Martinrea International Inc. Releases Third Quarter Results: Growing Revenues and Profitability and Announces Commencement of Normal Course Issuer Bid

Marketwired

TORONTO, ONTARIO--(Marketwire -11/14/11)- Martinrea International Inc. (TSX: MRE.TO - News), a leader in the production of quality metal parts, assemblies and modules and fluid management systems focused primarily on the automotive sector, announced today the release of its financial results for the third quarter ended September 30, 2011. Martinrea also announced today that it is commencing a normal course issuer bid for up to 4,161,317 common shares of the Company, representing approximately up to 5% of Martinrea's issued and outstanding common shares.

Martinrea currently employs over 10,000 skilled and motivated people in 37 plants in Canada, the United States, Mexico and Europe. 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 quarter ended September 30, 2011 ("MD&A") dated as of November 14, 2011, the Company's unaudited interim consolidated financial statements for the quarter ended September 30, 2011 (the "unaudited consolidated interim financial statements") and the Company's Annual Information Form for the financial year ended December 31, 2010, can be found at www.sedar.com.

Non-GAAP Measures

The Company now reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). However, the Company has included certain non-GAAP financial measures and ratios in this Press Release that the Company believes will provide useful information in measuring the financial performance and financial condition of the Company. These measures 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 the other financial measures determined in accordance with IFRS. Non-GAAP measures referred to in the analysis include "adjusted net earnings", and "adjusted earnings per share on a basic and diluted basis" and are defined in the Tables A and B under "Adjustments to Net Income" of this Press Release.

Results of Operations

The comparative amounts in the analysis below have been adjusted to reflect the impact from the Company's transition to IFRS effective January 1, 2010.

 

REVENUE

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                     Three months         Three months
                  ended September      ended September
                         30, 2011             30, 2010     Change   % Change
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North America    $        440,773    $         394,477     46,296      11.7%
Europe                    113,873                  610    113,263          -
Rest of World              17,690                    -     17,690          -
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Revenue          $        572,336    $         395,087    177,249      44.9%
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Third Quarter 2011 to Third Quarter 2010 comparison

The Company's revenues for the third quarter of 2011 increased by $177.2 million or 44.9% to $572.3 million as compared to $395.1 million for the third quarter of 2010. The increase was primarily due to $146.6 million in incremental revenue resulting from the inclusion of Honsel in the consolidated financial results of the Company effective July 29, 2011, which led to sales in both the Company's Europe and Rest of World operating segments to increase significantly year-over-year. Included in the $46.3 million increase in revenue generated in North America was $15.5 million related to the operations of the Company's plant in Queretaro, Mexico which formed part of the Honsel acquisition. The remainder of the increase in revenue in North America was due to improved production volumes in North American light vehicle platforms, the launch of new programs during 2011 and an increase in tooling revenue relating to upcoming new programs which is typically dependent on the timing of tooling construction and final inspection and acceptance by the customer.

Tooling revenue increased by $15.6 million from $20.7 million for the third quarter of 2010 to $36.3 million for the third quarter of 2011, $6.7 million of which was generated by the acquired assets of Honsel.

The overall increase in revenue in the third quarter of 2011 as compared to the third quarter of 2010 would have been higher had it not been negatively impacted by a reduction in the translation of U.S. dollar denominated revenue of approximately $19.3 million.

 

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                       Three months     Three months
                    ended September       ended June
                           30, 2011         30, 2011     Change   % Change
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North America    $          440,773   $      473,723    (32,950)      (7.0%)
Europe                      113,873              864    113,009          -
Rest of World                17,690                -     17,690          -
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Revenue          $          572,336   $      474,587     97,749       20.6%
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Third Quarter 2011 to Second Quarter 2011 comparison

The Company's revenues for the third quarter of 2011 increased by $97.7 million or 20.6% to $572.3 million as compared to $474.6 million for the second quarter of 2011. Revenue for the third quarter of 2011 was positively impacted by $146.6 million in incremental revenue resulting from the inclusion of Honsel in the consolidated financial results of the Company effective July 29, 2011, which led to sales in both the Company's Europe and Rest of World operating segments to increase significantly quarter-over-quarter. Included in revenue generated in North America for the three months ended September 30, 2011 was $15.5 million related to the operations of the Company's plant in Queretaro, Mexico which formed part of the Honsel acquisition. Excluding the revenue generated by the Company's plant in Queretaro, Mexico, North American revenue would have decreased by $48.5 million. The decrease in North American revenue was predominantly due to the seasonal softness in production volumes in North American light vehicle platforms and a decrease in tooling revenue of approximately $9.7 million. North American light vehicle production volumes are typically lower during the third quarter of any given year due to customer summer shutdowns common to the automotive industry. The Company experienced quarter-over-quarter decreases in revenue on several North American vehicle platforms, the most significant of which include Chevrolet Equinox, Chrysler Challenger/Charger, Chevrolet Cruze, GM Pick ups, Dodge Ram, Ford Fusion and Fiat 500.

Tooling revenue decreased by $3.0 million from $39.3 million for the second quarter of 2010 to $36.3 million for the third quarter of 2011, $6.7 million of which was generated by the acquired assets of Honsel.

The overall increase in revenue in the third quarter of 2011 as compared to the second quarter of 2011 would have been lower had it not been positively impacted by an increase in the translation of U.S. dollar denominated revenue of approximately $1.3 million.

