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REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 2023
MESSAGE TO SHAREHOLDERS
2023 was a record year for Martinrea in many ways. We are very pleased with the progress made during
the year.
Before we get to the financial numbers, which reflect solid and improving progress year over year, let’s
start with two very important numbers to us—our safety record and our employee survey results. Both are
mission critical for your leadership team at Martinrea, and for our people also. We believe that these
numbers demonstrate the underlying health and resilience of our company, and are a strong base of support
for our financial performance today and going forward.
First, safety results. As you can appreciate, we both want and need to keep our people safe. We have been
doing that increasingly well over the past decade. Our industry leading safety metrics continued to improve
again in 2023; we take safety seriously. Our Total Recordable Injury Frequency, or TRIF, was 1.10, an
improvement of 9% over last year. More impressively, we have shown an 87% improvement over the last
decade, when we made it a priority in all of our operations. A TRIF of 1.10 is less than half of the industry
standard. As you know, our company has not only grown organically over the past 20 years; we have also
acquired a sizable number of troubled plants, where safety may not have been the first priority. We have a
safety-first culture as a primary feature of our operations. Safety discussions occur daily in our plants. Our
board of director meetings have a safety presentation and report. Our people come first, and we have
consistently demonstrated that in normal times and also difficult times. A safe plant generally means a
better work environment for our people; as well we see positive impacts on employee satisfaction and
profitability.
Second, our employee survey results from 2023 are very strong, even improved over last year overall, when
we had record positive results. We talk about culture a lot here at Martinrea, but if your employees don’t
believe in it, talk is cheap.
Every year our people complete a detailed employee survey, administered by a third party expert, who
performs similar surveys for many companies, including some of our competitors and customers. We are
told we have not just industry leading stats, but we are one of the best performing companies anywhere. Our
employee surveys are voluntary, but we had over 15,000 surveys submitted. That’s a really strong
sample. We have 56 locations now in 10 countries on 5 continents in different product groups. That’s also
a good sample. We scored very well in the key categories: the way we work (health and safety, work
environment, teamwork and collaboration); supporting our people (communication, fair treatment, diversity
and inclusion); value and recognition (compensation and incentives, career advancements, appreciation);
and shaping the future (personal goals, performance feedback, growth and development). While the scores
are not perfect, and we can always improve, and will strive to do so, here are some answers to some critical
questions:
I fully understand my job role and responsibilities—95% agree
Our location works to improve health and safety—89% agree
I feel a sense of personal accomplishment at the end of the workday—82% agree
I respect my plant General Manager—95% agree
Martinrea prioritizes and encourages diversity—90% agree
My direct supervisor treats me with dignity and respect—89% agree
1
Outstanding results overall. In order to get this feedback from your people, you have to walk the talk. You
have to care for your people.
We believe a happy, motivated, empowered, purpose-oriented workforce is the foundation of company
success in the short, medium and long term. As some commentators have written, happiness at work leads
to success, not the other way around. We agree.
A strong thank you to our people.
So, now that we have those two sets of numbers as a baseline, let’s talk briefly about our culture.
We talk about our culture a lot at Martinrea, as all our stakeholders have come to know. Our vision is
Making Lives Better by being the best supplier we can be in the products we make and the services we
provide. Our mission is basically to take care of our people, our customers, our communities and our
stakeholders – lenders and shareholders. Our 10 Guiding Principles represent the way we approach our
business. Our culture, depicted below, is a standard picture for us in all our internal and external
presentations.
MAKING LIVES BETTER
Our sustainability and success, we believe, comes down to culture. As leaders we are the chief culture
officers of the Company.
Living our vision is at the core of the future. Our culture, especially as we have cultivated it more and more
over the past few years, is a sustainable competitive advantage. To us, the Golden Rule means treating
people the way you want to be treated. We do this regardless of formulaic DEI programs or ESG mandates
that may be popular one day and less popular the next. The Golden Rule covers dignity and respect, it
covers teamwork, it covers integrity and truth, it covers diversity, equity and inclusion, it covers ESG, it
covers good leadership. It helps us to be a great company.
Your people have to trust you to lead them this way – to trust that you care for them. Leadership is
stewardship. Progress travels at the speed of trust.
In brief, we believe we work in a pretty special company, and we think our people believe that too. We
work every day with purpose serving our constituencies to the best of our abilities and taking care of our
own.
2
Now, let’s look at some of the other highlights of 2023. In many ways, our predictions for 2023 made early
last year held true for the most part. We did experience a UAW strike in the fall of 2023 that had some
short-term negative effects on second half numbers, but the strike is over now. We saw some major
geopolitical headwinds, some expected such as the continuing Ukraine/Russia conflict with its challenges
for Europe, and more trade issues involving China and some others, but also some unexpected, such as the
situation in the Middle East. Despite these challenges, 2023 was a very good year, with many improvements
from 2022.
Here are some of the highlights of 2023—a fuller description is found in our Annual Information Form, our
2023 Sustainability Report and our various year end releases, including our latest Investor Presentation:
We generated a record level of adjusted EBITDA of $616.7 million in 2023. This operating
cash flow also translated into Free Cash Flow for the year of approximately $195.4 million,
most of it generated in the second half of the year. A new Free Cash Flow record for our
Company.
We recorded record revenues of $5.34 billion, an increase of 12.2% from 2022. We saw
increased revenues from some of our key programs, but we also have launched a lot of new
business over the last three years that is driving some of the growth. We have experienced
huge revenue growth over that period, over a billion dollars annually. The increase alone
would make the Top 100 List of Top Suppliers in the North American auto parts industry –
according to Automotive News.
Our number of employees grew to approximately 19,000 and went up approximately 3.3%
from 2022, relative to a year-over-year revenue increase of 12.2%.
We saw continued growth in operating margins in 2023. Year over year, Adjusted Operating
Income Margin grew from 4.8% in 2022 to 5.6% in 2023, even with the UAW strike impact.
Our 2023 fully diluted net earnings per share of $2.22 (adjusted) or $1.93 (unadjusted) was
higher than the $1.76 (adjusted) and $1.65 (unadjusted) in 2022.
Our balance sheet improved year-over-year, ending 2023 with a net debt:adjusted ebitda ratio
(excluding IFRS 16) of 1.4:1, the best it has been since before the pandemic, and comfortably
within our target range of 1.5:1 or better.
We maintained our dividends to our shareholders in 2023; we did not reduce dividend payments
during the pandemic.
We returned capital to shareholders, repurchasing approximately 2.3 million common shares
under our normal course issuer bid, at a cost of approximately $29.1 million. All while
strengthening our balance sheet.
Quality is important to us and our customers – many of our products are safety parts, and we
won a number of quality awards in many of our plants again this year.
We continued to invest in the business, given our backlog of new business. Having said that,
cash capex returned to a more normal level in 2023, below depreciation and amortization
expense for the year. We note that in the past four years we have spent over a billion and a
quarter dollars on Capex, the highest for a four year period in our history. But the majority of
this spend was to launch work we had won. We did not slow down our investment activity
3
during the pandemic, and that is a primary reason we are coming out of it with significantly
higher revenues – not many automotive parts suppliers have a similar experience.
We do not believe in perfect launches – we believe in better ones each time –we had many
good ones.
Not only have we grown our business, we have significant content on the vehicles our
customers are making – electric, hybrid or ICE; our portfolio is matching what the industry is
making. Our lightweighting technologies are precisely what our industry needs regardless of
propulsion type.
We continue to both utilize and invest in leading edge technologies, in our regular operations
and through Martinrea Innovation Development, or MiND. We have investments in graphene
and graphene-enhanced batteries through our NanoXplore relationship, aluminum air battery
technology through AlumaPower, and several other new technologies such as Effenco using
ultracapacitor technology.
We program and use our own software and have established a separate internal group, called
MiNDCAN, to develop it, and sell it to interested third parties.
We continue to drive sustainability initiatives at Martinrea, and we encourage you to read our
2023 Sustainability Report. A few highlights in addition to those noted above:
Carbon Reductions: Carbon intensity (carbon emissions relative to sales) has reduced
by 32% since 2019 baseline.
Energy Reductions: Energy intensity (energy consumption relative to sales) has
reduced by 23% since 2019 baseline.
Renewable Energy: Approximately 36% of our electricity usage globally is obtained
through utility grids using varying percentages of renewable energy sources; we also
installed onsite solar panels in several facilities to help power the facilities with
renewable energy.
Long-Term Targets: In 2022, we set a target to reduce our carbon emissions by 35%
by 2035 (without the use of carbon credits). We are working on reaching that goal.
Diversity: CEO led Diversity Committee formed additional subcommittees to focus on
mental health (MindsMatter), Women at Martinrea (W@M), Young Professionals
(YoPro) and women in manufacturing. In 2023, Martinrea was recognized as the 2023
CADIA Impact Award Winner of Systemic Change and the Winner of Leadership
Commitment for advancing Diversity, Equity and Inclusion (DEI) goals and initiatives
across the Company.
And, as noted, we believe sustainable companies with a great culture will be around for a long time. We
have a solid foundation. As we look to 2024 and beyond, we do so with confidence. Our future is great. We
look forward to sharing it with you!
(Signed) “Rob Wildeboer”
(Signed) “Pat D’Eramo”
Rob Wildeboer
Executive Chairman
Pat D’Eramo
Chief Executive Officer
4
MANAGEMENT DISCUSSION AND ANALYSIS
OF OPERATING RESULTS AND FINANCIAL POSITION
For the year ended December 31, 2023
The following management discussion and analysis (“MD&A”) was prepared as of February 29, 2024 and should be read in conjunction
with the Company’s audited consolidated financial statements ("consolidated financial statements") for the year ended December 31,
2023 together with the notes thereto. All amounts in this MD&A 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 Annual Information Form ("AIF") for the year ended December 31, 2023, can be found at
www.sedarplus.ca.
OVERVIEW
Martinrea International Inc. (TSX: MRE) (“Martinrea” or the “Company”) 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
currently employs approximately 19,000 skilled and motivated people in 56 locations (including sales and engineering centres) in
Canada, the United States, Mexico, Brazil, Germany, Spain, South Africa, Slovakia, China, and Japan.
Martinrea’s vision is to make people’s lives better by being the best supplier we can be in the products we make and the services we
provide. The Company’s mission is to make people’s lives better by: delivering outstanding quality products and services to our
customers; providing meaningful opportunity, job satisfaction, and job security for our people; providing superior long-term investment
returns to our stakeholders; and being positive contributors to our communities.
RECENT DEVELOPMENTS
The United Auto Workers strike at General Motors, Ford and Stellantis
On September 15, 2023, the United Auto Workers union (UAW) went on strike at certain U.S. facilities at General Motors, Ford and
Stellantis, the Company’s three largest customers, subsequently expanding the strike action to include additional customer facilities.
The labour disruption had a negative impact on production volumes, increasing in magnitude with every additional customer facility that
went on strike. The UAW strike ended on October 30, 2023 and resulted in lost production sales of approximately $50 million and
corresponding contribution largely during the fourth quarter of 2023. The strike also negatively impacted the automotive supply chain.
Inflation and interest rates
The Company continues to experience higher commodity, freight and energy costs, as well as wage pressures in some markets, which
are easing somewhat but expected to persist in 2024. Additionally, the Company may continue to experience price increases or
surcharges from sub-suppliers in connection with the inflationary pressures they face. The inability to offset inflationary price increases
through continuous improvement actions, price increases to customers or modifications to products or otherwise, could have an
adverse effect on earnings.
Increased global inflation rates have spurred a cycle of monetary policy tightening through aggressive interest rate increases by central
banks, which has significantly increased the interest paid on the debt of the Company. Further, both the availability and cost of credit
are factors affecting consumer confidence, which is a critical driver of vehicle sales and thus automotive production. A material,
sustained decrease in consumer demand for vehicles could result in reductions to vehicle production, which could have an adverse
effect on earnings.
Supply chain issues
Industry-wide supply chain disruptions resulting, in part, from the COVID-19 pandemic, continue to have a negative impact on the
automotive supply chain and OEM light vehicle production globally. Although improved, OEM customers continue to take action in
response to these supply chain disruptions, including: unplanned shutdowns of production lines and/or plants; reductions in their vehicle
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Martinrea International Inc.
production plans; and changes to their product mix. In addition to having to address its own Tier 2 and 3 supply chain issues, which can
result in the incurrence of premium costs at times, such OEM responses have resulted in a number of consequences for Tier 1
suppliers like Martinrea, including lower sales; production inefficiencies due to production lines being stopped/restarted unexpectedly
based on OEMs’ production priorities; and premium costs to expedite shipments. While the Company has experienced a recovery in
production volumes and an improvement in the stability of production, it remains unclear when supply and demand for automotive
components will fully rebalance and it continues to be difficult to predict the full impact of the supply chain disruptions.
Russia-Ukraine and Israel-Hamas conflicts
Although the Company does not have any operations in Russia, Ukraine or in the Middle East, these ongoing conflicts create or
exacerbate a broad range of risks, including with respect to:
• global economic growth;
•
•
•
•
global vehicle production volumes;
inflationary pressures, including in energy, commodities and transportation/logistics;
energy security; and
supply chain fragility.
Any of the foregoing could have an adverse effect on the Company’s business and results of operations.
Significant industry trends, the Company’s business strategy and all other major risks the Company faces are discussed further in
Description of the Business and Trends and Risk Factors in the Company’s AIF, and Risks and Uncertainties in this MD&A.
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 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 following tables set out certain highlights of the Company’s performance for the three months and years ended December 31, 2023
and 2022. Refer to the Company’s consolidated financial statements for the year ended December 31, 2023 for a detailed account of
the Company’s performance for the periods presented in the tables below.
Year ended
December 31, 2023
Year ended
December 31, 2022
4,757,588
559,263
217,779
132,838
1.65
$ Change
582,415
116,134
51,335
20,827
0.28
% Change
12.2%
20.8%
23.6%
15.7%
17.0%
230,119
67,156
29.2%
4.8 %
515,888
100,790
19.5%
10.8 %
141,612
1.76
34,880
0.46
24.6%
26.1%
Sales
Gross Margin
Operating Income
Net Income for the period
Net Earnings per Share - Basic and Diluted
Non-IFRS Measures*
Adjusted Operating Income
% of Sales
Adjusted EBITDA
% of Sales
Adjusted Net Income
Adjusted Net Earnings per Share - Basic and Diluted
$
$
$
$
5,340,003
675,397
269,114
153,665
1.93
297,275
5.6 %
616,678
11.5 %
176,492
2.22
$
$
$
$
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Martinrea International Inc.
Sales
Cost of sales (excluding depreciation)
Depreciation of property, plant and equipment and right-of-
use assets (production)
Gross Margin
Research and development costs
Selling, general and administrative
Depreciation of property, plant and equipment and right-of-
use assets (non-production)
Gain (loss) on disposal of property, plant and equipment
Restructuring costs
Impairment of assets
Operating Income
Share of loss of equity investments
Finance expense
Other finance income (expense)
Income before taxes
Income tax expense
Net Income for the period
Net Earnings per Share - Basic and Diluted
Non-IFRS Measures*
Adjusted Operating Income
% of Sales
Adjusted EBITDA
% of Sales
Adjusted Net Income
Adjusted Net Earnings per Share - Basic and Diluted
*Non-IFRS Measures
Three months ended
December 31, 2023
$
1,296,121
(1,065,338)
$
Three months ended
December 31, 2022 $ Change % Change
0.1%
0.1%
1,294,592
(1,065,948)
1,529
610
(77,555)
153,228
(9,754)
(83,476)
(4,548)
1,197
(27,266)
(895)
28,486
(930)
(20,215)
(421)
6,920
(5,070)
1,850
0.02
56,647
4.4 %
140,080
10.8 %
29,251
0.37
$
$
$
$
$
(70,140)
158,504
(10,273)
(72,174)
(4,174)
(1,323)
-
-
70,560
(1,665)
(16,194)
2,959
55,660
(9,433)
46,227
0.58
(7,415)
(5,276)
519
(11,302)
(374)
2,520
(27,266)
(895)
(42,074)
735
(4,021)
(3,380)
(48,740)
4,363
(44,377)
(0.56)
(10.6%)
(3.3%)
5.1%
(15.7%)
(9.0%)
190.5%
(100.0%)
(100.0%)
(59.6%)
44.1%
(24.8%)
(114.2%)
(87.6%)
46.3%
(96.0%)
(96.6%)
70,560
(13,913)
(19.7%)
5.5 %
148,990
(8,910)
(6.0%)
11.5 %
46,227
0.58
(16,976)
(0.21)
(36.7%)
(36.2%)
$
$
$
$
$
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 to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to
financial measures determined in accordance with IFRS. Non-IFRS measures include “Adjusted Net Income”, “Adjusted Net Earnings
per Share (on a basic and diluted basis)”, “Adjusted Operating Income”, "Adjusted EBITDA”, “Free Cash Flow”, and “Net Debt”.
The following tables provide a reconciliation of IFRS “Net Income” to Non-IFRS “Adjusted Net Income”, “Adjusted Operating Income”
and “Adjusted EBITDA”:
Net Income
Adjustments, after tax*
Adjusted Net Income
Net Income
Adjustments, after tax*
Adjusted Net Income
*Adjustments are explained in the "Adjustments to Net Income" section of this MD&A
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Martinrea International Inc.
$
$
$
$
Three months ended
December 31, 2023
Three months ended
December 31, 2022
46,227
-
46,227
1,850 $
27,401
29,251 $
Year ended
December 31, 2023
153,665 $
22,827
176,492 $
Year ended
December 31, 2022
132,838
8,774
141,612
Net Income
Income tax expense
Other finance expense (income)
Share of loss of equity investments
Finance expense
Adjustments, before tax*
Adjusted Operating Income
Depreciation of property, plant and equipment and right-of-use assets
Amortization of development costs
Loss (gain) on disposal of property, plant and equipment
Adjusted EBITDA
Net Income
Income tax expense
Other finance income
Share of loss of equity investments
Finance expense
Adjustments, before tax*
Adjusted Operating Income
Depreciation of property, plant and equipment and right-of-use assets
Amortization of development costs
Loss (gain) on disposal of property, plant and equipment
Adjusted EBITDA
$
$
$
$
$
$
Three months ended
December 31, 2023
Three months ended
December 31, 2022
46,227
9,433
(2,959)
1,665
16,194
-
70,560
74,314
2,793
1,323
148,990
1,850 $
5,070
421
930
20,215
28,161
56,647 $
82,103
2,527
(1,197)
140,080 $
Year ended
December 31, 2023
153,665 $
43,492
(6,653)
3,560
80,323
22,888
297,275 $
310,144
10,298
(1,039)
616,678 $
Year ended
December 31, 2022
132,838
41,207
(9,127)
5,074
51,837
8,290
230,119
274,707
10,929
133
515,888
*Adjustments are explained in the "Adjustments to Net Income" section of this MD&A
SALES
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
North America
Europe
Rest of the World
Eliminations
Total Sales
$
$
Three months ended
December 31, 2023
Three months ended
December 31, 2022
984,588
273,642
47,575
(11,213)
959,464 $
311,034
34,467
(8,844)
1,296,121 $
1,294,592
$ Change
(25,124)
37,392
(13,108)
2,369
1,529
% Change
(2.6%)
13.7%
(27.6%)
21.1%
0.1%
The Company’s consolidated sales for the fourth quarter of 2023 increased by $1.5 million or 0.1% to $1,296.1 million as compared to
$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.
Sales for the fourth quarter of 2023 in the Company’s North America operating segment decreased by $25.1 million or 2.6% 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' 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 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 which
impacted 2022 to a greater degree compared to 2023; the impact of foreign exchange on the translation of U.S. denominated
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Martinrea International Inc.
production sales, which had a positive impact on overall sales for the fourth quarter of 2023 of $11.0 million as compared to 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% 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% year-over-year, primarily as a result of the industry-wide supply
chain disruptions which impacted 2022 to a greater degree compared to 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
to the fourth quarter of 2022; and a $0.7 million increase in tooling sales. These positive factors were partially offset by lower year-over-
year production volumes of certain platforms, namely the Mercedes' new electric vehicle platform (EVA2).
Sales for the fourth quarter of 2023 in the Company’s Rest of the World operating segment decreased by $13.1 million or 27.6% 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 December 31, 2023 to year ended December 31, 2022 comparison
North America
Europe
Rest of the World
Eliminations
Total Sales
Year ended
December 31, 2023
$
$
4,022,741 $
1,204,672
147,559
(34,969)
5,340,003 $
Year ended
December 31, 2022
3,558,384
1,055,309
174,050
(30,155)
4,757,588
$ Change
464,357
149,363
(26,491)
(4,814)
582,415
% Change
13.0%
14.2%
(15.2%)
(16.0%)
12.2%
The Company’s consolidated sales for the year ended December 31, 2023 increased by $582.4 million or 12.2% to $5,340.0 million as
compared to $4,757.6 million for the year ended December 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 December 31, 2023 in the Company’s North America operating segment increased by $464.4 million or 13.0%
to $4,022.7 million from $3,558.4 million for the year ended December 31, 2022. The increase was due generally to the launch and
ramp up of new programs, including Mercedes' 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% year-over-year, primarily as a result of the industry-wide supply chain
disruptions which impacted 2022 to a greater degree compared to 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 year ended December 31, 2023 of $138.6 million as
compared to 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 December 31, 2023 in the Company’s Europe operating segment increased by $149.4 million or 14.2% to
$1,204.7 million from $1,055.3 million for the year ended December 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
Page 5
Martinrea International Inc.
December 31, 2023, which increased in Europe by approximately 13% year-over-year, primarily as a result of the industry-wide supply
chain disruptions which impacted 2022 to a greater degree compared to 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 December 31, 2023 of $63.8 million as
compared to 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 December 31, 2023 in the Company’s Rest of the World operating segment decreased by $26.5 million or
15.2% to $147.6 million from $174.1 million for the year ended December 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
December 31, 2023 from $301.8 million for the year ended December 31, 2022.
GROSS MARGIN
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
Gross margin
% of Sales
Three months ended
December 31, 2023
Three months ended
December 31, 2022
$
153,228
$
11.8 %
158,504
12.2 %
$ Change
(5,276)
% Change
(3.3) %
The gross margin percentage for the fourth quarter of 2023 of 11.8% decreased as a percentage of sales by 0.4% as compared to the
gross margin percentage for the fourth quarter of 2022 of 12.2%. 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; and
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 December 31, 2023 to year ended December 31, 2022 comparison
Gross margin
% of Sales
Year ended
December 31, 2023
Year ended
December 31, 2022
$
675,397
$
12.6%
559,263
11.8%
$ Change
116,134
% Change
20.8%
The gross margin percentage for the year ended December 31, 2023 of 12.6% increased as a percentage of sales by 0.8% as
compared to the gross margin percentage for the year ended December 31, 2022 of 11.8%. 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; and
productivity and efficiency improvements at certain operating facilities and other improvements.
Page 6
Martinrea International Inc.
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; and
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 December 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.
SELLING, GENERAL & ADMINISTRATIVE ("SG&A")
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
Selling, general & administrative
% of Sales
Three months ended
December 31, 2023
Three months ended
December 31, 2022
$
83,476
$
6.4 %
72,174
5.6 %
$ Change
11,302
% Change
15.7 %
SG&A expense for the fourth quarter of 2023 increased by $11.3 million to $83.5 million as compared to SG&A expense for the fourth
quarter of 2022 of $72.2 million. The increase in SG&A expense can largely be attributed to overall higher employee levels and related
costs as compared to the fourth quarter of 2022 as a result of overall higher volumes and general activity; and an increase in premium
freight costs resulting from a Tier 2 supply chain disruption during the quarter.
SG&A expense as a percentage of sales increased to 6.4% for the fourth quarter of 2023 compared to 5.6% for the fourth quarter of
2022 due to the reasons noted above, on lower overall sales volume during the quarter due to the impact the UAW strike had on
customer production volumes.
Year ended December 31, 2023 to year ended December 31, 2022 comparison
Selling, general & administrative
% of Sales
Year ended
December 31, 2023
Year ended
December 31, 2022
$
323,438
$
276,146
6.1%
5.8%
$ Change
47,292
% Change
17.1%
SG&A expense for the year ended December 31, 2023 increased by $47.3 million to $323.4 million as compared to SG&A expense for
the year ended December 31, 2022 of $276.1 million. The increase in SG&A expense can largely be attributed to overall higher
employee levels and related costs as compared to the corresponding period of 2022 as a result of overall higher volumes and general
activity; an increase in overall performance-based variable compensation expense, including equity-based compensation expense
related to deferred, restricted, and performance share units; an increase in travel related costs; and an increase in premium freight
costs, largely resulting from a Tier 2 supply chain disruption during the fourth quarter of 2023.
SG&A expense as a percentage of sales increased to 6.1% for the year ended December 31, 2023 compared to 5.8% for the year
ended December 31, 2022 due to the reasons noted above, on higher overall year-over-year sales volume.
Page 7
Martinrea International Inc.
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT ("PP&E"), RIGHT-OF-USE ASSETS AND AMORTIZATION OF
INTANGIBLE ASSETS
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
Depreciation of PP&E and right-of-use assets (production)
Depreciation of PP&E and right-of-use assets (non-production)
Amortization of development costs
Total depreciation and amortization
Three months
ended December 31,
Three months
ended December 31,
2023
77,555 $
$
4,548
2,527
$
84,630 $
2022 $ Change % Change
10.6%
7,415
374
9.0%
(9.5%)
(266)
9.8%
7,523
70,140
4,174
2,793
77,107
Total depreciation and amortization expense for the fourth quarter of 2023 increased by $7.5 million to $84.6 million as compared to
$77.1 million for the fourth quarter of 2022. The increase in depreciation and amortization expense was primarily due to additional
depreciation on a larger PP&E asset base relating to new and replacement business that commenced during or subsequent to the
fourth quarter of 2022.
A significant portion of the Company’s recent investments relates to various new programs that commenced during or subsequent to the
fourth quarter of 2022 and new and replacement programs scheduled to launch over the next two to three years in all of the Company’s
various product offerings. The Company continues to make significant investments in its operations in light of its backlog of business
and global footprint.
Total depreciation and amortization expense as a percentage of sales increased year-over-over to 6.5% for the fourth quarter of 2023
from 6.0% for the fourth quarter of 2022 due mainly to the increased asset base, as noted above.
Year ended December 31, 2023 to year ended December 31, 2022 comparison
Depreciation of PP&E and right-of-use assets (production)
Depreciation of PP&E and right-of-use assets (non-production)
Amortization of development costs
Total depreciation and amortization
Year ended
December 31, 2023
$
292,432 $
17,712
10,298
$
320,442 $
Year ended
December 31, 2022
258,760
15,947
10,929
285,636
$ Change % Change
13.0%
11.1%
(5.8%)
12.2%
33,672
1,765
(631)
34,806
Total depreciation and amortization expense for the year ended December 31, 2023 increased by $34.8 million to $320.4 million as
compared to $285.6 million for the year ended December 31, 2022. The increase in depreciation and amortization expense was
primarily due to additional depreciation on a larger PP&E asset base relating to new and replacement business that commenced during
or subsequent to the year ended December 31, 2022.
Total depreciation and amortization expense as a percentage of sales for the year ended December 31, 2023 of 6.0% was consistent
with the year ended December 31, 2022.
ADJUSTMENTS TO NET INCOME
Adjusted Net Income excludes certain items as set out in the following 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.
Page 8
Martinrea International Inc.
TABLE A
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
Three months ended
December 31, 2023
Three months ended
December 31, 2022
1,850 $
46,227 $
NET INCOME
Adjustments:
Restructuring costs (1)
Impairment of assets (2)
ADJUSTMENTS, BEFORE TAX
Tax impact of adjustments
ADJUSTMENTS, AFTER TAX
ADJUSTED NET INCOME
Number of Shares Outstanding – Basic (‘000)
Adjusted Basic Net Earnings Per Share
Number of Shares Outstanding – Diluted (‘000)
Adjusted Diluted Net Earnings Per Share
TABLE B
$
$
$
$
$
$
Year ended December 31, 2023 to year ended December 31, 2022 comparison
27,266
895
28,161 $
(760)
27,401 $
29,251 $
78,700
0.37 $
78,725
0.37 $
$ Change
(44,377)
27,266
895
28,161
(760)
27,401
-
-
- $
-
- $
46,227 $
(16,976)
80,387
0.58
80,387
0.58
NET INCOME
Adjustments:
Restructuring costs (1)
Impairment of assets (2)
Net gain on disposal of equity investments (3)
Gain on dilution of equity investments (4)
ADJUSTMENTS, BEFORE TAX
Tax impact of adjustments
Writedown of deferred tax asset (2)
ADJUSTMENTS, AFTER TAX
ADJUSTED NET INCOME
Number of Shares Outstanding – Basic (‘000)
Adjusted Basic Net Earnings Per Share
Number of Shares Outstanding – Diluted (‘000)
Adjusted Diluted Net Earnings Per Share
Year ended
December 31, 2023
Year ended
December 31, 2022
$
153,665 $
132,838 $
$ Change
20,827
27,266
895
(5,273)
-
22,888 $
(61)
-
22,827 $
7,846
4,494
-
(4,050)
8,290 $
(733)
1,217
8,774 $
19,420
(3,599)
(5,273)
4,050
14,598
672
(1,217)
14,053
176,492 $
141,612 $
34,880
79,608
2.22 $
79,655
2.22 $
80,378
1.76
80,378
1.76
$
$
$
$
$
Page 9
Martinrea International Inc.
(1) Restructuring costs
Additions to the restructuring provision for the year ended December 31, 2023, recognized during the fourth quarter of 2023,
totaled $27.3 million, and represent employee-related severance resulting from the rightsizing 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 December 31, 2022, recognized during the first and third quarters of
2022, totaled $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.
(2)
Impairment of assets
During the fourth quarter of 2023, the Company recorded impairment charges on property, plant and equipment and inventories
totaling $0.9 million 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 totaling $4.5 million representing a writedown of the total assets of a Cash Generating Unit (“CGU”) in China, comprised
of two operating facilities originally acquired from Metalsa S.A in 2020, included in the Rest of the World 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.
(3) Net gain on disposal of equity investments
On March 24, 2023, Martinrea sold its equity interest in VoltaXplore Inc. ("VoltaXplore) to NanoXplore Inc. ("NanoXplore") 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 follows:
Gross gain (Total consideration of $10.0 million less book value of investment)
Less: gain attributable to indirect retained interest
Net gain on disposal of equity investments
$
$
6,821
(1,548)
5,273
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% to 22.7%.
(4) Gain on dilution of equity investments
As at December 31, 2021, the Company held 35,045,954 common shares of NanoXplore representing a 22.2% equity interest in
NanoXplore (on a non-diluted basis). On February 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% from 22.2%. 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.
Page 10 Martinrea International Inc.
NET INCOME
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
Three months ended
December 31, 2023
Three months ended
December 31, 2022
46,227
46,227
1,850 $
29,251
$ Change
(44,377)
(16,976)
% Change
(96.0%)
(36.7%)
Net Income
Adjusted Net Income
Net Earnings per Share
Basic and Diluted
Adjusted Net Earnings per Share
Basic and Diluted
$
$
$
0.02 $
0.37 $
0.58
0.58
Net Income, before adjustments, for the fourth quarter of 2023 decreased by $44.4 million to $1.9 million or $0.02 per share, on a basic
and diluted basis, from Net Income of $46.2 million or $0.58 per share, on a basic and diluted basis, for the fourth quarter of 2022.
Excluding the adjustments explained in Table A under “Adjustments to Net Income", Adjusted Net Income for the fourth quarter of 2023
decreased by $17.0 million to $29.3 million or $0.37 per share, on a basic and diluted basis, from $46.2 million or $0.58 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 to 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 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; and
a net foreign exchange loss of $1.3 million for the fourth quarter of 2023 compared to 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 to a loss of $1.3 million for the fourth quarter of 2022.
Year ended December 31, 2023 to year ended December 31, 2022 comparison
Net Income
Adjusted Net Income
Net Earnings per Share
Basic and Diluted
Adjusted Net Earnings per Share
Basic and Diluted
Year ended
December 31, 2023
$
$
$
153,665 $
176,492
1.93 $
2.22 $
Year ended
December 31, 2022
132,838
141,612
$ Change
20,827
34,880
% Change
15.7%
24.6%
1.65
1.76
Net Income, before adjustments, for the year ended December 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
December 31, 2022. Excluding the adjustments explained in Table B under “Adjustments to Net Income”, Adjusted Net Income for the
year ended December 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 December 31, 2022.
Page 11 Martinrea International Inc.
Adjusted Net Income for the year ended December 31, 2023, as compared to the year ended December 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 December 31, 2023 compared to a loss
of $0.1 million for the comparative period of 2022;
a year-over-year decrease in share of loss of equity investments; and
a lower effective tax rate (19.8% for the year ended December 31, 2023 compared to 22.3% for the year ended December 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; and
a lower net foreign exchange gain of $5.2 million for the year ended December 31, 2023 compared to a gain of $8.7 million for
the year ended December 31, 2022.
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
Additions to PP&E
$
97,889 $
Three months ended
December 31, 2023
Three months ended
December 31, 2022
120,926
$ Change
(23,037)
% Change
(19.1%)
Additions to PP&E decreased by $23.0 million to $97.9 million or 7.6% of sales for the fourth quarter of 2023 as compared to $120.9
million or 9.3% in the fourth quarter of 2022, as the Company's capital expenditures program balances out and normalizes after a cycle
of significant investment in new program capital and other projects.
