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 year and fourth quarter ended
December 31, 2019 and that it has declared a quarterly cash
dividend of $0.05 per share.
HIGHLIGHTS
Fourth Quarter 2019
- Total sales of $917.6 million; production sales of $787.0
million
- Fourth quarter diluted net earnings per share of $0.63
- Fourth quarter adjusted diluted net earnings per share([1]) of
$0.42
- Unfavourable impact of UAW-GM work stoppage in the quarter
- Quarterly free cash flow(1) of $51.4 million
- Balance sheet continues to be strong; net debt(1):adjusted
EBITDA(1) ratio (excluding impact of IFRS 16) down to 1.41x
- New business awards of approximately $140 million in annualized
sales at mature volumes
- Quarterly cash dividend raised to $0.05; dividend declared
- $19.6 million in shares repurchased in the quarter under normal
course issuer bid
Full Year 2019
- Tenth consecutive year with year-over-year increased adjusted
net earnings per share(1); best annual adjusted net earnings per
share(1) performance in history
- Total sales of $3,863.7 million; production sales of $3,458.9
million – both up year-over-year
- Record annual diluted net earnings per share of $2.19
- Record annual diluted adjusted net earnings per share(1) of
$2.27
- Record Adjusted EBITDA(1)
- Annual free cash flow(1) of $126.9 million
- Unfavourable impact of UAW-GM work stoppage in September and
October
- Operating margin expected to increase over the next two
years
- New business awards over the past four quarters of
approximately $300 million in annualized sales at mature
volumes
- Multiple customer quality awards received
- Improved safety performance
- $57.8 million in shares repurchased under normal course issuer
bid in 2019; approximately 4.8 million shares repurchased
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 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 fiscal year ended December 31, 2019.
OVERVIEW
Pat D’Eramo, President and Chief Executive
Officer, stated: “2019 was another great year for Martinrea and our
people; we finished the year with increased sales, record adjusted
net earnings per share, and a strong balance sheet. Our
fourth quarter was solid despite the negative impacts of the GM
strike which impacted sales and operating margins, but for that
fact, and a higher than normal level of tooling sales, operating
margins would have exceeded 8% for the year. Our people
continue to perform well and drive our success. In addition
to good financial performance, we continue to improve in our safety
and quality metrics; the improvement over the past five years in
all these areas has been really terrific, as we strive to be an
industry leader. 2019 was also a very busy year for launches,
and our performance in this area has been strong. A good
launch is critical to the success of any program, and customers
rely on us to get our launches right. I am pleased to
announce some significant new business wins in the past few months,
which is a sign of customer confidence. New business wins
total $140 million in annualized sales at mature volumes, including
lightweight structures work on the new Daimler EVA II electric
vehicle platform that is expected to generate approximately $100
million in annualized sales at mature volumes commencing in 2022,
which we also announced earlier this week; transmission housings
for the ZF Group, which we will machine for one of its current
transmissions, and both cast and machine the next generation model,
representing approximately $30 million in annualized sales at
mature volumes commencing in 2022; and control arms for
Toyota on its Tacoma pickup truck platform, our first product win
from Toyota in the chassis space, commencing in 2023. Winning
work is a testament to the fact we are doing good things the right
way at Martinrea. Lastly, we had great customer support for
our purchase of the structural components for passenger cars
division of Metalsa, which we completed earlier this week.
This will add approximately $400 million in annualized sales to our
top line, and we will work hard to integrate the new facilities
into our operations as soon as possible. I want to thank our
people for their efforts, we have been very busy.”
Fred Di Tosto, Chief Financial Officer, stated:
“Sales for the fourth quarter, excluding tooling sales of $131
million, were $787 million, within the range of our previously
announced sales guidance. In the quarter, our adjusted net
earnings per share, on a diluted basis, was $0.42 per share, also
within the range of our quarterly guidance. As previously
noted, the quarter was impacted by the UAW strike at General
Motors, our largest customer, from which we have not yet seen as
much increased post-strike volume as had originally been
anticipated. Our balance sheet remains strong, as we look to
maintain a leverage ratio of about or under 1.5:1 net debt:adjusted
EBITDA, even while paying increased dividends, repurchasing shares
under our normal course issuer bid, making a strategic investment
in NanoXplore, and investing in our operations to fund our
growth. Supporting this was a very strong year of free cash
flow. We generated $127 million of free cash flow in 2019,
including $51 million in the fourth quarter. Further, 2020 is
off to a solid start despite some headwinds with the coronavirus
situation and volumes in general, and we expect first quarter
sales, excluding tooling sales, to be in the range of $860 million
to $910 million, and adjusted net earnings per share in the range
of $0.60 to $0.65 per share, inclusive of some revenues from the
former Metalsa assets just purchased. With the addition of
the new Metalsa business, we are projecting sales to approximate
$4.4 billion in 2021, subject to overall market volumes, and while
operating margins are anticipated to increase in 2020 from 2019, we
are targeting an adjusted operating income margin at somewhere
north of 8% in 2021, based on our anticipated new mix of business
inclusive of Metalsa.”
Rob Wildeboer, Executive Chairman, stated:
“While 2019 was a great year for us, 2020 promises to be very
strong for us also, even in the face of some industry weakness and
the uncertainty for production volumes, supply chains and economic
growth we are seeing in the challenges of the coronavirus and trade
environment. On the trade front, the finalization of the
USMCA and eventual implementation we believe is good for the North
American auto industry and our supply base, and us in
particular. We are very well positioned in North
America. We are also seeing some stabilization
internationally, which is beneficial for our industry. We
believe that the challenges posed by the coronavirus situation has
and will likely impact volumes, the extent to which has been modest
so far but whose implications are not yet fully known. Our
ability to supply has not been negatively impacted, but we will
only produce when customers make vehicles, and the ultimate level
of production in 2020 is uncertain. We have little exposure
in China, and our plants are operating today, although at a reduced
level. Overall we believe this situation will resolve itself,
but volumes in 2020 may be flat at best in China, Europe and North
America. Having said that, we are extremely well positioned
to serve our customers and grow our business, through organic
growth or acquisition, even in tougher times. We believe we
have a history of showing that.”
He added: “Given our strong financial
performance and cash flow, and our confidence and indeed optimism
in our long term outlook, we have increased our dividend to our
investors by 10%. Although the quantum of the increase
overall is not large, we believe the percentage increase is a good
reward for our supportive shareholders. We also repurchased
shares in our fourth quarter, and in 2019 repurchased about 4.8
million shares. This rewards our shareholders with a higher
ownership position in the company, higher earnings per share and
less dilution of earnings. We intend to be in the market
again under our normal course issuer bid once the blackout period
is lifted. Meanwhile, our first use of capital continues to
be to invest in the business, then make strategic investments and
the right kinds of acquisitions, and maintain a strong balance
sheet, all of which we did in 2019 and will continue to do in 2020
and going forward. Ours is a great future, and we believe our
lean, entrepreneurial and Golden Rule culture has been and will be
a competitive advantage for this company. We have great
people here, and we congratulate and thank them as the foundation
of our performance to date and in future.”
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 Martinrea,
including the Company’s Management Discussion and Analysis of
Operating Results and Financial Position for the year ended
December 31, 2019 (“MD&A”), the Company’s consolidated
financial statements for the year ended December 31, 2019 (the
“consolidated financial statements”) and the Company’s Annual
Information Form for the year ended December 31, 2019, can be found
at www.sedar.com.
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.