 

GROSS MARGIN

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                      Three months         Three months
                   ended September      ended September
                          30, 2011             30, 2010    Change  % Change
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Gross margin    $           62,339     $         38,119    24,220      63.5%
% of revenue                  10.9%                 9.6%
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Third Quarter 2011 to Third Quarter 2010 comparison

The gross margin percentage for the third quarter of 2011 of 10.9% increased by 1.3% as compared to the gross margin percentage for the third quarter of 2010 of 9.6%. Excluding the one time items recorded as cost of sales in the third quarter of 2010 as explained in Table A under "Adjustments to Net Income", the gross margin percentage for the third quarter of 2011 increased to 10.9% from 9.7% for the third quarter of 2010. The Company's gross margin for the third quarter of 2011 was positively impacted by the addition of the acquired operations of Honsel. Excluding the operations of Honsel, Martinrea's gross margin percentage for the third quarter of 2011 would have been 9.5%, a slight decrease over the third quarter of 2010, on account of a significant increase in tooling revenue, which typically earns low or no margins for the Company, $0.7 million of pre-operating costs at the Company's new facility in Silao, Mexico and an increase in launch activity during the quarter predominantly at the Company's Shelbyville, Kentucky facility which negatively impacted earnings and gross margin during the quarter by approximately $1.8 million. Excluding these items and the negative impact tooling revenue has on gross margin percentage, the Company's gross margin percentage for the third quarter of 2011, without Honsel, would have been approximately 10.7% on account of higher North American light vehicle production volumes.

The Company's Shelbyville facility, approximating one million square feet, represents about 20% of the Company's square footage in North America and presently has a revenue run rate of about $50 million per year. A total of approximately $200 million in anticipated business related to Ford's C520 program is expected to launch at this facility in early 2012. The new work, when launched, will greatly expand throughput and capacity utilization at Shelbyville, and is expected to turn a very large plant with negative gross margin and earnings and current ramp up costs into a positive gross margin and earnings contributor by the Spring of 2012. This Ford C520 business consists of approximately $100 million in value added internally produced components and $100 million in components purchased from other suppliers that will be integrated with internally produced components to produce finished welded assemblies. The gross margins on components purchased from other suppliers are typically lower than for value added work, although return on capital is higher. After the launch of the Ford C520 program in Shelbyville, over 25% of Martinrea's business will involve integrator or assembly work.

 

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                      Three months        Three months
                   ended September          ended June
                          30, 2011            30, 2011    Change   % Change
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Gross margin   $            62,339     $        49,992    12,347       24.7%
% of revenue                  10.9%               10.5%
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Third Quarter 2011 to Second Quarter 2011 comparison

Gross margin percentage for the third quarter of 2011 of 10.9% increased by 0.4 % as compared to the gross margin percentage for the second quarter of 2011 of 10.5%. The Company's gross margin for the third quarter of 2011 was positively impacted by the addition of the acquired operations of Honsel. Excluding the operations of Honsel, Martinrea's gross margin percentage for the third quarter of 2011 would have been 9.5%, a decrease over the second quarter of 2010 as a result of lower absorption of overheads from the seasonal softness in production volumes in North American light vehicle platforms. As discussed above, the gross margin percentage for the third quarter of 2011 was further negatively impacted by pre-operating costs at the Company's new facility in Silao, Mexico which increased by $0.5 million quarter-over-quarter and an increase in launch activity at the Company's Shelbyville, Kentucky facility, where the Company is currently ramping up for a significant program launch in early 2012 for Ford's C520 program, which negatively impacted earnings and gross margin during the current quarter by approximately $1.8 million. Excluding these items and the negative impact tooling revenue has on gross margin percentage, the Company's gross margin percentage for the third quarter of 2011, without Honsel, would have been approximately 10.7%.

ADJUSTMENTS TO NET INCOME

(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

Results of operations during the third quarter ended September 30, 2011 and the 2010 comparative period include certain unusual items. The Company believes that it is useful to set out in detail these unusual and other items as they are non-recurring in nature and thus the Company's past financial results may not be indicative of future results.

 

TABLE A

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                       For the three         For the three
                       months ended           months ended
                       September 30,          September 30,
                           2011                   2010
                     ----------------------------------------------
                                 (a)   Canadian        IFRS     (b)  (a)-(b)
                               IFRS        GAAP  Adjustment   IFRS   Change
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NET EARNINGS (A)              6,454       5,746       1,251  6,997     (543)

Add back - Unusual
 Items:
Employee Related
 Severance Costs (1)          9,974         250           -    250    9,724
Other Restructuring
 Costs (2)                        -       5,223           -  5,223   (5,223)
Other Restructuring
 Costs - Period costs
 and pension expense
 recorded as cost of
 sales for facilities
 closed during
 restructuring (2)                -         307           -    307     (307)
Other Restructuring
 Costs - Period costs
 recorded as SG&A
 expense for
 facilities closed
 during restructuring
 (2)                              -         142           -    142     (142)

Add back - Other
 Items:
Transaction and
 integration costs
 associated with the
 acquisition of
 Honsel recorded as
 SG&A (3)                     6,728           -           -      -    6,728

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TOTAL UNUSUAL AND
 OTHER ITEMS BEFORE
 TAX                         16,702       5,922           -  5,922   10,780
Tax impact of above
 items (4)                      (51)     (1,530)          - (1,530)   1,479
Non-controlling
 Interest from impact
 of above items              (6,780)          -           -      -   (6,780)

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TOTAL UNUSUAL AND
 OTHER ITEMS AFTER
 TAX (B)                      9,871       4,392           -  4,392    5,479