Year ended December 31, 2023 to year ended December 31, 2022 comparison
Additions to PP&E
Year ended
December 31, 2023
$
293,098 $
Year ended
December 31, 2022
369,286
$ Change
(76,188)
% Change
(20.6%)
Additions to PP&E decreased by $76.2 million to $293.1 million or 5.5% of sales for the year ended December 31, 2023 compared to
$369.3 million or 7.8% of sales for the year ended December 31, 2022, as the Company's capital expenditures program balances out
and normalizes after a cycle of significant investment in new program capital and other projects.
General timing of expenditures makes quarterly additions to PP&E quite volatile by nature. Capital additions for the years ended
December 31, 2023 and 2022 include new program capital and incremental investments required in equipment related to customer-
driven engineering changes on new program launches. The Company continues to make investments in the business including in
various sales and margin growth projects and in new and replacement business in all its various product offerings, while continuing to
apply a measured and prudent approach to capital investment.
SEGMENT ANALYSIS
The Company defines its operating segments as components of its business where separate financial information is available and
routinely evaluated by the Company’s chief operating decision maker, which is the Chief Executive Officer. Given the differences
between the regions in which the Company operates, Martinrea’s operations are segmented and aggregated on a geographic basis
among North America, Europe and the Rest of the World. The Company measures segment operating performance based on operating
income.
Page 12 Martinrea International Inc.
Three months ended December 31, 2023 to three months ended December 31, 2022 comparison
SALES
OPERATING INCOME*
Three months ended
December 31, 2023
Three months ended
December 31, 2022
Three months ended
December 31, 2023
Three months ended
December 31, 2022
North America
Europe
Rest of the World
Eliminations
Adjusted Operating Income
Adjustments*
Total
$
959,464 $
311,034
34,467
(8,844)
-
984,588 $
273,642
47,575
(11,213)
$
-
$
1,296,121 $
1,294,592 $
47,081 $
6,185
3,381
-
56,647 $
(28,161)
28,486 $
55,785
10,939
3,836
-
70,560
-
70,560
* Operating Income for the operating segments has been adjusted for certain items as explained in Table A under "Adjustments to Net Income". Of the
$28.2 million adjustment for the fourth quarter of 2023, $3.0 million was recognized in North America and $25.2 million in Europe.
North America
Adjusted Operating Income in North America decreased by $8.7 million to $47.1 million or 4.9% of sales for the fourth quarter of 2023
from $55.8 million or 5.7% of sales for the fourth quarter of 2022. Adjusted Operating Income as a percentage of sales was negatively
impacted by the UAW strike at General Motors, Ford and Stellantis in the United States, which resulted in lost production sales and
corresponding contribution during the quarter; operational inefficiencies at certain operating facilities, including costs resulting from a
Tier 2 supply chain disruption during the quarter; and higher SG&A expense as a percentage of sales as previously explained. These
negative factors were partially offset by productivity and efficiency improvements at certain operating facilities and other improvements.
Europe
Adjusted Operating Income in Europe decreased by $4.7 million to $6.2 million or 2.0% of sales for the fourth quarter of 2023 from
$10.9 million or 4.0% of sales for the fourth quarter of 2022. The decrease in Adjusted Operating Income was generally due to lower
year-over-year favourable commercial settlements, and operational inefficiencies at certain operating facilities; partially offset by
incremental contribution from the higher year-over-year sales, and productivity and efficiency improvements at certain operating
facilities and other improvements.
Rest of the World
Adjusted Operating Income in the Rest of the World decreased by $0.4 million to $3.4 million or 9.8% of sales for the fourth quarter of
2023 from $3.8 million or 8.1% of sales for the fourth quarter of 2022, due generally to the negative impact on margins from lower year-
over-year production sales, partially offset by higher year-over-year favourable commercial settlements.
Year ended December 31, 2023 to year ended December 31, 2022 comparison
SALES
OPERATING INCOME*
Year ended
December 31, 2023
Year ended
December 31, 2022
Year ended
December 31, 2023
Year ended
December 31, 2022
North America
Europe
Rest of the World
Eliminations
Adjusted Operating Income
Adjustments*
Total
$
4,022,741 $
1,204,672
147,559
(34,969)
-
3,558,384 $
1,055,309
174,050
(30,155)
$
-
$
5,340,003 $
4,757,588 $
270,060 $
16,897
10,318
-
297,275 $
(28,161)
269,114 $
204,055
17,732
8,332
-
230,119
(12,340)
217,779
* Operating Income for the operating segments has been adjusted for certain items as explained in Table B under "Adjustments to Net Income". Of the
$28.2 million adjustment for the year ended December 31, 2023, $3.0 million was recognized in North America and $25.2 million in Europe. Of the $12.3
million adjustment for the for year ended December 31, 2022, $4.9 million was recognized in North America and $7.4 million in the Rest of the World.
Page 13 Martinrea International Inc.
North America
Adjusted Operating Income in North America increased by $66.0 million to $270.1 million or 6.7% of sales for the year ended December
31, 2023 from $204.1 million or 5.7% of sales for the year ended December 31, 2022. The increase in Adjusted Operating Income as a
percentage of sales was generally due to overall higher production sales volume and corresponding higher utilization of assets;
favourable commercial settlements; and productivity and efficiency improvements at certain operating facilities and other improvements.
These positive factors were partially offset by higher labour and material 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; higher SG&A
expense as a percentage of sales as previously explained; and the impact of material passthrough on customer pricing.
Europe
Adjusted Operating Income in Europe decreased by $0.8 million to $16.9 million or 1.4% of sales for the year ended December 31,
2023 from $17.7 million or 1.7% of sales for the year ended December 31, 2022. The decrease in Adjusted Operating Income was
generally due to higher material and energy costs, operational inefficiencies at certain operating facilities, and a negative sales mix;
partially offset by favourable commercial settlements; incremental contribution from higher year-over-year sales; and productivity and
efficiency improvements at certain operating facilities and other improvements.
Rest of the World
Adjusted Operating Income in the Rest of the World increased by $2.0 million to $10.3 million or 7.0% of sales for the year ended
December 31, 2023 from $8.3 million or 4.8% of sales for the year ended December 31, 2022, due to favourable commercial
settlements; favourable settlements on indirect tax matters and lower launch related costs; partially offset by the negative impact on
margins from lower year-over-year production sales.
SUMMARY OF QUARTERLY RESULTS
(unaudited)
2023
2022
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Sales
$ 1,296,121 $ 1,378,938 $ 1,361,055 $ 1,303,889 $ 1,294,592 $ 1,194,083 $ 1,113,875 $ 1,155,038
Gross Margin
153,228 181,194 173,589 167,386 158,504 152,534 125,789 122,436
Operating Income
28,486
83,015
82,436
75,177
70,560
61,627
45,543
40,049
Adjusted Operating Income
56,647
83,015
82,436
75,177
70,560
69,730
45,543
44,286
Net Income for the period
1,850
53,744
49,900
48,171
46,227
35,932
25,471
25,208
Adjusted Net Income
29,251
53,744
49,900
43,597
46,227
45,072
25,471
24,842
Basic and Diluted Net Earnings
per Share
Adjusted Basic and Diluted Net
Earnings per Share
0.02
0.68
0.62
0.60
0.58
0.45
0.32
0.31
0.37
0.68
0.62
0.54
0.58
0.56
0.32
0.31
Page 14 Martinrea International Inc.
LIQUIDITY AND CAPITAL RESOURCES
On February 23, 2024, subsequent to the year end, the Company’s banking facility was amended to extend its maturity and enhance
certain provisions of the facility. The primary terms of the amended banking facility, with now a syndicate of ten banks (down from
eleven), include the following:
•
•
•
•
•
•
•
•
•
an unaltered unsecured credit structure, with a $100 million increase in total borrowing capacity;
unchanged financial covenants, including a maximum net debt to trailing twelve months EBITDA ratio of 3.0x (excluding the
impact of IFRS 16, Leases);
a new non-amortizing term loan of $250 million at variable interest rates;
available revolving credit lines of $350 million (down from $500 million) and US $520 million (similar to the previous facility);
available asset based financing capacity of $300 million, similar to the previous facility;
accordion feature which provides the Company with the ability to increase the revolving credit facility by up to US $300 million,
similar to the previous facility;
pricing terms at market rates including transitioning the interest rate benchmark of the Canadian revolving credit line from
Bankers' Acceptance (“BA”) to the Canadian Overnight Repo Rate Average (“CORRA”);
a maturity date extended to February 2027 (from April 2025); and
no mandatory principal repayment provisions for the revolving facilities, similar to the previous facility.
On June 14, 2023, the Company amended its banking facility to change the interest rate benchmark of the U.S. revolving credit line
from London Interbank Offered Rate (“LIBOR”) to Term Secured Overnight Financing Rate (“SOFR”).
As at December 31, 2023, the Company had drawn US $401 million (December 31, 2022 - US $476 million) on the U.S. revolving credit
line and $410 million (December 31, 2022 - $380 million) on the Canadian revolving credit line. As at December 31, 2023, the Company
had total liquidity of $429 million, including cash and cash equivalents and availability under the Company's revolving credit lines. In
addition, the Company's credit facility includes a $300 million allowance for asset based financing that the Company can use for
additional financing, of which approximately $269 million was available as at December 31, 2023. At December 31, 2023, the weighted
average effective interest rate of the banking facility credit lines was 7.1% (December 31, 2022 - 6.8%). The facility requires the
maintenance of certain financial ratios with which the Company was in compliance as at December 31, 2023.
On June 27, 2022, the Company finalized a three-year equipment loan in the amount of $5.0 million repayable in monthly installments
commencing in 2022 at a fixed annual interest rate of 5.22%.
The principal sources of liquidity available for the Company’s future cash requirements are expected to be cash flow from operations,
cash and cash equivalents, borrowings from its revolving credit lines, and asset based financing. Management believes that the
Company’s overall liquidity and operating cash flow will be sufficient to meet the Company’s anticipated cash requirements for capital
expenditures, working capital, debt obligations and other commitments. The Company’s ability to fund its anticipated cash requirements,
and to comply with financial covenants under the Company’s banking facility, depend on the Company’s future operating performance
and cash flows and many factors outside of its control, including the cost of material, energy and other input costs, the state of the
overall automotive industry and financial and economic conditions, including the impact of supply chain disruptions, and other factors.
Debt leverage ratios:
Excluding the impact of IFRS 16:
December 31,
2023
September 30,
2023
June 30,
2023
March 31, December 31,
2022
2023
Long-term debt
Less: Cash and cash equivalents
Net Debt
Trailing 12-month Adjusted EBITDA
Net Debt to Adjusted EBITDA ratio
$
$
$
969,236 $
(186,804)
782,432 $
558,224 $
1.40x
1,067,973 $
(178,725)
889,248 $
569,709 $
1.56x
1,083,161 $ 1,112,455 $
(145,755)
937,406 $
548,420 $
1.71x
(156,585)
955,870 $
502,724 $
1.90x
1,070,368
(161,655)
908,713
465,789
1.95x
Page 15
Martinrea International Inc.
Including the impact of IFRS 16:
December 31,
2023
September 30,
2023
June 30,
2023
March 31, December 31,
2022
2023
Long-term debt
Lease liabilities
Less: Cash and cash equivalents
Net Debt
Trailing 12-month Adjusted EBITDA
Net Debt to Adjusted EBITDA ratio
$
$
$
969,236 $
258,976
1,228,212
(186,804)
1,041,408 $
616,678 $
1.69x
1,067,973 $ 1,083,161 $ 1,112,455 $
262,049
1,345,210
266,969
1,379,424
267,530
1,335,503
(145,755)
(178,725)
1,156,778 $ 1,199,455 $ 1,222,839 $
556,013 $
602,333 $
2.20x
1.99x
625,588 $
1.85x
(156,585)
1,070,368
273,120
1,343,488
(161,655)
1,181,833
515,888
2.29x
The following table provides a reconciliation of Trailing 12-month Adjusted EBITDA including the impact of IFRS 16 to Trailing 12-month
Adjusted EBITDA excluding the impact of IFRS 16.
December 31,
2023
September 30,
2023
June 30,
2023
March 31, December 31,
2022
2023
Trailing 12-month Adjusted EBITDA -
including the impact of IFRS 16
Principal payments of lease liabilities
Interest on lease liabilities
Trailing 12-month Adjusted EBITDA -
excluding the impact of IFRS 16
$
616,678 $
(47,204)
(11,250)
625,588 $
(45,095)
(10,784)
602,333 $
(43,738)
(10,175)
556,013 $
(43,634)
(9,655)
515,888
(41,174)
(8,925)
$
558,224 $
569,709 $
548,420 $
502,724 $
465,789
The Company’s Net Debt (excluding the impact of IFRS 16) decreased by $106.8 million during the fourth quarter of 2023 to $782.4
million from $889.2 million at the end of the third quarter of 2023 due essentially to Free Cash Flow generated during the quarter and
foreign exchange translation. As a result, the Company’s Net Debt to Adjusted EBITDA ratio (excluding the impact of IFRS 16)
decreased to 1.40x from 1.56x at the end of the third quarter of 2023.
The Company was in compliance with its debt covenants as at December 31, 2023. The Company’s debt covenants are based on
leverage ratios excluding the impact of IFRS 16.
Dividends
In the second quarter of 2013, Martinrea's Board of Directors (the “Board”) approved, for the first time, a dividend to be paid to all
holders of Martinrea common shares. Annual dividends were $0.12 per share, paid in four quarterly payments of $0.03 per share. The
first quarterly dividend payment of $0.03 per share was paid on July 11, 2013; with successive quarterly dividends paid thereafter.
In 2018, in view of the Company’s financial performance, and its future outlook and cash needs at the time, the Board decided to
increase the annual dividends by 50% to $0.18 per share, to be paid in four quarterly payments of $0.045 per share, commencing with
the release of the first quarter results of 2018. The first such increased dividend was paid on July 15, 2018.
On March 5, 2020, in view of the Company’s financial performance, and its future outlook and cash needs at that time, the Board
decided to increase the annual dividends by another 11% to $0.20 per share, to be paid in four quarterly payments of $0.05 per share
commencing at the beginning of 2020. The first such increased dividend was paid on April 14, 2020. The Company has maintained its
dividend throughout the COVID-19 pandemic, semiconductor chip shortage, and other supply chain disruptions. The Board will assess
future dividend payment levels from time to time, in light of market conditions, the current supply chain situation, the Company’s
financial performance and anticipated needs at that time.
Page 16
Martinrea International Inc.
Cash flow
Three months ended
December 31, 2023
Three months ended
December 31, 2022
$ Change
% Change
Cash provided by operations before changes in non-
cash working capital items
Change in non-cash working capital items
$
Interest paid
Income taxes paid
113,933 $
110,091
224,024
(23,143)
(7,618)
154,284
14,082
168,366
(21,119)
(8,067)
(40,351)
96,009
55,658
(2,024)
449
(26.2%)
681.8%
33.1%
(9.6%)
5.6%
Cash provided by operating activities
193,263
139,180
54,083
38.9%
Cash used in financing activities
(109,236)
(19,145)
(90,091)
(470.6%)
Cash used in investing activities
(75,259)
(119,638)
44,379
37.1%
Effect of foreign exchange rate changes on cash and
cash equivalents
Increase in cash and cash equivalents
$
(689)
8,079 $
2,753
3,150
(3,442)
4,929
(125.0%)
156.5%
Cash provided by operating activities during the fourth quarter of 2023 was $193.3 million, compared to $139.2 million in the
corresponding period of 2022. The components for the fourth quarter of 2023 primarily include the following:
•
•
•
•
cash provided by operations before changes in non-cash working capital items of $113.9 million;
working capital items source of cash of $110.1 million comprised of a decrease in trade and other receivables of $218.0
million, a decrease in inventories of $65.5 million; partially offset by a decrease in trade, other payables and provisions of
$172.8 million, and an increase in prepaid expenses and deposits of $0.6 million;
interest paid of $23.1 million; and
income taxes paid of $7.6 million.
Cash used in financing activities during the fourth quarter of 2023 was $109.2 million, compared to $19.1 million in the corresponding
period of 2022. The components for the fourth quarter of 2023 primarily include the following:
•
•
•
•
an $84.6 million net decrease in long-term debt;
principal payments of lease liabilities of $12.5 million;
repurchase of common shares under the normal course issuer bid (as described in note 16 of the consolidated financial
statements) of $8.2 million; and
$3.9 million in dividends paid.
Cash used in investing activities during the fourth quarter of 2023 was $75.3 million, compared to $119.6 million in the corresponding
period of 2022. The components for the fourth quarter of 2023 primarily include the following:
•
•
•
•
cash additions to PP&E of $73.0 million;
capitalized development costs relating to upcoming new program launches of $2.6 million; and
an additional investment in AlumaPower Corporation ("AlumaPower") of $1.4 million; partially offset by
proceeds from the disposal of PP&E of $2.0 million.
Taking into account the opening cash balance of $178.7 million at the beginning of the fourth quarter of 2023, and the activities
described above, the cash and cash equivalents balance at December 31, 2023 was $186.8 million.
Page 17
Martinrea International Inc.
Cash flow
Year ended
December 31, 2023
Year ended
December 31, 2022
$ Change
% Change
Cash provided by operations before changes in non-
cash working capital items
Change in non-cash working capital items
$
Interest paid
Income taxes paid
607,857 $
81,659
689,516
(96,184)
(82,240)
523,719
(145)
523,574
(63,327)
(22,468)
84,138
81,804
165,942
(32,857)
(59,772)
16.1%
56,416.6%
31.7%
(51.9%)
(266.0%)
Cash provided by operating activities
511,092
437,779
73,313
16.7%
Cash used in financing activities
(180,721)
(41,722)
(138,999)
(333.2%)
Cash used in investing activities
(303,755)
(381,269)
77,514
20.3%
Effect of foreign exchange rate changes on cash and
cash equivalents
Increase in cash and cash equivalents
$
(1,467)
25,149 $
(6,424)
8,364
4,957
16,785
77.2%
200.7%
Cash provided by operating activities during the year ended December 31, 2023 was $511.1 million, compared to $437.8 million in the
corresponding period of 2022. The components for the year ended December 31, 2023 primarily include the following:
•
•
•
•
cash provided by operations before changes in non-cash working capital items of $607.9 million;
working capital items source of cash of $81.7 million comprised of a decrease in trade and other receivables of $90.0 million, a
decrease in inventories of $89.0 million, and a decrease in prepaid expenses and deposits of $2.0 million; partially offset by a
decrease in trade, other payables and provisions of $99.3 million;
interest paid of $96.2 million; and
income taxes paid of $82.2 million.
Cash used in financing activities during the year ended December 31, 2023 was $180.7 million, compared to $41.7 million in the
corresponding period of 2022. The components for the year ended December 31, 2023 primarily include the following:
•
•
•
•
an $88.8 million net decrease in long-term debt;
principal payments of lease liabilities of $47.2 million;
repurchase of common shares under the normal course issuer bid (as described in note 16 of the consolidated financial
statements) of $29.1 million; and
$16.0 million in dividends paid.
Cash used in investing activities during the year ended December 31, 2023 was $303.8 million, compared to $381.3 million in the
corresponding period of 2022. The components for the year ended December 31, 2023 primarily include the following:
•
•
•
•
•
cash additions to PP&E of $295.3 million;
capitalized development costs relating to upcoming new program launches of $8.2 million;
an additional investment in AlumaPower of $1.4 million; and
an investment in Equispheres Inc. ("Equispheres") of $1.0 million; partially offset by
proceeds from the disposal of PP&E of $2.4 million.
Taking into account the opening cash balance of $161.7 million at the beginning of 2023, and the activities described above, the cash
and cash equivalents balance at December 31, 2023 was $186.8 million.
Page 18
Martinrea International Inc.
Free Cash Flow
Adjusted EBITDA
Add (deduct):
Three months ended
December 31, 2023
140,080
Three months ended
December 31, 2022
148,990
$ Change
(8,910)
Change in non-cash working capital items
Remove impact of restructuring provision*
Purchase of property, plant and equipment (excluding capitalized
interest)
Cash proceeds on disposal of property, plant and equipment
Capitalized development costs
Upfront recovery of capitalized development costs
Interest paid
Income taxes paid
Free cash flow*
$
110,091
(25,893)
(72,986)
1,981
(2,637)
-
(23,143)
(7,618)
119,875
*Note: Prior year comparative figures were revised to exclude the change in the restructuring provision.
14,082
888
96,009
(26,781)
(119,151)
46,165
1,218
(1,887)
682
(21,119)
(8,067)
15,636
763
(750)
(682)
(2,024)
449
104,239
Free cash flow for the fourth quarter of 2023 increased year-over-year due largely to an increase in cash provided by non-cash working
capital, net of the change in the restructuring provision which is included in working capital, and a decrease in cash purchases of
property, plant and equipment; partially offset by a decrease in Adjusted EBITDA, and higher interest paid on long-term debt.
Tooling-related working capital accounts, including inventory, trade and other receivables, and trade and other payables on a net basis,
amounted to ($47.0) million as at December 31, 2023, a decrease from $3.7 million as at September 30, 2023 and ($8.9) million as at
December 31, 2022.
Reconciliation of IFRS “Cash provided by operating activities” to Non-IFRS “Free Cash Flow” for the three months ended December 31,
2023 and 2022:
Three months ended
December 31, 2023
193,263
Three months ended
December 31, 2022
139,180
(72,986)
1,981
(2,637)
-
27,266
(25,893)
4,152
(4,555)
(111)
(1,130)
104
421
119,875
(119,151)
1,218
(1,887)
682
-
888
3,022
(4,434)
(207)
(884)
168
(2,959)
15,636
Cash provided by operating activities
Add (deduct):
Purchase of property, plant and equipment (excluding capitalized interest)
Cash proceeds on disposal of property, plant and equipment
Capitalized development costs
Upfront recovery of capitalized development costs
Restructuring costs
Remove impact of restructuring provision*
Unrealized gain on foreign exchange contracts
Deferred and restricted share units expense
Stock options expense
Pension and other post-employment benefits expense
Contributions made to pension and other post-retirement benefits
Net unrealized foreign exchange loss (gain) and other expense (income)
Free cash flow*
$
*Note: Prior year comparative figures were revised to exclude the change in the restructuring provision.
Page 19
Martinrea International Inc.
Adjusted EBITDA
Add (deduct):
Year ended
December 31, 2023
616,678
Year ended
December 31, 2022
515,888
$ Change
100,790
Change in non-cash working capital items
Remove impact of restructuring provision*
Purchase of property, plant and equipment (excluding capitalized
interest)
Cash proceeds on disposal of property, plant and equipment
Capitalized development costs
Upfront recovery of capitalized development costs
Interest paid
Income taxes paid
Free cash flow*
$
81,659
(23,397)
(145)
(1,195)
81,804
(22,202)
(295,286)
(376,439)
81,153
2,383
(8,235)
-
(96,184)
(82,240)
195,378
3,364
(7,376)
682
(63,327)
(22,468)
48,984
(981)
(859)
(682)
(32,857)
(59,772)
146,394
*Note: Prior year comparative figures were revised to exclude the change in the restructuring provision.
Free cash flow for the year ended December 31, 2023 increased year-over-year due largely to higher Adjusted EBITDA, a positive year-
over-year change in non-cash working capital items, net of the change in the restructuring provision which is included in working capital,
and a decrease in cash purchases of property, plant and equipment; partially offset by higher income taxes paid, and higher interest
paid on long-term debt.
Reconciliation of IFRS “Cash provided by operating activities” to Non-IFRS “Free Cash Flow” for the year ended December 31, 2023
and 2022:
Cash provided by operating activities
Add (deduct):
Purchase of property, plant and equipment (excluding capitalized interest)
Cash proceeds on disposal of property, plant and equipment
Capitalized development costs
Upfront recovery of capitalized development costs
Restructuring costs
Remove impact of restructuring provision*
Unrealized gain on foreign exchange contracts
Deferred and restricted share units expense
Stock options expense
Pension and other post-employment benefit expense
Contributions made to pension and other post-retirement benefits
Net unrealized foreign exchange gain and other income
Free cash flow*
$
*Note: Prior year comparative figures were revised to exclude the change in the restructuring provision.
RISKS AND UNCERTAINTIES
Year ended
December 31, 2023
511,092
Year ended
December 31, 2022
437,779
(295,286)
2,383
(8,235)
-
27,266
(23,397)
3,937
(14,060)
(442)
(3,217)
1,990
(6,653)
195,378
(376,439)
3,364
(7,376)
682
7,846
(1,195)
2,114
(7,072)
(773)
(3,452)
2,633
(9,127)
48,984
The following risk factors, as well as the other information contained in this MD&A, the AIF (of which the section entitled “Automotive
Industry Highlights and Trends” contained in the AIF is incorporated by reference herein), or otherwise incorporated herein by reference,
should be considered carefully. These risk factors could materially and adversely affect the Company’s future operating results and
could cause actual events to differ materially from those described in forward-looking statements relating to the Company.
The Company’s success is primarily dependent upon the levels of car and light truck production by its customers and the relative
amount of content the Company has on their various vehicle programs. OEM production volumes may be impacted by many factors
including supply chain disruption, general economic and political conditions, interest rates, credit availability, energy and fuel prices,
international conflicts, labour relations issues, regulatory requirements, trade agreements, infrastructure considerations, legislative
changes, and environmental emissions standards and safety issues.
Page 20
Martinrea International Inc.
North American and Global Economic and Political Conditions (including war) and Consumer Confidence
The automotive industry is global, and is cyclical in the fact that it is sensitive to changes in economic and political conditions, including
interest rates, inflation, foreign exchange, fuel prices, employment, real estate values, trade issues, international or domestic conflicts or
wars or political crises, terrorist activities, developments in global markets, supply chain issues and epidemics or pandemics, for
example, the recent Covid-19 Pandemic, and other factors.
The Company operates in the midst of a volatile industry, which in the past has experienced a significant recession, particularly severe
in North America and Europe. Current conditions (including those that arose in whole or in part as a result of the COVID-19 Pandemic
or any variants, political and civil unrest or wars, inflation, supply chain issues, the global semi-conductor shortage and labour issues)
continue or may continue to cause economic uncertainty about the future in different regions. It is uncertain what the Company’s
prospects will be in the future. While the Company believes it has sufficient liquidity and a strong balance sheet to deal with present
economic conditions, lower sales and production volumes in certain areas may occur. It is unknown at this stage what the impact will be
of the economic issues, supply chain issues, inflation and global trade or political issues on the automotive industry, including resulting
from any changes to trade agreements, tariffs or trade disputes or pandemic or war or threatened or anticipated war or terrorist
activities (see “Trade Policies and Resulting Impact" under “Automotive Industry General”, “Changes in Law and Governmental
Regulation”, “Pandemics and Epidemics, Force Majeure Events, Natural Disasters, Terrorist Activities, Political and Civil Unrest or War,
and Other Outbreaks” and “Financial Viability of Suppliers and Key Suppliers” in the AIF).
The above factors, or a worsening of any of the above factors, new factors and/or other factors may result in lower consumer
confidence. Consumer confidence has a significant impact on consumer demand for vehicles, which in turn impacts vehicle production
and vehicle sales. A significant decline in vehicle production volumes from current levels could have a material adverse effect on
profitability and the Company’s financial condition. An economic downturn or other adverse industry conditions that result in even a
relatively modest decline in vehicle production levels could reduce the Company’s sales and thereby have an adverse impact on the
Company’s financial condition, results of operations and cash flows. The automotive industry is subject to rapid technological change,
vigorous competition, short product life cycles and cyclical consumer demand patterns. When the Company’s customers are adversely
affected by these factors, the Company may be similarly affected to the extent that the Company’s customers reduce the volume of
orders for and sales of the Company’s products.
Automotive Industry Risks
The automotive industry is generally viewed as highly cyclical. It is dependent on, among other factors, consumer spending and
general economic conditions in North America and elsewhere. Future sales and production volumes in our key North American,
European and Asian markets are anticipated to be higher in 2024 and beyond relative to 2020 to 2023 levels, though uncertainty
remains given the current challenges (including related to economics, conflict or war or terrorist activities, pandemics and supply chain
issues), and volume levels can potentially decrease at any time. Increased emphasis on the reduction of fuel consumption, fuel
emissions and greenhouse gas emissions could also reduce demand for automobiles overall or specific platforms on which the
Company has product. There can be no assurance that North American or European automotive production overall or on specific
platforms will not decline in the future or that the Company will be able to utilize any existing unused capacity or any additional capacity
it adds in the future. A continued or a substantial additional decline in the production of new automobiles overall or by customer or by
customer platform may have a material adverse effect on the Company’s financial condition and results of operations and ability to meet
existing financial covenants. It is unknown at this stage what impact any of the recent supply chain challenges, inflation, conflict or war,
labour shortages or global trade issues will have on the automotive industry, including resulting from any changes to trade agreements,
tariffs or trade disputes or political issues or that have arisen from pandemic or pandemic-related events such as the global semi-
conductor chip shortage.
Pandemics and Epidemics, Force Majeure Events, Natural Disasters, Terrorist Activities, Political and Civil Unrest or War, and
Other Outbreaks
Global pandemics (such as the COVID-19 Pandemic and variants), epidemics or disease outbreaks in North America or globally, as
well as hurricanes, earthquakes, tsunamis, snowstorms, or other natural disasters, acts of God or force majeures, could disrupt the
Company’s business operations, reduce or restrict the Company’s supply of materials and services, result in labour shortages and/or
Page 21
Martinrea International Inc.
significant costs to protect the Company’s employees and facilities, or result in regional or global economic distress, which may
materially and adversely affect the Company’s business, financial condition, and results of operations. Actual or threatened war, terrorist
activities, political unrest, civil strife, and other geopolitical uncertainty could have a similar adverse effect on the Company’s business,
financial condition, and results of operations and/or that of the OEM, supply chain or automotive industry. Any one or more of these
events may impede the Company’s production and delivery efforts and adversely affect the Company’s sales results, possibly for a
prolonged period of time, which could materially and adversely affect the Company’s business, financial condition, and results of
operations.
Although the COVID-19 Pandemic was declared by the World Health Organization in May, 2023 to no longer be a global emergency,
the COVID-19 Pandemic adversely affected many aspects of the Company’s business, including production, supply chain (including the
global semi-conductor chip shortage and resulting inflation), and sales and delivery, as well as financial results.
The COVID-19 Pandemic (including variants) created disruption to the automotive industry, including through mandatory lockdowns/
stay-at-home orders or other restrictions. These orders restricted consumers’ ability to purchase vehicles; restricted production and
logistics; caused elevated employee absenteeism; resulted in the Company incurring significant unrecoverable costs; and led to supply
chain disruptions (and if utilized in future for other pandemics may have similar or different results). Over the medium-to long term, a
pandemic may result in societal changes that impact the automotive industry, positively or negatively, including as a result of: expanded
work-from-home practices that reduce consumers’ reliance on vehicles; and/or increased reluctance by people to utilize modes of public
transit and/or shared mobility. Any prolonged production shutdowns and/or restrictions on consumers’ ability to purchase vehicles due to
any lockdowns changes in consumers’ vehicle purchasing behaviour due to a pandemic, could have a material adverse effect on the
Company’s operations, sales and profitability.
The COVID-19 Pandemic (and variants) had adverse effects on the Company’s business, results of operations, cash flows and financial
position. The ultimate extent of the impact of any pandemic will depend on various factors, including the possibility of the use of future
shutdowns, impact on customers and suppliers, the rate at which economic conditions, operations and demand for vehicles return to
pre-pandemic levels, any continued or future governmental orders, including border closures or lockdowns due to any wave of a
pandemic and the potential for a recession in key markets due to the effect of a pandemic. Since any pandemic and public response to
it may continually evolve and be unique, it may be difficult to accurately assess a pandemic’s continued magnitude, outcome and
duration or impact on any other area that may affect the Company’s business.
Impacts of a pandemic and/or prolonged pandemic (including from any variants) would likely deteriorate economic conditions, resulting
in lower consumer confidence or ability to purchase vehicles, which typically translates into lower vehicle sales and production levels,
increased costs and inflation; reduce the Company’s customers’ production volume levels, including as a result of intermittent facility
shutdowns and/or temporary shut-downs or slowdowns of one or more of the production lines of the Company or one or more of its
customers or suppliers; elevate the financial pressure on or deteriorate the financial condition of the Company’s customers or suppliers,
which could lead to an OEM insolvency, and would likely increase pricing pressure on the Company; and reduce the Company’s
production levels, including as a result of intermittent shutdowns of our manufacturing facilities. Additionally, a pandemic or a prolonged
pandemic could cause potential shortages of employees to staff the Company’s facilities, or the facilities of the Company’s customers or
suppliers; lead to prolonged disruptions or shortages of critical components (for example as occurred during the global semi-conductor
chip shortage) and other supply shortages or disruptions, and could deteriorate the financial condition of the Company’s suppliers
including as a result of the bankruptcy/insolvency of one or more suppliers due to worsening economic conditions; or result in
governmental regulation adversely impacting our business or from civil unrest. In addition, certain events may prevent the Company
from supplying products to its customers or prevent its customers from being supplied with products necessary for production of
vehicles which our products are on, which could result in a range of potential adverse consequences, including business interruption,
loss of business and reputational damage. Previous production stoppages related to COVID-19 resulted in, and any pandemic may in
the future result in, supply disruptions and shortages globally. A prolonged supply disruption or supply shortage could have a material
adverse effect on the Company’s business, financial condition, and results of operations.
Any or all of the above impacts of a prolonged pandemic could have a rapid, unexpected and material adverse effect on the Company’s
business, financial condition and results of operations.
