October 18, 2021

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Celestica Announces Fourth Quarter 2020 Financial Results Toronto Stock Exchange:CLS

11 min read

(MENAFN – GlobeNewsWire – Nasdaq) (All amounts in U.S. dollars.
Per share information based on diluted
shares outstanding unless otherwise noted.)

TORONTO, Jan. 26, 2021 (GLOBE NEWSWIRE) — Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design, manufacturing and supply chain solutions for the world’s most innovative companies, today announced financial results for the quarter ended December 31, 2020 (Q4 2020)†. ‘Celestica delivered a solid fourth quarter to end the year, with revenue within our guidance range and non-IFRS operating margin* and non-IFRS adjusted EPS* above the mid-point of our guidance ranges. We ended the year with 80% non-IFRS adjusted EPS* growth compared to 2019,’ said Rob Mionis, President and CEO, Celestica.

‘We believe that our strong performance in 2020 against the backdrop of a global pandemic is a testament to our team’s ability to maintain business continuity and meet our commitments to our customers. The work we have done over the past few years aimed at building a more diversified business helped us manage this unprecedented year. As we enter 2021, we remain focused on executing for our customers and driving consistent, profitable growth for our shareholders.’

Q4 2020 Highlights

  • Revenue: $1.4 billion, decreased 7% compared to $1.5 billion for the fourth quarter of 2019 (Q4 2019).
  • Operating margin (non-IFRS)*: 3.6%, compared to 2.9% for Q4 2019.
  • ATS segment revenue: decreased 12% compared to Q4 2019, and represented 37% of total revenue, compared to 39% of total revenue for Q4 2019; ATS segment margin was 3.9%, compared to 3.0% for Q4 2019.
  • CCS segment revenue: decreased 4% compared to Q4 2019, and represented 63% of total revenue, compared to 61% of total revenue for Q4 2019; CCS segment margin was 3.4%, compared to 2.9% for Q4 2019.
  • IFRS earnings per share (EPS): $0.16, compared to a $0.05 loss per share for Q4 2019.
  • Adjusted EPS (non-IFRS)*: $0.26, compared to $0.18 for Q4 2019.
  • Adjusted return on invested capital (non-IFRS)*: 12.4%, compared to 10.6% for Q4 2019.
  • Free cash flow (non-IFRS)*: $18.5 million, compared to $43.8 million for Q4 2019.
  • Global network operating at normal workforce levels.
  • Undrawn $450 million revolver.**
  • $464 million in cash/cash equivalents.
  • Launched a new normal course issuer bid (NCIB) in November 2020.

† Celestica has two operating and reportable segments – Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). Our ATS segment consists of our ATS end market, and is comprised of our Aerospace and Defense (A & D), Industrial, Energy, HealthTech and Capital Equipment (semiconductor, display, and power & signal distribution equipment) businesses. Our CCS segment consists of our Communications and Enterprise (servers and storage) end markets. Also see Segment Updates below. Segment performance is evaluated based on segment revenue, segment income and segment margin (segment income as a percentage of segment revenue). See note 25 to our 2019 audited consolidated financial statements for further detail.
* Non-IFRS (International Financial Reporting Standards) measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other public companies that use IFRS or U.S. generally accepted accounting principles (GAAP). See ‘Non-IFRS Supplementary Information’ below for information on our rationale for the use of non-IFRS measures, and Schedule 1 for, among other items, non-IFRS measures included in this press release, as well as their definitions, uses, and a reconciliation of historical non-IFRS measures to the most directly comparable IFRS measures.
** excluding ordinary course letters of credit.

Segment Updates

ATS Segment:

ATS segment revenue decreased in Q4 2020 compared to Q4 2019, primarily driven by adverse demand impacts related to the coronavirus 2019 disease (COVID-19) pandemic, specifically in our commercial aerospace and Industrial businesses. The decreases were partially offset by revenue growth in our HealthTech and Capital Equipment businesses, driven by new program ramps. The increase in ATS segment margin in Q4 2020 compared to Q4 2019 was primarily due to improvements in our Capital Equipment and HealthTech businesses, driven by improved productivity, the beneficial impact of our cost actions and volume leverage, partly offset by the performance of our A & D business. We are pleased with the improvement in ATS segment margin, and are targeting ATS segment margin to be within our target range of 5% to 6% by the end of 2021.

