Martinrea International Inc. Reports Second-Quarter Results, Declares Dividend, and Reiterates Positive Long-Term Outlook

TORONTO, Aug. 10, 2021 (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, 2021 and declared a quarterly cash dividend of $0.05 per share.

HIGHLIGHTS

Total sales of $884.9 million, up 92.1% year-over-year; production sales of $838.9 million
Second quarter diluted net earnings per share of $0.30
Second quarter Adjusted Net Earnings per Share(1) of $0.34
Second quarter results impacted by the ongoing global semiconductor shortage
Longer term outlook remains positive
Balance sheet remains strong, with a net-debt-to-Adjusted EBITDA(1) ratio of approximately 1.8x
New business awards of approximately $40 million in annualized sales at mature volumes; year-to-date awards now total approximately $170 million
Quarterly cash dividend of $0.05 declared

________________________
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”. 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, 2021 and in this press release.

OVERVIEW

Pat D’Eramo, President and Chief Executive Officer, stated: “We continued to experience short-term headwinds in the second quarter, as customer releases have fluctuated due to the shortage of semiconductors and other supply constraints. In addition, we are progressing through a heavy new business launch cycle which is having a greater impact on margins than what is normal in a typical year.   Labour availability has also been challenging in certain regions, and we have had to adjust wages in select locations as a result. On a positive note, vehicle demand remains very strong, and vehicle inventories are at record lows. Our current launch activity is expected to generate future sales growth as well as strong margins once supply bottlenecks are removed, and production normalizes. Our future remains bright, and our team continues to manage well under challenging circumstances. I would like to thank our global team for their continued dedication and commitment to our organization.”

He added: “I am also pleased to announce new business wins since we reported last quarter totaling $40 million in annualized sales at mature volumes, including approximately $30 million in our Lightweight Structures commercial group with various customers, including General Motors, Ford and Toyota, and approximately $10 million in our Propulsion Systems commercial group with Volkswagen and Ford. Year to date, new business wins now total approximately $170 million.”

Fred Di Tosto, Chief Financial Officer, stated: “Sales for the second quarter, excluding tooling sales of $45.9 million, were $838.9 million, and our Adjusted Net Earnings per Share was $0.34, both below the range of our previously-disclosed guidance, reflecting the impact the industry-wide shortage of semiconductor chips had on OEM light vehicle production. Our expectation is that supply-driven challenges will persist, in some form, through at least the third quarter and quite possibly the fourth quarter. Given the elevated uncertainty and volatility our Company and our industry is facing in the short term, we have opted not to provide guidance for the third quarter at this time. Current challenges notwithstanding, we remain confident in the longer-term outlook for our business given strong customer demand for vehicles, rock-bottom vehicle inventory levels, and our healthy order book. Our strong balance sheet leaves us well-positioned to navigate through any near-term challenges we face, with a net-debt-to-Adjusted EBITDA ratio well within our comfort range.”

Rob Wildeboer, Executive Chairman, stated: “Our conviction in the longer-term prospects for our business and our Company has never been better. The demand picture is as good as it has been in years. We see evidence of this at the dealership level, where customers are having to wait months to take delivery of popular models, and in some cases paying thousands of dollars over the manufacturer’s suggested retail price. We also see it in used vehicle prices, which are currently near all-time highs. Anecdotally, we also hear stories of people putting off vehicle purchase decisions given limited model options, which suggests that pent-up demand exists. We don’t know when the semiconductor shortage will work itself out – quite frankly, no one does. However, few, if any expect the situation to drag on beyond 2022. And as we look into 2023, our outlook calling for total sales of between $4.6 and $4.8 billion, an adjusted operating income margin exceeding 8%, and Free Cash Flow in excess of $200 million, we continue to be confident that we will achieve such goals. Our track record of delivering on our financial targets speaks for itself, and we are confident this will continue to be the case as we deliver on our 2023 outlook.”

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, 2021 (“MD&A”), the Company’s interim condensed consolidated financial statements for the second quarter ended June 30, 2021 (the “interim financial statements”) and the Company’s Annual Information Form for the year ended December 31, 2020 can be found at www.sedar.com.   

OVERALL RESULTS

Results of operations may include certain unusual and other items which have been separately disclosed, where appropriate, in order to provide a clear assessment of the underlying Company results. In addition to 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 table sets out certain highlights of the Company’s performance for the three and six months ended June 30, 2021 and 2020. Refer to the Company’s interim financial statements for the three and six months ended June 30, 2021 for a detailed account of the Company’s performance for the periods presented in the table below.

