TORONTO, Aug. 08, 2018 (GLOBE NEWSWIRE) -- Martinrea International Inc. (TSX : MRE), a leader in the development and production of quality metal parts, assemblies and modules and fluid management systems and complex aluminum products focused primarily on the automotive sector, announced today the release of its financial results for the second quarter ended June 30, 2018 and a quarterly dividend.

HIGHLIGHTS

  • Fifteenth consecutive quarter with record year-over-year adjusted earnings
  • Total sales of $922 million; production sales of $857 million
  • Record second quarter net income of $55.7 million, or $0.64 per share
  • Record second quarter adjusted net income of $55.5 million, or $0.64 per share
  • Record quarterly adjusted EBITDA of $125.7 million
  • Quarterly adjusted operating income (8.9%) and adjusted EBITDA (13.6%) margins increase substantially year-over-year
  • Balance sheet continues to strengthen; quarter end net debt: adjusted EBITDA ratio very strong improving to 1.36:1
  • New business awards of approximately $240 million in annualized sales
  • Quarterly cash dividend of $0.045 declared

OVERVIEW

Pat D’Eramo, President and Chief Executive Officer, stated: ”Our second quarter results and performance were outstanding, and I am very pleased with our progress and the efforts from our people. Our metrics in the quarter and year to date continue to improve, with record earnings and significantly higher year-over-year operating margins. Productivity improvements and better product mix are helping drive the margin expansion. Our metrics in quality and safety are becoming a source of real strength for us, and our people are embracing the acceleration of our Martinrea 2.0 strategy. One of the best indicators of the progress we are making of course is new business wins. In addition to the $300 million of new business announced last quarter, I am pleased to announce new business wins for the second quarter totalling another $240 million in annualized sales at peak volume, as follows: new fluids business with Ford and GM starting in 2021 ($35 million sales at peak volume); new steel metal forming business on the Nissan Pathfinder starting in 2020 ($50 million sales at peak volume) to be produced at two of our southern US plants; new steel metal forming work for FCA on the Grand Cherokee starting in 2021 ($140 million sales at peak volume) to be produced in Michigan; and new aluminum work for JLR starting in 2021 ($15 million sales at peak volume) to be produced in Spain. That’s over half a billion dollars in new business announced in the past three months. Most of these awards reflect a strong customer response to our lightweighting solutions over a broad range of vehicles using steel or aluminum, or both, and illustrate that our strategy of providing leading edge, high quality lightweighting solutions at a competitive price is bearing fruit, with a variety of customers in many countries. We thank our customers for their support.”

Fred Di Tosto, Chief Financial Officer, stated: “Sales for the second quarter, excluding tooling sales of $65 million, were $857 million, slightly below our previously announced sales guidance range, as certain platforms had lower than expected volumes and a fire at another supplier’s magnesium plant disrupted vehicle production of various customers resulting in lower sales for the quarter. In the quarter, our adjusted net earnings per share, on a basic and diluted basis, was $0.64 per share, a record second quarter and at the mid point of our quarterly guidance range, despite the lower sales. Quarterly adjusted operating income and adjusted EBITDA margins increased significantly year-over-year and quarter-over-quarter. Operating income margin for the quarter hit 8.9%. Our balance sheet continues to strengthen as well ending the quarter at a net debt to adjusted EBITDA ratio of 1.36:1. We intend to maintain a strong balance sheet over time, and will pay down debt as appropriate, although, as previously stated, we do not have specific targets. I am also pleased to report that we extended and expanded our credit facilities with our banking syndicate, closing just a few weeks ago. We have extended our maturity date to July 2022, we enhanced certain provisions of our facility, including larger lines of credit to fund our growth if needed, improved financial covenants, and increased flexibility on asset based financing, all at market pricing consistent with the previous facility. In addition, we moved to an unsecured credit structure. We have long viewed and treated our lending syndicate as partners, and we have a great relationship with them. We thank them for their continued support.”

Rob Wildeboer, Executive Chairman, stated: “We believe our One Martinrea Culture, expressed through our Vision, Mission and Ten Principles, is and will be a source of sustainable competitive advantage for us, and we believe that the financial results of this quarter, our strengthened lending relationships, and the tremendous support of our customers evidenced by a high volume of product wins, including some so called conquest business, bears that out. As we generate positive financial performance and cash flow in future, we will have the funds to invest in our business to support organic growth, and that is and will remain our top priority in terms of capital allocation. While we have made a number of acquisitions in the past, some very significant, and while the M&A market seems very active these days, our intention is not to pay above value prices for assets, and we see little need to do so given organic growth existing and prospective. I note that we believe in the future value of our shares over time, and in that regard we intend to announce a normal course issuer bid shortly, as a potential source of returning capital to our shareholders, in the context of funding our own business growth and maintaining a strong balance sheet first. The year 2018 has had a great start. Building on that, we anticipate a strong third quarter, with production sales in the range of $790 to $830 million and adjusted net earnings per share in the range of $0.43 to $0.47, reflecting year over year improvements. The seasonality of our business in our third quarter is typically our lowest production sales quarter given planned customer summer shutdowns. 2018 is expected to be a record year for us, and the future looks terrific.”

RESULTS OF OPERATIONS

All amounts in this press release are in Canadian dollars, unless otherwise stated; and all tabular amounts are in thousands of Canadian dollars, except earnings per share and number of shares. 

Additional information about the Company, including the Company’s Management Discussion and Analysis of Operating Results and Financial Position for the second quarter ended June 30, 2018 (“MD&A”), the Company’s interim condensed consolidated financial statements for the second quarter ended June 30, 2018 (the “interim consolidated financial statements”) and the Company’s Annual Information Form for the year ended December 31, 2017, can be found at www.sedar.com.

