Martinrea International Inc.
TSX : MRE

Martinrea International Inc.

March 03, 2016 17:01 ET

Martinrea International Inc. Releases Year and Fourth Quarter Results and Announces Dividend

TORONTO, ONTARIO--(Marketwired - March 3, 2016) - Martinrea International Inc. (TSX:MRE), a leader in the development and production of quality metal parts, assemblies and modules, fluid management systems and complex aluminum products focused primarily on the automotive sector, announced today the release of its financial results for the year and fourth quarter ended December 31, 2015, and a quarterly dividend.

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 year and quarter ended December 31, 2015 ("MD&A") dated as of March 3, 2016, the Company's audited consolidated financial statements for the year ended December 31, 2015 (the "audited consolidated financial statements") and the Company's Annual Information Form for the financial year ended December 31, 2015, can be found at www.sedar.com.

HIGHLIGHTS

  • Record annual and fourth quarter sales and adjusted net earnings
  • Annual and fourth quarter adjusted operating income and adjusted EBITDA margins improved year over year
  • Record 2015 adjusted EBITDA of $318 million
  • Dividend of $0.03 per share announced

OVERVIEW

Pat D'Eramo, Martinrea's President and Chief Executive Officer, stated: "Martinrea had a great year in 2015, as our team worked hard together to achieve record financial results in terms of sales and earnings, and 2016 is off to a very good start, as indicated in our first quarter outlook. We won a lot of business in 2015 and we are seeing many quoting opportunities again this year in all areas of our business. We recently added another $30 million in annual business when launched which includes $15 million of fluid work on the Ford Explorer platform starting in 2019 and $15 million of aluminum knuckles on the BMW X5 platform starting in 2017. We continue to drive our strategy, focusing on our four key pillars: having a high performance culture, operational excellence, superior financial management and customer satisfaction, and we believe we made solid progress in all four areas in 2015. We are really excited about the coming year."

Fred Di Tosto, Martinrea's Chief Financial Officer, stated: "Sales for the fourth quarter, excluding tooling sales, were $973 million, just above our previously announced sales guidance and a record fourth quarter. In the fourth quarter, our adjusted net earnings per share, on a basic and diluted basis, was $0.34, after adjusting for some modest restructuring costs, at the high end of our quarterly guidance and a record fourth quarter. Fourth quarter adjusted operating income margins and adjusted EBITDA improved year-over-year, even with pre-operating and launch costs at some new plants and customer shutdowns for re-tooling, including a slowdown of our Martinrea Honsel Mexico facility as Chrysler moves to the next generation Pentastar engine block, which is expected to impact us in the first quarter as well, as reflected in our first quarter outlook. We saw significant margin improvement in 2015 over 2014, and continue to expect operating income margins to improve to over 6% by 2017, with continuing improvement over the next two years. Our net debt:EBITDA ratio ended the year at 2.17:1, a level that continues to improve year over year, and we continue to look to a ratio of 1.5:1 by the end of 2017."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "We remain positive and optimistic about our industry's future, anticipating steady to increasing volumes worldwide and in North America for the rest of the decade, and we are very positive about our future in this industry, as we execute on our vision and mission. Our product offerings are focused on areas critical to our industry, including lightweighting of vehicles, vehicle safety, and environmentally friendly fluid systems products. We anticipate 2016 will be a very good year of continuing improvement in key metrics for us, and we expect to have a solid start to the year with first quarter sales, excluding tooling sales, likely exceeding $1 billion for the first time, and adjusted net earnings per share, on a basic and diluted basis, in the range of $0.35 to $0.39 per share. As we complete our 2015 financial year, we want to thank all our stakeholders, and especially our people here at Martinrea, for their support in the past year, and we look forward to serving you well in the coming years."

OVERALL RESULTS

The following table sets out certain highlights of the Company's performance for the years ended December 31, 2015 and 2014. Refer to the Company's audited consolidated financial statements for the year ended December 31, 2015 for a detailed account of the Company's performance for the periods presented in the table below.