    Three months ended
June 30, 2021

  Three months ended
June 30, 2020

$ Change % Change  
Sales $ 884,866   $ 460,564   424,302 92.1 %
Gross Margin   111,728     (12,459 ) 124,187 996.8 %
Operating Income (Loss)   34,621     (163,365 ) 197,986 121.2 %
Net Income (Loss) for the period   23,952     (146,886 ) 170,838 116.3 %
Net Earnings (Loss) per Share – Basic and Diluted $ 0.30   $ (1.84 ) 2.14 116.3 %
Non-IFRS Measures*            
Adjusted Operating Income (Loss) $ 39,065   $ (68,470 ) 107,535 157.1 %
% of Sales   4.4 %   (14.9 %)    
Adjusted EBITDA   99,618     (8,177 ) 107,795 1,318.3 %
% of Sales   11.3 %   (1.8 %)    
Adjusted Net Income (Loss)   27,026     (73,115 ) 100,141 137.0 %
Adjusted Net Earnings (Loss) per Share – Basic and Diluted $ 0.34   $ (0.91 ) 1.25 137.4 %
    Six months ended
June 30, 2021
  Six months ended
June 30, 2020
$ Change % Change  
Sales $ 1,882,016   $ 1,333,270   548,746 41.2 %
Gross Margin   232,585     107,778   124,807 115.8 %
Operating Income (Loss)   82,051     (114,160 ) 196,211 171.9 %
Net Income (Loss) for the period   62,653     (117,923 ) 180,576 153.1 %
Net Earnings (Loss) per Share – Basic and Diluted $ 0.78   $ (1.47 ) 2.25 153.1 %
Non-IFRS Measures*            
Adjusted Operating Income (Loss) $ 87,524   $ (17,718 ) 105,242 594.0 %
% of Sales   4.7 %   (1.3 %)    
Adjusted EBITDA   209,433     99,547   109,886 110.4 %
% of Sales   11.1 %   7.5 %    
Adjusted Net Income (Loss)   59,657     (42,992 ) 102,649 238.8 %
Adjusted Net Earnings (Loss) per Share – Basic and Diluted $ 0.74   $ (0.54 ) 1.28 237.0 %

*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 (Loss)”, “Adjusted Net Earnings (Loss) per Share (on a basic and diluted basis)”, “Adjusted Operating Income (Loss)”, “Adjusted EBITDA”, “Free Cash Flow” and “Net Debt”.

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

    Three months ended
June 30, 2021
  Three months ended
June 30, 2020
Net Income (Loss) $ 23,952   $ (146,886 )
Unusual and Other Items (after-tax)*   3,074     73,771  
Adjusted Net Income (Loss) $ 27,026   $ (73,115 )
         
    Six months ended
June 30, 2021
  Six months ended
June 30, 2020
Net Income (Loss) $ 62,653   $ (117,923 )
Unusual and Other Items (after-tax)*   (2,996 )   74,931  
Adjusted Net Income (Loss) $ 59,657   $ (42,992 )
*Unusual and Other Items are explained in the “Adjustments to Net Income (Loss)” section of this Press Release.
    Three months ended
June 30, 2021
  Three months
ended June 30, 2020
Net Income (Loss) $ 23,952   $ (146,886 )
Income tax expense (benefit)   7,378     (29,932 )
Other finance (income) expense   (5,588 )   4,286  
Share of loss of equity investments   983     881  
Finance expense   7,896     8,286  
Unusual and Other Items (before-tax)*   4,444     94,895  
Adjusted Operating Income (Loss) $ 39,065   $ (68,470 )
Depreciation of property, plant and equipment and right-of-use assets   57,219     56,953  
Amortization of intangible assets   3,268     3,340  
Loss on disposal of property, plant and equipment   66      
Adjusted EBITDA $ 99,618   $ (8,177 )
    Six months ended
June 30, 2021
  Six months ended
June 30, 2020
Net Income (Loss) $ 62,653   $ (117,923 )
Income tax expense (benefit)   20,332     (18,722 )
Other finance (income) expense   (11,350 )   3,156  
Share of loss of equity investments   1,909     1,581  
Finance expense   16,307     17,748  
Unusual and Other Items (before-tax)*   (2,327 )   96,442  
Adjusted Operating Income (Loss) $ 87,524   $ (17,718 )
Depreciation of property, plant and equipment and right-of-use assets   115,277     110,807  
Amortization of intangible assets   6,566     6,458  
Loss on disposal of property, plant and equipment   66      
Adjusted EBITDA $ 209,433   $ 99,547  

*Unusual and Other Items are explained in the “Adjustments to Net Income (Loss)” section of this Press Release.

SALES
 
Three months ended June 30, 2021 to three months ended June 30, 2020 comparison
             
    Three months ended
June 30, 2021
  Three months ended
June 30, 2020
$ Change   % Change  
North America $ 635,823   $ 318,134   317,689   99.9 %
Europe   210,976     99,988   110,988   111.0 %
Rest of the World   44,556     45,807   (1,251 ) (2.7 %)
Eliminations   (6,489 )   (3,365 ) (3,124 ) (92.8 %)
Total Sales $ 884,866   $ 460,564   424,302   92.1 %

The Company’s consolidated sales for the second quarter of 2021 increased by $424.3 million or 92.1% to $884.9 million as compared to $460.6 million for the second quarter of 2020. The total increase in sales was driven by year-over-year increases in the North America and Europe operating segments, partially offset by a slight year-over-year decrease in the Rest of the World.

Sales for the second quarter of 2021 in the Company’s North America operating segment increased by $317.7 million or 99.9% to $635.8 million from $318.1 million for the second quarter of 2020. The increase was due generally to the post-COVID recovery of overall light vehicle production volumes, tempered by the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain vehicle platforms; the launch of new programs during or subsequent to the second quarter of 2020 including the new Ford Mach E Mustang, Nissan Rogue, and a six cylinder aluminum engine block for Ford; and an increase in tooling sales of $10.8 million, which are typically dependent on the timing of tooling construction and final acceptance by the customer. These positive factors were partially offset by the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the second quarter of 2021 of $65.7 million as compared to the second quarter of 2020.

