Martinrea International Inc.

TSX : MRE


Martinrea International Inc.

August 14, 2014 17:01 ET

Martinrea International Inc. Releases Second Quarter Results and Announces Dividend, Record Quarterly Revenues, Improved Profits

TORONTO, ONTARIO--(Marketwired - Aug. 14, 2014) - 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 second quarter ended June 30, 2014, which include record quarterly revenues and improving operations and a quarterly dividend.

HIGHLIGHTS

- Record Quarterly Revenues
- Quarter-over-Quarter Operational and Margin Improvement
- Solid Quarter for Martinrea Honsel
- Good Prospects
- Dividend of $0.03 per share announced

OVERVIEW

Nick Orlando, Martinrea's President and Chief Executive Officer, stated: "We had a solid quarter, with increasing profits, as we continue to focus on our operations. We are making progress everywhere. In our second quarter we saw operational and financial improvements from the previous quarter. Most of our businesses are doing well-our aluminum and fluids businesses had strong quarters; our assembly operations are doing well; and many of our metallic plants are meeting or exceeding budget. Certain U.S. metallic plants are making the necessary improvements to operations that will improve margin and did so in the second quarter. In terms of new business won since our last release, we have won approximately $20 million in incremental annualized business including $15 million of incremental metallic business with Chrysler on its minivan line starting in 2016 and $5 million in fluid management product with General Motors on the Camaro and certain Cadillac platforms starting in 2016. We also continue to invest in the future. Our launch backlog currently sits at over $500 million and will entail new operating facilities in Spain for the Jaguar-Land Rover aluminum swivel bearing launching in 2015, China and Mexico for an aluminum engine cradle for GM on its Omega platform starting in 2015 and Riverside, Missouri for new modular assembly business for the GM Malibu starting in 2015."

Fred Di Tosto, Martinrea's Chief Financial Officer, stated: "Revenues for our second quarter, excluding tooling revenues, were approximately $870 million, within the range of our previously announced sales guidance, and a record quarter for us. In the second quarter, our adjusted earnings per share, on a basic and diluted basis, was $0.28, after adjusting for relatively low unusual items comprised of non-insured litigation costs, and within our quarterly guidance. The Martinrea Honsel operations contributed $0.08 per share to our second quarter results, a solid contribution. With Martinrea Honsel now wholly-owned, this division is expected to continue to contribute strongly to our overall business."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "2014 is coming along nicely. Our third quarter is expected to generate revenues for the quarter, excluding tooling revenues, in the range of $780 to $810 million and we believe our earnings per share will be in the range of 23 to 27 cents per share, one of the best third quarters in our history from a financial point of view. Our fourth quarter should be very good for us. We will see some benefits of the acquisition of the minority interest of Martinrea Honsel in the third quarter, but more so in the fourth quarter and beyond. Today we are one Martinrea, with a fully-owned Martinrea Honsel, which will allow us to maximize our opportunities in lightweighting, both in aluminum and metals. We are financially and operationally strong, with great prospects. In summary, the future looks good."

RESULTS OF OPERATIONS

Martinrea currently employs over 13,000 skilled and motivated people in 38 operating plants in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain and China. Martinrea's objective is to develop a state-of-the-art international metal forming and fluid systems business that will continue to be and further become a key supplier in the automotive industry. Growth will be prudent, profitable and based on innovation. The backbone of future growth is the development of talented people. The significant development of the Company since 2002 has reflected this business strategy and contributed to the growing profitability of the Company.

Results of operations include certain unusual items which have been separately disclosed, where appropriate, in order to provide a clear assessment of the underlying Company results. This has required the use of non-IFRS measures in the Company's disclosures that management believes provides the most appropriate basis on which to evaluate the Company's results.

