Mr. Pat D'Eramo reports

MARTINREA INTERNATIONAL INC. REPORTS RECORD QUARTERLY RESULTS AND DECLARES DIVIDEND

Martinrea International Inc. today released its financial results for the third quarter ended Sept. 30, 2023, and declared a quarterly cash dividend of five cents per share.

Third quarter highlights

• Total sales of $1,378.9-million, up 15.5 per cent year over year, a new quarterly record for the company.
• Diluted net earnings per share and adjusted net earnings per share of 68 cents.
• Operating income margin of 6.0 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $163.5-million, a new quarterly record for the company.
• Free cash flow of $79.2-million improved significantly compared with the first and second quarters; free cash flow is expected to be a record in 2023 on a full year basis.
• Net debt-to-adjusted EBITDA ratio, excluding the impact of IFRS 16 (international financial reporting standards), continues to strengthen and ended the quarter at 1.56 times.
• New business awards of approximately $80-million in annualized sales at mature volumes; year-to-date new business awards now total $300-million in annualized sales at mature volumes.
• Quarterly cash dividend of five cents per share declared.

Overview

Pat D'Eramo, president and chief executive officer, stated: "Our third quarter financial results were strong, and generally consistent with the prior quarter from a production sales and operating margin perspective. Adjusted EBITDA continued at record levels and free cash flow was up nicely quarter over quarter. The third quarter saw United Auto Workers (UAW) employees at the Detroit 3 OEMs go on strike in multiple locations. The UAW has just recently reached tentative agreements with Ford, Stellantis and General Motors. The strikes are over pending ratification of the tentative agreements, and production has already restarted, which is great news. In Canada, Unifor quickly reached agreements with the Canadian operations of the Detroit 3. While the strike did not have a significant impact on our third quarter performance, it will have somewhat more of an impact on our fourth quarter results. We have content on a number of vehicle platforms that were affected by the strike including some spillover effects, most notably lower engine block production in some cases. We have managed the situation effectively, flexing our costs where appropriate. However, what production volumes will look like in the fourth quarter is a little unclear given the strike action as well as the unknown pace of the restart and ramp back up to more normal volume levels."

He added: "I am pleased to announce that we have been awarded new business representing $80-million in annualized sales at mature volumes, consisting of $70-million in lightweight structures and $10-million in propulsion systems for a number of products with various customers. Year to date, new business awards now total $300-million in annualized sales at mature volumes."

Fred Di Tosto, chief financial officer, stated: "Sales for the third quarter, excluding tooling sales of $128.6-million, were $1,250.4-million, and net earnings per share was 68 cents. Third quarter operating income of $83.0-million was consistent quarter over quarter, and adjusted EBITDA of $163.5-million was a new quarterly record for the company. As expected, third quarter free cash flow of $79.2-million was significantly higher quarter over quarter, reflecting positive working capital flows and lower cash taxes. We continue to expect record free cash flow generation on a full year basis in 2023."

He continued: "Net debt declined by approximately $48-million quarter over quarter, to $889.2-million. Our net debt to adjusted EBITDA ratio (excluding the impact of IFRS 16) ended the quarter at 1.56 times, down from 1.71 times at the end of the second quarter of 2023. Our leverage ratio is now essentially at our long-term target of 1.5 times or better, notwithstanding spending $20.8-million on share buybacks during the second and third quarters."

Rob Wildeboer, executive chairman, stated: "We are pleased with our operational and financial performance in the third quarter. We continue to perform at a high level, our balance sheet is in great shape and we are executing on our capital allocation priorities. We continue to believe the automotive industry is stable, with volumes set to expand in the coming years, particularly in North America. The North American economy is in good shape, demand for vehicles continues to be high, vehicle inventories remain low and pent-up demand exists. Interest rates in both Canada and the U.S. have likely peaked or are close to peaking, and core inflation is coming down. On behalf of the executive management team, we would like to thank our people for their hard work in delivering another strong quarterly performance, as well as our shareholders and other stakeholders for their continued 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 company's management discussion and analysis of operating results and financial position for the three and nine months ended Sept. 30, 2023 (MD&A), the company's interim condensed consolidated financial statements for the three and nine months ended Sept. 30, 2023, and the company's annual information form for the year ended Dec. 31, 2022, can be found at SEDAR+.

Overall results

Results of operations may include certain items which have been separately disclosed, where appropriate, in order to provide a clear assessment of the underlying company results. In addition to international financial reporting standards (IFRS) measures, management uses non-IFRS measures in the company's disclosures that it believes provide the most appropriate basis on which to evaluate the company's results.

The attached tables set out certain highlights of the company's performance for the three and nine months ended Sept. 30, 2023, and 2022. Refer to the company's interim financial statements for the three and nine months ended Sept. 30, 2023, for a detailed account of the company's performance for the periods presented in the attached tables.

Sales

The company's consolidated sales for the third quarter of 2023 increased by $184.9-million or 15.5 per cent to $1,378.9-million as compared with $1,194.1-million for the third quarter of 2022. The total increase in sales was driven by year-over-year increases in the North America and Europe operating segments, partially offset by a year-over-year decrease in the rest of the world.