Results of operations may include certain unusual and other items which have been separately disclosed, where appropriate, in order to provide a clear assessment of the underlying Company results. In addition to IFRS measures, management uses non-IFRS measures in the Company’s disclosures that it believes provide the most appropriate basis on which to evaluate the Company’s results.

OVERALL RESULTS

The following tables set out certain highlights of the Company’s performance for the three and six months ended June 30, 2018 and 2017. Refer to the Company’s interim consolidated financial statements for the three and six months ended June 30, 2018 for a detailed account of the Company’s performance for the periods presented in the tables below.

  Three months ended
June 30, 2018
 Three months ended
June 30, 2017
$ Change% Change
Sales$921,710 $972,772 (51,062)(5.2%)
Gross Margin 150,035  128,926 21,109 16.4%
Operating Income 81,675  66,958 14,717 22.0%
Net Income for the period 55,727  47,411 8,316 17.5%
Net Income Attributable to Equity Holders of the Company$55,727 $47,346 8,381 17.7%
Net Earnings per Share – Basic and Diluted$0.64 $0.55 0.09 16.4%
Non-IFRS Measures*      
Adjusted Operating Income$81,675 $66,958 14,717 22.0%
% of Sales 8.9% 6.9%  
Adjusted EBITDA 125,732  108,707 17,025 15.7%
% of Sales 13.6% 11.2%  
Adjusted Net Income Attributable to Equity Holders of the Company 55,527  47,346 8,181 17.3%
Adjusted Net Earnings per Share – Basic and Diluted$0.64 $0.55 0.09 16.4%


  Six months ended
June 30, 2018
 Six months ended
June 30, 2017
$ Change% Change
Sales$1,885,610 $1,973,322 (87,712)(4.4%)
Gross Margin 294,464  247,141 47,323 19.1%
Operating Income 160,116  128,991 31,125 24.1%
Net Income for the period 111,686  90,878 20,808 22.9%
Net Income Attributable to Equity Holders of the Company$111,686 $90,948 20,738 22.8%
Net Earnings per Share – Basic$1.29 $1.05 0.24 22.9%
Net Earnings per Share – Diluted$1.28 $1.05 0.23 21.9%
Non-IFRS Measures*      
Adjusted Operating Income$160,116 $123,293 36,823 29.9%
% of Sales 8.5% 6.2%  
Adjusted EBITDA 245,694  203,254 42,440 20.9%
% of Sales 13.0% 10.3%  
Adjusted Net Income Attributable to Equity Holders of the Company 112,157  86,077 26,080 30.3%
Adjusted Net Earnings per Share – Basic$1.29 $1.00 0.29 29.0%
Adjusted Net Earnings per Share – Diluted$1.28 $0.99 0.29 29.3%

*Non-IFRS Measures

The Company prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”). However, the Company considers certain non-IFRS financial measures as useful additional information in measuring the financial performance and condition of the Company. These measures, which the Company believes are widely used by investors, securities analysts and other interested parties in evaluating the Company’s performance, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to financial measures determined in accordance with IFRS. Non-IFRS measures include “Adjusted Net Income”, “Adjusted Net Earnings per Share (on a basic and diluted basis)”, “Adjusted Operating Income” and "Adjusted EBITDA”. 

The following tables provide a reconciliation of IFRS “Net Income Attributable to Equity Holders of the Company” to Non-IFRS “Adjusted Net Income Attributable to Equity Holders of the Company”, “Adjusted Operating Income” and “Adjusted EBITDA”.

  Three months ended
June 30, 2018
 Three months ended
June 30, 2017
Net Income Attributable to Equity Holders of the Company$55,727 $47,346 
Unusual and Other Items (after-tax)* (200)  
Adjusted Net Income Attributable to Equity Holders of the Company$55,527 $47,346 
     
  Six months ended
June 30, 2018
 Six months ended
June 30, 2017
Net Income Attributable to Equity Holders of the Company$111,686 $90,948 
Unusual and Other Items (after-tax)* 471  (4,871)
Adjusted Net Income Attributable to Equity Holders of the Company$112,157 $86,077 
*Unusual and other items are explained in the "Adjustments to Net Income" section of this press release


  Three months ended
June 30, 2018
 Three months ended
June 30, 2017
Net Income Attributable to Equity Holders of the Company$55,727 $47,346 
Non-controlling interest   65 
Income tax expense 18,065  14,162 
Other finance expense (income) - excluding Unusual and Other Items* 1,205  (112)
Finance expense 6,907  5,497 
Unusual and Other Items (before-tax)* (229)  
Adjusted Operating Income$81,675 $66,958 
Depreciation of property, plant and equipment 40,500  37,719 
Amortization of intangible assets 3,333  3,990 
Loss on disposal of property, plant and equipment 224  40 
Adjusted EBITDA$125,732 $108,707 


  Six months ended
June 30, 2018
 Six months ended
June 30, 2017
Net Income Attributable to Equity Holders of the Company$111,686 $90,948 
Non-controlling interest   (70)
Income tax expense 36,018  27,515 
Other finance income - excluding Unusual and Other Items* (1,534) (743)
Finance expense 13,408  11,341 
Unusual and Other Items (before-tax)* 538  (5,698)
Adjusted Operating Income$160,116 $123,293 
Depreciation of property, plant and equipment 78,558  72,528 
Amortization of intangible assets 6,810  7,726 
Loss (gain) on disposal of property, plant and equipment 210  (293)
Adjusted EBITDA$245,694 $203,254 
*Unusual and other items are explained in the "Adjustments to Net Income" section of this press release


SALES      
       
Three months ended June 30, 2018 to three months ended June 30, 2017 comparison
       
  Three months ended
June 30, 2018
 Three months ended
June 30, 2017
$ Change% Change
North America$701,847 $789,055 (87,208)(11.1%)
Europe 188,703  155,620 33,083 21.3%
Rest of the World                                                                          33,828  32,767 1,061 3.2%
Eliminations (2,668) (4,670)2,002 (42.9%)
Total Sales$921,710 $972,772 (51,062)(5.2%)

The Company’s consolidated sales for the second quarter of 2018 decreased by $51.1 million or 5.2% to $921.7 million as compared to $972.8 million for the second quarter of 2017. The total decrease in sales was driven by a decrease in the North America operating segment, partially offset by year-over-year increases in sales in Europe and the Rest of the World.

