Martinrea International Inc. Reports Record Third Quarter Results and Announces Dividend

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TORONTO, Nov. 08, 2018 (GLOBE NEWSWIRE) -- Martinrea International Inc. (TSX : MRE), a leader in the development and production of quality metal parts, assemblies and modules and fluid management systems and complex aluminum products focused primarily on the automotive sector, announced today the release of its financial results for the third quarter ended September 30, 2018 and a quarterly dividend.

Pat D’Eramo, President and Chief Executive Officer, stated: “We are pleased with a record third quarter in terms of earnings and margin performance, despite some volume headwinds, some modest tariff effects and foreign exchange losses during the quarter.  We continue to strengthen as a company, and that is demonstrated in improved metrics.  We had some new business wins in the quarter totalling $40 million in annualized sales at peak volume, including $18 million in new fluids product with Ford, Geely and JMC starting in 2021, and $22 million in new aluminum work, a camshaft for Scania starting in 2021 and a battery housing for Samsung starting in 2020.  This brings us to almost $600 million in new business wins in 2018 to date, making this our best year ever in terms of announcing organic growth in sales, giving us a solid pipeline for the future.  The new business involves work with a wide variety of customers, reflecting that we are becoming a solutions supplier to more than just our traditional customers, which also is a great platform for future growth.  This year should be a record year for us, and next year is shaping up to be better still.”

Fred Di Tosto, Chief Financial Officer, stated: “Sales for the third quarter, excluding tooling sales of $48 million, were $803 million, at the lower end of our previously announced sales guidance range, as certain platforms had lower than expected volumes.  In the quarter, our adjusted net earnings per share, on a basic and diluted basis, was $0.43 per share, within our quarterly guidance range but at the lower end due to a $2.1 million foreign exchange loss recognized during the quarter representing approximately $0.02 per share.  Quarterly adjusted operating income and adjusted EBITDA margins increased significantly year-over-year.  Operating income margin for the quarter hit 6.9%.  Our balance sheet continues to strengthen as well ending the quarter at a net debt to adjusted EBITDA ratio of 1.35:1.  We anticipate a strong end to 2018, with fourth quarter production sales projected to be in the range of $820 to $860 million, and adjusted net earnings per share in the range of $0.49 to $0.53, great results despite launch activity, some continued anticipated softness in OEM volumes on certain platforms and some tariff effects from the U.S. and Canadian tariffs on steel and aluminum.”

Rob Wildeboer, Executive Chairman, stated: “We intend to maintain a strong balance sheet over time, and pay down debt as appropriate, while investing in our business, and that is what we have been doing.  As previously indicated, we did receive approval for a normal course issuer bid and did purchase some of our shares for cancellation in the third quarter.  Frankly, they represented a very good investment, given our performance and our prospects.  We intend to continue to buy back some shares at these price levels, while balancing our other potential uses for our capital.  I want to thank our people for their commitment and performance which has allowed us to generate the results to support an increased dividend and some stock buybacks this year.  We also are pleased with the USMCA agreement announced at the end of the third quarter.  While the USMCA is yet to be ratified, we are supportive of the automotive provisions that have been negotiated, which in our view will support a continued strong North American automotive industry and supply base.  We were very well positioned to benefit from NAFTA, and we remain very well positioned to benefit from the USMCA.  We are also supportive of the eventual removal of the steel and aluminum tariffs imposed by the three member countries of the USMCA on each other, which are hurting some of our customers and suppliers, and which have a relatively modest impact on our profitability, and we will continue to advocate accordingly.”

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 third quarter ended September 30, 2018 (“MD&A”), the Company’s interim condensed consolidated financial statements for the third quarter ended September 30, 2018 (the “interim consolidated financial statements”) and the Company’s Annual Information Form for the year ended December 31, 2017, can be found at .

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 tables set out certain highlights of the Company’s performance for the three and nine months ended September 30, 2018 and 2017. Refer to the Company’s interim consolidated financial statements for the three and nine months ended September 30, 2018 for a detailed account of the Company’s performance for the periods presented in the tables below.

The Company prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”). However, the Company considers certain non-IFRS financial measures as useful additional information in measuring the financial performance and condition of the Company. These measures, which the Company believes are widely used by investors, securities analysts and other interested parties in evaluating the Company’s performance, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to financial measures determined in accordance with IFRS. Non-IFRS measures include “Adjusted Net Income”, “Adjusted Net Earnings per Share (on a basic and diluted basis)”, “Adjusted Operating Income” and "Adjusted EBITDA”.

