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Press release from Marketwire

Martinrea International Inc.: Releases Q2 2013 Results and Announces Dividend

Wednesday, August 07, 2013

Martinrea International Inc.: Releases Q2 2013 Results and Announces Dividend

17:07 EDT Wednesday, August 07, 2013

TORONTO, ONTARIO--(Marketwired - Aug. 7, 2013) - Martinrea International Inc. (TSX:MRE), 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 second quarter ended June 30, 2013.

Martinrea currently employs over 12,000 skilled and motivated people in 38 plants in Canada, the United States, Mexico, Brazil, Europe, and China. 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 second quarter ended June 30, 2013 ("MDA") dated as of August 7, 2013, the Company's unaudited interim condensed consolidated financial statements for the second quarter ended June 30, 2013 (the "unaudited consolidated financial statements") and the Company's Annual Information Form for the financial year ended December 31, 2012, can be found at www.sedar.com.

Non-IFRS Measures

The Company prepares its financial statements in accordance with International Financial Reporting Standards ("IFRS"). However, the Company has included certain non-IFRS 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-IFRS 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 Tables A and B under "Adjustments to Net Income" of this Press Release.

REVENUE

Three months ended June 30, 2013 to three months ended March 31, 2013 comparison

Three months ended
June 30,
2013
Three months ended
March 31,
2013
Change % Change
North America $ 651,799 $ 610,531 41,268 6.8 %
Europe 159,959 141,811 18,148 12.8 %
Rest of World 14,516 16,780 (2,264 ) (13.5 %)
Revenue $ 826,274 $ 769,122 57,152 7.4 %

The Company's consolidated revenues for the second quarter of 2013 increased by $57.2 million or 7.4% to $826.3 million as compared to $769.1 million for the first quarter of 2013. The total overall increase in revenues was driven by increases in the Company's North America and Europe operating segments, partially offset by a quarter-over-quarter decrease in revenues in the Rest of the World.

Revenues for the second quarter of 2013 in the Company's North America operating segment increased by $41.3 million or 6.8% to $651.8 million from $610.5 million for the first quarter of 2013. Revenues for North America for the second quarter of 2013 were negatively impacted by an $11.4 million quarter-over-quarter decrease in tooling revenues, which are typically dependent on the timing of tooling construction and final inspection and acceptance by the customer. Excluding tooling revenues, revenues in the North America operating segment increased by $52.7 million or 9.2%, comparing favourably with overall North American OEM light vehicle production for the second quarter of 2013, which increased sequentially by 4.4%. The quarter-over-quarter increase in revenues in the Company's North America operating segment exceeded the overall increase in North American OEM light vehicle production due generally to a favourable sales mix, including the ramp up of the new Ford Fusion program, which launched in Mexico and reached full production volumes in the second quarter of 2013, and higher volumes on various Chrysler platforms. Production revenues for the second quarter of 2013 were also positively impacted by $11.3 million representing the quarter-over-quarter impact of foreign exchange on the translation of U.S. dollar denominated revenue.

Revenues for the second quarter of 2013 in the Company's Europe operating segment, comprised predominantly of the European operations of Martinrea Honsel, increased by $18.1 million or 12.8% to $160.0 million from $141.8 million for the first quarter of 2013. Revenues for Europe for the second quarter of 2013 were positively impacted by a $7.7 million increase in tooling revenues, which are typically dependent on the timing of tooling construction and final inspection and acceptance by the customer. Excluding tooling revenues, revenues for the Europe operating segment increased by $10.4 million or 7.9%. The increase was due to the continued ramp-up of new incremental aluminum business with Jaguar LandRover during the quarter, a $0.5 million benefit from the impact of foreign exchange on the translation of Euro denominated revenue, and generally higher quarter-over-quarter production volumes in Germany and Spain, which exceeded the overall trend in OEM light vehicle and engine production in Europe due to the Company's high concentration of business in Europe geared to the luxury vehicle segment reliant on export outside the Euro zone.

Revenues for the second quarter of 2013 in the Company's Rest of World operating segment, currently comprised of the Brazilian operations of Martinrea Honsel and a new facility in China in its early stages, decreased by $2.3 million to $14.5 million from $16.8 million in the first quarter of 2013. The decrease can be attributed to a quarter-over-quarter decline in tooling revenues of $2.5 million partially offset by a $0.3 million benefit from the impact of foreign exchange on the translation of Brazilian Real denominated revenue. Excluding these items, revenues in the Rest of World operating segment remained relatively flat quarter-over-quarter.

Overall tooling revenues decreased by $6.2 million from $50.7 million for the first quarter of 2013 to $44.5 million for the second quarter of 2013.

Three months ended June 30, 2013 to three months ended June 30, 2012 comparison

Three months ended
June 30,
2013
Three months ended
June 30,
2012
Change % Change
North America $ 651,799 $ 603,190 48,609 8.1 %
Europe 159,959 145,195 14,764 10.2 %
Rest of World 14,516 14,168 348 2.5 %
Revenue $ 826,274 $ 762,553 63,721 8.4 %

The Company's consolidated revenues for the second quarter of 2013 increased by $63.7 million or 8.4% to $826.3 million as compared to $762.6 million for the second quarter of 2012. Revenues across all operating segments increased year-over-year.

Revenues for the second quarter of 2013 in the Company's North America operating segment increased by $48.6 million or 8.1% to $651.8 million from $603.2 million for the second quarter of 2012. Revenues for North America for the second quarter of 2013 were negatively impacted by a $26.9 million quarter-over-quarter decrease in tooling revenues, which are typically dependent on the timing of tooling construction and final inspection and acceptance by the customer. Excluding tooling revenues, revenues in the North America operating segment increased by $75.5 million or 13.8%. The increase was generally due to overall improved North American OEM light vehicle production, the launch of new programs during or subsequent to the second quarter 2012, including the Ford Escape and Fusion programs, among others, and the impact of foreign exchange on the translation of U.S. dollar denominated revenue, which had a positive impact on production revenue for the second quarter of 2013 of $9.6 million as compared to the second quarter of 2012.