OVERALL RESULTS
The following tables set out certain highlights
of the Company’s performance for the three months and fiscal years
ended December 31, 2019 and 2018. Refer to the Company’s
consolidated financial statements for the year ended December 31,
2019 for a detailed account of the Company’s performance for the
periods presented in the table below.
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
$ Change |
% Change |
Sales |
$ |
3,863,659 |
|
$ |
3,662,900 |
|
200,759 |
|
5.5 |
% |
Gross Margin |
|
586,101 |
|
|
556,161 |
|
29,940 |
|
5.4 |
% |
Operating Income |
|
265,837 |
|
|
276,472 |
|
(10,635 |
) |
(3.8 |
%) |
Net Income for the
period |
|
181,221 |
|
|
185,883 |
|
(4,662 |
) |
(2.5 |
%) |
Net Earnings per Share
- Basic |
$ |
2.20 |
|
$ |
2.15 |
|
0.05 |
|
2.3 |
% |
Net Earnings per Share
- Diluted |
$ |
2.19 |
|
$ |
2.14 |
|
0.05 |
|
2.3 |
% |
Non-IFRS Measures* |
|
|
|
|
|
|
Adjusted Operating Income |
$ |
288,305 |
|
$ |
283,981 |
|
4,324 |
|
1.5 |
% |
% of Sales |
|
7.5 |
% |
|
7.8 |
% |
|
|
Adjusted EBITDA |
|
504,555 |
|
|
461,223 |
|
43,332 |
|
9.4 |
% |
% of Sales |
|
13.1 |
% |
|
12.6 |
% |
|
|
Adjusted Net
Income |
|
187,687 |
|
|
193,166 |
|
(5,479 |
) |
(2.8 |
%) |
Adjusted Net Earnings
per Share - Basic |
$ |
2.28 |
|
$ |
2.23 |
|
0.05 |
|
2.2 |
% |
Adjusted Net Earnings
per Share - Diluted |
$ |
2.27 |
|
$ |
2.22 |
|
0.05 |
|
2.3 |
% |
|
|
Three months ended December 31, 2019 |
|
Three months ended December 31, 2018 |
$ Change |
% Change |
Sales |
$ |
917,581 |
|
$ |
926,154 |
|
(8,573 |
) |
(0.9 |
%) |
Cost of sales (excluding depreciation) |
|
(737,040 |
) |
|
(751,605 |
) |
14,565 |
|
(1.9 |
%) |
Depreciation of
property, plant and equipment and right-of-use assets
(production) |
|
(50,620 |
) |
|
(39,982 |
) |
(10,638 |
) |
26.6 |
% |
Gross Margin |
|
129,921 |
|
|
134,567 |
|
(4,646 |
) |
(3.5 |
%) |
Research and development costs |
|
(9,876 |
) |
|
(7,189 |
) |
(2,687 |
) |
37.4 |
% |
Selling, general and administrative |
|
(63,659 |
) |
|
(58,363 |
) |
(5,296 |
) |
9.1 |
% |
Depreciation of property, plant and equipment and right-of-use
assets (non-production) |
|
(3,770 |
) |
|
(2,971 |
) |
(799 |
) |
26.9 |
% |
Amortization of customer contracts and relationships |
|
(513 |
) |
|
(535 |
) |
22 |
|
(4.1 |
%) |
Loss on disposal of property, plant and equipment |
|
(274 |
) |
|
(93 |
) |
(181 |
) |
194.6 |
% |
Impairment of assets |
|
- |
|
|
(5,436 |
) |
5,436 |
|
(100.0 |
%) |
Restructuring costs |
|
- |
|
|
(2,073 |
) |
2,073 |
|
(100.0 |
%) |
Operating Income |
$ |
51,829 |
|
$ |
57,907 |
|
(6,078 |
) |
(10.5 |
%) |
Share of loss of an associate |
|
(679 |
) |
|
- |
|
(679 |
) |
(100.0 |
%) |
Finance expense |
|
(8,912 |
) |
|
(7,013 |
) |
(1,899 |
) |
27.1 |
% |
Other finance income
(expense) |
|
583 |
|
|
(389 |
) |
972 |
|
(249.9 |
%) |
Income before income taxes |
$ |
42,821 |
|
$ |
50,505 |
|
(7,684 |
) |
(15.2 |
%) |
Income tax
expense |
|
8,332 |
|
|
(12,689 |
) |
21,021 |
|
(165.7 |
%) |
Net Income for the
period |
|
51,153 |
|
|
37,816 |
|
13,337 |
|
35.3 |
% |
Net Earnings per Share
- Basic and Diluted |
$ |
0.63 |
|
$ |
0.44 |
|
0.19 |
|
43.2 |
% |
Non-IFRS Measures* |
|
|
|
|
|
|
Adjusted Operating Income |
$ |
51,829 |
|
$ |
65,416 |
|
(13,587 |
) |
(20.8 |
%) |
% of sales |
|
5.6 |
% |
|
7.1 |
% |
|
|
Adjusted EBITDA |
|
110,534 |
|
|
111,785 |
|
(1,251 |
) |
(1.1 |
%) |
% of sales |
|
12.0 |
% |
|
12.1 |
% |
|
|
Adjusted Net
Income |
|
33,834 |
|
|
43,840 |
|
(10,006 |
) |
(22.8 |
%) |
Adjusted Net Earnings
per Share - Basic and Diluted |
$ |
0.42 |
|
$ |
0.51 |
|
(0.09 |
) |
(17.6 |
%) |
*Non-IFRS Measures
The Company prepares its consolidated 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”, "Adjusted EBITDA”, “Free Cash Flow” and “Net
Debt”.
Impact of the Adoption of IFRS 16,
Leases
Effective January 1, 2019, the Company adopted
the new accounting standard, IFRS 16, Leases (“IFRS 16”). In
adopting the new standard, the Company used the modified
retrospective approach which involves recognizing transitional
adjustments in opening retained earnings, if any, on the date of
initial application without restating comparative prior periods. As
such, 2018 prior year comparatives have not been restated.
The adoption of the new standard resulted in the
recognition of lease liabilities of $228.6 million and right-of-use
assets of $223.8 million, net of accrued liabilities related to the
leases of $4.8 million, recognized as at January 1, 2019 in the
consolidated balance sheet. From an earnings perspective, while
timing differences may exist, the new standard results in a
decrease in operating rent expense essentially replaced by
increases in finance and depreciation expenses as recognized in the
consolidated statement of operations. As such, the adoption of IFRS
16 did not have a significant impact on the Company’s operating
results and the financial metrics for the three months and fiscal
year ended December 31, 2019 outlined above other than “Adjusted
EBITDA”. The adoption of IFRS 16 contributed approximately 8% of
the year-over-year change in Adjusted EBITDA due to the recognition
of depreciation expense on right-of-use assets, in lieu of
operating rent expense, as required by the new standard. The
adoption of the new standard is further explained in “Recently
adopted accounting standards and policies” in the MD&A and note
2(t)(i) of the consolidated financial statements for the year ended
December 31, 2019.
