Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

August 08, 2005 16:31 ET

Martinrea International Inc.: Releases June 30, 2005 Second Quarter Results

TORONTO, ONTARIO--(CCNMatthews - Aug. 8, 2005) - Martinrea International Inc., (TSX:MRE) -

Earnings Continue to Improve in a Tough Automotive Environment

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 the fiscal quarter ended June 30, 2005.

Revenues for the quarter ended June 30, 2005 totaled $170.1 million as compared to $162.3 million for the quarter ended June 30, 2004. Revenues for the Company's first quarter of 2005 were approximately $153.0 million. Revenues for the quarter ended June 30, 2005 have increased from the prior year comparable primarily due to the launch of new programs such as the DCX 300C and the W car fluid and brake bundles, metallic takeover work, and the inclusion of the revenues of the Company's recently acquired metal forming facility in Corydon, Indiana. The increase in revenues from new programs was offset by the appreciation of the Canadian dollar versus the U.S. dollar resulting in a reduction in revenue of approximately $6.7 million, lower volumes on existing customer platforms and price reductions to customers that continue to be a normal part of the North American automotive parts industry. Production revenues are expected to continue to rise as new programs mature and launches are completed.

The Company's revenues for the second quarter of 2005 were higher than revenues in the first quarter of 2005 of $153.0 million. This was due primarily to the inclusion of the Company's recently acquired facility in Corydon, Indiana for a full quarter, higher tooling sales and increased production levels on certain customer platforms, such as the DCX 300C, the General Motors full size pick-up and the Ford Mustang.

Gross margin percentage for the quarter ended June 30, 2005 was 17.0% as compared to 16.7% in the second quarter of 2004. Gross margin percentage for the quarter ended June 30, 2005 has increased in comparison to the prior year second quarter despite the pressure on gross margins from contractual price reductions with customers and steel surcharges on part of the Company's steel purchases not on customer steel re-sale programs. The Company has been able to increase gross margin due to ongoing cost reduction plans and the successful launching of new programs during the last twelve months that have helped to fill available capacity. Gross margin percentage for the second quarter of 2005 is slightly lower than the margin for the first quarter of 2005 of 17.3% due to the increased tooling sales during the second quarter on which there is no profit margin.

Net earnings for the quarter ended June 30, 2005 were approximately $6.1 million as compared to $5.1 million for the quarter ended June 30, 2004. The earnings per share for the quarter were $0.11 on a basic and diluted basis. The increase in net earnings from the prior year comparable is primarily attributable to increased revenues and improved gross margin. Foreign exchange fluctuations did not significantly impact net earnings as profits of the Company's U.S. and Mexican divisions were offset by gains realized by the Company's Canadian divisions on their net purchases of U.S. dollar denominated components. Net earnings and diluted earnings per share for the second quarter of 2005 increased compared to net earnings of $5.1 million and diluted earnings per share of $0.09 for the first quarter of 2005. This increase is due primarily to the Company's increasing revenues.

Amortization expense was $6.9 million for the quarter ended June 30, 2005 as compared to $6.8 million for the quarter ended June 30, 2004. The amortization expense in the Company's first quarter of 2005 was $6.6 million. The increase in amortization from the prior year and prior quarter comparables is attributable to amortization of capital assets that are now production ready.

Selling, general and administrative expenses for the quarter ended June 30, 2005 were $11.9 million, or 7.0% of revenues, compared to $10.7 million, or 6.6% of revenues, for the quarter ended June 30, 2004. These expenses for the second quarter included one-time charges totaling $1.3 million that were incurred to restructure one of the Company's Canadian plants. As the Company's revenues grow these expenses as a percentage of revenues will also decrease. The corporate infrastructure that the Company has established will accommodate significant future revenue growth. In the first quarter of 2005 selling, general and administrative expenses were 6.8% of revenues or $10.3 million.