Sales for the second quarter of 2021 in the Company’s Europe operating segment increased by $111.0 million or 111.0% to $211.0 million from $100.0 million for the second quarter of 2020. The increase can be attributed to the post-COVID recovery of overall light vehicle production volumes, tempered by the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain vehicle platforms; and the launch of new programs during or subsequent to the second quarter of 2020, mainly with Volvo. These positive factors were partially offset by the impact of foreign exchange on the translation of Euro denominated production sales, which had a negative impact on overall sales for the second quarter of 2021 of $4.3 million as compared to the second quarter of 2020, and a $3.8 million decrease in tooling sales.

Sales for the second quarter of 2021 in the Company’s Rest of the World operating segment decreased by $1.3 million or 2.7% to $44.6 million from $45.8 million in the second quarter of 2020. The decrease can be attributed to a $2.9 million decrease in tooling sales; a $2.6 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the second quarter of 2020; lower year-over-year production volumes on the Cadillac CT6 vehicle platform in China; and a program with Ford in China that ended production during or subsequent to the second quarter of 2020. These negative factors were largely offset by a post-COVID recovery of production volumes in Brazil.

Overall tooling sales increased by $4.1 million to $45.9 million for the second quarter of 2021 from $41.8 million for the second quarter of 2020.

Six months ended June 30, 2021 to six months ended June 30, 2020 comparison
             
    Six months ended
June 30, 2021
  Six months ended
June 30, 2020
$ Change   % Change  
North America $ 1,339,953   $ 1,005,662   334,291   33.2 %
Europe   465,045     259,885   205,160   78.9 %
Rest of the World   91,069     73,666   17,403   23.6 %
Eliminations   (14,051 )   (5,943 ) (8,108 ) (136.4 %)
Total Sales $ 1,882,016   $ 1,333,270   548,746   41.2 %

The Company’s consolidated sales for the six months ended June 30, 2021 increased by $548.7 million or 41.2% to $1,882.0 million as compared to $1,333.3 million for the six months ended June 30, 2020. Sales for the six months ended June 30, 2021 increased across all operating segments.

Sales for the six months ended June 30, 2021 in the Company’s North America operating segment increased by $334.3 million or 33.2% to $1,340.0 million from $1,005.7 million for the six months ended June 30, 2020. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, accounted for $35.0 million of the year-over-year increase in sales (including a $1.7 million increase in tooling sales). Excluding the acquired operations, sales for the six months ended June 30, 2021 in North America increased year-over-year by $299.3 million or 30.3%. The increase was due generally to the post-COVID recovery of overall light vehicle production volumes, tempered by the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain vehicle platforms; higher year-over-year production volumes on General Motors’ pick-up truck and large SUV platform; the launch of new programs during or subsequent to the six months ended June 30, 2020, including the new Ford Mach E Mustang, Nissan Rogue, and a six cylinder aluminum engine block for Ford; and a $30.1 million increase in tooling sales. These positive factors were partially offset by the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the six months ended June 30, 2021 of approximately $86.3 million as compared to the corresponding period of 2020.

Sales for the six months ended June 30, 2021 in the Company’s Europe operating segment increased by $205.2 million or 78.9% to $465.0 million from $259.9 million for the six months ended June 30, 2020. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, accounted for $68.5 million of the year-over-year increase in sales (including a $3.0 million increase in tooling sales). Excluding the acquired operations, sales for the six months ended June 30, 2021 in Europe increased year-over-year by $136.7 million or 63.7%. The increase can be attributed to the post-COVID recovery of overall light vehicle production volumes, tempered by the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain vehicle platforms; the launch of new programs during or subsequent to the six months ended June 30, 2020, mainly with Volvo and Ford; and 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, 2021 of $8.2 million as compared to the corresponding period of 2020. These positive factors were partially offset by a $2.2 million decrease in tooling sales.

Sales for the six months ended June 30, 2021 in the Company’s Rest of the World operating segment increased by $17.4 million or 23.6% to $91.1 million from $73.7 million for the six months ended June 30, 2020. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, accounted for $13.7 million of the year-over-year increase in sales. Excluding the acquired operations, sales for the six months ended June 30, 2021 in the Rest of the World increased year-over-year by $3.7 million or 7.9%. The increase can be attributed to the post-COVID recovery of production volumes; partly offset by a $5.6 million decrease in tooling sales, a $4.0 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the corresponding period of 2020, lower year-over-year production volumes on the Cadillac CT6 vehicle platform in China, and a program with Ford in China that ended production during or subsequent to the six months ended June 30, 2020.

Overall tooling sales increased by $27.0 million to $119.0 million for the six months ended June 30, 2021 from $92.0 million for the six months ended June 30, 2020.

GROSS MARGIN
 
Three months ended June 30, 2021 to three months ended June 30, 2020 comparison
             
    Three months ended
June 30, 2021
  Three months ended
June 30, 2020
$ Change % Change  
Gross margin $ 111,728   $ (12,459 ) 124,187 996.8 %
% of Sales   12.6 %   (2.7 %)    

The gross margin percentage for the second quarter of 2021 improved to 12.6% as compared to a negative gross margin percentage of (2.7%) for the second quarter of 2020. The increase in gross margin as a percentage of sales was generally due to:

  • higher sales volume and corresponding higher utilization of assets, driven primarily by the post-COVID recovery of overall production volumes; and
  • productivity and efficiency improvements at certain operating facilities.

