Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

May 12, 2008 18:12 ET

Martinrea International Inc. Releases First Quarter 2008 Results: Positive Returns in a Soft Market

TORONTO, ONTARIO--(Marketwire - May 12, 2008) - Martinrea International Inc. (TSX:MRE), a leader in the production of quality metal parts, assemblies and modules and fluid management systems focused primarily on the automotive sector, announced today the release of its financial results for its first quarter ended March 31, 2008. Martinrea currently employs approximately 7,100 skilled and motivated people in 30 plants in Canada, the United States, Mexico, and the United Kingdom.

Revenues for the quarter ended March 31, 2008 totaled $433.8 million as compared to $525.8 million for the quarter ended March 31, 2007, a decrease of 17.5%. Revenues for the first quarter ended March 31, 2008 have decreased from the prior year comparables primarily due to lower volumes on existing customer programs as a result of the general downturn in the automotive industry, the impact of the American Axle strike, a decrease of tooling revenues, and an appreciation of the Canadian dollar versus the U.S. dollar resulting in a reduction in the translation of U.S. dollar denominated revenues. Incremental production sales were also offset by customer pricing pressures that continue to be a normal part of the North American automotive parts industry.

The Company's revenue for the first quarter of 2008 of $433.8 million was lower than the revenue of the fourth quarter of 2007 of $462.5 million primarily due to the impact of the American Axle strike and the general downturn in the automotive industry. Tooling revenue increased by $11.9 million compared to the fourth quarter of 2007.

Gross margin percentage for the quarter ended March 31, 2008 was 11.4% as compared to 11.8% for the quarter ended March 31, 2007. Gross margin percentage for the first quarter of 2008 has decreased in comparison to the first quarter of 2007 gross margin percentage primarily due to lower production volumes in the first quarter of 2008 as compared to the first quarter of 2007 and the continuing impact of unfavourable product launch costs at one of the Company's facilities. The Company will work to improve gross margin percentage through continuation of its efficiency programs, the utilization of capacity, incremental new work from customers and the rationalization of operating facilities as necessary.

Gross margin percentage of 11.4 % for the first quarter of 2008 is lower than the 12.6% gross margin percentage for the fourth quarter of 2007 primarily due to unfavourable gross margin product mix and lower production volumes in the first quarter of 2008 as compared to the fourth quarter of 2007. The Company expects to improve gross margin through new efficiency programs, the utilization of available capacity and the rationalization of operating facilities as necessary. As production volume increases, the Company anticipates gross margin would increase.

Net earnings for the quarter ended March 31, 2008 were approximately $9.9 million versus a $14.7 million result for the quarter ended March 31, 2007, a decrease of 32.4% year over year. The earnings per share for the quarter was $0.14 on a basic and diluted basis as compared to the prior year of $0.23 on a basic and diluted basis. The decrease in net earnings from the prior year is primarily attributable to lower revenues as a result of general downturn in the automotive industry, the impact of the American Axle strike, product mix and the continuing impact of unfavourable product launch costs at one of the Company's facilities.

Net earnings for the first quarter of 2008 were $9.9 million and $0.14 per share on a basic and fully diluted basis as compared to net earnings in the fourth quarter of 2007 of $11.3 million and $0.16 on a basic and fully diluted basis. The decrease in net earnings and earnings per share in the first quarter of 2008 as compared to the fourth quarter of 2007 is primarily attributable to the lower production volumes and product mix.

In the first quarter of 2008, capital expenditures decreased by $0.9 million to $13.0 million from $13.9 million in the first quarter of 2007. The capital expenditures incurred in the first quarter of 2008 are attributable to program capital for new and existing programs.