Sales for the second quarter of 2018 in the Company’s North America operating segment decreased by $87.2 million or 11.1% to $701.8 million from $789.1 million for the second quarter of 2017. The decrease was due to the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the second quarter of 2018 of approximately $27.7 million as compared to the second quarter of 2017; lower year-over-year production volumes on certain light-vehicle platforms including the Ford Escape, Ford Fusion, GM pick-up truck line-up, and programs that ended production during or subsequent to the second quarter of 2017 such as the previous version of the GM Equinox/Terrain; and overall lower year-over-year production volumes resulting from unplanned OEM shutdowns during the second quarter of 2018 because of a fire at an industry-wide supplier of magnesium components which disrupted the automotive supply chain and, as a result, production levels of various vehicle platforms at Ford, FCA, GM, Daimler and BMW for a period of time during the month of May. These negative factors were partially offset by the launch of new programs during or subsequent to the second quarter of 2017, including the next generation GM Equinox/Terrain, and an increase in tooling sales of $9.1 million, which are typically dependent on the timing of tooling construction and final acceptance by the customer.

Sales for the second quarter of 2018 in the Company’s Europe operating segment increased by $33.1 million or 21.3% to $188.7 million from $155.6 million for the second quarter of 2017. The increase can be attributed to a $13.0 million increase in tooling sales; a $10.1 million positive foreign exchange impact from the translation of Euro denominated production sales as compared to the second quarter of 2017; and higher overall production volumes in the Company’s Martinrea Honsel German operations including the ramp up of new aluminum structural components work and the new V8 AMG engine block for Daimler.

Sales for the second quarter of 2018 in the Company’s Rest of the World operating segment increased by $1.1 million or 3.2% to $33.8 million from $32.8 million in the second quarter of 2017. The increase was due to a $1.6 million increase in tooling sales, higher year-over-year production sales in the Company’s operating facility in Brazil, and the launch of new aluminum structural components work for Jaguar Landrover in China, which began to ramp up in the first quarter of 2018; partially offset by a $1.3 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the second quarter of 2017 and lower year-over-year OEM production volumes on the Ford Mondeo vehicle platform in China.

Overall tooling sales increased by $25.5 million to $64.8 million for the second quarter of 2018 from $39.3 million for the second quarter of 2017.

Six months ended June 30, 2018 to six months ended June 30, 2017 comparison
       
  Six months ended
June 30, 2018
 Six months ended
June 30, 2017
$ Change% Change
North America                                                                               $1,443,002 $1,592,039 (149,037)(9.4%)
Europe 374,426  327,940 46,486 14.2%
Rest of the World 74,209  59,844 14,365 24.0%
Eliminations (6,027) (6,501)474 (7.3%)
Total Sales$1,885,610 $1,973,322 (87,712)(4.4%)

The Company’s consolidated sales for the six months ended June 30, 2018 decreased by $87.7 million or 4.4% to $1,885.6 million as compared to $1,973.3 million for the six months ended June 30, 2017. The total decrease in sales was driven by a decrease in the North America operating segment, partially offset by year-over-year increases in sales in Europe and the Rest of the World.

Sales for the six months ended June 30, 2018 in the Company’s North America operating segment decreased by $149.0 million or 9.4% to $1,443.0 million from $1,592.0 million for the six months ended June 30, 2017. The decrease was due to the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the six months ended June 30, 2018 of approximately $57.0 million as compared to the corresponding period of 2017; lower year-over-year production volumes on certain light-vehicle platforms including the Ford Escape, Ford Fusion, Chevrolet Malibu, GM pick-up truck line-up, and programs that ended production during or subsequent to the six months ended June 30, 2017 such as the previous version of the GM Equinox/Terrain; and overall lower year-over-year production volumes resulting from unplanned OEM shutdowns during the second quarter of 2018 because of a fire at an industry-wide supplier of magnesium components which disrupted the automotive supply chain and, as a result, production levels of various vehicle platforms at Ford, FCA, GM, Daimler and BMW for a period of time during the month of May. These negative factors were partially offset by the launch of new programs during or subsequent to the six months ended June 30, 2017, including the next generation GM Equinox/Terrain, and an increase in tooling sales of $14.5 million, which are typically dependant on the timing of tooling construction and final acceptance by the customer.

Sales for the six months ended June 30, 2018 in the Company’s Europe operating segment increased by $46.5 million or 14.2% to $374.4 million from $327.9 million for the six months ended June 30, 2017. The increase can be attributed to the impact of foreign exchange on the translation of Euro denominated production sales, which had a positive impact on overall sales for the six months ended June 30, 2018 of $24.7 million as compared to the corresponding period of 2017; a $7.8 million increase in tooling sales; and higher overall production volumes in the Company’s Martinrea Honsel German operations including the ramp up of new aluminum structural components work and the new V8 AMG engine block for Daimler. 