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ADJUSTED NET EARNINGS
 (A + B)                     16,325      10,138       1,251 11,389    4,936
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Number of Shares
 Outstanding - Basic
 ('000)                      83,179                         83,326
Adjusted Basic
 Earnings Per Share            0.20                           0.14
Number of Shares
 Outstanding -
 Diluted ('000)              83,708                         84,279
Adjusted Diluted
 Earnings Per Share            0.20                           0.14

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TABLE B

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                                For the three    For the three
                                months ended      months ended
                                September 30,       June 30,
                                   2011               2011
                             -----------------------------------
                                                                       (a-b)
                                    (a)               (b)            Change
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NET EARNINGS (A) - Per IFRS             6,454            15,546      (9,092)

Add back - Unusual Items:
Employee Related Severance
 Costs (1)                              9,974                 -       9,974

Add back - Other Items:

Transactions and integration
 costs associated with the
 acquisition of Honsel
 recorded as SG&A (3)                   6,728             1,436       5,292
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TOTAL UNUSUAL AND OTHER ITEMS
 BEFORE TAX                            16,702             1,436      15,266
Tax impact of above items (4)             (51)             (359)        308
Non-controlling Interest from
 impact of above items                 (6,780)                -      (6,780)

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TOTAL UNUSUAL AND OTHER ITEMS
 AFTER TAX (B)                          9,871             1,077       8,794
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ADJUSTED NET EARNINGS (A + B)          16,325            16,623        (298)
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Number of Shares Outstanding
 - Basic ('000)                        83,179            83,276
Adjusted Basic Earnings Per
 Share                                   0.20              0.20
Number of Shares Outstanding
 - Diluted ('000)                      83,708            83,977
Adjusted Diluted Earnings Per
 Share                                   0.20              0.20

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1. Employee Related Severance

As part of the acquisition of Honsel, a certain level of restructuring was planned at the Company's German facility in Meschede. The restructuring efforts commenced immediately after the closing of the acquisition and, as a result, $10 million of employee related severance was recognized during the third quarter of 2011. The majority of the restructuring costs expected to be incurred will be in the nature of employee related severance as the Company rationalizes the overhead cost structure of the facility and improves the efficiency of the operations. The Company anticipates that additional employee related severance will be incurred at the facility over the course of the next twelve months.

During the third quarter of 2010, the Company incurred severance costs of $0.3 million relating primarily to cost cutting programs aimed at realigning and increasing the efficiency of the Company's operations.

2. Other Restructuring Costs

In response to the significant decline in vehicle production volumes beginning in 2008, the Company undertook certain initiatives to prepare for a profitable and sustainable future. In so doing, certain restructuring activities were executed throughout 2009 and 2010. These initiatives included strict cost reduction measures across the entire organization, consolidation and closure of certain facilities and the rationalization of excess capacity at certain facilities achieved by moving equipment and programs between facilities.

Other restructuring costs during the third quarter of 2010 relate primarily to the cessation of manufacturing operations at the Company's Windsor, Ontario facility on June 30, 2010. Other restructuring costs include directly attributable facility and right-sizing costs and costs relating to the dismantling and transportation of PP&E between the Company's facilities. At this time, the Company does not expect to incur any further significant restructuring costs with the exception of the funding of the Windsor pension and OPEB plans which the Company will continue to fund over the next two years, the windup of the Martinrea Fabco Hot Stampings pension plan at some point in the future and any restructuring required relating to the acquired assets of Honsel (as discussed above), which, at this point in time, the Company believes will be limited to employee related severance as the Company rationalizes the overhead cost structure and improves the efficiency of the operations in Meschede, Germany.

3. Transaction and Integration Costs Associated with the Acquisition of Honsel

On July 29, 2011, the Company closed the previously announced purchase of the assets of Honsel to form the Martinrea Honsel Group. Martinrea joined with Anchorage in the transaction and, consequently, owns 55% of the Martinrea Honsel Group with Anchorage owning the remaining 45%. The Company expensed $6.7 million in transaction and integration costs related to the acquisition during the third quarter of 2011.

4. Tax Impact of Adjustments

The tax impact of the above discussed adjustments to earnings for the third quarter of 2011 is negligible due to the majority of the transaction and integration costs being non-deductible for tax purposes and the fact that a deferred tax asset related to the losses created by the employee related severance incurred at the facility in Meschede, Germany did not meet the recognition criteria for accounting purposes.

INCOME TAXES

The effective income tax rate on pre-tax earnings was 47.3% for the third quarter of 2011 compared to 28.9% for the third quarter of 2010 and 28.7% for the second quarter of 2011. The effective income tax rate for the third quarter of 2011 increased predominantly as a result of the transaction and integration costs associated with the acquisition of Honsel, the majority of which are non-deductible for tax purposes, and an increase in losses not benefited in Europe, offset by a favourable mix of earnings and the expiration of a statute limitation period in North America during the quarter.