Fred Jaekel, Martinrea's Chief Executive Officer, stated: "I am very pleased with our operational progress in our first quarter. Although our financial performance in terms of revenues and profits was down, our profitability in today's market is a reflection of our operational efficiency and continuous improvement. We continue to be encouraged by the new business opportunities we are seeing also. Despite the downturn in the industry, our people continue to market constantly, and in 2008 to date we have won over $80 million of incremental business launching in 2009 and 2010, including approximately $26 million of new metallic business on Ford's new Transit and an additional $18 million on the next generation of Ford's Super Duty pick-up. We were awarded our first metal forming contract of approximately $3.5 million with Boshoku, a Toyota kieretsu, and a Toyota vendor code that will hopefully lead to further opportunities. New work from non-automotive areas, also totalling $4 million, while not automotive, utilizes our skill sets. Our machines do not care where the work comes from. In addition, we won metal forming and fluid management awards totalling $14 million on the next generation Chrysler Grand Cherokee."

Nick Orlando, Martinrea's President and Chief Financial Officer, stated: "The Company's financial performance was positive in our first quarter, despite industry slowdowns generally and in particular the effects of the American Axle strike which has idled many production lines and in the case of our Kitchener Frame subsidiary, the whole facility. Our plants require throughput to be profitable. Yet our lean operating structure and our ability to flexibly adjust rapidly has allowed us to reduce costs to the extent possible. Given the lower volumes in the industry we are seeing, the lower volumes on specific platforms on which we have product, and the effects of the American Axle strike which is still ongoing and has reduced our production of product on many programs, our revenues for Q2 2008 will be lower than for Q2 2007 by a significant amount, not unlike the story in the first quarter. Similarly, earnings levels will be down. April was a weak month; and May has not been good so far. As we have stated, throughput is very important to our business model, and when throughput declines, earnings are hurt."

Mr. Orlando added, "We are going to have to recognize a financial impact relating to Kitchener Frame shortly. On April 23, 2008, Kitchener Frame Limited, a subsidiary of the Company, informed its employees of the impending plant closure of the Kitchener facility. The closure date has been set up for April 23, 2009 but could be extended until approximately July 2010, contingent on receiving approval for extension from one of its customers. However, there are no plans to operate this plant beyond July 2010. On closure, it is planned that all of the employees at this facility will be terminated and all manufacturing capital assets along with any active production work will be moved to other manufacturing facilities of the Company. A decision on future use of the building in which these assets are situated has still not been made and would be decided based on various factors including the real estate market conditions existing at the time of the closure. The financial impact of this plant closure is still being determined and could result in the Company having to pay severance and termination benefits in the range of $24 million to 28 million. The exact impact of this closure would be incorporated in the results of second quarter of 2008."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "We continue to be in a strong competitive position operationally, and financially our strong balance sheet, low debt levels and profitability improves our ability to finance future investments or growth by acquisition. We are seeing some good opportunities, and we intend to act when prudent to do so, in line with our long term objectives. The stresses of our industry have in the past created many opportunities for us, that we have tried to capitalize upon, and we have had success in doing so, through applying our strategies. We continue to believe that the long term outlook of our industry is stable with many opportunities for suppliers who are innovative, cost effective and build great products. That includes growth by acquisition."

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

This press release contains forward-looking statements within the meaning of applicable Canadian Securities laws including statements relating to the outlook of the automotive industry, growth at the supplier levels, acquisition opportunities, new business awards, the Company's pursuit of its business strategies, plant closures and the Company's and its suppliers' credit facilities. The words "expect", "anticipate", "estimate", "may", "will", "should", "intend", "believe", "plan" 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. 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 those risks and uncertainties as set out under the heading "Risks and Uncertainties" in the Company's Management's Discussion and Analysis dated May 12, 2008 and those risks and uncertainties as set forth in the Company's Annual Information Form and other public filings which can be found at www.sedar.com. Actual results may differ materially from those currently anticipated. Except as required by law, the Company has no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These factors should be considered carefully, and readers should not place undue reliance on the Company's forward-looking statements.

A conference call to discuss those results will be held on Tuesday May 13, 2008 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 340-2216 or toll free (866) 898-9626. 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 (416) 695-5800 or toll free number (800) 408-3053 (conference id - 3256617#). The rebroadcast will be available until Friday May 27, 2008.



MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets

As at March 31, 2008 (unaudited) with comparative figures for
December 31, 2007
(in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2008 2007
----------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ 17,180 $ 48,008
Accounts receivable 288,859 276,104
Other receivables 13,807 19,663
Income taxes recoverable 4,751 -
Inventories 163,465 168,878
Prepaid expenses and deposits 3,822 3,670
----------------------------------------------------------------------------
491,884 516,323

Future income tax assets 36,501 36,938
Capital assets 395,304 378,064
Goodwill 230,558 230,558
Intangible assets 24,257 25,233
Note receivable 132,113 132,288
----------------------------------------------------------------------------
$ 1,310,617 $ 1,319,404
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 261,340 $ 268,521
Income taxes payable - 17,691
Current portion of long-term debt 18,619 18,590
----------------------------------------------------------------------------
279,959 304,802

Long-term debt 78,412 81,028
Pension and other post-retirement benefits 190,090 191,326
Future income tax liabilities 19,204 19,418
Non-controlling interest 1,379 1,364

Shareholders' equity:
Share capital 629,052 629,052
Notes receivable for share capital (2,700) (2,700)
Contributed Surplus 30,209 29,337
Accumulated other comprehensive income (55,443) (65,277)
Retained earnings 140,455 131,054
----------------------------------------------------------------------------
741,573 721,466

Guarantees
----------------------------------------------------------------------------
$ 1,310,617 $ 1,319,404
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On behalf of the Board:

"Fred Jaekel" Director
-------------------------------
"Robert Wildeboer" Director
-------------------------------



MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Earnings

Three months ended March 31, 2008 and 2007 (unaudited)
(in thousands of dollars - except per share amounts)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------

Sales $ 433,827 $ 525,776

Cost of sales 384,571 463,820
----------------------------------------------------------------------------
Gross profit 49,256 61,956

Expenses:
Selling, general and administrative 23,175 26,191
Foreign exchange loss (gain) (844) 608
Amortization of capital assets 9,881 11,868
Amortization of intangible assets 1,035 1,126
Interest on long term debt 2,094 3,861
Other interest income, net (963) (374)
Gain on disposal of capital assets (3) (183)
Gain on sale of investment in Hy-Drive
Technologies Ltd. - (2,205)
----------------------------------------------------------------------------
34,375 40,892
----------------------------------------------------------------------------

Earnings before income taxes and
non-controlling interest 14,881 21,064

Income taxes:
Current 4,106 4,621
Future 854 1,741
----------------------------------------------------------------------------
4,960 6,362

Earnings before non-controlling interest 9,921 14,702

Non-controlling interest 15 44
----------------------------------------------------------------------------

Net earnings $ 9,906 $ 14,658
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings per common share

Basic $ 0.14 $ 0.23
Diluted $ 0.14 $ 0.23

----------------------------------------------------------------------------
----------------------------------------------------------------------------



MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Comprehensive Income

Three months ended March 31, 2008 and 2007 (unaudited)
(in thousands of dollars, except per share amounts)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------

Net earnings $ 9,906 $ 14,658

Other comprehensive income, net of tax :

Unrealized gains (losses) on translation
of financial statements of
self-sustaining operations 9,834 (3,519)

Unrealized loss up to the date of
disposal on assets available for
sale, net of income tax of $18 - (87)

Reclassification adjustment for gains on
assets available for sale
transferred to net earnings in the
current period, net of income
tax of $376 - (1,829)
----------------------------------------------------------------------------
Other comprehensive income (loss) 9,834 (5,435)
----------------------------------------------------------------------------
Comprehensive Income $ 19,740 $ 9,223
----------------------------------------------------------------------------
----------------------------------------------------------------------------



MARTINREA INTERNATIONAL INC.
Consolidated Statements of Changes in Shareholders' Equity