The following tables provide a reconciliation of
IFRS “Net Income” to Non-IFRS “Adjusted Net Income”, “Adjusted
Operating Income” and “Adjusted EBITDA”.
|
|
Three months ended December 31, 2019 |
|
Three months ended December 31, 2018 |
Net
Income |
$ |
51,153 |
|
$ |
37,816 |
Unusual and Other
Items (after-tax)* |
|
(17,319 |
) |
|
6,024 |
Adjusted Net
Income |
$ |
33,834 |
|
$ |
43,840 |
|
|
|
|
|
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
Net Income |
$ |
181,221 |
|
$ |
185,883 |
Unusual and Other
Items (after-tax)* |
|
6,466 |
|
|
7,283 |
Adjusted Net
Income |
$ |
187,687 |
|
$ |
193,166 |
*Unusual and other items are explained in the
"Adjustments to Net Income" section of this Press Release |
|
|
Three months ended December 31, 2019 |
|
Three months ended December 31, 2018 |
Net
Income |
$ |
51,153 |
|
$ |
37,816 |
|
Income tax expense |
|
(8,332 |
) |
|
12,689 |
|
Other finance income - excluding Unusual and Other Items* |
|
(595 |
) |
|
(59 |
) |
Share of loss of an associate |
|
679 |
|
|
- |
|
Finance expense |
|
8,912 |
|
|
7,013 |
|
Unusual and Other
Items (before-tax)* |
|
12 |
|
|
7,957 |
|
Adjusted Operating
Income |
$ |
51,829 |
|
$ |
65,416 |
|
Depreciation of property, plant and equipment and right-of-use
assets |
|
54,390 |
|
|
42,953 |
|
Amortization of intangible assets |
|
4,041 |
|
|
3,323 |
|
Loss on disposal of
property, plant and equipment |
|
274 |
|
|
93 |
|
Adjusted EBITDA |
$ |
110,534 |
|
$ |
111,785 |
|
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
Net
Income |
$ |
181,221 |
|
$ |
185,883 |
Income tax expense |
|
43,824 |
|
|
60,943 |
Other finance expense - excluding Unusual and Other Items* |
|
535 |
|
|
401 |
Share of loss of an associate |
|
2,009 |
|
|
- |
Finance expense |
|
37,997 |
|
|
27,358 |
Unusual and Other
Items (before-tax)* |
|
22,719 |
|
|
9,396 |
Adjusted Operating
Income |
$ |
288,305 |
|
$ |
283,981 |
Depreciation of property, plant and equipment and right-of-use
assets |
|
201,321 |
|
|
163,298 |
Amortization of intangible assets |
|
15,861 |
|
|
13,482 |
Loss (gain) on
disposal of property, plant and equipment |
|
(932 |
) |
|
462 |
Adjusted EBITDA |
$ |
504,555 |
|
$ |
461,223 |
*Unusual and other items are explained in the
"Adjustments to Net Income" section of this Press Release |
The year-over-year changes in significant accounts and financial
highlights are discussed in detail in the sections below.
SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended December 31, 2019 to three months ended December 31,
2018 comparison |
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2019 |
|
Three months ended December 31, 2018 |
$ Change |
% Change |
North America |
$ |
720,185 |
|
$ |
735,876 |
|
(15,691 |
) |
(2.1 |
%) |
Europe |
|
158,389 |
|
|
167,533 |
|
(9,144 |
) |
(5.5 |
%) |
Rest of the World |
|
41,144 |
|
|
27,571 |
|
13,573 |
|
49.2 |
% |
Eliminations |
|
(2,137 |
) |
|
(4,826 |
) |
2,689 |
|
(55.7 |
%) |
Total
Sales |
$ |
917,581 |
|
$ |
926,154 |
|
(8,573 |
) |
(0.9 |
%) |
The Company’s consolidated sales for the fourth
quarter of 2019 decreased by $8.6 million or 0.9% to $917.6 million
as compared to $926.2 million for the fourth quarter of 2018. The
total decrease in sales was driven by year-over-year decreases in
the North America and Europe operating segments, partially offset
by an increase in the Rest of the World.
Sales for the fourth quarter of 2019 in the
Company’s North America operating segment decreased by $15.7
million or 2.1% to $720.2 million from $735.9 million for the
fourth quarter of 2018. The decrease was due to the impact of the
United Auto Workers (UAW) strike at General Motors in the United
States, which began on September 16, 2019 and ended at the end of
October, negatively impacting production sales for the fourth
quarter by approximately $65.0 million across several platforms;
and lower year-over-year OEM production volumes on certain
light-vehicle platforms, in particular the Ford Escape, Ford
Fusion, and programs that ended production during or subsequent to
the fourth quarter of 2018. These negative factors were partially
offset by the launch of new programs during or subsequent to the
fourth quarter of 2018, including the next generation GM
Silverado/Sierra, RAM pick-up trucks, the new Chevrolet Blazer and
the Mercedes A-class vehicle platform; an increase in tooling sales
of $40.1 million, which are typically dependent on the timing of
tooling construction and acceptance by the customer; and the impact
of foreign exchange on the translation of U.S. dollar-denominated
production sales, which had a positive impact on overall sales for
the fourth quarter of 2019 of approximately $6.0 million as
compared to the fourth quarter of 2018.
Sales for the fourth quarter of 2019 in the
Company’s Europe operating segment decreased by $9.1 million or
5.5% to $158.4 million from $167.5 million for the fourth quarter
of 2018. The decrease can be attributed to lower
year-over-year production volumes on certain light-vehicle
platforms, in particular with Daimler and Jaguar Land Rover, and
including programs that ended production during or subsequent to
the fourth quarter of 2018; and a $4.1 million negative foreign
exchange impact from the translation of Euro-denominated production
sales as compared to the fourth quarter of 2018. These negative
factors were partially offset by the launch of new programs during
or subsequent to the fourth quarter of 2018, including new aluminum
engine blocks for Ford, Jaguar Land Rover and Volvo, and an
aluminum transmission for Volkswagen; and a $1.7 million increase
in tooling sales.
Sales for the fourth quarter of 2019 in the
Company’s Rest of the World operating segment increased by $13.6
million or 49.2% to $41.1 million from $27.6 million in the fourth
quarter of 2018. The increase was due to higher year-over-year
production volumes on the Cadillac CT6 vehicle platform in China;
the ramp up of new aluminum structural components work for Jaguar
Land Rover in China; and a $3.6 million increase in tooling sales.
These positive factors were partially offset by lower
year-over-year production sales in the Company’s operating facility
in Brazil; and a $0.7 million negative foreign exchange impact from
the translation of foreign-denominated production sales as compared
to the fourth quarter of 2018.
Overall tooling sales increased by $45.4 million
to $130.6 million for the fourth quarter of 2019 from $85.2 million
for the fourth quarter of 2018.
Year
ended December 31, 2019 to year ended December 31, 2018
comparison |
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
$ Change |
% Change |
North America |
$ |
3,066,352 |
|
$ |
2,827,527 |
|
238,825 |
|
8.4 |
% |
Europe |
|
672,131 |
|
|
713,861 |
|
(41,730 |
) |
(5.8 |
%) |
Rest of the World |
|
132,670 |
|
|
135,322 |
|
(2,652 |
) |
(2.0 |
%) |
Eliminations |
|
(7,494 |
) |
|
(13,810 |
) |
6,316 |
|
(45.7 |
%) |
Total
Sales |
$ |
3,863,659 |
|
$ |
3,662,900 |
|
200,759 |
|
5.5 |
% |
The Company’s consolidated sales for the year
ended December 31, 2019 increased by $200.8 million or 5.5% to
$3,863.7 million as compared to $3,662.9 million for the year ended
December 31, 2018. The total increase in sales was driven by an
increase in the North America operating segment, partially offset
by year-over-year decreases in sales in Europe and the Rest of the
World.