 

NET EARNINGS
(ATTIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

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                         Three months    Three months
                                ended           ended
                            September       September
                             30, 2011        30, 2010     Change  % Change
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Net Earnings            $       6,454   $       6,997       (543)     (7.8%)
Adjusted net earnings   $      16,325   $      11,389      4,936      43.3%
Earnings per common
 share
 Basic                  $        0.08   $        0.08
 Diluted                $        0.08   $        0.08
Adjusted earnings per
 common share
 Basic                  $        0.20   $        0.14
 Diluted                $        0.20   $        0.14
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Third Quarter 2011 to Third Quarter 2010 comparison

Net earnings for the third quarter of 2011 of $6.5 million decreased by $0.5 million from $7.0 million for the third quarter of 2010. Excluding one time items incurred during these two quarters as explained in Table A under "Adjustments to Net Income", the net earnings for the third quarter of 2011 improved to $16.3 million or $0.20 per share, on a basic and diluted basis, in comparison to adjusted net earnings of $11.4 million or $0.14 per share, on a basic and diluted basis, for the third quarter of 2010.

The adjusted net earnings for the third quarter of 2011 were positively impacted mainly by the addition of Honsel to the consolidated financial results of the Company and an increase in customer production volumes in North America. The positive impact was offset by an increase in launch activity during the quarter predominantly at the Company's Shelbyville, Kentucky facility and pre-operating costs at the Company's new facility in Silao, Mexico. Excluding these items, adjusted net earnings for the third quarter of 2011 would have been higher by approximately $1.7 million or $0.02 per share.

 

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                           Three months    Three months
                        ended September      ended June
                               30, 2011        30, 2011   Change  % Change
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Net Earnings          $           6,454   $      15,546   (9,092)    (58.5%)
Adjusted net
 earnings             $          16,325   $      16,623     (298)     (1.8%)
Earnings per common
 share
 Basic                $            0.08   $        0.19
 Diluted              $            0.08   $        0.19
Adjusted earnings
 per common share
 Basic                $            0.20   $        0.20
 Diluted              $            0.20   $        0.20
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Third Quarter 2011 to Second Quarter 2011 comparison

Net earnings for the third quarter of 2011 of $6.5 million decreased by $9.1 million from $15.5 million for the second quarter of 2011. Excluding one time items incurred during these two quarters as explained in Table B under "Adjustments to Net Income", the net earnings for the third quarter of 2011 remained consistent at $16.3 million or $0.20 per share, on a basic and diluted basis, in comparison to adjusted net earnings of $16.6 million or $0.20 per share, on a basic and diluted basis, for the second quarter of 2011.

The adjusted net earnings for the third quarter of 2011 were positively impacted by the addition of Honsel to the consolidated financial results of the Company. The positive impact was offset by a decrease in North American production revenues resulting from the seasonal softness in production volumes in North American light vehicle platforms. The Company's net earnings for the third quarter of 2011 were further negatively impacted by an increase in launch activity during the quarter predominantly at the Company's Shelbyville, Kentucky facility and pre-operating costs at the Company's new facility in Silao, Mexico. Excluding these items, adjusted net earnings for the third quarter of 2011 would have been higher by approximately $1.7 million or $0.02 per share.

 

CAPITAL EXPENDITURES

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                          Three months       Three months
                       ended September    ended September
                              30, 2011           30, 2010   Change % Change
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Capital Expenditures  $         47,889   $         23,121   24,768    107.1%
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Third Quarter 2011 to Third Quarter 2010 comparison

Capital expenditures increased by $24.8 million to $47.9 million in the third quarter of 2011 from $23.1 million in the third quarter of 2010. Capital expenditures incurred in the third quarter of 2011 are primarily related to the purchase of new program equipment in response to newly awarded business scheduled to launch over the next two years and capital for a new plant the Company will be opening in Silao, Mexico during 2011.

 

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                           Three months     Three months
                        ended September       ended June
                               30, 2011         30, 2011   Change  % Change
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Capital Expenditures   $         47,889   $       29,006   18,883      65.1%
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Third Quarter 2011 to Second Quarter 2011 comparison

Capital expenditures increased by $18.9 million from $29.0 million in the second quarter of 2011 to $47.9 million in the third quarter of 2011 mainly on account of general timing of capital expenditures and progress payments to capital suppliers. Capital expenditures incurred in both the quarters of 2011 are primarily related to the purchase of new program equipment in response to newly awarded business scheduled to launch over the next two years and capital for a new plant the Company will be opening in Silao, Mexico during 2011.

NORMAL COURSE ISSUER BID

Martinrea announced today that it is commencing a normal course issuer bid for up to 4,161,317 common shares of the Company, representing approximately up to 5% of Martinrea's issued and outstanding common shares.

Martinrea believes that repurchasing its shares may be a good use of funds, as it reduces dilution from stock issuances, distributes cash to shareholders and reflects its view that current share prices do not adequately reflect their value in relation to its business prospects.

The Company's normal course issuer bid is expected to commence on or about November 17, 2011 and terminate on November 16, 2012, unless earlier terminated by the Company. Common shares purchased under the normal course issuer bid will be cancelled. The price that Martinrea will pay for any such common shares will be the market price at the time of acquisition. Management of Martinrea will determine the actual number of common shares that may be purchased and the timing of any such purchases, subject to compliance with TSX rules. The maximum number of common shares that may be purchased on a daily basis, other than block purchase exceptions, will be 27,582 common shares. Martinrea has 83,226,350 common shares issued outstanding as at November 14, 2011. The bid has been approved by the TSX, and shall be effected through the facilities of the TSX.

In the preceding twelve-month period, the Company repurchased 778,000 common shares for a total consideration of approximately $5.66 million (or a volume weighted average price of $7.2786 per share).

Paradigm Capital Inc. will conduct the bid on behalf of the Company.