Sales for the six months ended June 30, 2018 in the Company’s Rest of the World operating segment increased by $14.4 million or 24.0% to $74.2 million from $59.8 million for the six months ended June 30, 2017. The increase was due to a $9.0 million increase in tooling sales, higher year-over-year production sales in the Company’s operating facility in Brazil, and the launch of new aluminum structural components work of Jaguar Landrover in China, which began to ramp up in the first quarter of 2018; partially offset by a $1.6 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the corresponding period of 2017 and lower year-over-year OEM production volumes on the Ford Mondeo vehicle platform in China.

Overall tooling sales increased by $32.5 million to $136.0 million for the six months ended June 30, 2018 from $103.5 million for the six months ended June 30, 2017.

GROSS MARGIN      
       
Three months ended June 30, 2018 to three months ended June 30, 2017 comparison
       
  Three months ended
June 30, 2018
 Three months ended
June 30, 2017
$ Change% Change
Gross margin                                                                   $150,035 $128,926 21,10916.4%
% of Sales 16.3% 13.3%  

The gross margin percentage for the second quarter of 2018 of 16.3% increased as a percentage of sales by 3.0% as compared to the gross margin percentage for the second quarter of 2017 of 13.3%. The increase in gross margin as a percentage of sales was generally due to:

  • productivity and efficiency improvements at certain operating facilities; and
  • general sales mix including new and replacement programs that launched, and old programs that ended production, during or subsequent to the second quarter of 2017.

These positive factors were partially offset by operational inefficiencies and other costs at certain other facilities, including upfront costs incurred in preparation of upcoming new programs and related to new business in the process of being launched; and an increase in tooling sales which typically earn low margins for the Company.

Six months ended June 30, 2018 to six months ended June 30, 2017 comparison
       
  Six months ended
June 30, 2018
  Six months ended
June 30, 2017
 $ Change% Change
Gross margin                                                                       $294,464 $247,141 47,32319.1%
% of Sales 15.6% 12.5%  

The gross margin percentage for the six months ended June 30, 2018 of 15.6% increased as a percentage of sales by 3.1% as compared to the gross margin percentage for the six months ended June 30, 2017 of 12.5%. Consistent with the year-over-year increase in the second quarter of 2018 as explained above, the increase in gross margin for the six months ended June 30, 2018, as a percentage of sales, was generally due to:

  • productivity and efficiency improvements at certain operating facilities; and
  • general sales mix including new and replacement programs that launched, and old programs that ended production, during or subsequent to the six months ended June 30, 2017.

These positive factors were partially offset by operational inefficiencies and other costs at certain other facilities, including upfront costs incurred in preparation of upcoming new programs and related to new business in the process of being launched; and an increase in tooling sales which typically earn low margins for the Company.

ADJUSTMENTS TO NET INCOME
(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

Adjusted Net Income excludes certain unusual and other items, as set out in the following tables and described in the notes thereto. Management uses Adjusted Net Income as a measurement of operating performance of the Company and believes that, in conjunction with IFRS measures, it provides useful information about the financial performance and condition of the Company.

TABLE A
 
Three months ended June 30, 2018 to three months ended June 30, 2017 comparison 
     
 For the three months For the three months 
 ended June 30, 2018 ended June 30, 2017(a)–(b)
 (a) (b)Change
     
NET INCOME (A)$55,727  $47,346$8,381 
     
Add Back – Unusual and Other Items:    
     
Unrealized gain on derivative instruments (2)                                                             (229) (229)
     
     
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX($229) ($229)
     
Tax impact of above items29  29 
     
     
TOTAL UNUSUAL AND OTHER ITEMS – AFTER TAX (B)($200) ($200)
     
     
ADJUSTED NET INCOME (A + B)$55,527  $47,346$8,181 
     
Number of Shares Outstanding – Basic (‘000)86,814  86,512 
Adjusted Basic Net Earnings Per Share$0.64  $0.55 
Number of Shares Outstanding – Diluted (‘000)87,426  86,786 
Adjusted Diluted Net Earnings Per Share$0.64  $0.55 
     


TABLE B
 
Six months ended June 30, 2018 to six months ended June 30, 2017 comparison   
     
 For the six months
ended June 30, 2018
 For the six months
ended June 30, 2017
 
  (a)–(b)
 (a) (b)Change
     
NET INCOME (A)$111,686  $90,948 $20,738 
     
Add Back – Unusual and Other Items:                                             
     
Gain on sale of land and building (1)  (5,698)5,698 
Unrealized loss on derivative instruments (2)538   538 
     
     
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX$538  ($5,698)$6,236 
     
Tax impact of above items(67) 827 (894)
     
     
TOTAL UNUSUAL AND OTHER ITEMS – AFTER TAX (B)$471  ($4,871)$5,342 
     
ADJUSTED NET INCOME (A + B)$112,157  $86,077 $26,080 
     
Number of Shares Outstanding – Basic (‘000)86,780  86,502  
Adjusted Basic Net Earnings Per Share$1.29  $1.00  
Number of Shares Outstanding – Diluted (‘000)87,364  86,714  
Adjusted Diluted Net Earnings Per Share$1.28  $0.99  
     

1. Gain on sale of land and building

During the first quarter of 2017, in connection with the relocation of an existing operation to another manufacturing facility, a building owned by the Company in Mississauga, Ontario was sold on an “as-is, where-is” basis. The building was sold for proceeds of $9.9 million (net of closing costs of $0.4 million) resulting in a pre-tax gain of $5.7 million.