OVERALL RESULTS

Three months
ended June
30, 2014
Three months
ended June
30, 2013
$ Change % Change
Revenue $ 930,915 $ 826,274 104,641 12.7 %
Gross Margin 95,863 91,183 4,680 5.1 %
Operating Income 43,129 46,942 (3,813 ) (8.1 %)
Net Earnings for the period 29,626 32,111 (2,485 ) (7.7 %)
Net Earnings Attributable to Equity Holders of the Company $ 23,308 $ 27,514 (4,206 ) (15.3 %)
Net Earnings per Share - Basic $ 0.28 $ 0.33 (0.05 ) (15.2 %)
Net Earnings per share - Diluted $ 0.27 $ 0.33 (0.06 ) (18.2 %)
Unusual Items* $ 306 $ - 306 0.0 %
Adjusted Net Earnings Attributable to Equity Holders of the Company* 23,614 27,514 (3,900 ) (14.2 %)
Adjusted Net Earnings per share* - Basic and Diluted $ 0.28 $ 0.33 (0.05 ) (15.2 %)
Six months
ended June
30, 2014
Six months
ended June
30,2013
$ Change % Change
Revenue $ 1,795,408 $ 1,595,396 200,012 12.5 %
Gross Margin 183,342 166,898 16,444 9.9 %
Operating Income 80,688 81,615 (927 ) (1.1 %)
Net Earnings for the period 56,285 55,616 669 1.2 %
Net Earnings Attributable to Equity Holders of the Company $ 39,999 $ 47,402 (7,403 ) (15.6 %)
Net Earnings per Share - Basic $ 0.47 $ 0.57 (0.10 ) (17.5 %)
Net Earnings per share - Diluted $ 0.47 $ 0.56 (0.09 ) (16.1 %)
Unusual Items* $ 1,171 $ - 1,171 0.0 %
Adjusted Net Earnings Attributable to Equity Holders of the Company* 41,170 47,402 (6,232 ) (13.1 %)
Adjusted Net Earnings per share* - Basic $ 0.49 $ 0.57 (0.08 ) (14.0 %)
Adjusted Net Earnings per share* - Diluted $ 0.48 $ 0.56 (0.08 ) (14.3 %)

* Non-IFRS Measures

The Company prepares its financial statements in accordance with International Financial Reporting Standards ("IFRS"). However, the Company has included certain non-IFRS financial measures and ratios in this Press Release that the Company believes provides useful information in measuring the financial performance and financial condition of the Company. These measures 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 the other financial measures determined in accordance with IFRS. Non-IFRS measures referred to in the analysis include "adjusted net earnings" and "adjusted net earnings per share on a basic and diluted basis" and are defined in the Tables A and B under "Adjustments to Net Earnings" of this Press Release.

REVENUE

Three months ended June 30, 2014 to three months ended June 30, 2013 comparison
Three months
ended June
30, 2014
Three months
ended June
30, 2013
$ Change % Change
North America $ 745,304 $ 651,799 93,505 14.3 %
Europe 173,037 159,959 13,078 8.2 %
Rest of World 12,574 14,516 (1,942 ) (13.4 %)
Revenue $ 930,915 $ 826,274 104,641 12.7 %

The Company's consolidated revenues for the second quarter of 2014 increased by $104.6 million or 12.7% to $930.9 million as compared to $826.3 million for the second quarter of 2013. The total overall increase in revenues was driven by increases in the Company's North America and Europe operating segments, partially offset by a year-over-year decrease in revenues in the Rest of the World.

Revenues for the second quarter of 2014 in the Company's North America operating segment increased by $93.5 million or 14.3% to $745.3 million from $651.8 million for the second quarter of 2013. The increase was due to an overall increase in North American OEM light vehicle production, in particular year-over-year increased production volumes on the GM Equinox/Terrain and Ford Escape, two of the Company's largest platforms; the launch of new programs during or subsequent to the second quarter of 2013, including GM's full size pick-up trucks, BMW X5, Ford Transit and the Chrysler 200; a $20.2 million increase in tooling revenues, which are typically dependent on the timing of tooling construction and final acceptance by the customer; and the impact of foreign exchange on the translation of U.S. denominated production revenue, which had a positive impact on revenue for the second quarter of 2014 of $40.8 million.

Revenues for the second quarter of 2014 in the Company's Europe operating segment, comprised predominantly of the European operations of Martinrea Honsel, increased by $13.1 million or 8.2% to $173.0 million from $160.0 million for the second quarter of 2013. The increase was predominantly due to a benefit from the impact of foreign exchange on the translation of Euro denominated production revenue, partially offset by a $4.1 million decrease in tooling revenues. OEM light vehicle and engine production volumes in Europe were generally flat year-over-year.

Revenues for the second quarter of 2014 in the Company's Rest of World operating segment, currently comprised of the Brazilian operations of Martinrea Honsel and a facility in China in its early stages, decreased by $1.9 million or 13.4% to $12.6 million from $14.5 million in the second quarter of 2013. The decrease can be attributed to a year-over-year decrease in overall OEM light and medium-heavy vehicle production in Brazil and the translation of Brazilian Real denominated production revenue, which had a negative impact on revenue for the second quarter of 2014 of $0.4 million as compared to the second quarter of 2013, partially offset by the launch of the Company's first product in China for the Ford CD4 program, which began to ramp up at the end of the second quarter of 2013, and a $0.6 million year-over-year increase in tooling revenues.

Overall tooling revenues increased by $16.7 million from $44.5 million for the second quarter of 2013 to $61.2 million for the second quarter of 2014.

