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Martinrea International Inc. Reports Record Quarterly Results and Declares Dividend

TORONTO, Aug. 09, 2023 (GLOBE NEWSWIRE) -- Martinrea International Inc. (TSX : MRE), a diversified and global automotive supplier engaged in the design, development and manufacturing of highly engineered, value-added Lightweight Structures and Propulsion Systems, today announced the release of its financial results for the second quarter ended June 30, 2023 and declared a quarterly cash dividend of $0.05 per share.

SECOND-QUARTER HIGHLIGHTS

  • Total sales of $1,361.1 million, up 22.2% year-over-year and a new quarterly record for the Company.
  • Diluted net earnings per share of $0.62.
  • Operating Income Margin of 6.1%.
  • Adjusted EBITDA(1) of $160.6 million, a new quarterly record for the Company.
  • Second quarter financial results were much improved compared to the second quarter of 2022, as semiconductor and other supply shortages had a more pronounced impact on prior-year volumes.
  • Net debt-to-Adjusted EBITDA(1) ratio, excluding the impact of IFRS 16, continues to strengthen and ended the quarter at 1.71x.
  • New business awards of approximately $150 million in annualized sales at mature volumes; year-to-date new business awards now total $220 million.
  • Quarterly cash dividend of $0.05 declared.

OVERVIEW

Pat D’Eramo, President and Chief Executive Officer, stated: “Our second quarter financial performance was strong, and an improvement over the prior quarter, with Adjusted EBITDA(1) setting another quarterly record for the Company. While challenges from production volatility, supply chain bottlenecks, cost inflation, and tight labour market conditions are ongoing, the environment is better than it was last year, and we expect that it will continue to improve over time. At the same time, we are making progress on our commercial activity, working to offset inflationary costs and volume instability that we continue to face. We continue to expect 2023 to be better year over year, with higher production volumes, sales, margins and Free Cash Flow(1) compared to 2022. We are confirming our 2023 outlook, which calls for total sales (including tooling sales) of $4.8 to $5.0 billion, an Adjusted Operating Income Margin(1) of 6.0% to 7.0%, and Free Cash Flow(1) of $150 to $200 million.”

He added: “I am pleased to announce that we have been awarded new business representing $150 million in annualized sales at mature volumes, consisting of $90 million in Propulsion Systems, including $65 million with General Motors as well as Daimler, Volvo, and others, and $60 million in Lightweight Structures with Mercedes-Benz and General Motors. Year to date, new business awards now total $220 million in annualized sales at mature volumes, which already exceeds the total amount of new wins in 2022.”

Fred Di Tosto, Chief Financial Officer, stated: “Sales for the second quarter, excluding tooling sales of $109.9 million, were $1,251.1 million, and Net Earnings per Share(1) was $0.62. Second quarter Operating Income of $82.4 million increased over the first quarter, and Adjusted EBITDA(1) of $160.6 million set a new quarterly record for the Company, as Pat noted. Second quarter Free Cash Flow(1) turned positive, coming in at $25.4 million, a nice improvement over ($31.6) million in the first quarter of 2023, driven by higher Adjusted EBITDA(1), lower capex, and the seasonal increase in working capital in the first quarter which did not repeat in the second quarter. We expect to generate an increasing amount of Free Cash Flow(1) in the back half of the year as our 2023 outlook implies, driven by higher Adjusted EBITDA(1), positive working capital flows, and significantly lower cash taxes compared to the first half.”

He continued: “Net Debt(1) declined by approximately $18 million quarter over quarter, to $937.4 million. Our Net Debt to Adjusted EBITDA(1) ratio (excluding the impact of IFRS 16) was 1.71x, down from 1.90x in the first quarter of 2023 and within striking distance of our long-term target of 1.5x or better. Our leverage ratio should naturally improve in the coming quarters as we generate an increasing amount of Free Cash Flow(1).”

Rob Wildeboer, Executive Chairman, stated: “We are pleased with our performance in the second quarter. Things are coming together. The overall environment continues to improve, we are making great progress operationally, our balance sheet is in good shape, and we are executing on our capital allocation priorities. We believe the industry is in the early stages of a period of stability and overall growth in volumes, especially in North America. The economy is in good shape, unemployment is low, household balance sheets are strong, and vehicle demand is robust while inventories remain low. Overall inflation is normalizing, which should bring with it some normalization in interest rates. I want to thank the Martinrea team for their dedication and hard work in delivering another strong quarterly performance.”

He added: “During the quarter, we repurchased just over 815,000 shares for cancellation under our normal course issuer bid for a total cost of $10.0 million. The average price paid per share repurchased in the quarter was approximately $12.30. We believe an investment in our own company is a good investment, particularly at the current low valuation. We intend to be active with our normal course issuer bid again this quarter, following the end of our blackout period. In addition to share buybacks, we paid down debt, and paid our usual $0.05 per share quarterly dividend to our shareholders. With our increasing Free Cash Flow(1) profile, we anticipate having an increasing amount of flexibility to allocate capital in the best interest of the Company.”

RESULTS OF OPERATIONS

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

Additional information about the Company, including the Company’s Management Discussion and Analysis of Operating Results and Financial Position for the three and six months ended June 30, 2023 (“MD&A”), the Company’s interim condensed consolidated financial statements for the three and six months ended June 30, 2023 (the “interim financial statements”) and the Company’s Annual Information Form for the year ended December 31, 2022 can be found at www.sedarplus.ca.   