Year ended December 31, 2015 Year ended December 31, 2014 $ Change % Change
Sales $ 3,866,771 $ 3,598,645 268,126 7.5 %
Gross Margin 402,232 347,892 54,340 15.6 %
Operating Income 161,761 131,900 29,861 22.6 %
Net Income for the period 107,173 89,416 17,757 19.9 %
Net Income Attributable to Equity Holders of the Company $ 107,030 $ 71,304 35,726 50.1 %
Net Earnings per Share - Basic $ 1.25 $ 0.84 0.41 48.8 %
Net Earnings per Share - Diluted $ 1.24 $ 0.83 0.41 49.4 %
Non-IFRS Measures*
Adjusted Operating Income $ 178,870 $ 147,748 31,122 21.1 %
as a % of Sales 4.6 % 4.1 %
Adjusted EBITDA 317,750 270,370 47,380 17.5 %
as a % of Sales 8.2 % 7.5 %
Adjusted Net Income Attributable to Equity Holders of the Company 118,788 83,386 35,402 42.5 %
Adjusted Net Earnings per Share - Basic $ 1.38 $ 0.99 0.39 39.4 %
Adjusted Net Earnings per Share - Diluted $ 1.38 $ 0.98 0.40 40.8 %
The following table sets out a detailed account of the Company's performance for the fourth quarters of 2015 and 2014 (unaudited).
Three months ended December 31, 2015 Three months ended December 31, 2014 $ Change % Change
Sales $ 1,035,314 $ 943,781 91,533 9.7 %
Cost of sales (excluding depreciation) (899,291 ) (828,698 ) (70,593 ) 8.5 %
Depreciation of property, plant and equipment (production) (32,194 ) (28,609 ) (3,585 ) 12.5 %
Gross Margin 103,829 86,474 17,355 20.1 %
Research and development costs (4,980 ) (4,415 ) (565 ) 12.8 %
Selling, general and administrative expense (51,027 ) (56,112 ) 5,085 (9.1 %)
Depreciation of property, plant and equipment (non-production) (2,082 ) (1,844 ) (238 ) 12.9 %
Amortization of customer contracts and relationships (523 ) (670 ) 147 (21.9 %)
Restructuring costs (1,718 ) (3,542 ) 1,824 (51.5 %)
Loss on disposal of property, plant and equipment (523 ) (234 ) (289 ) 123.5 %
Operating Income $ 42,976 $ 19,657 23,319 118.6 %
Finance costs (5,837 ) (6,379 ) 542 (8.5 %)
Other finance income 866 1,246 (380 ) (30.5 %)
Income before income taxes $ 38,005 $ 14,524 23,481 161.7 %
Income tax expense (10,179 ) (2,598 ) (7,581 ) 291.8 %
Net Income for the period 27,826 11,926 15,900 133.3 %
Net Income Attributable to Equity Holders of the Company $ 27,731 $ 11,921 15,810 132.6 %
Net Earnings per Share - Basic and Diluted $ 0.32 $ 0.14 0.18 128.6 %
Non-IFRS Measures*
Adjusted Operating Income $ 44,694 $ 33,944 10,750 31.7 %
as a % of Sales 4.3 % 3.6 %
Adjusted EBITDA 83,261 67,935 15,326 22.6 %
as a % of Sales 8.0 % 7.2 %
Adjusted Net Income Attributable to Equity Holders of the Company 29,059 22,832 6,227 27.3 %
Adjusted Net Earnings per Share - Basic and Diluted $ 0.34 $ 0.27 0.07 25.9 %

*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". Unusual and other items are explained in the "Adjustments to Net Income" section of this Press Release.

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 December 31, 2015 Three months ended December 31, 2014 Year ended December 31, 2015 Year ended December 31, 2014
Net Income Attributable to Equity Holders of the Company $ 27,731 $ 11,921 $ 107,030 $ 71,304
Unusual and Other Items (after-tax)* 1,328 10,911 11,758 12,082
Adjusted Net Income Attributable to Equity Holders of the Company $ 29,059 $ 22,832 $ 118,788 $ 83,386
* Unusual and other items are explained in the "Adjustments to Net Income" section of this Press Release
Three months ended December 31, 2015 Three months ended December 31, 2014 Year ended December 31, 2015 Year ended December 31, 2014
Net Income Attributable to Equity Holders of the Company $ 27,731 $ 11,921 $ 107,030 $ 71,304
Non-controlling interest 95 5 143 18,112
Income tax expense 10,179 2,598 34,247 21,823
Other finance income (866 ) (1,246 ) (4,925 ) (2,137 )
Finance costs 5,837 6,379 25,266 22,798
Unusual and Other Items (before-tax)* 1,718 14,287 17,109 15,848
Adjusted Operating Income $ 44,694 $ 33,944 $ 178,870 $ 147,748
Depreciation of property, plant and equipment 34,276 30,453 124,872 110,783
Amortization of intangible assets 3,768 3,304 14,238 11,518
Loss (gain) on disposal of property, plant and equipment 523 234 (230 ) 321
Adjusted EBITDA $ 83,261 $ 67,935 $ 317,750 $ 270,370
* Unusual and other items are explained in the "Adjustments to Net Income" section of this Press Release

The year-over-year changes in significant accounts and financial highlights are discussed in detail in the sections below.

SALES

Three months ended December 31, 2015 to three months ended December 31, 2014 comparison
Three months ended December 31, 2015 Three months ended December 31, 2014 $ Change % Change
North America $ 837,607 $ 756,716 80,891 10.7 %
Europe 166,870 171,503 (4,633 ) (2.7 %)
Rest of the World 30,837 15,562 15,275 98.2 %
Total Sales $ 1,035,314 $ 943,781 91,533 9.7 %

The Company's consolidated sales for the fourth quarter of 2015 increased by $91.5 million or 9.7% to $1,035.3 million as compared to $943.8 million for the fourth quarter of 2014. The total increase in sales was driven by increases in the Company's North America and Rest of the World operating segments, partially offset by a year-over-year decrease in sales in Europe.

