MARTINREA INTERNATIONAL INC.
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 2024
1
MESSAGE TO SHAREHOLDERS
2024 was an eventful year for Martinrea in many ways. We saw some major events take place on the world
stage that are affecting our industry and our business, including a major slowdown in EV electrification
growth, especially in North America and the European Union; geopolitical tensions in many areas, which
affect trade and other relationships; and a United States election that has introduced increased focus on
tariffs, trade and the renegotiation of the USMCA trade agreement.
Before we get to some company highlights, let’s reflect briefly on the environment in which we operate.
Our company started its history as an auto parts company in 2001; indeed, one of our first activities was to
buy three stamping presses in September. Just after signing the purchase order, we had 9/11. We, and our
industry, had a major challenge. Our industry made it through, very successfully, as did we, raising money
to pay for the presses. We have seen many challenges since that time, including the financial crisis of 2008-
9, where two of our customers went bankrupt; a renegotiation of NAFTA; a pandemic where our industry
shut down completely; a major semi-conductor chips shortage which caused huge distress; and a move to
electric vehicles that has not met expectations in terms of rollout. A great many challenges. And there will
be more. We will say this with confidence—after every challenge we have emerged stronger as a company,
with better operations and with a strengthened corporate culture. These situations have provided
opportunities to get better at what we do, and to grow over time. We are still a relatively young company
in our industry, and we have grown from a start up to a $5 billion company in 24 years, to over 50 locations
and 18,000 people in many countries and continents. Challenges create opportunities. We have bought
assets or built new plants, to satisfy and grow our customer base, consistently over time. And we think this
will occur over the second half of this decade also. People need mobility, they need vehicles, and they need
parts for vehicles. Our industry needs strong suppliers. We are and will be there.
On a shorter term basis, the EV Revolution, as some call it, has not rolled out as quickly as many
believed. EV take-up by consumers is difficult for many given the cost of EVs and the lack of
infrastructure. Many consumers do not want an EV, but would prefer to drive an ICE, or internal
combustion engine, vehicle or a hybrid. The reality is that EV mandates don’t really work—you cannot
force people to make what consumers do not wish to buy, and eventually the market speaks. The consumer
is indeed king. And, in democracies, every consumer is also a voter, and elected officials will listen to their
voters. So, we are seeing EV mandates pulled back, and sales and production of EVs have flattened. This
is a structural challenge for our industry, and has created huge overcapacity in the EV production
space. We, and many others, even those of us who were conservative in our forecasts, have under utilized
capacity on EV related lines. So, in 2024, to reflect our usual conservative and prudent approach to valuing
our assets, we took some provisions on our EV related assets. This, we believe, is a one-time adjustment
reflecting reality for the future. We are not alone in this approach. It is interesting to note that under
accounting rules a company has a tendency to focus on writedowns, and generally cannot do write ups when
the value of an asset goes up; for example, we have significant real estate which, as you can imagine, has
gone up in value substantially.
The geopolitics of the day is also very relevant for our company and industry. It seems fairly obvious to us
that there is a security and economic divide in our world, headed by the United States on one hand, and
China on the other. This affects our company and industry, as policies adopted by the United States and
others are dealing with the growth of Chinese companies, either exporting parts and vehicles or attempting
to establish assembly plants or parts plants in North America or Europe. We have increasingly seen tariff
and trade policies to address that. For example, the United States has significant tariffs on many Chinese
goods, including auto parts and vehicles, and Canada has also adopted tariffs. In this context, given our
strong footprint in North America, there are opportunities for us to grow over time. Also, higher local rules
2
of origin requirements are good for companies like ours. We have always believed in a Fortress North
America approach in the sense that the North American auto industry is very strong with a production
footprint that utilizes the strength of the United States, Canada and Mexico. Given the geopolitics, we are
also focused on intraregional footprints. And so you see that we have lowered our limited manufacturing
footprint in China, for example (while developing partnerships in Asia). This involves some impairment,
but we think the downside is limited, while the upsides in North America and, to a lesser extent for us given
our footprint, Europe, are significant.
The third challenge we face, as a company and an industry, relates to tariffs, especially for us as regards the
USMCA. We were very close to the negotiations of the “new NAFTA” several years ago, and we believe
that the resulting USMCA was very good for the industry and our company. The USMCA was a nice
update and upgrade in many ways, and the higher local content rules for North American suppliers were
positive for us. When signed, we knew that a “renewal” of the USMCA was due by mid 2026, and frankly
we have spent the last two years as an industry considering what that means. Well, it now appears we are
effectively into the negotiation process. Each participating country is reviewing the agreement, and we
believe there will be intense negotiation of several aspects of the agreement. Regarding automotive, there
will be a push for higher rules of origin by the United States, which could benefit suppliers such as
ourselves. Despite much public speculation, we see a path to a modernization of the agreement to preserve
and enhance the development of North America’s largest manufacturing industry. Tariffs on autos and
parts within North America hurt the industry and ultimately increase costs to consumers, and would not be
in the interests of the United States, Canada or Mexico. We need to align. We will need to negotiate a new
agreement, but there is opportunity. In the meantime, if there are tariffs for a period of time, we will adjust
accordingly, as we did for steel and aluminum tariffs several years ago. Our public, and private, posture is
to encourage free trade in the automotive industry within North America—it benefits consumers and
producers in all three North American countries.
We are going to have to work through these issues over the next while.
Turning to the year just past, with some comments on 2025 as well, a few highlights. Note that we have
much detail in our year end filings, including our Annual Information Form and our Sustainability Report,
as well as our financial filings:
Our safety results continued to trend in the right direction. We are now among the very best in our
industry. There is no better way to show to our people that we care. In that regard, 2024 was a
great year.
Our employee survey results continued to be strong. We work to “make peoples lives better” with
our Golden Rule approach, just treat people the way you want to be treated. It’s a living thing, not
just a slogan. When you visit our locations, it’s clear, and we’re proud of our people and our
progress, meeting the challenges of this business.
Reflecting the headwinds in the fourth quarter, revenues were down slightly in 2024 at just over $5
billion. At the same time our adjusted EBITDA came in roughly the same as 2023 and our EBITDA
margin percentage actually increased, as we continued to drive improvement into our facilities.
A year ago, when we announced our 2024 outlook, we indicated that our adjusted operating income
margin would likely be higher in the first half of the year than in the second half, and this is what
happened. In the fourth quarter, many of our customers slowed or halted production across many
platforms, mostly to adjust inventory levels. Despite that, our adjusted operating income margin
for the year was 5.3%, in the top third of our peer group, and we believe it will continue to climb.
We maintained a strong balance sheet with a net debt to adjusted ebitda ratio under our target of
1.5x or better.
3
At the same time, we returned significant capital to shareholders in 2024. We maintained our
dividend, and we repurchased over 5 million shares under our normal course issuer bid. A lower
share count bodes well for our shareholders as we see improvements in future financial results.
We won multiple quality awards from a variety of customers in 2024. A strong base for new
business awards and replacement work.
We invested in our business, with approximately $275 million in capital expenditures in 2024.
We made good progress reducing our carbon emissions, reducing them by 17% since 2019, towards
our goal of 35% in 2035, without the use of carbon credits. We became more energy-efficient,
reducing our energy intensity (that is, our energy consumption relative to sales) by 23% since 2019.
We have also reduced the amount of waste destined for landfills by 54% since 2019. 83% of our
locations now divert more than 90% of their waste away from the landfill. Good progress on our
journey toward our zero-landfill initiative.
We are embracing technology in both our operations and in our strategic investments. Our
Advanced Manufacturing Team is moving forward with machine learning installations across our
plant network to improve the performance of our lines and heavy assets. We expect these efforts
to produce significant benefits in terms of safety, speed and quality. We are applying machine
learning technologies to improve the performance of our lines and heavy assets. Our
MiNDCAN software subsidiary is increasing its book of business with new customers. Our
Martinrea Innovation Developments investment portfolio includes companies that are leading edge
in graphene, aluminum powder for additive manufacturing, aluminum air batteries, and
ultracapacitor technology. We are helping our strategic partners incubate these innovative
technologies, with many benefits for our company, both strategic and financial.
Companies do not live by a calendar, as we all know. We have to report results over a finite time
period. But our long term view is that sustainable companies are those that look to the future, embrace it,
and capitalize on the opportunities presented by it. That’s what we do. We look forward to 2025 and
beyond with great confidence. We are stronger today than we were a year ago. Our people support us in
that view, and we thank them for their service. Our strength is in our people. We look forward to sharing
the future with you!
Rob Wildeboer
Pat D’Eramo
Executive Chairman
Chief Executive Officer
MANAGEMENT DISCUSSION AND ANALYSIS
OF OPERATING RESULTS AND FINANCIAL POSITION
For the year ended December 31, 2024
The following management discussion and analysis (“MD&A”) was prepared as of March 6, 2025 and should be read in conjunction with
the Company’s audited consolidated financial statements ("consolidated financial statements") for the year ended December 31, 2024
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 (loss) 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, 2024, 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 18,000 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.
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 Accounting Standards ("IFRS") measures, management uses non-
IFRS measures in the Company’s disclosures that it believes provide the most appropriate basis on which to evaluate the Company’s
results.
The following tables set out certain highlights of the Company’s performance for the three months and years ended December 31, 2024
and 2023. Refer to the Company’s consolidated financial statements for the year ended December 31, 2024 for a detailed account of
the Company’s performance for the periods presented in the tables below.
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
Sales
$
5,014,127
$
5,340,003
(325,876)
(6.1%)
Gross Margin
648,557
675,397
(26,840)
(4.0%)
Operating Income
124,608
269,114
(144,506)
(53.7%)
Net Income (Loss) for the period
(34,546)
153,665
(188,211)
(122.5%)
Net Earnings (Loss) per Share - Basic and Diluted
$
(0.46)
$
1.93
(2.39)
(123.8%)
Non-IFRS Measures**
Adjusted Operating Income
$
266,698
$
297,275
(30,577)
(10.3%)
% of Sales
5.3 %
5.6 %
Adjusted EBITDA
614,758
616,678
(1,920)
(0.3%)
% of Sales
12.3 %
11.5 %
Adjusted Net Income*
91,041
176,492
(85,451)
(48.4%)
Adjusted Net Earnings per Share - Basic*
$
1.21
$
2.22
(1.01)
(45.5%)
Adjusted Net Earnings per Share - Diluted*
$
1.20
$
2.22
(1.02)
(45.9%)
Page 1
Martinrea International Inc.