As at March 31, 2008 (unaudited) with comparative figures for December
31, 2007
(in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes Accum-
receiv- ulated
able other
for Contri- compre-
Share share buted hensive Retained
capital capital Surplus income Earnings Total
----------------------------------------------------------------------------
Balance,
January 1, 2007 $493,358 $(6,750) $25,632 $(10,580) $70,589 $572,249
Net earnings for
the period - - - - 60,465 60,465
Share issue in
private placements
(net of share issue
costs of $5,365
and future tax
recovery of $1,718) 123,228 - - - - 123,228
Exercise of employee
options and warrants 12,466 - (2,649) - - 9,817
Compensation expense
related to options - - 6,354 - - 6,354
Repayment of note
receivable for
share capital - 4,050 - - - 4,050
Other comprehensive
income - - - (54,697) - (54,697)
-------------------------------------------------------
Balance, December
31, 2007 (as
previously reported) $629,052 $(2,700) $29,337 $(65,277) $131,054 $721,466
Change in accounting
policy - - - - (505) (505)
-------------------------------------------------------
As restated, January
1, 2008 629,052 (2,700) 29,337 (65,277) 130,549 720,961
Net earnings for
the period - - - - 9,906 9,906
Compensation expense
related to options - - 872 - - 872
Other comprehensive
income - - - 9,834 - 9,834
----------------------------------------------------------------------------
Balance, March 31,
2008 $629,052 $(2,700) $30,209 $(55,443) $140,455 $741,573
----------------------------------------------------------------------------
----------------------------------------------------------------------------



MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows

Three months ended March 31, 2008 and 2007
(unaudited) (in thousands of dollars)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended
March 31, March 31,
2008 2007
----------------------------------------------------------------------------

Cash provided by (used in):

Operating activities:
Net earnings $ 9,906 $ 14,658
Adjustments to reconcile earnings from
continuing operations to cash flows
from operating activities:
Amortization of capital assets 9,881 11,868
Amortization of intangible assets 1,035 1,126
Future income taxes 854 1,741
Non-controlling interest 15 44
Gain on disposal of capital assets (3) (183)
Gain on sale of investment in Hy-Drive
Technologies Ltd. - (2,205)
Stock-based compensation 872 45
Pension and other post employment benefits 2,130 2,560
Cash contribution made to pension and
other post employment benefits (3,857) (4,440)
Other 107 107
----------------------------------------------------------------------------
20,940 25,321


Changes in non-cash working capital items:
Accounts receivable (9,151) (8,260)
Other receivables 6,034 (5,294)
Income taxes (23,073) 596
Inventories (127) 1,554
Prepaid expenses and deposits (152) 1,091
Accounts payable and accrued liabilities (10,697) (14,985)
----------------------------------------------------------------------------
(16,226) 23
----------------------------------------------------------------------------

Financing activities:
Exercise of employee options - 10
Increase in long-term debt 1,263 -
Repayment of long-term debt (3,933) (6,847)
----------------------------------------------------------------------------
(2,670) (6,837)
----------------------------------------------------------------------------

Investing activities:
Purchase of capital assets (12,969) (13,940)
Proceeds on disposal of capital assets 22 255
Proceeds on disposal of investment in
Hy-Drive Technologies Ltd. - 3,745
----------------------------------------------------------------------------
(12,947) (9,940)
----------------------------------------------------------------------------

Effect of exchange rate changes on cash
and cash equivalents 1,015 (1,098)
----------------------------------------------------------------------------

Decrease in cash and cash equivalents (30,828) (17,852)

Cash and cash equivalents, beginning of
period 48,008 63,496

----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 17,180 $ 45,644
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental cash flow information:
Cash paid for interest, net $ 1,559 $ 3,486
Cash paid for income taxes, net $ 24,776 $ 4,578

----------------------------------------------------------------------------
----------------------------------------------------------------------------


Contact Information

  • Martinrea International Inc.
    Nick Orlando
    President and Chief Financial Officer
    (416) 749-0314
    (905) 264-2937 (FAX)