Mr. Fred Di Tosto reports

MARTINREA INTERNATIONAL INC. REPORTS RECORD ANNUAL SALES AND FREE CASH FLOW, ANNOUNCES DIVIDEND

Martinrea International Inc. has released its financial results for the fourth quarter and year ended Dec. 31, 2023, and declared a quarterly cash dividend of five cents per share.

Highlights

Full year 2023:

• Total sales of $5,340.0-million, an annual record for the company;
• Diluted net earnings per share of $1.93 and adjusted net earnings per share (1) of $2.22;
• Free cash flow (1) of $195.4-million, an annual record for the company;
• Adjusted operating income margin (1) of 5.6 per cent;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) of $616.7-million, an annual record for the company;
• Net-debt-to-adjusted-EBITDA (1) ratio, (excluding IFRS 16 (international financial reporting standards) impact) strengthened, ending the year at 1.40 times;
• New business awards announced over the last four quarters of approximately $375-million in annualized sales at mature volumes;
• Improved safety performance with a total recordable injury frequency (TRIF) of 1.10, a 9-per-cent improvement over 2022 and an 89-per-cent improvement since 2014.

Fourth quarter 2023:

• Total sales of $1,296.1-million, consistent with the fourth quarter of 2022;
• Diluted net earnings per share of two cents and adjusted net earnings per share (1) of 37 cents;
• Free cash flow (1) of $119.9-million, a quarterly record for the company;
• Adjusted operating income margin (1) of 4.4 per cent;
• Adjusted EBITDA (1) of $140.1-million;
• Fourth quarter financial results were impacted by lost sales due to the United Auto Workers (UAW) strike at select operations of the Detroit 3 OEMs (original equipment manufacturers) and an unexpected Tier 2 supplier issue, both of which are now resolved;
• New business awards of approximately $75-million in annualized sales at mature volumes;
• Quarterly cash dividend of five cents per share declared.

(1) The company prepares its financial statements in accordance with IFRS accounting standards. 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 company's performance, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable with 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, included anywhere in this news release, 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. The relevant IFRS financial measure, as applicable, and a reconciliation of certain non-IFRS financial measures to measures determined in accordance with IFRS are contained in the company's management's discussion and analysis (MD&A) for the year ended Dec. 31, 2023, and in this news release.

Overview

Pat D'Eramo, chief executive officer, stated: "Two thousand twenty-three was a record year for Martinrea in many ways. Despite some challenges we needed to overcome, we are pleased with the progress made during the year, a year in which we generated record revenues and record adjusted EBITDA. Our free cash flow (1) was exceptional, coming in at $119.9-million in the fourth quarter and $195.4-million for the full year of 2023, a record level for our company and better than what we were expecting at the time of our last call. Some of this can be attributed to timing, but notwithstanding, this is a great result for us. Two thousand twenty-three was a breakout year from a free cash flow (1) perspective, and I am proud of our people and all their hard work to make this happen."

He continued: "I am also pleased to announce that we have been awarded new business representing $75-million in annualized sales at mature volumes, consisting of approximately $65-million in lightweight structures with General Motors, BMW, Nissan and other customers, and $10-million in propulsion systems with Volvo Truck and Eaton. Over the last four quarters, we have been awarded new business worth approximately $375-million in annualized sales at mature volumes. In addition, we were awarded replacement business worth approximately $375-million in annualized sales on General Motors' next-generation light-duty truck platform."

Fred Di Tosto, president and chief financial officer, stated: "Sales for the fourth quarter, excluding tooling sales of $127.4-million, were $1,168.7-million, diluted net earnings per share was two cents and adjusted net earnings per share (1) was 37 cents. Fourth quarter operating income was $28.5-million and adjusted operating income (1) was $56.6-million. We faced some challenges in the fourth quarter that impacted our financial performance, including lost sales due to the UAW strike at select operations of the Detroit 3 OEMs and an unexpected disruption with one of our Tier 2 suppliers, which resulted in premium costs that had approximately a 70-basis-point impact on our fourth quarter consolidated adjusted operating income margin (1). Diluted net earnings per share and operating income includes $28.2-million in restructuring and impairment charges, with the vast majority being incurred in Germany, in order to right-size operations to align with anticipated OEM programs and volume levels."