Sales for the year ended December 31, 2019 in
the Company’s North America operating segment increased by $238.8
million or 8.4% to $3,066.4 million from $2,827.5 million for the
year ended December 31, 2018. The increase was due to the
launch of new programs during or subsequent to the year ended
December 31, 2018, including the next generation GM
Silverado/Sierra, RAM pick-up trucks, the new Chevrolet Blazer, and
the Mercedes A-class vehicle platform; an increase in tooling sales
of $139.8 million, which are typically dependent on the timing of
tooling construction and acceptance by the customer; and the impact
of foreign exchange on the translation of U.S. dollar-denominated
production sales, which had a positive impact on overall sales for
the year ended December 31, 2019 of approximately $68.6 million as
compared to the corresponding period of 2018. These positive
factors were partially offset by lower year-over-year OEM
production volumes on certain light-vehicle platforms, including
the Ford Escape, Jeep Wrangler and certain Nissan platforms, and
programs that ended production during or subsequent to the year
ended December 31, 2018. The UAW strike at General Motors, as
discussed above, negatively impacted production sales for the year
ended December 31, 2019 by approximately $85.0 million across
several platforms.
Sales for the year ended December 31, 2019 in
the Company’s Europe operating segment decreased by $41.7 million
or 5.8% to $672.1 million from $713.9 million for the year ended
December 31, 2018. The decrease can be attributed to lower
year-over-year production volumes on certain light-vehicle
platforms, in particular with Daimler and Jaguar Land Rover, and
including programs that ended production during or subsequent to
the year ended December 31, 2018; the impact of foreign exchange on
the translation of Euro-denominated production sales, which had a
negative impact on overall sales for the year ended December 31,
2019 of $15.4 million as compared to the corresponding period of
2018; and a $4.5 million decrease in tooling sales. These negative
factors were partially offset by the launch of new programs during
or subsequent to the year ended December 31, 2018, including new
aluminum engine blocks for Ford, Jaguar Land Rover and Volvo, and
an aluminum transmission for Volkswagen.
Sales for the year ended December 31, 2019 in
the Company’s Rest of the World operating segment decreased by $2.7
million or 2.0% to $132.7 million from $135.3 million for the year
ended December 31, 2018. The decrease was due to lower
year-over-year production volumes on the Ford Mondeo vehicle
platform in China; lower year-over-year production sales in the
Company’s operating facility in Brazil; and a $3.6 million negative
foreign exchange impact from the translation of foreign-denominated
production sales as compared to the corresponding period of 2018.
These negative factors were partially offset by higher
year-over-year production volumes on the Cadillac CT6 vehicle
platform in China; the ramp up of new aluminum structural
components work for Jaguar Land Rover in China, which began to ramp
up in 2018, but at significantly lower than expected volumes; and a
$0.3 million increase in tooling sales.
Overall tooling sales increased by $135.6
million to $404.8 million for the year ended December 31, 2019 from
$269.2 million for the year ended December 31, 2018.
GROSS
MARGIN |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended December 31, 2019 to three months ended December 31,
2018 comparison |
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2019 |
|
Three months ended December 31, 2018 |
$ Change |
% Change |
Gross margin |
$ |
129,921 |
|
$ |
134,567 |
|
(4,646 |
) |
(3.5 |
%) |
% of
Sales |
|
14.2 |
% |
|
14.5 |
% |
|
|
The gross margin percentage for the fourth
quarter of 2019 of 14.2% decreased as a percentage of sales by 0.3%
as compared to the gross margin percentage for the fourth quarter
of 2018 of 14.5%. The decrease in gross margin as a
percentage of sales was generally due to an increase in tooling
sales which typically earn low margins for the Company; the impact
of the UAW strike at General Motors, which resulted in a
significant amount of lost production sales during the month of
October, on the Company’s margin profile for the quarter; and
operational inefficiencies and other costs at certain other
facilities including upfront costs incurred in the preparation of
upcoming new programs and related to new business in the process of
being launched. These negative factors were partially offset by
productivity and efficiency improvements at certain operating
facilities, and an improvement in general sales mix including new
and replacement programs that launched, and old programs that ended
production, during or subsequent to the fourth quarter of 2018.
Year
ended December 31, 2019 to year ended December 31, 2018
comparison |
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
$ Change |
% Change |
Gross margin |
$ |
586,101 |
|
$ |
556,161 |
|
29,940 |
5.4 |
% |
% of
Sales |
|
15.2 |
% |
|
15.2 |
% |
|
|
The gross margin percentage for the year ended
December 31, 2019 of 15.2% was consistent year over year. Gross
margin percentage for the year ended December 31, 2019, as compared
to the year ended December 31, 2018, was positively impacted by
productivity and efficiency improvements at certain operating
facilities, and general sales mix including new and replacement
programs that launched, and old programs that ended production,
during or subsequent to the year ended December 31, 2018. These
positive factors were essentially offset by an increase in tooling
sales which typically earn low margins for the Company; the impact
of the UAW strike at General Motors, which resulted in
approximately six weeks of lost production sales during the months
of September and October, on the Company’s margin profile; and
operational inefficiencies and other costs at certain other
facilities including upfront costs incurred in preparation of
upcoming new programs and related to new business in the process of
being launched.
ADJUSTMENTS TO NET INCOME
Adjusted Net Income excludes certain unusual and
other items, as set out in the following tables and described in
the notes thereto. Management uses Adjusted Net Income as a
measurement of operating performance of the Company and believes
that, in conjunction with IFRS measures, it provides useful
information about the financial performance and condition of the
Company.
TABLE
A |
|
|
|
|
|
Three
months ended December 31, 2019 to three months ended December 31,
2018 comparison |
|
|
|
|
|
|
|
Three months ended |
|
Three months ended |
|
|
December 31, 2019 |
|
December 31, 2018 |
(a)-(b) |
|
(a) |
|
(b) |
Change |
|
|
|
|
|
NET INCOME (A) |
$51,153 |
|
|
$37,816 |
|
$13,337 |
|
|
|
|
|
|
Add Back - Unusual and Other Items: |
|
|
|
|
|
|
|
|
|
Loss on derivative instruments (1) |
|
12 |
|
|
|
448 |
|
|
(436 |
) |
Impairment of assets (3) |
|
- |
|
|
|
5,436 |
|
|
(5,436 |
) |
Restructuring costs (4) |
|
- |
|
|
|
2,073 |
|
|
(2,073 |
) |
|
|
|
|
|
|
|
|
|
|
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX |
$12 |
|
|
$7,957 |
|
($7,945 |
) |
|
|
|
|
|
Tax
impact of above items |
|
(2 |
) |
|
|
(1,933 |
) |
|
1,931 |
|
Adjustment to deferred tax asset in the United States (5) |
|
(17,329 |
) |
|
|
- |
|
|
(17,329 |
) |
|
|
|
|
|
|
|
|
|
|
TOTAL UNUSUAL AND OTHER ITEMS - AFTER TAX(B) |
($17,319 |
) |
|
$6,024 |
|
($23,343 |
) |
|
|
|
|
|
|
|
|
|
|
ADJUSTED NET INCOME (A + B) |
$33,834 |
|
|
$43,840 |
|
($10,006 |
) |
|
|
|
|
|
|
|
|
|
|
Number of
Shares Outstanding - Basic (‘000) |
|
81,267 |
|
|
|
85,829 |
|
|
Adjusted
Basic Net Earnings Per Share |
$0.42 |
|
|
$0.51 |
|
|
Number of
Shares Outstanding - Diluted (‘000) |
|
81,431 |
|
|
|
86,032 |
|
|
Adjusted
Diluted Net Earnings Per Share |
$0.42 |
|
|
$0.51 |
|
|
|
|
|
|
|
TABLE
B |
|
|
|
|
|
Year ended
December 31, 2019 to year ended December 31, 2018
comparison |
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
|
|
|
(a)-(b) |
|
(a) |
|
(b) |
Change |
|
|
|
|
|
NET INCOME (A) |
$181,221 |
|
|
$185,883 |
|
($4,662 |
) |
|
|
|
|
|
Add Back - Unusual and Other Items: |
|
|
|
|
|
|
|
|
|
Loss on derivative instruments (1) |
|
251 |
|
|
|
1,887 |
|
|
(1,636 |
) |
Net gain
in the Company’s operating facility in Brazil (2) |
|
(4,199 |
) |
|
|
- |
|
|
(4,199 |
) |
Impairment of assets (3) |
|
18,502 |
|
|
|
5,436 |
|
|
13,066 |
|
Restructuring costs (4) |
|
8,165 |
|
|
|
2,073 |
|
|
6,092 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX |
$22,719 |
|
|
$9,396 |
|
$13,323 |
|
|
|
|
|
|
Tax
impact of above items |
|
1,076 |
|
|
|
(2,113 |
) |
|
3,189 |
|
Adjustment to deferred tax asset in the United States (5) |
|
(17,329 |
) |
|
|
- |
|
|
(17,329 |
) |
|
|
|
|
|
|
|
|
|
|
TOTAL UNUSUAL AND OTHER ITEMS - AFTER TAX(B) |
$6,466 |
|
|
$7,283 |
|
($817 |
) |
|
|
|
|
|
ADJUSTED NET INCOME (A + B) |
$187,687 |
|
|
$193,166 |
|
($5,479 |
) |
|
|
|
|
|
Number of
Shares Outstanding - Basic (‘000) |
|
82,487 |
|
|
|
86,549 |
|
|
Adjusted
Basic Net Earnings Per Share |
$2.28 |
|
|
$2.23 |
|
|
Number of
Shares Outstanding - Diluted (‘000) |
|
82,639 |
|
|
|
86,988 |
|
|
Adjusted
Diluted Net Earnings Per Share |
$2.27 |
|
|
$2.22 |
|
|
|
|
|
|
|
(1)
Unrealized loss on derivative instruments
As further described in note 8 of the
consolidated financial statements for the year ended December 31,
2019 and later on in the MD&A under “Investments”, Martinrea
holds warrants in NanoXplore Inc., a publicly listed graphene
company on the TSX Venture Exchange under the ticker symbol GRA.