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
% Change
Sales
$
1,150,928
$
1,296,121
(145,193)
(11.2%)
Cost of sales (excluding depreciation)
(937,527)
(1,065,338)
127,811
12.0%
Depreciation of property, plant and equipment and right-of-
use assets (production)
(84,361)
(77,555)
(6,806)
(8.8%)
Gross Margin
129,040
153,228
(24,188)
(15.8%)
Research and development costs
(10,194)
(9,754)
(440)
(4.5%)
Selling, general and administrative
(74,445)
(83,476)
9,031
10.8%
Depreciation of property, plant and equipment and right-of-
use assets (non-production)
(4,310)
(4,548)
238
5.2%
Gain (loss) on disposal of property, plant and equipment
(22)
1,197
(1,219)
(101.8%)
Restructuring costs
(1,034)
(27,266)
26,232
96.2%
Impairment of assets
(129,446)
(895)
(128,551) (14,363.2%)
Operating Income (Loss)
$
(90,411)
$
28,486
(118,897)
(417.4%)
Share of loss of equity investments
(757)
(930)
173
18.6%
Finance expense
(17,513)
(20,215)
2,702
13.4%
Other finance expense
(1,227)
(421)
(806)
(191.4%)
Income (Loss) before taxes
$
(109,908)
$
6,920
(116,828)
(1,688.3%)
Income tax expense
(23,424)
(5,070)
(18,354)
(362.0%)
Net Income (Loss) for the period
(133,332)
1,850
(135,182)
(7,307.1%)
Net Earnings (Loss) per Share - Basic and Diluted
$
(1.82)
$
0.02
(1.84)
(9,200.0%)
Non-IFRS Measures**
Adjusted Operating Income
$
40,069
$
56,647
(16,578)
(29.3%)
% of Sales
3.5 %
4.4 %
Adjusted EBITDA
131,660
140,080
(8,420)
(6.0%)
% of Sales
11.4 %
10.8 %
Adjusted Net Income (Loss)*
(15,596)
29,251
(44,847)
(153.3%)
Adjusted Net Earnings (Loss) per Share - Basic and Diluted* $
(0.21)
$
0.37
(0.58)
(156.8%)
*Adjusted Net Income (Loss) and Adjusted Net Earnings (Loss) per Share for the three months and year ended December 31, 2024
were negatively impacted by an unusually high effective tax rate. This was driven primarily by the magnitude and pace of the
depreciation of the Mexican Peso against the U.S. dollar, which is the functional currency of the Company’s Mexican operations. In
situations where the local and functional currencies differ, IFRS, contrary to US GAAP, requires the tax value of assets and liabilities
denominated in local currency to be revalued to the operations' functional currency at the reporting date, with the related foreign
exchange movements impacting the tax expense for the period. These foreign exchange movements are non-cash in nature, do not
impact cash taxes and tend to balance out over time. Including this, and other foreign exchange related items, the effective tax rate for
the year ended December 31, 2024 was 53.2%. Excluding these foreign exchange items, the effective tax rate would have been 30.6%,
which is more reflective of a typical tax rate for the Company. Using a tax rate of 30.6%, Adjusted Net Earnings per Share would have
been $0.19 for the three months ended December 31, 2024, and $1.79 for the year ended December 31, 2024.
**Non-IFRS Measures
The Company prepares its consolidated financial statements in accordance with IFRS. 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 (Loss)”, “Adjusted Net Earnings (Loss) per
Share (on a basic and diluted basis)”, “Adjusted Operating Income”, "Adjusted EBITDA”, “Free Cash Flow”, "Free Cash Flow (after
IFRS 16 lease payments)", and “Net Debt”.
Page 2
Martinrea International Inc.
The following tables provide a reconciliation of IFRS “Net Income (Loss)” to Non-IFRS “Adjusted Net Income (Loss)”, “Adjusted
Operating Income” and “Adjusted EBITDA”:
Three months ended
December 31, 2024
Three months ended
December 31, 2023
Net Income (Loss)
$
(133,332) $
1,850
Adjustments, after tax*
117,736
27,401
Adjusted Net Income (Loss)
$
(15,596) $
29,251
Year ended
December 31, 2024
Year ended
December 31, 2023
Net Income (Loss)
$
(34,546) $
153,665
Adjustments, after tax*
125,587
22,827
Adjusted Net Income
$
91,041 $
176,492
*Adjustments are explained in the "Adjustments to Net Income (Loss)" section of this MD&A
Three months ended
December 31, 2024
Three months ended
December 31, 2023
Net Income (Loss)
$
(133,332) $
1,850
Income tax expense
23,424
5,070
Other finance expense
1,227
421
Share of loss of equity investments
757
930
Finance expense
17,513
20,215
Adjustments, before tax*
130,480
28,161
Adjusted Operating Income
$
40,069 $
56,647
Depreciation of property, plant and equipment and right-of-use assets
88,671
82,103
Amortization of development costs
2,898
2,527
Loss (gain) on disposal of property, plant and equipment
22
(1,197)
Adjusted EBITDA
$
131,660 $
140,080
Year ended
December 31, 2024
Year ended
December 31, 2023
Net Income (Loss)
$
(34,546) $
153,665
Income tax expense
87,149
43,492
Other finance income
(6,913)
(6,653)
Share of loss of equity investments
2,904
3,560
Finance expense
76,014
80,323
Adjustments, before tax*
142,090
22,888
Adjusted Operating Income
$
266,698 $
297,275
Depreciation of property, plant and equipment and right-of-use assets
335,479
310,144
Amortization of development costs
11,070
10,298
Loss (gain) on disposal of property, plant and equipment
1,511
(1,039)
Adjusted EBITDA
$
614,758 $
616,678
*Adjustments are explained in the "Adjustments to Net Income (Loss)" section of this MD&A
Page 3
Martinrea International Inc.
SALES
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
% Change
North America
$
881,043 $
959,464
(78,421)
(8.2%)
Europe
243,554
311,034
(67,480)
(21.7%)
Rest of the World
31,855
34,467
(2,612)
(7.6%)
Eliminations
(5,524)
(8,844)
3,320
37.5%
Total Sales
$
1,150,928 $
1,296,121
(145,193)
(11.2%)
The Company’s consolidated sales for the fourth quarter of 2024 decreased by $145.2 million or 11.2% to $1,150.9 million as compared
to $1,296.1 million for the fourth quarter of 2023. The total decrease in sales was driven by year-over-year decreases across all
operating segments.
Sales for the fourth quarter of 2024 in the Company’s North America operating segment decreased by $78.4 million or 8.2% to $881.0
million from $959.5 million for the fourth quarter of 2023. The decrease was due to lower year-over-year OEM production volumes on
certain platforms, including the Jeep Grand Cherokee and Wagoneer, Mercedes' new electric vehicle platform (EVA2), and a
transmission for the ZF Group; programs that ended production during or subsequent to the fourth quarter of 2023, specifically the Ford
Edge, Dodge Charger/Challenger, Chevrolet Bolt, and an aluminum engine block for Stellantis; and a decrease in tooling sales of $15.8
million, which are typically dependent on the timing of tooling construction and final acceptance by the customer. These negative factors
were partially offset by the launch and ramp up of new programs during or subsequent to the fourth quarter of 2023, including General
Motors' new electric vehicle platforms (BEV3/BET), and the Toyota Tacoma; higher year-over-year OEM production volumes on certain
other platforms, including General Motors' Equinox/Terrain, the Ford Mustang Mach E, and an engine block for Ford; and the impact of
foreign exchange on the translation of U.S. denominated production sales, which had a positive impact on overall sales for the fourth
quarter of 2024 of $3.0 million. Overall fourth quarter industry-wide OEM light vehicle production volumes in North America decreased
by approximately 3% year-over-year.
Sales for the fourth quarter of 2024 in the Company’s Europe operating segment decreased by $67.5 million or 21.7% to $243.6 million
from $311.0 million for the fourth quarter of 2023. The decrease was due to lower year-over-year OEM production volumes on certain
platforms, including aluminum engine blocks for Ford and Mercedes, the Mercedes' new electric vehicle platform (EVA2), and a
transmission for the ZF Group; programs that ended production during or subsequent to the fourth quarter of 2023, specifically the
BMW Mini; and a decrease in tooling sales of $16.6 million, which are typically dependent of the timing of tooling construction and final
acceptance by the customer. These negative factors were partially offset by the launch and ramp up of new programs during or
subsequent to the fourth quarter of 2023, including Volkswagen's new electric vehicle platform (PPE); higher year-over-year OEM
production volumes on certain platforms, including the Lucid Air, and an aluminum engine block for Jaguar Land Rover; and 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 2024 of $5.7 million. Overall fourth quarter industry-wide OEM light vehicle production volumes in Europe decreased by
approximately 8% year-over-year.
Sales for the fourth quarter of 2024 in the Company’s Rest of the World operating segment decreased by $2.6 million or 7.6% to $31.9
million from $34.5 million in the fourth quarter of 2023. The decrease was largely driven by lower year-over-year production volumes on
the Cadillac CT6 vehicle platform in China; partially offset by the launch and ramp up of new programs, specifically the BMW 5-series in
China, and an increase in tooling sales of $4.4 million.
Overall tooling sales decreased by $25.1 million (including outside segment sales eliminations) to $102.3 million for the fourth quarter of
2024 from $127.4 million for the fourth quarter of 2023.
Page 4
Martinrea International Inc.
Year ended December 31, 2024 to year ended December 31, 2023 comparison
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
North America
$
3,789,821 $
4,022,741
(232,920)
(5.8%)
Europe
1,115,023
1,204,672
(89,649)
(7.4%)
Rest of the World
134,455
147,559
(13,104)
(8.9%)
Eliminations
(25,172)
(34,969)
9,797
28.0%
Total Sales
$
5,014,127 $
5,340,003
(325,876)
(6.1%)
The Company’s consolidated sales for the year ended December 31, 2024 decreased by $325.9 million or 6.1% to $5,014.1 million as
compared to $5,340.0 million for the year ended December 31, 2023. The total decrease in sales was driven by year-over-year
decreases across all operating segments.
Sales for the year ended December 31, 2024 in the Company’s North America operating segment decreased by $232.9 million or 5.8%
to $3,789.8 million from $4,022.7 million for the year ended December 31, 2023. The decrease was due generally to a decrease in
tooling sales of $170.0 million which are typically dependent on the timing of tooling construction and final acceptance by the customer;
lower year-over-year OEM production volumes on certain platforms, including the Jeep Grand Cherokee and Wagoneer, Mercedes' new
electric vehicle platform (EVA2), the Ford Mustang Mach E, and a transmission for the ZF Group; and programs that ended production
during or subsequent to the corresponding period of 2023, specifically the Dodge Charger/Challenger, the Ford Edge, Chevrolet Bolt,
and an aluminum engine block for Stellantis. These negative factors were partially offset by the launch and ramp up of new programs,
including General Motors' new electric vehicle platforms (BEV3/BET), and the Toyota Tacoma; higher year-over-year production
volumes of certain platforms including the Ford Escape and Maverick, General Motors' large pick-up truck and SUV platform, and an
engine block for Ford; and 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, 2024 of $28.6 million. Overall industry-wide OEM light vehicle production
volumes during the year ended December 31, 2024 decreased in North America by approximately 1% year-over-year.
Sales for the year ended December 31, 2024 in the Company’s Europe operating segment decreased by $89.6 million or 7.4% to
$1,115.0 million from $1,204.7 million for the year ended December 31, 2023. The decrease was due to lower year-over-year
production volumes of certain platforms, including the Mercedes' new electric vehicle platform (EVA2), and aluminum engine blocks for
Ford and Mercedes; and programs that ended production during or subsequent to the corresponding period of 2023, specifically the
BMW Mini. These negative factors were partially offset by higher year-over-year OEM production volumes on certain platforms,
including an aluminum engine block for Jaguar Land Rover; the launch and ramp up of new programs, including Volkswagen's new
electric vehicle platform (PPE); 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, 2024 of $16.1 million; and an increase in tooling sales of $4.4 million,
which are typically dependent on the timing of tooling construction and final acceptance by the customer. Overall industry-wide OEM
light vehicle production volumes during the year ended December 31, 2024 decreased in Europe by approximately 5% year-over-year.