These factors were partially offset by:

  • operational inefficiencies at certain operating facilities including launch related costs and upfront costs incurred in preparation of upcoming new programs;
  • higher labour and material costs driven largely by shortages of both across the industry;
  • a negative sales mix; and
  • a decrease in COVID-related government subsidies.
Six months ended June 30, 2021 to six months ended June 30, 2020 comparison
             
    Six months ended
June 30, 2021
  Six months ended
June 30, 2020
$ Change % Change  
Gross margin $ 232,585   $ 107,778   124,807 115.8 %
% of Sales   12.4 %   8.1 %    

The gross margin percentage for the six months ended June 30, 2021 of 12.4% increased as a percentage of sales by 4.3% as compared to the gross margin percentage for the six months ended June 30, 2020 of 8.1%. The increase in gross margin as a percentage of sales was generally due to:

  • higher sales volume and corresponding higher utilization of assets, driven primarily by the post-COVID recovery of overall production volumes; and
  • productivity and efficiency improvements at certain operating facilities.

These factors were partially offset by:

  • operational inefficiencies at certain operating facilities including launch related costs and upfront costs incurred in preparation of upcoming new programs;
  • an increase in the cost of aluminum raw material in conjunction with a temporary lag in the offsetting contractual increase in selling prices to the Company’s customers, largely in the first quarter of 2021;
  • higher labour and other material costs driven largely by shortages of both across the industry;
  • a negative sales mix; and
  • a decrease in COVID-related government subsidies.

ADJUSTMENTS TO NET INCOME (LOSS)

Adjusted Net Income (Loss) excludes certain unusual and other items, as set out in the following tables and described in the notes thereto. Management uses Adjusted Net Income (Loss) 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, 2021 to three months ended June 30, 2020 comparison  
         
  Three months ended   Three months ended  
  June 30, 2021   June 30, 2020 (a)-(b)
  (a)   (b) Change
         
NET INCOME (LOSS) (A) $23,952     ($146,886)   $170,838  
         
Add Back – Unusual and Other Items:        
         
Restructuring costs (1) 4,444     8,170   (3,726)  
Impairment of assets (3)     85,783   (85,783)  
Transaction costs associated with operations acquired from Metalsa (recorded as SG&A) (4)     942   (942)  
         
         
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX $4,444     $94,895   ($90,451)  
         
Tax impact of above items (1,370)     (21,124)   19,754  
         
         
TOTAL UNUSUAL AND OTHER ITEMS – AFTER TAX (B) $3,074     $73,771   ($70,697)  
         
         
ADJUSTED NET INCOME (LOSS) (A + B) $27,026     ($73,115)   $100,141  
         
         
Number of Shares Outstanding – Basic (‘000) 80,329     79,961    
Adjusted Basic Net Earnings (Loss) Per Share $0.34     ($0.91)    
Number of Shares Outstanding – Diluted (‘000) 80,458     79,961    
Adjusted Diluted Net Earnings (Loss) Per Share $0.34     ($0.91)    
         
TABLE B
         
Six months ended June 30, 2021 to six months ended June 30, 2020 comparison      
         
  Six months ended
June 30, 2021
  Six months ended
June 30, 2020
(a)-(b)
  (a)   (b) Change
         
NET INCOME (LOSS) (A) $62,653     ($117,923)   $180,576  
         
Add Back – Unusual and Other Items:        
         
Restructuring costs (1) 5,473     8,170   (2,697)  
Gain on dilution of equity investments (2) (7,800)       (7,800)  
Impairment of assets (3)     85,783   (85,783)  
Transaction costs associated with operations acquired from Metalsa (recorded as SG&A) (4)     2,489   (2,489)  
         
         
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX ($2,327)     $96,442   ($98,769)  
         
Tax impact of above items (669)     (21,511)   20,842  
         
         
TOTAL UNUSUAL AND OTHER ITEMS – AFTER TAX (B) ($2,996)     $74,931   ($77,927)  
         
ADJUSTED NET INCOME (LOSS) (A + B) $59,657     ($42,992)   $102,649  
         
Number of Shares Outstanding – Basic (‘000) 80,312     80,041    
Adjusted Basic Net Earnings (Loss) Per Share $0.74     ($0.54)    
Number of Shares Outstanding – Diluted (‘000) 80,487     80,041    
Adjusted Diluted Net Earnings (Loss) Per Share $0.74     ($0.54)    
         

1)   Restructuring costs

Additions to the restructuring provision during the three and six months ended June 30, 2021 totaled $4.4 million and $5.5 million, respectively, and represent employee-related severance resulting from the rightsizing of an operating facility in Germany.

Additions to the restructuring provision recognized during the second quarter of 2020 totaled $8.2 million and represent employee-related severance resulting from a reduction in the Company’s workforce globally in response to the COVID-19 global pandemic. Of the total addition to the restructuring provision, $6.6 million relates to North America, $1.0 million to Europe, and $0.6 million to the Rest of the World.