Six months ended June 30, 2014 to six months ended June 30, 2013 comparison
Six months ended
June 30, 2014
Six months ended
June 30, 2013
$ Change % Change
North America $ 1,408,968 $ 1,262,330 146,638 11.6 %
Europe 356,690 301,770 54,920 18.2 %
Rest of World 29,750 31,296 (1,546 ) (4.9 %)
Revenue $ 1,795,408 $ 1,595,396 200,012 12.5 %

The Company's consolidated revenues for the six months ended June 30, 2014 increased by $200.0 million or 12.5% to $1,795.4 million as compared to $1,595.4 million for the six months ended June 30, 2013. The total overall increase in revenues was driven by increases in the Company's North America and Europe operating segments, partially offset by a year-over-year decrease in revenues in the Rest of the World.

Revenues for the six months ended June 30, 2014 in the Company's North America operating segment increased by $146.6 million or 11.6% to $1,409.0 million from $1,262.3 million for the six months ended June 30, 2013. Revenues in North America for the six months ended June 30, 2014 were negatively impacted by an $8.9 million year-over-year decrease in tooling revenues, which are typically dependent on the timing of tooling construction and final inspection and acceptance by the customer. Excluding the decrease in tooling revenues, revenues in the North America operating segment increased by $155.5 million or 12.3%. The increase was generally due to overall improved North American OEM light vehicle production, in particular year-over-year increased production volumes on the GM Equinox/Terrain and Ford Escape, two of the Company's largest platforms, the launch of new programs during 2013, including GM's full size pick-up trucks, BMW X5, Chevrolet Impala, Ford Transit and the Chrysler 200, and an $86.3 million benefit from the impact of foreign exchange on the translation of U.S. dollar denominated revenue.

Revenues for the six months ended June 30, 2014 in the Company's Europe operating segment, comprised predominately of the European operations of Martinrea Honsel, increased by $54.9 million or 18.2% to $356.7 million from $301.8 million for the six months ended June 30, 2013. The increase was due to the launch of new incremental aluminum business with Jaguar Land Rover including the sub-frame and shock towers for the new Range Rover Sport; an overall year-over-year increase in European OEM production volumes; a $2.1 million increase in tooling revenues; a $38.9 million benefit from the impact of foreign exchange on the translation of Euro denominated production revenue; and year-over-year increased production revenues in the Company's plant in Slovakia, which continues to ramp up and launch its backlog of business.

Revenues for the six months ended June 30, 2014 in the Company's Rest of World operating segment, currently comprised of the Brazilian operations of Martinrea Honsel and a facility in China in its early stages, decreased by $1.5 million or 4.9% to $29.8 million from $31.3 million for the six months ended June 30, 2013. The decrease can be attributed to a year-over-year decrease in OEM light and medium-heavy vehicle production in Brazil, a $0.2 million decrease in tooling revenues and the translation of Brazilian Real denominated production revenue which had a negative impact on revenue for the six months ended June 30, 2014 of $1.0 million as compared to the same period of 2013, partially offset by the launch of the Company's first product in China for the Ford CD4 program, which began to ramp up at the end of the second quarter of 2013.

Overall tooling revenues decreased by $7.0 million from $95.1 million for the first six months of 2013 to $88.1 million for the first six months of 2014.

GROSS MARGIN

Three months ended June 30, 2014 to three months ended June 30, 2013 comparison
Three months ended
June 30, 2014
Three months ended
June 30, 2013
$ Change % Change
Gross margin $ 95,863 $ 91,183 4,680 5.1 %
% of revenue 10.3 % 11.0 %

The gross margin percentage for the second quarter of 2014 of 10.3% decreased as a percentage of revenue by 0.7% as compared to the gross margin percentage for the second quarter of 2013 of 11.0%. The decrease in gross margin as a percentage of revenue was generally due to:

  • an increase in tooling revenues which typically earn low or no margins for the Company;
  • an increase in integrator or assembly work which typically generates lower margins as a percentage of revenue, although return on capital tends to be higher;
  • program specific launch costs related to new programs that recently launched or are set to launch and ramp up over the next six months including the Ford Transit, Ford 2.3L aluminum engine block, Chrysler 200 and Lincoln MKC; and
  • operational inefficiencies at certain operating facilities, in particular, Hopkinsville, Kentucky (see below).

These factors were partially offset by:

  • higher capacity utilization from an overall increase in year-over-year production revenues including the launch of new programs subsequent to or during the second quarter 2013 (as noted above under "Revenue");
  • productivity and efficiency improvements at certain operating facilities, in particular, the Martinrea Honsel operations in Germany; and
  • improved pricing on certain long-term customer contracts in the operations of Martinrea Honsel.

The performance of the Company's operating facility in Hopkinsville, Kentucky continued to be impacted by launch costs and other operational expenses stemming from the issues experienced by the facility during the fourth quarter of 2013. The issues were rooted in serious equipment failures on two of the plant's large tonnage presses which has resulted in incremental premium costs as the facility deals with new programs, customer-requested engineering changes, which have impacted productivity, and the overall ramp-up in production volumes being experienced in the automotive industry. Since the equipment failures at the end of 2013, the presses have been operational but have not been performing at optimal levels. Upgrades to the presses were successfully completed during the July 2014 summer shutdown in order to reduce the risk of any further failures and improve the performance of the presses. Further less substantial improvements are planned for the December holiday shutdown. Progress is being made at improving efficiencies at this facility and costs are expected to subside, and margins improve, as operational improvements continue to be made.

