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

Martinrea International Inc.
·39 min read

TORONTO, Nov. 11, 2020 (GLOBE NEWSWIRE) -- Martinrea International Inc. (TSX : MRE), a diversified and global automotive supplier engaged in the design, development and manufacturing of highly engineered, value-added Lightweight Structures and Propulsion Systems, today announced the release of its financial results for the third quarter ended September 30, 2020 and that it has declared a quarterly cash dividend of $0.05 per share.

HIGHLIGHTS

  • Total sales of $971 million; production sales of $933 million

  • Record third quarter fully diluted net earnings per share of $0.57

  • Quarterly adjusted operating income ( 1 ) margin of 7.8%, above year-ago levels

  • Balance sheet ended the quarter strong, with a reduction in net debt during the quarter of over $100 million

  • Production volumes recovering more quickly than expected following the industry-wide COVID-19 shutdowns earlier this year

  • Strong fourth quarter anticipated

  • Dividend of $0.05 per share declared

OVERVIEW

Pat DEramo, President and Chief Executive Officer, stated: Our third quarter performance was a record for the Company, and much improved over the previous quarter, as industry production volumes recovered more quickly than previously expected following the COVID-19 shutdowns. Demand in our key North American market remains strong and vehicle inventories remain low, particularly on truck, SUV and CUV platforms, where we are more heavily weighted. Looking at other markets, demand in China remains strong, while Europe is recovering, albeit at a more gradual pace. Operationally, we continue to perform well, as evidenced by our strong operating income margin during the quarter, which came in at 7.8%, or over 9% excluding our recently-acquired Martinrea Metalsa Group. Our focus on lean and operational excellence paid off during the quarter and we thank the team for their efforts and dedication during these challenging times. We are looking forward to a strong fourth quarter, based on anticipated volumes as we see them today, as OEMs continue to replenish currently low vehicle inventory levels. We expect fourth quarter production sales in the range of $900 million to $1.0 billion, and adjusted net earnings per share ( 1 ) in the range of $0.46 to $0.54, including the recently-acquired assets from Metalsa, which has been a drag on earnings as we drive efficiencies, in particular in our new German facility. The integration of the newly-acquired business is going well and we expect its performance to improve as we execute on the roadmap in front of us. We are also happy to announce new business wins totalling $70 million in annualized sales, including $45 million in Propulsion Systems for FCA and General Motors, $10 million in lightweight structures for electric vehicle platforms with General Motors, and $15 million for a battery box for Volvos heavy-duty truck in our Industrial group. We are seeing the highest level of quoting activity in our Industrial Group since my time at Martinrea, and we see opportunities to grow this business. We also expect to see our first product with graphene in production in 2021, a graphene-enhanced brake line for one of our OEM customers. Our customer has tested and approved the product and is working with us to convert current production from standard brake lines to the more durable graphene-enhanced brake lines. We are big proponents of graphene and its potential applications, and we intend to capitalize on this potential through our investment in NanoXplore.

Fred Di Tosto, Chief Financial Officer, stated: We experienced a sharp rebound in our financial results during the third quarter, as the Company and our industry recovered following the COVID-19 shutdowns.   Volumes were strong during the quarter and operating margins were above year-ago levels, driven by strength in our North American operations, reflective of volume and a positive sales mix, operating cost reductions, lower tooling sales and some benefit from government wage subsidies. Third quarter production sales, excluding the newly-acquired Martinrea Metalsa operations, were approximately flat year-over-year, with adjusted operating income (1) coming in at $75.6 million, up 9.4% year-over-year. We generated strong free cash flow ( 1 ) during the quarter, which resulted in a reduction in net debt of over $100.0 million. Our net debt to adjusted EBITDA (1) ratio ended the quarter at 2.21x, and approximately 1.70x for bank covenant purposes, given the agreement we reached with our banking syndicate to eliminate Q2 adjusted EBITDA (1) from the covenant calculation. We believe we entered the COVID-19 driven downturn with a strong balance sheet which has ultimately allowed us to navigate our way through the COVID crisis with confidence. Our net debt at the end of the third quarter was essentially back to pre-COVID levels and we funded an acquisition during that time. A very good result from all accounts and reflective of the strength of the business. Overall, we are very pleased with our third quarter results. To be able to post year-over-year growth in adjusted operating income ( 1 ) , adjusted net earnings per share ( 1 ) , and free cash flow ( 1 ) in the middle of a pandemic is an achievement of which we are all proud.

Rob Wildeboer, Executive Chairman, stated: From a macro perspective, our industry is recovering from the longest shutdown in its history at a pace few of us would have expected only a few short months ago. North American auto sales have now recovered close to pre-COVID volumes and are now at a sustainable level based on previous cycles. Strong demand, coupled with low inventories, sets the stage for a continued recovery in production in the months and years ahead. We believe some interesting trends are emerging that could support vehicle demand well into the future, including the perception of the vehicle as a safe, self-contained method of transportation, and an increase in demand for living space outside of large metropolitan areas. Overall, we think our future is bright, and not just from an industry recovery perspective. More importantly, we are an innovative company that invests in and develops leading-edge technology, as evidenced by our relationship with NanoXplore and development of new products, including graphene-enhanced brake lines. Our focus on innovation and our operational strength has enabled us to emerge from the COVID-19 crisis as a stronger and more competitive company. Its in times like these that our focus on culture and our vision of making peoples lives better by being the best we can be in the products we make and the services we provide comes through for us. We want to thank our dedicated employees for their great service, as well as our shareholders, lenders, suppliers, customers and governments for their hard work and support.

RESULTS OF OPERATIONS

All amounts in this press release are in Canadian dollars, unless otherwise stated; and all tabular amounts are in thousands of Canadian dollars, except earnings per share and number of shares. 