Sales for the fourth quarter of 2015 in the Company's North America operating segment increased by $80.9 million or 10.7% to $837.6 million from $756.7 million for the fourth quarter of 2014. The increase was due to the impact of foreign exchange on the translation of U.S. denominated production sales, which had a positive impact on overall sales for the fourth quarter of 2015 of approximately $105.1 million as compared to the fourth quarter of 2014, and the launch of new programs during or subsequent to the fourth quarter of 2014, including the Ford Edge, Ford Transit and GM Colorado. These positive factors were offset by a $22.9 million decrease in tooling sales, which are typically dependent on the timing of tooling construction and final acceptance by the customer, and lower year-over-year OEM production volumes on certain light-vehicle platforms late in their product life cycle such as the GM Camaro and Equinox. The planned shutdown of Chrysler's V6 Pentastar engine block program for re-tooling, which commenced during the fourth quarter of 2015, also negatively impacted production sales in North America during the quarter as compared to the comparative period of 2014. The re-tooling is expected to be complete by the end of the first quarter of 2016 at which time production volumes of the engine block are expected to increase back to levels experienced prior to the re-tooling.

Sales for the fourth quarter of 2015 in the Company's Europe operating segment decreased by $4.6 million or 2.7% to $166.9 million from $171.5 million for the fourth quarter of 2014. The decrease can be attributed to lower overall production volumes in the Company's Martinrea Honsel German operations including the impact from the sale of the Company's operating facility in Soest, Germany on August 31, 2015; partially offset by a $4.6 million positive foreign exchange impact from the translation of Euro denominated production sales as compared to the fourth quarter of 2014, increased production sales in the Company's operating facilities in Spain and Slovakia, which continue to ramp up and launch their backlog of business, and a $0.7 million increase in tooling sales.

Sales for the fourth quarter of 2015 in the Company's Rest of the World operating segment increased by $15.3 million or 98.2% to $30.8 million from $15.6 million in the fourth quarter of 2014. The increase was mainly due to a year-over-year increase in production sales in the Company's new fluids systems plant in China, which began operations in 2013 and continues to ramp up its backlog of business, a $3.1 million increase in tooling sales, and a $0.8 million positive foreign exchange impact from the translation of foreign denominated production sales as compared to the fourth quarter of 2014. Production sales for the fourth quarter of 2015 in the Company's operating facility in Brazil were down slightly year-over-year as OEM light vehicle production volumes in Brazil continue to trend at low levels.

Overall tooling sales decreased by $19.1 million to $62.6 million for the fourth quarter of 2015 from $81.7 million for the fourth quarter of 2014.

Year ended December 31, 2015 to year ended December 31, 2014 comparison
Year ended December 31, 2015 Year ended December 31, 2014 $ Change % Change
North America $ 3,094,463 $ 2,851,370 243,093 8.5 %
Europe 684,215 687,566 (3,351 ) (0.5 %)
Rest of the World 88,093 59,709 28,384 47.5 %
Total Sales $ 3,866,771 $ 3,598,645 268,126 7.5 %

The Company's consolidated sales for the year ended December 31, 2015 increased by $268.1 million or 7.5% to $3,866.8 million as compared to $3,598.6 million for the year ended December 31, 2014. The total increase in sales was driven by increases in the Company's North America and Rest of the World operating segments, partially offset by a year-over-year decrease in sales in Europe.

Sales for the year ended December 31, 2015 in the Company's North America operating segment increased by $243.1 million or 8.5% to $3,094.5 million from $2,851.4 million for the year ended December 31, 2014. The increase was due to the impact of foreign exchange on the translation of U.S. denominated production sales, which had a positive impact on overall sales for the year ended December 31, 2015 of approximately $331.5 million as compared to the comparative period of 2014, and the launch of new programs during or subsequent to the year ended December 31, 2014, including the new Chrysler 200, BMW X6, Ford Edge, Ford Transit and GM Colorado. These positive variances were partially offset by a year-over-year decrease in tooling sales of $82.1 million and lower year-over-year OEM production volumes on certain light-vehicle platforms including the Chrysler Minivan platform, which was down for thirteen weeks during the first half of 2015 for re-tooling, and other platforms late in their product life cycle.

Sales for the year ended December 31, 2015 in the Company's Europe operating segment decreased by $3.4 million or 0.5% to $684.2 million from $687.6 million for the year ended December 31, 2014. The decrease can be attributed to the impact of foreign exchange on the translation of Euro denominated production sales, which had a negative impact on overall sales for the year ended December 31, 2015 of approximately $25.6 million as compared to the comparable period of 2014, a $5.6 million decrease in tooling sales, and lower overall production volumes in the Company's Martinrea Honsel German operations including the impact from the sale of the Company's operating facility in Soest, Germany on August 31, 2015; partially offset by increased production sales in the Company's operating facilities in Spain and Slovakia, which continue to ramp up and launch their backlog of business.