2. Unrealized gain on derivative instruments

In the third quarter of 2017, the Company acquired 5,500,000 common shares in NanoXplore Inc. (“NanoXplore”), a publicly listed company on the TSX Venture Exchange trading under the ticker symbol GRA, for a total of $2.5 million through a private placement offering (the investment is further described in note 6 of the interim consolidated financial statements and later on in the MD&A under the section “Investments”). As part of the transaction to acquire the common shares, the Company also received warrants entitling the Company to acquire up to an additional 2,750,000 common shares in NanoXplore at a price of $0.70 per share for a period of up to two years after issuance. 

During the first quarter of 2018, the Company acquired an additional 411,800 common shares in NanoXplore for a total of $0.7 million through another private placement offering. As part of the transaction to acquire the additional common shares, the Company also received warrants entitling the Company to acquire up to an additional 205,900 common shares in NanoXplore at a price of $2.30 per share for a period of up to two years after issuance. 

The warrants in NanoXplore represent derivative instruments and are fair valued at the end of each reporting period with the change in fair value recorded through profit or loss. As at June 30, 2018, the warrants had a fair value of $3.6 million. Based on the fair value of the warrants as at June 30, 2018, an unrealized gain of $0.2 million was recognized in the second quarter of 2018 and an unrealized loss of $0.5 million was recognized for the six months ended June 30, 2018, recorded in other finance income (expense) and added back for Adjusted Net Income purposes.

NET INCOME
(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)
        
Three months ended June 30, 2018 to three months ended June 30, 2017 comparison
        
   Three months ended
June 30, 2018
 Three months ended
June 30, 2017
$ Change% Change
Net Income$55,727$47,3468,38117.7%
Adjusted Net Income                                                                           $55,527$47,3468,18117.3%
Net Earnings per Share      
 Basic and Diluted$0.64$0.55  
Adjusted Net Earnings per Share      
 Basic and Diluted$0.64$0.55  

Net Income, before adjustments, for the second quarter of 2018 increased by $8.4 million to $55.7 million from $47.3 million for the second quarter of 2017 largely as a result of the year-over-year increase in the Company’s gross margin as previously discussed. Excluding the unusual and other item recognized during the second quarter of 2018 as explained in Table A under “Adjustments to Net Income”, net income for the second quarter of 2018 increased to $55.5 million or $0.64 per share, on a basic and diluted basis, from $47.3 million or $0.55 per share, on a basic and diluted basis, for the second quarter of 2017. 

Adjusted Net Income for the second quarter of 2018, as compared to the second quarter of 2017, was positively impacted by the following:

  • higher gross profit despite an overall decrease in year-over-year sales as previously explained;
  • productivity and efficiency improvements at certain operating facilities; and
  • general sales mix including new and replacement programs that launched, and old programs that ended production, during or a subsequent to the second quarter of 2017.

These factors were partially offset by the following:

  • operational inefficiencies and other costs at certain other facilities;
  • a year-over-year increase in SG&A expense as previously discussed;
  • a year-over-year increase in depreciation expense as previously discussed;
  • a year-over-year increase in finance expense on the Company’s bank debt and equipment loans as a result of increased borrowing rates;
  • a net foreign exchange loss of $1.3 million for the second quarter of 2018; and
  • a higher effective tax rate on adjusted income due generally to the mix of earnings (24.5% for the second quarter of 2018 compared to 23.0% for the second quarter of 2017).
Six months ended June 30, 2018 to six months ended June 30, 2017 comparison
        
   Six months ended
June 30, 2018
 Six months ended
June 30, 2017
$ Change% Change
Net Income$111,686$90,94820,73822.8%
Adjusted Net Income                                                                         $112,157$86,07726,08030.3%
Net Earnings per Share      
Basic$1.29$1.05  
Diluted$1.28$1.05  
Adjusted Net Earnings per Share      
Basic$1.29$1.00  
Diluted$1.28$0.99  

Net Income, before adjustments, for the six months ended June 30, 2018 increased by $20.7 million to $111.7 million from $90.9 million for the six months ended June 30, 2017 largely as a result of the year-over-year increase in the Company’s gross margin, as previously discussed, and the impact of the unusual and other items incurred during the six months ended June 30, 2018 and 2017 as explained in Table B under “Adjustments to Net Income”. Excluding these unusual and other items, net income for the six months ended June 30, 2018 increased to $112.2 million or $1.29 per share, on a basic basis, and $1.28 on a diluted basis, from $86.1 million or $1.00 per share, on a basic basis, and $0.99 per share, on a diluted basis, for the six months ended June 30, 2017.

Adjusted Net Income for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017, was positively impacted by the following:

  • higher gross profit despite an overall decrease in year-over-year sales as previously explained;
  • productivity and efficiency improvements at certain operating facilities;
  • general sales mix including new and replacement programs that launched, and old programs that ended production, during or subsequent to the six months ended June 30, 2017; and
  • a net foreign exchange gain of $1.4 million for the six months ended June 30, 2018 compared to a net foreign exchange gain of $0.6 million for the six months ended June 30, 2017.

These factors were partially offset by the following:

  • operational inefficiencies and other costs at certain other facilities;
  • a year-over-year increase in SG&A as previously discussed;
  • a year-over-year increase in depreciation expense as previously discussed;
  • a year-over-year increase in finance expense on the Company’s bank debt and equipment loans as a result of increased borrowing rates; and
  • a higher effective tax rate on adjusted income due generally to the mix of earnings (24.3% for the six months ended June 30, 2018 compared to 23.7% for the six months ended June 30, 2017).
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
       
Three months ended June 30, 2018 to three months ended June 30, 2017 comparison
       
  Three months ended
June 30, 2018
 Three months ended
June 30, 2017
$ Change% Change
Additions to PP&E                                                         $69,574$45,09124,48354.3%

Additions to PP&E increased by $24.5 million to $69.6 million or 7.5% of sales in the second quarter of 2018 from $45.1 million or 4.6% of sales in the second quarter of 2017 due in large part to the timing of expenditures. The Company continues to make investments in the business, including in both new and replacement business, as the Company’s global footprint expands and as it executes on its growing backlog of new business in all its various product offerings.

