Darren Kirk - COO Brian Robbins - President & CEO Drew Knight - CFO

Michael Doumet - Scotiabank Global Banking & Markets Navdeep Malik - Industrial Alliance Securities David Tyerman - Cormark Securities Ben Jekic - GMP Securities

Good day ladies and gentlemen and welcome to the Exco Technologies Limited Third Quarter Results 2018 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given out that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Darren Kirk, Chief Operating Officer. Please go ahead, sir.

Thank you, Amanda. Good morning ladies and gentlemen. Welcome to Exco Technologies Limited fiscal 2018 third quarter conference call. I am Darren Kirk, Chief Operating Officer of Exco, I will lead also with an operations overview. Drew Knight, our CFO; will then review the financial results. Brian Robbins, our President and CEO; will participate in the Q&A session. Brian and I are calling in from our Neocon facility in Nova Scotia and Drew is at our corporate office. So, please bear with us if we don't coordinate as well as usual. There are a number of analysts, shareholders, and brokers on the line with us today. In addition, calling details have been widely disseminated to the public through the news release process. This call is also being simultaneously webcast at our website where we have posted a short presentation that we will reference this morning. We welcome all participants. The format of this conference call will be the same as in the past. After the presentation, we will take questions. The call then will end at about 10.40 and I ask that any caller limit themselves to two questions. When you speak please identify yourself, so we know who is talking. You should have all received our news release by now. If not, it is available on our website at www.excocorp.com or www.sedar.com. Before we begin, I would like to make some comments about forward-looking information. In yesterday's news release, and on page two of the presentation, you'll find cautionary notes in that regard. While, I won't repeat the contents of the cautionary notes we do claim their protection for any forward-looking information that we might disclose on this conference call today. For further information, you can also refer to the risk factors and assumptions contained in our latest annual report and our annual information form both of which are available on the SEDAR website or from the company. We disclaim any intention or obligation to update or revise any forward-looking information whether as a result of new information, future events or otherwise. Well, this certainly was a busy quarter with a number of developments in many of our businesses. Overall, we are very satisfied with the results which remarks by the third consecutive quarter of earnings improvement and a return to year-over-year earnings per share growth. Just as important, we believe we are very well positioned to sustain this momentum through the final quarter of our fiscal year. For more detail on the quarter, I'll start on slide three with the North American businesses within our Automotive Solutions segment. Here of course we are talking about the combined results of Polytech, Neocon, and AFX. Overall industry light vehicle production in North America was up by 5% during the quarter. This reflected a 16% decline in the production of passenger cars and a 1% growth in the production of trucks and utility vehicles. As we've indicated in the past, our overall sales exposure to cars in North America is greater than that of industry production volumes now at about 45% compared to about 30% in the industry. This effectively gave our north American parts business an exposure to a 7% decline in weightage auto production for the quarter. On that basis changes in vehicle production explained about half of the 15% decline in revenue for these businesses year-over-year. Additional factors that drove the results include adverse foreign exchange rate movements, program launch timing, a focus on higher margin business, isolated pricing pressures and modestly lower demand for certain of our accessory products. The aggregate of these factors together with unfavorable product mix variance and continuing raw material cost inflation pressures margins producing a 170 basis point decline in EBITDA margins versus the prior year period. I would note however, that the margin continued to improve sequentially, while we landed a number of new awards that will have positive implications for future course. As well new product initiatives, importing activity for both new and existing products remained very encouraging. I am highly confident that our Q4 fiscal 18 trends for these businesses will be significantly better in recent quarters when comparing year-over-year results. Lastly, while there's continuing uncertainty with respect to NAFTA and lots of noise about possible vehicle import tariffs in the US, it is well premature to speculate if, when and how any changes may impact our north American parts businesses at this time. Moving over to Europe, there were very significant developments at ALC this quarter where local market conditions drove operating losses to intolerable levels. Through a review of our current situation and prospects, it became apparent that are large fixed price seat cover program, labor intensive operations and diversification efforts were at odds with local market fundamental which have changed significantly in recent years. More specifically unemployment rates in Bulgaria have dropped by more than 50% while wages have roughly doubled since ALC commenced work on its anchor program about five years ago. ALC employee wages have increased albeit at levels well below local market trends. This is mainly because our fixed price program economic necessarily cap the wages we can