2)   Gain on dilution of equity investments

As at December 31, 2020, the Company held 34,045,954 common shares of NanoXplore Inc. (“NanoXplore”) representing a 23.3% equity interest in NanoXplore (on a non-diluted basis). On February 12, 2021, NanoXplore completed a public offering of 11,500,000 common shares for gross proceeds of $46.0 million. In a separate transaction on February 12, 2021, the Company purchased 1,000,000 common shares from NanoXplore’s President and Chief Executive Officer for consideration of $4.0 million. Subsequent to these transactions, the Company’s net ownership interest decreased to 22.2% from 23.3%. 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 $7.8 million for the first quarter of 2021.

3)   Impairment of assets

The significant reduction in volumes and industry production projections as a result of the COVID-19 global pandemic negatively impacted the recoverable amount of certain of the Company’s production-related assets and also changed the expected usage of certain other assets. As a result, during the second quarter of 2020, the Company completed an analysis of its asset base and concluded there existed certain indicators of impairment for specific assets and cash-generating units (“CGU”). Accordingly, the Company tested these assets and CGUs for recoverability using projected sales and cash flows modelled from industry production projections. Based on the results of this testing, during the second quarter of 2020, the Company recorded impairment charges on property, plant and equipment, right-of-use assets, intangible assets and inventories across its three operating segments totaling $85.8 million, including specific assets that are no longer expected to be redeployed or transferred to other facilities. The charges related to assets and CGUs across various jurisdictions in the Company’s segments, including the United States, Slovakia, China and Brazil. Of the total impairment charge, $72.2 million was recognized in North America, $1.3 million in Europe, and $12.3 million in the Rest of the World. For the specific assets that are no longer expected to be redeployed or transferred, the impairment charges are based on the estimated salvage value of the assets. For the CGUs, the impairment charges were recorded where the carrying amount of the CGUs exceeded their estimated recoverable amounts.

4)   Transaction costs associated with the operations acquired from Metalsa (recorded as SG&A)

On March 2, 2020, the Company completed the acquisition of the structural components for passenger car operations of Metalsa S.A, de C.V. Included in SG&A expense are transaction costs related to the acquisition totaling $0.9 million and $2.5 million for the three and six months ended June 30, 2020, respectively.

NET INCOME
 
               
Three months ended June 30, 2021 to three months ended June 30, 2020 comparison
               
      Three months ended
June 30, 2021
  Three months ended
June 30, 2020
$ Change % Change  
Net Income (Loss) $ 23,952 $ (146,886 ) 170,838 116.3 %
Adjusted Net Income (Loss) $ 27,026 $ (73,115 ) 100,141 137.0 %
Net Earnings (Loss) per Share            
  Basic and Diluted $ 0.30 $ (1.84 )    
Adjusted Net Earnings (Loss) per Share            
  Basic and Diluted $ 0.34 $ (0.91 )    

Net Income, before adjustments, for the second quarter of 2021 increased by $170.8 million to $24.0 million from a Net Loss of $146.9 million for the second quarter of 2020. Excluding the unusual and other items explained in Table A under “Adjustments to Net Income (Loss)”, Adjusted Net Income for the second quarter of 2021 increased to $27.0 million or $0.34 per share, on a basic and diluted basis, from an Adjusted Net Loss of $73.1 million or ($0.91) per share, on a basic and diluted basis, for the second quarter of 2020.

Adjusted Net Income for the second quarter of 2021, as compared to the Adjusted Net Loss for second quarter of 2020, was positively impacted by the following:

  • higher gross profit on higher year-over-year sales volume, as previously explained, due primarily to the post-COVID recovery of overall production volumes; and
  • a net foreign exchange gain of $5.2 million for the second quarter of 2021 compared to a net foreign exchange loss of $4.3 million for the second quarter of 2020.

These factors were partially offset by the following:

  • a year-over-year increase in SG&A expense as previously discussed;
  • a year-over-year increase in research and development costs; and
  • a higher effective tax rate on adjusted Net Income (Loss) (24.5% for the second quarter of 2021 compared to 10.8% for the second quarter of 2020).
Six months ended June 30, 2021 to six months ended June 30, 2020 comparison
               
      Six months ended
June 30, 2021
  Six months ended
June 30, 2020
$ Change % Change  
Net Income (Loss) $ 62,653 $ (117,923 ) 180,576 153.1 %
Adjusted Net Income (Loss) $ 59,657 $ (42,992 ) 102,649 238.8 %
Net Earnings (Loss) per Share            
  Basic and Diluted $ 0.78 $ (1.47 )    
Adjusted Net Earnings (Loss) per Share            
  Basic and Diluted $ 0.74 $ (0.54 )    

Net Income, before adjustments, for the six months ended June 30, 2021 increased by $180.6 million to $62.7 million from a Net Loss of $117.9 million for the six months ended June 30, 2020. Excluding the unusual and other items explained in Table B under “Adjustments to Net Income (Loss)”, Adjusted Net Income for the six months ended June 30, 2021 increased to $59.7 million or $0.74 per share, on a basic and diluted basis, from an Adjusted Net Loss of $43.0 million or ($0.54) per share, on a basic and diluted basis, for the six months ended June 30, 2020.

Adjusted Net Income for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, was positively impacted by the following:

  • Higher gross profit on higher year-over-year sales volume, as previously explained, due primarily to the post-COVID recovery of overall production volumes; and
  • a net foreign exchange gain of $10.5 million for the six months ended June 30, 2021 compared to a net foreign exchange loss of $3.3 million for the six months ended June 30, 2020.