The following tables provide a reconciliation of IFRS “Net Income Attributable to Equity Holders of the Company” to Non-IFRS “Adjusted Net Income Attributable to Equity Holders of the Company”, “Adjusted Operating Income” and “Adjusted EBITDA”.

The Company’s consolidated sales for the third quarter of 2018 increased by $12.6 million or 1.5% to $851.1 million as compared to $838.5 million for the third quarter of 2017. Sales increased year-over-year across all operating segments.

Sales for the third quarter of 2018 in the Company’s North America operating segment increased by $1.8 million or 0.3% to $648.6 million from $646.9 million for the third quarter of 2017. The increase was due to the launch of new programs during or subsequent to the third quarter of 2017, including the next generation GM Equinox/Terrain and SiIverado/Sierra pick-up truck; the impact of foreign exchange on the translation of U.S. denominated production sales, which had a positive impact on overall sales for the third quarter of 2018 of approximately $10.4 million as compared to the third quarter of 2017; and an increase in tooling sales of $6.0 million, which are typically dependant 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 on certain light-vehicle platforms including the Ford Escape, Ford Fusion, Chrysler 300/Challenger/Charger, and programs that ended production during or subsequent to the third quarter of 2017 such as the previous versions of the GM Equinox/Terrain and Silverado/Sierra pick-up truck.

Sales for the third quarter of 2018 in the Company’s Europe operating segment increased by $6.8 million or 4.1% to $171.9 million from $165.1 million for the third quarter of 2017. The increase can be attributed to the launch of new programs during or subsequent to the third quarter of 2017, including a 2.0L aluminum engine block for Ford and the ramp up of new aluminum structural components work and the new V8 AMG engine block for Daimler; a $4.3 million positive foreign exchange impact from the translation of Euro denominated production sales as compared to the third quarter of 2017; and a $1.4 million increase in tooling sales. These positive factors were partially offset by lower year-over-year production volumes on certain Jaguar Landrover platforms and the Ford Mondeo in Europe.

Sales for the third quarter of 2018 in the Company’s Rest of the World operating segment increased by $3.2 million or 10.6% to $33.5 million from $30.3 million in the third quarter of 2017.  The increase was due to a $2.0 million increase in tooling sales, higher year-over-year production sales in the Company’s operating facility in Brazil, and the launch of new aluminum structural components work for Jaguar Landrover in China, which began to ramp up in the first quarter of 2018; partially offset by a $1.9 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the third quarter of 2017 and lower year-over-year production volumes on the Ford Mondeo in China.

Overall tooling sales increased by $9.4 million to $48.0 million for the third quarter of 2018 from $38.6 million for the third quarter of 2017.

The Company’s consolidated sales for the nine months ended September 30, 2018 decreased by $75.1 million or 2.7% to $2,736.7 million as compared to $2,811.9 million for the nine months ended September 30, 2017. The total decrease in sales was driven by a decrease in the North America operating segment, partially offset by year-over-year increases in sales in Europe and the Rest of the World.

Sales for the nine months ended September 30, 2018 in the Company’s North America operating segment decreased by $147.3 million or 6.6% to $2,091.7 million from $2,238.9 million for the nine months ended September 30, 2017. The decrease was due to lower year-over-year production volumes on certain light-vehicle platforms including the Ford Escape, Ford Fusion, Chevrolet Malibu, Chrysler 300/Challenger/Charger, and programs that ended production during or subsequent to the nine months ended September 30, 2017 such as the previous versions of the GM Equinox/Terrain and Silverado/Sierra pick-up truck; the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the nine months ended September 30, 2018 of approximately $44.0 million as compared to the corresponding period of 2017; and overall lower year-over-year production volumes resulting from unplanned OEM shutdowns during the second quarter of 2018 because of a fire at an industry-wide supplier of magnesium components which disrupted the automotive supply chain and, as a result, production levels of various vehicle platforms at Ford, FCA, GM, Daimler and BMW for a period of time during the month of May. These negative factors were partially offset by the launch of new programs during or subsequent to the nine months ended September 30, 2017, including the next generation GM Equinox/Terrain and Silverado/Sierra pick-up truck, and an increase in tooling sales of $20.5 million, which are typically dependant on the timing of tooling construction and final acceptance by the customer.