Six months ended June 30, 2018 to six months ended June 30, 2017 comparison
       
  Six months ended
June 30, 2018
 Six months ended
June 30, 2017
$ Change% Change
Additions to PP&E                                                   $119,911$111,7328,1797.3%

Additions to PP&E increased by $8.2 million year-over-year to $119.9 million or 6.4% of sales for the six months ended June 30, 2018 compared to $111.7 million or 5.7% of sales for the six months ended June 30, 2017 due generally to the timing of expenditures. As explained above, the Company continues to make investments in the business, including in both new and replacement business, as the Company’s global footprint expands and as it executes on its growing backlog of new business in all its various product offerings.

DIVIDEND

A cash dividend of $0.045 per share has been declared by the Board of Directors payable to shareholders of record on September 30, 2018, on or about October 15, 2018.
                                                                                                                                                                      
ABOUT MARTINREA

Martinrea currently employs approximately 15,000 skilled and motivated people in 44 operating divisions in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain and China.

Martinrea’s vision: making lives better by being the best supplier we can be in the products we make and the services we provide.  The Company’s mission is to make people’s lives better by delivering: outstanding quality products and services to our customers; meaningful opportunity, job satisfaction and job security to our people through competitiveness and prudent growth; superior long term investment returns to our stakeholders; and positive contributions to our communities as good corporate citizens.

CONFERENCE CALL DETAILS

A conference call to discuss those results will be held on Thursday, August 9, 2018 at 8:30am. (Toronto time) which can be accessed by dialing (416) 340-2218 or toll free (800) 377-0758.  Please call 10 minutes prior to the start of the conference call. 

If you have any teleconferencing questions, please call Andre La Rosa at (416) 749-0314.

There will also be a rebroadcast of the call available by dialing (905) 694-9451 or toll free (800) 408-3053 (conference id - 1498875#).  The rebroadcast will be available until August 27, 2018.

FORWARD-LOOKING INFORMATION

Special Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of applicable Canadian securities laws including statements related to the growth or expectations of, improvements in, expansion of and/or guidance or outlook as to future revenue, sales, gross margin, earnings, and earnings per share (including as adjusted), or operating income margins, improvements in the Company’s metrics including quality and safety, the intention to maintain a strong balance sheet and pay down debt over time, program wins, expected volumes, the ramping up and launching of new programs and the financial impact of launches, statements relating to investments in the business, pursuit of its strategies, the intention to commence an NCIB, the payment of dividends, as well as other forward-looking statements.  The words “continue”, “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “views”, “intend”, “believe”, “plan”, “outlook” and similar expressions are intended to identify forward-looking statements.  Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances, such as expected sales and industry production estimates, current foreign exchange rates (FX), timing of product launches and operational improvements during the period and current Board approved budgets.  Certain forward-looking financial assumptions are presented as non-IFRS information, and we do not provide reconciliation to IFRS for such assumptions.  Many factors could cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors, some of which are discussed in detail in the Company’s Annual Information Form and other public filings which can found at www.sedar.com:

  • North American and global economic and political conditions;
  • the highly cyclical nature of the automotive industry and the industry’s dependence on consumer spending and general economic conditions;
  • the Company’s dependence on a limited number of significant customers;
  • financial viability of suppliers;
  • the Company’s reliance on critical suppliers and on suppliers for components and the risk that suppliers will not be able to supply components on a timely basis or in sufficient quantities;
  • Competition;
  • the increasing pressure on the Company to absorb costs related to product design and development, engineering, program management, prototypes, validation and tooling;
  • increased pricing of raw materials;
  • outsourcing and insourcing trends;
  • the risk of increased costs associated with product warranty and recalls together with the associated liability;
  • the Company’s ability to enhance operations and manufacturing techniques;
  • dependence on key personnel;
  • limited financial resources;
  • risks associated with the integration of acquisitions;
  • costs associated with rationalization of production facilities;
  • launch costs;
  • the potential volatility of the Company’s share price;
  • changes in governmental regulations or laws including any changes to the North American Free Trade Agreement;
  • labour disputes;
  • litigation;
  • currency risk;
  • fluctuations in operating results;
  • internal controls over financial reporting and disclosure controls and procedures;
  • environmental regulation;
  • a shift away from technologies in which the Company is investing;
  • competition with low cost countries;
  • the Company’s ability to shift its manufacturing footprint to take advantage of opportunities in emerging markets;
  • risks of conducting business in foreign countries, including China, Brazil and other growing markets;
  • potential tax exposure;
  • a change in the Company’s mix of earnings between jurisdictions with lower tax rates and those with higher tax rates, as well as under-funding of pensions plans;
  • the cost of post-employment benefits;
  • impairment charges;
  • cybersecurity threats; and
  • dividends.

These factors should be considered carefully, and readers should not place undue reliance on the Company’s forward-looking statements.  The Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The common shares of Martinrea trade on The Toronto Stock Exchange under the symbol “MRE”.

