts or ‘collar’ contracts from time to time in order to protect itself from currency fluctuations. These contracts are derivative instruments which, depending on their structure, may not qualify for hedge accounting treatment and accordingly may be ‘marked to market’ each quarter and expensed if necessary. It is difficult to anticipate fluctuations in these local currencies in the event of major economic, fiscal or political instability in these countries.

The cost of manufacturing our products is a critical factor in determining our success over the long term. Manufacturing has generally expanded to developing countries where competing technologies and lower labor-cost structures exist. Exco must compete against companies doing business in these developing countries. Exco has met this challenge by manufacturing some labour-intensive products in Mexico, Thailand and Morocco; however, many of our operations based in Canada, U.S. and Europe must compete with products manufactured in lower-cost environments.

Although we have established and continue to enhance security controls intended to protect our IT systems and infrastructure, there is no guarantee that such security measures will be effective in preventing unauthorized physical access or cyber attacks. A significant breach of our IT systems could: result in theft of funds; cause disruptions in our manufacturing operations; lead to the loss, destruction or inappropriate use of sensitive data; or result in theft of our, our customers’ or our suppliers’ intellectual property or confidential information. The occurrence of any of the foregoing could adversely affect our operations and/or reputation and could lead to claims against us that could have a material adverse effect on our profitability.

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