Sales for the year ended December 31, 2015 in the Company's Rest of the World operating segment increased by $28.4 million or 47.5% to $88.1 million from $59.7 million for the year ended December 31, 2014. The increase can be attributed to an increase in production sales in the Company's new fluids systems plant in China, which began operations in 2013 and continues to ramp up its backlog of business, and a $4.8 million increase in tooling sales; partially offset by the translation of foreign denominated production sales, which had a negative impact on overall sales for the year ended December 31, 2015 of $0.3 million as compared to the comparative period of 2014. Production sales for 2015 in the Company's operating facility in Brazil were down slightly year-over-year as OEM light vehicle production volumes in Brazil continue to trend at low levels.

Overall tooling sales decreased by $82.9 million to $162.1 million for the year ended December 31, 2015 from $245.0 million for the year ended December 31, 2014.

GROSS MARGIN

Three months ended December 31, 2015 to three months ended December 31, 2014 comparison
Three months ended December 31, 2015 Three months ended December 31, 2014 $ Change % Change
Gross margin $ 103,829 $ 86,474 17,355 20.1 %
% of sales 10.0 % 9.2 %

The gross margin percentage for the fourth quarter of 2015 of 10.0% increased as a percentage of sales by 0.8% as compared to the gross margin percentage for the fourth quarter of 2014 of 9.2%. The increase in gross margin as a percentage of sales was generally due to:

  • productivity and efficiency improvements at certain operating facilities in particular in the Company's U.S. metallic operations;
  • new fluids systems plants in Slovakia and China which continue to ramp up and launch their backlog of business; and
  • a decrease in tooling sales which typically earn low or no margins for the Company.

These factors were partially offset by the following:

  • increased pre-operating and launch costs, in particular at new operating facilities in Mexico, China and Riverside, Missouri as these new plants execute on their backlog of new business;
  • lower recoveries from scrap steel;
  • operational inefficiencies and other costs at certain other facilities; and
  • general sales mix including lower production volumes in the Company's Martinrea Honsel operating facility in Meschede, Germany.
Year ended December 31, 2015 to year ended December 31, 2014 comparison
Year ended December 31, 2015 Year ended December 31, 2014 $ Change % Change
Gross margin $ 402,232 $ 347,892 54,340 15.6 %
% of sales 10.4 % 9.7 %

The gross margin percentage for the year ended December 31, 2015 of 10.4% increased as a percentage of sales by 0.7% as compared to the gross margin percentage for the year ended December 31, 2014 of 9.7%. The increase in gross margin as a percentage of sales was generally due to:

  • productivity and efficiency improvements at certain operating facilities in particular in the Company's U.S. metallic operations;
  • new fluids systems plants in Slovakia and China which continue to ramp up and launch their backlog of new business; and
  • a decrease in tooling sales which typically earn low or no margins for the Company.

These factors were partially offset by the following:

  • increased pre-operating and launch costs, in particular at new operating facilities in Spain, Mexico, China and Riverside, Missouri as these new plants execute on their backlog of new business;
  • lower recoveries from scrap steel;
  • operational inefficiencies and other costs at certain other facilities;
  • general sales mix including lower production volumes in the Company's Martinrea Honsel operating facility in Meschede, Germany; and
  • the resolution of certain commercial disputes in the Company's European operations in 2014 which positively impacted the first quarter of 2014 as compared to the first quarter of 2015.

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 December 31, 2015 to three months ended December 31, 2014 comparison
For the three months ended For the three months ended
December 31, 2015 December 31, 2014 (a)-(b)
(a) (b) Change
NET INCOME (A) $ 27,731 $ 11,921 $ 15,810
Add back - Unusual and Other Items:
Restructuring costs (1) 1,718 3,542 (1,824 )
Change in Chief Executive Officer (4) - 10,745 (10,745 )
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX $ 1,718 $ 14,287 $ (12,569 )
Tax impact of above items (390 ) (3,376 ) 2,986
TOTAL UNUSUAL AND OTHER ITEMS AFTER TAX (B) $ 1,328 $ 10,911 $ (9,583 )
ADJUSTED NET INCOME (A + B) $ 29,059 $ 22,832 $ 6,227
Number of Shares Outstanding - Basic ('000) 86,345 84,878
Adjusted Basic Net Earnings Per Share $ 0.34 $ 0.27
Number of Shares Outstanding - Diluted ('000) 86,730 85,697
Adjusted Diluted Net Earnings Per Share $ 0.34 $ 0.27
TABLE B
Year ended December 31, 2015 to year ended December 31, 2014 comparison
For the year ended For the year ended
December 31, 2015 December 31, 2014 (a)-(b)
(a) (b) Change
NET INCOME (A) $ 107,030 $ 71,304 $ 35,726
Add back - Unusual and Other Items:
Restructuring costs (1) 15,337 3,542 11,795
Executive separation agreement (2) 1,402 - 1,402
Loss on sale of assets and liabilities held for sale (3) 370 - 370
Change in Chief Executive Officer (4) - 10,745 (10,745 )
External legal and forensic accounting costs related to litigation (5) - 1,561 (1,561 )
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX $ 17,109 $ 15,848 $ 1,261
Tax impact of above items (5,351 ) (3,766 ) (1,585 )
TOTAL UNUSUAL AND OTHER ITEMS AFTER TAX (B) $ 11,758 $ 12,082 $ (324 )
ADJUSTED NET INCOME (A + B) $ 118,788 $ 83,386 $ 35,402
Number of Shares Outstanding - Basic ('000) 85,863 84,615
Adjusted Basic Net Earnings Per Share $ 1.38 $ 0.99
Number of Shares Outstanding - Diluted ('000) 86,369 85,515
Adjusted Diluted Net Earnings Per Share $ 1.38 $ 0.98