OVERALL RESULTS

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

The following tables set out certain highlights of the Company’s performance for the three and six months ended June 30, 2023 and 2022. Refer to the Company’s interim financial statements for the three and six months ended June 30, 2023 for a detailed account of the Company’s performance for the periods presented in the tables below.

 Three months ended June 30, 2023 Three months ended June 30, 2022 $ Change % Change
Sales$1,361,055  $1,113,875  247,180 22.2%
Gross Margin 173,589   125,789  47,800 38.0%
Operating Income 82,436   45,543  36,893 81.0%
Net Income for the period 49,900   25,471  24,429 95.9%
Net Earnings per Share - Basic and Diluted$0.62  $0.32  0.30 93.8%
Non-IFRS Measures*       
Adjusted Operating Income$82,436  $45,543  36,893 81.0%
% of Sales 6.1%  4.1%    
Adjusted EBITDA 160,612   114,292  46,320 40.5%
% of Sales 11.8%  10.3%    
Adjusted Net Income 49,900   25,471  24,429 95.9%
Adjusted Net Earnings per Share - Basic and Diluted$0.62  $0.32  0.30 93.8%


 Six months ended June 30, 2023 Six months ended June 30, 2022 $ Change % Change
Sales$2,664,944  $2,268,913  396,031 17.5%
Gross Margin 340,975   248,225  92,750 37.4%
Operating Income 157,613   85,592  72,021 84.1%
Net Income for the period 98,071   50,679  47,392 93.5%
Net Earnings per Share - Basic and Diluted$1.22  $0.63  0.59 93.7%
Non-IFRS Measures*       
Adjusted Operating Income$157,613  $89,829  67,784 75.5%
% of Sales 5.9%  4.0%    
Adjusted EBITDA 313,116   226,671  86,445 38.1%
% of Sales 11.7%  10.0%    
Adjusted Net Income 93,497   50,313  43,184 85.8%
Adjusted Net Earnings per Share - Basic$1.17  $0.63  0.54 85.7%
Adjusted Net Earnings per Share - Diluted$1.16  $0.63  0.53 84.1%

*Non-IFRS Measures

The Company prepares its interim financial statements in accordance with 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”, "Adjusted EBITDA”, “Free Cash Flow”, and “Net Debt”.

The following tables provide a reconciliation of IFRS “Net Income” to Non-IFRS “Adjusted Net Income”, “Adjusted Operating Income” and “Adjusted EBITDA”:

 Three months ended
June 30, 2023
  Three months ended
June 30, 2022
 
Net Income$49,900  $25,471 
Adjustments, after tax* -   - 
Adjusted Net Income$49,900  $25,471 

        

        

 Six months ended
June 30, 2023

  Six months ended
June 30, 2022

 
Net Income$98,071  $50,679 
Adjustments, after tax* (4,574)  (366)
Adjusted Net Income$93,497  $50,313 

*Adjustments are explained in the "Adjustments to Net Income" section of this Press Release

 Three months ended
June 30, 2023
  Three months ended
June 30, 2022
 
Net Income$49,900  $25,471 
Income tax expense 11,630   8,907 
Other finance expense (income) 568   (1,446)
Share of loss of equity investments 652   1,265 
Finance expense 19,686   11,346 
Adjustments, before tax* -   - 
Adjusted Operating Income$82,436  $45,543 
Depreciation of property, plant and equipment and right-of-use assets 75,532   66,233 
Amortization of development costs 2,670   2,598 
Gain on disposal of property, plant and equipment (26)  (82)
Adjusted EBITDA$160,612  $114,292 


 Six months ended
June 30, 2023

  Six months ended
June 30, 2022

 
Net Income$98,071  $50,679 
Income tax expense 23,709   17,127 
Other finance expense (income) 344   (1,130)
Share of loss of equity investments 2,030   2,366 
Finance expense 38,732   20,600 
Adjustments, before tax* (5,273)  187 
Adjusted Operating Income$157,613  $89,829 
Depreciation of property, plant and equipment and right-of-use assets 150,204   131,605 
Amortization of development costs 5,283   5,319 
Loss (gain) on disposal of property, plant and equipment 16   (82)
Adjusted EBITDA$313,116  $226,671 

*Adjustments are explained in the "Adjustments to Net Income" section of this Press Release

SALES

Three months ended June 30, 2023 to three months ended June 30, 2022 comparison

 Three months ended June 30, 2023
  Three months ended June 30, 2022
  $ Change  % Change
North America$1,047,067  $826,724  220,343  26.7%
Europe 288,023   255,832  32,191  12.6%
Rest of the World 36,566   38,673  (2,107) (5.4%)
Eliminations (10,601)  (7,354) (3,247) (44.2%)
Total Sales$1,361,055  $1,113,875  247,180  22.2%

The Company’s consolidated sales for the second quarter of 2023 increased by $247.2 million or 22.2% to $1,361.1 million as compared to $1,113.9 million for the second quarter of 2022. The total increase in sales was driven by year-over-year increases in the North America and Europe operating segments, partially offset by a year-over-year decrease in the Rest of the World.