affordably pay, consequently labor turnover had become elevated and absenteeism has risen sharply driving increased costs for overtime and expedited freight leading to large operating losses. With that grim backdrop unlikely to change anytime soon, we determine the best course of action for ALC at this time is to shrink rather than grow its operations. To that end, we have worked with our customers to conclude certain programs while others will be mostly moved either partly or completely to poly design in Morocco. With regards to timing, much of these program moves are already well under way and will be concluded by the end of the calendar year in any of that. The remaining operations in Bulgaria will be much smaller in focus which should enable the development of a workforce that is more reliable and dependable. Perhaps most importantly, ALC have engaged a key customer to improve program economics and receive the temporary price increase which was sufficient to bring us profitability to break even for the quarter. ALC is continuing these customer discussions with an objective of receiving a permanent price increase in order to restore its operations to sustained profitability. And while achieving that objective is certainly what we expect. In the event we are unable to do so, we will have no choice but to exit from our remaining operations in Bulgaria. We will simply not continue to support money losing operations where there is no prospect of generating an acceptable level of profitability. Moving on to poly design in Morocco. Our operations there continue to perform very well with solid organic revenue growth and modest margin expansion over Q3 fiscal 17 despite front end inefficiencies from the revenue end. Quoting activity remains extremely active at Polydesign for both new programs and take over business from other players that are facing similar labor pressures in Eastern Europe that we are experiencing. In fact, new business awards that Polydesign this year now total a record EUR13.4 million excluding the business that is being transferred from ALC. Lastly, while labor conditions are certainly tightening in Morocco, as they are globally labor supplies and wages there remain attractive. Looking at the Casting and Extrusion segment. I'll start with a general comment on US steel tariffs. As you know, aluminum tariffs don't directly impact us as those costs are incurred by our customers for products they make with our tools. But as it relates to steel tariffs, they do impact about 30% of our tooling business which is the percent of revenues derived from our operations located in the US within the segment. In most cases, we are passing on 100% of the tariff to our customers although there is still a modest drag on overall profitability and certainly margins. Nonetheless the majority of our cooling operations are located in Canada, while most of our customers and competitors are located in the US therefore the tariffs currently provide us with a relative competitive advantage because our Canadian operations don't incur steel tariffs while the finished goods are shipped tariff free under NAFTA. Diving into the Large Mould Group on slide five, revenue growth was strong despite FX headwind as we continue to execute on recent contract awards. Our new manufacturing cell continues to move ahead albeit still more slowly than we would like. We do however, have a comprehensive plan that we expect will dramatically improve performance by the end of the calendar year. In the meantime, as I mentioned last quarter, we have recently installed similar equipment at the groups two other locations which are providing additional capacity and flexibility and those pieces of equipment are ramping up reasonably well. Profitability within the group didn't follow revenues higher again during this quarter due to the rising cost inflation, foreign exchange headwinds, program mix variance and embedded conservatism with percentage completion accounting. We are nonetheless engaged in discussions with customers to recapture some pricing lost to rising input costs. As well new order activity remains robust while pricing conditions are generally improving. As with all of our businesses, we are increasingly selective about the quality of jobs we are taking on focusing on those with higher expected margins. On to slide 7. Our extrusion group continued to demonstrate very solid results during the quarter. Market fundamentals remained very favorable and we experience balanced demand growth across all of our five plants. We continue to invest significant financial and management resources in the harmonization of our design and manufacturing processes across our various extrusion facility. This initiative has bear much fruit since we began a couple of years ago and yet we believe there is still much potential for continued improvement into the medium term. Adding to this opportunity is the new plant we are currently constructing in Mexico to better service the domestic extrusion market there. We expect this facility will be operational by early calendar 2019. Lastly, turning to Castool sales were noticeably higher in the quarter as demand for the group's capital equipment continued to rebound. Profitability was also up sharply as the group benefitted from select price increases implemented towards the end of our previous quarter meant to counter rising input costs. As well Castool's operations in Thailand continue to season reflected by higher sales and profits over the prior year quarter there. Looking forward, we believe Castool's product portfolio is very well positioned for continued success with many leading products in both the die cast and extrusion end markets. And that concludes my remarks. Drew will now walk you through the financial aspects of the quarter.