Additional information about the Company, including the Companys Management Discussion and Analysis of Operating Results and Financial Position for the third quarter ended September 30, 2020 (MD&A), the Companys interim condensed consolidated financial statements for the third quarter ended September 30, 2020 (the interim financial statements) and the Companys Annual Information Form for the year ended December 31, 2019, can be found at www.sedar.com .

OVERALL RESULTS

Results of operations may include certain unusual and other items that 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 Companys disclosures that it believes provide the most appropriate basis on which to evaluate the Companys results.

The following tables set out certain highlights of the Companys performance for the three and nine months ended September 30, 2020 and 2019. Refer to the Companys interim financial statements for the three and nine months ended September 30, 2020 for a detailed account of the Companys performance for the periods presented in the tables below.

 

 

Three months ended September 30, 2020

 

Three months ended September 30, 2019

$ Change

% Change

Sales

$

971,060

 

$

974,384

 

(3,324

)

(0.3

%)

Gross Margin

 

151,478

 

 

143,901

 

7,577

 

5.3

%

Operating Income

 

75,562

 

 

73,243

 

2,319

 

3.2

%

Net Income for the period

 

45,636

 

 

46,678

 

(1,042

)

(2.2

%)

Net Earnings per Share - Basic

$

0.57

 

$

0.57

 

-

 

-

 

Net Earnings per Share - Diluted

$

0.57

 

$

0.56

 

0.01

 

1.8

%

Non-IFRS Measures*

 

 

 

 

 

 

Adjusted Operating Income

$

75,562

 

$

69,044

 

6,518

 

9.4

%

% of Sales

 

7.8

%

 

7.1

%

 

 

Adjusted EBITDA

 

134,232

 

 

122,401

 

11,831

 

9.7

%

% of Sales

 

13.8

%

 

12.6

%

 

 

Adjusted Net Income

 

45,636

 

 

43,507

 

2,129

 

4.9

%

Adjusted Net Earnings per Share - Basic and Diluted

$

0.57

 

$

0.53

 

0.04

 

7.5

%


 

 

Nine months ended September 30, 2020

 

Nine months ended September 30, 2019

$ Change

% Change

Sales

$

2,304,330

 

$

2,946,078

 

(641,748

)

(21.8

%)

Gross Margin

 

259,256

 

 

456,180

 

(196,924

)

(43.2

%)

Operating Income (Loss)

 

(38,598

)

 

214,008

 

(252,606

)

(118.0

%)

Net Income (Loss) for the period

 

(72,287

)

 

130,068

 

(202,355

)

(155.6

%)

Net Earnings (Loss) per Share - Basic

$

(0.90

)

$

1.57

 

(2.47

)

(157.3

%)

Net Earnings (Loss) per Share - Diluted

$

(0.90

)

$

1.56

 

(2.46

)

(157.7

%)

Non-IFRS Measures*

 

 

 

 

 

 

Adjusted Operating Income

$

57,844

 

$

236,476

 

(178,632

)

(75.5

%)

% of Sales

 

2.5

%

 

8.0

%

 

 

Adjusted EBITDA

 

233,779

 

 

394,021

 

(160,242

)

(40.7

%)

% of Sales

 

10.1

%

 

13.4

%

 

 

Adjusted Net Income

 

2,644

 

 

153,853

 

(151,209

)

(98.3

%)

Adjusted Net Earnings per Share - Basic

$

0.03

 

$

1.86

 

(1.83

)

(98.4

%)

Adjusted Net Earnings per Share - Diluted

$

0.03

 

$

1.85

 

(1.82

)

(98.4

%)

* Non-IFRS Measures

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 Companys 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. Please refer to the Companys previously filed annual and interim MD&A of operating results and financial position for the fiscal year 2019 for a full reconciliation of IFRS to non-IFRS measures.

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

 

 

Three months ended September 30, 2020

 

Three months ended September 30, 2019

Net Income

$

45,636

 

$

46,678

 

Unusual and Other Items (after-tax)*

 

-

 

 

(3,171

)

Adjusted Net Income

$

45,636

 

$

43,507

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020

 

Nine months ended September 30, 2019

Net Income (Loss)

$

(72,287

)

$

130,068

 

Unusual and Other Items (after-tax)*

 

74,931

 

 

23,785

 

Adjusted Net Income

$

2,644

 

$

153,853

 

*Unusual and other items are explained in the "Adjustments to Net Income" section of this Press Release


 

 

Three months ended September 30, 2020

 

 

Three months ended September 30, 2019

Net Income

$

45,636

 

$

46,678

 

Income tax expense

 

18,636

 

 

16,129

 

Other finance expense - excluding Unusual and Other Items*

 

1,852

 

 

844

 

Share of loss of an associate

 

300

 

 

818

 

Finance expense

 

9,138

 

 

9,345

 

Unusual and Other Items (before-tax)*

 

-

 

 

(4,770

)

Adjusted Operating Income

$

75,562

 

$

69,044

 

Depreciation of property, plant and equipment and right-of-use assets

 

55,237

 

 

50,200

 

Amortization of intangible assets

 

3,196

 

 

4,104

 

Loss (gain) on disposal of property, plant and equipment

 

237

 

 

(947

)

Adjusted EBITDA

$

134,232

 

$

122,401

 


 

 

Nine months ended September 30, 2020

 

Nine months ended September 30, 2019

Net Income (Loss)

$

(72,287

)

$

130,068

 

Income tax expense (benefit)

 

(86

)

 

52,156

 

Other finance expense - excluding Unusual and Other Items*

 

5,008

 

 

1,130

 

Share of loss of an associate

 

1,881

 

 

1,330

 

Finance expense

 

26,886

 

 

29,085

 

Unusual and Other Items (before-tax)*

 

96,442

 

 

22,707

 

Adjusted Operating Income

$

57,844

 

$

236,476

 

Depreciation of property, plant and equipment and right-of-use assets

 

166,044

 

 

146,931

 

Amortization of intangible assets

 

9,654

 

 

11,820

 