Sales for the second quarter of 2023 in the Company’s North America operating segment increased by $220.3 million or 26.7% to $1,047.1 million from $826.7 million for the second quarter of 2022. The increase was due generally to the launch and ramp up of new programs during or subsequent to the second quarter of 2022, including Mercedes' new electric vehicle platform (EVA2), General Motors' new electric vehicle platform (BEV3), and a Toyota/Lexus SUV; overall higher second quarter OEM light vehicle production volumes, which increased in North America by approximately 15% year-over-year, primarily as a result of the industry-wide supply chain disruptions which impacted 2022 to a greater degree compared to 2023; the impact of foreign exchange on the translation of U.S. denominated production sales, which had a positive impact on overall sales for the second quarter of 2023 of $53.8 million as compared to the second quarter of 2022; the impact of commercial settlements (to partially offset inflationary cost increases) on customer pricing and sales; and an increase in tooling sales of $43.7 million, which are typically dependent on the timing of tooling construction and final acceptance by the customer. These positive factors were partially offset by lower year-over year-production volumes of certain light vehicle platforms including the GM Equinox/Terrain, Ford Mustang Mach E, and Lucid Air.

Sales for the second quarter of 2023 in the Company’s Europe operating segment increased by $32.2 million or 12.6% to $288.0 million from $255.8 million for the second quarter of 2022. The increase was due generally to the launch and ramp up of new programs, including Mercedes' new electric vehicle platform (EVA2); overall higher second quarter OEM light vehicle production volumes, which increased in Europe by approximately 14% year-over-year, primarily as a result of the industry-wide supply chain disruptions which impacted 2022 to a greater degree compared to 2023; the impact of foreign exchange on the translation of Euro denominated production sales, which had a positive impact on overall sales for the second quarter of 2023 of $16.8 million as compared to the second quarter of 2022; the impact of commercial settlements (to partially offset inflationary cost increases) on customer pricing and sales; and a $4.9 million increase in tooling sales. These positive factors were partially offset by lower year-over year-production volumes of certain platforms, namely the Lucid Air and an engine block for Ford.

Sales for the second quarter of 2023 in the Company’s Rest of the World operating segment decreased by $2.1 million or 5.4% to $36.6 million from $38.7 million in the second quarter of 2022. The decrease was largely driven by lower year-over-year production volumes on Geely's new electric vehicle platform (PMA); partially offset by higher production volumes with General Motors and Mercedes, and an increase in tooling sales of $1.0 million.

Overall tooling sales increased by $48.7 million (including outside segment sales eliminations) to $109.9 million for the second quarter of 2023 from $61.2 million for the second quarter of 2022.

Six months ended June 30, 2023 to six months ended June 30, 2022 comparison

 Six months ended
June 30, 2023
 Six months ended
June 30, 2022
 $ Change  % Change
North America$2,021,059  $1,686,424  334,635  19.8%
Europe 591,493   517,294  74,199  14.3%
Rest of the World 70,448   78,426  (7,978) (10.2%)
Eliminations (18,056)  (13,231) (4,825) (36.5%)
Total Sales$2,664,944  $2,268,913  396,031  17.5%

The Company’s consolidated sales for the six months ended June 30, 2023 increased by $396.0 million or 17.5% to $2,664.9 million as compared to $2,268.9 million for the six months ended June 30, 2022. The total increase in sales was driven by year-over-year increases in the North America and Europe operating segments, partially offset by a decrease in sales in the Rest of the World.

Sales for the six months ended June 30, 2023 in the Company’s North America operating segment increased by $334.6 million or 19.8% to $2,021.1 million from $1,686.4 million for the six months ended June 30, 2022. The increase was due generally to the launch and ramp up of new programs, including Mercedes' new electric vehicle platform (EVA2), General Motors' new electric vehicle platform (BEV3), and a Toyota/Lexus SUV; overall higher OEM light vehicle production volumes during the first six months of the year, which increased in North America by approximately 12% year-over-year, primarily as a result of the industry-wide supply chain disruptions which impacted 2022 to a greater degree compared to 2023; the impact of foreign exchange on the translation of U.S. denominated production sales, which had a positive impact on overall sales for the six months ended June 30, 2023 of $100.0 million as compared to the corresponding period of 2022; the impact of material passthrough and commercial settlements (to partially offset inflationary cost increases) on customer pricing and sales; and an increase in tooling sales of $59.9 million, which are typically dependent on the timing of tooling construction and final acceptance by the customer. These positive factors were partially offset by lower year-over-year production volumes of certain light vehicle platforms including the GM Equinox/Terrain, Ford Mustang Mach E and Lucid Air.

Sales for the six months ended June 30, 2023 in the Company’s Europe operating segment increased by $74.2 million or 14.3% to $591.5 million from $517.3 million for the six months ended June 30, 2022. The increase can be attributed to the launch and ramp up of new programs, including Mercedes' new electric vehicle platform (EVA2); overall higher OEM light vehicle production volumes during the first six months of the year, which increased in Europe by approximately 16% year-over-year, primarily as a result of the industry-wide supply chain disruptions which impacted 2022 to a greater degree compared to 2023; the impact of foreign exchange on the translation of Euro denominated production sales, which had a positive impact on overall sales for the six months ended June 30, 2023 of $18.2 million as compared to the corresponding period of 2022; and the impact of material passthrough and commercial settlements (to partially offset inflationary cost increases) on customer pricing and sales. These positive factors were partially offset by lower year-over year-production volumes of certain platforms, namely the Lucid Air and an engine block for Ford; and a $1.0 million decrease in tooling sales.