Good morning, ladies and gentlemen. My comments will cover slide 8 to 17 of the presentation. Starting on slide 9 consolidated sales for the third quarter ended June 30 were $152.8 million an increase of 5% or $6.8 million compared to last year. The significant fluctuations in the US dollar have impacted Exco's results during Q3 reducing revenue $2.6 million. This was offset by the euro increasing revenue $1.2 million. So overall, FX decreased sales approximately $1.4 million. For the reconciliation on slide 11, excluding FX the Casting and Extrusion Group increased sales $7.4 million and the Automotive Solutions Group increased by $0.8 million and FX subtracted $1.4 million. As Darren noted, the Automotive Solutions revenue declined in North America while Europe had a significant improvement. As reconciled on slide 12, consolidated EBITDA for the third quarter totaled $20.1 million a decrease of $0.5 million or 3%. The decline from prior year is primarily driven by FX movements reducing EBITDA by $0.8 and a reduction in Automotive Solutions $0.8 million offset by improvements in Casting and Extrusion and corporate costs of $0.9 million and $0.2 million respectively. Sequentially, the Q3 EBITDA was increased over both Q2 and Q1 for both Automotive Solutions and Casting and Estrusion. On slide 10, the consolidated results for Q3 2018 yielded EPS of $0.27 per share versus $0.26 per share in the prior year quarter. The tax rate was reduced to 23% from 28% in 2017, as a result of lower US tax rate and profit shifting towards low tax rate jurisdictions. Free cash flow was $18.6 million and this very strong result was due to improvements in earnings and working capital movement but also lower CapEx as the year was front loaded in Q1 and Q2 though Q4 could be somewhat heavier with construction underway at the new extrusion plant in Mexico. The healthy cash flow has improved the balance sheet to a net cash position as at June 30. Turning to the Automotive Solutions segment on slide 13, sales in Q3 were $99.9 million an increase of $0.5 million or flat versus last year. FX movement decreased segment sales by $0.4 million. As noted earlier, the North American division Polytech, Neocon and AFX had $7.4 million less revenue than last year due to slightly lower overall vehicle volumes, specific weakness in passenger cars and the timing of replacement program launches. These negatives were more than offset by the European sales increasing by $8.3 million at Polydesign and ALC. Due to the many new program launches at Polydesign and the offer mentioned temporary pricing a job with a healthy. As noted on slide 14, our Automotive Solutions segment reported lower even about $13.2 million in Q3, a decrease of $1.3 million or 9% from last year. The decrease in the quarter was driven by FX movements of $0.4 million, the impact of lowered sales of $1.5 million and margin deterioration excluding ALC at $0.6 million. This was partially offset by $1.2 million from ALC eliminating the prior year lost and essentially breaking even for the quarter. Turning to slide 15 in the Castin and Extrusion segment, revenue was $52.8 million for Q3 an increase of $6.4 million or 14% versus Q3 2017. All three business groups experienced revenue increases in the quarter though this was partly offset by FX rates reducing revenue by $1 million. The Casting and Extrusion segment reported increased EBITDA in Q3 as noted on slide 16, an increase of $0.5 million or 7% from last year. Of this the impact of FX reduced the EBITDA by $0.4 million. Excluding FX, EBITDA improved by $0.9 million so EBITDA margin declined by 110 bps for reasons noted earlier by Darren. On slide 17 cash flow from operating activities was $23.2 million in Q3 and free cash flow was $18.6 million improving the balance sheet to a net cash position of $1.5 million. Compared to Q1 and Q2, cash flow increased through improved net income, decreased investment in working capital and reduced intensity of CapEx investments. Exco's financial position and liquidity remain very strong, as such the company balance sheet and availability under the existing credit facility allowed considerable flexibility. That concludes my comments. We can now transition to the Q&A portion of the call. Amanda?

Thank you. [Operator Instructions] Our first question comes from the line of Michael Doumet from Scotiabank. Your line is open. Please go ahead.

So, first question. So obviously, we've seen steel prices rise and freight labor costs increase in last few quarters. Obviously, a lot of moving parts there and impacting your businesses differently. But can you give us a sense of the price cost gap expectation in subsequent quarters and whether you think that generally speaking price increases should outpace higher input cost going forward.