He continued: "Net debt (1) declined by approximately $107-million quarter over quarter, to $782.4-million. Our net-debt-to-adjusted-EBITDA (1) ratio (excluding the impact of IFRS 16) ended the quarter at 1.40 times, down from 1.56 times at the end of the third quarter of 2023. Our leverage ratio now sits comfortably within our long-term target range of 1.5 times or better, and this includes spending $29.1-million to repurchase approximately 2.3 million shares through our normal course issuer bid in 2023. Subsequent to the fourth quarter, we amended our lending agreements, extending the maturity of both our Canadian- and U.S.-dollar banking facilities at generally similar pricing terms to the previous agreements, and obtaining an additional $100-million in borrowing capacity. This is a testament to the strong relationships we have with our lenders and we thank them for their ongoing support."

Rob Wildeboer, executive chairman, stated: "As we look forward into 2024, we expect our results to improve over the fourth quarter. Most industry forecasters are currently calling for a relatively flat production volume environment in 2024. Slower-than-expected EV sales and higher market interest rates are likely contributing to this view. Given this industry backdrop, our 2024 outlook calls for total sales of $5.0- to $5.3-billion, also reflecting a more normal year of tooling sales, an improved adjusted operating income margin (1) of 5.7 per cent to 6.2 per cent and continued strong free cash flow (1) of $100- to $150-million. We continue to perform at a high level, our balance sheet is in great shape, we are delivering on our free cash flow (1) promises and executing on our capital allocation priorities. To our shareholders and all our stakeholders, thank you for your continued support."

He added: "We also published our 2023 sustainability report today, which outlines the progress we have made on various sustainability initiatives and goals throughout the year. Of note, we continued to deliver industry-leading safety performance in 2023, with a total recordable injury frequency (TRIF) of 1.10, representing a 9-per-cent improvement over 2022 and an 89-per-cent improvement since 2014. In addition, we reduced both our carbon and energy intensity. We believe this demonstrates the commitment our organization and its people have to our unique culture, based on our golden rule philosophy of treating people the way we want to be treated -- with dignity and respect -- which also extends to the environment. One of our 10 guiding principles is 'leave it better,' and we believe our collective efforts try to make a better world."

Results of operations

All amounts in this news 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's discussion and analysis of operating results and financial position for the year ended Dec. 31, 2023 (MD&A), the company's audited consolidated financial statements for the year ended Dec. 31, 2023 (the audited consolidated financial statements), and the company's annual information form for the year ended Dec. 31, 2023, can be found on SEDAR+.

Overall results

Results of operations may include certain 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 company's disclosures that it believes provide the most appropriate basis on which to evaluate the company's results.

Attached tables set out certain highlights of the company's performance for the three months and years ended Dec. 31, 2023, and Dec. 31, 2022. Refer to the company's consolidated financial statements for the year ended Dec. 31, 2023, for a detailed account of the company's performance for the periods presented in the attached tables.

Non-IFRS measures

The company prepares its consolidated financial statements in accordance with IFRS accounting standards. 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 company's performance, do not have a standardized meaning prescribed by IFRS, and therefore may not be comparable with 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.

Attached tables provide a reconciliation of IFRS net income to non-IFRS adjusted net income, adjusted operating income and adjusted EBITDA.

Sales

Three months ended Dec. 31, 2023, compared with the three months ended Dec. 31, 2022

The company's consolidated sales for the fourth quarter of 2023 increased by $1.5-million or 0.1 per cent to $1,296.1-million, as compared with $1,294.6-million for the fourth quarter of 2022. The total increase in sales was driven by a year-over-year increase in the Europe operating segment, partially offset by year-over-year decreases in sales in North America and the rest of the world (ROW).

Sales for the fourth quarter of 2023 in the company's North America operating segment decreased by $25.1-million or 2.6 per cent to $959.5-million from $984.6-million for the fourth quarter of 2022. The decrease was due to the impact of the UAW strike at General Motors, Ford and Stellantis in the United States, negatively impacting production sales for the fourth quarter across several platforms, and lower year-over-year OEM production volumes on other light-vehicle platforms, including the Ford Mustang Mach E, Lucid Air and GM Equinox/Terrain. These negative factors were partially offset by the launch and ramp-up of new programs during or subsequent to the fourth quarter of 2022, including the Mercedes's new electric vehicle platform (EVA2), General Motors' new electric vehicle platform (BEV3), a Toyota/Lexus SUV (sport utility vehicle) and a transmission for the ZF Group, overall higher year-over-year fourth quarter OEM light-vehicle production volumes, apart from the impact of the UAW strike, primarily as a result of the industry-wide supply chain disruptions that impacted 2022 to a greater degree compared with 2023, the impact of foreign exchange on the translation of U.S.-dollar-denominated production sales, which had a positive impact on overall sales for the fourth quarter of 2023 of $11.0-million as compared with the fourth quarter of 2022, and an increase in tooling sales of $4.2-million, which are typically dependent on the timing of tooling construction and final acceptance by the customer.