(1) Restructuring costs

As part of the acquisition of Honsel (as described in the "Acquisitions" section of the MD&A), a certain level of restructuring was planned in order to be cost competitive over the long term, in particular at the Company's operating facility in Meschede, Germany. In connection with these restructuring activities, $13.6 million (EUR9.7 million) of employee related severance was recognized during the third quarter of 2015, and a further $1.7 million (EUR1.2 million) was recognized during the fourth quarter of 2015 (of which $0.3 million relates to the right sizing of the Company's facility in Brazil).

During the fourth quarter of 2014, the Company right sized the workforce at two operating facilities in Canada resulting in $3.5 million in employee related severance costs.

(2) Executive separation agreement

On July 14, 2015, Danny Infusino stepped down as the Company's Executive Vice President of Business Development and Engineering and Vice President of Operations. The costs added back for Adjusted Net Income purposes represents Mr. Infusino's termination benefits (included in SG&A expense) as set out in his employment contract payable over an eighteen month period.

(3) Loss on sale of assets and liabilities held for sale

During the second quarter of 2015, certain assets and liabilities of the Company's operating facility in Soest, Germany were transferred to assets held for sale. The Soest facility specializes in aluminum extrusions which the Company determined was not core to the strategy of the overall business going forward. The agreement to sell the Soest facility was closed on August 31, 2015. The net assets were sold for proceeds of $20.6 million (EUR14.6 million) resulting in a pre-tax loss on sale of $0.4 million (EUR0.3 million).

(4) Change in Chief Executive Officer

On November 1, 2014, Nick Orlando stepped down as Martinrea's President and Chief Executive Officer and Pat D'Eramo was appointed as the Company's President and Chief Executive Officer following a comprehensive search process conducted by the Company's Board of Directors, which appointed a search committee of its members to oversee the process and to work with an outside executive search firm to make assessments and recommendations. The costs added back for adjusted net income purposes in 2014 include $8.4 million in termination benefits for Nick Orlando as set out in his employment contract payable over a two year period, $0.9 million in fees paid to an outside executive search firm, a $0.9 million signing bonus paid to Pat D'Eramo upon his arrival to the Company and $0.5 million in stock based compensation expense related to certain stock options granted to Pat D'Eramo upon his arrival which had no vesting requirements.

(5) External legal and forensic accounting costs related to litigation

The costs added back for Adjusted Net Income purposes for the year ended December 31, 2014 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 outside the ordinary course of business as outlined in the Company's Annual Information Form for the year ended December 31, 2015.

NET INCOME
(ATTIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)
Three months ended December 31, 2015 to three months ended December 31, 2014 comparison
Three months ended December 31, 2015 Three months ended December 31, 2014 $ Change % Change
Net Income $ 27,731 $ 11,921 15,810 132.6 %
Adjusted Net Income $ 29,059 $ 22,832 6,227 27.3 %
Net Earnings per share
Basic $ 0.32 $ 0.14
Diluted $ 0.32 $ 0.14
Adjusted Net Earnings per share
Basic $ 0.34 $ 0.27
Diluted $ 0.34 $ 0.27

Net income, before adjustments, for the fourth quarter of 2015 increased by $15.8 million to $27.7 million from $11.9 million for the fourth quarter of 2014. Excluding the unusual and other items incurred during the fourth quarters of 2015 and 2014 as explained in Table A under "Adjustments to Net Income", net income for the fourth quarter of 2015 increased to $29.1 million or $0.34 per share, on a basic and diluted basis, from $22.8 million or $0.27 per share, on a basic and diluted basis, for the fourth quarter of 2014.

Adjusted Net Income for the fourth quarter of 2015, as compared to the fourth quarter of 2014, was positively impacted by the following:

  • higher gross profit from an overall increase in year-over-year production sales as previously explained;
  • productivity and efficiency improvements at certain operating facilities in particular in the Company's U.S. metallic operations; and
  • new fluids systems plants in Slovakia and China, which continue to ramp up and launch their backlog of new business.