Revenues for the second quarter of 2013 in the Company's Europe operating segment, comprised predominantly of the European operations of Martinrea Honsel, increased by $14.8 million or 10.2% to $160.0 million from $145.2 million for the second quarter of 2012. The increase was due to the launch of new incremental aluminum business with Jaguar LandRover at the end of 2012, an $8.4 million year-over-year increase in tooling revenues, a $2.5 million benefit from the impact of foreign exchange on the translation of Euro denominated revenue, and year-over-year increased production revenues in the Company's plant in Slovakia which continues to ramp-up and launch its backlog of business.

Revenues for the second quarter of 2013 in the Company's Rest of World operating segment currently comprised of the Brazilian operations of Martinrea Honsel and a new facility in China in its early stages, increased $0.3 million to $14.5 million from $14.2 million in the second quarter of 2012. The increase can be attributed to an increase in OEM light and medium-heavy vehicle production in Brazil and a slight year-over-year increase in tooling revenues of $0.1 million. The increase in revenues in the Rest of World operating segment would have been higher had it not been for the translation of Brazilian Real denominated revenue which had a negative impact on revenue for the quarter of $0.6 million as compared to the second quarter of 2012.

Overall tooling revenues decreased by $18.4 million from $62.9 million for the second quarter of 2012 to $44.5 million for the second quarter of 2013.

Six months ended June 30, 2013 to six months ended June 30, 2012 comparison

Six months ended
June 30, 2013
Six months ended
June 30, 2012
Change % Change
North America $ 1,262,330 $ 1,171,558 90,772 7.7 %
Europe 301,770 298,476 3,294 1.1 %
Rest of World 31,296 28,173 3,123 11.1 %
Revenue $ 1,595,396 $ 1,498,207 97,189 6.5 %

The Company's revenues for the six months ended June 30, 2013 increased by $97.2 million or 6.5% to $1,595.4 million as compared to $1,498.2 million for the six months ended June 30, 2012. Revenues increased year-over-year across all operating segments.

Revenues for the six months ended June 30, 2013 in the Company's North America operating segment increased by $90.8 million or 7.7% to $1,262.3 million from $1,171.6 million for the six months ended June 30, 2012. Revenues for North America for the six months ended June 30, 2013 were negatively impacted by a $37.6 million year-over-year decrease in tooling revenues, which are typically dependent on the timing of tooling construction and final inspection and acceptance by the customer. Excluding tooling revenues, revenues in the North America operating segment increased by $128.4 million or 12.0%. The increase was generally due to overall improved North American OEM light vehicle production, the launch of new programs during 2012, including the Ford Escape and Fusion programs, among others, and a $3.5 million benefit from the impact of foreign exchange on the translation of U.S. dollar denominated revenue.

Revenues for the six months ended June 30, 2013 in the Company's Europe operating segment, comprised predominately of the European operations of Martinrea Honsel, increased by $3.3 million or 1.1%, to $301.8 million from $298.5 million for the six months ended June 30, 2012. Revenues for Europe for the six months ended June 30, 2013 were positively impacted by a $15.0 million year-over-year increase in tooling revenues, which are typically dependent on the timing of tooling construction and final inspection and acceptance by the customer. Excluding tooling revenues, revenues in the Europe operating segment decreased by $11.7 million or 4.1%. The decrease was generally due to a year-over-year decline in overall OEM light and medium-heavy vehicle production in Europe, partially offset by a $2.0 million benefit from the impact of foreign exchange on the translation of Euro denominated revenue, the launch of new incremental aluminum business with Jaguar LandRover at the end of 2012 and year-over-year increased production revenues in the Company's plant in Slovakia which continues to ramp up and launch its backlog of business.

Revenues for the six months ended June 30, 2013 in the Company's Rest of World operating segment increased by $3.1 million or 11.1% to $31.3 million from $28.2 million for the six months ended June 30, 2012. The increase can be attributed to an increase in OEM light and medium-heavy vehicle production in Brazil and a year-over-year increase in tooling revenues of $2.3 million. The increase in revenues in the Rest of World operating segment would have been higher had it not been for the translation of Brazilian Real denominated revenue which had a negative impact on revenue for the six months ended June 30, 2013 of $2.7 million as compared to the six month period ended June 30, 2012.

Overall tooling revenues decreased by $20.3 million from $115.4 million for the six months ended June 30, 2012 to $95.1 million for the six months ended June 30, 2013.

GROSS MARGIN

Three months ended June 30, 2013 to three months ended March 31, 2013 comparison

Three months ended
June 30, 2013
Three months ended
March 31, 2013
Change % Change
Gross margin $ 91,183 $ 75,715 15,468 20.4 %
% of revenue 11.0 % 9.8 %

Gross margin percentage for the second quarter of 2013 of 11.0% increased as a percentage of revenue by 1.2% as compared to the gross margin percentage for the first quarter of 2013 of 9.8%.

The quarter-over-quarter increase in gross margin percentage can be attributed to higher capacity utilization from increased quarter-over-quarter production volumes in North America and Europe and ongoing productivity and efficiency improvements at certain operating facilities, including a reduction in launch costs and other launch-related operational expenses stemming from the significant ramp up of new program launches during the second half of 2012 and improving productivity and efficiency in Germany. Operational expenses at several of the Company's operating facilities impacted the gross margin for the quarter; however, progress continues to be made in improving efficiencies.

