Martinrea International Inc. Reports Third-Quarter Results, Declares Dividend, and Expresses Confidence in 2023 Outlook

Thursday, 04. November 2021 22:15

TORONTO, Nov. 04, 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 third quarter ended September 30, 2021 and declared a quarterly cash dividend of $0.05 per share.

HIGHLIGHTS

  • Total sales of $848.5 million, down 12.6% year-over-year; production sales of $797.2 million
  • Third quarter diluted net loss per share and Adjusted Net Loss per Share(1) of $0.21
  • Third quarter Adjusted EBITDA(1) of $44.9 million
  • Third quarter results impacted by the global semiconductor shortage and other supply chain issues, sales mix, cost inflation in materials, labour and energy, and costs related to a heavy new business launch cycle
  • We remain confident in our longer-term outlook, including our expectation of over $200 million in Free Cash Flow(1) in 2023
  • Net-debt-to-Adjusted EBITDA(1) ratio increased to 2.5x, up from approximately 1.8x last quarter
  • New business awards of approximately $40 million in annualized sales at mature volumes during the quarter; year-to-date awards now total approximately $210 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 (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”.  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 nine months ended September 30, 2021 and in this press release.

OVERVIEW

Pat D’Eramo, President and Chief Executive Officer, stated: “The third quarter was challenging for us, as supply chain issues and cost inflation of labour, materials and energy, are currently wreaking havoc on the automotive supply base. At the same time, our sales mix, a heavy new business launch cycle, and an inability to fully flex costs in this environment are compounding these challenges and weighing on our near-term financial performance. Visibility remains low, as quite often we receive only short notice from our customers who “call off” production at the last minute based on their own diminished line of sight on supply chain issues. This makes it difficult to adjust labour costs given the low lead times on production stoppages, particularly in the context of the current hot labour markets, where if you lay people off, even short term, there is a good chance they will not return. These challenges are amplified in plants that are undergoing new program launches. On a positive note, vehicle demand remains strong, and vehicle inventories are at record lows, so the longer-term outlook is very good. As we move into 2022 and into 2023, our plant launch activity, and the costs that go along with it, are expected to normalize. These launches are expected to generate future sales growth outpacing industry production growth over a multi-year period, as well as strong margins once supply bottlenecks are removed, and production normalizes. Our future is 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 with the ZF Group and $10 million with General Motors, both in our Propulsion Systems commercial group. Year to date, new business wins now total approximately $210 million.”

Fred Di Tosto, Chief Financial Officer, stated: “Sales for the third quarter, excluding tooling sales of $51.3 million, were $797.2 million. Our Adjusted Operating Loss(1) was $16 million, while Adjusted Net Loss per Share(1) was $0.21. While we did not provide guidance for the third quarter, given the uncertainty in our industry, results ended up being lower than what we contemplated at the time of our last quarterly conference call given the challenges we faced. To provide more colour, in addition to the typical decremental margin from lower sales, a negative sales mix combined with weaker labour cost absorption given a diminished ability to fully flex costs in this current volatile environment, resulted in a $25 million unfavourable impact to Adjusted Operating Income (Loss)(1) over second-quarter 2021 levels. Meanwhile, new program launch activity remains high and the inflationary pressures Pat mentioned are currently costing us approximately $40 million on an annualized basis. We are engaging with essentially all our customers commercially on how to address these excess costs.”

Rob Wildeboer, Executive Chairman, stated: “Despite the current volatility and short-term challenges, we remain very positive about the longer term outlook for our business and the industry. As supply challenges subside, we anticipate production volumes to improve in 2022 leading to a robust 2023 and beyond. We remain confident in meeting our 2023 objectives, which call for total sales, including tooling sales, of $4.6 to $4.8 billion, an Adjusted Operating Income Margin(1) north of 8%, and more than $200 million in Free Cash Flow(1), consistent with our just-completed, board-approved budgets. As Pat mentioned, demand is as good as it has been in years, and vehicle inventories are at an all-time low. We believe it will take the industry several years running at or near full capacity to meet pent-up demand and rebuild depleted inventory levels once semiconductor and other supply shortages abate. As such we believe we are at the beginning of a multi-year cycle of rising production volumes, sales, Adjusted Operating Income Margins(1), and Free Cash Flow(1). 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 nine months ended September 30, 2021 (“MD&A”), the Company’s interim condensed consolidated financial statements for the third quarter ended September 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 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 nine months ended September 30, 2021 and 2020. Refer to the Company’s interim financial statements for the three and nine months ended September 30, 2021 for a detailed account of the Company’s performance for the periods presented in the tables below.