Sales for the year ended December 31, 2024 in the Company’s Rest of the World operating segment decreased by $13.1 million or
8.9% to $134.5 million from $147.6 million for the year ended December 31, 2023. The decrease was largely driven by programs that
came with the operations acquired from Metalsa in China that ended production during or subsequent to the year ended December 31,
2023, and lower year-over-year current production volumes on the Cadillac CT6 vehicle platform in China; partially offset by the launch
and ramp up of new programs, specifically the BMW 5-series in China, and an increase in tooling sales of $8.4 million.
Overall tooling sales decreased by $153.2 million (including outside segment sales eliminations) to $277.1 million for the year ended
December 31, 2024 from $430.3 million for the year ended December 31, 2023.
Page 5
Martinrea International Inc.
GROSS MARGIN
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
% Change
Gross margin
$
129,040
$
153,228
(24,188)
(15.8%)
% of Sales
11.2 %
11.8 %
The gross margin percentage for the fourth quarter of 2024 of 11.2% decreased as a percentage of sales by 0.6% as compared to the
gross margin percentage for the fourth quarter of 2023 of 11.8%. The decrease in gross margin as a percentage of sales was generally
due to:
•
overall lower production sales volume and corresponding contribution;
•
operational inefficiencies at certain operating facilities; and
•
a negative sales mix, including additional depreciation expense from recent new program investments.
These factors were essentially offset by:
•
productivity and efficiency improvements at certain operating facilities and other improvements; and
•
a decrease in tooling sales which typically earn low margin for the Company.
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, 2024 to year ended December 31, 2023 comparison
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
Gross margin
$
648,557
$
675,397
(26,840)
(4.0%)
% of Sales
12.9%
12.6%
The gross margin percentage for the year ended December 31, 2024 of 12.9% increased as a percentage of sales by 0.3% as
compared to the gross margin percentage for the year ended December 31, 2023 of 12.6%. The increase in gross margin as a
percentage of sales was generally due to:
•
productivity and efficiency improvements at certain operating facilities and other improvements; and
•
a decrease in tooling sales which typically earn low margin for the Company.
These factors were partially offset by:
•
overall lower production sales volume and corresponding contribution;
•
operational inefficiencies at certain other operating facilities;
•
an unfavourable impact from a year-over-year change in foreign exchange rates in Mexico; and
•
a negative sales mix, including additional depreciation expense from recent new program investments.
Overall market related inflationary pressures on labour, material and energy costs, along with offsetting commercial settlements, were
generally stable year-over-year.
Page 6
Martinrea International Inc.
SELLING, GENERAL & ADMINISTRATIVE ("SG&A")
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
% Change
Selling, general & administrative
$
74,445
$
83,476
(9,031)
(10.8%)
% of Sales
6.5 %
6.4 %
SG&A expense for the fourth quarter of 2024 decreased by $9.0 million to $74.4 million as compared to SG&A expense for the fourth
quarter of 2023 of $83.5 million. The decrease in SG&A expense can largely be attributed to a decrease in equity-based compensation
expense related to deferred, restricted, and performance share units, decreases in outbound freight costs resulting from a Tier 2 supply
chain disruption during the fourth quarter of 2023, and travel costs; partially offset by higher year-over-year professional services fees.
SG&A expense as a percentage of sales increased slightly to 6.5% for the fourth quarter of 2024 compared to 6.4% for the fourth
quarter of 2023.
Year ended December 31, 2024 to year ended December 31, 2023 comparison
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
Selling, general & administrative
$
321,577
$
323,438
(1,861)
(0.6%)
% of Sales
6.4%
6.1%
SG&A expense for the year ended December 31, 2024 decreased by $1.9 million to $321.6 million as compared to SG&A expense for
the year ended December 31, 2023 of $323.4 million. The decrease in SG&A expense can largely be attributed to a decrease in equity-
based compensation expense related to deferred, restricted, and performance share units, decreases in outbound freight costs, and
travel costs; partially offset by higher employee costs as compared to the corresponding period of 2023, and higher year-over-year
professional services fees.
SG&A expense as a percentage of sales increased to 6.4% for the year ended December 31, 2024 compared to 6.1% for the year
ended December 31, 2023, on lower year-over-year sales.
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT ("PP&E"), RIGHT-OF-USE ASSETS AND AMORTIZATION OF
INTANGIBLE ASSETS
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
Three months
ended December 31,
2024
Three months
ended December 31,
2023
$ Change % Change
Depreciation of PP&E and right-of-use assets (production)
$
84,361 $
77,555
6,806
8.8%
Depreciation of PP&E and right-of-use assets (non-production)
4,310
4,548
(238)
(5.2%)
Amortization of development costs
2,898
2,527
371
14.7%
Total depreciation and amortization
$
91,569 $
84,630
6,939
8.2%
Total depreciation and amortization expense for the fourth quarter of 2024 increased by $6.9 million to $91.6 million as compared to
$84.6 million for the fourth quarter of 2023. 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 2023.
Page 7
Martinrea International Inc.
A significant portion of the Company’s recent investments relates to various new programs that commenced during or subsequent to the
fourth quarter of 2023 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 global footprint.
Total depreciation and amortization expense as a percentage of sales increased year-over-over to 8.0% for the fourth quarter of 2024
from 6.5% for the fourth quarter of 2023 due mainly to the increased asset base, as noted above, and lower overall sales volume.
Year ended December 31, 2024 to year ended December 31, 2023 comparison
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
Depreciation of PP&E and right-of-use assets (production)
$
318,939 $
292,432
26,507
9.1%
Depreciation of PP&E and right-of-use assets (non-production)
16,540
17,712
(1,172)
(6.6%)
Amortization of development costs
11,070
10,298
772
7.5%
Total depreciation and amortization
$
346,549 $
320,442
26,107
8.1%
Total depreciation and amortization expense for the year ended December 31, 2024 increased by $26.1 million to $346.5 million as
compared to $320.4 million for the year ended December 31, 2023. 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, 2023.
Total depreciation and amortization expense as a percentage of sales increased year-over-year to 6.9% for the year ended December
31, 2024 from 6.0% for the year ended December 31, 2023 due mainly to the increased asset base, as noted above, and lower overall
sales volume.
ADJUSTMENTS TO NET INCOME (LOSS)
Adjusted Net Income (Loss) excludes certain items as set out in the following tables and described in the notes thereto. Management
uses Adjusted Net Income (Loss) 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.
TABLE A
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
NET INCOME (LOSS)
$
(133,332) $
1,850 $
(135,182)
Adjustments:
Impairment of assets (1)
129,446
895
128,551
Restructuring costs (2)
1,034
27,266
(26,232)
ADJUSTMENTS, BEFORE TAX
$
130,480 $
28,161 $
102,319
Tax impact of adjustments
(14,226)
(760)
(13,466)
Writedown of deferred tax asset (1)
1,482
-
1,482
ADJUSTMENTS, AFTER TAX
$
117,736 $
27,401 $
90,335
ADJUSTED NET INCOME (LOSS)
$
(15,596) $
29,251 $
(44,847)
Number of Shares Outstanding – Basic (‘000)
73,446
78,700
Adjusted Basic Net Earnings (Loss) Per Share
$
(0.21) $
0.37
Number of Shares Outstanding – Diluted (‘000)
73,446
78,725
Adjusted Diluted Net Earnings (Loss) Per Share
$
(0.21) $
0.37
Page 8
Martinrea International Inc.
TABLE B
Year ended December 31, 2024 to year ended December 31, 2023 comparison
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
NET INCOME (LOSS)
$
(34,546) $
153,665 $
(188,211)
Adjustments:
Impairment of assets (1)
129,446
895
128,551
Restructuring costs (2)
12,644
27,266
(14,622)
Net gain on disposal of equity investments (3)
-
(5,273)
5,273
ADJUSTMENTS, BEFORE TAX
$
142,090 $
22,888 $
119,202
Tax impact of adjustments
(17,985)
(61)
(17,924)
Writedown of deferred tax asset (1)
1,482
-
1,482
ADJUSTMENTS, AFTER TAX
$
125,587 $
22,827 $
102,760
ADJUSTED NET INCOME
$
91,041 $
176,492 $
(85,451)
Number of Shares Outstanding – Basic (‘000)
75,501
79,608
Adjusted Basic Net Earnings Per Share
$
1.21 $
2.22
Number of Shares Outstanding – Diluted (‘000)
75,561
79,655
Adjusted Diluted Net Earnings Per Share
$
1.20 $
2.22
(1) Impairment of assets
During the fourth quarter of 2024, in conjunction with its annual business planning cycle, the Company recorded impairment
charges on property, plant and equipment of $102.1 million, right-of-use assets of $6.6 million, intangible assets of $1.3 million, and
inventories of $0.4 million, totaling $110.4 million. Of this amount, $65.3 million relates to CGUs in the Europe operating segment,
$25.8 million relates to a CGU in the North America operating segment, and $19.3 million relates to CGUs in Brazil, China and
South Africa, included in the Rest of the World operating segment. As at December 31, 2024, the Company’s CGUs were recorded
at carrying values that did not exceed their recoverable amounts determined using an income approach to determine fair value less
costs to sell. Discount rates used in the determination of the recoverable amounts of these CGUs ranged between 9.3% to 13.5%.
The Company also separately identified specific assets for which no further use was identified, and recorded impairment charges
on property, plant and equipment of $14.9 million, intangible assets of $3.0 million relating to development costs, and inventories of
$1.1 million, totaling $19.0 million. Of this amount, $9.8 million were in the North America operating segment, and $9.2 million were
in the Rest of the World operating segment.
The impairment charges resulted from lower than expected production volumes on certain OEM light vehicle platforms, largely
electric vehicles due to the significantly lower than expected adoption rate of such vehicles in the marketplace, and the cancellation
of certain OEM light vehicle platforms before the end of their expected life cycles. In conjunction with this and as a result of lower
production volumes, the Company has decided to close an operating facility in the Rest of the World during 2025. A lack of future
income stream contributed to a writedown of deferred tax assets of $1.5 million.
The impairment charges were recorded where the carrying amount of the assets exceeded their estimated recoverable amounts.
Reasonably possible changes in key assumptions could result in material changes to the carrying amounts of the CGUs.
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.
Page 9
Martinrea International Inc.
(2) Restructuring costs
Additions to the restructuring provision for the year ended December 31, 2024 totaled $12.6 million, of which $1.0 million was
recognized during the fourth quarter of 2024, and represent employee-related severance resulting from the rightsizing of certain
operations in Germany, Mexico, Canada, and the United States.
Additions to the restructuring provision during 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.
(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)
$
6,821
Less: gain attributable to indirect retained interest
(1,548)
Net gain on disposal of equity investments
$
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%.