On the tooling side of the business, I think the metal, steel input costs have risen and they largely level off except for the tariffs. And so, again we faced these tariffs primarily at our US tooling business because we import a lot of the steel that we use from Europe and we're passing on within our extrusion group 100% of that tariff. In the other businesses Castool, we don't face tariffs and that its operations are location in Canada. But then our Large Mould Group, we do have some exposure there and the mechanism to recapture that tariff is not as quick as it is with the extrusion business. So, we expect to get there and then kind of capture all of the raw material costs increase whether its tariff or otherwise but there may be some life. With respect to the Automotive Solutions business, we have seen rising input cost or for some of the resins that Neocon uses, but that also has leveled off. We've had the year-over-year impact now for I think about three quarters and so we're largely through the point of absorbing that and we're trying to offset those higher resin cost as best as we can but it's not easy to do so with pricing on that side of the business.

Okay, thanks. Very helpful there. So maybe just turning to ALC. So, the strategy there is you're looking to shrink the business. How much of the business there would you characterize is having call it inadequate profitability and what's your expectation of how much can roll off in your comfort level in terms of recapturing that portion in Morocco?

Well, I'll make a few more comments on it and then I'll leave it there. But that business now, the Audi contract that we've spoken about in the last several quarters has been completely concluded and so that is out of the equation going forward. We have primarily 95% plus of that ALC business is the BMW mini seat cover program. We were adding some other diversified products head covers and arm rests and such wrapping those products. We have retreated from that strategy and moved those products and are moving those products to Morocco. So really, what ALC will consist of is a large chunk of the BMW mini seat cover business, even some of that seat cover business is moving to Morocco. And the ALC losses would continue under the current pricing structure, because of the challenges in the labor market largely that I referenced in my earlier remarks and so we've lost a good chunk of money there and we draw a line in the sand that under the current program economics we are not putting any more money into ALC. We need to see program economics improve and we are in discussions with our customer to do just that and they have responded in this quarter with a temporary price increase and we'll continue those discussions with an objective of making it permanent.

Okay. Thanks. And maybe just a follow-up there and when do you expect to finalize those discussions?

I can't comment on timing but the discussion is certainly continuing.

Okay. Perfect. Thank you.

Thank you. Our next question is from the line of Peter Sklar from BMO Capital Market. Your line is open.

Hi, this is Shang Ding [ph] on behalf of Peter Sklar. First question is that for large mould business, you seem to have good backlog have ramped up the business and the CapEx program is complete. So, what is preventing you from achieving profitability levels of the past?

Hi. There are a number of moving parts in that large mould business. We've talked about our new manufacturing cell and the challenges we've had ramping that up to where we ultimately expect this to get to. We've continued to see further progress on that front during the quarter, albeit again slower than what we'd like. But I think that the bigger issue there is just the mix of business that's going through this year. We do have a large backlog, we do continue to write new orders and just that the mix of products that are going through at this time are majority of the lower margin business. I think that to the expense that we do have a large backlog. We're being much more selective of programs that we are taking on a go forward basis and we continue to ramp up the new manufacturing cell. As we benefit from both of those factors, we expect the results will improve and we're also being hit by rising steel cost and as I mentioned in response to Michael's question earlier, we are intending to pass on some of those cost but those are customer discussions and the mechanism to do so is got a greater lag than it does in other parts of our tooling business.

Second question is that you noted the operations in Bulgaria are being scaled back because of wage pressure and fixed prices. But are these issues generally common for all auto parts operation. So, what in particular about Bulgaria that's the issue?

Well, Bulgaria if you look at the statistics in the last five years or so the average manufacturing wages have risen by 50% and unemployment rate has gone from 13 percent to about 3% in some of the regions where our plants are. So, the materiality of those factors I think is more significant in Bulgaria and they are exacerbated by the de-population that's occurring in Bulgaria, which is I think the country globally that is de-populating at the fastest rate. And so, these factors are evident in Eastern Europe with a number of players but they seem to be more pronounced in Bulgaria.

Okay. And final question, you mentioned in Europe temporary pricing improvement help ALC why aren't these temporary improvement permanent?