Sales for the six months ended June 30, 2023 in the Company’s Rest of the World operating segment decreased by $8.0 million or 10.2% to $70.4 million from $78.4 million for the six months ended June 30, 2022. The decrease was largely driven by lower year-over-year production volumes on Geely's new electric vehicle platform (PMA) and with Jaguar Land Rover; partially offset by an increase in tooling sales of $2.0 million.

Overall tooling sales increased by $60.4 million (including outside segment sales eliminations) to $174.3 million for the six months ended June 30, 2023 from $113.9 million for the six months ended June 30, 2022.

GROSS MARGIN

Three months ended June 30, 2023 to three months ended June 30, 2022 comparison

 Three months ended
June 30, 2023
 Three months ended
June 30, 2022
 $ Change % Change
Gross margin$173,589  $125,789  47,800 38.0%
% of Sales 12.8%  11.3%    

The gross margin percentage for the second quarter of 2023 of 12.8% increased as a percentage of sales by 1.5% as compared to the gross margin percentage for the second quarter of 2022 of 11.3%. The increase in gross margin as a percentage of sales was generally due to overall higher production sales volume and corresponding higher utilization of assets, and productivity and efficiency improvements at certain operating facilities. These factors were partially offset by operational inefficiencies at certain operating facilities, and a negative sales mix. Overall market related inflationary pressures on labour, material and energy costs, along with offsetting commercial settlements, were generally stable for the quarter on a year-over-year basis.

Gross margin for the second quarter of 2023 continued to be impacted by production inefficiencies related to the industry-wide supply chain disruptions driven by the unpredictability of customer production schedules, although the stability of OEM production volumes has improved year-over-year.

Six months ended June 30, 2023 to six months ended June 30, 2022 comparison

 Six months ended
June 30, 2023
 Six months ended
June 30, 2022
 $ Change % Change
Gross margin$340,975  $248,225  92,750 37.4%
% of Sales 12.8%  10.9%    

The gross margin percentage for the six months ended June 30, 2023 of 12.8% increased as a percentage of sales by 1.9% as compared to the gross margin percentage for the six months ended June 30, 2022 of 10.9%. The increase in gross margin as a percentage of sales was generally due to:

  • overall higher production sales volume and corresponding higher utilization of assets;
  • favourable commercial settlements; and
  • productivity and efficiency improvements at certain operating facilities.

These factors were partially offset by:

  • higher labour, material and energy costs;
  • operational inefficiencies at certain operating facilities;
  • a negative sales mix; and
  • the impact of material passthrough on customer pricing.

Gross margin for the six months ended June 30, 2023 continued to be impacted by production inefficiencies related to the industry-wide supply chain disruptions driven by the unpredictability of customer production schedules, although the stability of OEM production volumes has improved year-over-year.

ADJUSTMENTS TO NET INCOME

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

TABLE A

Three months ended June 30, 2023 to three months ended June 30, 2022 comparison

No adjustments were noted during the three months ended June 30, 2023 and 2022.

TABLE B

Six months ended June 30, 2023 to six months ended June 30, 2022 comparison

 Six months ended
June 30, 2023
 Six months ended
June 30, 2022
 $ Change
NET INCOME$98,071  $50,679  $47,392 
      
Adjustments:     
Net gain on disposal of equity investments (1) (5,273)  -   (5,273)
Gain on dilution of equity investments (2) -   (4,050)  4,050 
Restructuring costs (3) -   4,237   (4,237)
ADJUSTMENTS, BEFORE TAX$(5,273) $187  $(5,460)
      
Tax impact of adjustments 699   (553)  1,252 
ADJUSTMENTS, AFTER TAX$(4,574) $(366) $(4,208)
      
ADJUSTED NET INCOME$93,497  $50,313  $43,184 
      
Number of Shares Outstanding – Basic (‘000) 80,241   80,370   
Adjusted Basic Net Earnings Per Share$1.17  $0.63   
Number of Shares Outstanding – Diluted (‘000) 80,293   80,370   
Adjusted Diluted Net Earnings Per Share$1.16  $0.63   

(1)  Net gain on disposal of equity investments

On March 24, 2023, Martinrea sold its equity interest in VoltaXplore Inc. ("VoltaXplore) to NanoXplore Inc. ("NanoXplore") for 3,420,406 common shares of NanoXplore at $2.92 per share representing an aggregate consideration of $10.0 million. The sale transaction resulted in a gain on disposal of equity investments during the first quarter of 2023 as follows:

Gross gain (Total consideration of $10.0 million less book value of investment)$6,821 
Less: gain attributable to indirect retained interest (1,548)
Net gain on disposal of equity investments$5,273 

Subsequent to this transaction, the Company no longer holds a direct equity interest in VoltaXplore while its equity ownership interest in NanoXplore increased from 21.1% to 22.7%.