NET INCOME (LOSS)
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
% Change
Net Income (Loss)
$
(133,332) $
1,850
(135,182)
(7,307.1%)
Adjusted Net Income (Loss)
(15,596)
29,251
(44,847)
(153.3%)
Net Earnings (Loss) per Share
Basic and Diluted
$
(1.82) $
0.02
Adjusted Net Earnings (Loss) per Share
Basic and Diluted
$
(0.21) $
0.37
Net Income (Loss), before adjustments, for the fourth quarter of 2024 decreased by $135.2 million to a Net Loss of $133.3 million or
($1.82) per share, on a basic and diluted basis, from Net Income of $1.9 million or $0.02 per share, on a basic and diluted basis, for the
fourth quarter of 2023. Excluding the adjustments explained in Table A under "Adjustments to Net Income (Loss)", Adjusted Net Income
(Loss) for the fourth quarter of 2024 decreased by $44.8 million to an Adjusted Net Loss of $15.6 million or ($0.21) per share, on a basic
and diluted basis*, from Adjusted Net Income of $29.3 million or $0.37 per share, on a basic and diluted basis, for the fourth quarter of
2023.
Adjusted Net Loss for the fourth quarter of 2024, as compared to Adjusted Net Income for the fourth quarter of 2023, was negatively
impacted by the following:
•
lower gross margin from lower year-over-year sales volume;
•
a net foreign exchange loss of $2.2 million for the fourth quarter of 2024 compared to a loss of $1.3 million for the fourth
quarter of 2023; and
•
a higher effective tax rate (175.8% for the fourth quarter of 2024 compared to 16.6% for the fourth quarter of 2023) driven
primarily by the IFRS accounting treatment of the rapid depreciation of the Mexican Peso against the U.S. dollar that does not
impact cash*.
Page 10
Martinrea International Inc.
These factors were partially offset by the following:
•
a year-over-year decrease in SG&A expense, as previously explained; and
•
a $2.7 million year-over-year decrease in finance expense as a result of lower borrowing rates on the Company's revolving
bank debt.
Year ended December 31, 2024 to year ended December 31, 2023 comparison
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
Net Income (Loss)
$
(34,546) $
153,665
(188,211)
(122.5%)
Adjusted Net Income
91,041
176,492
(85,451)
(48.4%)
Net Earnings (Loss) per Share
Basic and Diluted
$
(0.46) $
1.93
Adjusted Net Earnings per Share
Basic
$
1.21 $
2.22
Diluted
$
1.20 $
2.22
Net Income (Loss), before adjustments, for the year ended December 31, 2024 decreased by $188.2 million to a Net Loss of ($34.5)
million or ($0.46) per share, on a basic and diluted basis, from Net Income of $153.7 million or $1.93 per share, on a basic and diluted
basis, for the year ended December 31, 2023. Excluding the adjustments explained in Table B under “Adjustments to Net Income
(Loss)”, Adjusted Net Income for the year ended December 31, 2024 decreased by $85.5 million to $91.0 million or $1.21 per share on
a basic basis*, and $1.20 on a diluted basis*, from $176.5 million or $2.22 per share on a basic and diluted basis, for the year ended
December 31, 2023.
Adjusted Net Income for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was negatively
impacted by the following:
•
lower gross margin from lower year-over-year sales volume;
•
a $4.2 million year-over-year increase in research and development costs driven generally by increased new product and
process development activity;
•
a $1.5 million loss on the disposal of property, plant and equipment for the year ended December 31, 2024; and
•
a higher effective tax rate (53.2% for the year ended December 31, 2024 compared to 19.8% for the year ended December 31,
2023) driven primarily by the IFRS accounting treatment of the rapid depreciation of the Mexican Peso against the U.S. dollar
that does not impact cash*.
These factors were partially offset by a $4.3 million year-over-year decrease in finance expense as a result of lower borrowing rates on
the Company's revolving bank debt.
*Adjusted Net Income (Loss) and Adjusted Net Earnings (Loss) per Share for the three months and year ended December 31, 2024
were negatively impacted by an unusually high effective tax rate. This was driven primarily by the magnitude and pace of the
depreciation of the Mexican Peso against the U.S. dollar, which is the functional currency of the Company’s Mexican operations. In
situations where the local and functional currencies differ, IFRS, contrary to US GAAP, requires the tax value of assets and liabilities
denominated in local currency to be revalued to the operations' functional currency at the reporting date, with the related foreign
exchange movements impacting the tax expense for the period. These foreign exchange movements are non-cash in nature, do not
impact cash taxes and tend to balance out over time. Including this, and other foreign exchange related items, the effective tax rate for
the year ended December 31, 2024 was 53.2%. Excluding these foreign exchange items, the effective tax rate would have been 30.6%,
which is more reflective of a typical tax rate for the Company. Using a tax rate of 30.6%, Adjusted Net Earnings per Share would have
been $0.19 for the three months ended December 31, 2024, and $1.79 for the year ended December 31, 2024.
Page 11
Martinrea International Inc.
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
% Change
Additions to PP&E
$
118,964 $
97,889
21,075
21.5%
Additions to PP&E increased by $21.1 million to $119.0 million or 10.3% of sales for the fourth quarter of 2024 as compared to $97.9
million or 7.6% of sales in the fourth quarter of 2023.
Year ended December 31, 2024 to year ended December 31, 2023 comparison
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
Additions to PP&E
$
291,559 $
293,098
(1,539)
(0.5%)
Additions to PP&E decreased by $1.5 million to $291.6 million or 5.8% of sales for the year ended December 31, 2024 compared to
$293.1 million or 5.5% of sales for the year ended December 31, 2023.
General timing of expenditures makes quarterly additions to PP&E quite volatile by nature. Capital additions for the years ended
December 31, 2024 and 2023 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 (loss).
Three months ended December 31, 2024 to three months ended December 31, 2023 comparison
SALES
OPERATING INCOME (LOSS)*
Three months ended
December 31, 2024
Three months ended
December 31, 2023
Three months ended
December 31, 2024
Three months ended
December 31, 2023
North America
$
881,043 $
959,464 $
51,228 $
47,081
Europe
243,554
311,034
(8,848)
6,185
Rest of the World
31,855
34,467
(2,311)
3,381
Eliminations
(5,524)
(8,844)
-
-
Adjusted Operating Income
$
40,069 $
56,647
Adjustments*
-
-
(130,480)
(28,161)
Total
$
1,150,928 $
1,296,121 $
(90,411) $
28,486
*Operating Income (Loss) for the operating segments has been adjusted for certain items as explained in Table A under "Adjustments to Net Income
(Loss)". Of the $130.5 million adjustment for the fourth quarter of 2024, $66.3 million was recognized in Europe, $35.7 million in North America, and
$28.5 million in the Rest of the World. 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.
Page 12
Martinrea International Inc.
North America
Adjusted Operating Income in North America increased by $4.1 million to $51.2 million or 5.8% of sales for the fourth quarter of 2024
from $47.1 million or 4.9% of sales for the fourth quarter of 2023. The increase in Adjusted Operating Income as a percentage of sales
was generally due to a decrease in tooling sales, which typically earn low margin for the Company; lower SG&A expense as a
percentage of sales including lower outbound freight costs resulting from a Tier 2 supply chain disruption during the fourth quarter of
2023; higher year-over-year favourable commercial settlements; and productivity and efficiency improvements at certain operating
facilities and other improvements. These positive factors were partially offset by the negative impact on margins from lower year-over-
year production sales; operational inefficiencies at certain other operating facilities; and a negative sales mix, including additional
depreciation expense from recent new program investments.
Europe
Adjusted Operating Income (Loss) in Europe decreased by $15.0 million to a loss of $8.8 million or (3.6)% of sales for the fourth quarter
of 2024 from income of $6.2 million or 2.0% of sales for the fourth quarter of 2023. The decrease in Adjusted Operating Income (Loss)
was generally due to the negative impact on margins from lower year-over-year production sales, and lower favourable commercial
settlements; partially offset by productivity and efficiency improvements at certain other operating facilities and other improvements.
Rest of the World
Adjusted Operating Income (Loss) in the Rest of the World decreased by $5.7 million to a loss of $2.3 million or (7.3)% of sales for the
fourth quarter of 2024 from income of $3.4 million or 9.8% of sales for the fourth quarter of 2023 due to the negative impact on margins
from lower year-over-year production sales, and lower favourable commercial settlements.
Year ended December 31, 2024 to year ended December 31, 2023 comparison
SALES
OPERATING INCOME (LOSS)*
Year ended
December 31, 2024
Year ended
December 31, 2023
Year ended
December 31, 2024
Year ended
December 31, 2023
North America
$
3,789,821 $
4,022,741 $
252,804 $
270,060
Europe
1,115,023
1,204,672
16,759
16,897
Rest of the World
134,455
147,559
(2,865)
10,318
Eliminations
(25,172)
(34,969)
-
-
Adjusted Operating Income
$
266,698 $
297,275
Adjustments*
-
-
(142,090)
(28,161)
Total
$
5,014,127 $
5,340,003 $
124,608 $
269,114
*Operating Income (Loss) for the operating segments has been adjusted for certain items as explained in Table B under "Adjustments to Net Income
(Loss)". Of the $142.1 million adjustment for the year ended December 31, 2024, $71.3 million was recognized in Europe, $42.3 million in North America,
and $28.5 million in the Rest of the World. 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.
North America
Adjusted Operating Income in North America decreased by $17.3 million to $252.8 million or 6.7% of sales for the year ended
December 31, 2024 from $270.1 million or 6.7% of sales for the year ended December 31, 2023. The Adjusted Operating Income as a
percentage of sales for the year ended December 31, 2024 was in-line with the year ended December 31, 2023. The positive impacts
from a decrease in tooling sales, which typically earn low margin for the Company, and productivity and efficiency improvements at
certain operating facilities and other improvements, were essentially offset by operational inefficiencies at certain other operating
facilities; an unfavourable impact from a year-over-year change in foreign exchange rates in Mexico; higher SG&A expense as a
percentage of sales; and a negative sales mix, including additional depreciation expense from recent new program investments.
Page 13
Martinrea International Inc.
Europe
Adjusted Operating Income in Europe decreased slightly by $0.1 million to $16.8 million or 1.5% of sales for the year ended December
31, 2024 from $16.9 million or 1.4% of sales for the year ended December 31, 2023. The slight decrease in Adjusted Operating Income
was generally due to the negative impact on margins from lower year-over-year production sales; partially offset by contribution from
certain tooling sales, higher favourable commercial settlements, and productivity and efficiency improvements at certain operating
facilities and other improvements.
Rest of the World
Adjusted Operating Income (Loss) in the Rest of the World decreased by $13.2 million to a loss of $2.9 million or (2.1%) of sales for the
year ended December 31, 2024 from income of $10.3 million or 7.0% of sales for the year ended December 31, 2023, due to the
negative impact on margins from lower year-over-year production sales, costs related to the ramp-up of new business with BMW, lower
favourable commercial settlements, and favourable settlements on indirect tax matters which positively impacted prior year operating
income.
