Martinrea International Inc. Releases March 31, 2005 First Quarter Results-Earnings Growth in a Tough Automotive Environment
TORONTO--May 9, 2005--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 fiscal quarter ended March 31, 2005.Revenues for the quarter ended March 31, 2005 totaled $153.0 million as compared to $145.2 million for the quarter ended March 31, 2004. Revenues for the Company's fourth quarter of 2004 were approximately $149.9 million. Revenues in the quarter ended March 31, 2005 have increased from the prior year comparable primarily due to the launch of new programs such as DCX 300C, W car fluid and brake bundles, metallic takeover work, and the inclusion of the revenues of the Company's recently acquired metal forming facility in Corydon, Indiana. The increase in revenues from new programs was offset by the appreciation of the Canadian dollar versus the U.S. dollar amounting to approximately $4.0 million, and lower customer vehicle volumes. Incremental production sales were also offset by customer pricing pressures that continue to be a normal part of the North American automotive parts industry. Production revenues will continue to rise as new programs mature and launches are completed.
In the Company's first quarter of 2005 revenues were higher than revenues in the fourth quarter of 2004. The increase is primarily due to the inclusion of the revenues of the Company's recently acquired facility in Corydon, Indiana and the benefit derived from metallic takeover work won during the last six months of 2004 that is now being produced and shipped to customers by the Company. These items were offset by lower tooling sales in the first quarter of 2005 as compared to the fourth quarter of 2004.
Gross margin percentage for the quarter ended March 31, 2005 was 17.3% as compared to 16.6% in the fourth quarter of 2004. The increase in gross margin from the fourth quarter of 2004 is primarily attributable to continued filling of available capacity in the Company's metallic divisions as a result of the metallic takeover work won during the last six months of 2004. The gross margin percentage for the quarter ended March 31, 2005 is greater than the 15.2% from the prior year quarter ended March 31, 2004 despite the pressure on gross margin from contractual price reductions with customers and steel surcharges on part of the Company's steel purchases not on customer steel re-sale programs. The Company has been able to increase gross margin due to ongoing cost reduction plans and the successful launching of new programs during the last twelve months that have helped to fill available capacity.
Net earnings for the quarter ended March 31, 2005 were approximately $5.1 million as compared to $2.7 million for the quarter ended March 31, 2004. The earnings per share for the quarter were $0.09 on a basic and fully diluted basis. Net earnings for the first quarter were higher than the 2004 first quarter comparable of approximately $2.7 million or approximately $0.05 per share (on both a basic and fully diluted basis). The increase in net earnings from the prior year comparable is primarily attributable to increased revenues and improved gross margin. Foreign exchange fluctuations did not significantly impact net earnings as lower translated profits of the Company's U.S. and Mexican divisions were offset by gains realized by the Company's Canadian divisions on their net purchases of U.S. dollar denominated components. The foreign exchange exposure experienced in the fourth quarter of 2004 was eliminated due to the Company's efforts to source material inputs from U.S. suppliers in order to provide an internal hedge against foreign exchange fluctuations.
Net earnings for the first quarter of 2005 were higher than the net earnings in the fourth quarter of 2004 of $2.2 million and $0.04 earnings per share on a basic basis and $0.03 earnings per share on a fully diluted basis. The increase is primarily due to increasing gross margin, higher revenues, and the absence of redundant asset charges.
Amortization expense was $6.6 million for the quarter ended March 31, 2005 as compared to $6.3 million for the quarter ended March 31, 2004. The amortization expense in the Company's fourth quarter of 2004 was $7.2 million. The increase in amortization from the prior year comparables is attributable to amortization of capital assets previously purchased that are now production ready.
Selling, general and administrative expenses for the quarter ended March 31, 2005 were $10.3 million, or 6.8% of revenues, compared to $10.3 million, or 7.1% of revenues, for the quarter ended March 31, 2004. As the Company's revenues grow these expenses as a percentage of revenues will also decrease. The corporate infrastructure that the Company has established will accommodate significant future revenue growth. In the fourth quarter of 2004 selling, general and administrative expenses were 8.4% of revenues or $12.7 million. These expenses were higher in the fourth quarter of 2004 due to the write-down of redundant assets from the closure of the Company's Claireville location of $1.1 million and the timing of engineering expenses.
Capital expenditures for the quarter ended March 31, 2005 totaled $7.1 million compared to $9.0 million for the comparable quarter ended March 31, 2004. The decrease in expenditures relative to the prior year is primarily due to the completion of major equipment expenditures on presses that were completed in the prior year. The capital expenditures in the first quarter of 2005 relate primarily to new program assembly equipment being put in place for programs launching in 2005. During 2005, the Company plans to spend approximately $24 to $28 million on new program capital.
The Company's financial condition remains strong given the continuing profitability of its operations and its prospects for growth and new program launches. As a result of the increasing profitability of the Company's operations bank indebtedness and long-term debt has been reduced from $98.2 million at March 31, 2004 to $88.0 million at March 31, 2005. The debt reduction has occurred even though the Company made investments in new equipment totaling $36.0 million in the last 12 months, experienced increasing working capital needs arising from incremental revenues and financed the purchase of Corydon Manufacturing LLC on February 17, 2005.