Demand from our semiconductor Capital Equipment customers improved in Q4 2020 compared to Q4 2019, and we expect demand to remain strong in 2021. We also anticipate demand growth towards the end of 2021 in our display business.

Within A & D, demand in our defense business remained stable in Q4 2020, while we continued to experience demand reductions in our commercial aerospace business as a result of COVID-19. We expect weakness in the commercial aviation industry due to COVID-19 to persist throughout 2021. We will continue to take appropriate cost reduction and productivity actions to improve the overall performance of this business and adjust our cost base to better align with anticipated demand levels. We are encouraged by the bookings momentum in our A & D business, with over half of the incremental bookings in 2020 coming from new customers.

While demand in our Industrial business in Q4 2020 compared to Q4 2019 was adversely impacted by COVID-19, there has been a gradual recovery of demand across our customer base in this business since the second quarter of 2020. Although revenues declined compared to the prior year period, the contribution of this business to our profitability improved from Q4 2019 as a result of our cost reduction initiatives and the ramp of new programs.

Our HealthTech business continued to benefit from demand strength, reflected in new program ramps in Q4 2020, attributable in part to new program wins to support the fight against COVID-19. We anticipate continued strength in demand in this business in 2021.

CCS Segment:

CCS segment revenue decreased in Q4 2020 compared to Q4 2019, primarily as a result of our disengagement from programs with Cisco Systems, Inc. (Cisco Disengagement), which was completed at the end of 2020 as planned. This decline was offset in large part by strong demand from service providers in our Communications end market. Our CCS Joint Design & Manufacturing (JDM) business (which we have renamed “Hardware Platform Solutions” or “HPS,” as described below) experienced strong demand, up 53% in Q4 2020 compared to Q4 2019 driven by Hyperscaler demand strength.

As anticipated, our HPS revenue for the full year of 2020 (FY 2020) was $862 million, an increase of 80% compared to the full year of 2019 (FY 2019), and accounted for 15% of FY 2020 revenue. Although we continue to anticipate that total CCS segment revenue will decline for the full year 2021 (FY 2021) compared to FY 2020, we expect continued strength in our HPS business in 2021. We anticipate that FY 2021 HPS revenue will increase compared to the prior year, and we are targeting high single digit percentage growth in HPS revenue for FY 2021 compared to FY 2020.

Our HPS offering has expanded from joint design and manufacturing services to a full suite of hardware platform solutions and aftermarket services. As a result, we believe that the term JDM no longer accurately captures the breadth of our advanced R & D investments in hardware and technology platforms, or the broad end-to-end services we provide throughout the product lifecycle, from design to aftermarket support. Therefore, and as described above, we now refer to JDM as Hardware Platform Solutions, or HPS.

CCS segment margin improved in Q4 2020 compared to Q4 2019, primarily due to the positive impact of our productivity actions and a more favorable mix. CCS segment margin is expected to be firmly within our 2% to 3% target range in 2021.

COVID-19 Update

While we continue to make progress on our strategic initiatives, including portfolio reshaping, productivity and cost initiatives, COVID-19 continued to have an adverse impact on our business in Q4 2020. In addition to demand reductions in several of our end markets (noted in “Segment Updates” above), we were adversely impacted by COVID-19-related costs (collectively, COVID-19 Costs) incurred during Q4 2020. COVID-19 Costs consist of both direct and indirect costs, including manufacturing inefficiencies related to lost revenue due to our inability to secure materials, idled labor costs, and incremental costs for labor, expedite fees and freight premiums, cleaning supplies, personal protective equipment, and IT-related services to support our work-from-home arrangements. During Q4 2020, we qualified for and recognized COVID-19-related government subsidies, credits and grants and customer recoveries (collectively, COVID Recoveries), which helped mitigate the adverse impact of COVID-19 on our results. See footnote (1) to the table below for further detail.

