Celestica Inc. — FY 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021; the filing also includes unaudited Q4 2021 results. Financial statements are prepared under IFRS, in U.S. dollars, and the filing is an annual report rather than a standalone quarterly filing.
Business context
Celestica provides electronics manufacturing and supply-chain services through Advanced Technology Solutions (ATS), including aerospace and defense, industrial, energy, HealthTech and capital equipment, and Connectivity & Cloud Solutions (CCS), including communications, enterprise and Hardware Platform Solutions (HPS). HPS represented 20% of FY 2021 revenue. The company completed its acquisition of PCI Private Limited on November 1, 2021.
Key financial results
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $5,634.7 million | $5,748.1 million |
| Gross profit / gross margin | $487.0 million / 8.6% | $437.6 million / 7.6% |
| Operating earnings (IFRS) | $167.7 million | $127.9 million |
| Earnings before income taxes | $136.0 million | $90.2 million |
| Net earnings / diluted EPS | $103.9 million / $0.82 | $60.6 million / $0.47 |
| Cash from operating activities | $226.8 million | $239.6 million |
| Non-IFRS free cash flow | $114.8 million | $126.0 million |
Non-IFRS adjusted net earnings were $164.3 million and adjusted diluted EPS was $1.30, versus $126.6 million and $0.98 in 2020. These measures exclude specified items and are not standardized IFRS measures.
Q4 2021: Revenue was $1,512.1 million, up 9% year over year; gross margin was 9.4%; net earnings were $31.9 million and diluted EPS was $0.26. Non-IFRS adjusted diluted EPS was $0.44, above the company’s $0.35–$0.41 guidance range.
Segments and changes versus prior period
- ATS revenue rose 11% to $2.315 billion, or 41% of total revenue; segment margin improved to 4.5% from 3.3%. Capital Equipment revenue was approximately $750 million, up more than 30%.
- CCS revenue fell 9% to $3.320 billion, or 59% of total revenue, primarily reflecting the completed Cisco disengagement and materials constraints. CCS segment margin increased to 3.9% from 3.5%, supported by mix and HPS.
- HPS revenue increased 34% to $1.15 billion. Overall revenue declined 2%, while gross margin rose to 8.6% from 7.6% and net earnings increased 71%.
- The Cisco disengagement represented an estimated $500 million revenue decline in 2021 versus 2020; the broader CCS portfolio review had an estimated annualized revenue impact of $1.25 billion versus 2018.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $394.0 million, down from $463.8 million. Term-loan borrowings were $660.4 million, compared with $470.4 million a year earlier; no revolving borrowings were outstanding. The company reported $579.0 million available under its $600 million revolving facility.
- Current assets were $3.435 billion and current liabilities were $2.254 billion. Inventories rose to $1.697 billion from $1.092 billion; accounts receivable rose to $1.260 billion from $1.093 billion.
- Operating cash flow declined by $12.8 million. Higher inventory absorbed cash, partly offset by higher payables and customer deposits. Customer cash deposits were $434.0 million at year-end, versus $174.7 million.
- Capital expenditures were $52.2 million. The company paid $35.9 million to repurchase and cancel shares under its prior issuer bid.
- In December, the company amended its credit facility, raised a new $365 million term loan, increased revolving commitments from $450 million to $600 million, and extended the revolver maturity. The amendment refinanced the prior incremental term loan and largely repaid acquisition-related revolver borrowings.
Outlook, commentary and material risks
- Management expected supply-chain constraints to persist through 2022, with uncertain duration and severity. Constraints reduced estimated FY 2021 revenue by approximately $127 million and contributed to higher inventory and working-capital requirements.
- Management expected strong semiconductor capital-equipment demand to continue; Industrial year-over-year growth to continue through 2022; modest sequential and year-over-year quarterly growth in commercial aerospace, but not a near-term return to pre-pandemic levels; and more moderate HealthTech growth as COVID-related programs eased. These are business expectations, not consolidated 2022 financial guidance.
- Long-term priorities include average organic ATS revenue growth of 10% annually, capital expenditures of 1.5%–2.0% of annual revenue, and returning approximately 50% of non-IFRS free cash flow to shareholders on average when permitted. These are goals, not forecasts.
- Estimated COVID-related costs were $32 million in 2021, partly offset by $11 million of government subsidies and $1 million of customer recoveries. Management did not expect comparable government relief in 2022.
- Restructuring charges were $10.5 million in 2021; further charges were expected in 2022. Other notable items included $7.3 million of acquisition costs and $10.5 million of legal recoveries included in other charges. The PCI purchase-price allocation and working-capital adjustment remained preliminary.
- Key risks include dependence on a concentrated customer base (top 10 customers generated 66% of revenue), intense pricing competition, component shortages and freight costs, demand volatility, commercial-aerospace weakness, integration and leverage risks from PCI, inflation, foreign-exchange and interest-rate exposure, and LIBOR transition. Onex held 81.5% of voting power.
- The company disclosed disputed tax assessments: approximately $7 million paid in Romania while appealing, and approximately $2 million in Brazilian assessments still under appeal. Management stated it did not expect pending litigation to materially affect results, while noting outcomes can differ from estimates.
- A brief IT outage in December 2021 had no material financial impact. Management and the auditor reported effective internal control over financial reporting; PCI, representing 12% of assets and 1% of revenue, was excluded from the controls assessment.
Important facts for investors to verify
- Whether supply availability, inventory levels, customer deposits and cash conversion improve as planned, and whether purchase-order commitments of $2.694 billion can be matched to customer demand.
- Whether PCI integration, final purchase accounting and expected benefits support ATS growth without adding unexpected costs or impairments.
- Whether margin gains and HPS growth can offset CCS program losses, competitive pricing and customer concentration.
- Debt maturities, covenant headroom, interest-rate exposure and refinancing capacity; also note that receivables-sale and supplier-financing programs are uncommitted.
- Final outcomes of the Romanian and Brazilian tax disputes, and the timing and tax cost of planned foreign-cash repatriations.