Sales for the nine months ended September 30, 2018 in the Company’s Europe operating segment increased by $53.2 million or 10.8% to $546.3 million from $493.1 million for the nine months ended September 30 2017. The increase can be attributed to the launch of new programs during or subsequent to the nine months ended September 30, 2017, including a 2.0L aluminum engine block for Ford and the ramp up of new aluminum structural components work and the new V8 AMG engine block for Daimler; the impact of foreign exchange on the translation of Euro denominated production sales, which had a positive impact on overall sales for the nine months ended September 30, 2018 of $28.5 million as compared to the corresponding period of 2017; and a $9.2 million increase in tooling sales. These positive factors were partially offset by lower year-over-year production volumes on certain Jaguar Landrover platforms and the Ford Mondeo in Europe.

Sales for the nine months ended September 30, 2018 in the Company’s Rest of the World operating segment increased by $17.6 million or 19.5% to $107.8 million from $90.2 million for the nine months ended September 30, 2017. The increase was due to an $11.0 million increase in tooling sales, higher year-over-year production sales in the Company’s operating facility in Brazil, and the launch of new aluminum structural components work for Jaguar Landrover in China, which began to ramp up in the first quarter of 2018; partially offset by a $3.4 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to corresponding period of 2017 and lower year-over-year production volumes on the Ford Mondeo in China.

Overall tooling sales increased by $41.9 million to $184.0 million for the nine months ended September 30, 2018 from $142.1 million for the nine months ended September 30, 2017.

The gross margin percentage for the third quarter of 2018 of 14.9% increased as a percentage of sales by 1.4% as compared to the gross margin percentage for the third quarter of 2017 of 13.5%. The increase in gross margin as a percentage of sales was generally due to:

These positive factors were partially offset by operational inefficiencies and other costs at certain other facilities, including upfront costs incurred in preparation of upcoming new programs and related new business in the process of being launched, and higher tariffs on steel.

The gross margin percentage for the nine months ended September 30, 2018 of 15.4% increased as a percentage of sales by 2.6% as compared to the gross margin percentage for the nine months ended September 30, 2017 of 12.8%. Consistent with the year-over-year increase in the third quarter of 2018 as explained above, the increase in gross margin for the nine months ended September 30, 2018, as a percentage of sales, was generally due to:

These positive factors were partially offset by operational inefficiencies and other costs at certain other facilities, including upfront costs incurred in preparation of upcoming new programs and related new business in the process of being launched; higher tariffs on steel; and an increase in tooling sales which typically earn low margins for the Company.

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

During the first quarter of 2017, in connection with the relocation of an existing operation to another manufacturing facility, a building owned by the Company in Mississauga, Ontario was sold on an “as-is, where-is” basis. The building was sold for proceeds of $9.9 million (net of closing costs of $0.4 million) resulting in a pre-tax gain of $5.7 million.

In the third quarter of 2017, the Company acquired 5,500,000 common shares in NanoXplore Inc. (“NanoXplore”), a publicly listed company on the TSX Venture Exchange trading under the ticker symbol GRA, for a total of $2.5 million through a private placement offering (the investment is further described in note 6 of the interim condensed consolidated financial statements and later on in the MD&A under the section “Investments”). As part of the transaction to acquire the common shares, the Company also received warrants entitling the Company to acquire up to an additional 2,750,000 common shares in NanoXplore at a price of $0.70 per share for a period of up to two years after issuance. 

During the first quarter of 2018, the Company acquired an additional 411,800 common shares in NanoXplore for a total of $0.7 million through another private placement offering. As part of the transaction to acquire the additional common shares, the Company also received warrants entitling the Company to acquire up to an additional 205,900 common shares in NanoXplore at a price of $2.30 per share for a period of up to two years after issuance.

The warrants in NanoXplore represent derivative instruments and are fair valued at the end of each reporting period with the change in fair value recorded through profit or loss. As at September 30, 2018, the warrants had a fair value of $2.7 million. Based on the fair value of the warrants as at September 30, 2018, an unrealized loss of $0.9 million was recognized in the third quarter of 2018 and an unrealized gain of $1.4 million was recognized for the nine months ended September 30, 2018.  As at September 30, 2017, the warrants had a fair value of $1.7 million which resulted in an unrealized gain of $1.4 million for the third quarter of 2017.  The unrealized loss (gain) is recorded in other finance income (expense) and has been added back for Adjusted Net Income purposes.

During the third quarter of 2017, David Rashid ceased to be an Executive Vice President of Operations of the Company. The costs added back for Adjusted Net Income purposes represents Mr. Rashid’s termination benefits (included in SG&A expense) as set out in his employment contract payable over a twelve-month period.