In addition to the expected productivity and efficiency improvements at certain operating facilities, in particular in Hopkinsville, Kentucky (as noted above), gross margin is expected to be positively impacted by incremental new business as the Company continues to work through the launch of a significant backlog of new business over the next 36 months including the following awarded programs in addition to the programs referred to above: the next wave of Ford CD4 in Europe and North America (Mondeo and Edge), GM Omega aluminum engine cradle (Cadillac), GM 31XX (Traverse, SRX), Jaguar LandRover aluminum swivel bearing, Nissan aluminum I4 engine block, Daimler aluminum transmission casing and incremental volume on Daimler's V8 AMG aluminum engine block.

Six months ended June 30, 2014 to six months ended June 30, 2013 comparison
Six months ended
June 30, 2014
Six months ended
June 30, 2013
$ Change % Change
Gross margin $ 183,342 $ 166,898 16,444 9.9 %
% of revenue 10.2 % 10.5 %

The gross margin percentage for the six months ended June 30, 2014 of 10.2% decreased as a percentage of revenue by 0.3% as compared to the gross margin percentage for the six months ended June 30, 2013 of 10.5%. The decrease in gross margin as a percentage of revenue was generally due to:

  • an increase in integrator or assembly work which typically generates lower margins as a percentage of revenue, although return on capital tends to be higher;
  • program specific launch costs related to new programs that recently launched or are set to launch and ramp up over the next six months including the BMW X5, Ford Transit, Ford 2.3L aluminum engine block, Chrysler 200 and Lincoln MKC; and
  • operational inefficiencies at certain operating facilities, in particular, Hopkinsville, Kentucky (see above).

These factors were partially offset by:

  • higher capacity utilization from an overall increase in year-over-year production revenues including the launch of new programs subsequent to or during the first half of 2013 (as noted above under "Revenue");
  • productivity and efficiency improvements at certain operating facilities, in particular the Martinrea Honsel operations in Germany;
  • improved pricing on certain long-term customer contracts in the operations of Martinrea Honsel; and
  • a decrease in tooling revenues which typically earn low or no margins for the Company.

ADJUSTMENTS TO NET EARNINGS

(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

Adjusted net earnings exclude certain unusual items, as set out in the following tables and described in the notes thereto. Management uses adjusted net earnings 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 Three months ended
June 30, 2014 June 30, 2013 (a)-(b)
(a) (b) Change
NET EARNINGS (A) $23,308 $27,514 $(4,206 )
Add back - Unusual Items:
External legal and forensic accounting costs related to litigation (1) 408 - 408
TOTAL UNUSUAL ITEMS BEFORE TAX $408 - $408
Tax impact of above item (102 ) - (102 )
TOTAL UNUSUAL ITEMS AFTER TAX (B) $306 - $306
ADJUSTED NET EARNINGS (A + B) $23,614 $27,514 $(3,900 )
Number of Shares Outstanding - Basic ('000) 84,498 83,984
Adjusted Basic Net Earnings Per Share $0.28 $0.33
Number of Shares Outstanding - Diluted ('000) 85,609 84,591
Adjusted Diluted Net Earnings Per Share $0.28 $0.33

TABLE B

Six months ended Six months ended
June 30, 2014 June 30, 2013 (a-b)
(a) (b) Change
NET EARNINGS (A) $39,999 $47,402 $(7,403 )
Add back - Unusual Items:
External legal and forensic accounting costs related to litigation (1) 1,561 - 1,561
TOTAL UNUSUAL ITEMS BEFORE TAX $1,561 - $1,561
Tax impact of above items (390 ) - (390 )
TOTAL UNUSUAL ITEMS AFTER TAX (B) $1,171 - $1,171
ADJUSTED NET EARNINGS (A + B) $41,170 $47,402 $(6,232 )
Number of Shares Outstanding - Basic ('000) 84,489 83,876
Adjusted Basic Net Earnings Per Share $0.49 $0.57
Number of Shares Outstanding - Diluted ('000) 85,317 84,514
Adjusted Diluted Net Earnings Per Share $0.48 $0.56
(1) External Legal and Forensic Accounting Costs Related to Litigation
The costs added back for adjusted net earnings purposes reflects the legal and forensic accounting costs not covered by insurance (recorded as SG&A expense) incurred by the Company in relation to specific litigation matters out of the ordinary course of business as outlined in the Company's MD&A and Annual Information Form for the year ended December 31, 2013. Further amounts related to the costs expensed to date may be recovered from the Company's insurance providers upon completion of their review of the costs incurred.
NET EARNINGS
(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)
Three months ended June 30, 2014 to three months ended June 30, 2013 comparison
Three
months ended
June 30, 2014
Three
months ended
June 30, 2013
$ Change % Change
Net Earnings $ 23,308 $ 27,514 (4,206 ) (15.3 %)
Adjusted Net Earnings $ 23,614 $ 27,514 (3,900 ) (14.2 %)
Net Earnings per common share
Basic $ 0.28 $ 0.33
Diluted $ 0.27 $ 0.33
Adjusted Net Earnings per common share
Basic $ 0.28 $ 0.33
Diluted $ 0.28 $ 0.33