The Company's gross margin percentage for the second quarter of 2013 also continued to be positively impacted by new program launches, including the Ford Fusion program which successfully launched in Mexico at the end of 2012 and continued to ramp up during the first six months of 2013. Gross margin is expected to continue to be positively impacted by incremental new work as the Company works through the launch of a significant backlog of new business over the next twenty-four months including the following programs: the next wave of Ford CD4 in China, Europe and North America, Ford Transit, Ford 2.3L aluminum engine block, GM K2XX (pick-ups and SUVs), GM Omega Aluminum engine cradle, GM 31XX (small pick-ups), Chrysler 200, Jaguar LandRover aluminum swivel bearing, Nissan aluminum I4 engine block, Daimler aluminum transmission casing and engine cradles for the VW Golf and BMW X5.

Three months ended June 30, 2013 to three months ended June 30, 2012 comparison

Three months ended
June 30, 2013
Three months ended
June 30, 2012
Change % Change
Gross margin $ 91,183 $ 76,067 15,116 19.9 %
% of revenue 11.0 % 10.0 %

The gross margin percentage for the second quarter of 2013 of 11.0% increased as a percentage of revenue by 1.0% as compared to the gross margin percentage for the second quarter of 2012 of 10.0%. Excluding the unusual and other items recorded as cost of sales during the second quarter of 2012 in Table A under "Adjustments to Net Income", which included the impact of a major equipment failure at one of the Company's facilities in the U.S., gross margin percentage for the second quarter of 2013 increased as a percentage of revenue by 0.4% to 11.0% from 10.6% for the second quarter of 2012.

The increase in gross margin as a percentage of revenue was generally due to:

  • higher capacity utilization from improved year-over-year production volumes in North America;
  • productivity and efficiency improvements at certain operating facilities, including cost savings from the workforce reductions in Germany completed at the end of 2012; and
  • a decrease in tooling revenues which typically earn low or no margins for the Company.

These factors were partially offset by:

  • an increase in integrator or assembly work which typically generates lower margins as a percentage of revenue, although return on capital tends to be higher;
  • pre-operating costs incurred at the Company's new facility in China which opened during the second half of 2012; and
  • launch costs and other launch-related operational expenses stemming from the significant ramp up of new program launches during the second half of 2012.

Six months ended June 30, 2013 to six months ended June 30, 2012 comparison

Six months ended
June 30, 2013
Six months ended
June 30, 2012
Change % Change
Gross margin $ 166,898 $ 156,376 10,522 6.7 %
% of revenue 10.5 % 10.4 %

Gross margin percentage for the six months ended June 30, 2013 of 10.5% increased as a percentage of revenue by 0.1% as compared to 10.4% for the six months ended June 30, 2012. Excluding the unusual and other items recorded as cost of sales during the six months ended June 30, 2012 in Table B under "Adjustments to Net Income", which included the impact of a major equipment failure at one of the Company's facilities in the U.S., gross margin percentage for the six months ended June 30, 2013 decreased as a percentage of revenue by 0.2% to 10.5% from 10.7% for the six months ended June 30, 2012.

The decrease in adjusted gross margin as a percentage of revenue was generally due to:

  • an increase in integrator or assembly work which typically generates lower margins as percentage of revenue, although return on capital tends to be higher;
  • lower year-over-year production volumes in Europe;
  • pre-operating costs incurred at the Company's new facility in China which opened during the second half of 2012;
  • launch costs and other launch-related operational expenses stemming from the significant ramp up of new program launches during the second half of 2012.

These factors were partially offset by:

  • higher capacity utilization from improved year-over-year production volumes in North America and the Rest of World operating segments;
  • productivity and efficiency improvements at certain operating facilities, including cost savings from the workforce reductions in Germany completed at the end of 2012; and
  • a decrease in tooling revenues which typically earn low or no margins for the Company.

ADJUSTMENTS TO NET INCOME

(ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

Adjusted net earnings excludes certain unusual and other items, as set out in the following tables and described in the notes thereto. Management uses adjusted net earnings 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.

No unusual and other items were incurred during the first six months of 2013.

TABLE A - Three months ended June 30, 2013 to three months ended June 30, 2012
Three months ended Three months ended
June 30, 2013 June 30, 2012 (a)-(b)
(a) (b) Change
NET EARNINGS (A) 27,514 14,372 13,142
Add back - Unusual Items:
Employee related severance costs (1) - 1,054 (1,054 )
Other restructuring costs (1) - 1,413 (1,413 )
Add back - Other Items:
Executive separation agreement (recorded in SG&A) (2) - 5,177 (5,177 )
Impact of a major equipment failure at an operating facility in the U.S. (recorded as Cost of Sales) (3) - 4,503 (4,503 )
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX - 12,147 (12,147 )
Tax impact of above items - (2,367 ) 2,367
Non-controlling interest on above items, after tax - (102 ) 102
TOTAL UNUSUAL AND OTHER ITEMS AFTER TAX (B) - 9,678 (9,678 )
ADJUSTED NET EARNINGS (A + B) 27,514 24,050 3,464
Number of Shares Outstanding - Basic ('000) 83,984 82,975
Adjusted Basic Net Earnings Per Share 0.33 0.29
Number of Shares Outstanding - Diluted ('000) 84,591 83,715
Adjusted Diluted Net Earnings Per Share 0.33 0.29
TABLE B - Six months ended June 30, 2013 to six months ended June 30, 2012
Six months ended Six months ended
June 30, 2013 June 30, 2012 (a-b)
(a) (b) Change
NET EARNINGS (A) 47,402 37,427 9,975
Add back - Unusual Items:
Employee related severance costs (1) - 1,900 (1,900 )
Other restructuring costs (1) - 2,731 (2,731 )
Add back - Other Items:
Executive separation agreement (recorded in SG&A) (2) - 5,177 (5,177 )
Impact of a major equipment failure at an operating facility in the U.S. (recorded as Cost of Sales) (3) - 4,503 (4,503 )
Transaction and integration costs associated with the Honsel acquisition (recorded as SG&A) (4) - 581 (581 )
TOTAL UNUSUAL AND OTHER ITEMS BEFORE TAX - 14,892 (14,892 )
Tax impact of above items - (2,895 ) 2,895
Non-controlling interest on above items, after tax - (637 ) 637
TOTAL UNUSUAL AND OTHER ITEMS AFTER TAX (B) - 11,360 (11,360 )
ADJUSTED NET EARNINGS (A + B) 47,402 48,787 (1,385 )
Number of Shares Outstanding - Basic ('000) 83,876 82,894
Adjusted Basic Net Earnings Per Share 0.57 0.59
Number of Shares Outstanding - Diluted ('000) 84,514 83,724
Adjusted Diluted Net Earnings Per Share 0.56 0.58