For further information, please contact:

Fred Di Tosto
Chief Financial Officer
Martinrea International Inc.
3210 Langstaff Road
Vaughan, Ontario  L4K 5B2

Tel:         (416) 749-0314
Fax:        (289) 982-3001

Martinrea International Inc.
Interim Condensed Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)     
      
      
 Note June 30, 2018 December 31, 2017
ASSETS     
Cash and cash equivalents $75,258$71,193
Trade and other receivables2 587,902 556,049
Inventories3 448,414 376,972
Prepaid expenses and deposits  19,509 15,504
Income taxes recoverable  8,694 12,979
TOTAL CURRENT ASSETS  1,139,777 1,032,697
Property, plant and equipment4 1,365,662 1,282,624
Deferred income tax assets  171,738 142,173
Intangible assets5 68,343 68,414
Other assets6 14,790 15,265
TOTAL NON-CURRENT ASSETS  1,620,533 1,508,476
TOTAL ASSETS $2,760,310$2,541,173
      
LIABILITIES     
Trade and other payables7$792,189$741,549
Provisions8 4,850 5,048
Income taxes payable  30,083 34,429
Current portion of long-term debt9 18,021 24,795
TOTAL CURRENT LIABILITIES  845,143 805,821
Long-term debt9 662,071 629,222
Pension and other post-retirement benefits  62,982 65,258
Deferred income tax liabilities  85,608 82,373
TOTAL NON-CURRENT LIABILITIES  810,661 776,853
TOTAL LIABILITIES  1,655,804 1,582,674
      
EQUITY     
Capital stock10 714,901 713,425
Contributed surplus  41,818 41,981
Accumulated other comprehensive income  131,608 94,268
Retained earnings  216,179 108,825
TOTAL EQUITY  1,104,506 958,499
TOTAL LIABILITIES AND EQUITY $2,760,310$2,541,173

Subsequent event (note 9)
Contingencies (note 16)

See accompanying notes to the interim condensed consolidated financial statements.

On behalf of the Board:

“Robert Wildeboer” Director
“Scott Balfour” Director


 
Martinrea International Inc.
Interim Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts) (unaudited) 
          
          
   Three months
ended
 Three months
ended
 Six months
ended
 Six months
ended
 Note June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
          
SALES $921,710 $972,772 $1,885,610 $1,973,322 
          
Cost of sales (excluding depreciation of property, plant and equipment)  (733,790) (808,539) (1,517,649) (1,658,324)
Depreciation of property, plant and equipment (production)  (37,885) (35,307) (73,497) (67,857)
Total cost of sales  (771,675) (843,846) (1,591,146) (1,726,181)
GROSS MARGIN  150,035  128,926  294,464  247,141 
          
Research and development costs  (6,463) (6,437) (13,147) (13,252)
Selling, general and administrative  (58,520) (52,539) (114,862) (105,138)
Depreciation of property, plant and equipment (non-production)  (2,615) (2,412) (5,061) (4,671)
Amortization of customer contracts and relationships  (538) (540) (1,068) (1,080)
Gain (loss) on disposal of property, plant and equipment  (224) (40) (210) 293 
Gain on sale of land and building4 -  -  -  5,698 
OPERATING INCOME  81,675  66,958  160,116  128,991 
          
Finance expense  (6,907) (5,497) (13,408) (11,341)
Other finance income (expense)13 (976) 112  996  743 
INCOME BEFORE INCOME TAXES  73,792  61,573  147,704  118,393 
          
Income tax expense11 (18,065) (14,162) (36,018) (27,515)
NET INCOME FOR THE PERIOD $55,727 $47,411 $111,686 $90,878 
          
Non-controlling interest  -  (65) -  70 
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY $55,727 $47,346 $111,686 $90,948 
          
          
Basic earnings per share12$0.64 $0.55 $1.29 $1.05 
Diluted earnings per share12$0.64 $0.55 $1.28 $1.05 

See accompanying notes to the interim condensed consolidated financial statements.

Martinrea International Inc.
Interim Condensed Consolidated Statements of Comprehensive Income

(in thousands of Canadian dollars) (unaudited)

   Three months
ended
 Three months
ended
 Six months
ended
 Six months
ended
   June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
          
NET INCOME FOR THE PERIOD$55,727 $47,411 $111,686 $90,878 
Other comprehensive income (loss), net of tax:        
 Items that may be reclassified to net income        
 Foreign currency translation differences for foreign operations 392  (7,664) 39,825  (12,354)
 Change in fair value of investments 466  -  (539) - 
 Cash flow hedging derivative and non-derivative financial instruments:        
   Unrealized loss in fair value of financial instruments (1,975) -  (1,975) - 
   Reclassification of losses to net income 29  -  29  - 
 Items that will not be reclassified to net income        
 Remeasurement of defined benefit plans 170  (3,194) 2,245  (3,729)
Other comprehensive income (loss), net of tax  (918) (10,858) 39,585  (16,083)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD$54,809 $36,553 $151,271 $74,795 
          
Attributable to:        
 Equity holders of the Company 54,809  36,488  151,271  74,865 
 Non-controlling interest -  65  -  (70)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD$54,809 $36,553 $151,271 $74,795 

See accompanying notes to the interim condensed consolidated financial statements.

Martinrea International Inc.
Interim Condensed Consolidated Statements of Changes in Equity

(in thousands of Canadian dollars) (unaudited)