That's what we keep asking. It's a discussion with our customer. I mean ALC has only got a finite amount of resources in that this program in our eyes is deeply uneconomic and we are not willing to inject more capital into ALC and in order to keep operating it needs to receive price increases on an ongoing basis. So far, we're been receiving those price increases but it lacks the ability to call it permanent at this time. But that is certainly our objective.

Okay. Thank you.

Thank you. Our next question comes from Nav Malik from Industrial Alliance. Please go ahead.

Yes, thanks. Good morning. I just want to pick up on couple of comments you made in your remarks there. With respect to the tariffs providing a relative competitive advantage in I guess certain parts of your large mould business with your facility in Canada. Are you actually pricing your products lower than competitors like is there an advantage that you're passing through?

No, we wouldn't be pricing it lower. This is - in the large mould business, it's kind of an evolving thing. The sales cycle and the product delivery cycle is longer. But it really, the tariffs I think will benefit pricing for the industry over time and that pricing has come down significantly over the last few years. As we've mentioned in many calls, I think the level of distress for a lot of our competitors many of which are based in the US and to the extent that they have further price increase for input cost pressures it certainly helps bring up the pricing equation for the whole industry and we would certainly expect to keep some of that for ourselves.

Yes. Okay. Then I just want to move over the North American Auto segment. So, you mentioned in your remarks that you are looking at Q4 trends being significantly better. I mean I guess you've seen this year quarter-over-quarter, your margins have declined anywhere from 300 basis points I guess earlier in the year not as much of a decline this past quarter. But are you looking at stemming that going forward or would you actually look at an improvement in your call it EBITDA margin in the Q4?

I would be hopeful for a year-over-year improvement, but we'll see. We'll certainly have much better trends year-over-year and Q4 of last year was really the first quarter where things held off as OEM's curtailed their production significantly. And so, to the extent that we're now lapping that and together with the efficiency measures and other factors that we've taken to improve operations through the year, I'd be hopeful for improvement but we'll see.

Okay. And then just lastly, I want to ask on your balance sheet. I'm going to give you some flexibility basically no net debt now. I mean what are you looking there or are you looking at any sort of growth initiative acquisitions or would you look at more along the lines of returning cash to shareholders through accelerating the buyback or a special dividend or what. Give us some thoughts on what you guys are thinking there?

We are always on the lookout for acquisitions in order to grow and diversify the business over time. But having said that, there is nothing on the front burner at this time. We're very much focused on improving all of our operations in ALC in particular and there's obviously a lot of moving parts going on with [indiscernible] and protection of tariffs on those regards. So, I think for the near term you should expect that we'll continue to do what we've been doing and that is generating strong levels of cash flow and paying the dividend, focused on increasing that dividend over time and using a portion of the free cash flow to buy back shares.

Okay. At an accelerated pace than what you've been doing or along the same line?

It will certainly be at a minimum along the same lines, but we believe that the stock is very attractively valued. So, we are buying it back and there is a potential that we can buy back more than we have.

Okay. Okay, thanks very much.

Thank you. Our next question comes from David Tyerman from Cormark Securities. Please go ahead.

Good morning guys. First question just on the North American Q4 margin and discussion. So sequentially it sounds like it could improve a fair bit, what is driving it sequentially?

Well, we are taking cost efficiency measures to combat the persisting level of input cost inflation that is stabilized now. But it's got to be absorbed year-over-year. So, I think we were down 320 basis points a couple of quarters ago and in this quarter, we're down 180 basis points. There's new products and all kinds of factors that we take as we generally do in order to improve the profitability of the business including being selective in some of the business that we take. I mean businesses that got very low margin, we are pushing that away. So, that has a factor as well.

Okay. In the short-term though presumably the biggest drivers would be cost whatever you can do in that side and if you're rolling in a higher margin business that's the way to think of it?

Yes, I'd say that that's.

And do you have material amounts of new hire margin business coming on?

We've got a decent amount. We've got a number of new awards through the last several quarters and it takes time to roll that into the broader base but it's a decent amount, won't change things overnight but over several quarters I think we're very hopeful that'll help push the margin up.

Okay. That's helpful. Thank you. And then next question just on the large mould. So, if I heard you correctly you're expecting a dramatic improvement in profitability through year end. So, what drives this sudden change is it that your mix is getting a lot better all of a sudden or it's the manufacturing sell side is kind of a smaller changes kind of situation or maybe that's something changing too?