(1) Employee Related Severance and Other Restructuring Costs

As part of the acquisition of Honsel, a certain level of restructuring was planned in order to be cost competitive over the long term, in particular at the Company's German facilities in Meschede and Soest. The restructuring efforts commenced immediately after the closing of the acquisition on July 29, 2011. In connection with these restructuring activities, $0.8 million of employee related severance was recognized during the six months ended June 30, 2012, of which $0.2 million was recognized during the second quarter of 2012. No such restructuring costs were incurred during the first six months of 2013. However, additional employee related severance associated with the Martinrea Honsel operations may be incurred during the remainder of 2013.

In addition, during the fourth quarter of 2011, the Company began the process of closing one of its small operating facilities in Mexico. The existing business and equipment of this facility was moved to other Company facilities in Mexico including a new facility the Company opened in Silao, Mexico in 2011. Restructuring costs relating to this closure amounted to $2.9 million for the six months ended June 30, 2012, of which $1.4 million was incurred in the second quarter of 2012, consisting primarily of employee related severance and the dismantling and transporting of PP&E between Company facilities. The closure of this facility was completed during the fourth quarter of 2012. As such, no further costs related to this closure are expected to be incurred.

Costs associated with other restructuring activities incurred during the second quarter of 2012 totaled $0.9 million for employee related severance relating to the right sizing of certain other manufacturing facilities.

(2) Executive separation agreement

On June 29, 2012, the Company announced that Nat Rea stepped down as Vice Chairman and Director of Martinrea, as of such date, to pursue other opportunities. As part of the separation agreement and based on the terms of his employment contract, the Company paid Mr. Rea $5.2 million which was expensed during the second quarter of 2012 and included in SG&A expense.

(3) Impact of major equipment failure at an operating facility in the U.S.

During the month of June 2012, a press in one of the Company's U.S. operating facilities experienced a significant failure and was not operational for approximately 23 days. As a consequence and due to the lack of press capacity at the facility, approximately thirty dies were outsourced to external stamping companies which resulted in the following incremental costs:

  • external stamping fees;
  • transportation costs to move the dies to the external stamping companies and stamped parts back to the Martinrea operating facility for assembly;
  • additional manpower to ensure the quality of parts stamped by external suppliers;
  • sorting and rework costs; and
  • dedicated external contractor support to get the press operational again.

These incremental costs, which totaled $4.5 million for the second quarter of 2012, were non-recurring in nature and had a significant impact on the performance of the facility during the months of June and July 2012 and part of August.

(4) Transaction costs associated with the acquisition of Honsel

On July 29, 2011, the Company closed the purchase of the operations 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 $0.6 million in transaction and integration costs related to the acquisition during the first quarter of 2012.

NET EARNINGS

(ATTIBUTABLE TO EQUITY HOLDERS OF THE COMPANY)

Three months ended June 30, 2013 to three months ended March 31, 2013 comparison

Three months ended
June 30, 2013
Three months ended
March 31, 2013
Change % Change
Net earnings $ 27,514 $ 19,888 7,626 38.3 %
Adjusted net earnings $ 27,514 $ 19,888 7,626 38.3 %
Earnings per common share
Basic $ 0.33 $ 0.24
Diluted $ 0.33 $ 0.24
Adjusted earnings per common share
Basic $ 0.33 $ 0.24
Diluted $ 0.33 $ 0.24

Net earnings for the second quarter of 2013 increased to $27.5 million or $0.33 per share, on a basic and diluted basis, from $19.9 million or $0.24 per share, on a basic and diluted basis, for the first quarter of 2013. There were no unusual or other items incurred during the first six months of 2013.

The increase in net earnings can be predominantly attributed to increased quarter-over-quarter production volumes in North America and Europe and ongoing productivity and efficiency improvements at certain operating facilities, including a reduction in launch costs and other launch-related operational expenses stemming from the significant ramp up of new program launches during the second half of 2012, partially offset by quarter-over-quarter increases in SG&A and depreciation expense, as previously discussed. The contribution of Martinrea Honsel to net earnings increased from $0.04 per share in the first quarter of 2013 to $0.06 per share in the second quarter of 2013, due mainly to the increased production volumes and ongoing productivity and efficiency improvements at certain operating locations, in particular in Germany. The Company continues to focus on improving the productivity and efficiency of the German operations to make it cost competitive for future growth.