  Three months ended
September 30, 2021
 Three months ended
September 30, 2020
$ Change% Change
Sales$848,497 $971,060 (122,563)(12.6%)
Gross Margin 50,007  151,478 (101,471)(67.0%)
Operating Income (Loss) (16,234) 75,562 (91,796)(121.5%)
Net Income (Loss) for the period (17,120) 45,636 (62,756)(137.5%)
Net Earnings (Loss) per Share - Basic and Diluted$(0.21)$0.57 (0.78)(136.8%)
Non-IFRS Measures*      
Adjusted Operating Income (Loss)$(16,234)$75,562 (91,796)(121.5%)
% of Sales (1.9%) 7.8%  
Adjusted EBITDA 44,898  134,232 (89,334)(66.6%)
% of Sales 5.3% 13.8%  
Adjusted Net Income (Loss) (17,120) 45,636 (62,756)(137.5%)
Adjusted Net Earnings (Loss) per Share - Basic and Diluted$(0.21)$0.57 (0.78)(136.8%)


  Nine months ended
September 30, 2021
 Nine months ended
September 30, 2020
$ Change% Change
Sales$2,730,513 $2,304,330 426,18318.5%
Gross Margin 282,592  259,256 23,3369.0%
Operating Income (Loss) 65,817  (38,598)104,415270.5%
Net Income (Loss) for the period 45,533  (72,287)117,820163.0%
Net Earnings (Loss) per Share - Basic and Diluted$0.57 $(0.90)1.47163.3%
Non-IFRS Measures*      
Adjusted Operating Income$71,290 $57,844 13,44623.2%
% of Sales 2.6% 2.5%  
Adjusted EBITDA 254,331  233,779 20,5528.8%
% of Sales 9.3% 10.1%  
Adjusted Net Income 42,537  2,644 39,8931,508.8%
Adjusted Net Earnings per Share - Basic and Diluted$0.53 $0.03 0.501,666.7%

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
September 30, 2021
 Three months ended
September 30, 2020
Net Income (Loss)$(17,120)$45,636 
Unusual and Other Items (after-tax)* -  - 
Adjusted Net Income (Loss)$(17,120)$45,636 
     
  Nine months ended
September 30, 2021
 Nine months ended
September 30, 2020
Net Income (Loss)$45,533 $(72,287)
Unusual and Other Items (after-tax)* (2,996) 74,931 
Adjusted Net Income$42,537 $2,644 
*Unusual and Other Items, if any, are explained in the "Adjustments to Net Income (Loss)" section of this press release.


  Three months ended
September 30, 2021
 Three months ended
September 30, 2020
Net Income (Loss)$(17,120)$45,636
Income tax expense (benefit) (5,541) 18,636
Other finance (income) expense (2,341) 1,852
Share of loss of equity investments 871  300
Finance expense 7,897  9,138
Unusual and Other Items (before-tax)* -  -
Adjusted Operating Income (Loss)$(16,234)$75,562
Depreciation of property, plant and equipment and right-of-use assets 58,023  55,237
Amortization of intangible assets 3,011  3,196
Loss on disposal of property, plant and equipment 98  237
Adjusted EBITDA$44,898 $134,232


  Nine months ended
September 30, 2021
 Nine months ended
September 30, 2020
Net Income (Loss)$45,533 $(72,287)
Income tax expense (benefit) 14,791  (86)
Other finance (income) expense (13,691) 5,008 
Share of loss of equity investments 2,780  1,881 
Finance expense 24,204  26,886 
Unusual and Other Items (before-tax)* (2,327) 96,442 
Adjusted Operating Income$71,290 $57,844 
Depreciation of property, plant and equipment and right-of-use assets 173,300  166,044 
Amortization of intangible assets 9,577  9,654 
Loss on disposal of property, plant and equipment 164  237 
Adjusted EBITDA$254,331 $233,779 

*Unusual and Other Items, if any, are explained in the "Adjustments to Net Income (Loss)" section of this press release.