These factors were partially offset by the following:

  • a year-over-year increase in SG&A expense as previously discussed;
  • a year-over-year increase in research and development costs; and
  • a higher effective tax rate on adjusted Net Income (Loss) (26.0% for the six months ended June 30, 2021 compared to (6.9%) for the six months ended June 30, 2020).

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, 2021, on or about October 15, 2021.

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 57 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 Tuesday, August 10, 2021 at 5:30 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 4636275#. Please call 10 minutes prior to the start of the conference call.

The conference call will also be webcast live in listen‐only mode and archived for twelve months. The webcast and accompanying presentation can be accessed online 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 – 4851137#). The rebroadcast will be available until September 8, 2021.

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 statements related to the Company’s beliefs or views or expectations of, improvements in, expansion of and/or guidance or outlook as to future revenue, sales, production sales, margin, gross margin, earnings, earnings per share, adjusted earnings per share, adjusted net earnings per share, operating income margins, operating margins, adjusted operating income margins, cash flow, free cash flow, including outlook for 2023; the expected impact of or duration of the COVID-19 pandemic; on the Company’s financial position, its business and operations, on its employees, on the automotive industry, or on the business of any OEM or suppliers, including expectations challenges will persist possibly into the fourth quarter; the Company’s current and future strategy; the growth of the Company and pursuit of, and belief in, its strategies; the impact of or the expected duration of the semiconductor shortage; the Company’s views of longer term outlook or results of future increases or growth in production; the ramping up and launching of new business; continued investments and expected benefit of those investments in its business and technologies; the opportunity to increase sales; the Company’s views on its ability to deal with present or future economic conditions; 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. Certain forward-looking financial assumptions are presented as non-IFRS information and we do not provide reconciliation to IFRS for such assumptions. 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 for the year ended December 31, 2020 and other public filings which can be found at www.sedar.com:

  • North American and Global Economic and Political Conditions and Consumer Confidence;
  • The highly cyclical nature of the automotive industry and the industry’s dependence on consumer spending and general economic conditions;
  • Pandemics and Epidemics (including the ongoing COVID-19 Pandemic), Force Majeure Events, Natural Disasters, Terrorist Activities, Political Unrest, and Other Outbreaks
  • The Company’s dependence on key customers
  • Financial Viability of Suppliers;
  • 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 liability and recalls together with the associated liability;
  • Product Development and Technological Change;
  • Dependence on Key Personnel;
  • Availability of Consumer Credit or Cost of Borrowing;
  • Limited Financial Resources/Uncertainty of Future Financing/Banking;
  • Risks associated with the integration of acquisitions;
  • Potential Tax Exposures;
  • Cybersecurity Threats;
  • Costs associated with rationalization of production facilities;
  • Launch and Operational Cost Structure;
  • Labour Relations Matters;
  • Trade Restrictions;
  • Changes in Governmental Regulations;
  • Litigation and Regulatory Compliance and Investigations;
  • Quote/Pricing Assumptions;
  • Currency Risk – Hedging;
  • Currency Risk – Competitiveness in Certain Jurisdictions;
  • Fluctuations in Operating Results;
  • Internal Controls Over Financial Reporting and Disclosure Controls and Procedures;
  • Environmental Regulation and Climate Change;
  • Loss of Use of Key Manufacturing Facilities;
  • A Shift Away from Technologies in Which the Company is Investing;
  • Intellectual Property;
  • Competition with Low Cost Countries;
  • The Company’s ability to shift its manufacturing footprint to take advantage of opportunities in growing markets;
  • Risks of conducting business in foreign countries, including China, Brazil and other markets;
  • Change in the Company’s mix of earnings between jurisdictions with lower tax rates and those with higher tax rates;
  • The risks associated with Pension Plan and Other Post-Employment Benefits
  • Impairment Charges;
  • Potential Volatility of Share Prices;
  • Dividends;
  • Risks associated with private or public investment in technology companies;
  • Risks associated with joint ventures;
  • 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 

 
Martinrea International Inc.
Interim Condensed Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)
           
           
  Note   June 30, 2021   December 31, 2020
ASSETS          
Cash and cash equivalents   $ 127,664 $ 152,786
Trade and other receivables 3   684,934   589,315
Inventories 4   599,619   492,659
Prepaid expenses and deposits     27,265   23,550
Income taxes recoverable     15,329   13,527
TOTAL CURRENT ASSETS     1,454,811   1,271,837
Property, plant and equipment 5   1,628,486   1,615,197
Right-of-use assets 6   178,268   192,630
Deferred tax assets     177,531   195,538
Intangible assets 7   48,524   52,644
Investments 8   54,559   40,557
TOTAL NON-CURRENT ASSETS     2,087,368   2,096,566
TOTAL ASSETS   $ 3,542,179 $ 3,368,403
           
LIABILITIES          
Trade and other payables   $ 1,087,490 $ 967,952
Provisions 9   8,049   4,258
Income taxes payable     15,637   13,230
Current portion of long-term debt 11   15,571   19,492
Current portion of lease liabilities 12   31,667   34,064
TOTAL CURRENT LIABILITIES     1,158,414   1,038,996
Long-term debt 11   905,506   815,730
Lease liabilities 12   163,783   177,749
Pension and other post-retirement benefits     61,402   74,030
Deferred tax liabilities     73,799   86,174
TOTAL NON-CURRENT LIABILITIES     1,204,490   1,153,683
TOTAL LIABILITIES     2,362,904   2,192,679
           