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Martinrea International Inc.
Russia and Ukraine War and Hamas – Israel War
In response to Russia’s invasion of Ukraine, a number of countries, including the U.S, Canada, U.K., and European Union member
states, have taken actions against Russia, such as: imposition of sanctions targeting certain Russian leadership and other individuals;
restrictions on certain sectors of the Russian economy; expulsion of some Russian banks from the SWIFT global banking payment
system; and other measures, with further restrictions likely as the conflict continues.
Although the Company does not have any operations in Russia, Ukraine or in the Middle East, these ongoing conflicts create or
exacerbate a broad range of risks, including with respect to: global economic growth; global vehicle production volumes; inflationary
pressures, including in energy, commodities and transportation/logistics; energy security; redirect ocean vessels to avoid regions of
conflict; and supply chain fragility. Any of the foregoing could have an adverse effect on the Company’s business and results of
operations.
To the extent that any of the Company’s OEM customers suspend production elsewhere as a result of either or both of these conflicts,
Martinrea’s sales would likely be adversely affected. Additionally, the conflicts and restrictive measures against any country could
exacerbate a number of risks described elsewhere in these Risk Factors, including: disruption of vehicle production and supply chains,
including for any critical component (such as semiconductor chips since Russia and Ukraine are critical suppliers of neon gas and
palladium used in chip production); exacerbating energy shortages or driving energy prices higher, particularly oil and natural gas;
constraining the supply of aluminum, palladium or other commodity metals required in automotive production; and increasing
cybersecurity threats.
Semiconductor Chip Shortages and Price Increases
The global shortage of semiconductor chips had a material adverse effect on global automotive production volumes in the recent past,
and may continue to impact volumes in the future should any issue arise that impacts the production and availability of semi-conductor
chips. In response to the semiconductor chip shortage, OEMs took actions, and in future may continue to take actions, such as:
unplanned shutdowns of production lines and/or plants; reductions in their vehicle production plans; and changes to their product mix.
Such OEM responses can result in a number of direct and indirect consequences for Tier One suppliers like Martinrea, including: lower
sales; significant production inefficiencies due to production lines being stopped/restarted unexpectedly based on OEMs’ production
priorities; higher inventory levels; premium freight costs to expedite shipments; other unrecoverable costs; and increased challenges in
retaining employees through production disruptions. The shortage of semiconductor chips also resulted in elevated prices for this critical
automotive component. Tier One suppliers have faced and may continue to face price increases from sub-suppliers that have been
negatively impacted by production inefficiencies, premium freight costs and/or other costs and surcharges related to the semiconductor
chip shortage. It remains unclear when supply and demand for automotive semiconductor chips will fully rebalance. A worsening or
prolongation of the semiconductor chip shortage could have a material adverse effect on the Company’s operations, sales and
profitability.
Inflationary Pressures
Global economies have experienced elevated inflation which could curtail levels of economic activity, including in the Company’s
primary production markets. During the recent past, the Company experienced higher commodity, freight and energy costs, as well as
wage pressures related to labour shortages in some markets. Inflationary pressures are expected to continue in 2024 and would likely
be exacerbated by shortages or disruptions to inputs required for automotive production, including semiconductor chips, steel and
aluminum. Tier One Suppliers may also experience price increases or surcharges from sub-suppliers in connection with the inflationary
pressures they face. The inability to offset inflationary price increases through continuous improvement actions, price increases to our
customers or modifications to our own products or otherwise, could have an adverse effect on the Company’s profitability. OEM
customers may also experience inflationary pressure due to wage or other price increases and attempt to pass the increase on to its
supply base, including the Company, which may have an adverse effect on the Company’s profitability.
Regional Energy Shortages
Parts of the world have experienced and are experiencing energy shortages which may be related to a resurgence in demand due to
economic recovery, regulatory restrictions, war, weather events and challenges related to the transition to renewable energy generation.
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Martinrea International Inc.
Prices for energy inputs critical to manufacturing, such as natural gas and electricity, rose dramatically in parts of Europe and Asia in the
recent past and may continue to increase in these or other markets. Russia’s invasion of Ukraine has and could continue to disrupt
natural gas supplies from Russia to Europe and/or cause elevated prices to rise further. Prolonged energy disruptions and/or significant
energy price increases could have an adverse effect on our operations and profitability.
Dependence Upon Key Customers
North America, Europe, Brazil and China are key auto producing regions for us and operating results are primarily dependent on car
and light vehicle production in these regions by the Company’s customers. Due to the nature of the Company’s business, it is
dependent upon several large customers such that cancellation of a significant order by any of these customers, the loss of any such
customers for any reason or the termination or discontinuation of such customer’s programs without replacement or new business wins
or the insolvency of any such customers, reduced sales of automotive platforms of such customers, or shift in market share on vehicles
on which the Company has significant content, or inability to increase its market share with existing customers, or a significant or
sustained decline in vehicle production volumes in geographic areas in which the Company operates, could significantly reduce the
Company’s ongoing revenue and/or profitability, and could materially and adversely affect the Company’s financial condition and results
of operations. Although the Company continues to diversify its business, including its product offerings and programs with existing
customers, there is no assurance that it will be successful. A loss of any or all of the Company’s top customers’ business would be
expected to have a material adverse effect on the Company’s business financial condition.
In addition, a work disruption at one or more of the Company’s customers, including resulting from labour stoppages at, an inability to
get critical components or supplies from or insolvencies of, or other issues at, key suppliers to such customers or an extended customer
shutdown (scheduled or unscheduled, including as a result of a pandemic or epidemic, such as the COVID-19 Pandemic (including
from any variant), a strike such as the UAW strike in 2023, or other supply chain disruption) could have a significant impact on the
Company’s revenue and/or profitability. The Company’s largest North American customers typically halt production for approximately
two weeks in July and one week in December. These typically seasonal shutdowns could cause fluctuations in the Company’s quarterly
results.
Financial difficulties experienced by any major customer could have a material adverse effect on the Company if such customer were
unable to pay for the products the Company provides or the Company experiences a loss of, or material reduction in, business from
such customer. As a result of such difficulties, even where the Company is considered a key or critical supplier, the Company could
experience lost revenues, significant write-offs of accounts receivable, significant impairment charges or additional restructurings,
sometimes significantly, from year-to-year, which, in turn, causes fluctuations in the demand for the Company’s products.
The Company is dependent on the continued growth, viability and financial stability of its OEM customers. Demand for the Company’s
products is directly related to consumer demand for new vehicles containing the Company’s products and production levels of the
Company’s OEM customers. The level of new vehicle purchases is affected by factors such as consumer preferences, consumer
spending patterns, used car pricing relative to new car pricing and the vehicle replacement cycle. The Company’s OEM customers
continually adjust their production of new vehicles in response to such conditions. The mix of vehicle offerings by the Company’s OEM
customers impacts the Company’s sales. A decrease in consumer demand (for whatever reason) for specific types of vehicles where
the Company has traditionally provided significant components could have a significant effect on the Company’s business and financial
condition and profitability. For example, a decrease in market demand for light trucks, or a decrease in OEM customer offerings in this
vehicle segment, or a decrease in the demand for EVs where the Company has content, could adversely impact the Company’s ability
to maintain or increase its revenues. In addition, the Company’s sales of products in the regions in which its customers operate also
depend on the success of such customers in those regions. The Company’s North American business is currently highly leveraged
toward SUVs, CUVs and pick-up trucks; therefore, a change in consumer preferences or a decrease in consumer demand for these
vehicles in North America, for example, resulting from factors such as increases in energy and fuel prices, legislative changes or
changes in environmental emission standards or other regulations, may cause a related decrease in OEM production volumes. A
decrease in the Company’s OEM customers’ production volumes for these vehicles, as a result of any one or more of these factors or
any other factors, could have a material adverse effect on the Company’s business, profitability, financial condition and/or results of
operations. If the Company is unsuccessful or is less successful than its competitors in adjusting to its customers’ needs when
responding to such conditions, the Company may be placed at a competitive disadvantage, which could have a material adverse effect
on the Company’s business, profitability, financial condition and/or results of operations.
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Martinrea International Inc.
Customer Consolidation and Cooperation
There have been a number of examples of OEM consolidation in recent years, including the 2021 merger of PSA Group and Fiat
Chrysler Automobiles to form Stellantis. Additionally, competing OEMs are increasingly cooperating and collaborating in different ways
to save costs, including through joint purchasing activities, platform sharing, powertrain sharing, joint R&D and regional joint ventures.
While OEM consolidation and cooperation may present opportunities, they also present a risk that the Company could lose future
business or experience even greater pricing pressure on certain production programs, either of which could have an adverse effect on
our profitability.
Emergence of Potentially Disruptive EV OEMs
With the accelerating trend toward vehicle electrification, a number of potentially disruptive, EV-focused OEMs have emerged,
particularly in China. It is too early to predict which of these emergent EV-focused OEMs will succeed in the long-term, whether
independently or through cooperative relationships with each other or with any of our traditional OEM customers. Vehicle electrification
is an important component of the Company’s strategy. While the Company is developing business relationships with some of the
emergent EV-focused OEMs, the Company does not have relations with all, nor are such relationships as well established as those with
the Company’s traditional customers. The failure to sufficiently grow the Company’s sales to emergent OEMs which achieve significant
commercial success could adversely impact the Company’s long-term strategy. At the same time, conducting business with recently
established OEMs poses risks and challenges, including due to their limited operating history and/or financial, capital or other
resources, which may elevate counterparty risk. Additionally, there is uncertainty regarding consumer/market acceptance of the vehicles
of such new OEMs. It remains too early to determine whether the Company’s commercial experience with such emergent EV-focused
OEMs will be similar to our experience with established OEMs.
Outsourcing and Insourcing Trends
The Company is dependent on the outsourcing of components, modules and assemblies by OEMs. The extent of OEM outsourcing is
influenced by a number of factors, including relative cost, quality and timeliness of production by suppliers as compared to OEMs,
capacity utilization, and labour relations among OEMs, their employees and unions. As a result of any favourable terms in collective
bargaining agreements that may lower cost structures, OEMs may insource some production which had previously been outsourced, or
not outsource production which may otherwise be outsourced at some point. Outsourcing of some assembly is particularly dependent
on the degree of unutilized capacity at the OEMs’ own assembly facilities, in addition to the foregoing factors. A reduction in outsourcing
by OEMs, or the loss of any material production or assembly programs coupled with the failure to secure alternative programs with
sufficient volumes and margins, could have a material adverse effect on profitability.
Financial Viability of Suppliers and Key Suppliers and Supply Disruptions (Material Availability or Disruption)
The Company relies on a number of suppliers to supply a wide range of products and components required in connection with the
business. Economic conditions, including trade volatility, production volume cuts, intense pricing pressures, increased commodity
prices or inflation, labour availability and a number of other factors including acts of God (including fires, hurricanes, earthquakes,
snowstorms, whether as a result of climate change or otherwise, pandemics or epidemics such as the COVID-19 Pandemic) and
scarcity of raw materials or other critical components (such as the global semi-conductor chip shortage, global port backlogs and
container shortages or driven by the increased demand associated with the growth of innovative products such as lithium or graphite in
batteries) or supplies required by the Company’s OEM customers or anything that results in supply disruption can result in many
automotive suppliers experiencing varying degrees of financial distress. In addition, pandemics or epidemics such as the recent
COVID-19 Pandemic, any political or civil unrest or war or terrorist activity or supply shortage, such as the global semi-conductor chip
shortage or disruption may have a material adverse impact on automotive suppliers and the supply chain. The continued financial
distress or the insolvency or bankruptcy of any supplier, or reduction or change in the supply of critical or key components of any such
supplier or inflationary price increases or other difficulties could disrupt the supply of products, materials or components to Martinrea or
to customers, potentially causing the temporary shut-down of the Company’s or customers’ production lines or result in a loss of or
decrease in production volume. Martinrea has experienced supply disruptions of varying natures in the past (including in cases where
an equipment supplier has gone out of business, the COVID-19 Pandemic, including resulting semi-conductor chip shortages and
conflict or an act of God) which has resulted in the shortage of a key commodity, supply or service.
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Martinrea International Inc.
There is a risk some suppliers or sub-suppliers may not have adequate capacity to timely accommodate increases in demand for their
products which could lead to production disruption for the customer. Some of the Company’s suppliers or sub-suppliers may not be
able to handle the commodity cost volatility and/or sharply changing volumes and/or labour disruption, and/or any sustainability or other
government regulation while still performing as expected. To the extent the Company’s suppliers or sub-suppliers experience supply
disruptions, there is a risk for delivery delays, production delays, production issues or delivery of non-conforming products by suppliers.
To the extent the Company’s customers experience supply chain disruptions, there is a risk for production delays or production issues
which could result in production slowdowns, adjustments to customers’ production plans and/or prioritization of certain vehicle models
and a reduction of demand for the Company’s products. Even where these risks do not materialize, the Company may incur costs as it
tries to make contingency plans for such risks. Any prolonged disruption in the supply of critical components, to the Company, its
suppliers, customers or within the industry generally, the inability to re-source production of a critical component from a distressed
automotive components sub-supplier, or any temporary shut-down of production lines or the production lines of a customer, could have
a material adverse effect on operations or profitability or financial condition.
Additionally, the insolvency, bankruptcy, financial restructuring or force majeure event or events which do not qualify as force majeure
events but lead to potential supply chain disruptions or delays, of any critical suppliers of the Company or its customers could result in
the Company incurring unrecoverable costs related to the financial work-out or resourcing costs of such suppliers, the expedited freight
costs or resourcing costs of such suppliers, and/or increased exposure for product liability, warranty or recall costs relating to the
components supplied by such suppliers to the extent such supplier is not able to assume responsibility for such amounts, each of which
could have an adverse effect on the Company’s profitability. Although the Company is generally able to substitute suppliers for raw
materials and components without incurring material short term costs, in some cases, it could be difficult and expensive and take
significant time or cause significant delays for the Company to change suppliers. If any of the Company’s suppliers are acquired by its
competitors, consolidate with other suppliers or are acquired by other companies with whom the Company does not have existing or
longstanding relationships, the Company may have less alternatives for suppliers and could experience even greater pricing pressure
on certain components and raw materials required in the Company’s products, lose the ability to source components and raw materials
from certain suppliers or lose its status as a critical or preferred customer of such suppliers, each of which could have an adverse effect
on the Company’s profitability. The loss of or damage to the Company’s relationships with its suppliers or any delay in receiving raw
materials and components could impair the Company’s ability to timely deliver good quality products to its customers, require the
Company to incur additional expenses and delays to complete revalidation of a substitute supplier and result in the loss of or damage to
the Company’s relationships with its customers, and, accordingly, could have a material adverse effect on the Company’s business,
financial condition and results of operations. Also see “Risks: Dependence Upon Key Customers” and "Sustainability (ESG) Regulation,
Including Environmental Regulation and Climate Change and Human Rights and Supply Chain Issues”.
The Company currently depends on key machinery and tooling used to manufacture components and as such its manufacturing
processes are vulnerable to operational problems and installation delays that can impair its ability to manufacture its products in a
timely manner. The Company’s facilities contain sophisticated machinery and tooling that are used in its manufacturing processes that
are complex, cannot be easily replicated, have a long lead-time to manufacture and assemble, and require experienced tradespersons
and operators. If there is a breakdown in such machinery and tooling, and the Company or its service providers are unable to repair in a
timely fashion, obtaining replacement machinery or rebuilding tooling could involve significant delays and costs, and may not be
available to the Company on reasonable terms. If the Company or its service providers are unable to repair the Company’s equipment
or tooling, in some cases, it could take several months, or longer, for a supplier to begin providing machinery and tooling to
specification. Any disruption of machinery and tooling supply chain, or the Company’s ability to service or repair key machinery and
tooling, could result in lost or deferred sales and customer charges or cause the Company to incur significant costs and / or delays,
which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Competition
The automotive supply industry is highly competitive. Some of the Company’s competitors have substantially greater financial,
marketing and other resources and higher market share than the Company in certain products or geographic areas. The Company’s
competitors include a number of domestic and international suppliers, some of which have established strong relationships with OEMs.
The Company’s competitors may develop products that are superior to those of the Company, establish manufacturing facilities that are
more logistically competitive than the Company’s locations, produce similar products at a lower cost or adapt more quickly than the
Company does to new technologies or evolving customer requirements. Competition can lead to price reductions, reduced margins,
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Martinrea International Inc.
losses, and an inability to gain or hold market share. As the markets for the Company’s products and other services expand, additional
competition may emerge and competitors may commit more resources to products which directly compete with the Company’s
products. There can be no assurance that the Company will be able to compete successfully with existing competitors or that its
business will not be adversely affected by increased competition or by new competitors. Failure to do so, including failure to grow the
Company’s EV content, could affect the Company’s ability to fully implement its corporate strategy.
Customer Pricing Pressures, Contractual Arrangements, Cost and Risk Absorption and Purchase Orders
Given the current trends in the automotive industry, the Company faces ongoing pricing pressure from OEMs, including through:
quoting pre-requirements; long-term supply agreements with mutually agreed price reductions over the life of the agreement; non-
contractual annual price concession demands; continuing pressure to absorb costs related to product design and development,
engineering, program management, prototypes, validation and tooling; and OEM refusal to fully offset inflationary or material price
increases in addition to items previously paid for directly by OEMs. In particular, OEMs are requesting that suppliers pay for the above
costs and recover these costs through the piece price of the applicable component. OEMs possess significant leverage over their
suppliers due to their purchasing power, continuing industry consolidation, and the highly competitive nature of the automotive supply
industry. OEM customers may be able to exert greater leverage over the Company as compared to its competitors. The Company
attempts to offset price concessions and costs in a number of ways, including through negotiations with OEM customers, improved
operating efficiencies and cost reduction efforts. The Company’s inability to fully offset price concessions, absorb design, engineering
and tooling costs, and / or fully recover such costs over the life of production, could have a material adverse effect on its profitability.
Contract volumes for customer programs not yet in production are based on the Company’s customers’ estimates of their own future
production levels. However, actual production volumes may vary significantly from these estimates due to a reduction in consumer
demand or new product launch delays or other issues, often without any compensation to the supplier by its OEM customer.
Typical purchase orders issued by customers do not require they purchase a minimum number of the Company’s products. For
programs currently under production, the Company is generally unable to request price changes when volumes differ significantly from
production estimates used during the quotation stage or for material changes in market conditions. If estimated production volumes are
not achieved, the product development, design, engineering, prototype and validation costs incurred by the Company may not be fully
recovered. Similarly, future pricing pressure or volume reductions by the Company’s customers may also reduce the amount of
amortized costs otherwise recoverable in the piece price of the Company’s products. Either of these factors could have an adverse
effect on the Company’s profitability. While it is generally the case that once the Company receives a purchase order for products of a
particular vehicle program it would continue to supply those products until the end of such program, customers could cease to source
their production requirements from the Company for a variety of reasons, including the Company’s refusal to accept demands for price
reductions or other concessions or the Company could cease doing business with a customer for unreasonable contracts. If a purchase
order is terminated, the Company may have various pre-production, tooling, engineering and other costs which it may not recover from
its customer and which could have an adverse effect on the Company’s profitability. See also "Quoting/Pricing Assumptions" below.
Material and Commodity Prices and Volatility
Prices for, and sometimes availability of, key raw materials and commodities used in parts production, particularly aluminum, steel,
resin, paints, chemicals and other raw materials, as well as energy prices, have proven to be volatile at certain times. The costs of
these raw materials are subject to inflationary and market pricing pressures and, as such, have fluctuated over the past several years.
Such additional commodity costs could have a material adverse effect on profitability. These pricing pressures put significant
operational and financial burdens on the Company and its suppliers. A supplier’s inability to manage raw material cost increases or
availability may lead to delivery delays, additional costs, production issues or quality issues. In the past, the Company and the industry
experienced steel and aluminum tariffs imposed by the U.S. and Canada, among others, in the context of trade negotiations. Martinrea
has attempted to mitigate its exposure to price changes of key commodities, particularly steel, aluminum and scrap (including through
participation in steel resale programs or price adjustment mechanisms and, in the case of tariffs, largely through obtaining tariff relief in
most cases); however, to the extent the Company is unable to fully do so through engineering products with reduced commodity
content, by passing commodity price increases to customers, by avoiding tariffs or otherwise, such additional commodity costs could
have a material adverse effect on profitability. Increased energy prices also have an impact on production or transportation costs which
in turn could affect competitiveness.
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Martinrea International Inc.
Scrap Steel/Aluminum Price Volatility
Some of the Company’s manufacturing facilities generate a significant amount of scrap steel or scrap aluminum in their manufacturing
processes, but the Company can recover some of the value through the sale of such scrap. Scrap steel and scrap aluminum prices can
also be volatile and do not necessarily move in the same direction as steel or aluminum prices. Declines in scrap steel/aluminum prices
from time to time could have an adverse effect on the Company’s profitability.
Quote/Pricing Assumptions
The time between award of new production business and start of production typically ranges between two and four years. Since product
pricing is typically determined at the time of award, the Company is subject to significant pricing risk due to changes in input costs and
quote assumptions, such as from inflation, between the time of award and start of production. The risk is elevated in a rising inflationary
environment. The inability to quote effectively, or the occurrence of a material change in input cost or other quote assumptions between
program award and production, could have an adverse effect on the Company’s profitability.
The realization of incremental revenues from awarded business is inherently subject to a number of risks and uncertainties, including
estimates with respect to vehicle production levels on new and replacement programs, customer price reductions, currency exchange
rates and the timing of program launches (which may be delayed by the customer). There is typically a lead time, which can be
significant, from the time an OEM customer awards the Company a program until the program is launched and the Company begins
production of vehicles within such program. In many cases, the Company must commit substantial resources in preparation for
production under awarded business well in advance of the customer’s production start date. Furthermore, the Company relies on
longer-term forecasts from its customers to plan its capital expenditures. If these forecasts prove to be inaccurate, either the Company
may have spent too much on capacity growth for unrealized production demand, which could require the Company to consolidate
facilities and leave the Company unable to recover pre-production costs, or the Company may have invested too little on capital
expenditures for capacity growth, in which case the Company may be unable to satisfy customer demand, either of which could have a
material adverse effect on the Company’s business. The Company typically enters into agreements for its customers’ purchasing
requirements for the entire production life of the program (and the vehicles forming part of the program). However, industry standard
terms typically contain certain provisions that allow the customer to cancel the contract for convenience. The Company’s ability to obtain
compensation from its customers for such cancellation, if the cancellation is through no fault of the Company, is generally limited to the
direct costs it has incurred for raw materials and work-in-process and, in certain instances, unamortized investment costs. In addition,
industry conditions and competition could lead the Company’s customers to attempt to reduce fixed costs, including through facility
closures or relocations. Facility closures or relocations relating to vehicle models for which the Company is a significant supplier could
reduce the Company’s sales and result in losses and impairments with respect to certain of the Company’s Products and programs. If
the Company does not realize all of the sales expected from awarded business, it could have a material adverse effect on its business,
financial condition and results of operations.
OEM contracts are one sided as many OEMs seek to shift risk and cost to the supplier base, and it is increasingly difficult to pass on
higher costs arising due to inflation or other unforeseen events that did not exist at the time of the quote.
Launch Costs, Operational Costs and Issues and Cost Structure
There are many factors that could affect the Company’s ability to manage its cost structure that the Company is not able to control,
including the need for unexpected significant capital expenditures and unexpected changes in commodity or component pricing that the
Company is unable to pass on to its suppliers or customers. As a result, the Company may be unable to manage its operations to
profitably meet current and expected market demand. Further, the Company operates in a capital-intensive industry. The Company’s
inability to maintain its cost structure could adversely impact the Company’s operating margins and results of operations.
The launch of new business, in an existing or new facility, is a complex process, the success of which depends on a wide range of
factors, including the production readiness of the Company and its suppliers, as well as factors related to tooling, equipment,
employees, initial product quality and other factors. A failure to successfully launch material new or takeover business could have an
adverse effect on profitability. Significant launch costs were incurred by the Company in recent years.
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Martinrea International Inc.
The Company’s manufacturing processes are vulnerable to operational problems that can impair its ability to manufacture its products
in a timely manner, or which may not be performing at expected levels of profitability. The Company’s facilities contain complex and
sophisticated machines that are used in its manufacturing processes. The Company has in the past experienced equipment failures
and could experience equipment failure in the future due to wear and tear, design error or operator error, among other things, which
could have an adverse effect on profitability.
From time to time, the Company may have some operating divisions which are not performing at expected levels of profitability. The
complexity of automotive manufacturing operations often makes it difficult to achieve a quick turnaround of underperforming divisions.
Significant underperformance of one or more operating divisions could have a material adverse effect on the Company’s profitability and
operations. To compete effectively in the automotive supply industry, the Company must be able to launch new products to meet its
customers’ demands in a timely manner. The Company cannot ensure, however, that it will be able to install and validate the equipment
needed to produce products for new customer programs in time for the start of production or that the transitioning of its manufacturing
facilities and resources to full production under new product programs will not impact production rates or other operational efficiency
measures at its facilities. In addition, the Company cannot ensure that its customers will execute on schedule the launch of their new
product programs, for which the Company might supply products. The Company may fail to successfully launch or be affected by its
customers’ delay in introducing new programs, and its customers may fail to successfully launch new programs, which could have a
material adverse effect on the Company’s business, financial condition and results of operations.
Fluctuations in Operating Results
The Company’s operating results have been and are expected to continue to be subject to quarterly and other fluctuations due to a
variety of factors including changes in purchasing patterns, production schedules of customers (which tend to include a shutdown
period in each of July and December), pricing policies, launch costs, or operational (or equipment or systems) failures, or product
introductions by competitors. This could affect the Company’s ability to finance future activities. Operations could also be adversely
affected by general economic downturns, an economic shock not contemplated in our business plan, a rapid deterioration of conditions
or limitations on spending. The occurrence of or a prolonged recession could result in the depletion of our cash resources, which could
have a material adverse effect on our operations and financial condition.
Product Warranty, Repair/Replacement Costs, Recall, Product Liability and Liability Risk
Automobile manufacturers are increasingly requesting that each of their suppliers bear costs of the repair and replacement of defective
products which are either covered under an automobile manufacturer’s warranty or are the subject of a recall by the automobile
manufacturer and which were improperly designed, manufactured or assembled by their suppliers.
The Company’s customers and/or government regulators have the ability to initiate recalls of safety products, which will also place us at
risk for the administrative costs of the recall, even in situations where the Company may dispute the need for a recall or the
responsibility for any alleged defect. An increase in the number of repair/replacement claims could lead to higher self-insured retentions
and reduced insurance coverage limits. The obligation to repair or replace defective products could have a material adverse effect on
our operations and profitability. To the extent such obligation arises as a result of a product recall, the Company may face reputational
damage, and the combination of administrative and product replacement costs could have a material adverse effect on the Company’s
profitability.
In certain circumstances, the Company is at risk for warranty, product liability and recall costs, and are currently experiencing increased
customer pressure to assume greater warranty responsibility. Certain customers seek to impose partial responsibility for warranty costs
where the underlying root cause of a product or system failure cannot be determined. Warranty provisions for the Company’s products
are based on its best estimate of the amounts necessary to settle existing or probable claims related to product defects. In addition,
warranty provisions may also be established on the basis of our or the Company’s customers’ warranty experience with the applicable
type of product and, in some cases, the terms in the applicable customer agreements. Actual warranty experience which results in costs
that exceed our warranty provisions, could have a material adverse effect on our profitability.
Historically, there have been significant product recalls by some of the world’s largest vehicle manufacturers. Recalls may result in
decreased vehicle production because of a manufacturer focusing its efforts on the problems underlying the recall rather than
generating new sales volume. In addition, reputational damage with consumers may occur and consumers may elect not to purchase
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Martinrea International Inc.
vehicles manufactured by the vehicle manufacturer initiating the recall, or by vehicle manufacturers in general, while the recalls persist.
Any reduction in vehicle production volumes, especially by the Company’s OEM customers, could have a material adverse effect on the
Company’s business, financial condition and results of operations.
The Company does not maintain insurance for product recall matters; as such insurance is not generally available on acceptable terms.
The obligation to repair or replace such parts under warranty or recall, or a requirement to participate in a product recall, even where
the Company disputes the need for a recall or the responsibility for any alleged defect, could have a material adverse effect on the
Company’s operations and financial condition. Actual warranty experience which results in costs that exceed the Company’s warranty
provisions could have a material adverse effect on the Company’s profitability. Furthermore, if the Company experienced a product
recall, such product recall may harm the Company’s relationship with its customers and/or the Company may face reputational damage.
The Company cannot guarantee that the design, engineering, testing, validation and manufacturing measures it employs to ensure
high-quality products will be completely effective, particularly as product complexity increases. In the event that its products fail to
perform as expected and such failure results in, or is alleged to result in, bodily injury and / or property damage or other losses, product
liability claims may be brought against the Company. The defense of product liability claims, particularly class action claims in North
America, may be costly and judgments against the Company could impair its reputation and have a material adverse effect on
profitability.
Product Development and Technological Change (Including Artificial Intelligence)
The automotive industry is characterized by rapid technological change and frequent new product introductions. Price pressure
downward by customers and unavoidable price increases from suppliers can have an adverse effect on the Company’s profitability.
Accordingly, the Company believes that its future success depends upon its ability to enhance manufacturing techniques offering
enhanced performance and functionality at competitive prices, and delivering lightweighting and other products or systems that will
enable it to continue to have content on the cars of the future (including for example, electric and autonomous vehicles). The
Company’s inability, for technological or other reasons, to enhance operations in a timely manner in response to changing market
conditions or customer requirements could have a material adverse effect on the Company’s results of operations. The ability of the
Company to compete successfully will depend in large measure on its ability to maintain a technically competent workforce and to adapt
to technological changes and advances in the industry (including as may arise from the use of artificial intelligence), including providing
for the continued compatibility of its products with evolving industry standards and protocols. There can be no assurance that the
Company will be successful in its efforts in these respects. Artificial intelligence has been used in automotive manufacturing in the past,
but has been recently more frequently discussed in general, in terms of the risks and opportunities arising from the use of generative
artificial intelligence. While the Company adopts technology it believes appropriate, the use of generative artificial intelligence, and the
regulatory framework is evolving and as it evolves, our business, financial condition and results of operations may be adversely
effected. As the Company pursues its strategy to grow through acquisitions and/or to pursue new initiatives that improve our operations
and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological
presence, utilization of “cloud” computing services, and corresponding exposure to cybersecurity risk. Certain new technologies, such
as use of autonomous vehicles, remote-controlled equipment, automation and artificial intelligence, present new and significant
cybersecurity safety risks that must be analyzed and addressed before implementation. If the Company fails to assess and identify
cybersecurity risks associated with acquisitions and new initiatives, the Company may become increasingly vulnerable to such risk.
A Shift Away from Technologies in Which the Company is Investing
The Company continues to invest in technology and innovation (including using artificial intelligence as it determines appropriate) which
the Company believes will be critical to its long-term growth, however, the automotive industry is experiencing rapid technological
change and significant disruption. Changes in legislative, regulatory or industry requirements or in competitive technologies, including
manufacturing processes, may render certain of the Company’s products obsolete or less attractive or may result in the Company’s
operations not being cost-competitive. The Company’s ability to anticipate changes in technology and trends and to successfully
develop and introduce new and enhanced products and/or manufacturing processes on a timely basis will be a significant factor in its
ability to remain competitive. If the Company is unsuccessful or is less successful than its competitors in consistently developing
innovative products, processes and / or use of materials, the Company may be placed at a competitive disadvantage, which could have
a material adverse effect on the Company’s business, financial condition and results of operations. If there is a shift away from the use
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of technologies in which the Company is investing, or a change in trends its costs may not be fully recovered. In addition, the Company
may be placed at a competitive disadvantage if other technologies in which the investment is not as great, or the Company’s expertise
is not as developed, emerge as the industry-leading technologies. This could have a material adverse effect on the Company’s
profitability and financial condition.
Dependence Upon Key Personnel
The success of the Company is dependent on the services of a number of the members of its senior management, who set the culture,
hire the talent, provide strategic direction, oversee operational excellence and drive financial discipline of the Company. The experience
and talents of these individuals has been and will be a significant factor in the Company’s continued success and growth. The loss of
one or more of these individuals without adequate replacement measures could have a material adverse effect on the Company’s
operations and business prospects. The Company does not currently maintain key person insurance.
The Company’s business depends on its ability to attract, develop and retain experienced and highly skilled personnel at all levels of
the Company. Such personnel are in high demand in the areas in which the Company competes, and competition for their services is
intense. As a result of the rapid changes and the intense competition in the automotive industry, the Company has a growing need for
skilled people and the Company may face substantial competition for such personnel, from traditional and less traditional sources. The
inability to attract and retain highly-skilled personnel could have an adverse effect on the Company’s operations and profitability and its
ability to fully implement its business strategy.
Additionally, effective succession planning programs and practices are a critical element of the Company’s overall talent management
strategy. The Company maintains a leadership development and succession program that has facilitated seamless leadership
transitions to date. However, the failure to ensure effective knowledge transfers and seamless leadership transitions involving key
professionals and leaders could also impact the Company’s ability to profitably conduct business and/or effectively implement the
Company’s strategy.
Limited Financial Resources/Uncertainty of Future Financing/Banking
The Company is engaged in a capital-intensive business and its financial resources are less than the financial resources of some of its
competitors. There can be no assurance that, if, as and when the Company seeks additional equity or debt financing, or other forms of
financing, the Company will be able to obtain the additional financial resources required to successfully compete in its markets on
favourable commercial terms or at all. Additional equity financings may result in substantial dilution to existing shareholders.