The Company had a strong balance sheet as at March 31, 2005, with shareholders equity of $454.4 million, as compared to $445.9 million as at March 31, 2004. The Company's working capital of $26.9 million should be sufficient to cover anticipated cash needs together with internally generated cash flow and financing facilities in place. As at March 31, 2005, Martinrea's ratio of current assets to current liabilities was 1.2:1, which is consistent with the prior year comparable and the fourth quarter of 2004.
Fred Jaekel, Martinrea's President and Chief Executive Officer, stated: "I am very pleased with the progress our Company has made in the first quarter. We have seen both year over year improvement in revenues and profits, as well as improved earnings performance quarter to quarter. We have a good start to 2005, despite the challenges facing the automotive sector. Our objective is prudent, profitable growth, and I think we have been building some momentum in this respect and with our customers."
Mr. Jaekel added, "Our operations have performed well in the quarter, and I continue to be pleased by our progress in launching new programs coming on stream later this year-the hydroformed engine cradle for GM's Buick Lucerne and Cadillac DTS; the fuel and brake lines for GM's new Impala, and the metal gas tank for the Ford Fusion that we will launch from our new Mexican facility in Hermosillo. The acquisition of our metal forming plant in Corydon, Indiana, which took place in mid-February, has gone very well. The people have responded well to our approach and in my view that facility and our people there have a great future. I want to congratulate everyone involved with the acquisition and the operations for a job well done to date. Meanwhile we continue to focus on new opportunities to fill up our plants and increase capacity utilization. There is so much more we can do, whether in fluid systems or metal forming, with existing and new customers. Our focus has been on winning new work and takeover work that will fit in well into our existing facilities or with our capabilities, but that work must be profitable for us as well. I am very pleased to announce that, in addition to the acquisition of the Corydon facility which is in some ways takeover work from a competitor that is now out of business, we have won additional business in 2005 to date totaling $66 million as follows: $55 million in metallic assemblies for the GMT900 pick-up commencing October 2006 and an additional $11 million in DCX metallic assembly for the RT minivan commencing in 2007."
Nick Orlando, Martinrea's Executive Vice-President and Chief Financial Officer, stated: "The Company's investments in equipment, facilities, infrastructure and personnel during the last three years are beginning to yield an improving net earnings trend. Gross margin has grown in the first quarter of 2005 as predicted, and should grow over time as capacity utilization continues to improve. Our improving gross margin is attributable to lower launch costs, the benefits of integrating our operations and production efficiencies. I am particularly pleased by the continued improvement in cash flow from operations. While we took on some debt in our purchase of the Corydon facility, we also paid down our bank indebtedness and long-term bank debt during this quarter."
Nick Orlando added: "In the second quarter of 2005, the Company estimates that revenues will range from $150 million to $160 million. Revenues will remain stable in the second quarter of 2005 despite lower vehicle production by our customers and price reductions to customers. The Company has been able to increase revenues through metallic takeover work previously announced and new work launched in the third quarter of 2004. The Company expects revenues to continue increasing given the launch of three new programs in the third quarter of 2005 that together account for $74 million on an annualized basis once full production is achieved. The programs are the metal gas tank for the Ford Fusion that amounts to revenues of $36 million, the hydroformed engine cradle for GM's Buick Lucerne and Cadillac DTS that amounts to $22 million and the fuel and brake lines for GM's new Impala that amounts to $16 million. Revenues will also increase in the three remaining quarters of 2005 due to the acquisition of the Company's first metal forming facility in the United States that was purchased on February 17, 2005. Revenues from the new facility should exceed $US 40 million in 2005. The incremental business discussed above will be accretive to net earnings. The Company expects gross margin in the second quarter of 2005 to approximate the 17.3% gross margin in the first quarter of 2005. The Company estimates that basic earnings per share will range from $0.09 per share to $0.11 per share in the second quarter of 2005."
Rob Wildeboer, Martinrea's Chairman, stated: "We are pleased with our quarterly performance in 2005 so far. As a company we remain very focused on the future and building for revenue and earnings growth over time. Improving financial performance, in a very tough environment, is a reflection, we believe, of our entrepreneurial and decentralized structure and the fact that we are meeting customer needs by providing great products at competitive prices. Our balance sheet continues to strengthen in this environment, which provides us a strong base to pursue the right kinds of opportunities for our company. Our improving financial position gives us the opportunity to consider new business opportunities that many of our heavily indebted competitors are not able to undertake. Where we can, we will continue to pay down debt and strengthen our financial position."
The Company also indicated that its annual meeting will be held at its Hydroform Solutions facility on May 26, giving shareholders the opportunity to meet with management, see the facility, and witness many of the Company's product initiatives.
The common shares of Martinrea trade on The Toronto Stock Exchange under the symbol "MRE".