(2)  Gain on dilution of equity investments

As at December 31, 2021, the Company held 35,045,954 common shares of NanoXplore representing a 22.2% equity interest in NanoXplore (on a non-diluted basis). On February 24, 2022, NanoXplore closed a bought deal public offering of 6,522,000 common shares from treasury at a price of $4.60 per common share for aggregate gross proceeds of $30.0 million. Upon finalization of the transaction, the Company’s net ownership interest decreased to 21.2% from 22.2%. This dilution resulted in a deemed disposition of a portion of the Company’s ownership interest in NanoXplore, resulting in a gain on dilution of $4.1 million during the first quarter of 2022.

(3)  Restructuring costs

Additions to the restructuring provision during the six months ended June 30, 2022 totaled $4.2 million and represent employee-related severance resulting from the rightsizing of operations in Canada related to the cancellation of an OEM light vehicle platform well before the end of its expected life cycle.

NET INCOME

Three months ended June 30, 2023 to three months ended June 30, 2022 comparison

 Three months ended
June 30, 2023
 Three months ended
June 30, 2022
 $ Change % Change
Net Income$49,900 $25,471 24,429 95.9%
Net Earnings per Share       
Basic and Diluted$0.62 $0.32    

Net Income for the second quarter of 2023 increased by $24.4 million to $49.9 million or $0.62 per share, on a basic and diluted basis, from a Net Income of $25.5 million or $0.32 per share, on a basic and diluted basis, for the second quarter of 2022.

Net Income for the second quarter of 2023, as compared to the second quarter of 2022, was positively impacted by the following:

  • higher gross margin on higher year-over-year sales volume as previously explained; and
  • a lower effective tax rate (18.9% for the second quarter of 2023 compared to 25.9% for the second quarter of 2022).

These factors were partially offset by the following:

  • a year-over-year increase in SG&A expense, as previously explained;
  • an $8.3 million year-over-year increase in finance expense as a result of increased debt levels and borrowing rates on the Company's revolving bank debt; and
  • a net foreign exchange loss of $0.7 million for the second quarter of 2023 compared to a gain of $1.2 million for the second quarter of 2022.

Six months ended June 30, 2023 to six months ended June 30, 2022 comparison

 Six months ended
June 30, 2023
 Six months ended
June 30, 2022
 $ Change % Change
Net Income$98,071 $50,679 47,392 93.5%
Adjusted Net Income 93,497  50,313 43,184 85.8%
Net Earnings per Share       
Basic and Diluted$1.22 $0.63    
Adjusted Net Earnings per Share       
Basic$1.17 $0.63    
Diluted$1.16 $0.63    

Net Income, before adjustments, for the six months ended June 30, 2023 increased by $47.4 million to $98.1 million or $1.22 per share, on a basic and diluted basis, from a Net Income of $50.7 million or $0.63 per share, on a basic and diluted basis, for the six months ended June 30, 2022. Excluding the adjustments explained in Table B under “Adjustments to Net Income”, Adjusted Net Income for the six months ended June 30, 2023 increased by $43.2 million to $93.5 million or $1.17 per share on a basic basis, and $1.16 on a diluted basis, from $50.3 million or $0.63 per share, on a basic and diluted basis, for the six months ended June 30, 2022.

Adjusted Net Income for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was positively impacted by the following:

  • higher gross margin on higher year-over-year sales volume as previously explained; and
  • a lower effective tax rate (19.8% for the six months ended June 30, 2023 compared to 26.0% for the six months ended June 30, 2022).

These factors were partially offset by the following:

  • a year-over-year increase in SG&A expense, as previously explained;
  • an $18.1 million year-over-year increase in finance expense as a result of increased debt levels and borrowing rates on the Company's revolving bank debt; and
  • a net foreign exchange loss of $0.6 million for the six months ended June 30, 2023 compared to a gain of $0.9 million for the six months ended June 30, 2022.

DIVIDEND

A cash dividend of $0.05 per share has been declared by the Board of Directors payable to shareholders of record on September 30, 2023, on or about October 15, 2023.

ABOUT MARTINREA INTERNATIONAL INC.

Martinrea is a diversified and global automotive supplier engaged in the design, development and manufacturing of highly engineered, value-added Lightweight Structures and Propulsion Systems. Martinrea operates in 58 locations in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain, China, South Africa and Japan. Martinrea’s vision is making lives better by being the best supplier we can be in the products we make and the services we provide. For more information on Martinrea, please visit www.martinrea.com. Follow Martinrea on Twitter and Facebook.

CONFERENCE CALL DETAILS

A conference call to discuss the financial results will be held on Wednesday, August 9, 2023 at 6:00 p.m. Eastern Time. To participate, please dial 416-641-6104 (Toronto area) or 800-952-5114 (toll free Canada and US) and enter participant code 8029740#. Please call 10 minutes prior to the start of the conference call.

The webcast and accompanying presentation can be accessed at: https://www.martinrea.com/investor-relations/events-presentations/

There will also be a rebroadcast of the call available by dialing 905-694-9451 or toll free 800-408-3053 (Conference ID – 5701857#). The rebroadcast will be available until September 10, 2023.

If you have any teleconferencing questions, please call Ganesh Iyer at 416-749-0314.