Three months ended June 30, 2013 to three months ended June 30, 2012 comparison

Three months ended
June 30, 2013
Three months ended
June 30, 2012
Change % Change
Net earnings $ 27,514 $ 14,372 13,142 91.4 %
Adjusted net earnings $ 27,514 $ 24,050 3,464 14.4 %
Earnings per common share
Basic $ 0.33 $ 0.17
Diluted $ 0.33 $ 0.17
Adjusted earnings per common share
Basic $ 0.33 $ 0.29
Diluted $ 0.33 $ 0.29

Net earnings for the second quarter of 2013 of $27.5 million increased by $13.1 million from $14.4 million for the second quarter of 2012, before adjustments. Excluding unusual and other items incurred during the second quarter of 2012 as explained in Table A under "Adjustments to Net Income", the net earnings for the second quarter of 2013 increased to $27.5 million or $0.33 per share, on a basic and diluted basis, in comparison to adjusted net earnings of $24.0 million or $0.29 per share, on a basic and diluted basis, for the second quarter of 2012.

Net earnings for the second quarter of 2013, as compared to the second quarter of 2012, were positively impacted by overall improved year-over-year production volumes in North America; the launch of new programs during or subsequent to the second quarter of 2012, including the Ford Escape and Fusion programs and new incremental aluminum business with Jaguar LandRover; and ongoing productivity and efficiency improvements at certain operating facilities, including cost savings from the workforce reductions in Germany completed at the end of 2012. The positive impact was partially offset by the following:

  • launch costs and other launch-related operational expenses stemming from the significant ramp-up of new program launches during the second half of 2012;
  • pre-operating costs incurred at the Company's new operating facility in China which opened during the second half of 2012; and
  • year-over-year increases in SG&A expense, depreciation expense and interest expense on higher debt levels.

The contribution of Martinrea Honsel to net earnings for the second quarter of 2013 increased to $0.06 per share from $0.05 per share in the second quarter of 2012 due mainly to the addition of new incremental aluminum business with Jaguar LandRover and ongoing productivity and efficiency improvements at certain operating locations, in particular in Germany and Brazil.

Six months ended June 30, 2013 to six months ended June 30, 2012 comparison

Six months ended
June 30, 2013
Six months ended
June 30, 2012
Change % Change
Net earnings $ 47,402 $ 37,427 9,975 26.7 %
Adjusted net earnings $ 47,402 $ 48,787 (1,385 ) -2.8 %
Earnings per common share
Basic $ 0.57 $ 0.45
Diluted $ 0.56 $ 0.45
Adjusted earnings per common share
Basic $ 0.57 $ 0.59
Diluted $ 0.56 $ 0.58

Net earnings for the six months ended June 30, 2013 of 47.4 million increased by $10.0 million from $37.4 million for the six months ended June 30, 2012, before adjustments. Excluding unusual and other items incurred during 2012 as explained in Table B under "Adjustments to Net Income", the net earnings for the six months ended June 30, 2013 decreased slightly to $47.4 million or $0.57 per share, on a basic basis, and $0.56 per share, on a diluted basis, in comparison to adjusted net earnings of $48.8 million or $0.59 per share, on a basic basis, and $0.58 per share, on a diluted basis, for the six months ended June 30, 2012.

Net earnings for the six months ended June 30, 2013, as compared to the comparative period of 2012, were positively impacted by overall improved year-over-year production volumes in North America and the Rest of the World operating segments; the launch of new programs during or subsequent to 2012, which included the Ford Escape and Fusion program and new incremental aluminum business with Jaguar LandRover; and ongoing productivity and efficiency improvements at certain operating facilities, including cost savings from the workforce reductions in Germany completed at the end of 2012. The positive impact was more than offset by the following:

  • lower overall year-over-year production volumes in Europe;
  • launch costs and other launch-related operational expenses stemming from the significant ramp-up of new program launches during the second half of 2012;
  • pre-operating costs incurred at the Company's new operating facility in China which opened during the second half of 2012; and
  • year-over-year increases in SG&A expense, depreciation expense and interest expense on higher debt levels.

The contribution of Martinrea Honsel to net earnings decreased from $0.11 per share for the six months ended June 30, 2012 to $0.10 per share for the six months ended June 30, 2013, due mainly to the decrease in year-over-year production volumes in Europe, partially offset by ongoing productivity and efficiency improvements at certain operating locations, in particular in Germany and Brazil.

CAPITAL EXPENDITURES

Three months ended June 30, 2013 to three months ended March 31, 2013 comparison

Three months ended
June 30, 2013
Three months ended
March 31, 2013
Change % Change
Capital Expenditures $ 39,791 $ 56,705 (16,914 ) (29.8 %)

Capital expenditures decreased by $16.9 million to $39.8 million in the second quarter of 2013 from $56.7 million in the first quarter of 2013. Capital expenditures incurred in both the second and first quarters of 2013 relate mainly to the purchase of new program equipment for newly awarded business currently ramping up and scheduled to launch over the next 24 months.

Three months ended June 30, 2013 to three months ended June 30, 2012 comparison

Three months ended
June 30, 2013
Three months ended
June 30, 2012
Change % Change
Capital Expenditures $ 39,791 $ 53,065 (13,274 ) (25.0 %)

Capital expenditures decreased by $13.3 million to $39.8 million in the second quarter of 2013 from $53.1 million in the second quarter of 2012. While capital expenditures are made to refurbish or replace assets consumed in the normal course of business and for productivity improvements, a large portion of the investment in the second quarter of 2013 was for manufacturing equipment for programs that will be launching over the next 24 months.

Six months ended June 30, 2013 to six months ended June 30, 2012 comparison

Six months ended
June 30, 2013
Six months ended
June 30, 2012
Change % Change
Capital Expenditures $ 96,496 $ 87,298 9,198 10.5 %

Capital expenditures increased by $9.2 million to $96.5 million for the six months ended June 30, 2013 from $87.3 million for the six months ended June 30, 2012. The increase in capital expenditures incurred in 2013 can be attributed to the purchase of new program equipment in response to newly awarded business scheduled to launch over the next 24 months.