These factors were partially offset by the following:

  • increased pre-operating and launch costs, in particular at new operating facilities in Mexico, China, and Riverside, Missouri as these new plants execute on their backlog of new business;
  • lower recoveries from scrap steel;
  • operational inefficiencies and other costs at certain other facilities;
  • general sales mix including lower production volumes in the Company's Martinrea Honsel operating facility in Meschede, Germany;
  • a higher effective tax rate on adjusted pre-tax income due generally to the mix of earnings (26.6% for the fourth quarter of 2015 compared to 20.7% for the fourth quarter of 2014); and
  • a year-over-year increase in SG&A expense as previously discussed.
Three months ended December 31, 2015 actual to guidance comparison:
On November 5, 2015, the Company provided the following guidance for the fourth quarter of 2015:
Guidance Actual
Production sales (in millions) $ 930 - 970 $ 973
Adjusted Net Earnings per Share
Basic & Diluted $ 0.30 - 0.34 $ 0.34

For the fourth quarter of 2015, while Adjusted Net Earnings per share was within the range of published guidance, production sales of $973 million slightly exceeded the high end of the range primarily as a result of higher than expected volumes across several vehicle platforms and fluctuations in foreign exchange rates and the corresponding impact on the translation of foreign denominated sales to the Company's Canadian dollar reporting currency.

Year ended December 31, 2015 to year ended December 31, 2014 comparison
Year ended December 31, 2015 Year ended December 31, 2014 $ Change % Change
Net Income $ 107,030 $ 71,304 35,726 50.1 %
Adjusted Net Income $ 118,788 $ 83,386 35,402 42.5 %
Net Earnings per share
Basic $ 1.25 $ 0.84
Diluted $ 1.24 $ 0.83
Adjusted Net Earnings per share
Basic $ 1.38 $ 0.99
Diluted $ 1.38 $ 0.98

Net income, before adjustments, for the year ended December 31, 2015 increased by $35.7 million to $107.0 million from $71.3 million for the year ended December 31, 2014. Excluding the unusual and other items incurred during the years ended December 31, 2015 and 2014 as explained in Table B under "Adjustments to Net Income", net income for the year ended December 31, 2015 increased to $118.8 million or $1.38 per share, on a basic and diluted basis, from $83.4 million or $0.99 per share, on a basic basis, and $0.98 per share, on a diluted basis, for the year ended December 31, 2014.

Adjusted Net Income for the year ended December 31, 2015, as compared to the year ended December 31, 2014, was positively impacted by the following:

  • higher gross profit from an overall increase in year-over-year production sales as previously explained;
  • productivity and efficiency improvements at certain operating facilities in particular in the Company's U.S. metallic operations;
  • new fluids systems plants in Slovakia and China, which continue to ramp up and launch their backlog of new business;
  • the inclusion of 100% of the net earnings from the Martinrea Honsel group after the Company purchased the 45% non-controlling interest on August 7, 2014 (see "Acquisitions" section of the MD&A for further details on the transaction); and
  • a net foreign exchange gain of $4.8 million for the year ended December 31, 2015 compared to a net foreign exchange gain of $1.9 million for the comparative period of 2014.

These factors were partially offset by the following:

  • increased pre-operating and launch costs, in particular at new operating facilities in Spain, Mexico, China, and Riverside, Missouri as these new plants execute on their backlog of new business;
  • lower recoveries from scrap steel;
  • operational inefficiencies and other costs at certain other facilities;
  • general sales mix including lower production volumes in the Company's Martinrea Honsel operating facility in Meschede, Germany;
  • the resolution of certain commercial disputes in the Company's European operations which positively impacted the first quarter of 2014 as compared to the first quarter of 2015;
  • a higher effective tax rate on adjusted pre-tax income due generally to the mix of earnings (25.0% for the year ended December 31, 2015 compared to 20.1% for the comparative period of 2014); and
  • year-over-year increases in SG&A expense as previously discussed, research and development expenses, due predominantly to 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 and to fund the purchase of the 45% non-controlling interest of the Martinrea Honsel group on August 7, 2014 (see "Acquisitions" section of the MD&A for further details on the transaction).
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Three months ended December 31, 2015 to three months ended December 31, 2014 comparison
Three months ended December 31, 2015 Three months ended December 31, 2014 $ Change % Change
Additions to PP&E $ 85,683 $ 67,424 18,259 27.1 %

Additions to PP&E increased by $18.3 million to $85.7 million in the fourth quarter of 2015 from $67.4 million in the fourth quarter of 2014 due generally to the timing of expenditures and the impact of foreign exchange on the translation of foreign denominated purchases. Additions as a percentage of sales increased year-over-year to 8.3% for the fourth quarter of 2015 from 7.1% for the fourth quarter of 2014. 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 fourth quarter of 2015 continued to be for manufacturing equipment and multiple expansions for programs that recently launched or will be launching over the next 24 months.

Year ended December 31, 2015 to year ended December 31, 2014 comparison
Year ended December 31, 2015 Year ended December 31, 2014 $ Change % Change
Additions to PP&E $ 215,219 $ 203,801 11,418 5.6 %

Additions to PP&E increased by $11.4 million year-over-year to $215.2 million for the year ended December 31, 2015 compared to $203.8 million for the year ended December 31, 2014 due generally to the timing of expenditures and the impact of foreign exchange on the translation of foreign denominated purchases. Additions as a percentage of sales decreased slightly year-over-year to 5.6% for the year ended December 31, 2015 from 5.7% for the comparative period of 2014. Despite the slight decrease as a percentage of sales, the Company continues to make investments in the business in particular at new operating facilities in Spain, Mexico, China, and Riverside, Missouri as these new plants execute on their backlog of new business.