For further information on the impact of COVID-19 on Q4 2020 and its anticipated impact on our business, see “Segment Updates” above. For further information on the potential impact of COVID-19 on our business, see our most recent Management’s Discussion and Analysis of Financial Condition and Results of Operations, filed at www.sedar.com and furnished on Form 6-K at www.sec.gov on October 28, 2020.

Restructuring Update

We recorded a total of approximately $26 million in restructuring charges during FY 2020, compared to our previous estimate of $30 million. We recorded approximately $7 million of restructuring charges in Q4 2020, consisting primarily of actions to adjust our cost base to address reduced levels of demand in certain of our businesses, including continued actions to right-size our commercial aerospace facilities, as well as restructuring actions in connection with the Cisco Disengagement.

Summary of Selected Q4 2020 Results

Q4 2020 Actual Q4 2020 Guidance (2)
IFRS revenue (in billions) $1.4 $1.35 to $1.45
IFRS EPS (1) $0.16 N/A
IFRS earnings before income taxes as a % of revenue 1.9% N/A
Non-IFRS operating margin 3.6% 3.5% at the mid-point of our
revenue and non-IFRS adjusted
EPS guidance ranges
IFRS SG & A (in millions) $59.4 N/A
Non-IFRS adjusted SG & A (in millions) $56.5 $56 to $58
Non-IFRS adjusted EPS $0.26 $0.22 to $0.28

(1) IFRS EPS of $0.16 for Q4 2020 included an aggregate charge of $0.13 (pre-tax) per share for employee stock-based compensation (SBC) expense, amortization of intangible assets (excluding computer software), restructuring charges, and de minimis Internal Relocation Costs (defined in Schedule 1 hereto). See the tables in Schedule 1 and note 10 to our December 31, 2020 unaudited interim condensed consolidated financial statements (Q4 2020 Interim Financial Statements) for per-item charges. This aggregate charge is towards the low end of our Q4 2020 guidance range of between $0.12 and $0.18 per share for these items, primarily due to lower than-expected restructuring charges.

IFRS EPS for Q4 2020 included a $0.05 per share negative impact attributable to restructuring charges and a $0.06 per share negative impact attributable to estimated $8 million in COVID-19 Costs, offset in large part by a $0.08 per share positive impact attributable to COVID Recoveries (approximately $8 million of government subsidies, grants and credits (COVID Subsidies) and $2 million of customer recoveries (Customer Recoveries) related to COVID-19) and a $0.02 per share positive impact from SBC expense reversals recorded in Q4 2020 to reflect a reduction in the estimated number of certain share-based awards expected to vest at the end of January 2021 (Stock-based Compensation Reversals). IFRS EPS for Q4 2020 also included a number of offsetting tax items including an $11.8 million withholding tax accrual associated with the anticipated repatriation of undistributed earnings from certain of our Chinese and Thai subsidiaries, which was substantially offset by an aggregate of $11.2 million in favorable return-to-provision adjustments, the recognition of previously unrecognized deferred tax assets, and a favorable foreign exchange impact arising primarily from the strengthening of the Chinese renminbi relative to the U.S. dollar (described in note 11 to the Q4 2020 Interim Financial Statements). See Schedule 1 for the exclusions used to determine non-IFRS adjusted EPS for Q4 2020.

IFRS loss per share of $0.05 for Q4 2019 included an aggregate $0.15 per share negative impact attributable to other charges, consisting primarily of restructuring charges ($0.09 per share negative impact), additional post-employment benefit plan obligations (Post-employment Benefit Plan Losses) arising from changes in labor protection laws in Thailand ($0.03 per share negative impact) and fees (Waiver Fees) incurred in connection with the waiver of certain technical covenant defaults related to our credit agreement ($0.02 per share negative impact). See Schedule 1 for the exclusions used to determine non-IFRS adjusted EPS for Q4 2019, and note 10 to our Q4 2020 Interim Financial Statements for quantification of the components of other charges for Q4 2019.