Capital expenditures for the quarter ended June 30, 2005 totaled $9.2 million. Capital expenditures for the six months ended June 30, 2005 totaled $16.3 million. The capital expenditures in the second quarter of 2005 relate primarily to new program assembly equipment being put in place for programs launching in the second half of 2005. For the full year 2005, the Company plans to spend approximately $30 to $32 million, primarily on new program capital. The capital expenditure estimate for 2005 has increased from the Company's previous view due to expenditures on new incremental program awards that will require spending in the fourth quarter of 2005 and the Company's purchase of used equipment at favorable pricing in recent equipment auctions. The equipment purchases will facilitate new production awards.

The Company's financial condition remains strong given the continuing profitability of its operations and its prospects for growth and new program launches. As a result of the increasing profitability of the Company's operations bank indebtedness and long-term debt has been reduced from $81.2 million at December 31, 2004 to $80.2 million at June 30, 2005. The debt reduction has occurred even though the Company made investments in new capital totaling $16.3 million in the last six months, experienced increasing working capital needs arising from incremental revenues and financed the purchase of Corydon Manufacturing LLC on February 17, 2005.

The Company had a strong balance sheet as at June 30, 2005, with shareholders equity of $460.3 million, as compared to $449.1 million as at December 31, 2004. The Company's working capital of $29.7 million together with internally generated cash flow and existing financing facilities should be sufficient to cover anticipated cash needs. As at June 30, 2005, Martinrea's ratio of current assets to current liabilities was 1.2:1, which is consistent with the prior year end and the first quarter of 2005.

Fred Jaekel, Martinrea's President and Chief Executive Officer, stated: "I am ecstatic with the progress our Company has made in this quarter and the year to date. We have seen year over year improvement in revenues, profits and profitability, as well as improved earnings performance from our last quarter, despite a very tough automotive environment. I am pleased to announce that the Company has been awarded $40 million of incremental business in the second quarter of 2005. The incremental new business awards consist of metallic assemblies totaling $19 million (GMT900 - $7 million, Ford U387 - $10 million, Jeep Liberty - $2 million) that launch in 2006 and fluid management products totaling $20 million (Ford Focus $10 million, Cami $5 million, GM platform $5 million) that launch in 2006 and 2007."

Mr. Jaekel added, "Our operations continue to improve and perform well. We have absorbed takeover business without a hitch, we have been very successful to date in integrating our new metal forming plant in Corydon, Indiana into our Company, and I am pleased with our launch preparations. On that note, we have just successfully launched the hydroformed engine cradle for GM's Buick Lucerne and Cadillac DTS at our Hydroform Solutions facility, and production is ramping up presently. That is a very sophisticated assembly and a highly automated production process-I think that we will see many good things coming from this program in future, and it shows our customers our ability to meet their needs for sophisticated metallic assemblies. The launch for the metal gas tank for the Ford Fusion from our new Mexican facility in Hermosillo is on track and we are successfully filling the pipeline now. On the fluid side of the business, the launch of the fuel and brake line program for GM's new Impala is also going well. I am very proud of the efforts of our people overall and with our launches. Our performance in these areas means we are becoming a supplier of choice for our customers and we are seeing increasing opportunities constantly. Taking advantage of the right opportunities will help us to grow prudently and profitably."

Nick Orlando, Martinrea's Executive Vice-President and Chief Financial Officer, stated: "The Company's financial performance continues to improve. The earnings per share for the first six months of 2005 are equal to the earnings per share for all of 2004. The Company's investment in equipment, facilities and personnel have allowed the Company to take advantage of the restructuring occurring in the automotive parts industry. New business awards continue to fill available capacity and as a result the Company's profitability improves."