FORWARD-LOOKING INFORMATION

Special Note Regarding Forward-Looking Statements

This Press Release and the documents incorporated by reference therein contains forward-looking statements within the meaning of applicable Canadian securities laws including those related to the Company’s expectations as to, or its views or beliefs in or on, the impact of, or duration of, or factors affecting, or expected response to, or growth of, improvements in, expansion of and/or guidance or outlook (including for 2023) as to future results, revenue, sales, margin, gross margin, earnings, and earnings per share, adjusted earnings per share, free cash flow, volumes, adjusted net earnings per share, operating income margins, operating margins, adjusted operating income margins, leverage ratios, net debt to adjusted EBITDA(1), debt repayment, Adjusted EBITDA(1), capex levels, working capital levels, cash tax levels, progress on commercial negotiations, the growth of the Company and pursuit of, and belief in, its strategies, its near and long-term potential growth and continued improvement in results, the strength, recovery and growth of the automotive industry and continuing challenges, including ongoing, or expectation for improvements in, supply chain issues or disruptions, inflation, labour market conditions, production volatility, the ramping up and launching of new business; the continued investments in its business and technologies; the opportunity to increase sales; the ability to finance future capital expenditures, working capital, debt obligations and other commitments; intentions to purchase under the normal course issuer bid; the Company’s views on its liquidity, operating cash flow and leverage ratios and ability to deal with present or future economic conditions, the potential for fluctuation of operating results, and the payment of dividends 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, such as expected sales and industry production estimates, current foreign exchange rates, timing of product launches and operational improvement during the period, and current Board approved budgets. 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 AIF and MD&A for the year ended December 31, 2022, and other public filings which can be found at www.sedarplus.ca:

  • North American and Global Economic and Political Conditions and Consumer Confidence;
  • Automotive Industry Risks;
  • Pandemics and Epidemics (including the ongoing COVID-19 Pandemic), Force Majeure Events, Natural Disasters, Terrorist Activities, Political and Civil Unrest, and Other Outbreaks;
  • COVID-19 Pandemic;         
  • Russian Invasion of Ukraine;             
  • Semiconductor Chip Shortages and Price Increases;   
  • Inflationary Pressures;        
  • Regional Energy Shortages;
  • Dependence Upon Key Customers;
  • Customer Consolidation and Cooperation;     
  • Emergence of Potentially Disruptive EV OEMs;             
  • Outsourcing and Insourcing Trends;
  • Financial Viability of Suppliers and Key Suppliers and Supply Disruptions;             
  • Competition;         
  • Customer Pricing Pressures, Contractual Arrangements, Cost and Risk Absorption and Purchase Orders;      
  • Material and Commodity Prices and Volatility;                
  • Scrap Steel/Aluminum Price Volatility;             
  • Quote/Pricing Assumptions;              
  • Launch and Operational Costs and Cost Structure;      
  • Fluctuations in Operating Results;    
  • Product Warranty, Repair/Replacement Costs, Recall, Product Liability and Liability Risk;   
  • Product Development and Technological Change;       
  • A Shift Away from Technologies in Which the Company is Investing;         
  • Dependence Upon Key Personnel;  
  • Limited Financial Resources/Uncertainty of Future Financing/Banking;   
  • Cybersecurity Threats;        
  • Acquisitions;         
  • Joint Ventures;     
  • Private or Public Equity Investments in Technology Companies;
  • Potential Tax Exposures;    
  • Potential Rationalization Costs, Turnaround Costs and Impairment Charges;         
  • Labour Relations Matters;  
  • Trade Restrictions or Disputes;         
  • Changes in Laws and Governmental Regulations;       
  • Environmental Regulation and Climate Change;           
  • Litigation and Regulatory Compliance and Investigations;          
  • Risks of Conducting Business in Foreign Countries, Including China, Brazil and Other Growing Markets;         
  • Currency Risk;      
  • Internal Controls Over Financial Reporting and Disclosure Controls and Procedures;
  • Loss of Use of Key Manufacturing Facilities;
  • Intellectual Property;
  • Availability of Consumer Credit or Cost of Borrowing;
  • Evolving Business Risk Profile;
  • Competition with Low Cost Countries;
  • The Company’s Ability to Shift its Manufacturing Footprint to Take Advantage of Opportunities in Growing Markets;       
  • Change in the Company’s Mix of Earnings Between Jurisdictions with Lower Tax Rates and Those with Higher Tax Rates;                
  • Pension Plans and Other Post-Employment Benefits;  
  • Potential Volatility of Share Prices;   
  • Dividends; and
  • Lease Obligations.

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

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

For further information, please contact:

Fred Di Tosto
Chief Financial Officer
Martinrea International Inc.
3210 Langstaff Road
Vaughan, Ontario L4K 5B2
Tel:        416-749-0314
Fax:         289-982-3001

1 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, included anywhere in this press release, include “Adjusted Net Income”, “Adjusted Net Earnings per Share (on a basic and diluted basis)”, “Adjusted Operating Income”, "Adjusted EBITDA”, “Free Cash Flow” and “Net Debt”. The relevant IFRS financial measure, as applicable, and a reconciliation of certain non-IFRS financial measures to measures determined in accordance with IFRS are contained in the Company’s Management Discussion and Analysis for the three and six months ended June 30, 2023 and in this press release.