DIVIDEND

A cash dividend of $0.03 per share has been declared by the Board of Directors payable to shareholders of record on March 31, 2016 on or about April 15, 2016.

ABOUT MARTINREA

Martinrea currently employs over 14,000 skilled and motivated people in 44 operating divisions in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain and China.

Martinrea's vision for the future is to be the best, preferred and most valued automotive parts supplier in the world in the products and services we provide our customers. The Company's mission is to deliver: 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 Friday, March 4, 2016 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 340-2219 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 (800) 408-3053 (conference id 5427260#). The rebroadcast will be available until March 18, 2016.

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 expectations of, improvements in, expansion of and/or guidance or outlook as to future revenue, sales, gross margin, earnings, and earnings per share and net debt:EBITDA ratios, the growth and strengthening of and the competitiveness of the Company, the opening of facilities and pursuit of its strategies, the launching of new programs and the financial impact of launches, the progress, and expectations, of operational and productivity improvements and efficiencies, the reduction of costs and expense, including expectations of future restructuring costs, the opportunity to increase sales and ability to capitalize on opportunities in the automotive industry, customer working relationships, expectations of the impact of customer shutdowns, outlook and expectations of volumes and the automotive industry, the payment of dividends 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 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 and commodities;
  • 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 and operational 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 and regulatory compliance and investigations;
  • 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 markets;
  • potential tax exposures;
  • 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;
  • the cost of post-employment benefits;
  • impairment charges; and
  • cybersecurity threats.

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.
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Note December 31, 2015 December 31, 2014
ASSETS
Cash and cash equivalents $ 28,899 $ 52,401
Trade and other receivables 4 586,024 520,844
Inventories 5 356,969 313,436
Prepaid expenses and deposits 13,651 10,039
Income taxes recoverable 10,401 8,321
TOTAL CURRENT ASSETS 995,944 905,041
Property, plant and equipment 7 1,202,162 984,681
Deferred income tax assets 13 182,232 153,367
Intangible assets 8 83,590 71,806
TOTAL NON-CURRENT ASSETS 1,467,984 1,209,854
TOTAL ASSETS $ 2,463,928 $ 2,114,895
LIABILITIES
Trade and other payables 9 $ 743,096 $ 645,862
Provisions 10 15,598 5,504
Income taxes payable 29,873 31,140
Current portion of long-term debt 11 43,399 37,526
TOTAL CURRENT LIABILITIES 831,966 720,032
Long-term debt 11 673,613 654,916
Pension and other post-retirement benefits 12 67,552 62,557
Deferred income tax liabilities 13 114,571 101,644
TOTAL NON-CURRENT LIABILITIES 855,736 819,117
TOTAL LIABILITIES 1,687,702 1,539,149
EQUITY
Capital stock 14 709,396 694,198
Contributed surplus 42,648 45,347
Accumulated other comprehensive income 147,442 55,927
Accumulated deficit (123,157 ) (219,480 )
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 776,329 575,992
Non-controlling interest (103 ) (246 )
TOTAL EQUITY 776,226 575,746
TOTAL LIABILITIES AND EQUITY $ 2,463,928 $ 2,114,895

Commitment and Contingencies (notes 10, 11, and 21)

See accompanying notes to the consolidated financial statements.

On behalf of the Board:

"Robert Wildeboer" Director

"Scott Balfour" Director

Martinrea International Inc.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts)
Year ended Year ended
Note December 31, 2015 December 31, 2014
SALES $ 3,866,771 $ 3,598,645
Cost of sales (excluding depreciation of property, plant and equipment) (3,347,152 ) (3,146,756 )
Depreciation of property, plant and equipment (production) (117,387 ) (103,997 )
Total cost of sales (3,464,539 ) (3,250,753 )
GROSS MARGIN 402,232 347,892
Research and development costs 16 (21,765 ) (18,359 )
Selling, general and administrative (193,610 ) (184,499 )
Depreciation of property, plant and equipment (non-production) (7,485 ) (6,786 )
Amortization of customer contracts and relationships (2,134 ) (2,485 )
Restructuring costs 10 (15,337 ) (3,542 )
Loss on sale of assets and liabilities held for sale 6 (370 ) -
Gain/(loss) on disposal of property, plant and equipment 230 (321 )
OPERATING INCOME 161,761 131,900
Finance costs 18 (25,266 ) (22,798 )
Other finance income 18 4,925 2,137
INCOME BEFORE INCOME TAXES 141,420 111,239
Income tax expense 13 (34,247 ) (21,823 )
NET INCOME FOR THE PERIOD $ 107,173 $ 89,416
Non-controlling interest 3 (143 ) (18,112 )
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY $ 107,030 $ 71,304
Basic earnings per share 15 $ 1.25 $ 0.84
Diluted earnings per share 15 $ 1.24 $ 0.83

See accompanying notes to the consolidated financial statements.