Loss (gain) on disposal of property, plant and equipment

 

237

 

 

(1,206

)

Adjusted EBITDA

$

233,779

 

$

394,021

 

*Unusual and other items are explained in the "Adjustments to Net Income" section of this Press Release


SALES

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020 to three months ended September 30, 2019 comparison

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020

 

Three months ended September 30, 2019

$ Change

% Change

North America

$

739,489

 

$

780,989

 

(41,500

)

(5.3

%)

Europe

 

189,366

 

 

157,736

 

31,630

 

20.1

%

Rest of the World

 

46,999

 

 

37,727

 

9,272

 

24.6

%

Eliminations

 

(4,794

)

 

(2,068

)

(2,726

)

131.8

%

Total Sales

$

971,060

 

$

974,384

 

(3,324

)

(0.3

%)

The Companys consolidated sales for the third quarter of 2020 decreased by $3.3 million or 0.3% to $971.1 million as compared to $974.4 million for the third quarter of 2019. The total decrease in sales was driven by a year-over-year decrease in North America, partially offset by increases in the Europe and Rest of the World operating segments.

Sales for the third quarter of 2020 in the Companys North America operating segment decreased by $41.5 million or 5.3% to $739.5 million from $781.0 million for the third quarter of 2019. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, contributed $29.7 million of year-over-year sales (including $0.4 million in tooling sales) to the North America operating segment. Excluding the acquired operations, third quarter sales in North America decreased year-over-year by $71.2 million or 9.1%. This decrease was due to a decrease in tooling sales of $100.3 million, which are typically dependent on the timing of tooling construction and final acceptance by the customer; partially offset by higher production volumes on General Motors pick-up truck and large SUV platform, which was negatively impacted by the United Auto Workers strike at General Motors during the third quarter of 2019, the continued production of ventilator stands for General Motors, and the impact of foreign exchange on the translation of U.S.-denominated production sales, which had a positive impact on overall sales for the third quarter of 2020 of approximately $11.8 million as compared to the third quarter of 2019. Overall third quarter OEM light vehicle production in North America was essentially flat year-over-year, despite the COVID-19 global pandemic.

Sales for the third quarter of 2020 in the Companys Europe operating segment increased by $31.6 million or 20.1% to $189.4 million from $157.7 million for the third quarter of 2019. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, contributed $53.5 million of year-over-year sales (including $5.8 million in tooling sales) to the Europe operating segment. Excluding the acquired operations, third quarter sales in Europe decreased year-over-year by $21.9 million or 13.9%. This decrease was due to overall lower industry volumes, primarily as a result of the COVID-19 pandemic; partially offset by an $8.4 million increase in tooling sales, and a $4.9 million positive foreign exchange impact from the translation of Euro-denominated production sales as compared to the third quarter of 2019.

Sales for the third quarter of 2020 in the Companys Rest of the World operating segment increased by $9.3 million or 24.6% to $47.0 million from $37.7 million for the third quarter of 2019. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, contributed $21.7 million of year-over-year sales to the Rest of the World operating segment. Excluding the acquired operations, third quarter sales in the Rest of the World decreased year-over-year by $12.4 million or 32.9%. This decrease was largely driven by lower year-over-year production volumes on the Cadillac CT6 vehicle platform in China, a $4.3 million decrease in tooling sales, and a $1.8 million negative foreign exchange impact from the translation of foreign-denominated production sales as compared to the third quarter of 2019.

Overall tooling sales, inclusive of the operations acquired from Metalsa, decreased by $90.0 million to $37.8 million for the third quarter of 2020 from $127.8 million for the third quarter of 2019.

Nine months ended September 30, 2020 to nine months ended September 30, 2019 comparison

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020

 

Nine months ended September 30, 2019

$ Change

% Change

North America

$

1,745,151

 

$

2,346,167

 

(601,016

)

(25.6

%)

Europe

 

449,251

 

 

513,742

 

(64,491

)

(12.6

%)

Rest of the World

 

120,665

 

 

91,526

 

29,139

 

31.8

%

Eliminations

 

(10,737

)

 

(5,357

)

(5,380

)

100.4

%

Total Sales

$

2,304,330

 

$

2,946,078

 

(641,748

)

(21.8

%)

The Companys consolidated sales for the nine months ended September 30, 2020 decreased by $641.7 million or 21.8% to $2,304.3 million as compared to $2,946.1 million for the nine months ended September 30, 2019. The total decrease in sales was driven by decreases in the North America and Europe operating segments, partially offset by an increase in sales in the Rest of the World.

Sales for the nine months ended September 30, 2020 in the Companys North America operating segment decreased by $601.1 million or 25.6% to $1,745.2 million from $2,346.2 million for the nine months ended September 30, 2019. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, contributed $47.7 million of year-over-year sales (including $1.7 million in tooling sales) to the North America operating segment. Excluding the acquired operations, sales for the nine months ended September 30, 2020 in North America decreased year-over-year by $648.8 million or 27.7%. This decrease was due to overall lower industry volumes, primarily as a result of the impact of the COVID-19 pandemic, and a decrease in tooling sales of $152.6 million, which are typically dependent on the timing of tooling construction and final acceptance by the customer. These negative factors were partially offset by the impact of foreign exchange on the translation of U.S.-denominated production sales, which had a positive impact on overall sales for the nine months ended September 30, 2020 of approximately $23.0 million as compared to the corresponding period of 2019, and the launch of new programs during or subsequent to the nine months ended September 30, 2019, including the General Motors heavy duty truck, and the production of ventilator stands for General Motors.