Net income, before adjustments, for the third quarter of 2018 increased by $0.2 million to $36.4 million from $36.2 million for the third quarter of 2017. Excluding the unusual and other items recognized during the third quarter of 2018 and 2017, as explained in Table A under “Adjustments to Net Income”, net income for the third quarter of 2018 increased to $37.2 million or $0.43 per share, on a basic and diluted basis, from $36.2 million or $0.42 per share, on a basic and diluted basis, for the third quarter of 2017. 

Adjusted Net Income for the third quarter of 2018, as compared to the third quarter of 2017, was positively impacted by the following:

These positive factors were partially offset by the following:

Net Income, before adjustments, for the nine months ended September 30, 2018 increased by $20.9 million to $148.1 million from $127.2 million for the nine months ended September 30, 2017 largely as a result of the increase in the Company’s gross margin, as previously discussed, and the impact of the unusual and other items incurred during the nine months ended September 30, 2018 and 2017 as explained in Table B under “Adjustments to Net Income”. Excluding these unusual and other items, net income for the nine months ended September 30, 2018 increased to $149.3 million or $1.71 per share, on a basic basis, and $1.70 on a diluted basis, from $122.3 million or $1.41 per share, on a basic and diluted basis, for the nine months ended September 30, 2017.

Adjusted Net Income for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017, was positively impacted by the following:

These positive factors were partially offset by the following:

Additions to PP&E increased by $6.2 million to $62.6 million or 7.4% of sales in the third quarter of 2018 from $56.4 million or 6.7% of sales in the third quarter of 2017 due in large part to the timing of expenditures. The Company continues to make investments in the business, including in both new and replacement business, as the Company’s global footprint expands and as it executes on its growing backlog of new business in all its various product offerings.

Additions to PP&E increased by $14.4 million year-over-year to $182.5 million or 6.7% of sales for the nine months ended September 30, 2018 compared to $168.1 million or 6.0% of sales for the nine months ended September 30, 2017 generally due to the timing of expenditures. As explained above, the Company continues to make investments in the business, including in both new and replacement business, as the Company’s global footprint expands and as it executes on its growing backlog of new business in all its various product offerings.

A cash dividend of $0.045 per share has been declared by the Board of Directors payable to shareholders of record on December 31, 2018, on or about January 15, 2019.

Martinrea currently employs approximately 15,000 skilled and motivated people in 45 operating divisions in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain and China.

Martinrea’s vision: making lives better by being the best supplier we can be in the products we make and the services we provide.  The Company’s mission is to make people’s lives better by delivering: outstanding quality products and services to our customers; meaningful opportunity, job satisfaction and job security to our people through competitiveness and prudent growth; superior long term investment returns to our stakeholders; and positive contributions to our communities as good corporate citizens.

A conference call to discuss those results will be held on Friday, November 9, 2018 at 8:00am. (Toronto time) which can be accessed by dialing (416) 340-2218 or toll free (800) 377-0758.  Please call 10 minutes prior to the start of the conference call. 

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

There will also be a rebroadcast of the call available by dialing (905) 694-9451 or toll free (800) 408-3053 (conference id - 8453232#).  The rebroadcast will be available until November 27, 2018.

This press release contains forward-looking statements within the meaning of applicable Canadian securities laws including statements related to the growth or expectations of, improvements in, expansion of and/or guidance or outlook as to future revenue, sales, gross margin, earnings, and earnings per share (including as adjusted), or operating income margins, strength of the Company, the intention to maintain a strong balance sheet and pay down debt over time, program wins, expected volumes, the ramping up and launching of new programs and the financial impact of launches, pursuit of its strategies, the intention to purchase shares under the normal course issuer bid, the payment of dividends, statements regarding the USMCA and tariffs, as well as other forward-looking statements.  The words “continue”, “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “views”, “intend”, “believe”, “plan”, “outlook” 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 (FX), timing of product launches and operational improvements 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 and other public filings which can found at :

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 TostoChief Financial OfficerMartinrea International Inc.3210 Langstaff RoadVaughan, Ontario  L4K 5B2

Tel:         (416) 749-0314Fax:        (289) 982-3001

See accompanying notes to the interim condensed consolidated financial statements.

On behalf of the Board:

See accompanying notes to the interim condensed consolidated financial statements.

See accompanying notes to the interim condensed consolidated financial statements.

See accompanying notes to the interim condensed consolidated financial statements.

*As at September 30, 2018, $25,571 (December 31, 2017 - $63,877) of purchases of property, plant and equipment remain unpaid and are recorded in trade and other payables and provisions.

See accompanying notes to the interim condensed consolidated financial statements.

More news and information about Martinrea International Inc.

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Globe Newswire: 22:01 GMT Thursday 8th November 2018

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