SALES      
       
Three months ended September 30, 2021 to three months ended September 30, 2020 comparison
       
  Three months ended
September 30, 2021
 Three months ended
September 30, 2020
$ Change% Change
North America$625,339 $739,489 (114,150)(15.4%)
Europe 195,786  189,366 6,420 3.4%
Rest of the World 34,697  46,999 (12,302)(26.2%)
Eliminations (7,325) (4,794)(2,531)(52.8%)
Total Sales$848,497 $971,060 (122,563)(12.6%)

The Company’s consolidated sales for the third quarter of 2021 decreased by $122.6 million or 12.6% to $848.5 million as compared to $971.1 million for the third quarter of 2020. The total decrease in sales was driven by year-over-year decrease in the North America and Rest of the World operating segments, partially offset by a year-over-year increase in the Europe operating segment.

Sales for the third quarter of 2021 in the Company’s North America operating segment decreased by $114.2 million or 15.4% to $625.3 million from $739.5 million for the third quarter of 2020. The decrease was due to overall lower industry volumes, primarily as a result of the impact the industry-wide shortage of semiconductor chips resulting from the COVID-19 pandemic has had on OEM production of certain light vehicle platforms; and the impact of foreign exchange on the translation of U.S. denominated production sales, which had a negative impact on overall sales for the third quarter of 2021 of $42.6 million as compared to the third quarter of 2020. These negative factors were partially offset by the launch of new programs during or subsequent to the third quarter of 2020 including the new Grand Cherokee and Wagoneer, Ford Mach E Mustang, Nissan Rogue and Pathfinder, and a six cylinder aluminum engine block for Ford; and an increase in tooling sales of $17.1 million, which are typically dependent on the timing of tooling construction and final acceptance by the customer.

Sales for the third quarter of 2021 in the Company’s Europe operating segment increased by $6.4 million or 3.4% to $195.8 million from $189.4 million for the third quarter of 2020. The increase can be attributed to the launch of new programs during or subsequent to the third quarter of 2020, mainly with Daimler, Ford, and Volvo; partially offset by overall lower industry volumes, primarily as a result of the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain light vehicle platforms; the impact of foreign exchange on the translation of Euro denominated production sales, which had a negative impact on overall sales for the third quarter of 2021 of $7.9 million as compared to the third quarter of 2020; and a $3.4 million decrease in tooling sales.

Sales for the third quarter of 2021 in the Company’s Rest of the World operating segment decreased by $12.3 million or 26.2% to $34.7 million from $47.0 million in the third quarter of 2020. The decrease was due to overall lower industry volumes, primarily as a result of the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain vehicle platforms; a $0.5 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the third quarter of 2020; and $0.2 million decrease in tooling sales.

Overall tooling sales increased by $13.5 million to $51.3 million for the third quarter of 2021 from $37.8 million for the third quarter of 2020.

Nine months ended September 30, 2021 to nine months ended September 30, 2020 comparison
       
  Nine months ended
September 30, 2021
 Nine months ended
September 30, 2020
$ Change% Change
North America$1,965,292 $1,745,151 220,141 12.6%
Europe 660,831  449,251 211,580 47.1%
Rest of the World 125,766  120,665 5,101 4.2%
Eliminations (21,376) (10,737)(10,639)(99.1%)
Total Sales$2,730,513 $2,304,330 426,183 18.5%

The Company’s consolidated sales for the nine months ended September 30, 2021 increased by $426.2 million or 18.5% to $2,730.5 million as compared to $2,304.3 million for the nine months ended September 30, 2020. Sales for the nine months ended September 30, 2021 increased across all operating segments.