Sales for the nine months ended September 30, 2020 in the Companys Europe operating segment decreased by $64.5 million or 12.6% to $449.3 million from $513.7 million for the nine months ended September 30, 2019. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, contributed $98.8 million of year-over-year sales (including $9.7 million in tooling sales) to the Europe operating segment. Excluding the acquired operations, sales for the nine months ended September 30, 2020 in Europe decreased year-over-year by $163.3 million or 31.8%. This decrease can be attributed to overall lower industry volumes, primarily as a result of the impact of the COVID-19 pandemic; lower pre-COVID year-over-year production related to certain light vehicle platforms, in particular with Daimler and Jaguar Land Rover; and a $2.8 million decrease in tooling sales. These negative factors were partially offset by the launch of new programs during or subsequent to the nine months ended September 30, 2019, namely an aluminum transmission for Volkswagen; and a $1.3 million positive foreign exchange impact from the translation of Euro-denominated production sales as compared to the corresponding period of 2019.

Sales for the nine months ended September 30, 2020 in the Companys Rest of the World operating segment increased by $29.1 million or 31.8% to $120.7 million from $91.5 million for the nine months ended September 30, 2019. The operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, contributed $48.8 million of year-over-year sales to the Rest of the World operating segment. Excluding the acquired operations, sales for the nine months ended September 30, 2020 in the Rest of the World decreased year-over-year by $19.7 million or 21.5%. This decrease was largely driven by COVID-19 related disruption, lower year-over-year production volumes on the Cadillac CT6 vehicle platform in China, a $3.9 million negative foreign exchange impact from the translation of foreign-denominated production sales as compared to the corresponding period of 2019, and a $0.4 million decrease in tooling sales.

Overall tooling sales, inclusive of the operations acquired from Metalsa, decreased by $144.4 million to $129.8 million for the nine months ended September 30, 2020 from $274.2 million for the nine months ended September 30, 2019.

GROSS MARGIN

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020 to three months ended September 30, 2019 comparison

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020

 

Three months ended September 30, 2019

$ Change

% Change

Gross margin

$

151,478

 

$

143,901

 

7,577

5.3

%

% of Sales

 

15.6

%

 

14.8

%

 

 

The gross margin percentage for the third quarter of 2020 of 15.6% increased as a percentage of sales by 0.8% as compared to the gross margin percentage for the third quarter of 2019 of 14.8%. The increase in gross margin as a percentage of sales was generally due to a decrease in tooling sales which typically earn low margins for the Company; a positive sales mix; productivity and efficiency improvements at certain operating facilities; and the receipt of certain COVID-related government wage subsidies. These positive factors were partially offset by a negative impact on overall margin percentage from the operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020, and operational inefficiencies and other costs at certain facilities including upfront costs incurred in preparation of upcoming new programs.

Nine months ended September 30, 2020 to nine months ended September 30, 2019 comparison

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020

 

Nine months ended September 30, 2019

$ Change

% Change

Gross margin

$

259,256

 

$

456,180

 

(196,924

)

(43.2

%)

% of Sales

 

11.3

%

 

15.5

%

 

 

The gross margin percentage for the nine months ended September 30, 2020 of 11.3% decreased as a percentage of sales by 4.2% as compared to the gross margin percentage for the nine months ended September 30, 2019 of 15.5%. The decrease in gross margin as a percentage of sales was generally due to overall lower sales volume and corresponding lower utilization of assets, driven primarily by the impact of the COVID-19 pandemic; a negative impact on overall margin percentage from the operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020; and operational inefficiencies and other costs at certain facilities including upfront costs incurred in preparation of upcoming new programs. These negative factors were partially offset by productivity and efficiency improvements at certain operating facilities; the receipt of certain COVID-related government wage subsidies; and a decrease in tooling sales, which typically earn low margins for the Company. The sharp sales decline in April and May, as a result of the COVID-19 related shutdowns, coupled with a volatile restart and ramp-up of production in May and June with limited predictability had a significant impact on gross margin during the second quarter of 2020, despite major reductions in costs.

ADJUSTMENTS TO NET INCOME (LOSS)

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

TABLE A

 

 

 

 

 

Three months ended September 30, 2020 to three months ended September 30, 2019 comparison

 

 

 

 

 

 

 

Three months ended

 

Three months ended

 

 

September 30, 2020

 

September 30, 2019

(a)-(b)

 

(a)

 

(b)

Change

 

 

 

 

 

NET INCOME (A)

$

45,636

 

$

46,678

 

$

(1,042

)

 

 

 

 

 

Add Back - Unusual and Other Items:

 

 

 

 

 

 

 

 

 

Gain on derivative instruments (4)

 

-

 

 

(571

)

 

571

 

Net gain in the Company's operating facility in Brazil (5)

 

-

 

 

(4,199

)

 

4,199

 

 

 

 

 

 

 

 

 

 

 

TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX

 

-

 

$

(4,770

)

$

4,770

 

 

 

 

 

 

Tax impact of above items

 

-

 

 

1,599

 

 

(1,599

)

 

 

 

 

 

 

 

 

 

 

TOTAL UNUSUAL AND OTHER ITEMS - AFTER TAX (B)

 

-

 

$

(3,171

)

$

3,171

 

 

 

 

 

 

 

 

 

 

 

ADJUSTED NET INCOME (A + B)

$

45,636

 

$

43,507

 

$

2,129

 

 

 

 

 

 

 

 

 

 

 

Number of Shares Outstanding Basic (000)

 

80,189

 

 

82,593

 

 

Adjusted Basic Net Earnings Per Share

$

0.57

 

$

0.53

 

 

Number of Shares Outstanding Diluted (000)

 

80,200

 

 

82,713

 

 

Adjusted Diluted Net Earnings Per Share

$

0.57

 

$

0.53

 

 

 

 

 

 

 


TABLE B

 

 

 

 

 

Nine months ended September 30, 2020 to nine months ended September 30, 2019 comparison

 

 

 

 

 

 

 

 

 

Nine months ended

 

Nine months ended

 

 

September 30, 2020

 

September 30, 2019

(a)-(b)

 

(a)

 

(b)

Change

 

 

 

 

 

NET INCOME (LOSS) (A)

$

(72,287

)

 

$

130,068

 