   Equity attributable to equity holders of the Company   
                 
        Accumulated Retained      
        other earnings/   Non-  
    Capital Contributed comprehensive (accumulated   controlling Total
    stock surplus income deficit) Total interest equity
BALANCE AT DECEMBER 31, 2016$710,510$42,660 $117,048 $(40,020)$830,198 $(522)$829,676 
Net income for the period - -  -  90,948  90,948  (70) 90,878 
Compensation expense related to stock options - 74  -  -  74  -  74 
Dividends ($0.06 per share) - -  -  (5,194) (5,194) -  (5,194)
Exercise of employee stock options 284 (82) -  -  202  -  202 
Other comprehensive income (loss),              
net of tax              
 Remeasurement of defined benefit plans - -  -  (3,729) (3,729) -  (3,729)
 Foreign currency translation differences - -  (12,354) -  (12,354) -  (12,354)
BALANCE AT JUNE 30, 2017 710,794 42,652  104,694  42,005  900,145  (592) 899,553 
Net income for the period - -  -  68,595  68,595  (207) 68,388 
Change in non-controlling interest - -  -  (1,849) (1,849) 799  (1,050)
Compensation expense related to stock options - 49  -  -  49  -  49 
Dividends ($0.06 per share) - -  -  (5,194) (5,194) -  (5,194)
Exercise of employee stock options 2,631 (720) -  -  1,911  -  1,911 
Other comprehensive income (loss),              
net of tax              
 Remeasurement of defined benefit plans - -  -  5,268  5,268  -  5,268 
 Foreign currency translation differences - -  (18,383) -  (18,383) -  (18,383)
 Change in fair value of investments - -  7,957  -  7,957  -  7,957 
BALANCE AT DECEMBER 31, 2017 713,425 41,981  94,268  108,825  958,499  -  958,499 
Net income for the period - -  -  111,686  111,686  -  111,686 
Compensation expense related to stock options - 228  -  -  228  -  228 
Dividends ($0.075 per share) - -  -  (6,577) (6,577) -  (6,577)
Exercise of employee stock options 1,476 (391) -  -  1,085  -  1,085 
Other comprehensive income (loss),              
net of tax              
 Remeasurement of defined benefit plans - -  -  2,245  2,245  -  2,245 
 Foreign currency translation differences - -  39,825  -  39,825  -  39,825 
 Change in fair value of investments - -  (539) -  (539) -  (539)
 Cash flow hedging derivative and non-derivative              
 financial instruments:              
   Unrealized loss in fair value of financial instruments - -  (1,975) -  (1,975) -  (1,975)
  Reclassification of losses to net income - -  29  -  29  -  29 
BALANCE AT JUNE 30, 2018$714,901$41,818 $131,608 $216,179 $1,104,506 $- $1,104,506 

See accompanying notes to the interim condensed consolidated financial statements.

Martinrea International Inc.
Interim Condensed Consolidated Statements of Cash Flows

(in thousands of Canadian dollars) (unaudited)

    Three months ended  Three months ended  Six months ended Six months ended
    June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
CASH PROVIDED BY (USED IN):        
OPERATING ACTIVITIES:        
Net Income for the period$55,727 $47,411 $111,686 $90,878 
Adjustments for:        
 Depreciation of property, plant and equipment 40,500  37,719  78,558  72,528 
 Amortization of customer contracts and relationships 538  540  1,068  1,080 
 Amortization of development costs 2,795  3,450  5,742  6,646 
 Unrealized loss (gain) on foreign exchange forward contracts 839  2,146  (465) 450 
 Unrealized loss (gain) on derivative instruments (note 6) (229) -  538  - 
 Finance expense 6,907  5,497  13,408  11,341 
 Income tax expense 18,065  14,162  36,018  27,515 
 Loss (gain) on disposal of property, plant and equipment 224  40  210  (293)
 Deferred and restricted share units expense 1,078  691  1,380  789 
 Stock options expense 54  38  228  74 
 Gain on sale of land and building (note 4) -  -  -  (5,698)
 Pension and other post-retirement benefits expense 1,195  1,154  2,372  2,292 
 Contributions made to pension and other post-retirement benefits (1,981) (476) (2,624) (976)
    125,712  112,372  248,119  206,626 
Changes in non-cash working capital items:        
 Trade and other receivables 61,120  14,544  (11,566) (43,102)
 Inventories (22,823) (18,203) (59,238) (36,752)
 Prepaid expenses and deposits (613) (1,821) (3,692) (3,865)
 Trade, other payables and provisions (46,595) (22,090) 53,581  97,505 
  116,801  84,802  227,204  220,412 
 Interest paid (excluding capitalized interest) (7,311) (4,844) (14,244) (9,964)
 Income taxes paid (30,900) (9,205) (62,578) (32,657)
NET CASH PROVIDED BY OPERATING ACTIVITIES$78,590 $70,753 $150,382 $177,791 
           
FINANCING ACTIVITIES:        
 Increase in long-term debt 36,886  -  56,575  - 
 Repayment of long-term debt (41,724) (7,631) (47,003) (34,590)
 Dividends paid (2,603) (2,591) (5,205) (5,182)
 Exercise of employee stock options 1,085  -  1,085  202 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES$(6,356)$(10,222)$5,452 $(39,570)
           
INVESTING ACTIVITIES:        
 Purchase of property, plant and equipment* (79,849) (56,213) (151,302) (143,552)
 Capitalized development costs (3,492) (3,768) (6,484) (7,291)
 Investment in NanoXplore Inc. (note 6) -  -  (680) - 
 Proceeds on disposal of property, plant and equipment 203  167  973  625 
 Upfront recovery of development costs incurred 2,276  1,170  2,276  1,170 
 Proceeds on disposal of land and building (note 4) -  -  -  9,872 
NET CASH USED IN INVESTING ACTIVITIES$(80,862)$(58,644)$(155,217)$(139,176)
           
Effect of foreign exchange rate changes on cash and cash equivalents 2,491  (793) 3,448  (1,067)
           
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,137) 1,094  4,065  (2,022)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 81,395  56,049  71,193  59,165 
CASH AND CASH EQUIVALENTS, END OF PERIOD$75,258 $57,143 $75,258 $57,143 

*As at June 30, 2018, $32,486 (December 31, 2017 - $63,877) of purchases of property, plant and equipment remain unpaid and are recorded in trade and other payables and provisions.

See accompanying notes to the interim condensed consolidated financial statements.