Nick Orlando, Martinrea's Chief Executive Officer, stated: "Our third quarter was a strong quarter for our company in many ways. We had record third quarter revenues, we were solidly profitable, and we successfully completed the acquisition of the aluminum manufacturing assets from Honsel AG in late July that I believe will prove to be our best acquisition to date. Our operations in North America are improving and we are getting ready for some major launches in 2012. After many years of building an infrastructure of plants throughout North America we are now ready to grow profit margins and generate cash flow that will enhance shareholder value. Our Martinrea Honsel operations have already been accretive for us, and the plants in Spain, Mexico and Brazil are already prospering since the acquisition. Our German based operations are profitable but they still require some work to enhance their competitive position. We are working with our people everywhere to turn Martinrea Honsel into a powerhouse for aluminum automotive parts. There is strong customer demand for our engine block, transmission castings and structural parts products and we are very excited. We have been actively quoting our aluminum products since the acquisition and we have already been awarded new business including a 2.3 litre engine block for Ford Europe ($25 million in 2014), incremental volume on the Chrysler Phoenix V6 engine block ($14 million in September 2012 that is installed on the Grand Cherokee, Chrysler Minivan and other Chrysler vehicles), and a cylinder head for Volvo's new VEP4 car engine program ($24 million in 2014).

Fred Di Tosto, Martinrea's Chief Financial Officer, stated: "Our record third quarter revenues of $572 million included approximately $147 million from the Martinrea Honsel assets, which also contributed to our adjusted earnings. In the quarter our earnings per share was $0.20, after factoring out Honsel related transaction and integration costs and severance provisions. Our third quarter results from the Martinrea Honsel assets were accretive to earnings, after factoring out these adjustments and amounted to approximately $0.06 of earnings per share for the quarter, a very strong contribution to the profitability of the Company by all accounts. In addition we continue to see some gross margin improvement in our North American operations on a year over year basis, which should improve further as we launch a significant amount of business in Shelbyville in the first quarter of next year, and as we start to fill our Silao facility. The new work at Shelbyville will greatly expand the capacity utilization and throughput of the plant, which represents over 20% of our factory space in North America. We did experience some launch costs at the Shelbyville facility and pre-operating costs in Silao which negatively impacted earnings in the quarter by $0.02 per share, but these should disappear over time. Gross margins at Martinrea Honsel were higher than gross margins in the pre-existing Martinrea operations, which shows we are off to a good start there, although there is some work to do in Germany. In our fourth quarter, which is approximately 50% complete, we anticipate revenues will settle between $660 million to $690 million, subject to the usual year end adjustments of our customers, and we believe our earnings per share after adjustments, which includes the Martinrea Honsel results, will range from $0.21-$0.25 per share."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "We are optimistic about our prospects with both our traditional business and our Martinrea Honsel operations. While at present there are many macroeconomic and political factors affecting our world and our markets, which have really affected investor confidence and market stock multiples and prices, the reality as we see it is that the automotive business is doing relatively well for us. North American volumes, which impact by far the bulk of our business, should hold steady or increase in 2012. The trend line in volume in general is up over time, for several reasons. For example, the present scrap rate still exceeds the sales rate; the average age of vehicles is significantly higher than in recent years; financing is generally available and at decent pricing; and production and sales volumes are still low by historical standards. In sum, there is pent up demand in the marketplace. These general trends support volume growth over time. At the same time, we have product to launch in 2012, especially at Shelbyville, which should help our revenues and throughput. We believe, based on where we sit today, that 2012 will be our best year to date by far from a financial point of view, subject to market conditions. Looking ahead to 2012, based on our assumptions of volumes, interest rates and our outlook, we are budgeting for consolidated revenues approaching $3 billion, and earnings, including our interest in Martinrea Honsel, should range somewhere between $1.05 and $1.25 per share, absent unusual items in each case. Capital expenditures at Martinrea without Martinrea Honsel, which were $47 million in our third quarter and will again be about $40 million in our fourth quarter, reflecting investment in plant and equipment, will likely return to an average of $20-25 million per quarter in 2012. Martinrea Honsel is well-financed by equity, and we anticipate most capital expenditures there will be financed from our present investment, cash flow and financing facilities to be put in place if needed for growth prospects. In 2013, we anticipate higher production sales; as well as improved gross margins and EBITDA margins across the board as the impact of higher throughput and efficiencies are felt, and we are anticipating in our budgets that our earnings per share for the year will grow to the $1.30 to $1.50 range, based on current assumptions.

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 related to the Company's expectations as to the financial impact of the new launch at the Shelbyville plant, gross margin percentage and expectations on future revenue, earnings per share and capital expenditures (including of Martinrea Honsel), the launching of new metal forming and fluid systems programs, anticipated growth in the automotive industry in emerging markets, future investments in leading edge technology, equipment and processes, the opportunity to increase sales, broad geographic penetration, and the nature and duration of the economic recession to the continuation of monitoring, managing and rationalization of expenses, the Company's expectations regarding the amount of restructuring expenses to be expensed (including of Martinrea Honsel), the Company's statements on operations and product launches, the Company's expectation regarding the financing of future capital expenditures, the Company's view on the financial viability of its customers, the Company's views on the long term outlook of the automotive industry and availability of credit for automotive purchases, and corresponding increased sales and production including the effect of the acquisition of Honsel AG assets, the Company's statements of its intention for growth over time, including of the Martinrea Honsel business, the Company's statement on the success of the Martinrea Honsel Acquisition and optimism for the future, the Company's ability to capitalize on opportunities in the automotive industry and the Company's statements regarding 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" 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. 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 be found at www.sedar.com:

 