Sales for the nine months ended September 30, 2021 in the Company’s North America operating segment increased by $220.1 million or 12.6% to $1,965.3 million from $1,745.2 million for the nine months ended September 30, 2020. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, accounted for $31.4 million of the year-over-year increase in sales (including a $2.4 million increase in tooling sales). Excluding the acquired operations, sales for the nine months ended September 30, 2021 in North America increased year-over-year by $188.7 million or 11.1%. 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 nine months ended September 30, 2020, including the new Grand Cherokee and Wagoneer, Ford Mach E Mustang, Nissan Rogue and Pathfinder, and a six cylinder aluminum engine block for Ford; and a $46.5 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 nine months ended September 30, 2021 of approximately $129.3 million as compared to the corresponding period of 2020; and lower production volumes on specific light vehicle platforms including the GM Equinox / Terrain.

Sales for the nine months ended September 30, 2021 in the Company’s Europe operating segment increased by $211.6 million or 47.1% to $660.8 million from $449.3 million for the nine months ended September 30, 2020. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, accounted for $65.4 million of the year-over-year increase in sales (including a $4.9 million increase in tooling sales). Excluding the acquired operations, sales for the nine months ended September 30, 2021 in Europe increased year-over-year by $146.2 million or 41.7%. 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; and the launch of new programs during or subsequent to the nine months ended September 30, 2020, mainly with Daimler, Ford, and Volvo. These positive factors were partially offset by a $7.5 million decrease in tooling sales; and the impact of foreign exchange on the translation of Euro denominated production sales, which had a negative impact on overall sales for the nine months ended September 30, 2021 of $1.1 million as compared to the corresponding period of 2020.

Sales for the nine months ended September 30, 2021 in the Company’s Rest of the World operating segment increased by $5.1 million or 4.2% to $125.8 million from $120.7 million for the nine months ended September 30, 2020. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, accounted for $3.0 million of the year-over-year increase in sales. Excluding the acquired operations, sales for the nine months ended September 30, 2021 in the Rest of the World increased year-over-year by $2.1 million or 2.9%. The increase can be attributed to the post-COVID recovery of production volumes, tempered by the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain vehicle platforms; partly offset by a $5.8 million decrease in tooling sales; a $4.6 million negative foreign exchange impact from the translation of foreign denominated production sales as compared to the corresponding period of 2020; and lower year-over-year production volumes on the Cadillac CT6 vehicle platform in China.

Overall tooling sales increased by $40.5 million to $170.3 million for the nine months ended September 30, 2021 from $129.8 million for the nine months ended September 30, 2020.

GROSS MARGIN      
       
Three months ended September 30, 2021 to three months ended September 30, 2020 comparison
       
  Three months ended
September 30, 2021
 Three months ended
September 30, 2020
$ Change% Change
Gross margin$50,007 $151,478 (101,471)(67.0%)
% of Sales 5.9% 15.6%  

The gross margin percentage for the third quarter of 2021 of 5.9% decreased as a percentage of sales by 9.7% as compared to the gross margin percentage for the third quarter of 2020 of 15.6%. The decrease in gross margin as a percentage of sales was generally due to:

  • overall lower sales volume and corresponding lower utilization of assets, driven primarily by the industry-wide shortage of semiconductor chips;
  • a negative sales mix;
  • production inefficiencies related to the semiconductor chip shortage driven by production lines being stopped / restarted unexpectedly based on OEM’s production priorities;
  • generally higher labour, material and energy costs;
  • other operational inefficiencies at certain operating facilities including launch related costs and upfront costs incurred in preparation of upcoming new programs;
  • an increase in tooling sales which typically earn low margins for the Company; and
  • a decrease in COVID-related government subsidies.

These factors were partially offset by productivity and efficiency improvements at certain operating facilities.