David, I don't think we've exactly said this. Brian here. But, I think what we can say is we see a dramatic improvement in 2019 over 2018 regards to the large mould business. And that's primarily a function of mix and maturity of the program.

Okay. Okay, so not in Q4 but over the next year.

I don't think we're going to see a huge change in Q4, but in the coming fiscal year I think we will see a dramatic improvement in that area. And we've already experienced quite a dramatic improvement in the extrusion and castool and that should continue as well. But to put things in nutshell, I think we've gotten and it may sound crazy, but we've gotten quite disciplined and our customers seem to be understand price increases and I might have a lot to do with the tariff which really opened the door and price increases. But we've gone back on even existing programs to our customers, and said we just can't honor these commitments. You got to do something for us and I can tell you in many cases they are doing something for us. So, the market has changed and the attitude of accepting in the market has changed.

Okay. That's helpful. Thanks. And then just on ALC, so are you losing money. It sounds like you broke even in the quarter, so in Q4 would you lose money or continue to run at breakeven?

Well, with the existing pricing for the program excluding any pricing adjustments we would lose money as we have in the last several quarter. And has been one of in this quarter with the pricing adjustment. However, we continue to have these discussions with our customer for pricing adjustment, we continue to receive them but nothing is permanent at this time.

Okay. I thought Drew said that you broke even in ALC in Q3?

Yes, we broke even with the pricing adjustment.

Okay. And so, as long as you are under that you're breakeven and if you're not under it then you are completely out of it.

David, we refuse to go on losing money on that program. We reported out customers three or four years, and if it means losing money. We'll shut the door tomorrow.

For sure. Makes total sense. So, from a…

Dave just to be clear, we're also looking to get it to profitability if we keep it. I mean staying breakeven is not the objective there.

No, I get that and I'll just have to wait and see how you make out there. So, I guess the other question would be how much is at stake here obviously on the profitability side it's zero or less, I'm not sure what the total losses are so far, this year. Maybe you can comment on that? At least that would be a swing and also how much revenue is at stake?

Well, it's about $90 million or so on annual basis for revenue and we probably lost about $0.10 there. Probably $0.08 in the first couple of quarters and then we are breakeven this quarter.

Okay. That's really helpful. I'll get back in queue. Thanks.

Thank you. Our next question comes from the line of Ben Jekic from GMP Securities. Please go ahead.

Good morning. I just and I apologize, I have to ask again a question about the pricing at the ALC. If I'm understanding correctly this is probably something on a short-term basis and I'm asking if nothing else just for modeling. Like is it as long as this adjustment is valid your breakeven ability is improved but at what point does the customer kind of withdraw that increase or boosted or like I just want to gauge the consistency of your ability to breakeven at least?

Well, I guess the only thing I can really say on that Ben is that ALC has finite resources and the equity that we put in there it's been pretty much ground down to a very low level through the losses that have occurred and we are not putting in any more money unless the program economics improve materially. And so, without these continued price adjustments the losses would ultimately push ALC into bankruptcy and if it ends up there so be it, we don't have any broader connection to the rest of Exco. But it requires these price increases and at least the breakeven level in order to stay in business.

Okay. And did I hear correctly that you moved kind of the non-BMW's activities to Morocco?

Yes, they are being moved. It's well underway and the [indiscernible] portion of the BMW mini business that is being moved to Morocco. And this is all about reducing the scale of the business and in order to reduce the amount of labor that we need and getting the price increase that is required in order to stay in a business at a profitable level with a lower level of headcount.

Okay.

And Ben the issue in Bulgaria, we talked about the price increase and one merely thinks that the program is grossly underpriced. It may well be grossly underpriced, but to do business in Eastern Europe and particularly Bulgaria has become just untenable. We've got 17% absenteeism on a daily basis. We've got 1,500 employees in other words 250 people don't show up to work every day. So, this microeconomics and our customer is going to support us to work our way through that that's why we're moving the business to Morocco. And people come to work.

Right. And then my next question is just on - to Darren. Darren you mentioned that the -- so fourth quarter there is some momentum going you mentioned number of new awards. My impression was that that was in the automotive solutions. Can you give us some idea of what the wins have been? And are the wins the ones you said happened over the last several quarters or is it something that happened in the last quarter?

