Celestica Inc. — FY2022 Form 20-F and Q4 summary
Reporting period: Fiscal year ended December 31, 2022; Q4 refers to the three months ended that date. Financial statements are prepared under IFRS and reported in U.S. dollars unless noted otherwise. The 20-F was signed March 13, 2023.
Business context and performance
Celestica provides global electronics manufacturing and supply-chain services through Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). ATS includes aerospace and defense, industrial, HealthTech and capital equipment; CCS includes communications and enterprise, including its higher-value Hardware Platform Solutions (HPS) business.
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $7.250bn | $5.635bn | +29% |
| Gross profit / margin | $636.3m / 8.8% | $487.0m / 8.6% | +31%; margin +0.2 pts |
| Earnings from operations / margin | $263.3m / 3.6% | $167.7m / 3.0% | +57% |
| Net earnings | $145.5m | $103.9m | +40% |
| Diluted EPS | $1.18 | $0.82 | +44% |
| Cash from operating activities | $297.9m | $226.8m | +$71.1m |
| Non-IFRS adjusted free cash flow | $93.8m | $114.8m | -$21.0m |
ATS revenue rose 29% to $2.979bn, with segment margin increasing to 4.7% from 4.5%. CCS revenue rose 29% to $4.271bn, with margin improving to 5.1% from 3.9%. HPS revenue increased 59% to $1.83bn, or 25% of total revenue. Annual non-IFRS operating earnings were $358.0m and non-IFRS operating margin was 4.9%, versus $233.9m and 4.2% in 2021; non-IFRS adjusted EPS was $1.90 versus $1.30. These are non-IFRS measures and are not directly comparable across companies.
Q4 2022
Revenue was $2.043bn, up 35% year over year. IFRS earnings from operations were $81.6m (4.0% of revenue), net earnings were $42.4m and diluted EPS was $0.35. Non-IFRS adjusted EPS was $0.56 and non-IFRS operating margin was 5.3%. Revenue and adjusted EPS exceeded the high end of management’s guidance ranges; non-IFRS adjusted SG&A of $68.5m exceeded its $64–$66m guidance range, partly due to foreign exchange. Gross margin was 9.1%, down from 9.4% a year earlier, reflecting higher variable compensation and inventory write-downs. Sequentially, revenue rose 6%, while net earnings declined from $45.7m in Q3.
Liquidity, debt and other key metrics
- At December 31, cash and cash equivalents were $374.5m, compared with $394.0m a year earlier. Term-loan borrowings were $627.2m, down from $660.4m; no revolving-credit borrowings were outstanding at year-end. Approximate term-loan debt less cash was $252.7m, excluding leases.
- The $600m revolving facility had $582m available after letters of credit. The company reported compliance with its credit covenants. Term-loan maturities include $280.4m in June 2025 and $346.8m on the incremental loan, assumed due in December 2026 if extension conditions are met.
- Capital expenditures were $109.0m, versus $52.2m in 2021. Finance costs were $59.7m in 2022, up from $31.7m. A one-percentage-point increase in applicable rates would add an estimated $3.0m of annual interest expense after swaps.
- Inventory rose to $2.350bn from $1.697bn; customer cash deposits rose to $825.6m from $434.0m. Inventory write-downs were $30.5m, versus net write-downs of $4.9m in 2021. Higher inventory and capital spending contributed to lower adjusted free cash flow.
- Total assets were $5.628bn and total liabilities $3.950bn. The reported effective tax rate was 29%, compared with 24% in 2021.
Material changes, outlook and risks
Growth reflected stronger demand, new program ramps and improved materials availability across both segments. ATS growth was led substantially by Industrial; CCS benefited from HPS and enterprise program ramps. By contrast, 2021 CCS revenue had been affected by the exit from Cisco programs. The top 10 customers accounted for 66% of revenue in each of 2020–2022; two CCS customers each represented 11% of FY2022 revenue.
- Outlook: The filing provides qualitative 2023 expectations, but no clear quantified full-year revenue or EPS guidance. Management expected continued ATS growth; moderate growth in HPS and Enterprise; a slight Capital Equipment revenue decline; continued A&D recovery and defense growth; and HealthTech growth. Long-term goals include average annual growth of 10% in aggregate ATS and HPS revenue and capital spending of 1.5%–2.0% of annual revenue. These are goals, not forecasts.
- Supply chain and demand: Extended component lead times, customer order volatility, elevated inventory and risk of further inventory provisions remain concerns. Management said constraints were expected to persist into 2023.
- Batam fire: A June 2022 fire damaged the Indonesian facility and destroyed inventory. Celestica recorded about $95m of write-downs and equivalent anticipated insurance recoveries, with no net earnings impact. It received $31m of insurance proceeds in Q4 and recorded an estimated $64m receivable for remaining proceeds; full recovery is expected, not assured.
- Other exposures: Inflation and pricing pressure, customer concentration, geopolitical and trade restrictions, foreign exchange, higher rates and LIBOR transition, tax incentives and audits, and cybersecurity are material risks. A disputed Romanian tax assessment of about $7m was paid while the company pursues appeals. Restructuring charges were $8.4m in 2022, and additional charges were expected in 2023.
Management reported effective disclosure controls and internal control over financial reporting; KPMG issued unqualified opinions on the financial statements and internal controls. No goodwill impairment was recorded, although KPMG identified capital-equipment goodwill valuation as a critical audit matter.
Most important facts for investors to verify
- Whether the $64m estimated Batam insurance receivable is collected and whether total insured losses are recovered.
- Whether inventory levels, write-downs and customer deposits normalize without impairing cash generation or margins.
- Whether HPS and ATS growth offsets CCS pricing pressure, customer concentration and program volatility.
- Whether the company converts reported operating cash flow into stronger adjusted free cash flow after elevated capital spending and finance costs.
- Debt refinancing and covenant capacity, interest-rate exposure, and the transition of remaining LIBOR-linked credit and swap arrangements.
- Progress and potential financial impact of the Romanian tax appeal, 2023 restructuring, and management’s qualitative outlook.