Nine months ended September 30, 2021 to nine months ended September 30, 2020 comparison
       
  Nine months ended
September 30, 2021
 Nine months ended
September 30, 2020
$ Change% Change
Gross margin$282,592 $259,256 23,3369.0%
% of Sales 10.3% 11.3%  

The gross margin percentage for the nine months ended September 30, 2021 of 10.3% decreased as a percentage of sales by 1.0% as compared to the gross margin percentage for the nine months ended September 30, 2020 of 11.3%. The decrease in gross margin as a percentage of sales was generally due to:

  1. a negative sales mix;
  2. production inefficiencies related to the semiconductor chip shortage driven by production lines being stopped / restarted unexpectedly based on OEM’s production priorities;
  3. generally higher labour, material and energy costs;
  4. other operational inefficiencies at certain operating facilities including launch related costs and upfront costs incurred in preparation of upcoming new programs;
  5. 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;
  6. an increase in tooling sales which typically earn low margins for the Company; and
  7. a decrease in COVID-related government subsidies.

These factors were partially offset by:

  • higher sales volume and corresponding higher utilization of assets, driven primarily by the post COVID recovery of overall production volumes, tempered by the impact the industry-wide shortage of semiconductor chips has had on OEM production of certain vehicle platforms; and
  • productivity and efficiency improvements at certain operating facilities.

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 September 30, 2021 to three months ended September 30, 2020 comparison 

No unusual or other items were noted during the three months ended September 30, 2021 and 2020.

TABLE B
     
Nine months ended September 30, 2021 to nine months ended September 30, 2020 comparison
     
 Nine months ended
September 30, 2021

 Nine months ended
September 30, 2020

 
  (a)-(b)
 (a) (b)Change
     
NET INCOME (LOSS) (A)$45,533  ($72,287)$117,820 
     
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 (A + B)$42,537  $2,644 $39,893 
     
Number of Shares Outstanding – Basic (‘000) 80,327   80,090  
Adjusted Basic Net Earnings Per Share$0.53  $0.03  
Number of Shares Outstanding – Diluted (‘000) 80,434   80,090  
Adjusted Diluted Net Earnings Per Share$0.53  $0.03  
     

1)   Restructuring costs

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

Additions to the restructuring provision for the nine months ended September 30, 2020, 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 $2.5 million for the nine months ended September 30, 2020.

NET INCOME (LOSS)
 
Three months ended September 30, 2021 to three months ended September 30, 2020 comparison
        
   Three months ended
September 30, 2021
 Three months ended
September 30, 2020
$ Change% Change
Net Income (Loss)$(17,120)$45,636(62,756)(137.5%)
Net Earnings (Loss) per Share      
 Basic and Diluted$(0.21)$0.57  

Net Income (Loss) for the third quarter of 2021 decreased by $62.8 million to a Net Loss of $17.1 million or ($0.21) per share, on a basic and diluted basis, from Net Income of $45.6 million or $0.57 per share, on a basic and diluted basis, for the third quarter of 2020.

The Net Loss for the third quarter of 2021, as compared to Net Income for the third quarter of 2020, was negatively impacted by the following:

  • lower gross profit on lower year-over-year sales volume, as previously explained;
  • a year-over-year increase in research and development costs; and
  • a lower effective tax rate on the Net Loss for the quarter (24.5% for the third quarter of 2021 compared to 29.0% for the third quarter of 2020).

These factors were partially offset by the following:

  • a year-over-year decrease in SG&A expense as previously explained;
  • a net foreign exchange gain of $2.4 million for the third quarter of 2021 compared to a net foreign exchange loss of $1.9 million for the third quarter of 2020; and
  • a year-over-year decrease in finance expense.
Nine months ended September 30, 2021 to nine months ended September 30, 2020 comparison
        
   Nine months ended
September 30, 2021
 Nine months ended
September 30, 2020
$ Change% Change
Net Income (Loss)$45,533$(72,287)117,820163.0%
Adjusted Net Income$42,537$2,644 39,8931,508.8%
Net Earnings (Loss) per Share      
 Basic and Diluted$0.57$(0.90)  
Adjusted Net Earnings per Share      
 Basic and Diluted$0.53$0.03   

Net Income, before adjustments, for the nine months ended September 30, 2021 increased by $117.8 million to $45.5 million from a Net Loss of $72.3 million for the nine months ended September 30, 2020. Excluding the unusual and other items explained in Table B under “Adjustments to Net Income (Loss),” Adjusted Net Income for the nine months ended September 30, 2021 increased to $42.5 million or $0.53 per share, on a basic and diluted basis, from $2.6 million or $0.03 per share, on a basic and diluted basis, for the nine months ended September 30, 2020.