The warrants represent derivative instruments and are fair valued
at the end of each reporting period using the Black-Scholes-Merton
valuation model, with the change in fair value recorded through
profit or loss. As it relates to the warrants as at December 31,
2019, a loss of $0.01 million was recognized for the three months
ended December 31, 2019 (2018 - loss of $0.4 million), and a loss
of $0.3 million was recognized for the year ended December 31, 2019
(2018 - loss of $1.9 million), recorded in other finance expense
and added back to Adjusted Net Income.
(2) Net
gain in the Company’s operating facility in Brazil
Included in income for the year ended December 31, 2019 is a
non-recurring benefit recognized in the Company’s operating
facility in Brazil, included in the Rest of the World operating
segment. The benefit represents a $6.5 million recovery of
previously paid local social security taxes, partially offset by a
$2.3 million true-up of the facility’s claims and litigation
provision related to certain employee-related matters. The net
benefit, recognized in the third quarter, was recorded in selling,
general and administrative expenses.
(3)
Impairment of assets
During the second quarter of 2019, the Company
recorded impairment charges on property, plant and equipment,
right-of-use assets, intangible assets and inventories totaling
$18.5 million related to an operating facility in China included in
the Rest of the World operating segment. The impairment charges
resulted from lower OEM production volumes on certain light-vehicle
platforms being serviced by the facility, representing a
significant portion of the business, causing the Company to
complete an analysis of strategic alternatives. The impairment
charges were recorded where the carrying amount of the assets
exceeded their estimated recoverable amounts, including
consideration for where specific assets can be transferred to other
facilities.
During the fourth quarter of 2018, in
conjunction with General Motors’ (“GM”) announcement that it would
be closing its vehicle assembly facility in Oshawa, Ontario, the
Company recorded an impairment charge on property, plant and
equipment totaling $5.4 million related to a facility in Ajax,
Ontario (included in the North America operating segment) that the
Company was forced to close because the operation was entirely
dependent on GM’s facility in Oshawa. The impairment was
recorded where the carrying amount of the assets exceeded their
estimated recoverable amounts.
(4)
Restructuring costs
Additions to the restructuring accrual in 2019
totaled $8.2 million and represent employee-related severance
resulting from the rightsizing of operating facilities in Brazil
($6.2 million), Canada ($1.7 million) and China ($0.3 million)
during the second quarter.
Additions to the restructuring accrual during
2018 totaled $2.1 million and represent employee-related severance
payouts and lease termination costs resulting from the closure of
the operating facility in Ajax, Ontario, as described above.
(5)
Adjustment to deferred tax asset in the United
States
In light of recently updated Company-wide
business plans approved by the Board of Directors, and in
conjunction with the Company’s recent financial performance, the
Company recognized additional deferred tax assets related to
operations in the U.S. as at December 31, 2019. The deferred tax
assets recognized at year-end reflect the majority of the full
value of the tax loss carryforwards available to the Company, with
a corresponding one-time, non-cash decrease in income tax expense
of $17.3 million, as the Company believes it is more likely than
not that these assets will be utilized before expiry.
NET
INCOME |
|
Three
months ended December 31, 2019 to three months ended December 31,
2018 comparison |
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2019 |
|
Three months ended December 31, 2018 |
$ Change |
% Change |
Net Income |
$ |
51,153 |
$ |
37,816 |
13,337 |
|
35.3 |
% |
Adjusted Net
Income |
$ |
33,834 |
$ |
43,840 |
(10,006 |
) |
(22.8 |
%) |
Net Earnings per
Share |
|
|
|
|
|
|
|
Basic and Diluted |
$ |
0.63 |
$ |
0.44 |
|
|
Adjusted Net
Earnings per Share |
|
|
|
|
|
|
|
Basic
and Diluted |
$ |
0.42 |
$ |
0.51 |
|
|
Net income for the fourth quarter of 2019
increased by $13.3 million to $51.2 million from $37.8 million for
the fourth quarter of 2018 largely as a result of the adjustment to
the Company’s deferred tax asset in the U.S. recorded in the fourth
quarter of 2019, as explained in Table A under “Adjustments to Net
Income”. Excluding all unusual and other items as explained
in Table A under “Adjustments to Net Income”, adjusted net income
for the fourth quarter of 2019 decreased to $33.8 million or $0.42
per share, on a basic and diluted basis, from $43.8 million or
$0.51 per share, on a basic and diluted basis, for the fourth
quarter of 2018.
Adjusted Net Income for the fourth quarter of
2019, as compared to the fourth quarter of 2018, was negatively
impacted by the following:
- lower gross profit on lower year-over-year production sales due
in large part to the UAW strike at General Motors, as previously
explained;
- a year-over-year increase in depreciation expense due in large
part to the adoption of IFRS 16;
- a year-over-year increase in research and development costs due
to increased new product and process research and development
activity and an increase in program-related development cost
amortization;
- a year-over-year increase in SG&A expense as previously
discussed;
- a year-over-year increase in finance expense primarily as a
result of interest on lease liabilities as a result of the adoption
of IFRS 16; and
- the Company’s share of loss of an associate in the amount of
$0.7 million.