Martinrea also announced that as part of the Company's long-term strategy to maximize shareholder value, its board of directors has approved a quarterly dividend payment in the amount of $0.03 per share ($0.12 on an annualized basis). The quarterly dividend of $0.03 per share will be issued to shareholders of record as of September 30, 2013, and will be paid on October 15, 2013.

The declaration and payment of future dividends will be subject to the Company's cash requirements as well as the satisfaction of statutory tests. In addition, the Board will assess future year's dividend payout levels, from time to time, in light of the Company's financial performance and then current and anticipated business needs at that time.

Nick Orlando, Martinrea's President and Chief Executive Officer, stated: "We are pleased with the second quarter results. Our second quarter showed record revenues and earnings, which are an indication of continuing improvements in our operations in North America and elsewhere. Both Martinrea Classic and Martinrea Honsel operations posted better results than last year and last quarter. The results from Europe are encouraging despite the continued economic slowdown in Europe, but our cost cutting efforts and increasing efficiencies are taking hold. We continue to focus on operational improvements at all of our plants, everywhere, not just those that experienced significant launch activity in the last year, and that continued focus is working for us. We now have 38 plants, including our first plant in China, and we aim to make each one better over time. We also continue to see new business and growth opportunities. We are experiencing significant quoting activity in all our areas of business, that we anticipate will result in new product awards later this year, and we have won some new incremental business since our last quarterly release, totalling $65 million in annual business, as follows: $20 million of fluid management product for GM on its E2XX platform launching in 2015; $25 million in incremental volume for Jaguar Land Rover on the aluminum swivel bearing for our Martinrea Honsel operations in Spain, as previously announced, bringing the annualized revenue on this piece of business up to $65 million; and $20 million in incremental module assembly business with GM launching in 2015."

Fred Di Tosto, Martinrea's Chief Financial Officer, stated: "Revenues for our second quarter, excluding $45 million in tooling revenues, were approximately $781 million, slightly above our quarterly sales guidance previously provided, and record second quarter revenues for us. In the second quarter of 2013, our earnings per share on a basic and diluted basis was $0.33, within our quarterly earnings guidance, and a nice improvement from the $0.24 in earnings per share generated in the first quarter of 2013. We are again pleased to announce that we did not have any unusual or other items to report in the second quarter. Our Martinrea Honsel operations contributed $0.06 per share to our second quarter earnings, an increase over the first quarter of 2013, where the operations generated $0.04 in earnings per share, and this despite continuing softness in overall European volumes. A number of the efficiencies we have made in Europe, especially in workforce adjustments in Germany, are taking hold. In addition to the 1% quarter-over-quarter increase in gross margin percentage experienced in the first quarter of the year, we saw gross margin for the second quarter increase as a percentage of revenue by 1.2% quarter-over-quarter to 11%. We expect gross margin to continue to improve over time as we improve efficiencies and reduce manufacturing costs."

Rob Wildeboer, Martinrea's Executive Chairman, stated: "The 2013 financial year had a very good first half, and we believe it will be a record year for revenues and earnings for us. Our third quarter is expected to generate record revenues for the quarter (excluding tooling revenues) in the range of $700 to $740 million, and we believe our earnings per share will be in the range of 24 to 28 cents per share, a record third quarter for us from an earnings perspective. As with the first two quarters, we do not expect any significant unusual or other items to report. As a company we remain focused on growing shareholder value over time, by making good decisions to grow our business profitably and prudently over the long term. As noted, last quarter we announced our first dividend, which was well received by our shareholders. Our next dividend of $0.03 per share will be paid to shareholders of record on September 30, 2013 on or about October 15, 2013."

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 revenue and gross margin percentage and earnings per share (and the expectation as to absence of unusual items, including earnings and revenue guidance), statements as to the growth of the Company and pursuit of its strategies, statements as to the payment of dividends, the launching of new metal forming and fluid systems programs including expectations as to the financial impact of launches and new business awards, and statements as to the progress of operational improvements and the continuation of operational efficiencies, the opportunity to increase volumes, sales, statements regarding the continuation of monitoring, managing and rationalization of expenses (including of Martinrea Honsel), the reduction in certain costs (including the reduction of costs due to operational improvements), 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 corresponding increased volumes sales and production, statements as to the benefits of the Honsel acquisition and the Company's ability to capitalize on opportunities in the automotive industry, third quarter 2013 revenue and earnings per share estimates and 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;
  • financial viability of suppliers;
  • the Company's reliance on critical suppliers and on suppliers for components and the risk that suppliers will not be able to supply components on a timely basis or in sufficient quantities;
  • competition;
  • the increasing pressure on the Company to absorb costs related to product design and development, engineering, program management, prototypes, validation and tooling;
  • increased pricing of raw materials;
  • outsourcing and insourcing trends;
  • 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;
  • costs associated with rationalization of production facilities;
  • launch costs;
  • 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;
  • a shift away from technologies in which the Company is investing;
  • competition with low cost countries;
  • the Company's ability to shift its manufacturing footprint to take advantage of opportunities in emerging markets;
  • risks of conducting business in foreign countries, including China, Brazil and other growing markets;
  • potential tax exposure;
  • a change in the Company's mix of earnings between jurisdictions with lower tax rates and those with higher tax rates, as well as the Company's ability to fully benefit from tax losses;
  • under-funding of pension plans; 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, whether as a result of new information, future events or otherwise, except as required by law.

A conference call to discuss those results will be held on Thursday, August 8, 2013 at 8:00 a.m. (Toronto time) which can be accessed by dialing (416) 340-8410 or toll free (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 (905) 694-9451 or toll free (800) 408-3053 (conference id - 4555837#). The rebroadcast will be available until August 22, 2013.