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

  • higher gross profit on higher year-over-year sales volume, as previously explained;
  • a net foreign exchange gain of $12.9 million for the nine months ended September 30, 2021 compared to a net foreign exchange loss of $5.2 million for the nine months ended September 30, 2020;
  • a year-over-year decrease in finance expense; and
  • a lower effective tax rate on Adjusted Net Income (26.7% for the nine months ended September 30, 2021 compared to 89.0% for the nine months ended September 30, 2020).

These factors were partially offset by the following:

  • a year-over-year increase in SG&A expense as previously explained;
  • a year-over-year increase in research and development costs; and
  • an increase in the Company’s share of loss of equity investments.

DIVIDEND

A cash dividend of $0.05 per share has been declared by the Board of Directors payable to shareholders of record on December 31, 2021, on or about January 15, 2022.

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 Thursday, November 4, 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 December 4, 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 or volumes, 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 longer term outlook for 2022, 2023 and beyond; the expected impact of or duration of the COVID-19 pandemic, including 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; 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 as well as other supply chain issues and challenges and the ability to address costs; the Company’s views of longer term outlook of the business or industry, including pent up demand; the ramping up and launching of new business; expectations of normalizing launch activity, margins and production; 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 September 30, 2021  December 31, 2020
ASSETS      
Cash and cash equivalents $157,324 $152,786
Trade and other receivables3 680,332  589,315
Inventories4 673,841  492,659
Prepaid expenses and deposits  29,972  23,550
Income taxes recoverable  21,004  13,527
TOTAL CURRENT ASSETS  1,562,473  1,271,837
Property, plant and equipment5 1,669,208  1,615,197
Right-of-use assets6 170,334  192,630
Deferred tax assets  190,667  195,538
Intangible assets7 48,628  52,644
Investments8 53,796  40,557
TOTAL NON-CURRENT ASSETS  2,132,633  2,096,566
TOTAL ASSETS $3,695,106 $3,368,403
       
LIABILITIES      
Trade and other payables9$1,155,897 $967,952
Provisions10 6,820  4,258
Income taxes payable  10,084  13,230
Current portion of long-term debt12 21,176  19,492
Current portion of lease liabilities13 31,785  34,064
TOTAL CURRENT LIABILITIES  1,225,762  1,038,996
Long-term debt12 995,714  815,730
Lease liabilities13 155,799  177,749
Pension and other post-retirement benefits  56,461  74,030
Deferred tax liabilities  78,073  86,174
TOTAL NON-CURRENT LIABILITIES  1,286,047  1,153,683
TOTAL LIABILITIES  2,511,809  2,192,679
       
EQUITY      
Capital stock15 663,415  662,427
Contributed surplus  44,555  43,860
Accumulated other comprehensive income  56,237  96,645
Retained earnings  419,090  372,792
TOTAL EQUITY  1,183,297  1,175,724
TOTAL LIABILITIES AND EQUITY $3,695,106 $3,368,403

Contingencies (note 21)

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  Nine months ended Nine months ended
 Note September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
          
SALES $848,497 $971,060 $2,730,513 $2,304,330 
          
Cost of sales (excluding depreciation of property, plant and equipment and right-of-use assets)  (744,245) (768,280) (2,286,154) (1,890,680)
Depreciation of property, plant and equipment and right-of-use assets (production)  (54,245) (51,302) (161,767) (154,394)
Total cost of sales  (798,490) (819,582) (2,447,921) (2,045,074)
GROSS MARGIN  50,007  151,478  282,592  259,256 
          