This press release contains forward-looking statements based on assumptions, uncertainties and management's best estimates of future events. When used herein, words such as "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on assumptions by and information available to the Company. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include such risks and factors as are detailed from time to time in the Company's periodic reports filed with the Ontario Securities Commission and other regulatory authorities. Actual results may differ materially from those currently anticipated. The Company has no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
A conference call to discuss these results will be held on Tuesday May 10, 2005 at 8:00 a.m. (Toronto time), which can be accessed by dialling (416) 405-9328 or toll free (800) 387-6216. 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 dialling (416) 695-5800 or toll free (800) 408-3053 (conference id - 3152075#). The rebroadcast will be available until Friday May 2, 20050, 2005.
MARTINREA INTERNATIONAL INC.
Interim Consolidated Balance Sheets
As at March 31, 2005 (unaudited) with comparative figures for
December 31, 2004
(in thousands of dollars)
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March 31, December 31,
2005 2004
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Assets
Current assets:
Accounts receivable 86,985 84,695
Other receivables 5,481 5,709
Income taxes recoverable 72 2,756
Inventories (note 4) 43,658 40,949
Prepaid expenses and deposits 8,442 7,804
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144,638 141,913
Future income tax asset 18,816 19,132
Investment (note 2) 835 -
Capital assets (note 5) 231,481 218,576
Goodwill 230,558 230,558
Intangible assets (note 6) 26,630 27,496
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$ 652,958 $ 637,675
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Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 11,159 $ 10,525
Accounts payable and accrued liabilities 91,163 88,089
Current portion of long-term debt (note 7) 15,451 15,362
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117,773 113,976
Long-term debt (note 7) 61,407 55,327
Future income tax liability 18,624 18,563
Non-controlling interest 718 698
Shareholders' equity:
Share capital (note 8) 444,047 444,047
Notes receivable for share capital (15,750) (15,750)
Contributed Surplus 19,776 19,668
Cumulative translation adjustment (10,820) (10,974)
Retained earnings 17,183 12,120
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454,436 449,111
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$ 652,958 $ 637,675
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On behalf of the Board:
Fred Jaekel Director
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Robert Wildeboer Director
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Earnings
Three months ended March 31, 2005 and 2004 (unaudited)
(in thousands of dollars - except per share amounts)
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March 31, March 31,
2005 2004
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Sales $ 152,987 $ 145,217
Cost of sales 126,474 123,126
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Gross profit 26,513 22,091
Expenses:
Selling, administrative and general 10,349 10,326
Foreign exchange 251 (235)
Amortization - capital assets 5,722 5,412
Amortization - intangible assets 866 866
Interest on long term debt 1,141 1,002
Other interest expense, net 364 298
Loss (gain) on disposal of capital assets (52) 52
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18,641 17,721
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Earnings before income taxes and
non-controlling interest 7,872 4,370
Income taxes
Current 2,412 2,156
Future 377 (619)
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2,789 1,537
Earnings before non-controlling interest 5,083 2,833
Non-controlling interest 20 149
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Net earnings $ 5,063 $ 2,684
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Earnings per common share (note 8)
Basic $ 0.09 $ 0.05
Diluted $ 0.09 $ 0.05
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Retained Earnings
Three months ended March 31, 2005 and 2004 (unaudited)
(in thousands of dollars)
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March 31, March 31,
2005 2004
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Retained earnings, beginning of period $ 12,120 $ 20,663
Adjustment to reflect change in accounting
for stock based compensation plan - (19,506)
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Retained Earnings as restated, beginning
of period 12,120 1,157
Net earnings 5,063 2,684
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Retained earnings, end of period $ 17,183 $ 3,841
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MARTINREA INTERNATIONAL INC.
Interim Consolidated Statements of Cash Flows
Three months ended March 31, 2005 and 2004 (unaudited)
(in thousands of dollars)
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March 31, March 31,
2005 2004
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Cash provided by (used in):
Operating activities:
Net earnings $ 5,063 $ 2,684
Items not requiring cash:
Amortization 6,588 6,278
Future income taxes 377 (216)
Non-controlling interest 20 149
Loss on disposal of capital assets (52) 52
Stock-based compensation 108 56
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12,104 9,003
Changes in non-cash working capital items:
Accounts receivable (2,290) 5,363
Other receivables 228 (2,972)
Accounts payable and accrued liabilities 3,074 (3,294)
Income taxes recoverable 2,684 4,316
Inventories 693 (5,966)
Prepaid expenses and deposits (225) (749)
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16,268 5,701
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Financing activities:
Increase in long-term debt 10,168 6,009
Repayment of long-term debt (4,016) (1,609)
Increase in bank indebtedness 634 (1,337)
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6,786 3,063
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Investing activities:
Acquisition of Corydon Manufacturing LLC (15,209) -
Investment in Hy-Drive Technologies Ltd. (835) -
Purchase of capital assets (7,116) (8,964)
Proceeds on disposal of capital assets 58 119
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(23,102) (8,845)
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Effect of exchange rate changes on cash
and cash equivalents 48 81
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Increase (decrease) in cash and cash
equivalents - -
Cash and cash equivalents, beginning of
period - -
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Cash and cash equivalents, end of period $ - $ -
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Supplemental cash flow information:
Cash paid for interest, net $ 1,505 $ 1,213
Cash paid (received) for income taxes $ 708 $ (2,333)
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Martinrea International Inc. (TSX:MRE)