 


Martinrea International Inc.

Interim Condensed Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)


 NoteJune 30, 2023
 December 31, 2022
 

ASSETS
   
Cash and cash equivalents $145,755 $161,655 
Trade and other receivables2 902,455  789,931 
Inventories3 656,123  665,316 
Prepaid expenses and deposits  30,296  36,237 
Income taxes recoverable  18,099  6,454 
TOTAL CURRENT ASSETS  1,752,728  1,659,593 
Property, plant and equipment4 1,928,478  1,948,773 
Right-of-use assets5 242,727  254,065 
Deferred tax assets  193,054  166,680 
Intangible assets  43,707  45,916 
Investments6 60,083  55,858 
Pension assets  15,459  12,234 
TOTAL NON-CURRENT ASSETS  2,483,508  2,483,526 
TOTAL ASSETS $4,236,236 $4,143,119 
    
LIABILITIES   
Trade and other payables $1,353,075 $1,315,380 
Provisions7 5,769  7,906 
Income taxes payable  35,292  39,216 
Current portion of long-term debt8 15,374  16,198 
Current portion of lease liabilities9 45,029  43,665 
TOTAL CURRENT LIABILITIES  1,454,539  1,422,365 
Long-term debt8 1,067,787  1,054,170 
Lease liabilities9 217,020  229,455 
Pension and other post-retirement benefits  41,585  41,912 
Deferred tax liabilities  26,485  18,312 
TOTAL NON-CURRENT LIABILITIES  1,352,877  1,343,849 
TOTAL LIABILITIES  2,807,416  2,766,214 
    
EQUITY   
Capital stock11 657,271  663,646 
Contributed surplus  45,682  45,558 
Accumulated other comprehensive income  93,020  124,065 
Retained earnings  632,847  543,636 
TOTAL EQUITY  1,428,820  1,376,905 
TOTAL LIABILITIES AND EQUITY $4,236,236 $4,143,119 


Contingencies
(note 16)

See accompanying notes to the interim condensed consolidated financial statements.

On behalf of the Board:

“Robert Wildeboer”Director 
“Terry Lyons”Director 


Martinrea International Inc.
Interim Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts) (unaudited)


 NoteThree months ended
June 30, 2023
Three months ended
June 30, 2022
Six months ended
June 30, 2023
Six months ended
June 30, 2022
      
SALES $1,361,055 $1,113,875 $2,664,944 $2,268,913 
      
Cost of sales (excluding depreciation of property, plant and equipment and right-of-use assets)  (1,116,313) (925,762) (2,182,510) (1,896,707)
Depreciation of property, plant and equipment and right-of-use assets (production)  (71,153) (62,324) (141,459) (123,981)
Total cost of sales  (1,187,466) (988,086) (2,323,969) (2,020,688)
GROSS MARGIN  173,589  125,789  340,975  248,225 
      
Research and development costs  (9,351) (8,289) (18,629) (17,401)
Selling, general and administrative  (77,449) (68,130) (155,972) (133,453)
Depreciation of property, plant and equipment and right-of-use assets (non-production)  (4,379) (3,909) (8,745) (7,624)
Gain (loss) on disposal of property, plant and equipment  26  82  (16) 82 
Restructuring costs  -  -  -  (4,237)
OPERATING INCOME  82,436  45,543  157,613  85,592 
      
Share of loss of equity investments6 (652) (1,265) (2,030) (2,366)
Net gain on disposal of equity investments6 -  -  5,273  - 
Gain on dilution of equity investments6 -  -  -  4,050 
Finance expense13 (19,686) (11,346) (38,732) (20,600)
Other finance income (expense)13 (568) 1,446  (344) 1,130 
INCOME BEFORE INCOME TAXES  61,530  34,378  121,780  67,806 
      
Income tax expense10 (11,630) (8,907) (23,709) (17,127)
NET INCOME FOR THE PERIOD $49,900 $25,471 $98,071 $50,679 
      
Basic earnings per share12$0.62 $0.32 $1.22 $0.63 
Diluted earnings per share12$0.62 $0.32 $1.22 $0.63 

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
June 30, 2023
Three months ended
June 30, 2022
Six months ended
June 30, 2023
Six months ended
June 30, 2022
     
NET INCOME FOR THE PERIOD$49,900 $25,471 $98,071 $50,679 
Other comprehensive income (loss), net of tax:    
Items that may be reclassified to net income    
Foreign currency translation differences for foreign operations (33,648) 17,899  (31,027) (9,539)
Items that will not be reclassified to net income    
Share of other comprehensive income (loss) of equity investments (note 6) (7) 306  (18) 285 
Remeasurement of defined benefit plans 2,071  2,957  2,446  12,063 
Other comprehensive income (loss), net of tax (31,584) 21,162  (28,599) 2,809 
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD$18,316 $46,633 $69,472 $53,488 

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)