--  North American and global economic and political conditions;
--  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,
    which have experienced and may continue to face severe financial
    challenges;
--  financial viability of suppliers;
--  Martinrea's reliance 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;
--  outsourcing and in-sourcing trends;
--  competition with low cost countries;
--  the risk of increased costs associated with product warranty and recalls
    together with the associated liability;
--  the Company's ability to enhance operations and manufacturing
    techniques;
--  dependence on key personnel;
--  limited financial resources;
--  risks associated with the integration of acquisitions including the
    assets of Honsel AG;
--  costs associated with rationalization of production facilities;
--  the potential volatility of the Company's share price;
--  changes in governmental regulations or laws including any changes to the
    North American Free Trade Agreement;
--  labour disputes;
--  litigation;
--  currency risk;
--  fluctuations in operating results;
--  internal controls over financial reporting and disclosure controls and
    procedures;
--  environmental regulation;
--  under-funding of pension plans; and
--  the cost of post-employment benefits.

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, except as required by law.

A conference call to discuss those results will be held on Tuesday, November 15, 2011 at 8:00 a.m. (Toronto time) which can be accessed by dialing 416-340-8410 or toll free 1-866-225-2055. Please call 10 minutes prior to the start of the conference call.

If you have any teleconferencing questions, please call Andre La Rosa at (416) 749-0314.

There will also be a rebroadcast of the call available by dialing 1-800-408-3053 (conference id 4555837#). The rebroadcast will be available until November 29, 2011.

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

 

Martinrea International Inc.
Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)

----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                      September    December
                                               Note    30, 2011    31, 2010
----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents                           $    56,004 $    26,027
Trade and other receivables                       3     428,845     250,404
Inventories                                       4     255,420     145,614
Prepaid expenses and deposits                            13,107       4,401
Income taxes recoverable                                  7,422       5,255
Current portion of promissory note                8       4,704       5,994
----------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                    765,502     437,695
----------------------------------------------------------------------------
Property, plant and equipment                     5     624,632     402,771
Deferred income tax assets                               77,101      68,088
Intangible assets                                 6      50,575      14,735
Promissory note                                   8       4,836       4,641
----------------------------------------------------------------------------
TOTAL NON-CURRENT ASSETS                                757,144     490,235
----------------------------------------------------------------------------
TOTAL ASSETS                                        $ 1,522,646 $   927,930
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES
Bank Indebtedness                                   $    13,359 $         -
Trade and other payables                          9     482,613     251,427
Provisions                                       10      14,139       4,339
Income taxes payable                                      4,301       5,627
Current portion of long-term debt                11      24,878      90,072
----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                               539,290     351,465
----------------------------------------------------------------------------
Long-term debt                                   11     241,304      13,062
Pension and other post-retirement benefits               42,951      44,108
Provisions                                       10      34,060           -
Deferred income tax liabilities                          45,955      30,187
----------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES                           364,270      87,357
----------------------------------------------------------------------------
TOTAL LIABILITIES                                       903,560     438,822
----------------------------------------------------------------------------

EQUITY
Share capital                                    14     677,362     682,495
Note receivable for share capital                14        (775)     (2,700)
Contributed surplus                              14      43,168      41,241
Accumulated other comprehensive income (loss)             6,491     (18,822)
Accumulated deficit                                    (181,169)   (214,028)
----------------------------------------------------------------------------
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF
 THE COMPANY                                            545,077     488,186
Non-controlling interest                                 74,009         922
----------------------------------------------------------------------------
TOTAL EQUITY                                            619,086     489,108
----------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                        $ 1,522,646 $   927,930
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements.

On behalf of the Board:

"Robert Wildeboer"      Director
--------------------------------

"Suleiman Rashid"       Director
--------------------------------

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

----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                   Three      Three
                                  months     months Nine months Nine months
                                   ended      ended       ended       ended
                               September  September   September   September
                         Note   30, 2011   30, 2010    30, 2011    30, 2010
----------------------------------------------------------------------------
                                          (Note 25)               (Note 25)
----------------------------------------------------------------------------
SALES                         $  572,336 $  395,087 $ 1,478,104 $ 1,194,959
----------------------------------------------------------------------------

Cost of sales (excluding
 depreciation of
 property, plant and
 equipment)                     (495,514)  (346,251) (1,288,240) (1,045,041)
Depreciation of
 property, plant and
 equipment (production)          (14,483)   (10,717)    (35,093)    (30,886)
----------------------------------------------------------------------------
Total cost of sales             (509,997)  (356,968) (1,323,333) (1,075,927)
----------------------------------------------------------------------------
GROSS MARGIN                      62,339     38,119     154,771     119,032
----------------------------------------------------------------------------

Research and development
 costs                     16     (2,732)    (1,547)     (7,022)     (4,769)
Selling, general and
 administrative                  (36,117)   (18,278)    (77,182)    (54,448)
Depreciation of
 property, plant and
 equipment (non-
 production)                      (1,008)      (735)     (2,522)     (2,038)
Amortization of customer
 contracts and
 relationships                    (2,018)    (1,137)     (4,178)     (3,408)
Net impairment charge on
 property, plant and
 equipment                  7          -          -           -        (437)
Restructuring and
 integration costs         19     (9,974)    (5,473)     (9,974)    (11,252)
Gain (loss) on disposal
 of property, plant and
 equipment                            71       (112)         67      10,492
----------------------------------------------------------------------------
OPERATING INCOME                  10,561     10,837      53,960      53,172
----------------------------------------------------------------------------