Net earnings, before adjustments, for the second quarter of 2014 decreased by $4.2 million to $23.3 million from $27.5 million for the second quarter of 2013. Excluding $0.4 million in external legal and forensic accounting costs related to litigation incurred during the second quarter of 2014, as explained in Table A under "Adjustments to Net Earnings", the net earnings for the second quarter of 2014 decreased to $23.6 million or $0.28 per share, on a basic and diluted basis, in comparison to adjusted net earnings of $27.5 million or $0.33 per share, on a basic and diluted basis, for the second quarter of 2013.

The net earnings for the second quarter of 2014, as compared to the second quarter of 2013, were negatively impacted by the following:

  • program specific launch costs related to new programs that recently launched or are set to launch and ramp up over the next six months including the Ford Transit, Ford 2.3 L aluminum engine block, Chrysler 200 and the Lincoln MKC;
  • lower margins as a result of operational inefficiencies at certain operating facilities, in particular, Hopkinsville, Kentucky (as discussed above); and
  • year-over-year increases in SG&A expense as previously discussed, research and development expense predominantly as a result of increased amortization of development costs, and finance expense related to increased levels of debt primarily used to sustain the increased level of capital expenditures related to new program launches.

These factors were partially offset by the following:

  • higher margins from an overall increase in year-over-year production revenues including the launch of new programs subsequent to or during the second quarter 2013;
  • productivity and efficiency improvements at certain operating facilities, in particular the Martinrea Honsel operations in Germany;
  • improved pricing on certain long-term customer contracts in Martinrea Honsel; and
  • a lower effective tax rate due generally to the mix of earnings and the utilization of tax losses in Martinrea Honsel not previously benefitted.

The contribution of Martinrea Honsel to net earnings for the second quarter of 2014, after factoring in the interest costs incurred by Martinrea International on the debt issued to finance the acquisition and operations of Martinrea Honsel, increased to $0.08 per share from $0.06 per share for the second quarter of 2013. The increase was generally due to ongoing productivity, efficiency improvements at certain facilities, in particular in Germany, improved pricing on certain long term customer contracts and a lower effective tax rate resulting from the utilization of tax losses not previously benefited, partially offset by program specific launch costs for upcoming new programs and a lower contribution from the Brazilian operations as a result of overall lower production volumes.

Six months ended June 30, 2014 to six months ended June 30, 2013 comparison
Six months ended
June 30, 2014
Six months ended
June 30, 2013
$ Change % Change
Net Earnings $ 39,999 $ 47,402 (7,403 ) (15.6 %)
Adjusted Net Earnings $ 41,170 $ 47,402 (6,232 ) (13.1 %)
Net Earnings per common share
Basic $ 0.47 $ 0.57
Diluted $ 0.47 $ 0.56
Adjusted Net Earnings per common share
Basic $ 0.49 $ 0.57
Diluted $ 0.48 $ 0.56

Net earnings, before adjustments, for the six months ended June 30, 2014 decreased by $7.4 million to $40.0 million from $47.4 million for the six months ended June 30, 2013. Excluding $1.6 million in external legal and forensic accounting costs related to litigation incurred during the six months ended June 30, 2014, as explained in Table B under "Adjustments to Net Income", the net earnings for the six months ended June 30, 2014 decreased to $41.2 million or $0.49 per share, on a basic basis, and $0.48 per share on a diluted basis, from $47.4 million or $0.57 per share, on a basic basis, and $0.56 on a diluted basis, for the six months ended June 30, 2013.

The net earnings for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013, were negatively impacted by the following:

  • program specific launch costs related to new programs that recently launched or are set to launch and ramp up over the next six months including the Ford Transit, Ford 2.3 L aluminum engine block, Chrysler 200 and the Lincoln MKC;
  • lower margins as a result of operational inefficiencies at certain operating facilities, in particular, Hopkinsville, Kentucky (as discussed above); and
  • year-over-year increases in SG&A expense as previously discussed, research and development expenses predominantly as a result of increased amortization of development costs, finance expense related to increased levels of debt primarily used to sustain the increased level of capital expenditures related to new program launches and a decrease in other financial income predominantly resulting from foreign exchange fluctuations.