$

(202,355

)

 

 

 

 

 

Add Back - Unusual and Other Items:

 

 

 

 

 

 

 

 

 

Transaction costs associated with the business acquired from Metalsa (recorded as SG&A) (1)

 

2,489

 

 

 

-

 

 

2,489

 

Impairment of assets (2)

 

85,783

 

 

 

18,502

 

 

67,281

 

Restructuring costs (3)

 

8,170

 

 

 

8,165

 

 

5

 

Loss on derivative instruments (4)

 

-

 

 

 

239

 

 

(239

)

Net gain in the Company's operating facility in Brazil (5)

 

-

 

 

 

(4,199

)

 

4,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX

$

96,442

 

 

$

22,707

 

$

73,735

 

 

 

 

 

 

Tax impact of above items

 

(21,511

)

 

 

1,078

 

 

(22,589

)

 

 

 

 

 

 

 

 

 

 

TOTAL UNUSUAL AND OTHER ITEMS - AFTER TAX (B)

$

74,931

 

 

$

23,785

 

$

51,146

 

 

 

 

 

 

ADJUSTED NET INCOME (A + B)

$

2,644

 

 

$

153,853

 

$

(151,209

)

 

 

 

 

 

Number of Shares Outstanding Basic (000)

 

80,090

 

 

 

82,897

 

 

Adjusted Basic Net Earnings Per Share

$

0.03

 

 

$

1.86

 

 

Number of Shares Outstanding Diluted (000)

 

80,090

 

 

 

83,054

 

 

Adjusted Diluted Net Earnings Per Share

$

0.03

 

 

$

1.85

 

 

 

 

 

 

 

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

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

(2)     Impairment of assets

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

During the second quarter of 2019, the Company recorded impairment charges on property, plant, 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.

(3)     Restructuring costs

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

Additions to the restructuring provision, recognized during the second quarter of 2019, totaled $8.2 million and represent employee-related severance resulting from the right-sizing of operating facilities in the North America ($1.7 million) and Rest of the World ($6.5 million) operating segments.

(4)   Loss (gain) on derivative instruments

Martinrea held warrants in NanoXplore Inc., a publicly listed graphene company on the TSX Venture Exchange under the ticker symbol GRA. The warrants represented derivative instruments and were 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. Based on the fair value of the outstanding warrants as at September 30, 2019, a gain of $0.6 million was recognized for the three months ended September 30, 2019 and a loss of $0.2 million was recognized for the nine months ended September 30, 2019. All outstanding remaining warrants in NanoXplore expired in March 2020 unexercised.

(5)   Net gain in the Companys operating facility in Brazil

Included in income for the three months ended September 30, 2019 is a non-recurring benefit recognized in the Companys operating facility in Brazil, included in the Rest of 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 facilitys claims and litigation provision related to certain employee-related matters. The benefit was recorded against selling, general and administrative expense.

NET INCOME (LOSS)

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020 to three months ended September 30, 2019 comparison

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020

 

 

Three months ended September 30, 2019

$ Change

% Change

Net Income

$

45,636

 

$

46,678

(1,042

)

(2.2

%)

Adjusted Net Income

$

45,636

 

$

43,507

2,129

 

4.9

%

Net Earnings per Share

 

 

 

 

 

 

 

Basic

$

0.57

 

$

0.57

 

 

Diluted

$

0.57

 

$

0.56

 

 

Adjusted Net Earnings per Share

 

 

 

 

 

 

 

Basic and Diluted

$

0.57

 

$

0.53

 

 

Net income, before adjustments, for the third quarter of 2020 decreased by $1.0 million to $45.6 million from $46.7 million for the third quarter of 2019. The slight decrease was due largely to the unusual and other items recognized during the third quarter of 2019 as explained in Table A under Adjustments to Net Income (Loss). Excluding these unusual and other items, adjusted net income for the third quarter of 2020 increased by $2.1 million to $45.6 million or $0.57 per share, on a basic and diluted basis, from $43.5 million or $0.53 per share, on a basic and diluted basis, for the third quarter of 2019.

Adjusted Net Income for the third quarter of 2020, as compared to the third quarter of 2019, was positively impacted by the following:

  • higher gross profit on essentially flat year-over-year sales as previously explained; and

  • a year-over-year decrease in research and development costs due primarily to a decrease in new product and process research and development activity in light of the COVID-19 pandemic.

These factors were partially offset by the following:

  • negative third quarter results from the operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020;

  • a year-over-year increase in SG&A expense, excluding adjustments, as previously explained; and

  • a higher effective tax rate on adjusted income due generally to the mix of earnings stemming from the addition of the assets acquired from Metalsa (29.0% for the third quarter of 2020 compared to 25.0% for the third quarter of 2019).

Nine months ended September 30, 2020 to nine months ended September 30, 2019 comparison

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020

 

Nine months ended September 30, 2019

$ Change

% Change

Net Income (Loss)

$

(72,287

)

$

130,068

(202,355

)

(155.6

%)

Adjusted Net Income

$

2,644

 

$

153,853

(151,209

)

(98.3

%)

Net Earnings (Loss) per Share

 

 

 

 

 

 

Basic

$

(0.90

)

$

1.57

 

 

Diluted

$

(0.90

)

$

1.56

 

 

Adjusted Net Earnings per Share

 

 

 

 

 

 

Basic

$

0.03

 

$

1.86

 

 

Diluted

$

0.03

 

$

1.85

 

 

Net Income (Loss), before adjustments, for the nine months ended September 30, 2020 decreased by $202.4 million to a net loss of $72.3 million from net income of $130.1 million for the nine months ended September 30, 2019 due to the lower year-over-year sales volume, due primarily to the impact of the COVID-19 pandemic, and certain unusual and other items incurred during the nine months ended September 30, 2020 and 2019 as explained in Table B under Adjustments to Net Income (Loss). Excluding these unusual and other items, adjusted net income for the nine months ended September 30, 2020 decreased to $2.6 million or $0.03 per share, on a basic and diluted basis, from $153.9 or $1.86, on a basic basis, and $1.85 on a diluted basis, for the nine months ended September 30, 2019.