The Company’s existing debt facilities must be renewed on a periodic basis. There is no assurance the Company will be able to renew
such facilities on competitive terms or at all. These facilities may contain restrictions on the Company’s ability to, among other things,
pay dividends, sell or transfer assets, incur additional debt, repay other debt, make certain investments or acquisitions, repurchase or
redeem shares and engage in alternate business activities. Interest rate fluctuations, financial market volatility and global credit market
disruptions have made, and may continue to make, it difficult for companies to raise and maintain necessary operating liquidity. While
the Company believes it has sufficient liquidity to operate, there can be no assurance that the Company will continue to have such
ability.
The Company’s working capital requirements can vary significantly depending, in part, on the level, variability and timing of the
worldwide vehicle production of its OEM customers and the payment terms with customers and suppliers. The Company’s liquidity
could be adversely impacted if circumstances arose causing its suppliers to suspend trade credit terms and require payment in advance
or payment upon delivery. If sufficient funds are not otherwise available to the Company from its credit facilities, the Company may need
to seek additional capital, through debt or equity financings, to fund its business. Conditions in the credit markets (such as availability of
finance and fluctuations in interest rates) may make it difficult for the Company to obtain such financing on attractive terms or even at
all. Additional debt financing that the Company may undertake may be expensive and might impose on it covenants that restrict the
Company’s operations and strategic initiatives, including limitations on its ability to incur liens or additional debt, pay dividends,
repurchase its capital stock, make investments and engage in merger, consolidation and asset sale transactions. Many of the
Company’s customers and suppliers require significant financing to operate their businesses. Longer-term disruptions in the credit
markets could further adversely affect the Company’s customers by making it increasingly difficult for them to obtain financing for their
businesses or for consumers to obtain financing for vehicle purchases. If capital is not available to the Company’s customers and
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Martinrea International Inc.
suppliers, or if its cost is prohibitively high, their businesses would be negatively impacted, which could result in their restructuring or
even reorganization or liquidation under applicable bankruptcy laws. As a result, the need of the Company’s customers for, and their
ability to purchase, the Company’s products may decrease, and the Company’s suppliers may increase their prices, reduce their output
or change their terms of sale. Any inability of the Company’s customers to pay for the Company’s products and services, or any
demands by suppliers for different payment terms, could have a material adverse effect on the Company’s business, financial condition
and results of operations.
The occurrence of an economic shock not contemplated in the Company’s business plan, a rapid deterioration of conditions or a
prolonged recession could result in the depletion of the Company’s cash resources, which could have a material adverse effect on its
operations and financial condition.
In recent years, the Company has invested significant amounts of money in its business through capital expenditures to support new
facilities, expansion of existing facilities, purchases of production equipment and acquisitions. Returns achieved on such investments in
the past are not necessarily indicative of the returns the Company may achieve on future investments and its inability to achieve returns
on future investments which equal or exceed returns on past investments could have a material adverse effect on our level of
profitability.
Cybersecurity Threats
The Company relies upon IT networks and systems to process, transmit and store electronic information, and to manage or support a
variety of business processes or activities. Additionally, the Company and certain of its third-party vendors collect and store personal
information in connection with human resources operations and other aspects of the Company’s business. The secure operation of
these IT networks and systems and the proper processing and maintenance of this information are critical to the Company’s business
operations. The reliability and security of the Company’s information technology (IT) systems is important to the Company’s business
and operations. Although the Company has established and continues to enhance security controls intended to protect the Company’s
IT systems and infrastructure, there is no guarantee that such security measures will be effective in preventing unauthorized physical
access or cyber-attacks (including from the use of artificial intelligence in these attacks) and the Company’s IT systems are at risk to
damages from computer viruses, unauthorized access, cyber-attack and other similar disruptions. The occurrence of any of these
events could compromise the Company’s networks, and the information stored there could be accessed, publicly disclosed or lost. A
significant breach of the Company’s IT systems could, among other things, cause disruptions in the Company’s manufacturing
operations (such as operational delays from production downtime, inability to manage the supply chain or produce product for
customers, disruptions in inventory management), lead to the loss, destruction, corruption or inappropriate use of sensitive data,
including employee information, result in lost revenues due to theft of funds or due to a disruption of activities, including remediation
costs, or from litigation, fines and liability or higher insurance premiums, the costs of maintaining security and effective IT systems,
which could negatively affect results of operations and the potential adverse impact of changing laws and regulations related to
cybersecurity or result in theft of the Company’s, its customers’ or suppliers’ intellectual property or confidential information. If any of
the foregoing events (or other events related to cybersecurity) occurs, the Company may be subject to a number of consequences,
including reputational damage, a diminished competitive advantage and negative impacts on future opportunities which could have a
material adverse effect on the Company. In addition, any such access, disclosure or other loss of information could result in legal claims
or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, the disruption of the
Company’s operations or damage to the Company’s reputation. The Company may also be required to incur significant costs to protect
against damage caused by these disruptions or security breaches in the future. Any of these issues could have a material adverse
effect on the Company’s business, financial condition and results of operations. In addition, any failure, disruption or breach of the
Company’s IT networks and systems could compromise the integrity or confidentiality of the Company’s customers’ information. Any
actual or perceived failure, disruption or breach of the Company’s IT networks and systems could materially impair our reputation and
cause the Company to lose customers or revenue, or become subject to litigation, necessitate customer service or repair work that
would involve substantial costs and distract management from operating our business. Any failure or perceived failure to protect the
Company’s customers’ information could have a material adverse effect on the Company’s business, financial condition and results of
operations.
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Martinrea International Inc.
The development, adoption, and use for generative AI technologies are still in their early stages and ineffective or inadequate AI
development or deployment practices by the Company or third-party developers or vendors could result in unintended consequences.
For example, AI algorithms that the Company uses may be flawed or may be based on datasets that are biased or insufficient.
Developing, testing, and deploying resource-intensive AI systems may require additional investment and increase the Company’s costs.
There are significant risks involved in development and deploying AI and there can be no assurance that the usage of AI will enhance
our products or services or be beneficial to our business, including our efficiency or profitability. It is not possible to predict all of the
risks related to the use of AI and changes in laws, rules, directives, and regulations governing the use of AI may adversely affect the
Company’s ability to develop and use AI or subject the Company to legal liability
Acquisitions
The Company may grow through acquisitions of complementary businesses, products or technologies, or by entering into joint
ventures. The Company has acquired and anticipates that it will continue to acquire complementary businesses, assets, technologies,
services or products, at competitive prices. The Company intends to continue to pursue acquisitions in those product areas which we
have identified as key to the Company’s long-term business strategy. However, as a result of intense competition in these strategic
areas, the Company may not be able to acquire the targets needed to achieve its strategic objectives or certain of its suppliers or sub-
suppliers could be acquired, including by the Company’s key competitors, which could have a negative impact on the Company’s
business and strategy.
The completion of such transactions poses additional risks to the Company’s business. Acquisitions or strategic alliances are subject to
a range of inherent risks, including the difficulties in the integration of the acquired businesses or incorporating joint ventures;
uncertainties in assessing the value, strengths and potential profitability of, and identifying the extent of all weaknesses of, acquisition
candidates; the assumption of unknown liabilities, including assumption of incremental regulatory/compliance, pricing, supply chain,
commodities, labour relations, litigation, environmental, pensions, warranty, recall, IT, tax or other risks and undisclosed risks impacting
the target; adverse effects on existing customer and supplier relationships; integration of internal controls; entry into markets in which
the Company has little or no direct prior experience; the potential loss of key customers, management and employees of an acquired
business; potential integration or restructuring costs; the ability to achieve operating and financial synergies; unanticipated changes in
business, industry or general economic conditions that affect the assumptions underlying the Company’s rationale for pursuing the
acquisition or joint venture. Although the Company seeks to conduct appropriate levels of due diligence on acquisition targets, these
efforts may not always prove to be sufficient in identifying all risks and liabilities related to the acquisition, including as a result of: limited
access to information; time constraints for conducting due diligence; inability to access target company facilities and/or personnel; or
other limitations in the due diligence process. Additionally, the Company may identify risks and liabilities that cannot be sufficiently
mitigated through appropriate contractual or other protections. The realization of any such risks could have a material adverse effect on
the Company’s operations or profitability. The Company also may not be able to successfully integrate or achieve anticipated synergies
from acquisitions and/or such acquisitions may be dilutive in the short to medium term. Either of these outcomes could have a material
adverse effect on the Company’s profitability.
The occurrence of any one or more of these factors could cause the Company not to realize the benefits anticipated to result from an
acquisition or a joint venture, which could have a material adverse effect on the Company’s business, financial condition and results of
operations.
Joint Ventures
The Company has in the past and may from time to time conduct certain of its operations through joint ventures under contractual
arrangements under which it shares management responsibilities with one or more partners. Certain of the Company’s future cash
flows and earnings and its results of operations and financial condition may in part depend on the Company retaining its ownership
interests in its joint venture investments. Joint venture operations carry a range of risks, including those relating to: failure of a joint
venture partner to satisfy contractual obligations; potential conflicts between the Company and the joint venture partner; strategic
objectives of joint venture partner(s) that may differ from the Company’s; potential delays in decision-making; a more limited ability to
control legal and regulatory compliance within the joint venture(s); and other risks inherent to non-wholly-owned operations. The
likelihood of such occurrences and potential effect on the Company may vary depending on the joint venture arrangement; however, the
occurrence of any such risks could have an adverse effect on the Company’s operations, profitability and reputation.
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Martinrea International Inc.
Private or Public Equity Investments in Technology Companies
In addition to the Company’s development activities, the Company has invested in other companies. Such investments are an important
element of the Company’s long-term strategy and the Company may make further private or public equity investments in such
companies. Investing in such companies involves a high degree of risk, including the potential loss of some or all of the investment
value. In addition, where there is no public market for the shares of the investments in start-ups, the Company may be unable to
monetize its equity investments in the future. Investments in companies or funds which are currently or subsequently become publicly
traded are marked-to-market quarterly, which may result in the Company recording unrealized gains or losses in any given quarter.
Potential Tax Exposures
The Company may incur losses in some countries, which it may not be able to fully or partially offset against income the Company has
earned in those countries. In some cases, the Company may not be able to utilize these losses at all if the Company cannot generate
profits in those countries and/or if the Company has ceased conducting business in those countries altogether. The Company’s inability
to utilize material tax losses could materially adversely affect its profitability. At any given time, the Company may face other tax
exposures arising out of changes in tax laws, tax reassessments or otherwise. The Company is subject to numerous tax and accounting
requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of current rules or practices,
could have a significant adverse effect on the Company’s financial results, the manner in which it conducts its business or the
marketability of any of its products. The geographic scope of the Company’s business requires the Company to comply with the tax
laws and regulations of multiple jurisdictions. Requirements as to taxation vary substantially among jurisdictions. Complying with the tax
laws of these jurisdictions can be time consuming and expensive and could potentially subject the Company to penalties and fees in the
future if the Company were to inadvertently fail to comply. In the event the Company was to inadvertently fail to comply with applicable
tax laws, this could have a material adverse effect on the business, results of operations and financial condition of the Company.
The taxation system and regulatory environment in some of the jurisdictions in which the Company operates are characterized by
numerous indirect taxes and frequently changing legislation subject to various interpretations by the various regulatory authorities and
jurisdictions that are empowered to impose significant fines, penalties and interest charges. The Company’s subsidiary in Brazil is
currently being assessed by the State of Sao Paulo tax authorities for certain historical value added tax credits claimed on aluminum
purchases from certain local suppliers that occurred prior to the acquisition of the Brazil subsidiary in 2011. Although the Company
believes that it has complied in all material respects with the legislation in Brazil and has obtained legal advice to such effect there is no
assurance that the Company will be successful with respect to such assessment (see Note 23 to the Company’s consolidated financial
statements for the year ended December 31, 2023). The Company’s subsidiary in Queretaro, Mexico, Martinrea Honsel Mexico, S.A. de
C.V., is currently being assessed by the Mexican Federal Tax Authorities for tax deductions taken mainly in respect of certain intra-
company transactions. The Company has sought external legal advice and believes that it has complied in all material respects, with
the relevant legislation and will continue to vigorously defend against such assessments. No provision has been recorded by the
Company in connection with this contingency as, at this stage, the Company has concluded that it is not probable that a liability will
result from the matter (see Note 23 to the Company’s consolidated financial statements for the year ended December 31, 2023). To the
extent the Company cannot implement measures to offset this and other tax exposures, it may have a material adverse effect on the
Company’s profitability (see “Legal Proceedings” in the AIF).
Potential Rationalization Costs, Turnaround Costs and Impairment Charges
The Company has incurred restructuring costs over the past several years, sometimes in conjunction with the cancelation of a customer
program or the closing of a customer plant. In response to the increasingly competitive automotive industry conditions, it is likely that
the Company will continue to rationalize some production facilities and close high cost or less efficient manufacturing facilities from time
to time. In the course of such rationalization, restructuring costs related to plant closings or alterations, relocations and employee
severance costs will be incurred. Such costs could have an adverse effect on short-term profitability. In addition, while the Company’s
goal is for every plant to be profitable, there is no assurance this will occur, which will likely result in a rationalizing or closing of the
plant. Martinrea is working to turn around any financially underperforming divisions, however, there is no guarantee that it will be
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Martinrea International Inc.
successful in doing so with respect to some or all such divisions. The continued underperformance of one or more operating divisions
could have a material adverse effect on the Company’s profitability and operations.
In certain locations where the Company’s facilities are subject to leases, it may continue to incur significant challenges and costs if it
were to attempt to relocate, restructure or downsize its business, including the inability to sublease any of the leased premises, in
accordance with the terms of its existing leases. The Company may be unsuccessful in renegotiating these leases or it may need to
make large settlements or take other actions to terminate its leases. The Company attempts to align production capacity with demand;
however, the Company cannot provide any assurance that it will not close or relocate manufacturing facilities in the future, which could
result in adverse publicity and have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company may take, in the future, significant impairment charges, including charges related to long-lived assets. The early
termination, loss, renegotiation of the terms of, or delay in the implementation of, any significant production contract could be indicators
of impairment. In addition, to the extent that forward-looking assumptions regarding: the impact of turnaround plans on
underperforming operations; new business opportunities; program price and cost assumptions on current and future business; the
timing and success of new program launches; and forecast production volumes, are not met, any resulting impairment loss could have
a material adverse effect on the Company’s profitability.
Labour Relations Matters
The Company has a significant number of its employees subject to collective bargaining agreements, as do many of the Company’s
customers and suppliers. To date, the Company has had no material labour relations disputes. However, production may be affected
by work stoppages and labour-related disputes (including labour disputes of the Company’s customers and suppliers, such as the UAW
strike in 2023), whether in the context of potential restructuring or in connection with negotiations undertaken to ensure a division’s
competitiveness, or otherwise, which may not be resolved in the Company’s favour and which may have a material adverse effect on
the Company’s operations. The Company cannot predict whether and when any labour disruption may arise or how long such
disruption could last. A significant labour disruption could lead to a lengthy shutdown of the Company or its customers’ or suppliers’
facilities or production lines, which could have a material adverse effect on the Company’s operations and profitability.
Trade Restrictions or Disputes
The global growth of the automotive industry has been aided by the free movement of goods, services, people and capital through
bilateral and regional trade agreements, particularly in North America and Europe. The introduction of measures which impede free
trade, including new or increased tariffs and other trade barriers, could have a material adverse effect on the Company’s operations and
profitability. Current international trade disputes could, among other things, reduce demand for and production of vehicles, disrupt global
supply chains, distort commodity pricing, impair the ability of automotive suppliers and vehicle manufacturers to make efficient long-
term investment decisions, create volatility in relative foreign exchange rates, and contribute to stock market volatility.
Changes in Laws and Governmental Regulations
A significant change in the regulatory environment in which the Company currently carries on business could adversely affect the
Company’s operations, including changes in tax laws, laws related to pandemics or GHG (climate change) or other environmental
regulations or other regulations relating to ESG.
The Company’s operations could be adversely impacted by significant changes in tariffs and duties imposed on its products, particularly
significant changes to the USMCA (formerly NAFTA), or the CPTPP, the adoption of domestic preferential purchasing policies in other
jurisdictions, particularly the United States or China (such as increased tariffs or investigations relating to anti-dumping) or positive or
negative changes in tax or other legislation. The Company’s operations could also be adversely impacted by changes in rules relating
to the movement of goods and people across borders, or changes in labour laws and regimes in the jurisdictions in which it operates,
including immigration policies, which prevent the movement or recruitment of key Company employees and skilled tradespersons. In
addition, the Company could be exposed to increased customs audits due to governmental policy, which could lead to additional
administrative burden and costs and also carry the potential of a material fine or significant reputational risk. Changes in legislation or
regulation could lead to additional administrative burden and costs in general, and also carry the potential of a material fine or
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Martinrea International Inc.
significant reputational risk. Changes in laws or regulations could also result in the Company shifting its operations to more favourable
jurisdictions.
Sustainability (ESG) Regulation, Including Environmental Regulation and Climate Change and Human Rights and Supply
Chain Issues
The Company is subject to a variety of environmental regulations by the federal, provincial and municipal authorities in Canada, the
United States, Mexico, South America, Europe, China and Japan that govern, among other things: activities or operations that may
have an adverse environmental effect; soil, surface water and groundwater contamination; the generation, storage, handling, use,
disposal and transportation of hazardous materials; the emission and discharge of materials, including greenhouse gases, into the
environment; and health and safety. If the Company fails to comply with these laws, regulations or permits, the Company could be fined
or otherwise sanctioned by regulators or become subject to litigation or obligations to investigate or remediate existing or potential
contamination, third-party property damage claims, personal injury claims, or modification or revocation of operating permits and may
lead to temporary or permanent business interruptions. Environmental and pollution control laws, regulations and permits, and the
enforcement thereof, change frequently, have tended to become more stringent over time and may necessitate substantial capital
expenditures or operating costs or may require changes of production processes. Environmental regulation in any one jurisdiction in
which the Company operates may impact the business of the Company to the extent that jurisdiction becomes less competitive.
Compliance with the requirements of laws and regulations affect ongoing operations and may increase capital costs and operating
expenses, particularly if the applicable laws and regulations become increasingly stringent or more stringently enforced in the future.
The Company may be required to use different materials in its production due to changing environmental restrictions or due to customer
specifications. Material substitution may cause the Company to incur additional capital and operating costs. In addition to the foregoing,
the Company may also incur costs and expenses resulting from environmental compliance, contamination or incidents, such as any
changes to facilities to address physical, health and safety or regulatory constraints, repair or rebuilding facilities impacted by adverse
weather events, or research and development activities related to more environmentally efficient operations and processes, as well as
other potential costs (see also “Financial Viability of Suppliers”).
Under certain environmental requirements, the Company could be responsible for costs relating to any contamination at the Company’s
or a predecessor entity’s current or former owned or operated properties or third-party waste-disposal sites, even if the Company was
not at fault. In addition to potentially significant investigation and cleanup costs, contamination can give rise to third-party claims for
fines or penalties, natural resource damages, personal injury or property damage.
The Company’s operations may also be impacted by environmental policies at any of its customers or suppliers to the extent that it
affects production or volumes. The Company and its customers are also under pressure to meet tighter emissions regulations, reduce
fuel consumption and act with more environmental responsibility, which may impact the Company’s business and operations. Foreign,
federal, state, provincial and local regulatory and legislative bodies have proposed various legislative and regulatory measures relating
to climate change, regulating greenhouse gas emissions and energy policies, including, without limitation, CAFE standards and
California’s agreement with major OEMs to increase fuel efficiency. The Company endeavours to be environmentally responsible and
recognizes that the competitive pressures for economic growth and cost efficiency must be integrated with sound sustainability
management, including environmental stewardship. The Company has adopted sourcing and other business practices to address ESG
concerns of its customers. Despite these efforts, evolving customer concerns could negatively affect the Company’s reputation and
financial performance. Due to the uncertainty in the regulatory and legislative processes, as well as the scope of such requirements and
initiatives, the Company cannot currently determine the effect such legislation and regulation may have on its operations or on the
production of, or demand for, vehicles, including light trucks.
The Company and its customers are also under pressure to reduce carbon emissions from operations. In order to meet these
reductions, it will take energy efficiency initiatives, as well as the use of renewable energy. Depending on the cost and the availability of
renewable energy in certain markets across our global operations, the lack of ability to meet these future renewable energy purchases,
through being cost prohibitive or unavailable, may impact the Company’s business and operations.
The Company cannot provide assurances that the Company’s costs, liabilities and obligations or any resulting impact on its revenues
due to regulatory change, customer requirements or changes in supply chain requirements relating to ESG matters (or any issues that
may arise as a result of its customers’ or suppliers’ own ESG compliance, including any environmental compliance or trends that may
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Martinrea International Inc.
impact their businesses) will not have a material adverse effect on the Company’s business, financial condition, results of operations
and cash flow.
The Company requires compliance with its policies both internally and, where relevant, for its suppliers, including related to ESG.
Although the Company requires its suppliers to comply with these guidelines, there is no guarantee that these suppliers will not take
actions that hurt the Company’s reputation, as they are independent third parties that the Company does not control. However, if there
is a lack of apparent compliance, it may lead the Company to search for alternative suppliers. This may have an adverse effect on the
Company’s financial results, by increasing costs, potentially causing shortages in products, delays in delivery or other disruptions in
operations. While the Company evaluates its supply base, given the number of suppliers globally, the ability to conduct on-site
assessments is not possible for all suppliers. Further, the ability to conduct on-site assessments had been impacted during the
COVID-19 Pandemic and may be similarly affected if there are any future pandemics. A violation of the Company’s policies could
impact the ability of suppliers to work with the Company (see “Supply Chain Responsibility” in the AIF).
The Company’s operations may also be impacted by any environmental policies or incidents at any of its customers or suppliers to the
extent that it affects production or volumes.
In addition, the physical occurrence of severe weather conditions or one or more natural disasters, whether due to climate change or
naturally occurring, such as, floods, wild fires, tornadoes, hurricanes and windstorms, snowstorms and other natural disasters such as
earthquakes, tsunamis or hurricanes, including extreme weather caused by climate change, in a country in which the Company
operates or in which its suppliers or customers are located, could cause catastrophic destruction to some of the Company’s or the
Company’s suppliers’ or customers’ facilities, which could have a material impact on the availability of a product, disrupt the Company’s
production and/or prevent the Company from supplying products to its customers which could have a material adverse effect on its
business, financial condition and results of operations. Such events could result in physical damage to and complete or partial closure
of one or more of the Company’s or its customers’ manufacturing facilities; temporary or long-term disruption in the supply of raw
materials from the Company’s suppliers; disruptions to the Company’s production or ability of the Company’s employees to work
efficiently; and/or disruptions or delays in the transport of the Company’s products to its customers or their vehicles to their customers.
The Company has policies and procedures in place to mitigate such risk and to obtain alternate supply, where practical, however it may
not be possible in all cases or for a critical component. Physical risks related to extreme weather events or natural disasters cannot be
predicted and the frequency and severity of any such event can vary including by region. Any interruption to the Company’s supply of
product or resulting changes in price to the Company could lower the Company’s revenues, increase its operating costs and impact its
financial results. A catastrophic destruction of the Company’s or the Company’s suppliers’ facilities could have a material adverse effect
on the Company’s operations and profitability (see also “Financial Viability of Suppliers”).
Sustainability (ESG) initiatives have been increasingly influencing the automotive industry and in recent years, there has been an
increasing focus on climate change (including GHG reduction), energy reduction and transition to renewable energy. In addition, there
is an increased focus on disclosure and reporting of ESG metrics and policies and various governments in jurisdictions in which the
Company operates, are at various stages of adopting legislations and regulations on ESG reporting, which may overlap or impose
uncertainty due to unexpected implementation, and/or be onerous on the Company and its customers and/or suppliers, from a reporting
and/or cost perspective. (See “Automotive Industry Highlights and Trends” in the AIF)
The Company cannot provide assurances that the Company’s costs, liabilities and obligations or any resulting impact on its revenues
due to customer requirements or changes in supply chain requirements relating to ESG matters (or any issues that may arise as a
result of its customers’ or suppliers’ own environmental compliance or incidents, including any environmental compliance or incidents or
trends that may impact their businesses) or from ESG matters in general, including any arising from climate change, will not have a
material adverse effect on the Company’s business, financial condition, results of operations and cash flow.
Litigation and Regulatory Compliance and Investigations
The Company has been and is involved in litigation from time to time and has received, in the past, letters from third parties alleging
claims (including of its customers, suppliers, current or former employees) and claims have been made against it including those
described under “Legal Proceedings” in the AIF. Although litigation claims may ultimately prove to be without merit, they can be time-
consuming and expensive to defend. There can be no assurance that third parties will not assert claims against the Company in the
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Martinrea International Inc.
future or that any such assertion will not result in costly litigation, or a requirement that the Company enter into costly settlement
arrangements. There can be no assurance that such arrangements will be available on reasonable terms, or at all. Due to the inherent
uncertainties of litigation, it is not possible to predict the outcome or determine the amount of any potential losses or the success of any
claim or of any law suit referenced under “Legal Proceedings” and any other claims to which the Company may be subject. In addition,
there is no assurance that the Company will be successful in a litigation matter. Any of these events may have a material adverse effect
on the Company’s business, financial condition and results of operations. See “Legal Proceedings”. The Company’s policy is to comply
with all applicable laws. However, the Company or its directors and officers may also be subject to regulatory risk in the markets in
which it operates (for example, antitrust and competition regulatory authorities, tax authorities, anti-bribery and corruption authorities,
customs authorities, cybersecurity risk and privacy legislation such as GDPR). Regulatory investigations, if any, can continue for
several years, and depending on the jurisdiction and type of proceeding can result in administrative or civil or criminal penalties that
could have a material adverse effect on the Company’s profitability or operations (even where the Company or any of its officers or
directors is innocent, investigations can be expensive to defend). Additionally, the Company could be subject to other consequences
including reputational damage, which could have a material adverse effect on the Company.
Risks of Conducting Business in Foreign Countries, Including China, Brazil, Mexico and Other Growing Markets
The Company has or may establish foreign manufacturing, assembly, product development, engineering and research and
development operations in foreign countries, including in Mexico, Europe, China and Brazil. International operations, including Mexico,
are subject to certain risks inherent in doing business abroad, including:
•
•
•
•
•
•
•
•
•
•
•
•
political, civil and economic instability;
corruption risks;
trade, customs and tax risks;
currency exchange rates and currency controls;
limitations on the repatriation of funds;
insufficient infrastructure;
restrictions on exports, imports and foreign investment;
environmental risk;
increases in working capital requirements related to long supply chains;
changes in labour laws and regimes and labour strife;
difficulty in protecting intellectual property rights; and
different and challenging legal systems.
The Company’s exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their
potential effect on the Company vary from country to country and are unpredictable, however any such occurrences could have an
adverse effect on the Company’s profitability. Current relations, trade and otherwise, between China, the U.S. and Canada have
increased some of the risks of operating in China and dealing with Chinese operations.
Currency Risk
A substantial portion of the Company’s revenues are now, and are expected to continue to be, realized in currencies other than
Canadian dollars, primarily the U.S. dollar. Fluctuations in the exchange rate between the Canadian dollar and such other currencies
may have a material effect on the Company’s results of operations. To date, the Company has engaged in some hedging activities to
mitigate the risk of identified exchange rate exposures. To the extent the Company may seek to implement more substantial hedging
techniques in the future with respect to its foreign currency transactions, there can be no assurance that the Company will be
successful in such hedging activities.
Currency fluctuations may negatively or positively affect the competitiveness of the Company’s operations in a particular jurisdiction. As
a result, the Company may move some existing work to another country, or may source work to different divisions, in order for the
Company to remain or become competitive. Any work shifts may entail significant restructuring and other costs as work is shifted, as
plants are consolidated, downsized or closed, or as plants in other jurisdictions are expanded.
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Martinrea International Inc.
Internal Controls Over Financial Reporting and Disclosure Controls and Procedures
Inadequate disclosure controls or ineffective internal controls over financial reporting could result in an increased risk of material
misstatements in the financial reporting and public disclosure record of the Company. Inadequate controls could also result in system
downtime, give rise to litigation or regulatory investigation, fraud or the inability of the Company to continue its business as presently
constituted. The Company has designed and implemented a system of internal controls and a variety of policies and procedures to
provide reasonable assurance that material misstatements in the financial reporting and public disclosures are prevented and detected
and corrected on a timely basis and other business risks are mitigated. In accordance with the guidelines adopted in Canada, the
Company assesses the effectiveness of its internal and disclosure controls using a top-down, risk-based approach in which both
qualitative and quantitative measures are considered. An internal control system, no matter how well conceived and operated, can
provide only reasonable – not absolute – assurance to management and the Board regarding achievement of intended results. The
inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of
simple errors or mistakes. Controls can also be circumvented by individual acts of certain persons, by collusion of two or more people
or by management override of the controls. Due to the inherent limitations in a cost effective control system, misstatements due to error
or fraud may occur and may not be detected in a timely manner or at all. Changes in internal controls due to remote work
arrangements, such as those adopted in response to the COVID-19 Pandemic, may result in control deficiencies and impact the
Company’s financial reporting systems, which may also be material. The Company’s current system of internal and disclosure controls
also places reliance on key personnel across the Company to perform a variety of control functions including key reviews, analysis,
reconciliations and monitoring. The failure of individuals to perform such functions or properly implement the controls as designed
could adversely impact results.
Loss of Use of Key Manufacturing Facilities
While the Company manufactures its products in several facilities and maintains insurance covering its facilities, including business
interruption insurance, a catastrophic loss of the use of all or a portion of one of the Company’s manufacturing facilities due to accident,
weather conditions, acts of war, political unrest, terrorist activity, natural disaster, labour issues or otherwise, whether short-term or long-
term, could have a material adverse effect on the Company’s business, financial condition and results of operations.
Intellectual Property
The Company relies upon trademarks, copyrights, patents and contractual restrictions to protect its know-how, trade secrets and other
intellectual property. Failure to protect (including through unintentional loss of protection through the use of generative AI) the
Company’s intellectual property rights may undermine its competitive position and protecting its rights or defending against third-party
allegations of infringement may be costly, which could have a material adverse effect on the Company’s business, financial condition
and results of operations. Protection of proprietary processes, designs, moldings, know-how, trade secrets, documentation and other
technology is critical to the Company’s business. Failure to protect, monitor and control the use of the Company’s existing designs,
know-how, trade secrets and other intellectual property rights could cause the Company to lose its competitive advantage and incur
significant expenses. However, the measures the Company takes to protect its know-how, trade secrets and other intellectual property
rights may be insufficient. While the Company enters into confidentiality and proprietary rights agreements and agreements for
assignment of invention with its employees and third parties to protect its know-how, trade secrets and intellectual property rights, such
agreements and assignments could be breached and may not provide meaningful protection. Also, others may independently develop
technologies or products that are similar to the Company’s. In such case, the Company’s know-how and trade secrets would not
prevent competition from third-parties. Third-parties may seek to oppose, cancel or invalidate the Company’s intellectual property rights,
which could have a material adverse effect on the Company’s business, financial condition and results of operations. The costs
associated with the protection of the Company’s know-how, trade secrets, intellectual property and the Company’s proprietary rights
and technology are ongoing. Third-parties or employees may infringe or misappropriate the Company’s proprietary technologies or
other intellectual property rights, which could harm the Company’s business and operating results. Policing unauthorized use of
intellectual property rights can be difficult and expensive, and adequate remedies may not be available. Failure to protect or enforce the
Company’s intellectual property rights may undermine its competitive position and protecting its rights or defending against third-party
allegations of infringement may be costly, which could have a material adverse effect on the Company’s business, financial condition
and results of operations. If the Company’s technology infringes on the proprietary rights of others, its ability to compete may be
impaired. Third-parties may bring legal claims, or threaten to bring legal claims, against the Company that their intellectual property
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Martinrea International Inc.
rights are being infringed or violated by the Company’s use of intellectual property. Litigation or threatened litigation, regardless of merit,
could be costly, time consuming to defend, require the Company to redesign its products or manufacturing processes, if feasible,
distract senior management from operating the Company’s business and/or require the Company to enter into royalty or licensing
agreements in order to obtain the right to use a third party’s intellectual property. Any such royalty or licensing agreements, if required,
may not be available to the Company on acceptable terms or at all. If the Company were to be found liable for any such infringement,
the Company could be required to pay substantial damages and could be subject to injunctions preventing further infringement. In
addition, any payments the Company is required to make and any injunctions with which the Company is required to comply as a result
of infringement claims could be costly. Any legal claims or litigation could have a material adverse effect on the Company’s business,
financial condition and results of operations. If a third-party claims to have licensing rights with respect to components the Company
purchased from a vendor, the Company may be obligated to cease using these components, incur associated costs if the vendor is
unwilling or unable to reimburse the Company and be subject to liability under various civil and criminal causes of action, including
damages and injunctions. Additionally, the Company will be required to purchase new components to replace any it has purchased and
are unable to use. Any such events could have a material adverse effect on the Company’s business, financial condition and results of
operations.
Availability of Consumer Credit or Cost of Borrowing
Declines in the availability of consumer credit and increases in consumer borrowing costs have negatively impacted global automotive
sales and resulted in lower production volumes in the past. Substantial declines in automotive sales and production by our OEM
customers could have a material adverse effect on the Company’s business, results of operations and financial condition.