SUMMARY OF QUARTERLY RESULTS
(unaudited)
2024
2023
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Sales
$ 1,150,928 $ 1,237,493 $ 1,301,793 $ 1,323,913 $ 1,296,121 $ 1,378,938 $ 1,361,055 $ 1,303,889
Gross Margin
129,040
163,350
183,630
172,537
153,228
181,194
173,589
167,386
Operating Income (Loss)
(90,411)
65,879
76,208
72,932
28,486
83,015
82,436
75,177
Adjusted Operating Income
40,069
65,879
81,563
79,187
56,647
83,015
82,436
75,177
Net Income (Loss) for the period
(133,332)
14,157
40,979
43,650
1,850
53,744
49,900
48,171
Adjusted Net Income (Loss)
(15,596)
14,157
44,383
48,097
29,251
53,744
49,900
43,597
Basic and Diluted Net Earnings
(Loss) per Share
(1.82)
0.19
0.54
0.56
0.02
0.68
0.62
0.60
Adjusted Basic and Diluted Net
Earnings (Loss) per Share
(0.21)
0.19
0.58
0.62
0.37
0.68
0.62
0.54
LIQUIDITY AND CAPITAL RESOURCES
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
Page 14
Martinrea International Inc.
•
no mandatory principal repayment provisions for the revolving credit lines, including the new non-amortizing term loan, 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”).
On March 27, 2024, Martinrea entered into an accounts receivable program agreement to sell up to $100 million in trade receivables
without recourse and on an uncommitted basis, subject to predetermined limits for certain customers. Under the agreement, the
receivables are sold on a fully serviced basis, so that the Company continues to administer the collection of such receivables. As at
December 31, 2024, $33.0 million (US $22.9 million) of receivables were sold under the program, of which $9.2 million (US $6.4 million)
was held back from the sale proceeds, to be settled when the funds are received from the customers, in accordance with the provisions
of the program, with the net proceeds being used primarily to support the Company's supply base.
As at December 31, 2024, the Company had drawn US $386 million (December 31, 2023 - US $401 million) on the U.S. revolving credit
line, $160 million (December 31, 2023 - $410 million) on the Canadian revolving credit line, and $250 million (December 31, 2023 - $nil)
on the Canadian non-amortizing term loan. As at December 31, 2024, the Company had total liquidity of $543 million, including cash
and cash equivalents and availability under the Company's banking facility. 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 $282 million was
available as at December 31, 2024. At December 31, 2024, the weighted average effective interest rate of the banking facility was 5.9%
(December 31, 2023 - 7.1%). The facility requires the maintenance of certain financial ratios with which the Company was in
compliance as at December 31, 2024.
On May 23, 2024, the Company finalized an eleven-year equipment loan with total borrowing capacity of €1.1 million ($1.6 million),
repayable in bi-annual installments commencing in 2028 at a fixed annual interest rate of 3.72%.
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:
December 31,
September 30,
June 30,
March 31,
December 31,
Excluding the impact of IFRS 16:
2024
2024
2024
2024
2023
Long-term debt
$
981,414 $
997,353 $
1,033,586 $
1,030,194 $
969,236
Less: Cash and cash equivalents
(167,951)
(177,267)
(181,438)
(173,694)
(186,804)
Net Debt
$
813,463 $
820,086 $
852,148 $
856,500 $
782,432
Trailing 12-month Adjusted EBITDA
$
551,503 $
560,648 $
571,185 $
567,250 $
558,224
Net Debt to Adjusted EBITDA ratio
1.47x
1.46x
1.49x
1.51x
1.40x
Page 15
Martinrea International Inc.
December 31,
September 30,
June 30,
March 31,
December 31,
Including the impact of IFRS 16:
2024
2024
2024
2024
2023
Long-term debt
$
981,414 $
997,353 $
1,033,586 $
1,030,194 $
969,236
Lease liabilities
243,411
244,410
252,211
252,485
258,976
1,224,825
1,241,763
1,285,797
1,282,679
1,228,212
Less: Cash and cash equivalents
(167,951)
(177,267)
(181,438)
(173,694)
(186,804)
Net Debt
$
1,056,874 $
1,064,496 $
1,104,359 $
1,108,985 $
1,041,408
Trailing 12-month Adjusted EBITDA
$
614,758 $
623,178 $
632,531 $
627,004 $
616,678
Net Debt to Adjusted EBITDA ratio
1.72x
1.71x
1.75x
1.77x
1.69x
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,
September 30,
June 30,
March 31,
December 31,
2024
2024
2024
2024
2023
Trailing 12-month Adjusted EBITDA -
including the impact of IFRS 16
$
614,758 $
623,178 $
632,531 $
627,004 $
616,678
Principal payments of lease liabilities
(52,330)
(51,324)
(50,073)
(48,574)
(47,204)
Interest on lease liabilities
(10,925)
(11,206)
(11,273)
(11,180)
(11,250)
Trailing 12-month Adjusted EBITDA -
excluding the impact of IFRS 16
$
551,503 $
560,648 $
571,185 $
567,250 $
558,224
The Company’s Net Debt (excluding the impact of IFRS 16) decreased by $6.6 million during the fourth quarter of 2024 to $813.5
million from $820.1 million at the end of the third quarter of 2024 due largely to positive Free Cash Flow (after IFRS 16 lease payments)
generated during the quarter; partially offset by foreign exchange translation, cash restructuring costs of $2.6 million, $11.9 million in
share repurchases, and $3.7 million in dividends paid during the quarter. The Company's Net Debt to Adjusted EBITDA ratio (excluding
the impact of IFRS 16) increased to 1.47x from 1.46x at the end of the third quarter of 2024, due largely to a decrease in trailing 12-
month Adjusted EBITDA.
The Company was in compliance with its debt covenants as at December 31, 2024. 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 quarterly dividend was paid on April 14, 2020, and continues to this
date. The Company 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, 2024
Three months ended
December 31, 2023
$ Change
% Change
Cash provided by operations before changes in non-
cash working capital items
$
124,358 $
113,933
10,425
9.2%
Change in non-cash working capital items
66,316
110,091
(43,775)
(39.8%)
190,674
224,024
(33,350)
(14.9%)
Interest paid
(20,596)
(23,143)
2,547
11.0%
Income taxes paid
(16,070)
(7,618)
(8,452)
(110.9%)
Cash provided by operating activities
154,008
193,263
(39,255)
(20.3%)
Cash used in financing activities
(80,918)
(109,236)
28,318
25.9%
Cash used in investing activities
(86,395)
(75,259)
(11,136)
(14.8%)
Effect of foreign exchange rate changes on cash and
cash equivalents
3,989
(689)
4,678
679.0%
Increase (Decrease) in cash and cash equivalents
$
(9,316) $
8,079
(17,395)
(215.3%)
Cash provided by operating activities during the fourth quarter of 2024 was $154.0 million, compared to $193.3 million in the
corresponding period of 2023. The components for the fourth quarter of 2024 primarily include the following:
•
cash provided by operations before changes in non-cash working capital items of $124.4 million;
•
working capital items source of cash of $66.3 million comprised of a decrease in trade and other receivables of $217.9 million,
a decrease in inventories of $74.7 million, and a decrease in prepaid expenses and deposits of $3.0 million; partially offset by
a decrease in trade, other payables and provisions of $229.3 million;
•
interest paid of $20.6 million; and
•
income taxes paid of $16.1 million.
Cash used in financing activities during the fourth quarter of 2024 was $80.9 million, compared to $109.2 million in the corresponding
period of 2023. The components for the fourth quarter of 2024 primarily include the following:
•
a $51.9 million net decrease in long-term debt;
•
principal payments of lease liabilities of $13.5 million;
•
repurchase of common shares under the normal course issuer bid (as described in note 16 of the consolidated financial
statements) of $11.9 million; and
•
$3.7 million in dividends paid.
Cash used in investing activities during the fourth quarter of 2024 was $86.4 million, compared to $75.3 million in the corresponding
period of 2023. The components for the fourth quarter of 2024 primarily include the following:
•
cash additions to PP&E of $83.8 million; and
•
capitalized development costs relating to upcoming new program launches of $2.6 million.
Taking into account the opening cash balance of $177.3 million at the beginning of the fourth quarter of 2024, and the activities
described above, the cash and cash equivalents balance at December 31, 2024 was $168.0 million.
Page 17
Martinrea International Inc.
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
% Change
Cash provided by operations before changes in non-
cash working capital items
$
609,506 $
607,857
1,649
0.3%
Change in non-cash working capital items
(23,716)
81,659
(105,375)
(129.0%)
585,790
689,516
(103,726)
(15.0%)
Interest paid
(85,902)
(96,184)
10,282
10.7%
Income taxes paid
(66,603)
(82,240)
15,637
19.0%
Cash provided by operating activities
433,285
511,092
(77,807)
(15.2%)
Cash used in financing activities
(167,434)
(180,721)
13,287
7.4%
Cash used in investing activities
(285,496)
(303,755)
18,259
6.0%
Effect of foreign exchange rate changes on cash and
cash equivalents
792
(1,467)
2,259
154.0%
Increase (Decrease) in cash and cash equivalents
$
(18,853) $
25,149
(44,002)
(175.0%)
Cash provided by operating activities during the year ended December 31, 2024 was $433.3 million, compared to $511.1 million in the
corresponding period of 2023. The components for the year ended December 31, 2024 primarily include the following:
•
cash provided by operations before changes in non-cash working capital items of $609.5 million;
•
working capital use of cash of $23.7 million comprised of a decrease in trade, other payables and provisions of $246.4;
partially offset by a decrease in trade and other receivables of $130.3 million, a decrease in inventories of $90.6 million, and a
decrease in prepaid expenses and deposits of $1.8 million;
•
interest paid of $85.9 million; and
•
income taxes paid of $66.6 million.
Cash used in financing activities during the year ended December 31, 2024 was $167.4 million, compared to $180.7 million in the
corresponding period of 2023. The components for the year ended December 31, 2024 primarily include the following:
•
repurchase of common shares under the normal course issuer bid (as described in note 16 of the consolidated financial
statements) of $61.3 million;
•
principal payments of lease liabilities of $52.3 million;
•
a $38.9 million net decrease in long-term debt; and
•
$15.2 million in dividends paid.
Cash used in investing activities during the year ended December 31, 2024 was $285.5 million, compared to $303.8 million in the
corresponding period of 2023. The components for the year ended December 31, 2024 primarily include the following:
•
cash additions to PP&E of $275.5 million;
•
an additional investment in Equispheres Inc. ("Equispheres") of $8.0 million; and
•
capitalized development costs relating to upcoming new program launches of $7.2 million; partially offset by
•
proceeds from the disposal of PP&E of $5.4 million.
Taking into account the opening cash balance of $186.8 million at the beginning of 2024, and the activities described above, the cash
and cash equivalents balance at December 31, 2024 was $168.0 million.
Page 18
Martinrea International Inc.