(2) For Q4 2020, our revenue, non-IFRS adjusted EPS and non-IFRS adjusted SG & A were within our guidance ranges. Non-IFRS operating margin for Q4 2020 was above the mid-point of our revenue and non-IFRS adjusted EPS guidance ranges. Our non-IFRS adjusted effective tax rate for Q4 2020 was 19% (compared to our anticipated estimate of approximately 20%). For FY 2020, our non-IFRS adjusted effective tax rate was 22%, lower than the mid-twenty-percent range previously anticipated, mainly due to favorable jurisdictional profit mix and tax items described in footnote (1) above.

See ‘Non-IFRS Supplementary Information’ below for information on our rationale for the use of non-IFRS measures, and Schedule 1 for, among other items, non-IFRS measures included in this press release, as well as their definitions, uses, and a reconciliation of historical non-IFRS measures to the most directly comparable IFRS measures.

Full Year Results

IFRS EPS of $0.47 for FY 2020 included a $0.20 per share negative impact attributable to restructuring charges and a $0.29 per share negative impact attributable to approximately $37 million in estimated COVID-19 Costs, offset in part by a $0.29 per share positive impact attributable to COVID Recoveries (approximately $34 million of COVID Subsidies and $3 million in Customer Recoveries), and a $0.07 per share positive impact to reflect aggregate Stock-based Compensation Reversals. See Schedule 1 for the exclusions used to determine non-IFRS adjusted EPS for FY 2020. IFRS EPS for FY 2020 also included $18.3 million of tax expenses relating to current and future withholding taxes associated with repatriations of undistributed earnings from certain of our Chinese and Thai subsidiaries that occurred in FY 2020 or are anticipated to occur in the foreseeable future, which was largely offset by an aggregate of $17.5 million in favorable tax impacts (described in note 11 to the Q4 2020 Interim Financial Statements).

IFRS EPS of $0.53 for FY 2019 included an aggregate $0.38 per share net benefit attributable to other charges (recoveries), resulting from a $0.75 per share gain on the sale of our Toronto real property in the first quarter of 2019, offset in part by restructuring charges ($0.29 per share negative impact) and Transition Costs ($0.05 per share negative impact), as well as the impact of the Post-employment Benefit Plan Losses and Waiver Fees described above ($0.03 and $0.02 per share negative impact, respectively). See Schedule 1 for the definition of Transition Costs and the exclusions used to determine non-IFRS adjusted EPS for FY 2019. See note 10 to our Q4 2020 Interim Financial Statements for quantification of the components of other charges (recoveries) for FY 2019.

First Quarter 2021 (Q1 2021) Guidance (1)

Q1 2021
IFRS revenue (in billions) $1.175 to $1.275
Non-IFRS operating margin 3.4% at the mid-point of our revenue and
non-IFRS adjusted EPS guidance ranges
Non-IFRS adjusted SG & A (in millions) $51 to $53
Non-IFRS adjusted EPS $0.18 to $0.24

(1) For Q1 2021, we expect a negative $0.12 to $0.18 per share (pre-tax) aggregate impact on net earnings on an IFRS basis for employee SBC expense, amortization of intangible assets (excluding computer software), and restructuring charges. Based on the projected geographical mix of our profits in Q1 2021, we currently expect our non-IFRS adjusted effective tax rate to be approximately 20% (this estimate does not account for foreign exchange impacts and any unanticipated tax settlements). We cannot predict changes in currency exchange rates, the impact of such changes on our operating results, or the degree to which we will be able to manage such impacts.

We do not provide reconciliations for forward-looking non-IFRS financial measures, as we are unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various events that have not yet occurred, are out of our control and/or cannot be reasonably predicted, and that would impact the most directly comparable forward-looking IFRS financial measure. For these same reasons, we are unable to address the probable significance of the unavailable information. Forward-looking non-IFRS financial measures may vary materially from the corresponding IFRS financial measures.

Q4 2020 Webcast

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