Sales for the fourth quarter of 2023 in the company's Europe operating segment increased by $37.4-million or 13.7 per cent to $311.0-million from $273.6-million for the fourth quarter of 2022. The increase was due generally to overall higher fourth quarter OEM light-vehicle production volumes, which increased in Europe by approximately 7 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 launch and ramp-up of new programs during or subsequent to the fourth quarter of 2022, with Mercedes and the ZF Group, the impact of foreign exchange on the translation of euro-denominated production sales, which had a positive impact on overall sales for the fourth quarter of 2023 of $21.5-million as compared with the fourth quarter of 2022, and a $700,000 increase in tooling sales. These positive factors were partially offset by lower year-over-year production volumes of certain platforms, namely the Mercedes's new electric vehicle platform (EVA2).

Sales for the fourth quarter of 2023 in the company's ROW operating segment decreased by $13.1-million or 27.6 per cent to $34.5-million from $47.6-million in the fourth 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 General Motors and programs that came with the operations acquired from Metalsa that ended production during the fourth quarter of 2023. These negative factors were partially offset by the launch and ramp-up of new programs during or subsequent to the fourth quarter of 2022, specifically the BMW 5-series, and an increase in tooling sales of $2.2-million.

Overall tooling sales increased by $6.4-million (including outside segment sales eliminations) to $127.4-million for the fourth quarter of 2023 from $121.0-million for the fourth quarter of 2022.

Year ended Dec. 31, 2023, compared with the year ended Dec. 31, 2022

The company's consolidated sales for the year ended Dec. 31, 2023, increased by $582.4-million or 12.2 per cent to $5.34-billion, as compared with $4,757.6-million for the year ended Dec. 31, 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 decrease in sales in the rest of the world.

Sales for the year ended Dec. 31, 2023, in the company's North America operating segment increased by $464.4-million or 13.0 per cent to $4,022.7-million from $3,558.4-million for the year ended Dec. 31, 2022. The increase was due generally to the launch and ramp-up of new programs, including Mercedes's new electric vehicle platform (EVA2), General Motors' new electric vehicle platform (BEV3), a Toyota/Lexus SUV and a transmission for the ZF Group, overall higher OEM light-vehicle production volumes during the period, which increased in North America by approximately 10 per cent year over year, primarily as a result of the industry-wide supply chain disruptions that impacted 2022 to a greater degree compared with 2023, the impact of foreign exchange on the translation of U.S.-dollar-denominated production sales, which had a positive impact on overall sales for the year ended Dec. 31, 2023, of $138.6-million as compared with the corresponding period of 2022, the impact of material passthrough and commercial settlements (to partially offset inflationary cost increases and volume shortfalls) on customer pricing and sales, and an increase in tooling sales of $120.9-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 Ford Mustang Mach E, Lucid Air and GM Equinox/Terrain, and the impact the UAW strike had on production volumes, mainly during the fourth quarter of 2023.

Sales for the year ended Dec. 31, 2023, in the company's Europe operating segment increased by $149.4-million or 14.2 per cent to $1,204.7-million from $1,055.3-million for the year ended Dec. 31, 2022. The increase can be attributed to the launch and ramp-up of new programs with Mercedes and the ZF Group, overall higher OEM light-vehicle production volumes during the year ended Dec. 31, 2023, which increased in Europe by approximately 13 per cent year over year, primarily as a result of the industry-wide supply chain disruptions that 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 year ended Dec. 31, 2023, of $63.8-million as compared with the corresponding period of 2022, the impact of material passthrough and 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. These positive factors were partially offset by lower year-over-year production volumes of certain platforms, including the Lucid Air, certain programs with Mercedes and an engine block for Ford.

Sales for the year ended Dec. 31, 2023, in the company's ROW operating segment decreased by $26.5-million or 15.2 per cent to $147.6-million from $174.1-million for the year ended Dec. 31, 2022. The decrease was largely driven by 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 $6.8-million.

Overall tooling sales increased by $128.5-million (including outside segment sales eliminations) to $430.3-million for the year ended Dec. 31, 2023, from $301.8-million for the year ended Dec. 31, 2022.