Evolving Business Risk Profile
The risk profile of the Company’s business continues to evolve with the increasing importance to us of product areas outside of its
traditional business. As the Company’s business evolves, the Company may face new or heightened risks, including: forecasting and
planning risks related to penetration rates of EVs; reduction in demand for certain products which are unique to ICE vehicles;
challenges in quoting for profitable returns on products with leading-edge technologies for which the Company may not have significant
quoting experience; rigorous testing and validation requirements from OEM customers for complex new products; increased warranty
and recall risks on new products and leading-edge technologies; increased product liability risks; heightened risk of technological
obsolescence of some of our products, processes and/or assets; and difficulties in attracting or retaining employees with critical skills in
high-demand areas. Realization of one or more such risks could have a material adverse effect on the Company’s operations,
profitability or financial condition.
Competition with Low Cost Countries
The competitive environment in the automotive industry has intensified as customers seek to take advantage of low wage costs in
China, Korea, Thailand, India and other low-cost countries. As a result, there is potentially increased competition from suppliers that
have manufacturing operations in low-cost countries. The loss of any significant production contract to a competitor in low cost
countries or significant costs and risks incurred to enter and carry on business in these countries could have an adverse effect on
profitability.
The Company’s Ability to Shift its Manufacturing Footprint to Take Advantage of Opportunities in Growing Markets
Many of the Company’s customers have sought, and will likely continue to seek to take advantage of lower operating costs and/or other
advantages in Mexico, China, India, Brazil, Russia, South Korea and other growing markets. While the Company continues to expand
its manufacturing footprint with a view to taking advantage of manufacturing opportunities in some of these markets, the Company
cannot guarantee that it will be able to fully realize such opportunities. The inability to quickly adjust its manufacturing footprint to take
advantage of manufacturing opportunities in these markets could harm its ability to compete with other suppliers operating in or from
such markets, which could have an adverse effect on its profitability. The loss of any significant production contract to a competitor in a
lower-cost market or the significant costs and risks incurred to follow a customer into and carry on business in these growing markets
could have an adverse effect on the Company’s profitability.
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Martinrea International Inc.
Change in the Company’s Mix of Earnings Between Jurisdictions with Lower Tax Rates and Those with Higher Tax Rates
The Company’s effective tax rate varies in each country in which it conducts business. Changes in its mix of earnings between
jurisdictions with lower tax rates and those with higher tax rates could have a material adverse effect on the Company’s profitability.
Pension Plans and Other Post-Employment Benefits
The Company’s pension plans acquired as a result of the acquisition of the North American body and chassis business of
ThyssenKrupp Budd in 2006 (the “TKB Acquisition”) traditionally has had an aggregate funding deficiency. However, as at the latest
measurement date of December 31, 2023, based on an actuarial estimate for financial reporting, there is a surplus on a solvency basis.
Based on interest rates, benefits and projected investment returns, the Company is often obligated to fund some amounts in any
particular year. A significant portion of the estimated funding is expected to be a payment towards the reduction of the unfunded
liabilities. An unfunded liability could increase due to a decline in interest rates, investment returns at less than the actuarial
assumptions, or changes to the governmental regulations governing funding and other factors. The Company could be adversely
affected by the resulting increases in annual funding obligations. See also Note 14 (“Pension and Other Post-Retirement Benefits”) to
the Company’s consolidated financial statements for the year ended December 31, 2023, which reflects the financial position of the
Company’s defined benefit pension plan and other post-employment benefit plans at December 31, 2023.
The Company provides certain post-employment benefits to certain of its retirees acquired as a result of the TKB Acquisition. These
benefits include drug and hospitalization coverage. The Company does not pre-fund these obligations. At December 31, 2023, the
unfunded actuarial liability for these obligations was significant. Expected benefit payments for 2024 and beyond are significant. The
Company’s obligation for these benefits could increase in the future due to a number of factors including changes in interest rates,
changes to the collective bargaining agreements, increasing costs for these benefits, particularly drugs, and any transfer of costs
currently borne by government to the Company. The Company has in the past negotiated changes to its post-employment benefits
package in several of its facilities with its employees, in conjunction with the applicable union for the facility, setting maximum limits on
future post-employment benefits payments. The Company may negotiate similar arrangements in future in respect of such benefits at
other facilities, as applicable. See also Note 14 (“Pension and Other Post-Retirement Benefits”) to the Company’s consolidated financial
statements for the year ended December 31, 2023, which reflect the financial position of the Company’s post-employment benefits
other than pension plans at December 31, 2023.
Potential Volatility of Share Prices
The market price of the Company’s common shares has been, and will likely continue to be, subject to significant fluctuations in
response to a variety of factors, many of which are beyond the Company’s control. These fluctuations may be exaggerated if the trading
volume of the common shares is low. In addition, due to the evolving nature of its business, the market price of the common shares may
fall dramatically in response to a variety of factors, including quarter-to-quarter variations in operating results, the gain or loss of
significant contracts, announcements of technological or competitive developments by the Company or its competitors, acquisitions or
entry into strategic alliances by the Company or its competitors, the gain or loss of a significant customer or strategic relationship,
changes in estimates of the Company’s financial performance, changes in recommendations from securities analysts regarding the
Company, the industry or its customers’ industries, litigation involving the Company or its officers and general market or economic
conditions.
In certain circumstances that the Company determines that its share price is undervalued, the Company may use funds that would
otherwise be available for its operations or other uses, to repurchase its own shares as an investment. However, there can be no
assurances that any such repurchase of shares will have a positive impact on the Company’s share price.
Dividends
The declaration and payment of dividends, including the dividend rate, is subject to the Board’s discretion taking into account the
Company’s cash flow, capital requirements, financial condition and other factors the Board considers relevant. These factors are, in
turn, subject to various risks, including the risk factors set out above. While the Company aims to pay a consistent dividend and may
increase the dividend over time, the Company’s Board may in certain circumstances determine that it is in the best interests of the
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Martinrea International Inc.
Company to reduce or suspend the dividend. In such event, the trading price of the Common Shares of the Company may be materially
affected.
Lease Obligations
The Company leases much of its manufacturing facilities and some of its capital equipment. A failure to pay the Company’s lease
obligations may constitute a default allowing the applicable landlord or lessor to pursue remedies available to it under the Company’s
leases and applicable law, which could include taking possession of property that the Company utilizes in its business resulting in the
Company’s failure to supply customers and, in the case of facility leases, evicting the Company, which could have a material adverse
effect on the Company’s business, financial condition and results of operations. The terms and restrictions of certain of the Company’s
facilities leases, may present significant challenges and costs to the Company if it were to attempt to restructure or downsize its
business, including the inability to sublease any of the leased premises or relocate certain of its manufacturing facilities.
DISCLOSURE OF OUTSTANDING SHARE DATA
As at February 29, 2024, the Company had 78,141,440 common shares outstanding. The Company’s common shares constitute its
only class of voting securities. As at February 29, 2024, options to acquire 2,328,500 common shares were outstanding.
On March 29, 2023, the Toronto Stock Exchange ("TSX") accepted a notice of intention of the Company to make a normal course
issuer bid ("NCIB") permitting the Company to purchase for cancellation up to 5 million common shares over a 12-month period ending
on or about April 3, 2024.
During 2023, after the commencement of the NCIB, the Company purchased for cancellation an aggregate of 2,270,655 common
shares for an aggregate purchase price of $29.1 million resulting in a reduction to stated capital of $18.7 million and a decrease to
retained earnings of $10.3 million. The shares were purchased and cancelled directly under the NCIB.
CONTRACTUAL OBLIGATIONS AND OFF BALANCE SHEET FINANCING
At December 31, 2023, the Company had contractual obligations requiring annual payments as follows (all figures in thousands):
Less than 1
year
1-2 years
2-3 years
3-4 years
4-5 years
Thereafter
Total
Purchase obligations (i)
$
482,543 $
27,769 $
393 $
Long-term debt
Contractual lease obligations
12,778
59,466
950,712
55,240
5,264
50,317
198 $
193
99 $
289
10 $
-
44,521
25,475
64,788
511,012
969,236
299,807
Total Contractual obligations
$
554,787 $
1,033,721 $
55,974 $
44,912 $
25,863 $
64,798 $
1,780,055
(i)
Purchase obligations consist of those related to inventory, services, tooling and fixed assets in the ordinary course of business.
Guarantees
The Company has negotiated tool financing facilities that provide direct financing for specific programs. The tool financing program
involves a third party that provides tooling suppliers with financing subject to a Company guarantee. Payments from the third party to
the tooling supplier are approved by the Company prior to the funds being advanced. The amounts loaned to tooling suppliers through
this financing arrangement do not appear on the Company's balance sheet unless the sale on the corresponding tooling project has
been recognized, at which point a tooling trade payable on the project is recorded. At December 31, 2023, the amount of the off-
balance sheet program financing was $16.5 million (December 31, 2022 - $4.6 million) representing the maximum amount of
undiscounted future payments the Company could be required to make under the guarantee. The Company would be required to
perform under the guarantee in cases where a tooling supplier could not meet its obligation to the third party. Since the amount
advanced to the tooling supplier is required to be repaid generally when the Company receives reimbursement from the final customer,
and at this point the Company will in turn repay the tooling supplier, the Company views the likelihood of a tooling supplier default as
remote. Moreover, if such an instance were to occur, the Company would obtain the tool inventory as collateral. The term of the
guarantee will vary from program to program, but typically range up to twenty-four months.
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Martinrea International Inc.
Hedge Accounting
The Company uses derivatives and other non-derivative financial instruments to manage its exposures to fluctuations in foreign
exchange rates.
At the inception of a hedging relationship, the Company designates and formally documents the relationship between the hedging
instrument and the hedged item, the risk management objective, and the strategy for undertaking the hedge. The documentation
identifies the specific net investment or anticipated cash flows being hedged, the risk that is being hedged, the type of hedging
instrument used, and how effectiveness will be assessed.
At inception and each reporting date, the Company formally assesses the effectiveness of these designated hedges.
Net investment hedges
The Company continues to use some portion of its US denominated long-term debt to manage foreign exchange rate exposures on net
investments in certain US operations.
The change in fair value of the hedging US debt is recorded, to the extent effective, directly in other comprehensive income (loss).
These amounts will be recognized in profit or loss as and when the corresponding accumulated other comprehensive income (loss)
from the hedged foreign operations is recognized in profit or loss. The Company has not identified any ineffectiveness in these hedge
relationships as at December 31, 2023.
Financial Instruments
The Company’s foreign exchange risk management includes the use of foreign currency forward contracts to fix the exchange rates on
certain foreign currency exposures. It is the Company’s policy to not utilize financial instruments for trading or speculative purposes.
At December 31, 2023, the Company had committed to the following foreign exchange contracts:
Foreign exchange forward contracts not accounted for as hedges and fair valued through profit or loss
Currency
Sell Canadian Dollars
Buy Mexican Peso
$
Amount of U.S.
dollars
67,000 $
103,749
Weighted average
exchange rate of
U.S. dollars
1.3403
17.3495
Maximum period in
months
1
1
The aggregate value of these forward contracts as at December 31, 2023 was a pre-tax gain of $3.9 million and was recorded in trade
and other receivables (December 31, 2022 - pre-tax gain of $2.1 million recorded in trade and other receivables).
INVESTMENTS
Investment in common shares of NanoXplore Inc.
Investment in common shares and convertible debentures of AlumaPower Corp.
Investment in convertible debentures of Equispheres Inc.
Other
Investment in common shares of VoltaXplore Inc.
December 31, 2023 December 31, 2022
48,749
2,669
-
500
3,940
55,858
54,384 $
4,036
1,000
750
-
60,170 $
$
$
As at December 31, 2023, the Company held 38,466,360 common shares of NanoXplore representing a 22.7% equity interest in
NanoXplore (on a non-diluted basis). NanoXplore is a publicly listed company on the Toronto Stock Exchange trading under the ticker
symbol GRA. It is a manufacturer and supplier of high-volume graphene powder for use in industrial markets providing customers with a
range of graphene-based solutions.
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Martinrea International Inc.
On February 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% from 22.2%. 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.
As a result of stock option exercises within NanoXplore, the Company’s net ownership interest decreased slightly to 21.1% from 21.2%
during the fourth quarter of 2022.
On April 15, 2021, the Company formed a 50/50 joint venture with NanoXplore, named VoltaXplore, to develop and produce electric
vehicle batteries enhanced with graphene. Martinrea and NanoXplore each invested $4.0 million into VoltaXplore as start-up capital and
to support the construction of a demonstration facility. On January 14, 2022, each of Martinrea and NanoXplore invested an additional
$1.0 million in development funding into VoltaXplore by acquiring 1,000,000 common shares in VoltaXplore at $1.00 per share.
On March 24, 2023, Martinrea sold its equity interest in VoltaXplore to NanoXplore 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 follows:
Gross gain (Total consideration of $10.0 million less book value of investment)
Less: gain attributable to indirect retained interest
Net gain on disposal of equity investments
$
$
6,821
(1,548)
5,273
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% to 22.7%.
As at December 31, 2023, the Company held 19,912 of class A shares, 14,952 of class C shares, and $1.4 million (US $1.1 million) of
convertible debentures of AlumaPower, including the acquisition of an additional 4,960 class A shares for $1.4 million pursuant to a
private placement offering on October 31, 2023, representing approximately 12.5% equity interest in AlumaPower (on a non-diluted
basis). AlumaPower is a private company developing aluminum air battery technology for a variety of end markets, including
automotive.
On April 20, 2023, the Company acquired convertible debentures of Equispheres in the amount of $1.0 million. Equispheres is a private
company developing technologies for the production and use of advanced materials in additive manufacturing.
The Company applies equity accounting to its equity investments in NanoXplore and VoltaXplore (up to the date of disposal of March
24, 2023) based on their most recently available financial statements, adjusted for any significant transactions that occur thereafter and
up to the Company’s reporting date, which represents a reasonable estimate of the change in the Company’s interest. The common
shares in AlumaPower are classified as fair value through other comprehensive income, while the convertible debentures in
AlumaPower and Equispheres are classified as amortized cost. Accordingly, the common shares are recorded at their fair value at the
end of each reporting period, with the change in fair value recorded in other comprehensive income (loss), while the convertible
debentures are recorded at amortized cost using the effective interest rate method, less any impairment losses.
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Martinrea International Inc.
Movement in equity-accounted investments is summarized as follows:
Investment in
common shares
of NanoXplore
Net as of December 31, 2021
Additions
Gain on dilution of equity investments
Share of loss for the period
Share of other comprehensive income for the period
Net as of December 31, 2022
Additions
Share of loss for the period
Share of other comprehensive loss for the period
Disposal
Net as of December 31, 2023
$
$
$
Investment in
common shares
of VoltaXplore
3,925
1,000
-
(985)
-
3,940
-
(761)
-
(3,179)
-
48,748 $
-
4,050
(4,089)
40
48,749 $
8,452
(2,799)
(18)
-
54,384 $
As at December 31, 2023, the market value of the shares held in NanoXplore by the Company was $93.5 million.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be publicly
disclosed by a public company is gathered and reported to senior management, including the Chief Executive Officer (“CEO”) and the
Chief Financial Officer (“CFO”), on a timely basis so that appropriate decisions can be made regarding public disclosure. An evaluation
of the effectiveness of the Company’s disclosure controls and procedures was conducted as of December 31, 2023, based on the
criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) by and under the supervision of the Company’s management, including the CEO and the CFO.
Based on this evaluation, the CEO and the CFO have concluded that the Company’s disclosure controls and procedures (as defined in
National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators)
are effective in providing reasonable assurance that material information relating to the Company is made known to them and
information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods
specified in such legislation.
Under the supervision of the CEO and CFO, the Company has designed internal controls over financial reporting (as defined in National
Instrument 52-109) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS. The Company’s management team used COSO to design the Company’s
internal controls over financial reporting.
The CEO and CFO have caused an evaluation of the effectiveness of the Company’s internal controls over financial reporting as of
December 31, 2023. This evaluation included documentation activities, management inquiries, tests of controls and other reviews as
deemed appropriate by management in consideration of the size and nature of the Company’s business including those matters
described above. Based on that evaluation the CEO and the CFO concluded that the design and operating effectiveness of internal
controls over financial reporting was effective as at December 31, 2023 to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
It is important to understand that there are inherent limitations of internal controls as stated within COSO. Internal controls no matter
how well designed and operated can only provide reasonable assurance to management and the Board of Directors regarding
achievement of an entity’s objectives. A system of controls, no matter how well designed, has inherent limitations, including the
possibility of human error and the circumvention or overriding of the controls or procedures. As a result, there is no certainty that an
organization's disclosure controls and procedures or internal control over financial reporting will prevent all errors or all fraud. Even
disclosure controls and procedures and internal control over financial reporting determined to be effective can only provide reasonable
assurance of achieving their control objectives.
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Martinrea International Inc.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There have been no changes in the Company's internal controls over financial reporting during the year ended December 31, 2023 that
have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities.
The discussion below describes the Company’s material policies and procedures for the year ended December 31, 2023.
The Company’s management bases its estimates on historical experience and various other assumptions that are believed to be
reasonable in the circumstances, the results of which form the basis for making judgments about the reported amounts of assets,
liabilities, revenue and expenses that are not readily apparent from other sources. On an ongoing basis, management evaluates these
estimates. However, actual results may differ from these estimates under different assumptions or conditions. In making and evaluating
its estimates, management also considers economic conditions generally and in the automotive industry in particular, which have more
recently been very different from historical patterns, as well as industry trends and the risks and uncertainties involved in its business
that could materially affect the reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other
sources. See “Automotive Industry Highlights and Trends” in the Company’s AIF and “Risks and Uncertainties” above.
Management believes that the accounting estimates discussed below are critical to the Company’s business operations and an
understanding of its results of operations or may involve additional management judgment due to the sensitivity of the methods and
assumptions necessary in determining the related asset, liability, revenue and expense amounts. Management has discussed the
development and selection of the following critical accounting estimates with the Audit Committee of the Board of Directors and the
Audit Committee has reviewed its disclosure relating to critical accounting estimates in this MD&A.
Impairment of Non-financial Assets
The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable
amount is estimated. For intangible assets that are not yet available for use, the recoverable amount is estimated each year at the
same time.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets are
grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment
losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated to the carrying amounts of the
other assets in the unit.
In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that
the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Management believes that accounting estimates related to the impairment of non-financial assets and potential reversal are critical
accounting estimates because: (i) they are subject to significant measurement uncertainty and are susceptible to change as
management is required to make forward-looking assumptions regarding the impact of improvement plans on current operations, in-
sourcing and other new business opportunities, program price and cost assumptions on current and future business, the timing of new
Page 46
Martinrea International Inc.
program launches and future forecasted production volumes; and (ii) any resulting impairment loss could have a material impact on
consolidated net income (loss) and on the amount of assets reported on the Company’s consolidated balance sheet.
Income Tax Estimates
The Company is subject to income taxes in numerous jurisdictions where it has foreign operations. Significant judgment is required in
determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional
taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
The Company is required to estimate the tax basis of assets and liabilities. The assessment for the recognition of a deferred tax asset
requires significant judgment. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is
possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities
recorded. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of changes. Unknown
future events and circumstances, such as changes in tax rates and laws, may materially affect the assumptions and estimates made
from one period to the next. Any significant change in events, tax laws, and tax rates beyond the control of the Company may materially
affect the consolidated financial statements.
At December 31, 2023, the Company had recorded a net deferred income tax asset in respect of pensions and other post-retirement
benefits, loss carry-forwards and other temporary differences of $164.7 million (2022 - $148.4 million). Deferred tax assets in respect of
loss carry-forwards relate to legal entities in Canada, the United States, Mexico and Europe. A deferred tax asset is recognized for
unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that they can be utilized. Deferred
tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will
be realized.
The factors used to assess the probability of realization are the Company’s forecast of future taxable income, the pattern and timing of
reversals of taxable temporary differences that give rise to deferred tax liabilities and available tax planning strategies that could be
implemented to realize the deferred tax assets. The Company has and continues to use tax planning strategies to realize deferred tax
assets in order to avoid the potential loss of benefits.
Revenue Recognition
The Company recognizes sales from two categories of goods: production (including finished production parts, assemblies and
modules), and tooling. Revenue for these goods is recognized at the point in time control of the goods is transferred to the customer.
Control of finished production parts, assemblies and modules transfers when the goods are shipped from the Company’s manufacturing
facilities to the customer. Control of tooling transfers when the tool has been accepted by the customer. For certain tooling contracts for
which the customer makes progress payments in advance of obtaining control of the tool, the Company recognizes a liability for the
progress payments until the performance obligation is complete. Such payments from the customer generally do not contain a financing
component.
Revenue and cost of sales from tooling contracts are presented on a gross basis in the consolidated statements of operations. Tooling
contract prices are generally fixed; however, price changes, change orders and program cancellations may affect the ultimate amount of
revenue recorded with respect to a contract. Contract costs are estimated at the time of signing the contract and are reviewed at each
reporting date. In the case of tooling work in progress inventory that is internally developed, cost includes directly attributable labour as
well as overhead. Adjustments to the original estimates of total contract costs are often required as work progresses under the contract
and as experience is gained, even though the scope of the work under the contract may not change. Judgment is required in
determining the appropriateness of costs included in tooling work in progress inventory. When the current estimates of total contract
revenue and total contract costs indicate a loss, a provision for the entire loss on the contract is made. Factors that are considered in
arriving at the forecasted loss on a contract include, amongst others, cost overruns, non-reimbursable costs, change orders and
potential price changes.
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Martinrea International Inc.
Employee Future Benefits
The Company provides pensions and other post-employment benefits including health care, dental care and life insurance to certain
employees. The determination of the obligation and expense for defined benefit pension plans and post-employment benefits is
dependent on the selection of certain assumptions used by the Company’s actuaries in calculating such amounts. Those assumptions
are disclosed in Note 14 to the Company’s consolidated financial statements for the year ended December 31, 2023 the most
significant of which are the discount rate and the rate of increase in the cost of health care. The assumptions are reviewed annually and
the impact of any changes in the assumptions is reflected in actuarial gains or losses which are recognized in other comprehensive
income (loss) as they arise. The significant actuarial assumptions adopted are internally consistent and reflect the long-term nature of
employee future benefits. Significant changes in assumptions could materially affect the Company’s employee benefit obligations and
future expense.
Intangible Assets
The Company’s intangible assets are comprised of development costs.
Development costs are capitalized when the Company can demonstrate that:
•
•
•
•
the development costs can be measured reliably;
the product or process is technically and commercially feasible;
the future economic benefits are probable; and
the Company intends and has sufficient resources to complete the development of and to use or sell the asset.
Capitalized development costs correspond to projects for specific customer applications that draw on approved generic standards or
technologies already applied in production. These projects are analyzed on a case-by-case basis to ensure they meet the criteria for
capitalization as described above. Development costs are subsequently amortized over the life of the program from the start of
production. Amortization of development costs is recognized in research and development costs in the consolidated statement of
operations.
Expenditure on research activities, including costs of market research and new product prototyping during the marketing stage, is
recognized in profit or loss when incurred.
RECENTLY ADOPTED AND APPLICABLE ACCOUNTING STANDARDS AND POLICIES
Amendments to IAS 8, Definition of Accounting Estimates
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8). The amendments introduce a new
definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to
measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by
specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy.
The Company adopted the amendments to IAS 8 effective January 1, 2023. The adoption of amendments to IAS 8 did not have a
material impact on the consolidated financial statements.
Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure Initiative – Accounting Policies
On February 12, 2021, the IASB issued Disclosure Initiative - Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement
2). The amendments help companies provide useful accounting policy disclosures by requiring companies to disclose their material
accounting policies rather than their significant accounting policies.
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Martinrea International Inc.
The Company adopted the amendments to IAS 1 and IFRS Practice Statement 2 effective January 1, 2023. The adoption of
amendments to IAS 1 and IFRS Practice Statement 2 did not have a material impact on the consolidated financial statements.
Amendments to IAS 12, International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12)
On May 23, 2023, the IASB issued International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12). The amendments
provide a temporary relief from accounting for deferred taxes arising from the Organization for Economic Co-operation and
Development’s (OECD) international tax reform.
The amendments include:
•
•
a temporary, mandatory exemption from accounting for deferred taxes resulting from the introduction of the global minimum
taxation; and
targeted disclosure requirements to help investors better understand a company’s exposure to income taxes arising from the
reform, particularly before legislation implementing the rules is in effect.
The accounting exemption is to be applied immediately after publication of the amendment. The disclosures relating to the known or
reasonably estimable exposure to Pillar Two income taxes are required for annual reporting periods beginning on or after 1 January
2023, but they are not required to be disclosed in interim financial reports for any interim period ending on or before December 31,
2023.
The Company adopted the amendments to IAS 12 effective May 23, 2023. The adoption of amendments to IAS 12 did not have
material impact on the consolidated financial statements.
Amendments to IFRS 16, Leases - Lease Liability in a sale and Leaseback
On September 22, 2022, the IASB issued Lease Liability in a Sale and Leaseback (Amendments to IFRS 16). The amendments
introduce a new accounting model which impacts how a seller-lessee accounts for variable lease payments that arise in a sale-and-
leaseback transaction. The amendments clarify that on initial recognition, the seller-lessee includes variable lease payments when it
measures a lease liability arising from a sale-and-leaseback transaction. After initial recognition, the seller-lessee applies the general
requirements for subsequent accounting of the lease liability such that it recognises no gain or loss relating to the right of use it retains.
The amendments are effective for annual periods beginning on or after January 1, 2024. The adoption of amendments to IFRS 16 is not
expected to have a material impact on the consolidated financial statements.
Amendments to IAS 1, Non-current Liabilities with Covenants
On October 31, 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1). The amendments specify that
covenants to be complied with after the reporting date do not affect the classification of debts as current or non-current at the reporting
date. Instead, the amendments require a company to disclose information about these covenants in the notes to the consolidated
financial statements.
The amendments are effective for annual periods beginning on or after January 1, 2024. The adoption of amendments to IAS 1 is not
expected to have a material impact on the consolidated financial statements.
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Martinrea International Inc.
Selected Annual Information
The following table sets forth selected information from the Company’s consolidated financial statements for the years ended
December 31, 2023, December 31, 2022 and December 31, 2021.
Sales
Gross Margin
Operating Income
Net Income for the year
Net Earnings per Share - Basic and Diluted
Non-IFRS Measures*
Adjusted Operating Income
% of Sales
Adjusted EBITDA
% of Sales
Adjusted Net Income
Adjusted Net Earnings per Share - Basic and Diluted
Total Assets
Cash and Cash Equivalents
Total Long-term Debt
Dividends Declared
$
$
$
2023
5,340,003 $
675,397
269,114
153,665
1.93 $
297,275 $
5.6 %
616,678
11.5 %
176,492
$
$
2.22 $
3,989,730 $
186,804
969,236
15,846
2022
2021
4,757,588 $ 3,783,953
345,624
62,917
35,880
0.45
559,263
217,779
132,838
1.65 $
230,119 $
4.8 %
515,888
10.8 %
141,612
68,390
1.8 %
317,570
8.4 %
32,884
0.41
4,143,119 $ 3,613,244
153,291
1,010,990
16,070
161,655
1,070,368
16,076
1.76 $
The year-over-year trends in the selected information above have been discussed previously in this MD&A, as well as the MD&A from
December 31, 2022, including adjustments in Table B under "Adjustments to Net Income".
*Non-IFRS Measures
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 to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to
financial measures determined in accordance with IFRS. Non-IFRS measures include “Adjusted Net Income”, “Adjusted Net Earnings
per Share (on a basic and diluted basis)”, “Adjusted Operating Income”, "Adjusted EBITDA”, “Free Cash Flow” and “Net Debt”. Refer to
"Overall Results" and "Liquidity and Capital Resources" sections of this MD&A for a full reconciliation of the Non-IFRS measures for the
years ended December 31, 2023 and 2022 and the Company’s MD&A for the year ended December 31, 2022, as previously filed and
available at www.sedarplus.ca, for a full reconciliation of the Non-IFRS measures for the year ended December 31, 2021.
FORWARD-LOOKING INFORMATION
Special Note Regarding Forward-Looking Statements
This MD&A and the documents incorporated by reference therein contains forward-looking statements within the meaning of applicable
Canadian securities laws, including, but not limited to, statements related to the outlook and growth of the automotive industry and the
Company, the growth of the Company and pursuit of, and belief in, its strategies; the ramping up and launching of new business; the
continued investments in its business and technologies; the opportunity to increase sales; the ability to finance future capital
expenditures, working capital, debt obligations and other commitments; the factors impacting its ability to fund anticipated cash
requirements and to comply with financial covenants under the banking facility, the Company’s views on its liquidity and operating cash
flow and ability to deal with present or future economic conditions, the potential for fluctuation of operating results, the likelihood of
tooling supplier default under tooling guarantee programs and using the tools as collateral, and the payment of dividends as well as
other forward-looking statements, including sales and revenues, production levels volumes, the impact and duration of supply chain
issues (including OEM actions) and the impact on the Company and industry, inflation, energy, war, the execution of the Company’s
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Martinrea International Inc.
sustainability strategy and the Company’s belief of the claims referenced under Potential Tax Exposures and Legal Proceedings. 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, such as expected sales and industry production
estimates, current foreign exchange rates, timing of product launches and operational improvement during the period, and current
Board approved budgets. 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 AIF and MD&A for the year ended December 31, 2023 and other public filings which can be found
at www.sedarplus.ca:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
North American and Global Economic and Political Conditions (including war) and Consumer Confidence
Automotive Industry Risks
Pandemics and Epidemics, Force Majeure Events, Natural Disasters, Terrorist Activities, Political and Civil Unrest or War, and
Other Outbreaks
Russia and Ukraine War and Hamas-Israel War
Semiconductor Chip Shortages and Price Increases
Inflationary Pressures
Regional Energy Shortages
Dependence Upon Key Customers
Customer Consolidation and Cooperation
Emergence of Potentially Disruptive EV OEMs
Outsourcing and Insourcing Trends
Financial Viability of Suppliers and Key Suppliers and Supply Disruptions
Competition
Customer Pricing Pressures, Contractual Arrangements, Cost and Risk Absorption and Purchase Orders
• Material and Commodity Prices and Volatility
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Scrap Steel/Aluminum Price Volatility
Quote/Pricing Assumptions
Launch Costs, Operational Costs and Issues and Cost Structure
Fluctuations in Operating Results
Product Warranty, Repair/Replacement Costs, Recall, Product Liability and Liability Risk
Product Development and Technological Change (Including Artificial Intelligence)
A Shift Away from Technologies in Which the Company is Investing
Dependence Upon Key Personnel
Limited Financial Resources/Uncertainty of Future Financing/Banking
Cybersecurity Threats
Acquisitions
Joint Ventures
Private or Public Equity Investments in Technology Companies
Potential Tax Exposures
Potential Rationalization Costs, Turnaround Costs and Impairment Charges
Labour Relations Matters
Trade Restrictions or Disputes
Changes in Laws and Governmental Regulations
Sustainability (ESG) Regulation, Including Environmental Regulation and Climate Change and Human Rights and Supply
Chain Issues
Litigation and Regulatory Compliance and Investigations
Risks of Conducting Business in Foreign Countries, Including China, Brazil, Mexico and Other Growing Markets
Currency Risk
Internal Controls Over Financial Reporting and Disclosure Controls and Procedures
Page 47
Martinrea International Inc.
•
•
•
•
•
•
•
•
•
•
•
Loss of Use of Key Manufacturing Facilities
Intellectual Property
Availability of Consumer Credit or Cost of Borrowing
Evolving Business Risk Profile
Competition with Low Cost Countries
The Company’s Ability to Shift its Manufacturing Footprint to Take Advantage of Opportunities in Growing Markets
Change in the Company’s Mix of Earnings Between Jurisdictions with Lower Tax Rates and Those with Higher Tax Rates
Pension Plans and Other Post-Employment Benefits
Potential Volatility of Share Prices
Dividends
Lease Obligations
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.
Page 48
Martinrea International Inc.
MARTINREA INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023
Martinrea International Inc.
Table of Contents
Inventories
Management’s Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
1. Basis of preparation
2. Material accounting policies
3. Trade and other receivables
4.
5. Property, plant and equipment
6. Right-of-use assets
Intangible assets
7.
Investments
8.
Impairment of assets
9.
10. Trade and other payables
11. Provisions
12. Long-term debt
13. Lease liabilities
14. Pensions and other post-retirement benefits
15.
Income taxes
16. Capital stock
17. Earnings per share
18. Research and development costs
19. Personnel expenses
20. Finance expense and other finance income
21. Operating segments
22. Financial instruments
23. Commitments and contingencies
24. Guarantees
25. Transactions with key management personnel
Page
1
2
7
8
9
10
11
12
13
22
22
22
23
24
24
26
26
26
27
28
29
32
34
37
37
37
38
38
39
43
44
44
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Martinrea International Inc. are the responsibility of management
and have been prepared in accordance with IFRS Accounting Standards as issued by the International Accounting
Standards Board and, where appropriate, reflect best estimates based on management’s judgment. In addition, all other
information contained in the annual report to shareholders and Management Discussion and Analysis for the year ended
December 31, 2023 is also the responsibility of management. The Company maintains systems of internal accounting and
administrative controls designed to provide reasonable assurance that the financial information provided is accurate and
complete and that all assets are properly safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting, for
overseeing management’s performance of its financial reporting responsibilities, and is ultimately responsible for
reviewing and approving the consolidated financial statements. The Board of Directors delegates certain responsibility to
the Audit Committee, which is comprised of independent non-management directors. The Audit Committee meets with
management and KPMG LLP, the external auditors, multiple times a year to review, among other matters, accounting
policies, any observations relating to internal controls over the financial reporting process that may be identified during the
audit, as influenced by the nature, timing and extent of audit procedures performed, annual consolidated financial
statements, the results of the external audit and the Management Discussion and Analysis included in the report to
shareholders for the year ended December 31, 2023. The external auditors and internal auditors have unrestricted access
to the Audit Committee. The Audit Committee reports its findings to the Board of Directors so that the Board may properly
approve the consolidated financial statements for issuance to shareholders.