EQUITY          
Capital stock 14   663,259   662,427
Contributed surplus     44,270   43,860
Accumulated other comprehensive income     32,192   96,645
Retained earnings     439,554   372,792
TOTAL EQUITY     1,179,275   1,175,724
TOTAL LIABILITIES AND EQUITY   $ 3,542,179 $ 3,368,403

Contingencies (note 20)

Subsequent event (note 5)

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)  
                           
                           
      Three months
ended
    Three months
ended
    Six months
ended
    Six months
ended
 
  Note   June 30, 2021     June 30, 2020     June 30, 2021     June 30, 2020  
                   
SALES   $ 884,866   $ 460,564   $ 1,882,016   $ 1,333,270  
                   
Cost of sales (excluding depreciation of property, plant and equipment and right-of-use assets)     (719,835 )   (419,914 )   (1,541,909 )   (1,122,400 )
Depreciation of property, plant and equipment and right-of-use assets (production)     (53,303 )   (53,109 )   (107,522 )   (103,092 )
Total cost of sales     (773,138 )   (473,023 )   (1,649,431 )   (1,225,492 )
GROSS MARGIN     111,728     (12,459 )   232,585     107,778  
                   
Research and development costs     (8,187 )   (5,234 )   (15,996 )   (14,687 )
Selling, general and administrative     (60,494 )   (47,534 )   (121,244 )   (104,942 )
Depreciation of property, plant and equipment and right-of-use assets (non-production)     (3,916 )   (3,844 )   (7,755 )   (7,715 )
Restructuring costs 9   (4,444 )   (8,170 )   (5,473 )   (8,170 )
Loss on disposal of property, plant and equipment     (66 )       (66 )    
Amortization of customer contracts and relationships         (341 )       (641 )
Impairment of assets 10       (85,783 )       (85,783 )
OPERATING INCOME (LOSS)     34,621     (163,365 )   82,051     (114,160 )
                   
Share of loss of equity investments 8   (983 )   (881 )   (1,909 )   (1,581 )
Gain on dilution of equity investments 8           7,800      
Finance expense 16   (7,896 )   (8,286 )   (16,307 )   (17,748 )
Other finance income (expense) 16   5,588     (4,286 )   11,350     (3,156 )
INCOME (LOSS) BEFORE INCOME TAXES     31,330     (176,818 )   82,985     (136,645 )
                   
Income tax (expense) benefit 13   (7,378 )   29,932     (20,332 )   18,722  
NET INCOME (LOSS) FOR THE PERIOD   $ 23,952   $ (146,886 ) $ 62,653   $ (117,923 )
                   
                   
Basic earnings (loss) per share 15 $ 0.30   $ (1.84 ) $ 0.78   $ (1.47 )
Diluted earnings (loss) per share 15 $ 0.30   $ (1.84 ) $ 0.78   $ (1.47 )

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, except per share amounts) (unaudited)
                         
                         
    Three months
ended
    Three months
ended
    Six months
ended
    Six months
ended
 
    June 30, 2021     June 30, 2020     June 30, 2021     June 30, 2020  
                 
NET INCOME (LOSS) FOR THE PERIOD $ 23,952   $ (146,886 ) $ 62,653   $ (117,923 )
Other comprehensive income (loss), net of tax:                
Items that may be reclassified to net income                
Foreign currency translation differences for foreign operations   (26,009 )   (33,963 )   (62,366 )   73,923  
Cash flow hedging derivative and non-derivative financial instruments:                
Unrealized gain (loss) in fair value of financial instruments       2,515     892     (3,244 )
Reclassification of loss (gain) to net income   (2,785 )   312     (3,054 )   507  
Items that will not be reclassified to net income                
Share of other comprehensive income of equity investments (note 8)   67     45     75     71  
Remeasurement of defined benefit plans   3,586     (4,547 )   12,142     (10,296 )
Other comprehensive income (loss), net of tax   (25,141 )   (35,638 )   (52,311 )   60,961  
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD $ (1,189 ) $ (182,524 ) $ 10,342   $ (56,962 )

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)
 