Gross margin

Three months ended Dec. 31, 2023, compared with the three months ended Dec. 31, 2022

The gross margin percentage for the fourth quarter of 2023 of 11.8 per cent decreased as a percentage of sales by 0.4 per cent as compared with the gross margin percentage for the fourth quarter of 2022 of 12.2 per cent. The decrease in gross margin as a percentage of sales was generally due to:

• The impact of the UAW strike at General Motors, Ford and Stellantis in the United States, which resulted in lost production sales during the quarter, on the company's margin profile for the quarter;
• Operational inefficiencies at certain operating facilities, including costs resulting from a Tier 2 supply chain disruption during the quarter.

These factors were partially offset by productivity and efficiency improvements at certain operating facilities and other improvements.

Overall market-related inflationary pressures on labour, material and energy costs, along with offsetting commercial settlements, were generally stable for the quarter on a year-over-year basis.

Year ended Dec. 31, 2023, compared with the year ended Dec. 31, 2022

The gross margin percentage for the year ended Dec. 31, 2023, of 12.6 per cent increased as a percentage of sales by 0.8 per cent as compared with the gross margin percentage for the year ended Dec. 31, 2022, of 11.8 per cent. The increase in gross margin as a percentage of sales was generally due to:

• Overall higher production sales volume and corresponding higher utilization of assets;
• Favourable commercial settlements;
• Productivity and efficiency improvements at certain operating facilities and other improvements.

These factors were partially offset by:

• Higher labour, material and energy costs;
• Operational inefficiencies at certain operating facilities, including costs resulting from a Tier 2 supply chain disruption during the fourth quarter of the year;
• A negative sales mix;
• The impact of material passthrough on customer pricing;
• The impact of the UAW strike at General Motors, Ford and Stellantis in the United States, which resulted in lost production sales mainly during the fourth quarter of the year, on the company's margin profile.

Gross margin for the year ended Dec. 31, 2023, continued to be impacted by production inefficiencies related to the industry-wide supply chain disruptions driven by the unpredictability of customer production schedules, although the stability of OEM production volumes has improved year over year.

Adjustments to net income

Adjusted net income excludes certain items as set out in the attached tables and described in the notes thereto. Management uses adjusted Net Income 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.

Restructuring costs

Additions to the restructuring provision for the year ended Dec. 31, 2023, recognized during the fourth quarter of 2023, totalled $27.3-million and represent employee-related severance resulting from the right-sizing of operations in Germany, due to lower-than-expected OEM production volumes and the closure of an operating facility in Canada, resulting from the end of production of certain OEM light-vehicle platforms.

Additions to the restructuring provision during the year ended Dec. 31, 2022, recognized during the first and third quarters of 2022, totalled $7.8-million, and represent employee-related severance resulting from the rightsizing of operations in Canada and China related to the cancellation of certain OEM light-vehicle platforms well before the end of their expected life cycles.

Impairment of assets

During the fourth quarter of 2023, the company recorded impairment charges on property, plant and equipment, and inventories totalling $900,000 related to the closure of an operating facility in Canada, included in the North America operating segment. The impairment charges resulted from the end of production of certain OEM light-vehicle platforms, which led to the decision to close the facility. The impairment charges were recorded where the carrying amount of the assets exceeded their estimated recoverable amounts.

During the third quarter of 2022, the company recorded impairment charges on property, plant, equipment, right-of-use assets and inventories totalling $4.5-million, representing a writedown of the total assets of a cash-generating unit (CGU) in China, comprising two operating facilities originally acquired from Metalsa S.A. in 2020, included in the ROW operating segment. The impairment charges resulted from the cancellation of the OEM light-vehicle platforms being serviced by the CGU before the end of their expected life cycles. This led to a decision to close the facilities. The impairment charges were recorded where the carrying amount of the assets exceeded their estimated recoverable amounts. The decision to close the facilities also resulted in a writedown of deferred tax assets of $1.2-million.

Net gain on disposal of equity investments

On March 24, 2023, Martinrea sold its equity interest in Voltaxplore Inc. to Nanoxplore Inc. for 3,420,406 common shares of Nanoxplore at $2.92 per share, representing an aggregate consideration of $10.0-million. The sale transaction resulted in a gain on disposal of equity investments during the first quarter of 2023 as shown in the corresponding table.

Subsequent to this transaction, the company no longer holds a direct equity interest in Voltaxplore while its equity ownership interest in Nanoxplore increased from 21.1 per cent to 22.7 per cent.