These negative factors were partially offset by
the following:
- a lower effective tax rate on adjusted income due generally to
the mix of earnings (21.0% for the fourth quarter of 2019 compared
to 25.0% for the fourth quarter of 2018);
- lower operating rent expense due to the adoption of IFRS 16,
generally replaced by increases in finance and depreciation
expenses; and
- a net foreign exchange gain of $0.4 million for the fourth
quarter of 2019 compared to a net foreign exchange loss of $0.1
million for the fourth quarter of 2018.
Year ended
December 31, 2019 to year ended December 31, 2018
comparison |
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019 |
|
Year ended December 31, 2018 |
$ Change |
% Change |
Net Income |
$ |
181,221 |
$ |
185,883 |
(4,662 |
) |
(2.5 |
%) |
Adjusted Net Income |
$ |
187,687 |
$ |
193,166 |
(5,479 |
) |
(2.8 |
%) |
Net Earnings per Share |
|
|
|
|
|
|
Basic |
$ |
2.20 |
$ |
2.15 |
|
|
Diluted |
$ |
2.19 |
$ |
2.14 |
|
|
Adjusted Net Earnings per
Share |
|
|
|
|
|
|
Basic |
$ |
2.28 |
$ |
2.23 |
|
|
Diluted |
$ |
2.27 |
$ |
2.22 |
|
|
Net Income for the year ended December 31, 2019
was generally consistent year-over-year decreasing slightly by $4.7
million to $181.2 million from $185.9 million for the year ended
December 31, 2018. Excluding the unusual and other items as
explained in Table B under “Adjustments to Net Income”, adjusted
net income for the year ended December 31, 2019 was $187.7 million
or $2.28 per share, on a basic basis, and $2.27 on a diluted basis,
compared to $193.2 million or $2.23 per share, on a basic basis,
and $2.22 per share on a diluted basis, for the year ended December
31, 2018.
Adjusted Net Income for the year ended December
31, 2019, as compared to the year ended December 31, 2018, was
negatively impacted by the following:
- a year-over-year increase in depreciation expense due in large
part to the adoption of IFRS 16;
- a year-over-year increase in research and development costs due
to increased new product and process research and development
activity and an increase in program-related development cost
amortization;
- a year-over-year increase in SG&A expense as previously
discussed;
- a year-over-year increase in finance expense due largely to
interest on lease liabilities as a result of the adoption of IFRS
16; and
- the Company’s share of loss of an associate in the amount of
$2.0 million.
These negative factors were partially offset by
the following:
- a higher gross profit on increased year-over year sales as
previously explained;
- a $0.9 million gain on the disposal of property, plant and
equipment for the year ended December 31, 2019 compared to a loss
of $0.5 million for the comparative period of 2018;
- lower operating rent expense due to the adoption of IFRS 16,
generally replaced by increases in finance and depreciation
expenses; and
- a lower effective tax rate on adjusted income due generally to
the mix of earnings (24.2% for the year ended December 31, 2019
compared to 24.6% for the year ended December 31, 2018).
DIVIDEND
A cash dividend of $0.05 per share has been
declared by the Board of Directors payable to shareholders of
record on March 31, 2020, on or about April 15, 2020.
ABOUT MARTINREA
Martinrea is a leader in the development and
production of quality metal parts, assemblies and modules, fluid
management systems, and complex aluminum products focused primarily
on the automotive sector. Martinrea currently employs
approximately 17,000 talented and motivated people 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. The Company’s mission is to make people’s
lives better by: delivering outstanding quality products and
services to our customers; providing meaningful opportunity, job
satisfaction, and job security for our people; providing superior
long-term investment returns to our stakeholders; and being
positive contributors to our communities. 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, March 5, 2020 at 5:30 p.m.
(Toronto time) which can be accessed by dialing 416-340-2218
(international: 001-416-340-2218) 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 (international: 001-905-694-9451)
or toll free 800-408-3053 (conference id – 9375976#). The
rebroadcast will be available until April 4, 2020.
FORWARD-LOOKING INFORMATION
Special Note Regarding Forward-Looking
Statements
This press release contains forward-looking
statements within the meaning of applicable Canadian securities
laws including statements related to the growth or expectations of,
improvements in, expansion of and/or guidance or outlook as to
future revenue, sales, margin, gross margin, earnings, and earnings
per share (including as adjusted), adjusted net earnings per share,
operating income margins, operating margins, adjusted 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 in 2020 and beyond, the ramping up and launching
of new programs and the expected financial impact of launches and
other new programs, the expectation of 2020 being a very good year,
pursuit of its strategies (including investing in the business,
strategic investments and acquisitions), the payment of dividends,
statements regarding the USMCA and tariffs, the effects and impact
of the coronavirus, the uncertainty of 2020 production volumes, the
ability to grow business and serve customers, the benefit of
expected revenues from and integration of the assets acquired from
Metalsa, the intention to purchase under the Normal Course Issuer
Bid 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 www.sedar.com:
- North American and global economic and political conditions and
epidemics or pandemics;
- the highly cyclical nature of the automotive industry and the
industry’s dependence on consumer spending and general economic
conditions;
- the Company’s dependence on a limited number of significant
customers;
- financial viability of suppliers;
- the Company’s reliance on critical suppliers and on suppliers
for components and the risk that suppliers will not be able to
supply components on a timely basis or in sufficient
quantities;
- competition;
- the increasing pressure on the Company to absorb costs related
to product design and development, engineering, program management,
prototypes, validation and tooling;
- increased pricing of raw materials and commodities;
- outsourcing and insourcing trends;
- the risk of increased costs associated with product warranty
and recalls together with the associated liability;
- product development and technological change;
- the Company’s ability to enhance operations and manufacturing
techniques;
- dependence on key personnel;
- limited financial resources/uncertainty of future
financing/banking;
- risks associated with the integration of acquisitions;
- risks associated with private or public investment in
technology companies;
- the risks associated with joint ventures;
- costs associated with rationalization of production
facilities;
- launch and operational costs;
- labour relations matters;
- trade restrictions;
- changes in governmental regulations or laws including any
changes to trade;
- litigation and regulatory compliance and investigations;
- quote and pricing assumptions;
- currency risk;
- fluctuations in operating results;
- internal controls over financial reporting and disclosure
controls and procedures;
- environmental regulation and climate change;
- the impact of climate, political, social and economic risks,
natural disasters and pandemics in the countries in which we
operate or sell to, or from which we source production;
- a shift away from technologies in which the Company is
investing;
- competition with low cost countries;
- the Company’s ability to shift its manufacturing footprint to
take advantage of opportunities in emerging markets;
- risks of conducting business in foreign countries, including
China, Brazil and other markets;
- potential tax exposures;
- a change in the Company’s mix of earnings between jurisdictions
with lower tax rates and those with higher tax rates, as well as
the Company’s ability to fully benefit from tax losses;
- under-funding of pension plans;
- the cost of post-employment benefits;
- impairment charges;
- cybersecurity threats;
- the potential volatility of the Company’s share price; and
- dividends.