Adjusted Net Income for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was negatively impacted by the following:

  • lower gross profit on lower year-over-year sales volume, as previously explained, due primarily to the impact of the COVID-19 pandemic;

  • negative year-to-date results from the operations acquired from Metalsa, results for which were consolidated with those of the Company effective March 2, 2020;

  • a net unrealized foreign exchange loss of $5.2 million for the nine months ended September 30, 2020 compared to a loss of $1.5 million for the nine months ended September 30, 2019; and

  • a higher effective tax rate on adjusted income due generally to the mix of earnings and tax impacts of the unusual and other items explained in Table B under Adjustments to Net Income (Loss) (89.0% for the nine months ended September 30, 2020 compared to 24.9% for the nine months ended September 30, 2019).

These factors were partially offset by the following:

  • a year-over-year decrease in SG&A expense, as previously discussed;

  • a year-over-year decrease in research and development costs due primarily to a decrease in new product and process research and development activity in light of the COVID-19 pandemic; and

  • a year-over-year decrease in finance expense on the Companys long-term debt primarily as a result of lower borrowing rates.

DIVIDEND

A cash dividend of $0.05 per share has been declared by the Board of Directors payable to shareholders of record on December 31, 2020, on or about January 15, 2021.

ABOUT MARTINREA

Martinrea is a diversified and global automotive supplier engaged in the design, development and manufacturing of highly engineered, value-added Lightweight Structures and Propulsion Systems.

Martinrea operates in 57 locations in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain, China, South Africa and Japan. Martinreas vision is making lives better by being the best supplier we can be in the products we make and the services we provide. For more information on Martinrea, please visit www.martinrea.com . Follow Martinrea on Twitter  and  Facebook .

CONFERENCE CALL DETAILS

A conference call to discuss the financial results will be held on Wednesday, November 11, 2020 at 5:30 p.m. (Toronto time) which can be accessed by dialing 416-641-6104 or toll free 800-952-5114 (participant code 4636275#). Please call 10 minutes prior to the start of the conference call.

A webcast of the Q3 slide presentation will be available in listen-only mode at the following link https://bell.media-server.com/mmc/p/c5aq96dh beginning at 5:30 p.m. (Toronto time). Please note that to participate in the question and answer session, the dial in numbers and participant code must be used.

There will also be a rebroadcast of the call available by dialing 905-694-9451 or toll free 800-408-3053 (conference id 4851137#). The rebroadcast will be available until December 5, 2020. The webcast presentation will be available for replay on the Martinrea website.

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

FORWARD-LOOKING INFORMATION

Special Note Regarding Forward-Looking Statements

This press release 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, adjusted earnings per share, adjusted net earnings per share, operating income margins, operating margins, adjusted operating income margins, volumes, the strength of the fourth quarter 2020 and future growth; the recovery of the automotive industry and various markets, emerging trends that could support vehicle demand; the strength of the Company, including post-COVID-19; anticipated program wins, pursuit of its strategies (including investing in and growing the business, including the industrial business; expected production in 2021 of a product with graphene; the intention to capitalize on the NanoXplore investment); the integration and expected performance of the assets acquired from Metalsa; the payment of dividends 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 Companys 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 Companys most recent Management Discussion and Analysis and 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 industrys dependence on consumer spending and general economic conditions;

  • the Companys dependence on a limited number of significant customers;

  • financial viability of suppliers;

  • the Companys 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 Companys 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 Companys 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 Companys mix of earnings between jurisdictions with lower tax rates and those with higher tax rates, as well as the Companys 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 Companys share price; and

  • dividends.

These factors should be considered carefully, and readers should not place undue reliance on the Companys forward-looking statements. The Company has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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

For further information, please contact:

Fred Di Tosto
Chief Financial Officer
Martinrea International Inc.
3210 Langstaff Road
Vaughan, Ontario L4K 5B2

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

___________________________________

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 Companys 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 Companys Management Discussion and Analysis for the third quarter ended September 30, 2020.

 


Martinrea International Inc.

Interim Condensed Consolidated Balance Sheets 

(in thousands of Canadian dollars) (unaudited)      

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note

 

September 30, 2020

 

December 31, 2019

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

214,049

 

$

118,973

 

Trade and other receivables

3

 

672,870

 

 

560,976

 

Inventories

4

 

509,517

 

 

383,682

 

Prepaid expenses and deposits

 

 

21,844

 

 

25,846

 

Income taxes recoverable

 

 

31,163

 

 

16,783

 

TOTAL CURRENT ASSETS

 

 

1,449,443

 

 

1,106,260

 

Property, plant and equipment

5

 

1,591,823

 

 

1,541,895

 

Right-of-use assets

6

 

204,113

 

 

188,378

 

Deferred tax assets

 

 

191,185

 

 

165,890

 

Intangible assets

7

 

55,006

 

 

54,787

 

Investments

8

 

40,188

 

 

37,085

 

TOTAL NON-CURRENT ASSETS

 

 

2,082,315

 

 

1,988,035

 

TOTAL ASSETS

 

$

3,531,758

 

$

3,094,295

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Trade and other payables

10

$

1,052,494

 

$

728,787

 

Provisions

11

 

5,100

 

 

8,584

 

Income taxes payable

 

 

24,329

 

 

7,477

 

Current portion of long-term debt

12

 

18,107

 

 

15,651

 

Current portion of lease liabilities

13

 

34,123

 

 

28,247

 

TOTAL CURRENT LIABILITIES

 

 

1,134,153

 

 

788,746

 

Long-term debt

12

 

870,258

 

 

765,922

 

Lease liabilities

13

 

190,282

 

 

174,105

 