 Capital stockContributed surplusAccumulated other
comprehensive
income
Retained earningsTotal equity
BALANCE AT DECEMBER 31, 2021$663,415 $44,845 $51,207 $410,308 $1,169,775 
Net income for the period -  -  -  50,679  50,679 
Compensation expense related to stock options -  391  -  -  391 
Dividends ($0.10 per share) -  -  -  (8,038) (8,038)
Exercise of employee stock options 231  (60) -  -  171 
Other comprehensive income (loss) net of tax     
Remeasurement of defined benefit plans -  -  -  12,063  12,063 
Foreign currency translation differences -  -  (9,539) -  (9,539)
Share of other comprehensive income of equity investments -  -  285  -  285 
BALANCE AT JUNE 30, 2022 663,646  45,176  41,953  465,012  1,215,787 
Net income for the period -  -  -  82,159  82,159 
Compensation expense related to stock options -  382  -  -  382 
Dividends ($0.10 per share) -  -  -  (8,038) (8,038)
Other comprehensive income (loss) net of tax     
Remeasurement of defined benefit plans -  -  -  4,503  4,503 
Foreign currency translation differences -  -  82,357  -  82,357 
Share of other comprehensive loss of equity investments -  -  (245) -  (245)
BALANCE AT DECEMBER 31, 2022 663,646  45,558  124,065  543,636  1,376,905 
Net income for the period -  -  -  98,071  98,071 
Compensation expense related to stock options -  221  -  -  221 
Dividends ($0.10 per share) -  -  -  (7,999) (7,999)
Exercise of employee stock options 358  (97) -  -  261 
Repurchase of common shares (note 11) (6,733) -  -  (3,307) (10,040)
Other comprehensive income (loss) net of tax     
Remeasurement of defined benefit plans -  -  -  2,446  2,446 
Foreign currency translation differences -  -  (31,027) -  (31,027)
Share of other comprehensive loss of equity investments -  -  (18) -  (18)
BALANCE AT JUNE 30, 2023$657,271 $45,682 $93,020 $632,847 $1,428,820 

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, 2023
Three months ended
June 30, 2022
Six months ended
June 30, 2023
Six months ended
June 30, 2022
CASH PROVIDED BY (USED IN):    
OPERATING ACTIVITIES:    
Net income for the period$49,900 $25,471 $98,071 $50,679 
Adjustments for:    
Depreciation of property, plant and equipment and right-of-use assets 75,532  66,233  150,204  131,605 
Amortization of development costs 2,670  2,598  5,283  5,319 
Unrealized loss (gain) on foreign exchange forward contracts 4,701  2,593  (83) 1,756 
Finance expense 19,686  11,346  38,732  20,600 
Income tax expense 11,630  8,907  23,709  17,127 
Loss (gain) on disposal of property, plant and equipment (26) (82) 16  (82)
Deferred and restricted share units expense 1,775  1,632  7,211  545 
Stock options expense 111  195  221  391 
Share of loss of equity investments 652  1,265  2,030  2,366 
Net gain on disposal of equity investments -  -  (5,273) - 
Gain on dilution of equity investments -  -  -  (4,050)
Pension and other post-retirement benefits expense 700  854  1,394  1,722 
Contributions made to pension and other post-retirement benefits (597) (295) (1,220) (1,660)
  166,734  120,717  320,295  226,318 
Changes in non-cash working capital items:    
Trade and other receivables 4,872  (12,287) (126,996) (202,699)
Inventories 20,080  (34,946) (1,895) (58,128)
Prepaid expenses and deposits 2,190  (2,201) 5,449  (5,850)
Trade, other payables and provisions (28,108) 68,031  79,318  221,636 
  165,768  139,314  276,171  181,277 
Interest paid (24,464) (14,012) (47,763) (23,971)
Income taxes paid (31,206) (7,963) (63,783) (9,974)
NET CASH PROVIDED BY OPERATING ACTIVITIES$110,098 $117,339 $164,625 $147,332 
     
FINANCING ACTIVITIES:    
Increase (decrease) in long-term debt (net of deferred financing fees) (11,763) 17,519  35,331  37,519 
Repayment of long-term debt (4,336) (5,662) (8,576) (11,021)
Principal payments of lease liabilities (11,933) (11,829) (22,887) (20,323)
Dividends paid (4,019) (4,019) (8,038) (8,037)
Exercise of employee stock options 261  171  261  171 
Repurchase of common shares (10,040) -  (10,040) - 
NET CASH USED IN FINANCING ACTIVITIES$(41,830)$(3,820)$(13,949)$(1,691)
     
INVESTING ACTIVITIES:    
Purchase of property, plant and equipment (excluding capitalized interest)* (76,440) (85,570) (159,856) (173,114)
Capitalized development costs (2,436) (2,287) (4,201) (3,626)
Increase in investments (note 6) (1,000) -  (1,000) (1,000)
Proceeds on disposal of property, plant and equipment 255  416  386  416 
NET CASH USED IN INVESTING ACTIVITIES$(79,621)$(87,441)$(164,671)$(177,324)
     
Effect of foreign exchange rate changes on cash and cash equivalents 523  (6,551) (1,905) (5,745)
     
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,830) 19,527  (15,900) (37,428)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 156,585  96,336  161,655  153,291 
CASH AND CASH EQUIVALENTS, END OF PERIOD$145,755 $115,863 $145,755 $115,863 

*As at June 30, 2023, $67,112 (December 31, 2022 - $94,754) of purchases of property, plant and equipment remain unpaid and are recorded in trade and other payables.

See accompanying notes to the interim condensed consolidated financial statements.


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