Martinrea International Inc.
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars)
Year ended Year ended
December 31, 2015 December 31, 2014
NET INCOME FOR THE PERIOD $ 107,173 $ 89,416
Other comprehensive income, net of tax:
Items that may be reclassified to net income
Foreign currency translation differences for foreign operations 91,515 30,240
Items that will not be reclassified to net income
Actuarial losses from the remeasurement of defined benefit plans (371 ) (11,051 )
Other comprehensive income, net of tax 91,144 19,189
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 198,317 $ 108,605
Attributable to:
Equity holders of the Company 198,174 90,095
Non-controlling interest 143 18,510
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 198,317 $ 108,605

See accompanying notes to the consolidated financial statements.

Martinrea International Inc.
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)
Equity attributable to equity holders of the Company
Cumulative Non-
Capital Contributed Other translation Accumulated controlling Total
stock surplus equity account deficit Total interest equity
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 - - - - 71,304 71,304 18,112 89,416
Compensation expense related to stock options - 1,699 - - - 1,699 - 1,699
Change in fair value of put option granted to non-controlling interest - - (81,428 ) - - (81,428 ) - (81,428 )
Purchase of non-controlling interest (note 3) - - 235,667 - (127,198 ) 108,469 (108,469 ) -
Dividends ($0.12 per share) - - - - (10,159 ) (10,159 ) - (10,159 )
Exercise of employee stock options 4,223 (1,205 ) - - - 3,018 - 3,018
Other comprehensive income, net of tax
Actuarial losses from the remeasurement of defined benefit plans - - - - (11,051 ) (11,051 ) - (11,051 )
Foreign currency translation differences - - - 29,842 - 29,842 398 30,240
Balance at December 31, 2014 694,198 45,347 - 55,927 (219,480 ) 575,992 (246 ) 575,746
Net income for the period - - - - 107,030 107,030 143 107,173
Compensation expense related to stock options - 1,384 - - - 1,384 - 1,384
Dividends ($0.12 per share) - - - - (10,336 ) (10,336 ) - (10,336 )
Exercise of employee stock options 15,198 (4,083 ) - - - 11,115 - 11,115
Other comprehensive income, net of tax
Actuarial losses from the remeasurement of defined benefit plans - - - - (371 ) (371 ) - (371 )
Foreign currency translation differences - - - 91,515 - 91,515 - 91,515
Balance at December 31, 2015 $ 709,396 $ 42,648 $ - $ 147,442 $ (123,157 ) $ 776,329 $ (103 ) $ 776,226

See accompanying notes to the consolidated financial statements.

Martinrea International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Year ended Year ended
December 31, 2015 December 31, 2014
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net Income for the period $ 107,173 $ 89,416
Adjustments for:
Depreciation of property, plant and equipment 124,872 110,783
Amortization of customer contracts and relationships 2,134 2,485
Amortization of development costs 12,104 9,033
Unrealized losses on foreign exchange forward contracts 134 9
Finance costs 25,266 22,798
Income tax expense 34,247 21,823
Loss on sale of assets and liabilities held for sale (note 6) 370 -
(Gain)/loss on disposal of property, plant and equipment (230 ) 321
Stock-based compensation 1,384 1,699
Pension and other post-retirement benefits expense 4,264 4,068
Contributions made to pension and other post-retirement benefits (4,207 ) (3,898 )
307,511 258,537
Changes in non-cash working capital items:
Trade and other receivables (9,883 ) 42,962
Inventories (15,395 ) 1,374
Prepaid expenses and deposits (2,488 ) 3,542
Trade, other payables and provisions (10,869 ) 18,083
268,876 324,498
Interest paid (excluding capitalized interest) (24,259 ) (21,429 )
Income taxes paid (51,990 ) (38,715 )
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 192,627 $ 264,354
FINANCING ACTIVITIES:
Increase in long-term debt 51,271 297,077
Repayment of long-term debt (98,911 ) (100,908 )
Dividends paid (10,293 ) (10,145 )
Exercise of employee stock options 11,115 3,018
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ (46,818 ) $ 189,042
INVESTING ACTIVITIES:
Purchase of property, plant and equipment* (179,578 ) (203,645 )
Capitalized development costs (15,193 ) (20,476 )
Proceeds on sale of assets and liabilities held for sale (note 6) 20,638 -
Proceeds on disposal of property, plant and equipment 2,677 1,647
Purchase of non-controlling interest (note 3) - (235,667 )
NET CASH USED IN INVESTING ACTIVITIES $ (171,456 ) $ (458,141 )
Effect of foreign exchange rate changes on cash and cash equivalents 2,145 922
DECREASE IN CASH AND CASH EQUIVALENTS (23,502 ) (3,823 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 52,401 56,224
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,899 $ 52,401

* As at December 31, 2015, $49,013 (December 31, 2014, $13,372) of purchases of property, plant and equipment remain unpaid.

See accompanying notes to the consolidated financial statements.

Contact Information

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