Finance costs                     (2,961)    (1,369)     (5,899)     (4,322)
Other finance income and
 expenses                  18        445        438       1,139         596
----------------------------------------------------------------------------
INCOME BEFORE INCOME
 TAXES                             8,045      9,906      49,200      49,446

Income tax expense         13     (3,807)    (2,859)    (15,538)    (12,390)
----------------------------------------------------------------------------
NET INCOME FOR THE
 PERIOD                            4,238      7,047      33,662      37,056
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Non-controlling interest           2,216        (50)      2,359         130
----------------------------------------------------------------------------
NET INCOME ATTRIBUTABLE
 TO EQUITY HOLDERS OF
 THE COMPANY                  $    6,454 $    6,997 $    36,021 $    37,186
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per share   15 $     0.08 $     0.08 $      0.43 $      0.45
Diluted earnings per
 share                     15 $     0.08 $     0.08 $      0.43 $      0.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements.

Martinrea International Inc.
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars) (unaudited)

----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                  Three      Three
                                 months     months  Nine months Nine months
                                  ended      ended        ended       ended
                              September  September    September   September
                               30, 2011   30, 2010     30, 2011    30, 2010
----------------------------------------------------------------------------
                                         (Note 25)                (Note 25)
NET INCOME FOR THE PERIOD    $    4,238 $    7,047  $    33,662 $    37,056
Other comprehensive income
 (loss), net of tax:
  Foreign currency
   translation differences
   for foreign operations        38,994    (10,488)      27,420      (8,323)
  Defined benefit plan
   actuarial losses              (3,720)    (4,972)      (3,892)    (12,018)
----------------------------------------------------------------------------
Other comprehensive income
 (loss), net of tax              35,274    (15,460)      23,528     (20,341)
----------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME
 (LOSS) FOR THE PERIOD           39,512     (8,413)      57,190      16,715
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Attributable to:
  Equity holders of the
   Company                       39,515     (8,219)      57,442      16,680
  Non-controlling interest           (3)      (194)        (252)         35
----------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME
 (LOSS) FOR THE PERIOD       $   39,512 $   (8,413) $    57,190 $    16,715
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements.

 


Martinrea International Inc.
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars) (unaudited)


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                              Equity attributable to equity holders of the
                                                Company

                                             Notes
                                        receivable               Cumulative
                                 Share   for share  Contributed translation
                               Capital     capital      Surplus     account
----------------------------------------------------------------------------
Balance at January 1, 2010 $   683,057 $    (2,700) $    37,393 $         -
Net Income for the period            -           -            -           -
Compensation expense
 related to stock options            -           -        2,818           -
Other comprehensive income
---------------------------
 Actuarial losses                    -           -            -           -
 Foreign currency
  translation differences            -           -            -      (8,323)
----------------------------------------------------------------------------
Balance at September 30,
 2010                          683,057      (2,700)      40,211      (8,323)
----------------------------------------------------------------------------

Net Income for the period            -           -            -           -
Compensation expense
 related to stock options            -           -        1,059           -
Exercise of employee stock
 options                           101           -          (29)          -
Repurchase of common shares       (663)          -            -           -
Other comprehensive income
---------------------------
 Actuarial gains                     -           -            -           -
 Foreign currency
  translation differences            -           -            -     (10,499)
----------------------------------------------------------------------------
Balance at December 31,
 2010                          682,495      (2,700)      41,241     (18,822)
----------------------------------------------------------------------------

Net Income for the period            -           -            -           -
Compensation expense
 related to stock options            -           -        1,967           -
Contribution from Minority
 Shareholder - Honsel
 acquisition                         -           -            -           -
Acquired non-controlling
 interest - Honsel
 acquisition                         -           -            -           -
Repayment of notes
 receivable                          -       1,925            -           -
Exercise of employee stock
 options                           499           -          (40)          -
Repurchase of common shares     (5,632)          -            -           -
Other comprehensive income
---------------------------
 Actuarial losses                    -           -            -           -
 Foreign currency
  translation differences            -           -            -      25,313
----------------------------------------------------------------------------
Balance at September 30,
 2011                      $   677,362 $      (775) $    43,168 $     6,491
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Martinrea International Inc.
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars) (unaudited)


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                             Equity attributable to equity holders of the
                                                Company


                                                           Non-
                           Accumulated              controlling       Total
                               deficit        Total    interest      equity
----------------------------------------------------------------------------
Balance at January 1, 2010 $  (263,415) $   454,335 $     1,259 $   455,594
Net Income for the period       37,186       37,186        (130)     37,056
Compensation expense
 related to stock options            -        2,818           -       2,818
Other comprehensive income
---------------------------
 Actuarial losses              (12,018)     (12,018)          -     (12,018)
 Foreign currency
  translation differences            -       (8,323)          1      (8,322)
----------------------------------------------------------------------------
Balance at September 30,
 2010                         (238,247)     473,998       1,130     475,128
----------------------------------------------------------------------------

Net Income for the period       15,574       15,574        (208)     15,366
Compensation expense
 related to stock options            -        1,059           -       1,059
Exercise of employee stock
 options                             -           72           -          72
Repurchase of common shares        (63)        (726)          -        (726)
Other comprehensive income
---------------------------
 Actuarial gains                 8,708        8,708           -       8,708
 Foreign currency
  translation differences            -      (10,499)          -     (10,499)
----------------------------------------------------------------------------
Balance at December 31,
 2010                         (214,028)     488,186         922     489,108
----------------------------------------------------------------------------