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
Martinrea International Inc. |
|
Consolidated Balance Sheets |
|
(in thousands of Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note |
|
December 31, 2019 |
|
December 31, 2018 |
ASSETS |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
118,973 |
$ |
70,162 |
Trade and other
receivables |
3 |
|
560,976 |
|
597,796 |
Inventories |
4 |
|
383,682 |
|
492,759 |
Prepaid expenses and
deposits |
|
|
25,846 |
|
23,275 |
Income taxes recoverable |
|
|
16,783 |
|
21,301 |
TOTAL CURRENT ASSETS |
|
|
1,106,260 |
|
1,205,293 |
Property, plant and
equipment |
5 |
|
1,541,895 |
|
1,481,452 |
Right-of-use assets |
6 |
|
188,378 |
|
- |
Deferred tax assets |
15 |
|
165,890 |
|
145,354 |
Intangible assets |
7 |
|
54,787 |
|
70,931 |
Investments |
8 |
|
37,085 |
|
10,781 |
TOTAL NON-CURRENT ASSETS |
|
|
1,988,035 |
|
1,708,518 |
TOTAL ASSETS |
|
$ |
3,094,295 |
$ |
2,913,811 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Trade and other payables |
10 |
$ |
728,787 |
$ |
862,699 |
Provisions |
11 |
|
8,584 |
|
5,393 |
Income taxes payable |
|
|
7,477 |
|
7,816 |
Current portion of long-term
debt |
12 |
|
15,651 |
|
16,804 |
Current
portion of lease liabilities |
13 |
|
28,247 |
|
- |
TOTAL CURRENT LIABILITIES |
|
|
788,746 |
|
892,712 |
Long-term debt |
12 |
|
765,922 |
|
723,913 |
Lease liabilities |
13 |
|
174,105 |
|
- |
Pension and other
post-retirement benefits |
14 |
|
63,789 |
|
61,267 |
Deferred tax liabilities |
15 |
|
83,310 |
|
84,370 |
TOTAL NON-CURRENT LIABILITIES |
|
|
1,087,126 |
|
869,550 |
TOTAL LIABILITIES |
|
|
1,875,872 |
|
1,762,262 |
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
Capital stock |
16 |
|
661,422 |
|
680,157 |
Contributed surplus |
|
|
42,449 |
|
42,016 |
Accumulated other
comprehensive income |
|
|
89,107 |
|
158,395 |
Retained earnings |
|
|
425,445 |
|
270,981 |
TOTAL EQUITY |
|
|
1,218,423 |
|
1,151,549 |
TOTAL LIABILITIES AND EQUITY |
|
$ |
3,094,295 |
$ |
2,913,811 |
|
|
|
|
|
|
Commitments and Contingencies (note 23)
Subsequent Event (note 27)
See accompanying notes to the consolidated financial
statements.
On behalf of the Board:
“Robert Wildeboer”
Director
“Terry Lyons”
Director
|
Martinrea International Inc. |
Consolidated Statements of Operations |
(in thousands of Canadian dollars, except per share
amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
Note |
|
December 31, 2019 |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
SALES |
|
$ |
3,863,659 |
|
$ |
3,662,900 |
|
|
|
|
|
|
|
Cost of sales (excluding
depreciation of property, plant and equipment and right-of-use
assets) |
|
|
(3,090,966 |
) |
|
(2,954,142 |
) |
Depreciation of property, plant and equipment and right-of-use
assets (production) |
|
|
(186,592 |
) |
|
(152,597 |
) |
Total
cost of sales |
|
|
(3,277,558 |
) |
|
(3,106,739 |
) |
GROSS MARGIN |
|
|
586,101 |
|
|
556,161 |
|
|
|
|
|
|
|
Research and development
costs |
18 |
|
(38,035 |
) |
|
(26,564 |
) |
Selling, general and
administrative |
|
|
(239,683 |
) |
|
(232,313 |
) |
Depreciation of property,
plant and equipment and right-of-use assets (non-production) |
|
|
(14,729 |
) |
|
(10,701 |
) |
Amortization of customer
contracts and relationships |
|
|
(2,082 |
) |
|
(2,140 |
) |
Gain (loss) on disposal of
property, plant and equipment |
|
|
932 |
|
|
(462 |
) |
Impairment of assets |
9 |
|
(18,502 |
) |
|
(5,436 |
) |
Restructuring costs |
11 |
|
(8,165 |
) |
|
(2,073 |
) |
OPERATING INCOME |
|
|
265,837 |
|
|
276,472 |
|
|
|
|
|
|
|
Share of loss of an
associate |
8 |
|
(2,009 |
) |
|
- |
|
Finance expense |
20 |
|
(37,997 |
) |
|
(27,358 |
) |
Other
finance expense |
20 |
|
(786 |
) |
|
(2,288 |
) |
INCOME BEFORE INCOME
TAXES |
|
|
225,045 |
|
|
246,826 |
|
|
|
|
|
|
|
Income
tax expense |
15 |
|
(43,824 |
) |
|
(60,943 |
) |
NET INCOME FOR THE PERIOD |
|
$ |
181,221 |
|
$ |
185,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
17 |
$ |
2.20 |
|
$ |
2.15 |
|
Diluted
earnings per share |
17 |
$ |
2.19 |
|
$ |
2.14 |
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
|
Martinrea
International Inc. |
Consolidated
Statements of Comprehensive Income |
(in thousands of
Canadian dollars) |
|
|
|
|
|
|
|
|
Year ended |
|
|
Year ended |
|
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
|
|
|
|
|
NET INCOME FOR THE
PERIOD |
$ |
181,221 |
|
$ |
185,883 |
|
Other comprehensive
income (loss), net of tax: |
|
|
|
|
Items that may be reclassified to net income |
|
|
|
|
Foreign currency translation differences for foreign
operations |
|
(69,195 |
) |
|
72,610 |
|
Cash flow hedging derivative and non-derivative financial
instruments: |
|
|
|
|
Unrealized gain (loss) in fair value of financial instruments |
|
3,735 |
|
|
(6,036 |
) |
Reclassification of loss to net income |
|
1,288 |
|
|
420 |
|
Items that will not be reclassified to net
income |
|
|
|
|
Change in fair value of investments |
|
(776 |
) |
|
(2,867 |
) |
Transfer of unrealized gain on investments to retained earnings on
change in accounting method (note 8) |
|
(4,314 |
) |
|
- |
|
Share of other comprehensive loss of an associate |
|
(26 |
) |
|
- |
|
Remeasurement of defined benefit plans |
|
(3,781 |
) |
|
4,079 |
|
Other comprehensive income (loss), net of tax |
|
(73,069 |
) |
|
68,206 |
|
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD |
$ |
108,152 |
|
$ |
254,089 |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
|
Martinrea
International Inc. |
Consolidated
Statements of Changes in Equity |
(in thousands of
Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
|
|
|
|
|
|
Contributed |
|
|
comprehensive |
|
|
Retained |
|
|
|
|
|
|
Capital stock |
|
|
surplus |
|
|
income |
|
|
earnings |
|
|
Total equity |
|
BALANCE AT DECEMBER 31, 2017 |
$ |
713,425 |
|
$ |
41,981 |
|
$ |
94,268 |
|
$ |
108,825 |
|
$ |
958,499 |
|
Net income for the period |
|
- |
|
|
- |
|
|
- |
|
|
185,883 |
|
|
185,883 |
|
Compensation expense related
to stock options |
|
- |
|
|
651 |
|
|
- |
|
|
- |
|
|
651 |
|
Dividends ($0.165 per
share) |
|
- |
|
|
- |
|
|
- |
|
|
(14,213 |
) |
|
(14,213 |
) |
Exercise of employee stock
options |
|
2,523 |