Pension and other post-retirement benefits

 

 

74,933

 

 

63,789

 

Deferred tax liabilities

 

 

76,633

 

 

83,310

 

TOTAL NON-CURRENT LIABILITIES

 

 

1,212,106

 

 

1,087,126

 

TOTAL LIABILITIES

 

 

2,346,259

 

 

1,875,872

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Capital stock

14

 

662,427

 

 

661,422

 

Contributed surplus

 

 

43,256

 

 

42,449

 

Accumulated other comprehensive income

 

 

147,813

 

 

89,107

 

Retained earnings

 

 

332,003

 

 

425,445

 

TOTAL EQUITY

 

 

1,185,499

 

 

1,218,423

 

TOTAL LIABILITIES AND EQUITY

 

$

3,531,758

 

$

3,094,295

 

Subsequent event (note 2)

Contingencies (note 20)

See accompanying notes to the interim condensed consolidated financial statements.

On behalf of the Board:

Robert Wildeboer

Director

 

 

Terry Lyons

Director




Martinrea International Inc.

 

Interim Condensed Consolidated Statements of Operations

 

(in thousands of Canadian dollars, except per share amounts) (unaudited)                         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Three months ended

 

Nine months ended

 

Nine months ended

 

Note

 

September 30, 2020

 

September 30, 2019

 

September 30, 2020

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

SALES

 

$

971,060

 

$

974,384

 

$

2,304,330

 

$

2,946,078

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excluding depreciation of property, plant and equipment and right-of-use assets)

 

 

(768,280

)

 

(783,885

)

 

(1,890,680

)

 

(2,353,926

)

Depreciation of property, plant and equipment and right-of-use assets (production)

 

 

(51,302

) (46,598) (154,394) (135,972)Total cost of sales (819,582) (830,483) (2,045,074) (2,489,898)GROSS MARGIN 151,478 143,901 259,256 456,180 Research and development costs (6,884) (10,086) (21,571) (28,159)Selling, general and administrative (64,537) (57,381) (169,479) (176,024)Depreciation of property, plant and equipment and right-of-use assets (non-production) (3,935) (3,602) (11,650) (10,959)Amortization of customer contracts and relationships (323) (536) (964) (1,569)Gain (loss) on disposal of property, plant and equipment (237) 947 (237) 1,206 Impairment of assets9 - - (85,783) (18,502)Restructuring costs11 - - (8,170) (8,165)OPERATING INCOME (LOSS) 75,562 73,243 (38,598) 214,008 Share of loss of an associate8 (300) (818) (1,881) (1,330)Finance expense (including interest on lease liabilities)17 (9,138) (9,345) (26,886) (29,085)Other finance income (expense)17 (1,852) (273) (5,008) (1,369)INCOME (LOSS) BEFORE INCOME TAXES 64,272 62,807 (72,373) 182,224 Income tax (expense) benefit15 (18,636) (16,129) 86 (52,156)NET INCOME (LOSS) FOR THE PERIOD $45,636 $46,678 $(72,287)$130,068 Basic earnings (loss) per share16$0.57 $0.57 $(0.90)$1.57 Diluted earnings (loss) per share16$0.57 $0.56 $(0.90)$1.56

See accompanying notes to the interim condensed consolidated financial statements.




Martinrea International Inc.

Interim Condensed Consolidated Statements of Comprehensive Income

(in thousands of Canadian dollars, except per share amounts) (unaudited)

Three months ended

Three months ended

Nine months ended

Nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

NET INCOME (LOSS) FOR THE PERIOD

$

45,636

$

46,678

$

(72,287

)

$

130,068

Other comprehensive income (loss), net of tax:

Items that may be reclassified to net income

Foreign currency translation differences for foreign operations

(14,770

)

(1,556

)

59,153

(51,479

)

Cash flow hedging derivative and non-derivative financial instruments:

Unrealized gain (loss) in fair value of financial instruments

1,977

(1,184

)

(1,267

)

2,336

Reclassification of loss to net income

324

240

831

1,033

Items that will not be reclassified to net income

Change in fair value of investments

-

-

-

(776

)

Transfer of unrealized gain on investments to retained earnings on change in accounting method

-

-

-

(4,314

)

Share of other comprehensive income (loss) of an associate

(82

)

(6

)

(11

)

18

Remeasurement of defined benefit plans

2,051

(3,763

)

(8,245

)

(8,187

)

Other comprehensive income (loss), net of tax

(10,500

)

(6,269

)

50,461

(61,369

)

TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD

$

35,136

$

40,409

$

(21,826

)

$

68,699

See accompanying notes to the interim condensed consolidated financial statements.




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

Accumulated

other

Capital

Contributed

comprehensive

Retained

Total

stock

surplus

income

earnings

equity

BALANCE AT DECEMBER 31, 2018

$

680,157

$

42,016

$

158,395

$

270,981

$

1,151,549

Net income for the period

-

-

-

130,068

130,068

Compensation expense related to stock options

-

892

-

-

892

Dividends ($0.135 per share)

-

-

-

(11,126

)

(11,126

)

Exercise of employee stock options

2,036

(586

)

-

-

1,450

Repurchase of common shares

(8,708

)

-

-

(5,655

)

(14,363

)

Other comprehensive income (loss) net of tax

Remeasurement of defined benefit plans

-

-

-

(8,187

)

(8,187

)

Foreign currency translation differences

-

-

(51,479

)

-

(51,479

)

Change in fair value of investments

-

-

(776

)

-

(776

)

Transfer of unrealized gain on investments to retained earnings on change in accounting method

-

-

(4,314

)

4,314

-

Share of other comprehensive income of an associate

-

-

18

-

18

Cash flow hedging derivative and non-derivative financial instruments:

Unrealized gain in fair value of financial instruments

-

-

2,336

-

2,336

Reclassification of loss to net income

-

-

1,033

-

1,033

BALANCE AT SEPTEMBER 30, 2019

673,485

42,322

105,213

380,395

1,201,415

Net income for the period

-

-

-

51,153

51,153

Compensation expense related to stock options

-

303

-

-

303

Dividends ($0.045 per share)

-

-

-

(3,612

)

(3,612

)

Exercise of employee stock options

645

(176

)

-

-

469

Repurchase of common shares

(12,708

)

-

-

(6,897

)

(19,605

)

Other comprehensive income (loss) net of tax

Remeasurement of defined benefit plans

-

-

-

4,406

4,406

Foreign currency translation differences

-

-

(17,716

)

-

(17,716

)

Share of other comprehensive loss of an associate

-

-

(44

)

-

(44

)

Cash flow hedging derivative and non-derivative financial instruments:

Unrealized gain in fair value of financial instruments

-

-

1,399

-

1,399

Reclassification of loss to net income

-

-

255

-

255

BALANCE AT DECEMBER 31, 2019

661,422

42,449

89,107

425,445

1,218,423

Net loss for the period

-

-

-

(72,287

)

(72,287

)

Compensation expense related to stock options

-

1,812

-

-

1,812

Dividends ($0.15 per share)

-

-

-

(12,017

)

(12,017

)

Exercise of employee stock options

3,479

(1,005

)

-

-

2,474

Repurchase of common shares

(2,474

)

-

-

(893

)

(3,367

)

Other comprehensive income (loss) net of tax

Remeasurement of defined benefit plans

-

-

-

(8,245

)

(8,245

)

Foreign currency translation differences

-

-

59,153

-

59,153

Share of other comprehensive loss of an associate

-

-

(11

)

-

(11

)

Cash flow hedging derivative and non-derivative financial instruments:

Unrealized loss in fair value of financial instruments

-

-

(1,267

)

-

(1,267

)

Reclassification of loss to net income

-

-

831

-

831

BALANCE AT SEPTEMBER 30, 2020

$

662,427

$

43,256

$

147,813

$

332,003

$

1,185,499

See accompanying notes to the interim condensed consolidated financial statements.




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

Three months ended

Three months ended

Nine months ended

Nine months ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES:

Net Income (loss) for the period

$

45,636

$

46,678

$

(72,287

)

$

130,068

Adjustments for:

Depreciation of property, plant and equipment and right-of-use assets

55,237

50,200

166,044

146,931

Amortization of customer contracts and relationships

323

536

964

1,569

Amortization of development costs

2,873

3,568

8,690

10,251

Impairment of assets (note 9)

-

-

85,783

18,502

Unrealized loss on foreign exchange forward contracts

2,214

627

2,533

368

Loss (gain) on warrants

-

(571

)

-

239

Finance expense (including interest on lease liabilities)

9,138

9,345

26,886

29,085

Income tax expense (benefit)

18,636

16,129

(86

)

52,156

Loss (gain) on disposal of property, plant and equipment

237

(947

)

237

(1,206

)

Deferred and restricted share units expense (benefit)

(236

)

1,833

226

3,761

Stock options expense

604

264

1,812

892

Share of loss of an associate

300

818

1,881

1,330

Pension and other post-retirement benefits expense

1,036

1,177

3,570

3,386

Contributions made to pension and other post-retirement benefits

(1,992

)

(1,616

)

(5,328

)

(4,249

)

134,006

128,041

220,925

393,083

Changes in non-cash working capital items:

Trade and other receivables

(143,374

)

1,795

(1,792

)

(53,146

)

Inventories

(62,073

)

28,596

(84,780

)

27,309

Prepaid expenses and deposits

316

(2,137

)

6,730

(5,002

)

Trade, other payables and provisions

268,806

(38,097

)

158,959

7,076

197,681

118,198

300,042

369,320

Interest paid

(8,895

)

(9,243

)

(27,375

)

(31,412

)

Income taxes paid

(10,262

)

(11,885

)

(24,473

)

(52,172

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

$

178,524

$

97,070

$

248,194

$

285,736

FINANCING ACTIVITIES:

Increase in long-term debt (net of additions to deferred financing fees)

265

7,756

103,561

92,483

Repayment of long-term debt

(4,481

)

(3,811

)

(12,696

)

(27,193

)

Principal payments of lease liabilities

(8,606

)

(6,873

)

(23,885

)

(20,984

)

Dividends paid

(4,004

)

(3,724

)

(11,614

)

(11,265

)

Exercise of employee stock options

1,618

528

2,474

1,450

Repurchase of common shares

-

(11,899

)

(3,367

)

(38,234

)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

$

(15,208

)

$

(18,023

)

$

54,473

$

(3,743

)

INVESTING ACTIVITIES:

Purchase of property, plant and equipment (excluding capitalized interest)*

(72,347

)

(57,431

)

(188,233

)

(217,877

)

Business acquisition (excluding cash acquired) (note 2)

-

-

(10,503

)

-

Capitalized development costs

(3,902

)

(2,624

)

(8,557

)

(8,056

)

Investment in NanoXplore Inc. (note 8)

-

(14,478

)

(5,000

)

(29,477

)

Proceeds on disposal of property, plant and equipment

42

4,774

308

5,489

Upfront recovery of development costs incurred

-

767

-

767

NET CASH USED IN INVESTING ACTIVITIES

$

(76,207

)

$

(68,992

)

$

(211,985

)

$

(249,154

)

Effect of foreign exchange rate changes on cash and cash equivalents

1,106

1,214

4,394

(1,592

)

INCREASE IN CASH AND CASH EQUIVALENTS

88,215

11,269

95,076

31,247

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

125,834

90,140

118,973

70,162

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

214,049

$

101,409

$

214,049

$

101,409

*As at September 30, 2020, $40,731 (December 31, 2019 - $49,120) of purchases of property, plant and equipment remain unpaid and are recorded in trade and other payables and provisions.

See accompanying notes to the interim condensed consolidated financial statements.