These factors were partially offset by the following:

  • higher margins from an overall increase in year-over-year production revenues including the launch of new programs subsequent to or during the first half of 2013;
  • productivity and efficiency improvements at certain operating facilities, in particular the Martinrea Honsel operations in Germany;
  • improved pricing on certain long-term customer contracts in Martinrea Honsel; and
  • a lower effective tax rate due generally to the mix of earnings and the utilization of tax losses in Martinrea Honsel not previously benefitted.

The contribution of Martinrea Honsel to net earnings for the six months ended June 30, 2014, after factoring in the interest costs incurred by Martinrea International on the debt issued to finance the acquisition and operations of Martinrea Honsel, increased to $0.20 per share from $0.10 per share for the six months ended June 30, 2013. The increase was generally due to the addition of new incremental aluminum business with Jaguar LandRover, generally higher production volumes in Europe, ongoing productivity, and efficiency improvements at certain facilities, in particular in Germany, improved pricing on certain long term customer contracts and a lower effective tax rate resulting from the utilization of tax losses not previously benefitted, partially offset by program specific launch costs for upcoming new programs and a lower contribution from the Brazilian operations as a result of lower production volumes.

ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT

Three months ended June 30, 2014 to three months ended June 30, 2013 comparison
Three months
ended
June 30, 2014
Three months
ended
June 30, 2013
$ Change % Change
Additions to Property, Plant and Equipment $ 47,311 $ 39,791 7,520 18.9 %

Additions to property, plant and equipment increased by $7.5 million to $47.3 million in the second quarter of 2014 from $39.8 million in the second quarter of 2013. Additions as a percentage of revenues remained relatively consistent year-over-year at 5.1% for the second quarter of 2014 compared to 4.8% for the comparative period of 2013. While capital expenditures are made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in the second quarter of 2014 continued to be for manufacturing equipment for programs that recently launched or will be launching over the next 24 months.

Six months ended June 30, 2014 to six months ended June 30, 2013 comparison
Six months ended
June 30, 2014
Six months ended
June 30, 2013
Change % Change
Additions to Property, Plant and Equipment $ 84,362 $ 96,496 (12,134 ) (12.6 %)

Additions to property, plant and equipment decreased by $12.1 million to $84.4 million for the six months ended June 30, 2014 from $96.5 million for the six months ended June 30, 2013. Additions as a percentage of revenues decreased year-over-year to 4.7% for the six months ended June 30, 2014 compared to 6.0% for the comparative period of 2013. Despite the decrease, while capital expenditures are made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in the first half of 2014 continued to be for manufacturing equipment for programs that recently launched or will be launching over the next 24 months.

DIVIDEND

A cash dividend of $0.03 per share has been declared by the Board of Directors payable to shareholders of record on September 30, 2014 on or about October 15, 2014.

CONFERENCE CALL DETAILS

A conference call to discuss those results will be held on Friday, August 15, 2014 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 340-8410 or toll free (866) 225-2055. 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 - 4771486#). The rebroadcast will be available until August 29, 2014.

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 related to the expectations and guidance as to revenue and gross margin percentage (and earnings per share), expansion of or improvements in gross margin, including due to positive impact from launches, statements as to the growth of the Company, opening of facilities and pursuit of its strategies, the launching of new metal forming and fluid systems programs including expectations as to the financial impact of launches, the Company's expectations as to the contribution of Martinrea Honsel to the Company's business, statements as to the progress and expectations of operational and productivity improvements and operational and productivity efficiencies, the Company's expectations regarding the future amount and type of restructuring expenses to be expensed, statements as to the reduction of costs, including the expectation of a reduction in costs and inefficiencies and stabilization of and operational improvements at the Hopkinsville plant and expectations as to the continued operation of and successful upgrades to the presses, the Company's views on the long term outlook of the automotive industry and economic recovery, the Company's ability to capitalize on opportunities in the automotive industry and the successful integration of acquisitions, statements as to the recovery of litigation related expenses from insurance providers, and as well as other forward-looking statements. The words "continue", "expect", "anticipate", "estimate", "may", "will", "should", "views", "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 following factors, some of which are discussed in detail in the Company's Annual Information Form and other public filings which can be 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 the Company's ability to fully benefit from tax losses;
  • under-funding of pension plans; and
  • the cost of post-employment benefits.

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".