Research and development costs  (8,376) (6,884) (24,372) (21,571)
Selling, general and administrative  (53,989) (64,537) (175,233) (169,479)
Depreciation of property, plant and equipment and right-of-use assets (non-production)  (3,778) (3,935) (11,533) (11,650)
Loss on disposal of property, plant and equipment  (98) (237) (164) (237)
Amortization of customer contracts and relationships  -  (323) -  (964)
Restructuring costs10 -                        -               (5,473)  (8,170)
Impairment of assets11 -  -  -  (85,783)
OPERATING INCOME (LOSS)  (16,234) 75,562  65,817  (38,598)
          
Share of loss of equity investments8 (871) (300) (2,780) (1,881)
Gain on dilution of equity investments8 -  -  7,800  - 
Finance expense17 (7,897) (9,138) (24,204) (26,886)
Other finance income (expense)17 2,341  (1,852) 13,691  (5,008)
INCOME (LOSS) BEFORE INCOME TAXES  (22,661) 64,272  60,324  (72,373)
          
Income tax benefit (expense)14 5,541  (18,636) (14,791) 86 
NET INCOME (LOSS) FOR THE PERIOD $(17,120)$45,636 $45,533 $(72,287)
          
          
Basic earnings (loss) per share16$(0.21)$0.57 $0.57 $(0.90)
Diluted earnings (loss) per share16$(0.21)$0.57 $0.57 $(0.90)

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 Nine months ended Nine months ended
   September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
          
NET INCOME (LOSS) FOR THE PERIOD$(17,120)$45,636 $45,533 $(72,287)
Other comprehensive income (loss), net of tax:        
 Items that may be reclassified to net income        
 Foreign currency translation differences for foreign operations 24,897  (14,770) (37,469) 59,153 
 Cash flow hedging derivative and non-derivative financial instruments:        
 Unrealized gain (loss) in fair value of financial instruments -  1,977  892  (1,267)
 Reclassification of loss (gain) to net income (960) 324  (4,014) 831 
 Items that will not be reclassified to net income        
 Share of other comprehensive income (loss) of equity investments (note 8) 108  (82) 183  (11)
 Remeasurement of defined benefit plans 674  2,051  12,816  (8,245)
Other comprehensive income (loss), net of tax  24,719  (10,500) (27,592) 50,461 
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD$7,599 $35,136 $17,941 $(21,826)

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    
    Capital  Contributed comprehensive Retained  
    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 -  -  -  (72,287) (72,287)
Compensation expense related to stock options -  1,812  -  -  1,812 
Dividends ($0.15 per share) -  -  -  (12,017) (12,017)
Exercise of employee stock options 3,479  (1,005) -  -  2,474 
Repurchase of common shares (2,474) -  -  (893) (3,367)
Other comprehensive income (loss) net of tax          
 Remeasurement of defined benefit plans -  -  -  (8,245) (8,245)
 Foreign currency translation differences -  -  59,153  -  59,153 
 Share of other comprehensive loss of equity investments -  -  (11) -  (11)
 Cash flow hedging derivative and non-derivative          
 financial instruments:          
  Unrealized loss in fair value of financial instruments -  -  (1,267) -  (1,267)
  Reclassification of loss to net income -  -  831  -  831 
BALANCE AT SEPTEMBER 30, 2020 662,427  43,256  147,813  332,003  1,185,499 
Net income for the period -  -  -  44,970  44,970 
Compensation expense related to stock options -  604  -  -  604 
Dividends ($0.05 per share) -  -  -  (4,013) (4,013)
Other comprehensive income (loss) net of tax          
 Remeasurement of defined benefit plans -  -  -  (168) (168)
 Foreign currency translation differences -  -  (55,253) -  (55,253)
 Share of other comprehensive loss of equity investments -  -  (68) -  (68)
 Cash flow hedging derivative and non-derivative          
 financial instruments:          
  Unrealized gain in fair value of financial instruments -  -  3,982  -  3,982 
  Reclassification of loss to net income -  -  171  -  171 
BALANCE AT DECEMBER 31, 2020 662,427  43,860  96,645  372,792  1,175,724 
Net income for the period -  -  -  45,533  45,533 
Compensation expense related to stock options -  934  -  -  934 
Dividends ($0.15 per share) -  -  -  (12,051) (12,051)
Exercise of employee stock options 988  (239) -  -  749 
Other comprehensive income (loss) net of tax          
 Remeasurement of defined benefit plans -  -  -  12,816  12,816 
 Foreign currency translation differences -  -  (37,469) -  (37,469)
 Share of other comprehensive income of equity investments -  -  183  -  183 
 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 -  -  (4,014) -  (4,014)
BALANCE AT SEPTEMBER 30, 2021$663,415 $44,555 $56,237 $419,090 $1,183,297 