(Signed) “Pat D’Eramo”
(Signed) “Fred Di Tosto”
Pat D’Eramo
Fred Di Tosto
Chief Executive Officer
President & Chief Financial Officer
KPMG LLP
100 New Park Place, Suite 1400
Vaughan, ON L4K 0J3
Tel 905-265 5900
Fax 905-265 6390
www.kpmg.ca
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Martinrea International Inc.
Opinion
We have audited the consolidated financial statements of Martinrea International Inc. (the
Entity), which comprise:
•
•
•
•
•
the consolidated balance sheets as at December 31, 2023 and December
31, 2022
the consolidated statements of operations for the years then ended
the consolidated statements of comprehensive income for the years then
ended
the consolidated statements of changes in equity for the years then ended
the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary
of material accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all
material respects, the consolidated financial position of the Entity as at
December 31, 2023 and December 31, 2022, and its consolidated financial
performance and its consolidated cash flows for the years then ended in
accordance with IFRS Accounting Standards as issued by the International
Accounting Standards Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Our responsibilities under those standards are further
described in the “Auditor’s Responsibilities for the Audit of the Financial
Statements” section of our auditor’s report.
We are independent of the Entity in accordance with the ethical requirements
that are relevant to our audit of the financial statements in Canada and we
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG
International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP.
Document classification: KPMG Confidential
have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements for the year ended
December 31, 2023.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters
to be communicated in our auditor’s report.
Existence and accuracy of tooling work in progress inventory
Description of the matter
We draw attention to Notes 1(c), 2(f) and 4 of the financial statements. The
Entity enters into tooling contracts, where tooling work in progress inventory
that is internally developed includes directly attributable labour as well as
overhead. The tooling work in progress and other inventory balance was
$191,560 thousand. The Entity uses judgment in determining the
appropriateness of costs included in tooling work in progress inventory.
Why the matter is a key audit matter
We identified the existence and accuracy of tooling work in progress inventory
as a key audit matter. This matter represented an area of higher assessed risk
of material misstatement requiring significant judgment related to the nature
and amounts of costs capitalized. As a result, significant auditor judgment was
required in evaluating the results of our audit procedures.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter
included the following:
• For a sample of tooling contracts with work in progress inventory, we:
• Compared the costs capitalized to supplier invoices or internal records,
as applicable
• Evaluated the appropriateness of the amounts capitalized for labour
and overhead cost by comparing the underlying inputs to vendor
invoices or payroll records
Other Information
Management is responsible for the other information. Other information
comprises:
•
•
the information included in Management’s Discussion and Analysis filed
with the relevant Canadian Securities Commissions.
the information, other than the financial statements and the auditor’s report
thereon, included in the Report to Shareholders filed with the relevant
Canadian Securities Commissions.
Our opinion on the financial statements does not cover the other information
and we do not and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to
read the other information identified above and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit and remain alert for indications that the
other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and
Analysis and Report to Shareholders filed with the relevant Canadian
Securities Commissions as at the date of this auditor’s report. If, based on the
work we have performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to report that
fact in the auditor’s report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with
Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the
financial statements in accordance with IFRS Accounting Standards as issued
by the International Accounting Standards Board, and for such internal control
as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, management is responsible for
assessing the Entity’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Entity
or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s
financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of the financial
statements.
As part of an audit in accordance with Canadian generally accepted auditing
standards, we exercise professional judgment and maintain professional
skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial
statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
Entity's internal control.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
• Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Entity's ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may
cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial
statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner
that achieves fair presentation.
• Communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
• Provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and
communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where
applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the group Entity to
express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
• Determine, from the matters communicated with those charged with
governance, those matters that were of most significance in the audit of
the financial statements of the current period and are therefore the key
audit matters. We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be
communicated in our auditor’s report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditor’s report is David Brendan
Power.
Vaughan, Canada
February 29, 2024
Note
December 31, 2023 December 31, 2022
3
4
5
6
15
7
8
14
10
11
12
13
12
13
14
15
16
$
$
$
$
186,804 $
695,819
568,274
33,904
11,089
1,495,890
1,943,771
238,552
192,301
42,743
60,170
16,303
2,493,840
3,989,730 $
1,176,579 $
29,892
25,017
12,778
48,507
1,292,773
956,458
210,469
37,261
27,588
1,231,776
2,524,549
645,256
45,903
95,753
678,269
1,465,181
3,989,730 $
161,655
789,931
665,316
36,237
6,454
1,659,593
1,948,773
254,065
166,680
45,916
55,858
12,234
2,483,526
4,143,119
1,315,380
7,906
39,216
16,198
43,665
1,422,365
1,054,170
229,455
41,912
18,312
1,343,849
2,766,214
663,646
45,558
124,065
543,636
1,376,905
4,143,119
Martinrea International Inc.
Consolidated Balance Sheets
(in thousands of Canadian dollars)
ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and deposits
Income taxes recoverable
TOTAL CURRENT ASSETS
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Intangible assets
Investments
Pension assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
Trade and other payables
Provisions
Income taxes payable
Current portion of long-term debt
Current portion of lease liabilities
TOTAL CURRENT LIABILITIES
Long-term debt
Lease liabilities
Pension and other post-retirement benefits
Deferred tax liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Capital stock
Contributed surplus
Accumulated other comprehensive income
Retained earnings
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Commitments and contingencies (note 23)
Subsequent event (note 12)
See accompanying notes to the consolidated financial statements.
On behalf of the Board:
“Robert Wildeboer”
“Terry Lyons”
Director
Director
Page 7
Martinrea International Inc.
Martinrea International Inc.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts)
SALES
$
5,340,003 $
4,757,588
Note
Year ended
December 31, 2023
Year ended
December 31, 2022
Cost of sales (excluding depreciation of property, plant and equipment and right-of-use assets)
Depreciation of property, plant and equipment and right-of-use assets (production)
Total cost of sales
GROSS MARGIN
Research and development costs
Selling, general and administrative
Depreciation of property, plant and equipment and right-of-use assets (non-production)
Gain (loss) on disposal of property, plant and equipment
Restructuring costs
Impairment of assets
OPERATING INCOME
Share of loss of equity investments
Net gain on disposal of equity investments
Gain on dilution of equity investments
Finance expense
Other finance income
INCOME BEFORE INCOME TAXES
Income tax expense
NET INCOME FOR THE PERIOD
Basic earnings per share
Diluted earnings per share
See accompanying notes to the consolidated financial statements.
(4,372,174)
(292,432)
(4,664,606)
675,397
(3,939,565)
(258,760)
(4,198,325)
559,263
(38,011)
(323,438)
(17,712)
1,039
(27,266)
(895)
269,114
(3,560)
5,273
-
(80,323)
6,653
197,157
(43,492)
153,665 $
1.93 $
1.93 $
(36,918)
(276,146)
(15,947)
(133)
(7,846)
(4,494)
217,779
(5,074)
-
4,050
(51,837)
9,127
174,045
(41,207)
132,838
1.65
1.65
18
11
9
8
8
8
20
20
15
17
17
$
$
$
Page 8
Martinrea International Inc.
Martinrea International Inc.
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars)
NET INCOME FOR THE PERIOD
Other comprehensive income (loss), net of tax:
Items that may be reclassified to net income
Foreign currency translation differences for foreign operations
Items that will not be reclassified to net income
Share of other comprehensive income (loss) of equity investments (note 8)
Remeasurement of defined benefit plans
Other comprehensive income (loss), net of tax
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
See accompanying notes to the consolidated financial statements.
Year ended
December 31, 2023
Year ended
December 31, 2022
$
153,665 $
132,838
(28,294)
72,818
(18)
7,135
(21,177)
132,488 $
$
40
16,566
89,424
222,262
Page 9
Martinrea International Inc.
Martinrea International Inc.
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)
BALANCE AT DECEMBER 31, 2021
Net income for the period
Compensation expense related to stock options
Dividends ($0.20 per share)
Exercise of employee stock options
Other comprehensive income net of tax
Remeasurement of defined benefit plans
Foreign currency translation differences
Share of other comprehensive income of equity
investments
BALANCE AT DECEMBER 31, 2022
Net income for the period
Compensation expense related to stock options
Dividends ($0.20 per share)
Exercise of employee stock options
Repurchase of common shares (note 16)
Other comprehensive income (loss) net of tax
Remeasurement of defined benefit plans
Foreign currency translation differences
Share of other comprehensive loss of equity
investments
Capital stock
$
663,415 $
Contributed
surplus
44,845 $
Accumulated
other
comprehensive
income
51,207 $
-
-
-
231
-
-
-
663,646
-
-
-
358
(18,748)
-
-
-
-
773
-
(60)
-
-
-
45,558
-
442
-
(97)
-
-
-
-
Retained
earnings
410,308 $
132,838
-
(16,076)
-
Total equity
1,169,775
132,838
773
(16,076)
171
16,566
-
-
543,636
153,665
-
(15,846)
-
(10,321)
16,566
72,818
40
1,376,905
153,665
442
(15,846)
261
(29,069)
7,135
-
7,135
(28,294)
-
-
-
-
-
72,818
40
124,065
-
-
-
-
-
-
(28,294)
(18)
-
(18)
1,465,181
BALANCE AT DECEMBER 31, 2023
$
645,256 $
45,903 $
95,753 $
678,269 $
See accompanying notes to the consolidated financial statements.
Page 10 Martinrea International Inc.
Martinrea International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net income for the period
Adjustments for:
Depreciation of property, plant and equipment and right-of-use assets
Amortization of development costs
Impairment of assets (note 9)
Unrealized gain on foreign exchange forward contracts
Finance expense (note 20)
Income tax expense (note 15)
Loss (gain) on disposal of property, plant and equipment
Deferred and restricted share units expense (note 16)
Stock options expense (note 16)
Share of loss of equity investments (note 8)
Net gain on disposal of equity investments (note 8)
Gain on dilution of equity investments (note 8)
Pension and other post-retirement benefits expense (note 14)
Contributions made to pension and other post-retirement benefits (note 14)
Changes in non-cash working capital items:
Trade and other receivables
Inventories
Prepaid expenses and deposits
Trade, other payables and provisions
Interest paid
Income taxes paid
NET CASH PROVIDED BY OPERATING ACTIVITIES
FINANCING ACTIVITIES:
Increase (decrease) in long-term debt (net of deferred financing fees)
Equipment loan repayments
Principal payments of lease liabilities
Dividends paid
Exercise of employee stock options
Repurchase of common shares
NET CASH USED IN FINANCING ACTIVITIES
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (excluding capitalized interest)*
Capitalized development costs
Increase in investments (note 8)
Proceeds on disposal of property, plant and equipment
Upfront recovery of development cost incurred
Year ended
December 31, 2023
Year ended
December 31, 2022
$
153,665 $
132,838
310,144
10,298
895
(3,937)
80,323
43,492
(1,039)
14,060
442
3,560
(5,273)
-
3,217
(1,990)
607,857
89,896
89,040
2,019
(99,296)
689,516
(96,184)
(82,240)
511,092 $
(71,647)
(17,104)
(47,204)
(15,958)
261
(29,069)
(180,721) $
(295,286)
(8,235)
(2,617)
2,383
-
$
$
274,707
10,929
4,494
(2,114)
51,837
41,207
133
7,072
773
5,074
-
(4,050)
3,452
(2,633)
523,719
(116,069)
(45,009)
(11,167)
172,100
523,574
(63,327)
(22,468)
437,779
37,493
(22,137)
(41,174)
(16,075)
171
-
(41,722)
(376,439)
(7,376)
(1,500)
3,364
682
(381,269)
(6,424)
8,364
153,291
161,655
NET CASH USED IN INVESTING ACTIVITIES
$
(303,755) $
Effect of foreign exchange rate changes on cash and cash equivalents
INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
(1,467)
25,149
161,655
186,804 $
$
*As at December 31, 2023, $75,800 (December 31, 2022 - $94,754) of purchases of property, plant and equipment remain unpaid and are recorded in
trade and other payables.
See accompanying notes to the consolidated financial statements.
Page 11 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Martinrea International Inc. (“Martinrea” or the “Company”) was formed by the amalgamation under the Ontario Business Corporations Act of several
predecessor Corporations by articles of amalgamation dated May 1, 1998. The Company is a diversified and global automotive supplier engaged in the
design, development and manufacturing of highly engineered, value-added Lightweight Structures and Propulsion Systems.
1.
(a)
BASIS OF PREPARATION
Statement of compliance
These consolidated financial statements have been prepared in accordance with IFRS Accounting Standards as issued by the International
Accounting Standards Board (“IASB”).
The consolidated financial statements of the Company for the year ended December 31, 2023 were approved by the Board of Directors on
February 29, 2024.
(b)
Presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s presentation currency. All financial
information presented in Canadian dollars has been rounded to the nearest thousand, except per share amounts and where otherwise
indicated.
(c)
Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, sales and expenses and the
related disclosures with respect to contingent assets and liabilities. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in
which the estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty that have the most significant effect on the amounts recognized in the
consolidated financial statements relate to the following (assumptions made are disclosed in individual notes throughout the financial
statements where relevant):
•
•
•
•
•
•
Estimates of the economic life of property, plant and equipment and intangible assets;
Estimates involved in the measurement of lease liabilities and associated right-of-use-assets;
Estimates of income taxes. The Company is subject to income taxes in numerous jurisdictions. There are many transactions and
calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues,
based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts
that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which
such determination is made;
Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the deductible
temporary difference or tax loss carry-forwards can be utilized. The recognition of temporary differences and tax loss carry-forwards is
based on the Company’s estimates of future taxable profits in different tax jurisdictions against which the temporary differences and loss
carry-forwards may be utilized;
Estimates used in testing non-financial assets for impairment including the recoverability of development costs. These estimates may
include discount rates and long-term growth rates;
Assumptions employed in the actuarial calculation of pension and other post-retirement benefits. The cost of pensions and other post-
retirement benefits earned by employees is actuarially determined using the projected unit credit method prorated on service, and the
Company’s best estimate of salary escalation and mortality rates. Discount rates used in actuarial calculations are based on long-term
interest rates and can have a significant effect on the amount of plan liabilities and service costs. The Company employs external experts
when deciding upon the appropriate estimates to use to value employee benefit plan obligations and expenses. To the extent that these
estimates differ from those realized, employee benefit plan liabilities and comprehensive income will be affected in future periods;
•
Revenue recognition on separately-priced tooling contracts. Tooling contract prices are generally fixed; however, price changes, change
orders and program cancellations may affect the ultimate amount of revenue recorded with respect to a contract. Contract costs are
estimated at the time of signing the contract and are reviewed at each reporting date. Adjustments to the original estimates of total
contract costs are often required as work progresses under the contract and as experience is gained, even though the scope of the work
Page 12 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
under the contract may not change. When the current estimates of total contract revenue and total contract costs indicate a loss, a
provision for the entire loss on the contract is made. Factors that are considered in arriving at the forecast loss on a contract include,
amongst others, cost over-runs, non-reimbursable costs, change orders and potential price changes; and
•
Estimates used in determining the fair value of stock option and performance share unit grants. These estimates include assumptions
about the volatility of the Company’s stock, forfeiture rates, and expected life of the options/units granted, where relevant.
Information about significant areas of critical judgments in applying accounting policies that have the most significant effect on the amounts
recognized in the consolidated financial statements relate to the following (judgments made are disclosed in individual notes throughout the
financial statements where relevant):
•
•
•
•
•
•
Accounting for provisions including assessments of possible legal and tax contingencies, and restructuring. Whether a present obligation
is probable or not requires judgment. The nature and type of risks for these provisions differ and judgment is applied regarding the nature
and extent of obligations in deciding if an outflow of resources is probable or not;
Accounting for development costs – judgment is required to assess the division of activities between research and development,
technical and commercial feasibility, and the availability of future economic benefit;
Judgments in determining the appropriateness of costs included in tooling work in progress inventory;
Judgments in determining the timing of revenue recognition for tooling sales;
Judgments in determining whether sales contracts contain material rights; and
The determination of the Company’s cash generating units (“CGU”) for impairment testing.
The decisions made by the Company in each instance are set out under the various accounting policies in these notes.
2.
MATERIAL ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
(a)
Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial
statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been
changed when necessary to align them with the policies adopted by the Company.
(ii) Transactions eliminated on consolidation
Intra-company balances and transactions, and any unrealized income and expenses arising from intra-company transactions, are eliminated in
preparing the consolidated financial statements.
(b)
Foreign currency
Each subsidiary of the Company maintains its accounting records in its functional currency. A subsidiary’s functional currency is the currency
of the principal economic environment in which it operates.
(i)
Foreign currency transactions
Transactions carried out in foreign currencies are translated using the exchange rate prevailing at the transaction date. Monetary assets and
liabilities denominated in a foreign currency at the reporting date are translated at the exchange rate at that date. The foreign currency gain or
loss on such monetary items is recognized as income or expense for the period. Non-monetary assets and liabilities denominated in a foreign
currency are translated at the historical exchange rate prevailing at the transaction date.
(ii) Translation of financial statements of foreign operations
The assets and liabilities of subsidiaries whose functional currency is not the Canadian dollar are translated into Canadian dollars at the
exchange rate prevailing at the reporting date. The income and expenses of foreign operations whose functional currency is not the Canadian
dollar are translated to Canadian dollars at the exchange rate prevailing on the date of transaction.
Foreign currency differences on translation are recognized in other comprehensive income (loss) in the cumulative translation account net of
income tax.
Page 13 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
(c)
Financial instruments
(i)
Financial assets and liabilities
The Company recognizes financial assets and financial liabilities initially at fair value and subsequently measures these at either fair value or
amortized cost based on their classification as described below:
Fair value through profit or loss (FVTPL):
Financial assets and financial liabilities purchased or incurred, respectively, with the intention of generating earnings in the near term, and
derivatives other than cash flow hedges, are classified as FVTPL. This category includes cash and cash equivalents, and derivative
instruments that do not qualify for hedge accounting. For items classified as FVTPL, the Company initially recognizes such financial assets on
the consolidated balance sheet at fair value and recognizes subsequent changes in the consolidated statement of operations. Transaction
costs incurred are expensed in the consolidated statement of operations. The Company does not currently hold any liabilities designated as
FVTPL.
Fair value through other comprehensive income:
This category includes investments in equity securities. Subsequent to initial recognition, they are measured at fair value on the consolidated
balance sheet and changes therein are recognized in other comprehensive income (loss). When an investment is derecognized, the
accumulated gain or loss in other comprehensive income (loss) is transferred to the consolidated statement of operations.
Amortized cost:
The Company classifies financial assets held to collect contractual cash flows at amortized cost, including trade and other receivables and
investments in convertible debentures. The Company initially recognizes the carrying amount of such assets on the consolidated balance
sheet at fair value plus directly attributable transaction costs, and subsequently measures these at amortized cost using the effective interest
rate method, less any impairment losses.
Other financial liabilities:
This category is for financial liabilities that are not classified as FVTPL and includes trade and other payables and long-term debt. These
financial liabilities are recorded at amortized cost on the consolidated balance sheet.
(ii)
Impairment of financial assets
A forward-looking “expected credit loss” (ECL) model is used in determining the allowance for doubtful accounts as it relates to trade and other
receivables. The Company’s allowance is determined by historical experiences, and considers factors including the aging of the balances, the
customer’s credit-worthiness, and updates based on the current economic conditions, expectation of bankruptcies, and the political and
economic volatility in the markets/location of customers.
(iii) Derivative financial instruments not accounted for as hedges
The Company periodically uses derivative financial instruments such as foreign exchange forward contracts to manage its exposure to
changes in exchange rates related to transactions denominated in currencies other than the Canadian dollar. Such derivative financial
instruments are classified as FVTPL, initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-
measured at fair value with changes in fair value being recognized immediately in the consolidated statement of operations.
(iv) Hedge accounting
The Company uses derivatives and other non-derivative financial instruments to manage its exposures to fluctuations in foreign exchange
rates.
At the inception of a hedging relationship, the Company designates and formally documents the relationship between the hedging instrument
and the hedged item, the risk management objective, and the strategy for undertaking the hedge. The documentation identifies the specific net
investment or anticipated cash flows being hedged, the risk that is being hedged, the type of hedging instrument used, and how effectiveness
will be assessed.
At inception and each reporting date, the Company formally assesses the effectiveness of these designated hedges.
Net investment hedges
The Company continues to use some portion of its US denominated long-term debt to manage foreign exchange rate exposures on net
investments in certain US operations.
Page 14 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
The change in fair value of the hedging US debt is recorded, to the extent effective, directly in other comprehensive income (loss). These
amounts will be recognized in profit or loss as and when the corresponding accumulated other comprehensive income (loss) from the hedged
foreign operations is recognized in profit or loss. The Company has not identified any ineffectiveness in these hedge relationships as at
December 31, 2023.
(d)
Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost
includes the cost of material and labour and other costs directly attributable to bringing the asset to a working condition for its intended use.
When significant components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items
of property, plant and equipment.
Certain tooling is produced or purchased specifically for the purpose of manufacturing parts for customer orders, which are either a) not sold to
the customer, or b) paid for by the customer on delivery of each part, without the customer guaranteeing full financing of the costs incurred. In
accordance with IAS 16, Property, plant and equipment, this tooling is recognized as property, plant and equipment. It is depreciated to match
the lesser of estimated useful life and life of the program.
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the
carrying amount of property, plant and equipment, and are recognized net within profit or loss.
The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of qualifying property, plant and
equipment as part of the cost of that asset. Capitalized borrowing costs are amortized over the useful life of the related asset.
(ii) Subsequent costs
The cost of replacing a part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the
future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the
replaced part is derecognized. Maintenance and repair costs are expensed as incurred, except where they serve to increase productivity or to
prolong the useful life of an asset, in which case they are capitalized.
(iii) Depreciation
Depreciation is recognized in profit or loss over the estimated useful life of each item of property, plant and equipment, since this period most
closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
Depreciation is recorded on the following bases and at the following rates:
Buildings
Basis
Declining balance
Rate
4%
Leasehold improvements
Straight-line
Lesser of estimated useful life and lease term
Manufacturing equipment
Declining balance and straight line
7% to 20%
Tooling and fixtures
Straight-line
Lesser of estimated useful life and life of program
Other
Declining balance and straight line
20% to 30%
Land is not depreciated.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted prospectively, if appropriate.
Page 15 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
(e)
Intangible assets
The Company’s intangible assets are composed of development costs.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development
costs are capitalized only if:
•
•
•
•
the development costs can be measured reliably;
the product or process is technically and commercially feasible;
the future economic benefits are probable; and
the Company intends and has sufficient resources to complete the development of and to use or sell the asset.
Capitalized development costs correspond to projects for specific customer applications that draw on approved generic standards or
technologies already applied in production. These projects are analyzed on a case-by-case basis to ensure they meet the criteria for
capitalization as described above. Development costs are subsequently amortized over the life of the program from the start of production.
Amortization of development costs is recognized in research and development costs in the consolidated statement of operations.
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is
recognized in profit or loss when incurred.
(f)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out principle, and
includes expenditure incurred in acquiring the inventories, production or conversion costs and other direct costs incurred in bringing them to
their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of
production overheads, including depreciation, based on normal operating capacity. In the case of tooling work in progress inventory that is
internally developed, cost includes directly attributable labour as well as overhead.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses. In determining the net realizable value, the Company considers factors such as yield, turnover, expected future demand and past
experience. Impairment losses are recognized on the basis of net realizable value.
(g)
Leases
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the Company assesses whether the contract: involves the use of an identified asset;
provides the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use; and provides the
right to direct the use of the asset.
A right-of-use asset and lease liability are recorded on the date that the underlying asset is available for use, representing the commencement
date.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
•
•
•
•
•
fixed payments, including in-substance fixed payments;
variable lease payments that are tied to an index or rate defined in the contract;
amounts expected to be payable under a residual value guarantee;
the exercise price under a purchase option that the Company is reasonably likely to exercise; and
lease payments under an optional extension if the Company is reasonably certain to exercise the extension option, and early
termination penalties required under a termination of a lease unless the Company is reasonably certain not to terminate early.
Page 16 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
The lease liability is re-measured when there is a change in future lease payments arising from a change in an index or rate, if there is a
change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its
assessment of whether or not it will exercise a purchase, extension or termination option. When the lease liability is re-measured in this way, a
corresponding adjustment is made to the carrying amount of the right-of-use asset, or to profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
The right-of-use asset is initially measured at cost, consisting of:
•
•
•
•
the initial measurement of the lease liability;
any lease payments made at or before the commencement date, less any lease incentives received;
any initial direct costs incurred; and
an estimate of costs to dismantle and remove the underlying asset or restore the site on which it is located.
The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement date to the earlier of the end of the useful
life of the asset or the end of the lease term. The lease term consists of the non-cancellable period of the lease; periods covered by options to
extend the lease, when the Company is reasonably certain to exercise the option to extend; and periods covered by options to terminate the
lease, when the Company is reasonably certain not to exercise the option. The right-of-use asset is periodically reduced by impairment losses,
if any, and adjusted for certain re-measurements of the lease liability as described above.
Short-term and low-value leases
The Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases (i.e., those leases that have a lease
term of twelve months or less) and leases with assets of low value (i.e., those assets with a fair market value of less than US$5,000). The
expenses associated with such leases are recognized in the consolidated statement of operations on a straight-line basis over the lease term.
Variable lease payments
Certain leases contain provisions that result in changes to lease payments over the term in relation to market indices quoted in the contract.
The Company reassesses the lease liabilities related to these leases when the index or other data is available to calculate the change in lease
payment.
Certain leases require the Company to make payments that relate to property taxes, insurance, or other non-rental costs. These costs are
typically variable and are not included in the calculation of the right-of-use asset or lease liability, but are recorded as an expense in cost of
sales in the consolidated statement of operations in the period in which they are incurred.
(h)
Investments in Associates
Associates are entities over which the Company has significant influence, but not control, on financial and operating policy decisions.
Significant influence is assumed when the Company holds 20% to 50% of the voting power of the investee, unless qualitative factors
overcome this presumption. Similarly, significant influence is presumed not to exist when the Company holds less than 20% of the voting
power of the investee, unless qualitative factors overcome this presumption.
Interests in associates are accounted for using the equity method. The investment is initially recognized at cost. The carrying amount is
subsequently increased or decreased to recognize the Company’s share of profits or losses of the equity-accounted investees after the date of
acquisition or when significant influence begins. The Company’s share of profits or losses is recognized in the consolidated statement of
operations, and its share of other comprehensive income or loss is included in other comprehensive income (loss).
Unrealized gains on transactions between the Company and its equity-accounted investees are eliminated to the extent of the Company’s
interest in the investee. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Dilution gains and losses arising from changes in the level of the Company’s equity interest in an equity-accounted investee are
recognized in the consolidated statement of operations. Where an equity-accounted investee increases its equity through share issuances, the
Company records its share of such increase in its investments of the investee on the consolidated balance sheet.
The amounts included in the financial statements of the investees are adjusted to reflect adjustments made by the Company, when using the
equity method, such as fair value adjustments made at the time of acquisition.
Page 17 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
At the end of each reporting period, the Company assesses whether there is any objective evidence that its investment is impaired. If impaired,
the carrying value of the Company’s share of the underlying assets of the investee is written down to its estimated recoverable amount and
charged to the consolidated statement of operations.
The Company has an equity interest in one associate as further described in note 8.
(i)
Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is
estimated. For intangible assets that are not yet available for use, the recoverable amount is estimated each year at the same time.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or CGU. Fair value less costs to sell is the amount obtainable from the sale of an asset or
CGU in an arm’s-length transaction between knowledgeable, willing parties, less the costs of disposal. Costs of disposal are incremental costs
directly attributable to the disposal of an asset or CGU, excluding finance costs and income tax expense. For the purpose of impairment
testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses
are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated to the carrying amounts of the assets in the
unit (group of units).
In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss
has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(j)
Pensions and other post-retirement benefits
The Company’s liability for pensions and other post-retirement benefits is based on valuations performed by independent actuaries using the
projected unit credit method. These valuations incorporate both financial assumptions (discount rate, and changes in salaries and medical
costs) and demographic assumptions, including rate of employee turnover, retirement age and life expectancy.
The liability for pensions and other post-retirement benefits is equal to the present value of the Company’s future benefit obligation less, where
appropriate, the fair value of plan assets in funds allocated to finance such benefits. The effects of differences between previous actuarial
assumptions and what has actually occurred (experience adjustments) and the effect of changes in actuarial assumptions (assumption
adjustments) give rise to actuarial gains and losses. The Company recognizes all actuarial gains and losses arising from defined benefit plans
immediately through other comprehensive income (loss) and transferred directly to retained earnings. Changes in the present value of the
defined benefit obligation resulting from plan amendments or curtailments are recognized immediately in profit or loss.
(k)
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the Company expects some or
all of the provision to be reimbursed, the reimbursement is recognized as a separate asset when reimbursement is virtually certain.
Commitments resulting from restructuring plans are recognized when an entity has a detailed formal plan and has raised a valid expectation
with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features.
When the effect of the time value of money is material, the amount of the provision is discounted using a rate that reflects the market’s current
assessment of this value and the risks specific to the liability concerned. The increase in the provision related to the passage of time is
recognized through profit and loss in other finance income (expense).
(l)
Revenue recognition
The Company recognizes sales from two categories of goods: production (including finished production parts, assemblies and modules), and
tooling. Revenue for these goods is recognized at the point in time control of the goods is transferred to the customer.
Page 18 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Control of finished production parts, assemblies and modules transfers when the goods are shipped from the Company’s manufacturing
facilities to the customer. Control of tooling transfers when the tool has been accepted by the customer. For certain tooling contracts for which
the customer makes progress payments in advance of obtaining control of the tool, the Company recognizes a liability for the progress
payments until the performance obligation is complete. Such payments from the customer generally do not contain a financing component.
Revenue and cost of sales from tooling contracts are presented on a gross basis in the consolidated statements of operations. Tooling contract
prices are generally fixed; however, price changes, change orders and program cancellations may affect the ultimate amount of revenue
recorded with respect to a contract. Contract costs are estimated at the time of signing the contract and are reviewed at each reporting date. In
the case of tooling work in progress inventory that is internally developed, cost includes directly attributable labour as well as overhead.
Adjustments to the original estimates of total contract costs are often required as work progresses under the contract and as experience is
gained, even though the scope of the work under the contract may not change. Judgment is required in determining the appropriateness of
costs included in tooling work in progress inventory. When the current estimates of total contract revenue and total contract costs indicate a
loss, a provision for the entire loss on the contract is made. Factors that are considered in arriving at the forecasted loss on a contract include,
amongst others, cost overruns, non-reimbursable costs, change orders and potential price changes.
(m)
Finance expense
Finance expense is comprised of interest expense on long-term debt and lease liabilities and amortization of deferred financing costs.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or
loss using the effective interest method.
(n)
Other finance income (expense)
Other finance income (expense) comprises interest income on funds invested, changes in the fair value of derivative financial instruments not
accounted for as hedges and foreign exchange gains and losses reported on a net basis. Interest income (expense) is recognized as it
accrues in profit or loss, using the effective interest method.
(o)
Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates
to items recognized directly in equity or in other comprehensive income (loss).
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, with respect to temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are
expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the
reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and
they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle
current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that
future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(p)
Guarantees
A guarantee is a contract (including indemnity) that contingently requires the Company to make payments to the guaranteed party based on (i)
changes in an underlying interest rate, foreign exchange rate, equity or commodity instrument, index or other variable, that is related to an
asset, liability or equity security of the counterparty, (ii) failure of another party to perform under an obligating agreement or (iii) failure of a third
party to pay indebtedness when due.
Guarantees are fair valued upon initial recognition. Subsequent to initial recognition, the guarantees are remeasured at the higher of (i) the
amount determined in accordance with IAS 37, Provisions, Contingent Liabilities, and Contingent Assets (“IAS 37”) and (ii) the amount initially
recognized less cumulative amortization.
Page 19 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
(q)
Stock-based payments
The Company accounts for all stock-based payments to employees and non-employees using the fair value-based method of accounting. The
Company measures the compensation cost of stock-based option awards at the grant date using the Black-Scholes-Merton option valuation
model to determine the fair value of the options. The stock-based compensation cost of the options is recognized as stock-based
compensation expense over the relevant vesting period of the stock options.
(r)
Earnings per share
The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the profit
or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the
period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of
common shares outstanding, adjusted for own shares held, for the effects of all dilutive potential common shares, which comprise share
options granted to employees.
(s)
Segment reporting
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments’
operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated
to the segment and assess its performance, and for which discrete financial information is available.
(t)
Deferred Share Unit Plan
On May 3, 2016, a Deferred Share Unit Plan (the “DSU Plan”) was established as a means of compensating non-executive directors and
designated employees of the Company and of promoting share ownership and alignment with the shareholders’ interests. Non-executive
directors of Martinrea are automatically required to participate in the DSU Plan while employees may be designated from time to time, at the
sole discretion of the Board of Directors.