Gain on dilution of equity investments

As at Dec. 31, 2021, the company held 35,045,954 common shares of Nanoxplore, representing a 22.2-per-cent equity interest in Nanoxplore (on a non-diluted basis). On Feb. 24, 2022, Nanoxplore closed a bought deal public offering of 6,522,000 common shares from treasury at a price of $4.60 per common share for aggregate gross proceeds of $30.0-million. Upon finalization of the transaction, the company's net ownership interest decreased to 21.2 per cent from 22.2 per cent. This dilution resulted in a deemed disposition of a portion of the company's ownership interest in Nanoxplore, resulting in a gain on dilution of $4.1-million during the first quarter of 2022.

Net income

Three months ended Dec. 31, 2023, compared with the three months ended Dec. 31, 2022

Net income, before adjustments, for the fourth quarter of 2023 decreased by $44.4-million to $1.9-million or two cents per share, on a basic and diluted basis, from net income of $46.2-million or 58 cents per share, on a basic and diluted basis, for the fourth quarter of 2022. Excluding the adjustments explained in the corresponding table under adjustments to net income, adjusted net income for the fourth quarter of 2023 decreased by $17.0-million to $29.3-million or 37 cents per share, on a basic and diluted basis, from $46.2-million or 58 cents per share, on a basic and diluted basis, for the fourth quarter of 2023.

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

• Lower gross margin due largely to the impact of the UAW strike at General Motors, Ford and Stellantis in the United States on production volumes and corresponding contribution, and operational inefficiencies resulting from a Tier 2 supply chain disruption during the quarter;
• A year-over-year increase in SG&A (selling, general and administrative) expense, as previously explained;
• A $4.0-million year-over-year increase in finance expense as a result of increased borrowing rates on the company's revolving bank debt;
• A net foreign exchange loss of $1.3-million for the fourth quarter of 2023, compared with a gain of $2.9-million for the fourth quarter of 2022.

These negative factors were partially offset by a $1.2-million gain on the disposal of property, plant and equipment for the fourth quarter of 2023, compared with a loss of $1.3-million for the fourth quarter of 2022.

Year ended Dec. 31, 2023, compared with the year ended Dec. 31, 2022

Net income, before adjustments, for the year ended Dec. 31, 2023, increased by $20.8-million to $153.7-million or $1.93 per share, on a basic and diluted basis, from net income of $132.8-million or $1.65 per share, on a basic and diluted basis, for the year ended Dec. 31, 2022. Excluding the adjustments explained in the corresponding table under adjustments to net income, adjusted net income for the year ended Dec. 31, 2023, increased by $34.9-million to $176.5-million or $2.22 per share on a basic and diluted basis, from $141.6-million or $1.76 per share, on a basic and diluted basis, for the year ended Dec. 31, 2022.

Adjusted net income for the year ended Dec. 31, 2023, as compared with the year ended Dec. 31, 2022, was positively impacted by the following:

• Higher gross margin on higher year-over-year sales volume as previously explained;
• A $1.0-million gain on the disposal of property, plant and equipment for the year ended Dec. 31, 2023, compared with a loss of $100,000 for the comparative period of 2022;
• A year-over-year decrease in share of loss of equity investments;
• A lower effective tax rate (19.8 per cent for the year ended Dec. 31, 2023, compared with 22.3 per cent for the year ended Dec. 31, 2022).

These factors were partially offset by the following:

• A year-over-year increase in SG&A expense, as previously explained;
• A $28.5-million year-over-year increase in finance expense as a result of increased borrowing rates on the company's revolving bank debt;
• A lower net foreign exchange gain of $5.2-million for the year ended Dec. 31, 2023, compared with a gain of $8.7-million for the year ended Dec. 31, 2022.

Dividend

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

About Martinrea International Inc.

Martinrea is a leader in the development and production of quality metal parts, assemblies and modules, fluid management systems, and complex aluminum products focused primarily on the automotive sector. Martinrea currently operates in 56 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 it 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 Thursday, Feb. 29, 2024, at 5:30 p.m. Eastern Time. To participate, please dial 416-641-6104 (Toronto area) or 800-952-5114 (toll-free in 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 conference call will also be webcast live in listen-only mode and archived for 12 months. The webcast and accompanying presentation can be accessed on the company's website.

There will also be a rebroadcast of the call available by dialling 905-694-9451 or toll-free 800-408-3053 (conference ID No. 5701857 followed by the pound key). The rebroadcast will be available until April 8, 2024.

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

We seek Safe Harbor.