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  Nine months ended Nine months ended
    September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
CASH PROVIDED BY (USED IN):        
OPERATING ACTIVITIES:        
Net income (loss) for the period$(17,120)$45,636 $45,533 $(72,287)
Adjustments for:        
 Depreciation of property, plant and equipment and right-of-use assets 58,023  55,237  173,300  166,044 
 Amortization of customer contracts and relationships -  323  -  964 
 Amortization of development costs 3,011  2,873  9,577  8,690 
 Impairment of assets (note 11) -  -  -  85,783 
 Unrealized loss on foreign exchange forward contracts 3,043  2,214  859  2,533 
 Finance expense 7,897  9,138  24,204  26,886 
 Income tax expense (benefit) (5,541) 18,636  14,791  (86)
 Loss on disposal of property, plant and equipment 98  237  164  237 
 Deferred and restricted share units expense (benefit) (809) (236) (1,284) 226 
 Stock options expense 328  604  934  1,812 
 Share of loss of equity investments 871  300  2,780  1,881 
 Gain on dilution of equity investments -  -  (7,800) - 
 Pension and other post-retirement benefits expense 991  1,036  3,006  3,570 
 Contributions made to pension and other post-retirement benefits (861) (1,992) (2,738) (5,328)
    49,931  134,006  263,326  220,925 
Changes in non-cash working capital items:        
 Trade and other receivables 12,110  (143,374) (103,178) (1,792)
 Inventories (62,603) (62,073) (190,542) (84,780)
 Prepaid expenses and deposits (2,271) 316  (6,620) 6,730 
 Trade, other payables and provisions       33,406  268,806  177,807  158,959 
                30,573  197,681  140,793  300,042 
 Interest paid                 (7,732) (8,895) (25,155) (27,375)
 Income taxes paid               (12,984) (10,262) (33,068) (24,473)
NET CASH PROVIDED BY OPERATING ACTIVITIES$              9,857 $178,524 $82,570 $248,194 
           
FINANCING ACTIVITIES:        
 Increase in long-term debt (net of deferred financing fees) 84,763  265  198,290  103,561 
 Repayment of long-term debt (4,207) (4,481) (12,918) (12,696)
 Principal payments of lease liabilities (8,303) (8,606) (25,305) (23,885)
 Dividends paid (4,015) (4,004) (12,048) (11,614)
 Exercise of employee stock options 113  1,618  749  2,474 
 Repurchase of common shares -  -  -  (3,367)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES$68,351 $(15,208)$148,768 $54,473 
           
INVESTING ACTIVITIES:        
 Purchase of property, plant and equipment (excluding capitalized interest)* (45,153) (72,347) (210,954) (188,233)
 Capitalized development costs (2,010) (3,902) (6,178) (8,557)
 Equity investments (note 8) -  -  (8,036) (5,000)
 Proceeds on disposal of property, plant and equipment 707  42  846  308 
 Business acquisition (note 2) -  -  -  (10,503)
NET CASH USED IN INVESTING ACTIVITIES$(46,456)$(76,207)$(224,322)$(211,985)
           
Effect of foreign exchange rate changes on cash and cash equivalents (2,092)                 1,106  (2,478) 4,394 
           
INCREASE IN CASH AND CASH EQUIVALENTS 29,660  88,215  4,538  95,076 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 127,664  125,834  152,786  118,973 
CASH AND CASH EQUIVALENTS, END OF PERIOD$157,324 $214,049 $157,324 $214,049 

*As at September 30, 2021, $76,747 (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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