Free Cash Flow
Three months ended
December 31, 2024
Three months ended
December 31, 2023
$ Change
Adjusted EBITDA
$
131,660 $
140,080
(8,420)
Add (deduct):
Change in non-cash working capital items
66,316
110,091
(43,775)
Remove impact of restructuring provision
1,526
(25,893)
27,419
Purchase of property, plant and equipment (excluding capitalized
interest)
(83,840)
(72,986)
(10,854)
Cash proceeds on disposal of property, plant and equipment
72
1,981
(1,909)
Capitalized development costs
(2,627)
(2,637)
10
Interest paid
(20,596)
(23,143)
2,547
Income taxes paid
(16,070)
(7,618)
(8,452)
Free Cash Flow
76,441
119,875
(43,434)
Principal payments of IFRS 16 lease liabilities
(13,478)
(12,472)
(1,006)
Free Cash Flow (after IFRS 16 lease payments)
$
62,963 $
107,403
(44,440)
Free cash flow for the fourth quarter of 2024 decreased year-over-year due largely to a decrease in cash provided by non-cash working
capital, net of the change in the restructuring provision which is included in working capital, an increase in cash purchases of property,
plant and equipment, higher income taxes paid, and lower Adjusted EBITDA; partially offset by lower 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 ($37.2) million as at December 31, 2024, a decrease from ($5.6) million as at September 30, 2024 and an increase from
($47.0) million as at December 31, 2023.
Reconciliation of IFRS “Cash provided by operating activities” to Non-IFRS “Free Cash Flow”, and "Free Cash Flow (after IFRS 16
lease payments)” for the three months ended December 31, 2024 and 2023:
Three months ended
December 31, 2024
Three months ended
December 31, 2023
Cash provided by operating activities
$
154,008 $
193,263
Add (deduct):
Purchase of property, plant and equipment (excluding capitalized interest)
(83,840)
(72,986)
Cash proceeds on disposal of property, plant and equipment
72
1,981
Capitalized development costs
(2,627)
(2,637)
Restructuring costs
1,034
27,266
Remove impact of restructuring provision
1,526
(25,893)
Unrealized gain on foreign exchange contracts
1,373
4,152
Deferred and restricted share units benefit (expense)
1,894
(4,555)
Stock options expense
(102)
(111)
Pension and other post-employment benefits expense
(201)
(1,130)
Contributions made to pension and other post-retirement benefits
2,077
104
Net unrealized foreign exchange loss and other expense
1,227
421
Free Cash Flow
76,441
119,875
Principal payments of IFRS 16 lease liabilities
(13,478)
(12,472)
Free Cash Flow (after IFRS 16 lease payments)
$
62,963 $
107,403
Page 19
Martinrea International Inc.
Year ended
December 31, 2024
Year ended
December 31, 2023
$ Change
Adjusted EBITDA
$
614,758 $
616,678
(1,920)
Add (deduct):
Change in non-cash working capital items
(23,716)
81,659
(105,375)
Remove impact of restructuring provision
22,629
(23,397)
46,026
Purchase of property, plant and equipment (excluding capitalized
interest)
(275,521)
(295,286)
19,765
Cash proceeds on disposal of property, plant and equipment
5,383
2,383
3,000
Capitalized development costs
(7,228)
(8,235)
1,007
Interest paid
(85,902)
(96,184)
10,282
Income taxes paid
(66,603)
(82,240)
15,637
Free Cash Flow
183,800
195,378
(11,578)
Principal payments of IFRS 16 lease liabilities
(52,330)
(47,204)
(5,126)
Free Cash Flow (after IFRS 16 lease payments)
$
131,470 $
148,174
(16,704)
Free cash flow for the year ended December 31, 2024 decreased year-over-year due largely to a decrease in cash provided by non-
cash working capital, net of the change in the restructuring provision which is included in working capital, and lower Adjusted EBITDA;
partially offset by a decrease in cash purchases of property, plant and equipment, lower income taxes paid, lower interest paid on long-
term debt, and higher cash proceeds on disposal of property, plant and equipment.
Reconciliation of IFRS “Cash provided by operating activities” to Non-IFRS “Free Cash Flow”, and "Free Cash Flow (after IFRS 16
lease payments)” for the year ended December 31, 2024 and 2023:
Year ended
December 31, 2024
Year ended
December 31, 2023
Cash provided by operating activities
$
433,285 $
511,092
Add (deduct):
Purchase of property, plant and equipment (excluding capitalized interest)
(275,521)
(295,286)
Cash proceeds on disposal of property, plant and equipment
5,383
2,383
Capitalized development costs
(7,228)
(8,235)
Restructuring costs
12,644
27,266
Remove impact of restructuring provision
22,629
(23,397)
Unrealized gain on foreign exchange contracts
2,286
3,937
Deferred and restricted share units expense
(4,367)
(14,060)
Stock options expense
(229)
(442)
Pension and other post-employment benefits expense
(1,903)
(3,217)
Contributions made to pension and other post-retirement benefits
3,734
1,990
Net unrealized foreign exchange gain and other income
(6,913)
(6,653)
Free Cash Flow
183,800
195,378
Principal payments of IFRS 16 lease liabilities
(52,330)
(47,204)
Free Cash Flow (after IFRS 16 lease payments)
$
131,470 $
148,174
RISKS AND UNCERTAINTIES AND TRENDS
Martinrea competes primarily in the light vehicle segment of the global auto parts industry with a principal focus on North America
(Canada, the United States and Mexico), and also has operations in Europe, South America and Asia. Martinrea operates in a business
which is impacted by various economic, industry, technological and other trends. The automotive industry remains one of North
America’s and the world’s largest and most competitive industries, and has faced many challenges (for example, the automotive
recession of 2008 and 2009, the COVID-19 Pandemic and the global semi-conductor shortage), and continues to face similar and
different challenges, including, inflation, supply chain disruptions, labour shortages and other difficulties, such as trade and tariff issues
and the potential shift to EVs. The global automotive industry is a complex and increasingly high-tech industry, sensitive to a broad
range of macro-economic and political factors. A number of important developments and trends have impacted the automotive sector in
the recent past and are expected to continue into the future.
Page 20
Martinrea International Inc.
Several trends affecting the automotive industry substantially affect the business environment for independent suppliers like Martinrea,
including: (i) the focus on electrification; fuel efficiency and emission reduction leading to trends in lightweighting; (ii) the increasing
impact of, and uncertainty created by, environmental and other government regulation; (iii) the impact of, and uncertainty created by,
trade policies or trade wars, including tariffs or threatened tariffs, and geopolitical issues resulting in, or that may result in, a trend to
nearshoring or that may substantially impact the pricing and affordability of products and services; (iv) ongoing pressure on suppliers to
reduce prices which can translate into increased risk exposure for suppliers; (v) the outsourcing of components, assemblies and
complete systems from OEMs to sophisticated, independent suppliers; (vi) the expansion of foreign-owned OEMs in North America and
their increased emphasis on North American-sourced content; (vii) the impact on the supply chain of issues, like energy shortages,
global conflict, trade issues, talent shortages and inflation; (viii) shift in demand from passenger car to light truck (including SUV/CUV);
(ix) the role of autonomous vehicles, connectivity and shared mobility; (x) the continually increasing participation by suppliers in the
design and engineering of automotive components and complete vehicle subsystems at an early stage of the design process; (xi) the
continuing consolidation of the OEMs’ supplier base; (xii) platform consolidation; (xiii) the growth of automotive production in emerging
markets along with an emphasis on global platforms; (xiv) the continued focus on a company’s sustainability policies, including
governance, environmental (such as climate change and green energy adoption) and social (such as diversity and human rights)
policies; (iv) the importance of production volumes; (xv) global conflict or war in different regions; and (xvi) inflationary pressures. In
addition to increased supplier dependency, OEMs have come under substantial regulatory and competitive pressure to simultaneously
improve vehicle safety and reduce vehicle weight. Substantive weight reduction is expected to ensue as OEMs continue to identify and
develop uses for higher strength-to-weight materials and improved manufacturing processes, as well as an increased emphasis on
lighter weight materials such as aluminum and higher strength steels in response to the aforementioned pressures. Many of these
trends have created opportunities for the Company and the industry. However, there is also uncertainty on how a change in some of the
trends may impact the Company or the automotive industry, such as a loosening of environmentally focused regulation.
Some of these trends are discussed in the AIF and in the "Risk Factors" in the AIF and below. 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
trends and 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 and tariffs, infrastructure considerations,
legislative changes, and environmental emissions standards and safety issues.
North American and Global Economic and Political Conditions (including war) and Consumer Confidence
The automotive industry is global, and is cyclical also 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 (including trade wars),
tariffs real or threatened, international or domestic conflicts or wars or political crises, government regulation, 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, tariff and trade
issues, governmental regulation, electrification, 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 or technology shifts such as electrification or AI (see “Trade
Policies and Resulting Impact” under “Automotive Industry General” and “Trade Restrictions and Disputes” and “Changes in Law and
Page 21
Martinrea International Inc.
Governmental Regulation” and “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” and “Fluctuation of Operating
Results” 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 or higher prices for vehicles 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. 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, technology or electrification 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.
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. The potential or actual imposition of tariffs and countervailing restrictions and/or retaliatory tariffs between the United States
and Canada and Mexico, and with other countries, such as China, is a fluid and rapidly evolving situation. Current international trade
disputes or trade wars could, among other things, reduce demand for and production of vehicles including impeding our ability to sell
products to customers located in the United States, disrupt global supply chains including the Company’s ability to procure inputs and
equipment for its operations, 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. The
Company’s products may also be subject to tariffs that do not apply to automotive suppliers based in other countries which could result
in changes to our customer base and disrupt our usual sales process. Any disruption to current trade practices could have a material
impact on the Company’s ability to market its products and procure inputs for its operations. See “Changes in Laws and Governmental
Regulations.”
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, tariffs, 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,
Page 22
Martinrea International Inc.
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
significant reputational risk. Changes in laws or regulations could also result in the Company shifting its operations to more favourable
jurisdictions.
Dependence Upon Key Customers
North America, Europe, Brazil and China are relevant 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, including from any tariff or trade
issues, 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
Page 23
Martinrea International Inc.
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.
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
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
(including trade wars), 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.
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.
Russia and Ukraine War and Middle East Tensions
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
situations 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;
Page 24
Martinrea International Inc.
constraining the supply of aluminum, palladium or other commodity metals required in automotive production; and increasing
cybersecurity threats.
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 2025 and would likely
be exacerbated by shortages or disruptions to inputs required for automotive production, or by imposition of tariffs on automobiles,
automotive parts, or inputs such as 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, an increase in data centers, and challenges related to the transition to
renewable energy generation. 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. The Russia/Ukraine war 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.
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 increased vehicle electrification, a number of potentially disruptive, EV-focused OEMs have emerged, particularly in China. Vehicle
electrification, and the rate thereof, has an impact on the Company’s revenues on EV-related platforms. 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
Page 25
Martinrea International Inc.
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 and tariffs, 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) cybersecurity issues of suppliers and governments which may result in border delays or outages to key systems supporting
global trade, 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 or any tariff or other trade issues that materially increase costs may have a material adverse impact on
automotive suppliers and the supply chain and the automotive industry. 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 or permanent disruption and/or 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.
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 including tariffs or trade 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 or permanent disruption and/or 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, decide to exit the automotive manufacturing space 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
Page 26
Martinrea International Inc.
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”, and "Trade Restrictions or Disputes".
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.
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 a semiconductor
chip shortage. Although the semiconductor chip shortage has abated, a future semiconductor chip shortage could have a material
adverse effect on the Company’s operations, sales and profitability.