Nick Orlando added: "In the third quarter of 2005, the Company estimates that revenues will range from $145 million to $155 million. This reflects the effect of the traditional July shutdown, which typically lowers third quarter revenues and profits. Revenues will exceed last year's third quarter revenues of $125 million. The Company expects revenues to continue increasing over time given the launch of three new programs in the third quarter of 2005 that together account for $74 million on an annualized basis once full production is achieved. The programs are the metal gas tank for the Ford Fusion that amounts to revenues of $36 million, the hydroformed engine cradle for GM's Buick Lucerne and Cadillac DTS that amounts to $22 million and the fuel and brake lines for GM's new Impala that amounts to $16 million. The Company expects gross margin in the third quarter of 2005 to be slightly below the 17% gross margin in the second quarter of 2005. The reduction in gross margin in the third quarter of 2005 is attributable to the traditional July shutdown. The Company estimates that basic earnings per share will range from $0.06 per share to $0.08 per share in the third quarter of 2005, as compared to $0.02 per share in the third quarter of 2004, a year over year improvement."

Rob Wildeboer, Martinrea's Chairman, stated: "We are pleased with our performance in 2005 so far. Earnings per share in the first half of 2005 have matched our earnings per share for all of 2004, so I think we are showing prudent, profitable growth. However, as a company we remain very focused on the future and building for revenue and earnings growth over time. Improving financial performance, in a very tough environment, is a reflection, we believe, of our entrepreneurial and decentralized structure and the fact that we are meeting customer needs by providing great products at competitive prices. Our balance sheet continues to strengthen in this environment, which provides us a strong base to pursue the right kinds of opportunities for our company and our people. The best way to provide security and opportunity for our people is to be successful in the marketplace. Our improving financial position gives us the opportunity to consider new business opportunities that many of our heavily indebted competitors are not able to undertake. Where we can, we will continue to pay down debt and strengthen our financial position but we will take advantage of that financial position and those opportunities where we can."

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

This press release contains forward-looking statements based on assumptions, uncertainties and management's best estimates of future events. When used herein, words such as "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on assumptions by and information available to the Company. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include such risks and factors as are detailed from time to time in the Company's periodic reports filed with the Ontario Securities Commission and other regulatory authorities. Actual results may differ materially from those currently anticipated. 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.

A conference call to discuss these results will be held on Tuesday August 9, 2005 at 8:00 a.m. (Toronto time), which can be accessed by dialing (416) 405-9328 or toll free (800) 387-6216. 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 (800) 408-3053 (conference id - 3160226#). The rebroadcast will be available until Friday August 19, 2005.

(Financial Statements follow)



MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets

As at June 30, 2005 (unaudited) with comparative
figures for December 31, 2004
(in thousands of dollars)


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June 30, December 31,
2005 2004
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Assets

Current assets:
Accounts receivable $ 93,370 $ 84,695
Other receivables 5,104 5,709
Income taxes recoverable - 2,756
Inventories 46,693 40,949
Prepaid expenses and deposits 8,033 7,804
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153,200 141,913

Future income tax assets 19,659 19,132
Investment 835 -
Capital assets 234,653 218,576
Goodwill 230,558 230,558
Intangible assets 25,765 27,496

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$ 664,670 $ 637,675
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Liabilities and Shareholders' Equity

Current liabilities:

Bank indebtedness $ 2,846 $ 10,525
Accounts payable and accrued
Liabilities 101,544 88,089
Income taxes payable 3,079 -
Current portion of long-term debt 16,081 15,362
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123,550 113,976

Long-term debt 61,242 55,327

Future income tax liabilities 18,743 18,563

Non-controlling interest 799 698

Shareholders' equity:
Share capital 444,047 444,047
Notes receivable for share capital (15,750) (15,750)
Contributed Surplus 19,889 19,668
Cumulative translation adjustment (11,145) (10,974)
Retained earnings 23,295 12,120
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460,336 449,111

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$ 664,670 $ 637,675
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On behalf of the Board:

Fred Jaekel Director
-------------------------
Robert Wildeboer Director
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Earnings and Retained Earnings

Three and six months ended June 30, 2005 and 2004 (unaudited)
(in thousands of dollars - except per share amounts)

---------------------------------------------------------------------
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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Sales $ 170,139 $ 162,328 $ 323,126 $ 307,545

Cost of sales 141,221 135,213 267,695 258,339
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Gross profit 28,918 27,115 55,431 49,206