Vesting conditions may be attached to the DSUs at the Board of Directors’ discretion. DSU Plan participants receive additional DSUs
equivalent to cash dividends paid on common shares. DSUs are paid out in cash upon termination of service, based on their fair market value,
which is defined as the average closing share price of the Company’s common shares for the 20 days preceding the termination date.
DSUs are considered cash-settled awards. The fair value of DSUs, at the date of grant to the DSU Plan participants, is recognized as
compensation expense over the vesting period, with a liability recorded in trade and other payables. In addition, the DSUs are fair valued at
the end of every reporting period and at the settlement date. Any change in the fair value of the liability is recognized as compensation
expense in profit or loss.
(u)
Performance and Restricted Share Unit Plan
On November 3, 2016, as subsequently amended, a Performance and Restricted Share Unit Plan (the “PRSU Plan”) was established as a
means of compensating designated employees of the Company and promoting share ownership and alignment with the shareholders’
interests. Under the PRSU Plan, the Company may grant Restricted Share Units (“RSUs”) and/or Performance Share Units (“PSUs”) to its
employees. The Company shall redeem vested RSUs or vested PSUs on their Redemption Date (as specified in the PRSU Plan) for cash.
The RSUs and PSUs are redeemed at their fair value as defined by the PRSU Plan; in addition, PSUs must meet the performance criteria
specified in the PRSU Plan. The vesting conditions are determined by the Board of Directors or as otherwise provided in the PRSU Plan.
The fair value of PSUs and RSUs at the date of grant to the PRSU Plan participants, determined using the Monte Carlo Simulation model in
the case of PSUs, are recognized as compensation expense over the vesting period, with a liability recorded in trade and other payables. In
addition, the RSUs and PSUs are fair valued at the end of every reporting period and at the settlement date. Any change in fair value of the
liability is recognized as compensation expense in profit or loss.
Page 20 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
(v)
Recently adopted accounting standards and policies
Amendments to IAS 8, Definition of Accounting Estimates
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8). The amendments introduce a new
definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement
uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company
develops an accounting estimate to achieve the objective set out by an accounting policy.
The Company adopted the amendments to IAS 8 effective January 1, 2023. The adoption of amendments to IAS 8 did not have a material
impact on the consolidated financial statements.
Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure Initiative – Accounting Policies
On February 12, 2021, the IASB issued Disclosure Initiative - Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). The
amendments help companies provide useful accounting policy disclosures by requiring companies to disclose their material accounting
policies rather than their significant accounting policies.
The Company adopted the amendments to IAS 1 and IFRS Practice Statement 2 effective January 1, 2023. The adoption of amendments to
IAS 1 and IFRS Practice Statement 2 are reflected in note 2 to the consolidated financial statements.
Amendments to IAS 12, International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12)
On May 23, 2023, the IASB issued International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12). The amendments provide a
temporary relief from accounting for deferred taxes arising from the Organization for Economic Co-operation and Development’s (OECD)
international tax reform.
The amendments include:
•
•
a temporary, mandatory exemption from accounting for deferred taxes resulting from the introduction of the global minimum taxation;
and
targeted disclosure requirements to help investors better understand a company’s exposure to income taxes arising from the reform,
particularly before legislation implementing the rules is in effect.
The accounting exemption is to be applied immediately after publication of the amendment. The disclosures relating to the known or
reasonably estimable exposure to Pillar Two income taxes are required for annual reporting periods beginning on or after 1 January 2023, but
they are not required to be disclosed in interim financial reports for any interim period ending on or before December 31, 2023.
The Company adopted the amendments to IAS 12 effective May 23, 2023. The adoption of amendments to IAS 12 did not have material
impact on the consolidated financial statements.
(w)
Recently issued accounting standards
The IASB issued the following amendments to existing standards:
Amendments to IFRS 16, Leases - Lease Liability in a sale and Leaseback
On September 22, 2022, the IASB issued Lease Liability in a Sale and Leaseback (Amendments to IFRS 16). The amendments introduce a
new accounting model which impacts how a seller-lessee accounts for variable lease payments that arise in a sale-and-leaseback transaction.
The amendments clarify that on initial recognition, the seller-lessee includes variable lease payments when it measures a lease liability arising
from a sale-and-leaseback transaction. After initial recognition, the seller-lessee applies the general requirements for subsequent accounting of
the lease liability such that it recognises no gain or loss relating to the right of use it retains.
The amendments are effective for annual periods beginning on or after January 1, 2024. The adoption of amendments to IFRS 16 is not
expected to have a material impact on the consolidated financial statements.
Page 21 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Amendments to IAS 1, Non-current Liabilities with Covenants
On October 31, 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1). The amendments specify that
covenants to be complied with after the reporting date do not affect the classification of debts as current or non-current at the reporting date.
Instead, the amendments require a company to disclose information about these covenants in the notes to the consolidated financial
statements.
The amendments are effective for annual periods beginning on or after January 1, 2024. The adoption of amendments to IAS 1 is not expected
to have a material impact on the consolidated financial statements.
3.
TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables
Foreign exchange forward contracts not accounted for as hedges (note 22(d))
December 31, 2023 December 31, 2022
737,199
$
50,618
2,114
789,931
643,959 $
47,923
3,937
695,819 $
$
The Company’s exposures to credit and currency risks, and impairment losses related to trade and other receivables, are disclosed in note 22.
4.
INVENTORIES
Raw materials
Work in progress
Finished goods
Tooling work in progress and other inventory
5.
PROPERTY, PLANT AND EQUIPMENT
December 31, 2023 December 31, 2022
269,549
$
83,119
54,844
257,804
665,316
256,038 $
69,474
51,202
191,560
568,274 $
$
Land and buildings
Leasehold improvements
Manufacturing equipment
Tooling and fixtures
Other assets
Construction in progress
December 31, 2023
December 31, 2022
Accumulated
amortization
and
impairment
losses
(47,664) $
(58,881)
(1,751,642)
(34,302)
(59,052)
-
(1,951,541) $
Cost
240,789 $
86,038
3,131,621
38,627
87,808
310,429
3,895,312 $
$
$
Net book
value
193,125 $
27,157
1,379,979
4,325
28,756
310,429
1,943,771 $
Accumulated
amortization
and
impairment
losses
(41,633) $
(55,540)
(1,552,194)
(34,445)
(53,646)
-
(1,737,458) $
Cost
215,066 $
85,745
2,862,421
39,590
84,321
399,088
3,686,231 $
Net book
value
173,433
30,205
1,310,227
5,145
30,675
399,088
1,948,773
Page 22 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Movement in property, plant and equipment is summarized as follows:
Land and
buildings
Leasehold
improvements
Manufacturing
equipment
Tooling and
fixtures
$
146,114 $
24,609 $
1,223,955 $
151
-
(5,943)
-
-
-
(3,703)
-
2,836
(2,700)
(213,563)
(2,577)
3,425 $
13
(7)
(604)
-
Other
assets
28,763 $
2,139
(7)
(9,039)
(86)
Construction
in
progress
301,048 $
364,147
(783)
-
(45)
Total
1,727,914
369,286
(3,497)
(232,852)
(2,708)
23,871
8,663
241,852
1,955
8,011
(284,352)
-
9,240
173,433 $
$
636
30,205 $
60,424
1,310,227 $
25
-
(7,003)
-
-
-
(4,362)
-
5,115
(986)
(239,027)
(666)
363
5,145 $
6
-
(779)
-
894
30,675 $
886
(223)
(9,760)
-
19,073
399,088 $
287,066
(135)
-
-
90,630
1,948,773
293,098
(1,344)
(260,931)
(666)
30,797
1,619
328,984
19
7,477
(368,896)
-
(4,127)
193,125 $
(305)
27,157 $
(23,668)
1,379,979 $
(66)
4,325 $
(299)
28,756 $
(6,694)
310,429 $
(35,159)
1,943,771
Net as of December 31, 2021
Additions
Disposals
Depreciation
Impairment (note 9)
Transfers from construction in
progress
Foreign currency translation
adjustment
Net as of December 31, 2022
Additions
Disposals
Depreciation
Impairment (note 9)
Transfers from construction in
progress
Foreign currency translation
adjustment
Net as of December 31, 2023
$
6.
RIGHT-OF-USE ASSETS
December 31, 2023
December 31, 2022
Accumulated
amortization
and
impairment
losses
Cost
Net book
value
Cost
Accumulated
amortization
and
impairment
losses
Net book
value
Leased buildings
$
316,314 $
(141,483) $
174,831 $
297,448 $
(112,167) $
185,281
Leased manufacturing equipment
Leased other assets
107,162
5,364
(44,985)
(3,820)
62,177
1,544
97,140
4,484
(29,820)
(3,020)
67,320
1,464
$
428,840 $
(190,288) $
238,552 $
399,072 $
(145,007) $
254,065
Movement in right-of-use assets is summarized as follows:
Net as of December 31, 2021
$
167,632 $
Leased
buildings
Leased
manufacturing
equipment
Leased
other assets
18,263
20,846
(27,516)
(834)
6,890
$
185,281 $
10,626
13,647
(31,896)
(2,827)
53,846 $
22,964
(40)
(13,603)
-
4,153
67,320 $
12,022
19
(16,382)
(802)
1,456 $
705
-
(736)
-
39
1,464 $
1,017
22
(935)
(24)
Total
222,934
41,932
20,806
(41,855)
(834)
11,082
254,065
23,665
13,688
(49,213)
(3,653)
$
174,831 $
62,177 $
1,544 $
238,552
Additions
Lease modifications
Depreciation
Impairment (note 9)
Foreign currency translation adjustment
Net as of December 31, 2022
Additions
Lease modifications
Depreciation
Foreign currency translation adjustment
Net as of December 31, 2023
Page 23 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
7.
INTANGIBLE ASSETS
December 31, 2023
December 31, 2022
Development costs
Cost
140,174 $
$
Movement in intangible assets is summarized as follows:
Net as of December 31, 2021
Additions
Upfront recovery of development costs incurred
Amortization
Foreign currency translation adjustment
Net as of December 31, 2022
Additions
Amortization
Foreign currency translation adjustment
Net as of December 31, 2023
8.
INVESTMENTS
Accumulated
amortization
and
impairment
losses
(97,431) $
Net book
value
42,743 $
Cost
151,229 $
Accumulated
amortization
and
impairment
losses
(105,313) $
Net book
value
45,916
Development costs
47,809
$
7,376
(682)
(10,929)
2,342
45,916
8,235
(10,298)
(1,110)
42,743
$
Investment in common shares of NanoXplore Inc.
Investment in common shares and convertible debentures of AlumaPower Corp.
Investment in convertible debentures of Equispheres Inc.
Other
Investments in common shares of VoltaXplore Inc.
December 31, 2023 December 31, 2022
48,749
$
2,669
-
500
3,940
55,858
54,384 $
4,036
1,000
750
-
60,170 $
$
As at December 31, 2023, the Company held 38,466,360 common shares of NanoXplore Inc. (“NanoXplore”) representing a 22.7% equity interest in
NanoXplore (on a non-diluted basis). NanoXplore is a publicly listed company on the Toronto Stock Exchange trading under the ticker symbol GRA. It is
a manufacturer and supplier of high-volume graphene powder for use in industrial markets providing customers with a range of graphene-based
solutions.
On February 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 $30,001. Upon finalization of the transaction, the Company’s net ownership interest decreased to 21.2% from
22.2%. 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
$4,050 during the first quarter of 2022.
As a result of stock option exercises within NanoXplore, the Company’s net ownership interest decreased slightly to 21.1% from 21.2% during the fourth
quarter of 2022.
On April 15, 2021, the Company formed a 50/50 joint venture with NanoXplore, named VoltaXplore Inc. (“VoltaXplore”), to develop and produce electric
vehicle batteries enhanced with graphene. Martinrea and NanoXplore each invested $4,036 into VoltaXplore as start-up capital and to support the
construction of a demonstration facility. On January 14, 2022, each of Martinrea and NanoXplore invested an additional $1,000 in development funding
into VoltaXplore by acquiring 1,000,000 common shares in VoltaXplore at $1.00 per share.
Page 24 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
On March 24, 2023, Martinrea sold its equity interest in VoltaXplore to NanoXplore for 3,420,406 common shares of NanoXplore at $2.92 per share
representing an aggregate consideration of $10,000. The sale transaction resulted in a gain on disposal of equity investments during the first quarter of
2023 as follows:
Gross gain (Total consideration of $10,000 less book value of investment)
Less: gain attributable to indirect retained interest
Net gain on disposal of equity investments
$
$
6,821
(1,548)
5,273
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% to 22.7%.
As at December 31, 2023, the Company held 19,912 of class A shares, 14,952 of class C shares, and $1,365 (US $1,066) of convertible debentures of
AlumaPower, including the acquisition of an additional 4,960 class A shares for $1,367 pursuant to a private placement offering on October 31, 2023,
representing a 12.5% equity interest in AlumaPower (on a non-diluted basis). AlumaPower is a private company developing aluminum air battery
technology for a variety of end markets, including automotive.
On April 20, 2023, the Company acquired convertible debentures of Equispheres Inc. (“Equispheres”) in the amount of $1,000. Equispheres is a private
company developing technologies for the production and use of advanced materials in additive manufacturing.
The Company applies equity accounting to its equity investments in NanoXplore and VoltaXplore (up to the date of disposal of March 24, 2023) based on
their most recently available financial statements, adjusted for any significant transactions that occur thereafter and up to the Company’s reporting date,
which represents a reasonable estimate of the change in the Company’s interest. The common shares in AlumaPower are classified as fair value
through other comprehensive income, while the convertible debentures in AlumaPower and Equispheres are classified as amortized cost. Accordingly,
the common shares are recorded at their fair value at the end of each reporting period, with the change in fair value recorded in other comprehensive
income (loss), while the convertible debentures are recorded at amortized cost using the effective interest rate method, less any impairment losses.
Movement in equity-accounted investments is summarized as follows:
Investment in
common shares of
NanoXplore
Investment in
common shares of
VoltaXplore
3,925
1,000
-
(985)
-
3,940
-
(761)
-
(3,179)
-
48,748 $
-
4,050
(4,089)
40
48,749 $
8,452
(2,799)
(18)
-
54,384 $
Net as of December 31, 2021
Additions
Gain on dilution of equity investments
Share of loss for the period
Share of other comprehensive income for the period
Net as of December 31, 2022
Additions
Share of loss for the period
Share of other comprehensive loss for the period
Disposal
Net as of December 31, 2023
$
$
$
As at December 31, 2023, the stock market value of the shares held in NanoXplore by the Company was $93,473.
Page 25 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
9.
IMPAIRMENT OF ASSETS
During the fourth quarter of 2023, the Company recorded impairment charges on property, plant and equipment and inventories totaling $895 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 totaling
$4,494 representing a writedown of the total assets of a CGU in China, comprised of two operating facilities originally acquired from Metalsa S.A in 2020,
included in the Rest of the World 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.
10.
TRADE AND OTHER PAYABLES
Trade accounts payable and accrued liabilities
December 31, 2023 December 31, 2022
1,315,380
$
1,176,579 $
The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 22.
Included in trade accounts payable and accrued liabilities are contract liabilities related to advance consideration received from customers for tooling
contracts. During the year ended December 31, 2023, the Company recognized $143,468 (2022 - $132,650) of revenues that were included in contract
liabilities at the beginning of the period.
11.
PROVISIONS
Net as of December 31, 2021
Net additions
Amounts used during the period
Foreign currency translation adjustment
Net as of December 31, 2022
Net additions
Amounts used during the period
Foreign currency translation adjustment
Net as of December 31, 2023
(a)
Restructuring
Restructuring
Claims and
Litigation
$
$
$
3,185 $
7,846
(6,648)
(3)
4,380 $
27,266
(3,444)
(425)
27,777 $
3,087 $
1,410
(1,338)
367
3,526 $
375
(1,944)
158
2,115 $
Total
6,272
9,256
(7,986)
364
7,906
27,641
(5,388)
(267)
29,892
Additions to the restructuring provision in 2023 totaled $27,266 and represent employee-related severance resulting from the rightsizing 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 in 2022 totaled $7,846 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 before the end of their expected life cycles.
(b)
Claims and litigation
In the normal course of business, the Company may be involved in disputes with its suppliers, customers, former employees or other third
parties. Where the Company has determined that there is a probable loss that is expected from claims or litigation related to past events, a
provision is recorded to cover the related risks associated with these disputes. To the best of the Company’s knowledge, there are no claims or
litigation in progress or pending that are likely to have a material impact on the Company’s consolidated financial position.
Page 26 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
12.
LONG-TERM DEBT
The Company’s interest-bearing loans and borrowings are measured at amortized cost. For more information about the Company’s exposure to interest
rate, foreign currency and liquidity risk, see note 22.
Banking facility
Equipment loans
Current portion
Terms and conditions of outstanding loans, in Canadian dollar equivalents, are as follows:
Banking facility
Equipment loans
Currency
USD
CAD
Year of
maturity
Nominal
interest rate
SOFR + 1.70% 2025
2025
BA + 1.70%
CAD
EUR
EUR
EUR
CAD
EUR
EUR
2.54%
1.40%
2.46%
1.05%
5.22%
0.00%
0.26%
2026
2026
2026
2024
2025
2028
2025
December 31, 2023 December 31, 2022
1,022,169
$
48,199
1,070,368
(16,198)
1,054,170
938,129 $
31,107
969,236
(12,778)
956,458 $
$
December 31, 2023
Carrying amount
December 31, 2022
Carrying amount
644,558
377,611
529,496 $
408,633
$
14,142
5,677
5,818
1,930
2,598
870
72
$
969,236 $
19,044
8,284
8,043
7,624
4,220
864
120
1,070,368
Subsequent to December 31, 2023, on February 23, 2024, the Company’s banking facility was amended to extend its maturity and enhance certain
provisions of the facility. The primary terms of the amended banking facility, with now a syndicate of ten banks (down from eleven), include the following:
•
•
•
•
•
•
•
•
•
an unaltered unsecured credit structure, with a $100 million increase in total borrowing capacity;
unchanged financial covenants, including a maximum net debt to trailing twelve months EBITDA ratio of 3.0x (excluding the impact of IFRS 16,
Leases);
a new non-amortizing term loan of $250 million at variable interest rates;
available revolving credit lines of $350 million (down from $500 million) and US $520 million (similar to the previous facility);
available asset based financing capacity of $300 million, similar to the previous facility;
accordion feature which provides the Company with the ability to increase the revolving credit facility by up to US $300 million, similar to the
previous facility;
pricing terms at market rates including transitioning the interest rate benchmark of the Canadian revolving credit line from Bankers’ Acceptance
(“BA”) to the Canadian Overnight Repo Rate Average (“CORRA”);
a maturity date extended to February 2027 (from April 2025); and
no mandatory principal repayment provisions for the revolving facilities, similar to the previous facility.
On June 14, 2023, the Company amended its banking facility to change the interest rate benchmark of the U.S. revolving credit line from London
Interbank Offered Rate (“LIBOR”) to Term Secured Overnight Financing Rate (“SOFR”).
As at December 31, 2023, the Company had drawn US $401,000 (December 31, 2022 - US $476,000) on the U.S. revolving credit line and $410,000
(December 31, 2022 - $380,000) on the Canadian revolving credit line. At December 31, 2023, the weighted average effective interest rate of the
banking facility credit lines was 7.1% (December 31, 2022 - 6.8%). The facility requires the maintenance of certain financial ratios with which the
Company was in compliance as at December 31, 2023.
Deferred financing fees of $1,367 (December 31, 2022 - $2,389) have been netted against the carrying amount of the long-term debt.
On June 27, 2022, the Company finalized a three-year equipment loan in the amount of $5,000 repayable in monthly installments commencing in 2022
at a fixed annual interest rate of 5.22%.
Page 27 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Future annual minimum principal repayments as at December 31, 2023, before the extension of the Company’s banking facility noted above, are as
follows:
Within one year
One to two years
Two to three years
Three to four years
Thereafter
Movement in long-term debt is summarized as follows:
Net as of December 31, 2021
Net drawdowns
Equipment loan proceeds
Equipment loan repayments
Amortization of deferred financing fees
Foreign currency translation adjustment
Net as of December 31, 2022
Net repayments
Equipment loan repayments
Amortization of deferred financing fees
Foreign currency translation adjustment
Net as of December 31, 2023
13.
LEASE LIABILITIES
Scheduled
principal
repayments
Scheduled
amortization of
deferred
financing fees
$
13,800 $
951,057
5,264
193
289
$
970,603 $
(1,022) $
(345)
-
-
-
(1,367) $
Carrying
amount of
outstanding
loans
12,778
950,712
5,264
193
289
969,236
Total
1,010,990
32,126
5,367
(22,137)
1,559
42,463
1,070,368
(71,647)
(17,104)
1,022
(13,403)
969,236
$
$
$
The Company enters into lease agreements for land and buildings, manufacturing equipment and other assets as a part of regular operations as a
means of efficiently utilizing capital and managing the Company’s cash flows.
Movement in lease liabilities is summarized as follows:
Net as of December 31, 2021
Net additions
Lease modifications
Principal payments of lease liabilities
Foreign currency translation adjustment
Net as of December 31, 2022
Net additions
Lease modifications
Principal payments of lease liabilities
Termination of leases
Foreign currency translation adjustment
Net as of December 31, 2023
Page 28 Martinrea International Inc.
Total
239,777
41,932
20,806
(41,174)
11,779
273,120
23,665
13,688
(47,204)
(174)
(4,119)
258,976
$
$
$
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
The maturity of contractual undiscounted lease liabilities as at December 31, 2023 is as follows:
Within one year
One to two years
Two to three years
Three to four years
Thereafter
Total undiscounted lease liabilities at December 31, 2023
Interest on lease liabilities
Total present value of minimum lease payments
Current portion
Total
58,840
55,110
50,192
44,406
90,193
298,741
(39,765)
258,976
(48,507)
210,469
$
$
$
$
14.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Company has defined benefit and non-pension post-retirement benefit plans in Canada, the United States and Germany. The defined benefit plans
provide pensions based on years of service, years of contributions and earnings. The post-retirement benefit plans provide for the reimbursement of
certain medical costs.
The plans are governed by the pension laws of the jurisdiction in which they are registered. The Company’s pension funding policy is to contribute
amounts sufficient, at minimum, to meet local statutory funding requirements. Local regulatory bodies either define minimum funding requirements or
approve funding plans submitted by the Company. From time to time the Company may make additional discretionary contributions taking into account
actuarial assessments and other factors. Actuarial valuations for the Company’s defined benefit pension plans are completed based on the regulations
in place in the jurisdictions where the plans operate.
The assets of the defined benefit pension plans are held in segregated accounts isolated from the Company’s assets. The plans are administered
pursuant to applicable regulations, investment policies and procedures and to the mandate of an established pension committee. The pension
committee oversees the administration of the pension plans, which include the following principal areas:
•
•
•
•
•
•
Overseeing the funding, administration, communication and investment management of the plans;
Selecting and monitoring the performance of all third parties performing duties in respect of the plans, including audit, actuarial and investment
management services;
Proposing, considering and approving amendments to the defined benefit pension plans;
Proposing, considering and approving amendments of the investment policies and procedures;
Reviewing actuarial reports prepared in respect of the administration of the defined benefit pension plans; and
Reviewing and approving the audited financial statements of the defined benefit pension plan funds.
The assets of the defined benefit pension plans are invested and managed following all applicable regulations and investment policies and procedures,
and reflect the characteristics and asset mix of each defined benefit pension plan. Investment and market return risk is managed by:
•
•
•
•
Contracting professional investment managers to execute the investment strategy following the investment policies and procedures and
regulatory requirements;
Specifying the kinds of investments that can be held in plans and monitoring compliance;
Using asset allocation and diversification strategies; and
Purchasing annuities from time to time.
The pension plans are exposed to market risks such as changes in interest rates, inflation and fluctuations in investment values. The plans are also
exposed to non-financial risks in the nature of membership mortality, demographic changes and regulatory change.
Page 29 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Information about the Company’s defined benefit plans as at December 31, 2023 and 2022, in aggregate, is as follows:
Accrued benefit obligation:
Balance, beginning of year
Benefits paid by the plan
Current service costs
Interest costs
Curtailment gain
Special termination loss
Actuarial gains - experience
Actuarial gains - demographic assumptions
Actuarial gains (losses) - financial assumptions
Foreign exchange translation
Balance, end of year
Plan Assets:
Fair value, beginning of year
Contributions paid into the plans
Benefits paid by the plans
Interest income
Administrative costs
Remeasurements, return on plan assets recognized
in other comprehensive income (loss)
Foreign exchange translation
Fair value, end of year
Accrued net benefit obligation, end of year
$
$
Recorded on the consolidated balance sheets as follows:
Pension assets
Pension and other post-retirement benefits
long-term liability
$
$
December 31, 2023
December 31, 2022
$
Other post-
retirement
benefits
(29,432) $
1,543
(52)
(1,413)
369
-
101
3,239
(1,539)
330
Pensions
(67,095) $
3,310
(1,351)
(3,144)
970
Total
(96,527) $
4,853
(1,403)
(4,557)
1,339
(1,736)
(1,736)
258
-
(1,433)
578
359
3,239
(2,972)
908
(96,497) $
Other post-
retirement
benefits
(37,690) $
1,420
(112)
(1,014)
-
-
676
598
Pensions
(86,927) $
3,089
(2,132)
(2,180)
-
-
538
-
Total
(124,617)
4,509
(2,244)
(3,194)
-
-
1,214
598
7,611
(921)
(29,432) $
22,502
(1,985)
(67,095) $
30,113
(2,906)
(96,527)
$
(26,854) $
(69,643) $
Other post-
retirement
benefits
$
- $
December 31, 2023
December 31, 2022
Pensions
Total
66,849 $
451
(3,310)
3,274
(134)
9,035
(626)
75,539 $
66,849 $
1,990
(4,849)
3,274
(134)
9,035
(626)
75,539 $
Other post-
retirement
benefits
Pensions
- $
1,417
(1,417)
-
-
-
-
- $
75,087 $
1,216
(3,089)
2,110
(124)
(9,982)
1,631
66,849 $
Total
75,087
2,633
(4,506)
2,110
(124)
(9,982)
1,631
66,849
1,539
(1,539)
-
-
-
-
- $
(26,854) $
5,896 $
(20,958) $
(29,432) $
(246) $
(29,678)
- $
16,303 $
16,303 $
- $
12,234 $
12,234
(26,854) $
(10,407) $
(37,261) $
(29,432) $
(12,480) $
(41,912)
Certain pension plans ended the year with asset values exceeding the present value of funded obligations. Accordingly, such plans are presented as
pension assets totaling $16,303 (December 31, 2022 - $12,234).
On October 23, 2023, the Company purchased a buy-in group annuity contract in the amount of $13,897 for the retirees and beneficiaries of its
Canadian registered defined benefit pension plan who retired on or before July 1, 2023. As at December 31, 2023, the fair value of the buy-in assets of
$15,544 is included in the fair value of plan assets and is determined to be equal to the defined benefit obligation for the covered annuitants.
Page 30 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Pension expense recognized in profit or loss:
Current service costs
Net interest cost
Curtailment gain
Special termination loss
Administrative costs
Pension expense
December 31, 2023
December 31, 2022
Other post-
retirement
benefits
$
52 $
1,413
(369)
-
-
$
1,096 $
Pensions
1,351 $
(130)
(970)
1,736
134
2,121 $
Total
1,403 $
1,283
(1,339)
1,736
134
3,217 $
Other post-
retirement
benefits
Pensions
112 $
1,014
-
-
-
1,126 $
2,132 $
70
-
-
124
2,326 $
Total
2,244
1,084
-
124
3,452
Amounts recognized in other comprehensive income (loss), before income taxes:
Actuarial gain
Year ended
December 31, 2023
$
9,661 $
Year ended
December 31, 2022
21,943
Plan assets are primarily composed of pooled funds, which invest in fixed income and equities, common stocks and bonds that are actively traded and
annuities. Plan assets are composed of:
Equity
Debt securities
Annuities
December 31, 2023 December 31, 2022
83.1%
16.9%
-
100.0%
34.9%
45.6%
19.5%
100.0%
As at December 31, 2023 and 2022, investments in equity and debt securities in the plan are at Level 2 on the fair value hierarchy, as defined in note 22.
The defined benefit obligation and plan assets are composed by country as follows:
Year ended December 31, 2023
Year ended December 31, 2022
Present value of funded obligations
$
(34,461) $
Canada
Fair value of plan assets
Funding status of funded obligations
Present value of unfunded obligations
Total funded status of obligations
$
50,764
16,303
USA
(25,175)
24,775
(400)
Germany
Total
Canada
- $
-
-
(59,636) $
(31,574) $
75,539
15,903
43,808
12,234
USA
(25,544)
23,041
(2,503)
Germany
- $
-
-
Total
(57,118)
66,849
9,731
(15,137)
(12,998)
(8,726)
(36,861)
(17,951)
(12,775)
(8,683)
(39,409)
1,166 $
(13,398) $
(8,726) $
(20,958) $
(5,717) $
(15,278) $
(8,683) $
(29,678)
There are significant assumptions made in the calculations provided by the actuaries and it is the responsibility of the Company to determine which
assumptions could result in a significant impact when determining the accrued benefit obligations and pension expense.
Page 31 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Principal actuarial assumptions, expressed as weighted averages, are summarized below:
Defined benefit pension plans:
Discount rate used to calculate year end benefit obligation
Mortality table
Other post-employment benefit plans:
Discount rate used to calculate year end benefit obligation
Mortality table
Health care trend rates:
Initial health care rate
Ultimate health care rate
Sensitivity of Key Assumptions
December 31, 2023
December 31, 2022
4.6%
CPM 2014, Pri 2012
Blue collar w/
MP-2021
4.8%
CPM 2014, Pri 2012
Blue collar w/
MP-2021
4.7%
CPM 2014, Pri 2012
Blue collar w/
MP-2021
5.0%
CPM 2014, Pri 2012
Blue collar w/
MP-2021
5.0%
4.2%
3.5%
4.2%
In the sensitivity analysis shown below, the Company determines the defined benefit obligation using the same method used to calculate the defined
benefit obligations recognized in the consolidated balance sheet. Sensitivity is calculated by changing one assumption while holding the others constant.
The actual change in defined benefit obligation will likely be different from that shown in the table, since it is likely that more than one assumption will
change at a time, and that some assumptions are correlated.
Impact on defined benefit obligation
December 31, 2023
December 31, 2022
Change in
assumption
0.50%
1 Year
Increase in
assumption
Decrease in
assumption
Increase in
assumption
Decrease in
assumption
Decrease by 5.6% Increase by 6.3%
Increase by 2.9% Decrease by 2.8%
Decrease by 5.7% Increase by 6.4%
Increase by 2.7% Decrease by 2.8%
0.50%
1.00%
Decrease by 4.8% Increase by 5.2%
Increase by 8.9% Decrease by 7.7%
Decrease by 4.8% Increase by 5.1%
Increase by 9.3% Decrease by 8.0%
Pension Plans
Discount rate
Life Expectancy
Other post-retirement benefits
Discount rate
Medical costs
15.
INCOME TAXES
The components of income tax expense are as follows:
Current income tax expense
Deferred income tax recovery
Total income tax expense
Taxes on items recognized in other comprehensive income (loss) or directly in equity were as follows:
Deferred tax benefit (charge) on:
Employee benefit plan actuarial gains
Foreign currency items
Year ended
December 31, 2023
Year ended
December 31, 2022
$
$
(67,075) $
23,583
(43,492) $
(66,210)
25,003
(41,207)
Year ended
December 31, 2023
Year ended
December 31, 2022
$
$
(2,526) $
(548)
(3,074) $
(5,377)
1,183
(4,194)
Page 32 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Reconciliation of effective tax rate
The provision for income taxes differs from the result that would be obtained by applying statutory income tax rates to income before income taxes. The
difference results from the following:
Income before income taxes
Tax at Statutory income tax rate of 26.5% (2022 - 26.5%)
Increase (decrease) in income taxes resulting from:
Utilization of losses previously not benefited
Changes in estimates related to prior years
Revaluations due to foreign exchange and inflation
Tax rate differences in foreign jurisdictions
Non-taxable portion of capital losses (gains)
Current year tax losses not benefited and withholding tax expensed
Derecognition of previously recognized deferred tax assets
Non-deductible expenses
Year ended
December 31, 2023
$
197,157 $
Year ended
December 31, 2022
174,045
52,247
46,122
(5,418)
417
(28,979)
5,039
(245)
10,501
1,293
8,637
$
43,492 $
(1,799)
351
(12,031)
(6,609)
136
2,108
5,910
7,019
41,207
Effective income tax rate applicable to income before income taxes
22.1%
23.7%
The movement of deferred tax assets are summarized below:
December 31, 2021
Benefit (charge) to income
Benefit (charge) to other comprehensive
income
Translation and other items
December 31, 2022
Benefit (charge) to income
Charge to other comprehensive income
Translation and other items
December 31, 2023 before offset
Tax offset
December 31, 2023 after offset
$
$
$
Losses
121,429 $
(3,094)
-
5,983
124,318 $
(25,097)
-
(1,880)
97,341 $
Employee
benefits
Interest and
accruals
12,916 $
1,634
(5,377)
412
9,585 $
2,813
(2,526)
(114)
9,758 $
33,581 $
9,108
-
2,706
45,395 $
15,205
-
(1,387)
59,213 $
PPE and
intangible
assets
18,603 $
19,690
-
1,931
40,224 $
42,797
-
(1,884)
81,137 $
The movement of deferred tax liabilities are summarized below:
PPE and
intangible
assets
(68,247) $
(3,564)
(2,751)
(74,562) $
(12,997)
1,297
(86,262) $
$
$
$
December 31, 2021
Benefit (charge) to income
Translation and other items
December 31, 2022
Charge to income
Translation and other items
December 31, 2023 before offset
Tax offset
December 31, 2023 after offset
Net deferred asset at December 31, 2022
Net deferred asset at December 31, 2023
Page 33 Martinrea International Inc.