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,
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, could affect the Company’s
ability to fully implement its corporate strategy.
Page 27
Martinrea International Inc.
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.
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, including for example, trade wars or any related or unrelated issues and tariffs.
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.
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
Page 28
Martinrea International Inc.
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 (see “Trade Policies and Resulting Impact” and “Trade
Restriction or Disputes”).
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, and likely in the future based
on proposed tariff pronouncements, 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.
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
Page 29
Martinrea International Inc.
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 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 have been incurred by the Company in the past.
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.
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, the closing of a customer plant or the significant underperformance of a customer program, such as an EV program where
actual sales are a fraction of customer-anticipated sales. In response to the increasingly competitive automotive industry conditions,
the Company rationalizes 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 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.
Page 30
Martinrea International Inc.
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 significant impairment charges from time to time, 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.
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
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
Page 31
Martinrea International Inc.
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 and Electrification)
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 deep learning models, 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
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.
Page 32
Martinrea International Inc.
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
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.
Page 33
Martinrea International Inc.
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.
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,
Page 34
Martinrea International Inc.
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.
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
Page 35
Martinrea International Inc.
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, 2024). 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, 2024). The
Company’s subsidiary in Meschede, Germany, Martinrea Honsel Germany GmbH, is currently being assessed by the German Federal
and State Tax Authorities for tax deductions taken mainly in respect of certain intra-company transactions for the years 2014 to 2016.
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. 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”).
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.
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
Page 36
Martinrea International Inc.
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
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).
Page 37
Martinrea International Inc.
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
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.
Page 38
Martinrea International Inc.
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.
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
Page 39
Martinrea International Inc.
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
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.
Page 40
Martinrea International Inc.
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.
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, 2024, 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
Page 41
Martinrea International Inc.
the Company’s consolidated financial statements for the year ended December 31, 2024, which reflects the financial position of the
Company’s defined benefit pension plan and other post-employment benefit plans at December 31, 2024.
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, 2024, the
unfunded actuarial liability for these obligations was significant. Expected benefit payments for 2025 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, 2024, which reflect the financial position of the Company’s post-employment benefits
other than pension plans at December 31, 2024.
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
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 March 6, 2025, the Company had 72,787,848 common shares outstanding. The Company’s common shares constitute its only
class of voting securities. As at March 6, 2025, options to acquire 2,245,000 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.
On April 29, 2024, the Company renewed the NCIB receiving approval from the TSX to acquire for cancellation up to an additional
6,435,000 common shares of the Company. The renewed bid commenced on May 2, 2024 and spans a 12-month period.
During 2024, the Company purchased for cancellation an aggregate of 5,378,592 common shares for an aggregate purchase price of
$62.5 million resulting in a reduction to stated capital of $44.4 million and a decrease to retained earnings of $18.1 million. The shares
were purchased and cancelled directly under the NCIB.
Page 42
Martinrea International Inc.
CONTRACTUAL OBLIGATIONS AND OFF BALANCE SHEET FINANCING
At December 31, 2024, 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)
$
443,898 $
7,866 $
878 $
143 $
30 $
- $
452,815
Long-term debt
10,445
4,033
966,286
298
352
-
981,414
Contractual lease obligations
64,755
59,365
52,669
30,690
19,959
50,679
278,117
Total Contractual obligations
$
519,098 $
71,264 $
1,019,833 $
31,131 $
20,341 $
50,679 $
1,712,346
(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, 2024, the amount of the off-
balance sheet program financing was $$9.9 million (December 31, 2023 - $16.5 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.
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, 2024.
Page 43
Martinrea International Inc.
Sale of Receivables
Trade receivables are derecognized when the Company transfers the trade receivables and substantially all the risks and rewards of
ownership of the financial asset to another entity. If the Company retains substantially all the risks and rewards of ownership of a
transferred financial asset, the Company continues to recognize the financial asset and recognizes a financial liability for the proceeds
received.
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, 2024, 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
Amount of U.S.
dollars
Weighted average
exchange rate of
U.S. dollars
Maximum period in
months
Buy Mexican Peso
$
81,592 $
20.8355
1
The aggregate value of these forward contracts as at December 31, 2024 was a pre-tax gain of $2.3 million and was recorded in trade
and other receivables (December 31, 2023 - pre-tax gain of $3.9 million recorded in trade and other receivables).
INVESTMENTS
December 31, 2024 December 31, 2023
Investment in common shares of NanoXplore Inc.
$
51,462 $
54,384
Investment in shares and convertible debentures of AlumaPower Corporation.
4,036
4,036
Investment in shares of and convertible debentures of Equispheres Inc.
9,030
1,000
Other
850
750
$
65,378 $
60,170
As at December 31, 2024, the Company held a 22.5%, 13.0%, and 6.8% equity interest (on a non-diluted basis) in NanoXplore,
AlumaPower Corporation (“AlumaPower”), and Equispheres, respectively. 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. AlumaPower is a private company developing aluminum air
battery technology for a variety of end markets, including automotive. Equispheres is a private company developing technologies for the
production and use of advanced materials in additive manufacturing.
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)
$
6,821
Less: gain attributable to indirect retained interest
(1,548)
Net gain on disposal of equity investments
$
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 a result of stock options exercised within NanoXplore, the Company’s equity interest in NanoXplore decreased slightly to 22.5% from
22.7% during the year ended December 31, 2024.
Page 44
Martinrea International Inc.
The Company applies equity accounting to its equity investment 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 shares in
AlumaPower and Equispheres are classified as fair value through other comprehensive income. Accordingly, the 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).
Movement in equity-accounted investments is summarized as follows:
Investment in
common shares
of NanoXplore
Investment in
common shares
of VoltaXplore
Net as of December 31, 2022
$
48,749 $
3,940
Additions
8,452
-
Share of loss for the period
(2,799)
(761)
Share of other comprehensive loss for the period
(18)
-
Disposal
-
(3,179)
Net as of December 31, 2023
$
54,384 $
-
Share of loss for the period
(2,904)
-
Share of other comprehensive loss for the period
(18)
-
Net as of December 31, 2024
$
51,462 $
-
As at December 31, 2024, the market value of the shares held in NanoXplore by the Company was $98.9 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, 2024, 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, 2024. 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, 2024 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
Page 45
Martinrea International Inc.
disclosure controls and procedures and internal control over financial reporting determined to be effective can only provide reasonable
assurance of achieving their control objectives.
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, 2024 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, 2024.
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
CGUs.
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-
Page 46
Martinrea International Inc.
sourcing and other new business opportunities, program price and cost assumptions on current and future business, the timing of new
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, 2024, 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 $167.9 million (2023 - $164.7 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.
Page 47
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, 2024 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 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 recognizes no gain or loss relating to the right of use it retains.
The Company adopted the amendments to IFRS 16 effective January 1, 2024. The adoption of amendments to IFRS 16 did not 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 Company adopted the amendments to IAS 1 effective January 1, 2024. The adoption of amendments to IAS 1 did not have a
material impact on the consolidated financial statements.
Page 48
Martinrea International Inc.
IFRS 18, Presentation and Disclosure in Financial Statements
On April 9, 2024, the IASB issued IFRS 18, Presentation and Disclosure in Financial Statements (replacement to IAS 1). The new
accounting standard introduces three sets of new requirements to improve companies' reporting of financial performance and give
investors a better basis for analyzing and comparing companies:
•
improved comparability in the statement of profit or loss by introducing three defined categories for income and expenses
(operating, investing and financing) and requiring companies to provide new defined subtotals, including operating profit;
•
enhanced transparency of management-defined performance measures by requiring companies to disclose explanations of
those company-specific measures that are related to the income statement; and
•
enhanced guidance on how companies group information in the financial statements, including guidance on whether
information is included in the primary financial statements or is further disaggregated in the notes.
The new standard is effective for annual periods beginning on or after January 1, 2027. The Company is currently assessing the impact
of the new standard on the consolidated financial statements.
Amendments to IFRS 9 and IFRS 7, Classification and Measurements of Financial Instruments
On May 30, 2024, the IASB issued Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS
9 and IFRS 7). The amendments include:
•
clarifying the requirements for the timing of recognition and derecognition of some financial assets and liabilities, with a new
exception for some financial liabilities settled through an electronic cash transfer system;
•
clarifying and adding further guidance for assessing whether a financial asset meets the solely payments of principal and
interest criterion;
•
adding new disclosures for certain instruments with contractual terms that can change cash flows (such as some instruments
with features linked to the achievement of environment, social and governance targets); and
•
updating the disclosures for equity instruments designated at fair value through other comprehensive income.
The amendments are effective for annual periods beginning on or after January 1, 2026. The adoption of amendments to IFRS 9 and
IFRS 7 is not expected to have a material impact on the consolidated financial statements.
Page 49
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, 2024, December 31, 2023 and December 31, 2022.
2024
2023
2022
Sales
$
5,014,127
$
5,340,003
$
4,757,588
Gross Margin
648,557
675,397
559,263
Operating Income
124,608
269,114
217,779
Net Income (Loss) for the year
(34,546)
153,665
132,838
Net Earnings (Loss) per Share - Basic and Diluted
$
(0.46)
$
1.93
$
1.65
Non-IFRS Measures*
Adjusted Operating Income
$
266,698
$
297,275
$
230,119
% of Sales
5.3 %
5.6 %
4.8 %
Adjusted EBITDA
614,758
616,678
515,888
% of Sales
12.3 %
11.5 %
10.8 %
Adjusted Net Income
91,041
176,492
141,612
Adjusted Net Earnings per Share - Basic
$
1.21
$
2.22
$
1.76
Adjusted Net Earnings per Share - Diluted
$
1.20
$
2.22
$
1.76
Total Assets
$
3,820,794
$
3,989,730
$
4,143,119
Cash and Cash Equivalents
167,951
186,804
161,655
Total Long-Term Debt
981,414
969,236
1,070,368
Dividends Declared
14,921
15,846
16,076
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, 2023, including adjustments in Table B under "Adjustments to Net Income (Loss)".
*Non-IFRS Measures
The Company prepares its consolidated financial statements in accordance with IFRS. 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 (Loss)”, “Adjusted Net Earnings (Loss) per
Share (on a basic and diluted basis)”, “Adjusted Operating Income”, "Adjusted EBITDA”, “Free Cash Flow”, "Free Cash Flow (after
IFRS 16 lease payments)", 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, 2024 and 2023 and the Company’s MD&A for the year
ended December 31, 2023, as previously filed and available at www.sedarplus.ca, for a full reconciliation of the Non-IFRS measures for
the year ended December 31, 2022.
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, the
increased reliance on and importance of, and the increasing trend of sustainability and environmentally focused and lightweight
technologies, future investments in leading edge technology, the use of and benefit of graphene to the Company’s business, equipment
and processes, opportunities to increase sales, expand the customer base and growth of the Company and pursuit of and belief in its
strategies, the impact and duration of supply chain issues, inflation, war, global trade and tariff issues, including potential impact on the
business, the Company’s ability to be a consistent Free Cash Flow generator, the execution of the Company’s sustainability strategy
and the Company’s belief of the claims referenced under Potential Tax Exposures and Legal Proceedings. The words “continue”,
Page 50
Martinrea International Inc.