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

Martinrea International Inc.
Condensed Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)
Note June 30,
2013
December 31,
2012
ASSETS
Cash and cash equivalents $ 23,516 $ 29,422
Trade and other receivables 4 552,031 438,091
Inventories 5 315,329 299,179
Prepaid expenses and deposits 11,877 12,951
Income taxes recoverable 5,575 4,203
Current portion of promissory note 2,438 2,378
TOTAL CURRENT ASSETS 910,766 786,224
Property, plant and equipment 6 806,693 727,250
Deferred income tax assets 103,095 96,801
Intangible assets 7 61,237 56,244
TOTAL NON-CURRENT ASSETS 971,025 880,295
TOTAL ASSETS $ 1,881,791 $ 1,666,519
LIABILITIES
Trade and other payables 8 $ 574,531 $ 496,110
Provisions 9 17,891 28,130
Income taxes payable 12,828 10,185
Current portion of long-term debt 10 30,951 26,389
TOTAL CURRENT LIABILITIES 636,201 560,814
Long-term debt 10 401,782 357,775
Pension and other post-retirement benefits 55,084 64,779
Deferred income tax liabilities 64,473 57,642
Provisions 9 610 849
Other financial liability 3 109,997 87,100
TOTAL NON-CURRENT LIABILITIES 631,946 568,145
TOTAL LIABILITIES $ 1,268,147 $ 1,128,959
EQUITY
Capital stock 12 685,728 675,606
Contributed surplus 12 45,305 46,897
Other equity 3 (109,997 ) (87,100 )
Accumulated other comprehensive income (loss) 15,822 (22,001 )
Accumulated deficit (94,551 ) (142,082 )
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 542,307 471,320
Non-controlling interest 71,337 66,240
TOTAL EQUITY 613,644 537,560
TOTAL LIABILITIES AND EQUITY $ 1,881,791 $ 1,666,519
See accompanying notes to the interim condensed consolidated financial statements.
On behalf of the Board:
"Robert Wildeboer" Director
"Suleiman Rashid" Director
Martinrea International Inc.
Condensed Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts) (unaudited)


Note
Three months
ended

June 30,
2013

Three months
ended

June 30,
2012

Six months
ended

June 30,
2013

Six months
ended

June 30,
2012

SALES $ 826,274 $ 762,553 $ 1,595,396 $ 1,498,207
Cost of sales (excluding depreciation of property, plant and equipment) (712,349 ) (671,048 ) (1,384,681 ) (1,310,864 )
Depreciation of property, plant and equipment (production) (22,742 ) (15,438 ) (43,817 ) (30,967 )
Total cost of sales (735,091 ) (686,486 ) (1,428,498 ) (1,341,831 )
GROSS MARGIN 91,183 76,067 166,898 156,376
Research and development costs (3,567 ) (3,807 ) (7,735 ) (7,135 )
Selling, general and administrative (38,771 ) (39,925 ) (73,574 ) (74,191 )
Depreciation of property, plant and equipment (non-production) (1,673 ) (1,352 ) (3,147 ) (2,418 )
Amortization of customer contracts and relationships (493 ) (1,549 ) (979 ) (3,127 )
Restructuring costs 14 - (2,467 ) - (4,631 )
Gain on disposal of property, plant and equipment 263 109 152 71
OPERATING INCOME 46,942 27,076 81,615 64,945
Finance costs (5,192 ) (4,263 ) (9,875 ) (8,019 )
Other finance income and expenses 196 158 1,179 523
INCOME BEFORE INCOME TAXES 41,946 22,971 72,919 57,449
Income tax expense 11 (9,835 ) (5,779 ) (17,303 ) (14,148 )
NET INCOME FOR THE PERIOD $ 32,111 $ 17,192 $ 55,616 $ 43,301
Non-controlling interest (4,597 ) (2,820 ) (8,214 ) (5,874 )
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY $ 27,514 $ 14,372 $ 47,402 $ 37,427
Basic earnings per share 13 $ 0.33 $ 0.17 $ 0.57 $ 0.45
Diluted earnings per share 13 $ 0.33 $ 0.17 $ 0.56 $ 0.45
See accompanying notes to the interim condensed consolidated financial statements.
Martinrea International Inc.
Condensed Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars) (unaudited)
Three months
ended

June 30,
2013
Three months
ended

June 30,
2012

Six months
ended

June 30,
2013
Six months
ended

June 30,
2012

NET INCOME FOR THE PERIOD $ 32,111 $ 17,192 $ 55,616 $ 43,301
Other comprehensive income (loss), net of tax:
Items that may be reclassified to net income
Foreign currency translation differences for foreign operations 24,164 6,014 36,634 (2,928 )
Items that will not be reclassified to net income
Defined benefit plan actuarial gains (losses) 4,417 (4,943 ) 5,528 (5,006 )
Other comprehensive income (loss), net of tax 28,581 1,071 42,162 (7,934 )
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 60,692 $ 18,263 $ 97,778 $ 35,367
Attributable to:
Equity holders of the Company $ 58,667 $ 13,978 $ 90,753 $ 28,620
Non-controlling interest 2,025 4,285 7,025 6,747
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 60,692 $ 18,263 $ 97,778 $ 35,367
See accompanying notes to the interim condensed consolidated financial statements.
Martinrea International Inc.
Condensed Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars) (unaudited)
Equity attributable to equity holders of the Company