Martinrea International Inc.
Interim Condensed Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)
Note June 30, 2014 December
31, 2013
ASSETS
Cash and cash equivalents $38,460 $56,224
Trade and other receivables4 603,308 541,598
Inventories5 325,088 302,810
Prepaid expenses and deposits 20,307 13,128
Income taxes recoverable 2,624 3,727
TOTAL CURRENT ASSETS 989,787 917,487
Property, plant and equipment6 880,580 847,548
Deferred income tax assets 113,635 100,156
Intangible assets7 63,805 59,640
TOTAL NON-CURRENT ASSETS 1,058,020 1,007,344
TOTAL ASSETS $2,047,807 $1,924,831
LIABILITIES
Trade and other payables8$682,189 $597,591
Provisions9 4,550 6,362
Income taxes payable 26,812 22,530
Current portion of long-term debt10 48,175 37,276
TOTAL CURRENT LIABILITIES 761,726 663,759
Long-term debt10 403,506 434,501
Pension and other post-retirement benefits 51,619 45,270
Deferred income tax liabilities 78,286 73,051
Other financial liability3 232,800 154,239
TOTAL NON-CURRENT LIABILITIES 766,211 707,061
TOTAL LIABILITIES $1,527,937 $1,370,820
EQUITY
Capital stock12 690,468 689,975
Contributed surplus 45,384 44,853
Other equity3 (232,800) (154,239)
Accumulated other comprehensive income 23,231 26,085
Accumulated deficit (111,378) (142,376)
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 414,905 464,298
Non-controlling interest 104,965 89,713
TOTAL EQUITY 519,870 554,011
TOTAL LIABILITIES AND EQUITY $2,047,807 $1,924,831
Subsequent events (notes 3 and 10)
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)


Note

Three
months ended

June 30, 2014


Three
months ended

June 30, 2013


Six months ended
June 30, 2014


Six months ended
June 30, 2013

SALES $930,915 $826,274 $1,795,408 $1,595,396
Cost of sales (excluding depreciation of property, plant and equipment) (809,766) (712,349) (1,562,649) (1,384,681)
Depreciation of property, plant and equipment (production) (25,286) (22,742) (49,417) (43,817)
Total cost of sales (835,052) (735,091) (1,612,066) (1,428,498)
GROSS MARGIN 95,863 91,183 183,342 166,898
Research and development costs (4,875) (3,567) (9,517) (7,735)
Selling, general and administrative (45,594) (38,771) (88,925) (73,574)
Depreciation of property, plant and equipment (non-production) (1,714) (1,673) (3,178) (3,147)
Amortization of customer contracts and relationships (568) (493) (911) (979)
Gain (loss) on disposal of property, plant and equipment 17 263 (123) 152
OPERATING INCOME 43,129 46,942 80,688 81,615
Finance costs (5,330) (5,192) (10,509) (9,875)
Other finance income 231 196 9 1,179
INCOME BEFORE INCOME TAXES 38,030 41,946 70,188 72,919
Income tax expense11 (8,404) (9,835) (13,903) (17,303)
NET INCOME FOR THE PERIOD $29,626 $32,111 $56,285 $55,616
Non-controlling interest (6,318) (4,597) (16,286) (8,214)
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY $23,308 $27,514 $39,999 $47,402
Basic earnings per share13$0.28 $0.33 $0.47 $0.57
Diluted earnings per share13$0.27 $0.33 $0.47 $0.56
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, 2014 June 30, 2013 June 30, 2014 June 30, 2013
NET INCOME FOR THE PERIOD$29,626 $32,111$56,285 $55,616
Other comprehensive income (loss), net of tax:
Items that may be reclassified to net income
Foreign currency translation differences for foreign operations (34,741) 24,164 (3,888) 36,634
Items that will not be reclassified to net income
Actuarial gains (losses) from the remeasurement of defined benefit plans (735) 4,417 (3,930) 5,528
Other comprehensive income (loss), net of tax (35,476) 28,581 (7,818) 42,162
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD$(5,850)$60,692$48,467 $97,778
Attributable to:
Equity holders of the Company$(6,648)$58,667$33,215 $90,753
Non-controlling interest 798 2,025 15,252 7,025
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD$(5,850)$60,692$48,467 $97,778
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