Sales for the third quarter of 2023 in the company's North America operating segment increased by $154.8-million or 17.4 per cent to $1,042.2-million from $887.4-million for the third quarter of 2022. The increase was due generally to the launch and ramp-up of new programs during or subsequent to the third quarter of 2022, including Mercedes's new electric vehicle platform (EVA2), General Motors' new electric vehicle platform (BEV3) and a Toyota/Lexus SUV; overall higher third quarter OEM light vehicle production volumes, which increased in North America by approximately 9 per cent year over year, primarily as a result of the industry-wide supply chain disruptions which impacted 2022 to a greater degree compared with 2023; 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 2023 of $29.8-million as compared with the third quarter of 2022; the impact of commercial settlements (to partially offset inflationary cost increases and volume shortfalls) on customer pricing and sales; and an increase in tooling sales of $56.7-million, which are typically dependent on the timing of tooling construction and final acceptance by the customer. These positive factors were partially offset by lower-year-over year production volumes of certain light vehicle platforms including the Lucid Air and Ford Mustang Mach E. The UAW strike action, which began on Sept. 15, 2023, at General Motors, Ford and Stellantis in the United States, had a relatively limited impact on production sales for third quarter of 2023 given the extent of the initial strike action, as well as timing of the labour disruption in proximity to the quarter-end.

Sales for the third quarter of 2023 in the company's Europe operating segment increased by $37.8-million or 14.3 per cent to $302.1-million from $264.4-million for the third quarter of 2022. The increase was due generally to overall higher third quarter OEM light vehicle production volumes, which increased in Europe by approximately 6 per cent year over year, primarily as a result of the industry-wide supply chain disruptions which impacted 2022 to a greater degree compared with 2023; the impact of foreign exchange on the translation of euro-denominated production sales, which had a positive impact on overall sales for the third quarter of 2023 of $23.9-million as compared with the third quarter of 2022; the impact of commercial settlements (to partially offset inflationary cost increases and volume shortfalls) on customer pricing and sales; and a $2.8-million increase in tooling sales. These positive factors were partially offset by lower year-over-year production volumes of certain platforms, including the Lucid Air, Mercedes's new electric vehicle platform (EVA2) and an engine block for Ford.

Sales for the third quarter of 2023 in the company's rest of the world operating segment decreased by $5.4-million or 11.2 per cent to $42.6-million from $48.0-million in the third quarter of 2022. The decrease was largely driven by the lower year-over-year production volumes on Geely's new electric vehicle platform (PMA) and with Jaguar Land Rover; partially offset by the impact of commercial settlements (to partially offset inflationary cost increases and volume shortfalls) on customer pricing and sales, and an increase in tooling sales of $2.6-million.

Overall tooling sales increased by $61.6-million (including outside segment sales eliminations) to $128.6-million for the third quarter of 2023 from $67.0-million for the third quarter of 2022.

Net income

Net income, before adjustments, for the third quarter of 2023 increased by $17.8-million to $53.7-million or 68 cents per share, on a basic and diluted basis, from a net income of $35.9-million or 45 cents per share, on a basic and diluted basis, for the third quarter of 2022. Excluding the adjustments explained in Table A under "adjustments to net income," adjusted net income for the third quarter of 2023 increased by $8.7-million to $53.7-million or 68 cents per share, on a basic and diluted basis, from $45.1-million or 56 cents per share, on a basic and diluted basis, for the third quarter of 2023.

Adjusted net income for the third quarter of 2023, as compared with the third quarter of 2022, was positively impacted by the following:

• Higher gross margin on higher year-over-year sales volume as previously explained;
• A net foreign exchange gain of $7.1-million for the third quarter of 2023 compared with a gain of $5.0-million for the third quarter of 2022;
• A lower effective tax rate (21.5 per cent for the third quarter of 2023 compared with 23.2 per cent for the third quarter of 2022).

These factors were partially offset by the following:

• A year-over-year increase in SG&A (selling, general and administrative) expense, as previously explained;
• A $6.3-million year-over-year increase in finance expense as a result of increased borrowing rates on the company's revolving bank debt.

Dividend

A cash dividend of five cents per share has been declared by the board of directors payable to shareholders of record on Dec. 31, 2023, on or about Jan. 15, 2024.

About Martinrea International Inc.

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 59 locations in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain, China, South Africa and Japan. Martinrea's vision is making lives better by being the best supplier the company can be in the products it makes and the services it provides.

Conference call details

A conference call to discuss the financial results will be held on Wednesday, Nov. 8, 2023, at 6 p.m. Eastern Time. To participate, please dial 416-641-6104 (Toronto area) or 800-952-5114 (toll-free Canada and the United States) and enter participant code 8029740 followed by the pound key. Please call 10 minutes prior to the start of the conference call.

The webcast and accompanying presentation can be accessed at the company website.

There will also be a rebroadcast of the call available by dialling 905-694-9451 or toll-free 800-408-3053 (conference ID -- 5701857 followed by the pound key). The rebroadcast will be available until Dec. 4, 2023.

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

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