Share
capital

Notes
receivable
for share
capital



Contributed
surplus



Other
equity


Cumulative
translation
account



Accumulated
deficit




Total


Non-
controlling
interest



Total
equity
Balance at December 31, 2011 $ 674,568 $ (602 ) $ 44,165 $ (71,236 ) $ (8,330 ) $ (169,006 ) $ 469,559 $ 72,639 $ 542,198
Net income for the period - - - - - 37,427 37,427 5,874 43,301
Compensation expense related to stock options - - 1,771 - - - 1,771 - 1,771
Change in fair value of put option granted to non-controlling interest - - - (5,914 ) - - (5,914 ) - (5,914 )
Repayment of notes receivable - 602 - - - - 602 - 602
Exercise of employee stock options 836 - (244 ) - - - 592 - 592
Other comprehensive income, net of tax
Actuarial losses from defined benefit plans - - - - - (5,006 ) (5,006 ) - (5,006 )
Foreign currency translation differences - - - - (3,801 ) - (3,801 ) 873 (2,928 )
Balance at June 30, 2012 675,404 - 45,692 (77,150 ) (12,131 ) (136,585 ) 495,230 79,386 574,616
Net income (loss) for the period - - - - - 1,355 1,355 (10,794 ) (9,439 )
Compensation expense related to stock options - - 1,236 - - - 1,236 - 1,236
Change in fair value of put option granted to non-controlling interest - - - (9,950 ) - - (9,950 ) - (9,950 )
Exercise of employee stock options 202 - (31 ) - - - 171 - 171
Other comprehensive income, net of tax
Actuarial losses from defined benefit plans - - - - - (6,852 ) (6,852 ) - (6,852 )
Foreign currency translation differences - - - - (9,870 ) - (9,870 ) (2,352 ) (12,222 )
Balance at December 31, 2012 675,606 - 46,897 (87,100 ) (22,001 ) (142,082 ) 471,320 66,240 537,560
Net income for the period - - - - - 47,402 47,402 8,214 55,616
Compensation expense related to stock options - - 905 - - - 905 - 905
Purchase of non-controlling interest - - - - - (2,880 ) (2,880 ) (1,928 ) (4,808 )
Dividends - - - - - (2,519 ) (2,519 ) - (2,519 )
Change in fair value of put option granted to non-controlling interest - - - (22,897 ) - - (22,897 ) - (22,897 )
Exercise of employee stock options 10,122 - (2,497 ) - - - 7,625 - 7,625
Other comprehensive income, net of tax
Actuarial gains from defined benefit plans - - - - - 5,528 5,528 - 5,528
Foreign currency translation differences - - - - 37,823 - 37,823 (1,189 ) 36,634
Balance at June 30, 2013 $ 685,728 $ - $ 45,305 $ (109,997 ) $ 15,822 $ (94,551 ) $ 542,307 $ 71,337 $ 613,644
See accompanying notes to the interim condensed consolidated financial statements.
Martinrea International Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)
Three months
ended

June 30,
2013

Three months
ended

June 30,
2012

Six months
ended

June 30,
2013

Six months
ended

June 30,
2012

CASH PROVIDED (USED) IN:
OPERATING ACTIVITIES:
Net Income for the period $ 32,111 $ 17,192 $ 55,616 $ 43,301
Adjustments for:
Depreciation of property, plant and equipment 24,415 16,790 46,964 33,385
Amortization of customer contracts and relationships 493 1,549 979 3,127
Amortization of development costs 1,622 437 3,167 834
Accretion of interest on promissory note (30 ) (58 ) (60 ) (117 )
Unrealized losses / (gains) on foreign exchange forward contracts 1,070 (280 ) 842 89
Finance costs 5,192 4,263 9,875 8,019
Income tax expense 9,835 5,779 17,303 14,148
Gain on disposal of property, plant and equipment (263 ) (109 ) (152 ) (71 )
Stock-based compensation 590 795 905 1,771
Pension and other post-retirement benefits expense 1,202 784 2,404 1,497
Contributions made to pension and other post-retirement benefits (2,759 ) (1,634 ) (5,227 ) (3,614 )
73,478 45,508 132,616 102,369
Changes in non-cash working capital items:
Trade and other receivables (6,602 ) (14,990 ) (95,127 ) (132,922 )
Inventories (7,904 ) 4,085 (5,061 ) (22,503 )
Prepaid expenses and deposits (2,406 ) (520 ) 1,074 (1,111 )
Trade, other payables and provisions 4,062 25,037 40,989 94,872
60,628 59,120 74,491 40,705
Interest paid (4,259 ) (4,103 ) (7,990 ) (7,624 )
Income taxes paid (10,429 ) (4,832 ) (15,170 ) (6,908 )
NET CASH PROVIDED IN OPERATING ACTIVITIES $ 45,940 $ 50,185 $ 51,331 $ 26,173
FINANCING ACTIVITIES:
Increase / (decrease) in bank indebtedness - (2,358 ) - 11,360
Exercise of employee stock options 508 28 7,625 592
Increase in long-term debt 4,920 19,132 56,418 74,626
Repayment of long-term debt (8,977 ) (5,660 ) (14,833 ) (12,707 )
Receipt of payment on notes receivable for share capital - - - 602
NET CASH PROVIDED / (USED) IN FINANCING ACTIVITIES $ (3,549 ) $ 11,142 $ 49,210 $ 74,473
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (39,791 ) (53,065 ) (96,496 ) (87,298 )
Acquisition of non-controlling interest (note 2) - - (4,808 ) -
Capitalized development costs (3,096 ) (6,073 ) (6,218 ) (14,486 )
Proceeds on disposal of property, plant and equipment 1,617 205 1,645 295
NET CASH USED IN INVESTING ACTIVITIES $ (41,270 ) $ (58,933 ) $ (105,877 ) $ (101,489 )
Effect of foreign exchange rate changes on cash and cash equivalents 781 1,705 (570 ) 1,081
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,902 4,099 (5,906 ) 238
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,614 22,644 29,422 26,505
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,516 $ 26,743 $ 23,516 $ 26,743
See accompanying notes to the interim condensed consolidated financial statements.

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Martinrea International Inc.
Fred Di Tosto
Chief Financial Officer
(416) 749-0314
(289) 982-3001 (FAX)

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