Net Income for the period       36,021       36,021      (2,359)     33,662
Compensation expense
 related to stock options            -        1,967           -       1,967
Contribution from Minority
 Shareholder - Honsel
 acquisition                         -            -      67,924      67,924
Acquired non-controlling
 interest - Honsel
 acquisition                         -            -       5,415       5,415
Repayment of notes
 receivable                          -        1,925           -       1,925
Exercise of employee stock
 options                             -          459           -         459
Repurchase of common shares        730       (4,902)          -      (4,902)
Other comprehensive income
---------------------------
 Actuarial losses               (3,892)      (3,892)          -      (3,892)
 Foreign currency
  translation differences            -       25,313       2,107      27,420
----------------------------------------------------------------------------
Balance at September 30,
 2011                      $  (181,169) $   545,077 $    74,009 $   619,086
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements.

Martinrea International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)

----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                     Three      Three       Nine       Nine
                                    months     months     months     months
                                     ended      ended      ended      ended
                                 September  September  September  September
                                  30, 2011   30, 2010   30, 2011   30, 2010
----------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net Income for the period       $    4,238 $    7,047 $   33,662 $   37,056
Adjustments for:
 Depreciation of property, plant
  and equipment                     15,491     11,452     37,615     32,924
 Amortization of customer
  contracts and relationships        2,018      1,137      4,178      3,408
 Amortization of development
  costs                                179          -        199          -
 Net impairment charge on
  property, plant and equipment          -          -          -        437
 Amortization of deferred
  financing costs                      164         67        486        211
 Accretion of interest on
  promissory note                     (136)      (236)      (405)      (236)
 Unrealized losses / (gains) on
  foreign exchange forward
  contracts                          1,963       (360)     1,471       (227)
 Income tax expense                  3,807      2,859     15,538     12,390
 (Gain) / Loss on disposal of
  property, plant and equipment        (71)       112        (67)   (10,492)
 Stock-based compensation              827        770      1,967      2,818
 Pension and other post-
  retirement benefits                  684        245      1,480     (2,131)
 Contributions made to pension
  and other post-retirement
  benefits                          (3,068)    (2,693)    (8,631)    (8,415)
----------------------------------------------------------------------------
                                    26,096     20,400     87,493     67,743
Changes in non-cash working
 capital items:
 Trade and other receivables       (52,919)   (18,499)  (132,821)   (82,735)
 Inventories                       (22,276)   (13,500)   (43,702)   (24,095)
 Prepaid expenses and deposits      (6,888)       277     (8,706)      (541)
 Trade, other payables and
  provisions                        59,624     15,021    108,250     50,806
 Income taxes payable /
  recoverable                       (7,178)      (343)    (7,351)     1,388
                                --------------------------------------------
                                    (3,541)     3,356      3,163     12,566
 Interest paid                      (2,221)    (1,127)    (5,077)    (4,341)
 Income taxes received (paid) -
  net                                2,625     (2,586)    (3,659)       (70)
----------------------------------------------------------------------------
NET CASH PROVIDED / (USED) IN
 OPERATING ACTIVITIES               (3,137)      (357)    (5,573)     8,155
----------------------------------------------------------------------------

FINANCING ACTIVITIES:
 Increase in bank indebtedness      13,359      5,060     13,359      5,060
 Repurchase of common shares        (3,462)         -     (4,902)         -
 Contribution from Minority
  Shareholder                       67,924          -     67,924          -
 Repayment of note receivable        1,925          -      1,925          -
 Exercise of employee stock
  options                                -          -        459          -
 Increase in long-term debt        113,309     15,000    157,466     31,000
 Repayment of long-term debt       (13,372)    (3,355)   (19,867)   (11,017)
                                --------------------------------------------
NET CASH PROVIDED IN FINANCING
 ACTIVITIES                        179,683     16,705    216,364     25,043
----------------------------------------------------------------------------

INVESTING ACTIVITIES:
 Purchase of property, plant and
  equipment                        (47,889)   (23,121)  (101,970)   (55,927)
 Acquisition of Honsel (note 2)   (130,529)         -   (130,529)         -
 Proceeds from sale of Nuremberg
  facility - assets held for
  sale (note 2)                     54,904          -     54,904          -
 Promissory note (net of
  principal repayments)                  -          -      1,500    (12,637)
 Development costs                  (5,108)         -     (7,269)         -
 Proceeds on disposal of
  property, plant and equipment         75          -        122     13,807
----------------------------------------------------------------------------
NET CASH USED IN INVESTING
 ACTIVITIES                       (128,547)   (23,121)  (183,242)   (54,757)
----------------------------------------------------------------------------

Effect of foreign exchange rate
 changes on cash and cash
 equivalents                         2,639      1,164      2,428     (1,210)
----------------------------------------------------------------------------

INCREASE / (DECREASE) IN CASH
 AND CASH EQUIVALENTS               50,638     (5,609)    29,977    (22,769)
CASH AND CASH EQUIVALENTS,
 BEGINNING OF PERIOD                 5,366      5,609     26,027     22,769
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END
 OF PERIOD                      $   56,004 $        - $   56,004 $        -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the interim consolidated financial statements.

Contact:

Martinrea International Inc.
Nick Orlando
President and Chief Executive Officer
(416) 749-0314
(289) 982-3001 (FAX)
3210 Langstaff Road,
Vaughan, Ontario, L4K 5B2

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