Other
15,681 $
(832)
1,183
(4,833)
11,199 $
1,481
(548)
69
12,201 $
$
Other
(9,946) $
2,060
95
(7,791) $
(619)
(265)
(8,675) $
$
$
$
Total
202,210
26,506
(4,194)
6,199
230,721
37,199
(3,074)
(5,196)
259,650
(67,349)
192,301
Total
(78,193)
(1,504)
(2,656)
(82,353)
(13,616)
1,032
(94,937)
67,349
(27,588)
148,368
164,713
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
During the year ended December 31, 2023, the Company disclosed deferred tax assets and deferred tax liabilities on a net basis where a right of offset
exists.
The Company has accumulated approximately $614,228 (December 31, 2022 - $725,507) in non-capital losses that are available to reduce taxable
income in future years. If unused, these losses will expire as follows:
Year
2024 - 2028
2029 - 2043
Indefinite
$
$
22,927
365,019
226,282
614,228
Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is
probable. The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the future profitability of operations in the
jurisdictions in which the tax losses arose.
Deferred tax assets include tax credits of $10,989 (December 31, 2022 - $8,383).
A deferred tax asset of $69,617 in the United States (December 31, 2022 - $80,449) has been recorded in excess of the reversing taxable temporary
differences. Income projections support the conclusion that the deferred tax asset is probable of being realized and, consequently, it has been
recognized.
Deferred tax assets have not been recognized in respect of the following items:
Tax losses in foreign jurisdictions
Deductible temporary differences in foreign jurisdictions
Other capital items
December 31, 2023
$
$
65,760 $
4,976
-
70,736 $
December 31, 2022
63,769
8,399
188
72,356
Deferred tax is not recognized on the unremitted earnings of foreign subsidiaries to the extent that the Company is able to control the timing of the
reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. The temporary difference
in respect of the amount of undistributed earnings and other differences including the outside basis difference of foreign subsidiaries is approximately
$1,067,384 at December 31, 2023 (December 31, 2022 - $949,660).
On August 4, 2023, the Canadian federal government released updated draft legislative proposals for public comment relating to budget measures,
including draft legislative proposals relating to the implementation of a 15% global minimum tax (Pillar Two) initiated by the OECD. The proposed Pillar
Two rules will take effect for fiscal years beginning on or after December 31, 2023. Accordingly, the Pillar Two rules did not have material impact on the
consolidated financial statements.
Other future changes in tax law in any of the jurisdictions in which the Company has a presence could significantly impact the Company’s provision for
income taxes, taxes payable, and deferred tax asset and liability balances.
16.
CAPITAL STOCK
Common shares outstanding:
Balance as of December 31, 2021
Exercise of stock options
Balance as of December 31, 2022
Exercise of stock options
Repurchase of common shares under normal course issuer bid
Balance as of December 31, 2023
Number
80,367,095 $
20,000
80,387,095
25,000
(2,270,655)
78,141,440 $
Amount
663,415
231
663,646
358
(18,748)
645,256
The Company is authorized to issue an unlimited number of common shares. The Company’s shares have no par value.
Page 34 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Repurchase of capital stock:
On March 29, 2023, the Toronto Stock Exchange (“TSX”) accepted a notice of intention of the Company to make a normal course issuer bid (“NCIB”)
permitting the Company to purchase for cancellation up to 5 million common shares over a 12-month period ending on or about April 3, 2024.
During 2023, after the commencement of the NCIB, the Company purchased for cancellation an aggregate of 2,270,655 common shares for an
aggregate purchase price of $29,069, resulting in a reduction to capital stock of $18,748 and a decrease to retained earnings of $10,321. The shares
were purchased and cancelled directly under the NCIB.
Stock options
The Company has one stock option plan for key employees. Under the plan, the Company may grant options to its key employees for up to 9,000,000
shares of common stock with option room available calculated in accordance with the terms of the stock option plan. Under the plan, the exercise price
of each option equals the market price of the Company's stock on the date of grant or such other date as determined in accordance with the stock option
plan and the policies of the Company. The options have a maximum term of 10 years and generally vest between zero and five years.
The following is a summary of the activity of the outstanding share purchase options:
Balance, beginning of period
Granted during the period
Exercised during the period
Cancelled during the period
Expired during the period
Balance, end of period
Options exercisable, end of period
Number of
options
2,435,000 $
Year ended December 31, 2023
Weighted
average
exercise price
13.50
-
10.44
12.53
-
13.56
13.49
-
(25,000)
(81,500)
-
2,328,500 $
2,103,500 $
Year ended December 31, 2022
Weighted
average
exercise price
13.32
10.74
8.57
13.19
11.14
13.50
13.33
Number of
options
2,622,500 $
25,000
(20,000)
(8,000)
(184,500)
2,435,000 $
1,893,600 $
The following is a summary of the issued and outstanding common share purchase options as at December 31, 2023:
Range of exercise price per share
$10.00 - 12.99
$13.00 - 16.99
Total share purchase options
Number
outstanding
608,500
1,720,000
2,328,500
Date of grant
2014 - 2022
2015 - 2020
Expiry
2024 - 2032
2025 - 2030
The Black-Scholes-Merton option valuation model used by the Company to determine fair values was developed for use in estimating the fair value of
freely traded options, which are fully transferable and have no vesting restrictions. The Company’s stock options are not transferable, cannot be traded
and are subject to vesting and exercise restrictions under the Company’s black-out policy, which would tend to reduce the fair value of the Company’s
stock options. Changes to subjective input assumptions used in the model can cause a significant variation in the estimate of the fair value of the
options.
The key assumptions, on a weighted average basis, used in the valuation of options granted during the year ended December 31, 2022 are shown in the
table below. No options were granted during the year ended December 31, 2023.
Expected volatility
Risk free interest rate
Expected life (years)
Dividend yield
Weighted average fair value of options granted
$
Year ended
December 31, 2022
42.13%
3.30%
5.0
1.86%
3.39
For the year ended December 31, 2023, the Company expensed $442 (2022 - $773), to reflect stock-based compensation expense, as derived using the
Black-Scholes-Merton option valuation model.
Page 35 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Deferred Share Unit (“DSU”) Plan
The following is a summary of the issued and outstanding DSUs as at December 31, 2023 and 2022:
Outstanding, beginning of period
Granted and reinvested dividends
Redeemed
Outstanding, end of period
Year ended
December 31, 2023
Year ended
December 31, 2022
625,148
211,357
-
836,505
397,091
228,057
-
625,148
The DSUs granted during the year ended December 31, 2023 and 2022 had a weighted average fair value per unit of $13.19 and $8.63, respectively, on
the date of grant. At December 31, 2023, the fair value of all outstanding DSUs amounted to $9,234 (December 31, 2022 - $5,736). For the year ended
December 31, 2023, DSU compensation expense reflected in the consolidated statement of operations, including changes in fair value during the period,
amounted to $3,498 (2022 - $2,356), recorded in selling, general and administrative expense.
Unrecognized DSU compensation expense as at December 31, 2023 was $1,791 (December 31, 2022 - $1,510) and will be recognized in profit or loss
over the remaining vesting period.
Performance Restricted Share Unit (“PSU” and “RSU”) Plan
The following is a summary of the issued and outstanding RSUs and PSUs for the year ended December 31, 2023 and 2022:
Outstanding, December 31, 2021
Granted and reinvested dividends
Redeemed
Cancelled
Outstanding, December 31, 2022
Granted and reinvested dividends
Redeemed
Cancelled
Outstanding, December 31, 2023
RSUs
287,812
370,182
(98,181)
(1,339)
558,474
450,131
(192,725)
(6,690)
809,190
PSUs
286,282
292,029
(98,181)
(1,506)
478,624
364,840
(191,966)
(7,303)
644,195
Total
574,094
662,211
(196,362)
(2,845)
1,037,098
814,971
(384,691)
(13,993)
1,453,385
The RSUs and PSUs granted during the year ended December 31, 2023 and 2022 had a weighted average fair value per unit of $14.16 and $9.45,
respectively, on the date of grant. For the year ended December 31, 2023, RSU and PSU compensation expense reflected in the consolidated statement
of operations, including changes in fair value during the period, amounted to $10,562 (2022 - $4,716), recorded in selling, general and administrative
expense.
Unrecognized RSU and PSU compensation expense as at December 31, 2023 was $9,765 (December 31, 2022 - $6,137) and will be recognized in
profit or loss over the remaining vesting period.
The key assumptions, on a weighted average basis, used in the valuation of PSUs granted during the year ended December 31, 2023 and 2022 are
Year ended
December 31, 2023
2.25
4.31%
Year ended
December 31, 2022
2.28
3.51%
shown in the table below:
Expected life (years)
Risk free interest rate
Page 36 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
17.
EARNINGS PER SHARE
Details of the calculations of earnings per share are set out below:
Basic
Effect of dilutive securities:
Stock options
Diluted
Year ended December 31, 2023 Year ended December 31, 2022
Weighted
average
number of
shares
79,608,262 $
46,784
79,655,046 $
Per common
share amount
1.93
Weighted
average
number of
shares
80,378,469 $
Per common
share amount
1.65
-
1.93
-
80,378,469 $
-
1.65
The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for
the period during which the options were outstanding.
For the year ended December 31, 2023, 1,720,000 (2022 - 2,435,000) options were excluded from the diluted weighted average per share calculation as
they were anti-dilutive.
18.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs, gross
Capitalized development costs
Amortization of capitalized development costs
Research and development costs, net
19.
PERSONNEL EXPENSES
Year ended
December 31, 2023
Year ended
December 31, 2022
$
$
35,948 $
(8,235)
10,298
38,011 $
33,365
(7,376)
10,929
36,918
The consolidated statement of operations presents operating expenses by function. Operating expenses include the following personnel-related
expenses:
Wages and salaries and other short-term employee benefits
Expenses related to pension and post-retirement benefits
RSU and PSU compensation expense (including changes in fair value during the year)
DSU compensation expense (including changes in fair value during the year)
Stock-based compensation expense
Note
Year ended
December 31, 2023
$
1,344,370 $
14
16
16
16
3,217
10,562
3,498
442
$
1,362,089 $
Year ended
December 31, 2022
1,167,975
3,452
4,716
2,356
773
1,179,272
Page 37 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
20.
FINANCE EXPENSE AND OTHER FINANCE INCOME
Debt interest, gross
Interest on lease liabilities
Capitalized interest - at an average rate of 7.3% (2022 - 5.4%)
Finance expense
Year ended
December 31, 2023
Year ended
December 31, 2022
$
$
(85,839) $
(11,250)
16,766
(80,323) $
(54,238)
(8,925)
11,326
(51,837)
Net foreign exchange gain
Other income, net
Other finance income
21.
OPERATING SEGMENTS
$
$
Year ended
December 31, 2023
Year ended
December 31, 2022
8,745
5,152 $
1,501
6,653 $
382
9,127
The Company is a diversified and global automotive supplier engaged in the design, development and manufacturing of highly engineered, value-added
Lightweight Structures and Propulsion Systems. It conducts its operations through divisions, which function as autonomous business units, following a
corporate policy of functional and operational decentralization. The Company’s offerings include a wide array of products, assemblies and systems for
small and large cars, crossovers, pickups and sport utility vehicles.
The Company defines its operating segments as components of its business where separate financial information is available and routinely evaluated by
management. The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. Given the differences among the regions in which
the Company operates, Martinrea’s operations are segmented on a geographic basis between North America, Europe and Rest of the World.
The accounting policies of the segments are the same as those described in the material accounting policies in note 2 of the consolidated financial
statements. The Company uses operating income as the basis for the CODM to evaluate the performance of each of the Company’s reportable
segments.
The following is a summary of selected data for each of the Company’s operating segments:
North America
Canada
USA
Mexico
Eliminations
Europe
Germany
Spain
Slovakia
Eliminations
Rest of the World
Eliminations
Production Sales
Tooling Sales
Total Sales
Property, plant and
equipment and
Right-of-use assets
Operating Income
(Loss)
Year ended December 31, 2023
$
711,263 $
202,160 $
913,423 $
1,473,325
1,743,663
(234,494)
80,627
206,234
(160,037)
1,553,952
1,949,897
(394,531)
323,961
580,305
788,538
-
$
3,693,757 $
328,984 $
4,022,741 $
1,692,804 $
267,103
855,073
203,990
50,074
(2,634)
1,106,503 $
136,499
(27,013)
83,242
13,879
1,680
(632)
98,169 $
11,060
(7,956)
938,315
217,869
51,754
(3,266)
1,204,672 $
147,559
(34,969)
266,181
129,338
15,355
-
410,874 $
78,645
-
4,909,746 $
430,257 $
5,340,003 $
2,182,323 $
$
$
(8,307)
10,318
-
269,114
Page 38 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
North America
Canada
USA
Mexico
Eliminations
Europe
Germany
Spain
Slovakia
Rest of the World
Eliminations
Production Sales
Tooling Sales
Total Sales
Property, plant and
equipment and
Right-of-use assets
Operating Income
Year ended December 31, 2022
$
$
$
$
647,780 $
1,291,203
1,633,059
(221,767)
3,350,275 $
757,949
161,956
39,794
959,699 $
169,770
(23,987)
4,455,757 $
122,411 $
109,924
66,813
(91,039)
208,109 $
82,502
9,198
3,910
95,610 $
4,280
(6,168)
301,831 $
770,191 $
1,401,127
1,699,872
(312,806)
3,558,384 $
840,451
171,154
43,704
1,055,309 $
174,050
(30,155)
4,757,588 $
316,389
626,433
790,904
-
1,733,726 $
199,101
263,418
118,213
16,714
398,345 $
70,767
-
2,202,838 $
17,732
946
-
217,779
22.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables, investments, trade and other payables, long-
term debt, and foreign exchange forward contracts.
Fair Value
IFRS 13, Fair Value Measurement defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value are required to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair
value hierarchy is based on three levels of inputs. The first two levels are considered observable and the last unobservable. These levels are used to
measure fair values as follows:
•
•
•
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities, either directly or indirectly.
Level 2 – Inputs, other than Level 1 inputs that are observable for assets and liabilities, either directly or indirectly. Level 2 inputs include
quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
The following table summarizes the fair value hierarchy under which the Company’s applicable financial instruments are valued:
December 31, 2023
Total
Level 1
Level 2
Level 3
Cash and cash equivalents
$
186,804 $
186,804 $
Investment in common shares and convertible debentures of AlumaPower (note 8)
Investment in convertible debentures of Equispheres (note 8)
Foreign exchange forward contracts not accounted for as hedges (note 3)
4,036
1,000
3,937
-
-
-
- $
-
-
3,937
-
4,036
1,000
-
Cash and cash equivalents
Investment in common shares and convertible debentures of AlumaPower (note 8)
Foreign exchange forward contracts not accounted for as hedges (note 3)
$
December 31, 2022
Total
161,655 $
2,669
2,114
Level 1
161,655 $
-
-
Level 2
- $
-
2,114
Level 3
-
2,669
-
Page 39 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated balance sheets, are as follows:
December 31, 2023
FINANCIAL ASSETS:
Trade and other receivables
Investment in common shares and
convertible debentures of AlumaPower
Investment in convertible debentures of
Equispheres
Foreign exchange forward contracts not
accounted for as hedges
FINANCIAL LIABILITIES:
Trade and other payables
Long-term debt
Net financial assets (liabilities)
$
$
$
$
Fair value
through profit
or loss
Fair value
through other
comprehensive
income
Financial
assets at
amortized
cost
Amortized
cost
Carrying
amount
Fair value
- $
-
-
3,937
3,937 $
-
-
- $
3,937 $
- $
691,882 $
- $
691,882 $
691,882
2,671
-
-
-
-
1,365
4,036
1,000
1,000
4,036
1,000
2,671 $
691,882 $
2,365 $
-
3,937
700,855 $
3,937
700,855
-
-
- $
2,671 $
-
-
- $
691,882 $
(1,176,579)
(969,236)
(2,145,815) $
(2,143,450) $
(1,176,579)
(969,236)
(2,145,815) $
(1,444,960) $
(1,176,579)
(969,236)
(2,145,815)
(1,444,960)
December 31, 2022
FINANCIAL ASSETS:
Trade and other receivables
Investment in common shares and
convertible debentures of AlumaPower
Foreign exchange forward contracts not
accounted for as hedges
FINANCIAL LIABILITIES:
Trade and other payables
Long-term debt
Net financial assets (liabilities)
Fair value
through profit
or loss
Fair value
through other
comprehensive
income
Financial
assets at
amortized
cost
Amortized
cost
Carrying
amount
Fair value
$
$
$
$
- $
-
2,114
2,114 $
-
-
- $
2,114 $
- $
787,817 $
- $
787,817 $
787,817
1,304
-
-
-
1,304 $
787,817 $
1,365 $
-
2,114
792,600 $
2,114
792,600
1,365
2,669
2,669
-
-
- $
1,304 $
-
-
- $
787,817 $
(1,315,380)
(1,070,368)
(2,385,748) $
(2,384,383) $
(1,315,380)
(1,070,368)
(2,385,748) $
(1,593,148) $
(1,315,380)
(1,070,368)
(2,385,748)
(1,593,148)
The fair values of trade and other receivables and trade and other payables approximate their carrying amounts due to the short-term maturities of these
instruments. The estimated fair value of long-term debt approximates its carrying amount since it is subject to terms and conditions similar to those
available to the Company for instruments with comparable terms, and the interest rates are market-based.
Risk Management
The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, interest rate risk, and currency risk. These risks arise from
exposures that occur in the normal course of business and are managed on a consolidated basis.
(a) Credit risk
Credit risk refers to the risk of losses due to failure of the Company’s customers or other counterparties to meet their payment obligations. Financial
instruments that subject the Company to credit risk consist primarily of cash and cash equivalents, trade and other receivables, and foreign
exchange forward contracts.
Credit risk associated with cash and cash equivalents is minimized by ensuring these financial assets are placed with financial institutions with high
credit ratings.
Page 40 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
The credit risk associated with foreign exchange forward contracts arises from the possibility that the counterparty to one of these contracts fails to
perform according to the terms of the contract. Credit risk associated with foreign exchange forward contracts is minimized by entering into such
transactions with major Canadian and U.S. financial institutions.
In the normal course of business, the Company is exposed to credit risk from its customers. The Company has three customers whose sales were
25.9%, 20.5%, and 14.9% of its production sales for the year ended December 31, 2023 (2022 - 27.1%, 21.2%, and 14.5%). A substantial portion
of the Company’s trade receivables are with large customers in the automotive, truck and industrial sectors and are subject to normal industry credit
risks. The level of trade receivables that were past due as at December 31, 2023 is within the normal payment pattern of the industry. The
allowance for doubtful accounts is less than 1.0% of total trade receivables for all periods and movements in the period were minimal.
The aging of trade receivables at the reporting date was as follows:
0-60 days
61-90 days
Greater than 90 days
(b) Liquidity risk
December 31, 2023
$
$
633,984 $
2,158
7,817
643,959 $
December 31, 2022
726,066
4,250
6,883
737,199
Liquidity risk is the risk that the Company will not be able to meet its financial obligations when they become due. The Company manages liquidity
risk by monitoring sales volumes and collection efforts to ensure sufficient cash flows are generated from operations to meet its liabilities when they
become due. Management monitors consolidated cash flows on a weekly basis covering a rolling 12-week period, quarterly through forecasting and
annually through the Company’s budget process. At December 31, 2023, the Company had cash of $186,804 (December 31, 2022 - $161,655) and
banking facilities available as discussed in note 12. All of the Company’s financial liabilities other than long-term debt have maturities of
approximately 60 days.
A summary of contractual maturities of long-term debt is provided in note 12.
(c)
Interest rate risk
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes
in the market interest rates. The Company is exposed to interest rate risk as a significant portion of the Company’s long-term debt bears interest at
rates linked to the US prime, Canadian prime, SOFR or the BA rates. The interest on the bank facility fluctuates depending on the achievement of
certain financial debt ratios.
The interest rate profile of the Company’s long-term debt was as follows:
Variable rate instruments
Fixed rate instruments
Sensitivity analysis
Carrying amount
December 31, 2023
$
$
938,129 $
31,107
969,236 $
December 31, 2022
1,022,169
48,199
1,070,368
An increase of 1.0% in all variable interest rate debt would, all else being equal, have an effect of $10,570 (2022 - $10,059) on the Company’s
consolidated financial results for the year ended December 31, 2023.
(d) Currency risk
Currency risk refers to the risk that the value of the financial instruments or cash flows associated with the instruments will fluctuate due to changes
in foreign exchange rates. The Company undertakes revenue and purchase transactions in foreign currencies, and therefore is subject to gains and
losses due to fluctuations in foreign currency exchange rates. The Company’s foreign exchange risk management includes the use of foreign
currency forward contracts to fix the exchange rates on certain foreign currency exposures.
At December 31, 2023, the Company had committed to the following foreign exchange contracts:
Page 41 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Foreign exchange forward contracts not accounted for as hedges and fair valued through profit or loss
Sell Canadian Dollars
Buy Mexican Peso
Currency
Amount of U.S.
dollars
Weighted average
exchange rate of
U.S. dollars
Maximum period in
months
$
67,000 $
103,749
1.3403
17.3495
1
1
The aggregate value of these forward contracts as at December 31, 2023 was a pre-tax gain of $3,937 and was recorded in trade and other
receivables (December 31, 2022 - pre-tax gain of $2,114 recorded in trade and other receivables).
The Company’s exposure to foreign currency risk reported in the foreign currency was as follows:
December 31, 2023
Trade and other receivables
Trade and other payables
Long-term debt
December 31, 2022
Trade and other receivables
Trade and other payables
Long-term debt
USD
355,463 €
(491,150)
(401,000)
(536,687) €
USD
398,811 €
(549,197)
(476,000)
(626,386) €
EURO
95,758 $
(215,929)
(9,842)
(130,013) $
EURO
92,861 $
(216,760)
(17,204)
(141,103) $
PESO
94,082 R$
(570,269)
-
(476,187) R$
PESO
118,703 R$
(763,665)
-
(644,962) R$
BRL
34,796 ¥
(71,276)
-
(36,480) ¥
BRL
46,171 ¥
(65,964)
-
(19,793) ¥
CNY
104,647
(111,242)
-
(6,595)
CNY
163,299
(166,561)
-
(3,262)
$
$
$
$
The following summary illustrates the fluctuations in the foreign exchange rates applied:
USD
EURO
PESO
BRL
CNY
Sensitivity analysis
Average rate
Closing rate
Year ended
December 31, 2023
1.3508
1.4562
0.0754
0.2688
0.1911
Year ended
December 31, 2022
1.2941
1.3711
0.0640
0.2496
0.1941
December 31, 2023 December 31, 2022
1.3541
1.4494
0.0695
0.2578
0.1966
1.3204
1.4598
0.0781
0.2729
0.1859
The Company does not have significant foreign currency exposure based on each subsidiary’s functional currency. However, a 10% strengthening
of the Canadian dollar against the following currencies at December 31 would give rise to a translation risk on net income and would have
increased (decreased) equity, profit or loss and comprehensive income for the year ended December 31, 2023 and 2022 by the amounts shown
below, assuming all other variables remain constant:
USD
EURO
BRL
CNY
Year ended
December 31, 2023
Year ended
December 31, 2022
$
$
(9,962) $
463
13
(404)
(9,890) $
(8,160)
(2,233)
(181)
554
(10,020)
A weakening of the Canadian dollar against the above currencies at December 31 would have had the equal but opposite effect on the above
currencies to the amounts shown above, on the basis that all other variables remain constant.
Page 42 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
(e) Capital risk management
The Company's objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth combined with
complementary acquisitions and to provide returns to its shareholders. The Company defines capital that it manages as the aggregate of its equity,
which is comprised of issued capital, contributed surplus, accumulated other comprehensive income and retained earnings, and debt.
The Company manages its capital structure and makes adjustments in light of general economic conditions, the risk characteristics of the
underlying assets and the Company's working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval
from its Board of Directors, may issue or repay long-term debt, issue shares, repurchase shares, or undertake other activities as deemed
appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions out of the ordinary course of
business, including proposals on acquisitions or other major investments or divestitures, as well as annual capital and operating budgets.
In addition to debt and equity, the Company may use leases as additional sources of financing. The Company monitors debt leverage ratios as part
of the management of liquidity and shareholders’ return and to sustain future development of the business. The Company is not subject to
externally imposed capital requirements and its overall strategy with respect to capital risk management remains unchanged from the prior year.
23.
COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases certain manufacturing facilities, manufacturing equipment, office equipment and vehicles under short-term leases and enters into
purchase obligations in the normal course of business related to inventory, services, tooling and property, plant and equipment. The aggregate expected
payments towards those obligations are as follows:
Future minimum lease payments*
Capital and other purchase commitments
Letters of credit
December 31, 2023
$
$
1,066 $
511,012
18,401
530,479 $
December 31, 2022
247
608,906
15,255
624,408
*These amounts relate to leases that did not meet the recognition criteria for lease liabilities under IFRS 16.
Future minimum lease payments under short-term leases are due as follows:
Less than one year
Between one and five years
December 31, 2023
$
$
626 $
440
1,066 $
December 31, 2022
161
86
247
Contingencies
The Company has contingent liabilities relating to legal and tax proceedings arising in the normal course of its business. Known claims and litigation
involving the Company or its subsidiaries were reviewed at the end of the reporting period. Based on the advice of legal counsel, all necessary
provisions have been made to cover the related risks, however, there can be no assurance as to the final resolution of any claims and any resulting
proceedings. If any claims and ensuing proceedings are determined adversely to the Company, the amounts the Company may be required to pay could
be material and in excess of any amounts accrued. In addition, new proceedings may be initiated against the Company as a result of facts or
circumstances unknown at the date of these consolidated financial statements or for which the risk cannot yet be determined or quantified. Such
proceedings could have a significant adverse impact on the Company’s financial results.
Tax contingencies
The Company is subject to tax audits in various jurisdictions. Reviews by tax authorities generally focus on, but are not limited to, the validity of the
Company’s intra-company transactions, including financing and transfer pricing policies which may involve subjective areas of taxation and significant
judgement, and value added tax (“VAT”) credits claimed on certain purchases.
The Company’s subsidiary in Brazil, Martinrea Honsel Brazil Fundicao e comercio de Pecas em Alumino Ltda., is currently being assessed by the State
of Sao Paulo’s tax authorities for certain historical VAT credits claimed on aluminum purchases from certain local suppliers that occurred prior to the
acquisition of the Brazil subsidiary in 2011. The taxation system and regulatory environment in Brazil is characterized by numerous indirect taxes and
Page 43 Martinrea International Inc.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
frequently changing legislation subject to various interpretations by the various Brazilian regulatory authorities who are empowered to impose significant
fines, penalties and interest charges. The basis for the assessments stems from the classification of aluminum purchases, the registration status of the
aluminum suppliers in question and the differing treatments between manufactured and unmanufactured aluminum for VAT purposes. The potential
exposure under these assessments, based on the notices issued by the tax authorities and most recent developments surrounding the assessments, is
approximately $42,539 (BRL $155,897) including interest and penalties to December 31, 2023 (December 31, 2022 - $39,589 or BRL $153,586). The
Company has sought external legal advice and believes that it has complied, in all material respects, with the relevant legislation and will continue to
vigorously defend against the assessments. The amounts of certain assessments have decreased due to successful challenges by the Company’s
subsidiary at preliminary stages of the proceedings. The assessments are at various stages in the process. Three assessments totaling $25,648 (BRL
$93,997) including interest and penalties as at December 31, 2023 have entered the judicial litigation process. The Company’s subsidiary may be
required to present guarantees related to these assessments up to $24,383 (BRL $89,359) shortly through a pledge of assets, bank letter of credit or
cash deposit. No provision has been recorded by the Company in connection with this contingency as, at this stage, the Company has concluded that it
is not probable that a liability will result from the matter.
The Company’s subsidiary in Queretaro, Mexico, Martinrea Honsel Mexico, S.A. de C.V., is currently being assessed by the Mexican Federal Tax
Authorities for tax deductions taken mainly in respect of certain intra-company transactions. The potential exposure under these assessments, based on
the notices issued by the tax authorities, is approximately $91,423 (MXN $1,170,668) including interest and penalties to December 31, 2023
(December 31, 2022 - $69,785 or MXN $1,090,387). The Company has sought external legal advice and believes that it has complied, in all material
respects, with the relevant legislation and will continue to vigorously defend against such assessments. No provision has been recorded by the Company
in connection with this contingency as, at this stage, the Company has concluded that it is not probable that a liability will result from the matter.
24.
GUARANTEES
The Company is a guarantor under a tooling financing program. The tooling financing program involves a third party that provides tooling suppliers with
financing subject to a Company guarantee. Payments from the third party to the tooling supplier are approved by the Company prior to the funds being
advanced. The amounts loaned to the tooling suppliers through this financing arrangement do not appear on the Company’s consolidated balance sheet
unless the sale on the corresponding tooling project has been recognized, at which point a tooling trade payable on the project is recorded. At
December 31, 2023, the amount of the off-balance sheet program financing was $16,457 (December 31, 2022 - $4,584) representing the maximum
amount of undiscounted future payments the Company could be required to make under the guarantee.
The Company would be required to perform under the guarantee in cases where a tooling supplier could not meet its obligations to the third party. Since
the amount advanced to the tooling supplier is required to be repaid generally when the Company receives reimbursement from the final customer, and
at this point the Company will in turn repay the tooling supplier, the Company views the likelihood of the tooling supplier default as remote. No such
defaults occurred during 2022 or 2023. Moreover, if such an instance were to occur, the Company would obtain the tooling inventory. The term of the
guarantee will vary from program to program, but typically range up to twenty-four months.
25.
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Key management personnel include the Board of Directors and the most Senior Corporate Officers of the Company that are primarily responsible for
planning, directing, and controlling the Company’s business activities.
The compensation expense associated with key management for employee services was included in employee salaries and benefits as follows:
Salaries, pension and other short-term employee benefits
RSU, PSU and DSU compensation expense (benefit) (including changes in fair value during the year)
Stock-based compensation expense
Net expense
$
$
14,657 $
11,625
322
26,604 $
Year ended
December 31, 2023
Year ended
December 31, 2022
14,293
6,066
591
20,950
Page 44 Martinrea International Inc.
CORPORATE INFORMATION
Corporate Head Office
Martinrea International Inc.
3210 Langstaff Road
Vaughan, Ontario L4K 5B2
E: investor@martinrea.com
W: www.martinrea.com
Board of Directors
Rob Wildeboer
Executive Chairman
Martinrea International Inc.
Pat D’Eramo
Chief Executive Officer
Martinrea International Inc.
Terry Lyons (2), (3)
Corporate Director
Maureen Midgley(1)
Retired, Global Vice President, Amazon.com
Fred Olson (1), (2), (3), (4)
Retired, President and CEO, Webasto Product North
America
Sandra Pupatello (2), (3)
President, Canadian International Avenues Ltd.
Dave Schoch (1), (2)
Retired, Group Vice President and President, Asia Pacific,
and Chairman and Chief Executive Officer, Ford China
Molly Shoichet (1)
University Professor and Canada Research Chair, Tissue
Engineering, Chemical Engineering & Applied Chemistry,
University of Toronto
Ed Waitzer (3)
Lawyer, Waitzer Professional Corporation
(1)
(2)
(3)
(4)
Member, Human Resources and Compensation Committee
Member, Audit Committee
Member, Corporate Governance and Nominating Committee
Lead Director
Corporate Executive Officers
Pat D’Eramo, Chief Executive Officer
Rob Wildeboer, Executive Chairman
Fred Di Tosto, President and Chief Financial Officer
Armando Pagliari, Executive VP, Human Resources
Kerri Pope, General Counsel and Corporate Secretary
Certificate Transfer and Address Change
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
T: 1-800-564-6523/1-514-982-7555
F: 1-866-249-7775
E: service@computershare.com
Registrar and Transfer Agent
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
T: 1-800-564-6523/1-514-982-7555
F: 1-866-249-7775
E: service@computershare.com
Shareholder Inquiries/Investor Relations
All inquiries should be directed to:
Neil Forster, Director, Investor Relations and
Corporate Development
Martinrea International Inc.
3210 Langstaff Road
Vaughan, Ontario L4K 5B2
T: 416-749-0314
F: 289-982-3001
Media Inquiries
All inquiries should be directed to:
Deanna S. Lorincz
Global Director, Communications and Marketing
Martinrea International Inc.
2100 N. Opdyke Rd
Auburn Hills, Michigan 48326
T: 248-392-9767
Auditors
KPMG LLP
100 New Park Place
Suite 1400
Vaughan, Ontario L4K 0J3
T: 905-265-5900
F: 905-265-6390
Stock Listing
The Toronto Stock Exchange (TSX: MRE)
CONFIDENTIAL
MMAARRTTIINNRREEAA IINNTTEERRNNAATTIIOONNAALL IINNCC..
Website: www.martinrea.com
Investor Information: investor@martinrea.com