Expenses:
Selling, administrative
and general 11,915 10,679 22,264 21,005
Foreign exchange (537) (206) (286) (441)
Amortization
- capital assets 5,994 5,916 11,716 11,328
Amortization - intangible
assets 865 865 1,731 1,731
Interest on long term debt 1,039 1,243 2,180 2,245
Other interest expense, net 200 359 564 657
(Gain) loss on disposal
of capital assets (17) (14) (69) 38
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19,459 18,842 38,100 36,563
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Earnings before income taxes
and non-controlling interest 9,459 8,273 17,331 12,643

Income taxes
Current 3,990 3,474 6,402 5,227
Future (724) (472) (347) (688)
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3,266 3,002 6,055 4,539

Earnings before
non-controlling interest 6,193 5,271 11,276 8,104

Non-controlling interest 81 137 101 286
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Net earnings $ 6,112 $ 5,134 $ 11,175 $ 7,818

Retained earnings,
beginning of period 17,183 3,841 12,120 20,663

Adjustment to reflect
change in accounting
for stock based
compensation plan - - - (19,506)

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Retained earnings,
end of period $ 23,295 $ 8,975 $ 23,295 $ 8,975
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Earnings per common share

Basic $ 0.11 $ 0.09 $ 0.20 $ 0.14
Diluted $ 0.11 $ 0.09 $ 0.19 $ 0.14

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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows

Three and six months ended June 30, 2005 and 2004 (unaudited)
(in thousands of dollars)

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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Cash provided by
(used in):

Operating activities:
Net earnings $ 6,112 $ 5,134 $ 11,175 $ 7,818
Items not requiring cash:
Amortization 6,859 6,781 13,447 13,059
Future income taxes (724) (472) (347) (688)
Non-controlling interest 81 137 101 286
(Gain) loss on disposal
of capital assets (17) (12) (69) 40
Stock-based compensation 113 25 221 81
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12,424 11,593 24,528 20,596

Changes in non-cash working
capital items:
Accounts receivable (6,385) (16,892) (8,675) (11,529)
Other receivables 377 7,696 605 4,724
Accounts payable and
accrued liabilities 10,381 3,520 13,455 226
Income taxes recoverable 3,151 1,171 5,835 5,487
Inventories (3,035) 5,610 (2,342) (356)
Prepaid expenses
and deposits 409 (401) 184 (1,150)
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17,322 12,297 33,590 17,998
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Financing activities:
Issue of share capital
(net of cash expenses
and note receivable) - 33 - 33
Increase in long-term debt 4,408 2,803 14,576 8,812
Repayment of long-term debt (4,018) (4,558) (8,034) (6,167)
Increase (decrease) in bank
indebtedness (8,313) 1,479 (7,679) 142
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(7,923) (243) (1,137) 2,820
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Investing activities:
Acquisition of Corydon
Manufacturing LLC - - (15,209) -
Investment in Hy-Drive
Technologies Ltd. - - (835) -
Purchase of capital
assets (9,195) (13,564) (16,311) (22,528)
Proceeds on disposal
of capital assets 15 21 73 140
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(9,180) (13,543) (32,282) (22,388)
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Effect of exchange rate
changes on cash and
cash equivalents (219) 1,489 (171) 1,570
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Increase (decrease) in
cash and cash equivalents - - - -

Cash and cash equivalents,
beginning of period - - - -

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Cash and cash equivalents,
end of period $ - $ - $ - $ -
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Supplemental cash flow
information:
Cash paid for interest, net $ 1,177 $ 1,103 $ 2,682 $ 2,316
Cash paid (received) for
income taxes $ 1,055 $ 1,033 $ 1,763 $ (1,300)

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Contact Information

  • Martinrea International Inc.
    Nick Orlando
    Executive VP and Chief Financial Officer
    (416) 749-0314
    (905) 264-2937 (FAX)
    30 Aviva Park Drive
    Vaughan, Ontario L4L 9C7