Well, I mean the wind continued at a reasonable rate consistent with recent quarter and these winds won't have significant impact on the next quarter, but they will just continue to have positive impact on future quarters modestly upwards. So, this is - we don't typically disclose the amount of new awards on a dollar basis on a per quarter or so. But our recent quarters have been certainly very comfortable on that front.

May I add, as we've had extraordinary amount of wins in Morocco and most of the takeover business and all of it in the Eastern Europe. So all our peers and counterparts are having the same issues and we've just recently won a very large Porsche program and Porsche would never deal with Morocco and we got six weeks to take the program over based our of Romania.

And the very last question is just on the new facility in Mexico you've done an amazing job standardizing production across your extrusion plans. You're building now the facility in Mexico how long will it take for that plan to kind of generate acceptable margins?

Well, we hope to open production in January and February of 19 and I would say for the remainder of 19 it maybe, it will be loss to breakeven by the end of the year. And the loss shouldn't be greater than somewhere say $100,000 per month.

Right. Okay. That's it from me. Thank you.

Thank you. We have a follow-up question from the line of David Tyerman from Cormark Securities. Please go ahead.

Hi, just a few couple follow-ups. Polydesign, taking of the ALC work and it's also operating, it sounds like below potential on margins which will ramp up. So, I'm just wondering does ALC have any negative impact on margins in the short-term as you move it over? And then longer-term how much upside is there from getting that plant up to whatever it is, but target margins over there?

Well, so Polydesign grew I think about 17% top-line year-over-year in the quarter and there was a very material negative impact on margins. The headcount at Polydesign has gone up 10% year-over-year in the quarter and that is having a front-end drag on margins at Polydesign currently. And so, that will continue probably for the next couple of quarters or so. But thereafter we've historically being in a mode where we can benefit from some of the efficiency measures and go from there. However, it will depend on the pace of additional business that we take over which really a Polydesign is being inundated with request for takeover work from us in Easter Europe.

Okay.

And the big picture David, the overall margin for the group will improve because producing those parts in Bulgaria with negative margins because of the reasons we stated earlier with the employee situation. So, I mean we've moved a good deal of that business already to Morocco. And I mean it started in Morocco and has already got a higher produce rate than it did when it left Bulgaria.

Sure. Now it makes sense. Sounds like there's quite a lot of loss of comparing the headwind. The other two extrusion sounds like it took a bit of a pause on margins and Brian you mentioned the Mexican operation will be a bit of a drag and starting up which makes sense. So, do we kind of look at a lot of flattish profitability of extrusion and the I don't know call next year so?

No, by no means. We -- I mean we've been taking a monthly charge for that matter in the extrusion group for obsolete machinery because we had to change the method of manufacturer because they weren't harmonized as such. I mean that goes away at year-end and their production and their sales level is growing.

Okay.

And likewise, that would apply to castool.

Okay. That would be other way to say it. So, it sounds like extrusion and castool should be paused next year or is it a very big driver or are we talking $1 million or $2 million dollars?

I think it should be $2 million or $3 million full blast.

Okay. Good. Okay that's super. That's all for me. Thank you.

Thank you. We have another follow-up question from the line of Peter Sklar [ph] from BMO Capital Market. Please go ahead.

Hi, last question. In terms of your Mexico operations have you factored in potential wage increase in Mexico due to NAFTA renegotiation?

Specifically, I can't tell you what level we modeled-in. I think we do look at the way it's structured and It is much more attractive that it is in parts of North America and to the extent that wages are going up there and we have been living with wage inflation in Mexico and other parts of our business. And so, we would be taking along those lines. But it's not going to have a huge impact on the performance of the business in that labors are 20% of the equation. So, whether you put up 4%, 6% or 8% that labor inflation on that it's not going to change the needle too much. The wages currently go up in Mexico, by 5% or 6% per year. And so, you know we are going up. And it's usually followed by devaluation of the peso.

Okay. Thank you.

Thank you. And at this time, I am showing no further questions.

Okay. Thanks, Amanda. I think we can conclude the call.

Thank you. Ladies and gentlemen thank you for participating in today's conference that doesn't put the programming you may now disconnect I don't have a great rest of your day.