Capital
stock



Contributed
surplus



Other
equity


Cumulative
translation
account



Accumulated
deficit




Total


Non-
controlling
interest



Total
equity
Balance at December 31, 2012$675,606$46,897 $(87,100)$(22,001)$(155,721)$457,681 $66,240 $523,921
Net income for the period - - - - 47,402 47,402 8,214 55,616
Compensation expense related to stock options - 905 - - - 905 - 905
Purchase of non-controlling interest (note 2) - - - - (2,880) (2,880) (1,928) (4,808)
Dividends ($0.03 per share) - - - - (2,519) (2,519) - (2,519)
Change in fair value of put option granted to non-controlling interest - - (22,897) - - (22,897) - (22,897)
Exercise of employee stock options 10,122 (2,497) - - - 7,625 - 7,625
Other comprehensive income, net of tax
Actuarial gains from the remeasurement of defined benefit plans - - - - 5,528 5,528 - 5,528
Foreign currency translation differences - - - 37,823 - 37,823 (1,189) 36,634
Balance at June 30, 2013 685,728 45,305 (109,997) 15,822 (108,190) 528,668 71,337 600,005
Net income (loss) for the period - - - - (30,452) (30,452) 12,765 (17,687)
Compensation expense related to stock options - 707 - - - 707 - 707
Dividends ($0.06 per share) - - - - (5,069) (5,069) - (5,069)
Change in fair value of put option granted to non-controlling interest - - (44,242) - - (44,242) - (44,242)
Exercise of employee stock options 4,247 (1,159) - - - 3,088 - 3,088
Other comprehensive income, net of tax
Actuarial gains from the remeasurement of defined benefit plans - - - - 1,335 1,335 - 1,335
Foreign currency translation differences - - - 10,263 - 10,263 5,611 15,874
Balance at December 31, 2013 689,975 44,853 (154,239) 26,085 (142,376) 464,298 89,713 554,011
Net income for the period - - - - 39,999 39,999 16,286 56,285
Compensation expense related to stock options - 665 - - - 665 - 665
Dividends ($0.06 per share) - - - - (5,071) (5,071) - (5,071)
Change in fair value of put option granted to non-controlling interest - - (78,561) - - (78,561) - (78,561)
Exercise of employee stock options 493 (134) - - - 359 - 359
Other comprehensive income, net of tax
Actuarial losses from the remeasurement of defined benefit plans - - - - (3,930) (3,930) - (3,930)
Foreign currency translation differences - - - (2,854) - (2,854) (1,034) (3,888)
Balance at June 30, 2014$690,468$45,384 $(232,800)$23,231 $(111,378)$414,905 $104,965 $519,870
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

June 30, 2014
Three months
ended

June 30, 2013
Six months ended
June 30, 2014
Six months ended
June 30, 2013
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net Income for the period$29,626 $32,111 $56,285 $55,616
Adjustments for:
Depreciation of property, plant and equipment 27,000 24,415 52,595 46,964
Amortization of customer contracts and relationships 568 493 911 979
Amortization of development costs 2,162 1,622 4,266 3,167
Accretion of interest on promissory note - (30) - (60)
Unrealized losses / (gains) on foreign exchange forward contracts (1,344) 1,070 1,191 842
Finance costs 5,330 5,192 10,509 9,875
Income tax expense 8,404 9,835 13,903 17,303
Loss (gain) on disposal of property, plant and equipment (17) (263) 123 (152)
Stock-based compensation 555 590 665 905
Pension and other post-retirement benefits expense 1,265 1,202 2,432 2,404
Contributions made to pension and other post-retirement benefits (764) (2,759) (1,792) (5,227)
72,785 73,478 141,088 132,616
Changes in non-cash working capital items:
Trade and other receivables 32,837 (6,602) (62,654) (95,127)
Inventories (6,043) (7,904) (22,466) (5,061)
Prepaid expenses and deposits (6,068) (2,406) (7,179) 1,074
Trade, other payables and provisions 20,998 4,062 90,429 40,989
114,509 60,628 139,218 74,491
Interest paid (excluding capitalized interest) (4,873) (4,259) (9,585) (7,990)
Income taxes paid (2,787) (10,429) (15,029) (15,170)
NET CASH PROVIDED BY OPERATING ACTIVITIES$106,849 $45,940 $114,604 $51,331
FINANCING ACTIVITIES:
Dividends paid (2,536) - (5,071) -
Increase in long-term debt - 4,920 36,953 56,418
Repayment of long-term debt (48,700) (8,977) (58,891) (14,833)
Exercise of employee stock options 359 508 359 7,625
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES$(50,877)$(3,549)$(26,650)$49,210
INVESTING ACTIVITIES:
Purchase of property, plant and equipment* (51,475) (39,791) (94,298) (96,496)
Capitalized development costs (5,965) (3,096) (9,376) (6,218)
Proceeds on disposal of property, plant and equipment 251 1,617 844 1,645
Purchase of non-controlling interest (note 2) - - - (4,808)
NET CASH USED IN INVESTING ACTIVITIES$(57,189)$(41,270)$(102,830)$(105,877)
Effect of foreign exchange rate changes on cash and cash equivalents (3,508) 781 (2,888) (570)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,725) 1,902 (17,764) (5,906)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,185 21,614 56,224 29,422
CASH AND CASH EQUIVALENTS, END OF PERIOD$38,460 $23,516 $38,460 $23,516
*As at June 30, 2014, $3,280 (December 31, 2013 - $13,216) of purchases of property, plant and equipment remain unpaid.
See accompanying notes to the interim condensed consolidated financial statements.

Contact Information

  • Fred Di Tosto, Chief Financial Officer
    Martinrea International Inc.
    3210 Langstaff Road
    Vaughan, Ontario L4K 5B2
    (416) 749-0314
    (289) 982-3001 (FAX)