|
|
(616 |
) |
|
- |
|
|
- |
|
|
1,907 |
|
Repurchase of common
shares |
|
(17,699 |
) |
|
- |
|
|
- |
|
|
(7,814 |
) |
|
(25,513 |
) |
Estimated repurchase of common
shares subsequent to year-end under an automatic share
repurchase program with a broker |
|
(18,092 |
) |
|
- |
|
|
- |
|
|
(5,779 |
) |
|
(23,871 |
) |
Other comprehensive income
(loss) net of tax |
|
|
|
|
|
|
|
|
|
|
Remeasurement of defined benefit plans |
|
- |
|
|
- |
|
|
- |
|
|
4,079 |
|
|
4,079 |
|
Foreign currency translation differences |
|
- |
|
|
- |
|
|
72,610 |
|
|
- |
|
|
72,610 |
|
Change in fair value of investments |
|
- |
|
|
- |
|
|
(2,867 |
) |
|
- |
|
|
(2,867 |
) |
Cash flow hedging derivative and non-derivative financial
instruments: |
|
|
|
|
|
|
|
|
|
|
Unrealized loss in fair value of financial instruments |
|
- |
|
|
- |
|
|
(6,036 |
) |
|
- |
|
|
(6,036 |
) |
Reclassification of loss to net income |
|
- |
|
|
- |
|
|
420 |
|
|
- |
|
|
420 |
|
BALANCE AT DECEMBER 31, 2018 |
|
680,157 |
|
|
42,016 |
|
|
158,395 |
|
|
270,981 |
|
|
1,151,549 |
|
Net income for the period |
|
- |
|
|
- |
|
|
- |
|
|
181,221 |
|
|
181,221 |
|
Compensation expense related
to stock options |
|
- |
|
|
1,195 |
|
|
- |
|
|
- |
|
|
1,195 |
|
Dividends ($0.18 per
share) |
|
- |
|
|
- |
|
|
- |
|
|
(14,738 |
) |
|
(14,738 |
) |
Exercise of employee stock
options |
|
2,681 |
|
|
(762 |
) |
|
- |
|
|
- |
|
|
1,919 |
|
Repurchase of common
shares |
|
(21,416 |
) |
|
- |
|
|
- |
|
|
(12,552 |
) |
|
(33,968 |
) |
Other comprehensive income
(loss) net of tax |
|
|
|
|
|
|
|
|
|
|
Remeasurement of defined benefit plans |
|
- |
|
|
- |
|
|
- |
|
|
(3,781 |
) |
|
(3,781 |
) |
Foreign currency translation differences |
|
- |
|
|
- |
|
|
(69,195 |
) |
|
- |
|
|
(69,195 |
) |
Change in fair value of investments |
|
- |
|
|
- |
|
|
(776 |
) |
|
- |
|
|
(776 |
) |
Transfer of unrealized gain on investments to
retained earnings on change in accounting method (note 8) |
|
- |
|
|
- |
|
|
(4,314 |
) |
|
4,314 |
|
|
- |
|
Share of other comprehensive loss of an associate |
|
- |
|
|
- |
|
|
(26 |
) |
|
- |
|
|
(26 |
) |
Cash flow hedging derivative and non-derivative financial
instruments: |
|
|
|
|
|
|
|
|
|
|
Unrealized gain in fair value of financial instruments |
|
- |
|
|
- |
|
|
3,735 |
|
|
- |
|
|
3,735 |
|
Reclassification of loss to net income |
|
- |
|
|
- |
|
|
1,288 |
|
|
- |
|
|
1,288 |
|
BALANCE AT DECEMBER 31, 2019 |
$ |
661,422 |
|
$ |
42,449 |
|
$ |
89,107 |
|
$ |
425,445 |
|
$ |
1,218,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial
statements.
|
Martinrea
International Inc. |
Consolidated
Statements of Cash Flows |
(in thousands of
Canadian dollars) |
|
|
|
|
Year ended |
|
|
Year ended |
|
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
CASH
PROVIDED BY (USED IN): |
|
|
|
|
OPERATING
ACTIVITIES: |
|
|
|
|
Net Income for the
period |
$ |
181,221 |
|
$ |
185,883 |
|
Adjustments
for: |
|
|
|
|
Depreciation of property, plant and equipment and right-of-use
assets |
|
201,321 |
|
|
163,298 |
|
Amortization of customer contracts and relationships |
|
2,082 |
|
|
2,140 |
|
Amortization of development costs |
|
13,779 |
|
|
11,342 |
|
Impairment of assets (note 9) |
|
18,502 |
|
|
5,436 |
|
Unrealized gain on foreign exchange forward contracts |
|
(418 |
) |
|
(66 |
) |
Loss on warrants (note 8) |
|
251 |
|
|
1,887 |
|
Finance expense (including interest on lease liabilities) |
|
37,997 |
|
|
27,358 |
|
Income tax expense |
|
43,824 |
|
|
60,943 |
|
Loss (gain) on disposal of property, plant and equipment |
|
(932 |
) |
|
462 |
|
Deferred and restricted share units expense |
|
8,224 |
|
|
2,454 |
|
Stock options expense |
|
1,195 |
|
|
651 |
|
Share of loss of an associate |
|
2,009 |
|
|
- |
|
Pension and other post-retirement benefits expense |
|
4,140 |
|
|
4,066 |
|
Contributions made to pension and other post-retirement
benefits |
|
(4,751 |
) |
|
(4,842 |
) |
|
|
508,444 |
|
|
461,012 |
|
Changes in
non-cash working capital items: |
|
|
|
|
Trade and other receivables |
|
12,824 |
|
|
(7,550 |
) |
Inventories |
|
70,085 |
|
|
(91,590 |
) |
Prepaid expenses and deposits |
|
(3,700 |
) |
|
(6,964 |
) |
Trade, other payables and provisions |
|
(80,492 |
) |
|
69,352 |
|
|
|
507,161 |
|
|
424,260 |
|
Interest paid |
|
(41,916 |
) |
|
(30,855 |
) |
Income taxes paid |
|
(63,698 |
) |
|
(96,703 |
) |
NET CASH PROVIDED BY OPERATING ACTIVITIES |
$ |
401,547 |
|
$ |
296,702 |
|
|
|
|
|
|
FINANCING
ACTIVITIES: |
|
|
|
|
Increase in long-term debt (net of addition to deferred financing
fees) |
|
91,449 |
|
|
114,496 |
|
Repayment of long-term debt |
|
(30,575 |
) |
|
(57,710 |
) |
Principal payments of lease liabilities |
|
(27,898 |
) |
|
- |
|
Dividends paid |
|
(14,943 |
) |
|
(12,999 |
) |
Exercise of employee stock options |
|
1,919 |
|
|
1,907 |
|
Repurchase of common shares |
|
(57,841 |
) |
|
(25,513 |
) |
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES |
$ |
(37,889 |
) |
$ |
20,181 |
|
|
|
|
|
|
INVESTING
ACTIVITIES: |
|
|
|
|
Purchase of property, plant and equipment (excluding capitalized
interest)* |
|
(284,011 |
) |
|
(309,049 |
) |
Capitalized development costs |
|
(10,747 |
) |
|
(14,171 |
) |
Investment in NanoXplore Inc. (note 8) |
|
(29,477 |
) |
|
(680 |
) |
Proceeds on disposal of property, plant and equipment |
|
6,166 |
|
|
1,577 |
|
Upfront recovery of development costs incurred |
|
5,563 |
|
|
2,566 |
|
NET CASH USED IN INVESTING ACTIVITIES |
$ |
(312,506 |
) |
$ |
(319,757 |
) |
|
|
|
|
|
Effect
of foreign exchange rate changes on cash and cash equivalents |
|
(2,341 |
) |
|
1,843 |
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS |
|
48,811 |
|
|
(1,031 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD |
|
70,162 |
|
|
71,193 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ |
118,973 |
|
$ |
70,162 |
|
|
|
|
|
|
|
|
*As at December 31, 2019, $49,120 (December 31, 2018 - $45,341)
of purchases of property, plant and equipment remain unpaid and are
recorded in trade and other payables and provisions.
See accompanying notes to the consolidated financial
statements.
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