                               
                Accumulated              
                other              
          Contributed     comprehensive     Retained        
    Capital stock     surplus     income     earnings     Total equity  
BALANCE AT DECEMBER 31, 2019 $ 661,422     42,449   $ 89,107   $ 425,445   $ 1,218,423  
Net loss for the period               (117,923 )   (117,923 )
Compensation expense related to stock options       1,208             1,208  
Dividends ($0.10 per share)               (8,002 )   (8,002 )
Exercise of employee stock options   1,203     (347 )           856  
Repurchase of common shares   (2,474 )           (893 )   (3,367 )
Other comprehensive income (loss) net of tax                    
Remeasurement of defined benefit plans               (10,296 )   (10,296 )
Foreign currency translation differences           73,923         73,923  
Share of other comprehensive income of equity investments           71         71  
Cash flow hedging derivative and non-derivative                    
financial instruments:                    
Unrealized loss in fair value of financial instruments           (3,244 )       (3,244 )
Reclassification of loss to net income           507         507  
BALANCE AT JUNE 30, 2020   660,151     43,310     160,364     288,331     1,152,156  
Net income for the period               90,606     90,606  
Compensation expense related to stock options       1,208             1,208  
Dividends ($0.10 per share)               (8,028 )   (8,028 )
Exercise of employee stock options   2,276     (658 )           1,618  
Other comprehensive income (loss) net of tax                    
Remeasurement of defined benefit plans               1,883     1,883  
Foreign currency translation differences           (70,023 )       (70,023 )
Share of other comprehensive loss of equity investments           (150 )       (150 )
Cash flow hedging derivative and non-derivative                    
financial instruments:                    
Unrealized gain in fair value of financial instruments           5,959         5,959  
Reclassification of loss to net income           495         495  
BALANCE AT DECEMBER 31, 2020   662,427     43,860     96,645     372,792     1,175,724  
Net income for the period               62,653     62,653  
Compensation expense related to stock options       606             606  
Dividends ($0.10 per share)               (8,033 )   (8,033 )
Exercise of employee stock options   832     (196 )           636  
Other comprehensive income (loss) net of tax                    
Remeasurement of defined benefit plans               12,142     12,142  
Foreign currency translation differences           (62,366 )       (62,366 )
Share of other comprehensive income of equity investments           75         75  
Cash flow hedging derivative and non-derivative                    
financial instruments:                    
Unrealized gain in fair value of financial instruments           892         892  
Reclassification of gain to net income           (3,054 )       (3,054 )
BALANCE AT JUNE 30, 2021 $ 663,259   $ 44,270   $ 32,192   $ 439,554   $ 1,179,275  

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
    Three months
ended
    Six months
ended
    Six months
ended
 
    June 30, 2021     June 30, 2020     June 30, 2021     June 30, 2020  
CASH PROVIDED BY (USED IN):                
OPERATING ACTIVITIES:                
Net income (loss) for the period $ 23,952   $ (146,886 ) $ 62,653   $ (117,923 )
Adjustments for:                
Depreciation of property, plant and equipment and right-of-use assets   57,219     56,953     115,277     110,807  
Amortization of customer contracts and relationships       341         641  
Amortization of development costs   3,268     2,999     6,566     5,817  
Impairment of assets (note 10)       85,783         85,783  
Unrealized (gain) loss on foreign exchange forward contracts   (1,440 )   211     (2,184 )   319  
Finance expense   7,896     8,286     16,307     17,748  
Income tax expense (benefit)   7,378     (29,932 )   20,332     (18,722 )
Loss on disposal of property, plant and equipment   66         66      
Deferred and restricted share units expense (benefit)   1,232     4,642     (475 )   462  
Stock options expense   266     604     606     1,208  
Share of loss of equity investments   983     881     1,909     1,581  
Gain on dilution of equity investments           (7,800 )    
Pension and other post-retirement benefits expense   1,000     1,284     2,015     2,534  
Contributions made to pension and other post-retirement benefits   (939 )   (2,524 )   (1,877 )   (3,336 )
    100,881     (17,358 )   213,395     86,919  
Changes in non-cash working capital items:                
Trade and other receivables   (30,487 )   143,119     (115,288 )   141,582  
Inventories   (79,943 )   21,553     (127,939 )   (22,707 )
Prepaid expenses and deposits   (2,010 )   8,305     (4,349 )   6,414  
Trade, other payables and provisions   44,542     (156,454 )   144,401     (109,847 )
    32,983     (835 )   110,220     102,361  
Interest paid   (8,247 )   (8,559 )   (17,423 )   (18,480 )
Income taxes paid   (9,438 )   (2,468 )   (20,084 )   (14,211 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 15,298   $ (11,862 ) $ 72,713   $ 69,670  
                 
FINANCING ACTIVITIES:                
Increase in long-term debt (net of deferred financing fees)   62,551     46,868     113,527     103,296  
Repayment of long-term debt   (4,171 )   (4,125 )   (8,711 )   (8,215 )
Principal payments of lease liabilities   (8,409 )   (7,914 )   (17,002 )   (15,279 )
Dividends paid   (4,018 )   (3,998 )   (8,033 )   (7,610 )
Exercise of employee stock options   562     856     636     856  
Repurchase of common shares               (3,367 )
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 46,515   $ 31,687   $ 80,417   $ 69,681  
                 
INVESTING ACTIVITIES:                
Purchase of property, plant and equipment (excluding                
capitalized interest)*   (74,990 )   (41,832 )   (165,801 )   (115,886 )
Business acquisition (note 2)               (10,503 )
Capitalized development costs   (1,611 )   (2,872 )   (4,168 )   (4,655 )
Equity investments (note 8)   (4,036 )   (5,000 )   (8,036 )   (5,000 )
Proceeds on disposal of property, plant and equipment   139         139     266  
NET CASH USED IN INVESTING ACTIVITIES $ (80,498 ) $ (49,704 ) $ (177,866 ) $ (135,778 )
                 
Effect of foreign exchange rate changes on cash and cash equivalents   1,001     (802 )   (386 )   3,288  
                 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (17,684 )   (30,681 )   (25,122 )   6,861  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   145,348     156,515     152,786     118,973  
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 127,664   $ 125,834   $ 127,664   $ 125,834  

*As at June 30, 2021, $63,648 (December 31, 2020 – $61,207) 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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