“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, which are discussed in
greater detail in the Company’s AIF and MD&A for the year ended December 31, 2024 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
•
Trade Restrictions or Disputes
•
Changes in Laws and Governmental Regulations
•
Dependence Upon Key Customers
•
Pandemics and Epidemics, Force Majeure Events, Natural Disasters, Terrorist Activities, Political and Civil Unrest or War, and
Other Outbreaks
•
Russia and Ukraine War and Middle East Tensions
•
Inflationary Pressures
•
Regional Energy Shortages
•
Customer Consolidation and Cooperation
•
Emergence of Potentially Disruptive EV OEMs
•
Outsourcing and Insourcing Trends
•
Financial Viability of Suppliers and Key Suppliers and Supply Disruptions (Material Availability or Disruption)
•
Semiconductor Chip Shortages and Price Increases
•
Competition
•
Customer Pricing Pressures, Contractual Arrangements, Cost and Risk Absorption and Purchase Orders
•
Potential Volatility of Share Prices
•
Fluctuations in Operating Results
•
Material and Commodity Prices and Volatility
•
Scrap Steel/Aluminum Price Volatility
•
Quote/Pricing Assumptions
•
Launch Costs, Operational Costs and Issues and Cost Structure
•
Potential Rationalization Costs, Turnaround Costs and Impairment Charges
•
Product Warranty, Repair/Replacement Costs, Recall, Product Liability and Liability Risk
•
Product Development and Technological Change (Including Artificial Intelligence and Electrification)
•
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
•
Labour Relations Matters
•
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 51
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
•
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 52
Martinrea International Inc.
MARTINREA INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2024
Page
Management’s Responsibility for Financial Reporting
1
Independent Auditor’s Report
2
Consolidated Balance Sheets
6
Consolidated Statements of Operations
7
Consolidated Statements of Comprehensive Income
8
Consolidated Statements of Changes in Equity
9
Consolidated Statements of Cash Flows
10
Notes to the Consolidated Financial Statements
1.
Basis of preparation
11
2.
Material accounting policies
12
3.
Trade and other receivables
21
4.
Inventories
21
5.
Property, plant and equipment
21
6.
Right-of-use assets
22
7.
Intangible assets
23
8.
Investments
23
9.
Impairment of assets
24
10. Trade and other payables
24
11. Provisions
25
12. Long-term debt
25
13. Lease liabilities
27
14. Pensions and other post-retirement benefits
27
15. Income taxes
30
16. Capital stock
33
17. Earnings (loss) per share
35
18. Research and development costs
35
19. Personnel expenses
35
20. Finance expense and other finance income
36
21. Operating segments
36
22. Financial instruments
37
23. Commitments and contingencies
41
24. Guarantees
42
25. Transactions with key management personnel
42
26. Subsequent event
43
Martinrea International Inc.
Table of Contents
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, 2024 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, 2024. 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) “Peter Cirulis”
Pat D’Eramo
Peter Cirulis
Chief Executive Officer
Chief Financial Officer
KPMG LLP
100 New Park Place, Suite 1400
Vaughan, ON L4K 0J3
Canada
Tel 905-265-5900
Fax 905-265-6390
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.
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, 2024 and December 31, 2023
•
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 policy information
(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, 2024 and December 31, 2023,
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 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, 2024. 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.
Evaluation of Impairment of Long-Lived Assets of certain cash-generating units (‘CGUs’)
in the North America and Europe operating segments
Description of the matter
We draw attention to Notes 1 (c), 2 (i), and 9 to the financial statements. The carrying amounts
of the Entity’s non-financial assets are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication of impairment exists, then the asset’s
recoverable amount is estimated. The recoverable amount of a CGU is the greater of its value in
use and its fair value less costs to sell. An impairment loss is recognized if the carrying amount
of a CGU exceeds its estimated recoverable amount. In determining the estimated recoverable
amount of each CGU, the Entity’s key assumptions include projected future sales and earnings
and discount rates.
Why the matter is a key audit matter
We identified the evaluation of impairment of long-lived assets of certain CGUs in the North
America and Europe as a key audit matter. This matter represented an area of significant risk of
material misstatement given the high degree of estimation uncertainty in assessing the Entity’s
significant assumptions. In addition, significant auditor judgment and the involvement of
professionals with specialized skills and knowledge was required to evaluate the Entity’s
significant assumptions due to the sensitivity of the recoverable amount to minor changes in
significant assumptions.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following for
these CGUs:
•
We evaluated the projected future sales and earnings assumptions by comparing to the
actual historical sales and earnings. We considered changes in conditions and events
affecting each CGU to assess adjustments in arriving at the projected assumptions.
•
We involved valuation professionals with specialized skills and knowledge, who assisted in
assessing the discount rates used by comparing them against a discount rate range that we
independently developed using publicly available market data for comparable companies.
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.
•
Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business units within the group as a basis for forming
an opinion on the group financial statements. We are responsible for the direction, supervision
and review of the audit work performed for the purposes 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
March 6, 2025
Note
December 31, 2024
December 31, 2023
ASSETS
Cash and cash equivalents
$
167,951 $
186,804
Trade and other receivables
3
613,505
695,819
Inventories
4
508,231
568,274
Prepaid expenses and deposits
33,599
33,904
Income taxes recoverable
12,784
11,089
TOTAL CURRENT ASSETS
1,336,070
1,495,890
Property, plant and equipment
5
1,949,004
1,943,771
Right-of-use assets
6
215,802
238,552
Deferred tax assets
15
199,512
192,301
Intangible assets
7
37,535
42,743
Investments
8
65,378
60,170
Pension assets
14
17,493
16,303
TOTAL NON-CURRENT ASSETS
2,484,724
2,493,840
TOTAL ASSETS
$
3,820,794 $
3,989,730
LIABILITIES
Trade and other payables
10
$
1,024,716 $
1,176,579
Provisions
11
6,862
29,892
Income taxes payable
25,332
25,017
Current portion of long-term debt
12
10,445
12,778
Current portion of lease liabilities
13
54,235
48,507
TOTAL CURRENT LIABILITIES
1,121,590
1,292,773
Long-term debt
12
970,969
956,458
Lease liabilities
13
189,176
210,469
Pension and other post-retirement benefits
14
40,384
37,261
Deferred tax liabilities
15
31,653
27,588
TOTAL NON-CURRENT LIABILITIES
1,232,182
1,231,776
TOTAL LIABILITIES
2,353,772
2,524,549
EQUITY
Capital stock
16
601,188
645,256
Contributed surplus
46,052
45,903
Accumulated other comprehensive income
210,821
95,753
Retained earnings
608,961
678,269
TOTAL EQUITY
1,467,022
1,465,181
TOTAL LIABILITIES AND EQUITY
$
3,820,794 $
3,989,730
Commitments and contingencies (note 23)
Subsequent event (note 26)
See accompanying notes to the consolidated financial statements.
On behalf of the Board:
“Robert Wildeboer”
Director
“Terry Lyons”
Director
Martinrea International Inc.
Consolidated Balance Sheets
(in thousands of Canadian dollars)
Page 6
Martinrea International Inc.
Note
Year ended
December 31, 2024
Year ended
December 31, 2023
SALES
$
5,014,127 $
5,340,003
Cost of sales (excluding depreciation of property, plant and equipment and right-of-use assets)
(4,046,631)
(4,372,174)
Depreciation of property, plant and equipment and right-of-use assets (production)
(318,939)
(292,432)
Total cost of sales
(4,365,570)
(4,664,606)
GROSS MARGIN
648,557
675,397
Research and development costs
18
(42,231)
(38,011)
Selling, general and administrative
(321,577)
(323,438)
Depreciation of property, plant and equipment and right-of-use assets (non-production)
(16,540)
(17,712)
Gain (loss) on disposal of property, plant and equipment
(1,511)
1,039
Restructuring costs
11
(12,644)
(27,266)
Impairment of assets
9
(129,446)
(895)
OPERATING INCOME
124,608
269,114
Share of loss of equity investments
8
(2,904)
(3,560)
Net gain on disposal of equity investments
8
-
5,273
Finance expense
20
(76,014)
(80,323)
Other finance income
20
6,913
6,653
INCOME BEFORE INCOME TAXES
52,603
197,157
Income tax expense
15
(87,149)
(43,492)
NET INCOME (LOSS) FOR THE PERIOD
$
(34,546) $
153,665
Basic earnings (loss) per share
17
$
(0.46) $
1.93
Diluted earnings (loss) per share
17
$
(0.46) $
1.93
See accompanying notes to the consolidated financial statements.
Martinrea International Inc.
Consolidated Statements of Operations
(in thousands of Canadian dollars, except per share amounts)
Page 7
Martinrea International Inc.
Year ended
December 31, 2024
Year ended
December 31, 2023
NET INCOME (LOSS) FOR THE PERIOD
$
(34,546) $
153,665
Other comprehensive income (loss), net of tax:
Items that may be reclassified to net income (loss)
Foreign currency translation differences for foreign operations
115,084
(28,294)
Items that will not be reclassified to net income (loss)
Share of other comprehensive loss of equity investments (note 8)
(16)
(18)
Remeasurement of defined benefit plans
(1,762)
7,135
Other comprehensive income (loss), net of tax
113,306
(21,177)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
$
78,760 $
132,488
See accompanying notes to the consolidated financial statements.
Martinrea International Inc.
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars)
Page 8
Martinrea International Inc.
Capital stock
Contributed
surplus
Accumulated
other
comprehensive
income
Retained
earnings
Total equity
BALANCE AT DECEMBER 31, 2022
$
663,646 $
45,558 $
124,065 $
543,636 $
1,376,905
Net income for the period
-
-
-
153,665
153,665
Compensation expense related to stock options
-
442
-
-
442
Dividends ($0.20 per share)
-
-
-
(15,846)
(15,846)
Exercise of employee stock options
358
(97)
-
-
261
Repurchase of common shares (note 16)
(18,748)
-
-
(10,321)
(29,069)
Other comprehensive income (loss) net of tax
Remeasurement of defined benefit plans
-
-
-
7,135
7,135
Foreign currency translation differences
-
-
(28,294)
-
(28,294)
Share of other comprehensive loss of equity
investments
-
-
(18)
-
(18)
BALANCE AT DECEMBER 31, 2023
645,256
45,903
95,753
678,269
1,465,181
Net loss for the period
-
-
-
(34,546)
(34,546)
Compensation expense related to stock options
-
229
-
-
229
Dividends ($0.20 per share)
-
-
-
(14,921)
(14,921)
Exercise of employee stock options
350
(80)
-
-
270
Repurchase of common shares (note 16)
(44,418)
-
-
(18,079)
(62,497)
Other comprehensive income (loss) net of tax
Remeasurement of defined benefit plans
-
-
-
(1,762)
(1,762)
Foreign currency translation differences
-
-
115,084
-
115,084
Share of other comprehensive loss of equity
investments
-
-
(16)
-
(16)
BALANCE AT DECEMBER 31, 2024
$
601,188 $
46,052 $
210,821 $
608,961 $
1,467,022
See accompanying notes to the consolidated financial statements.
Martinrea International Inc.
Consolidated Statements of Changes in Equity
(in thousands of Canadian dollars)
Page 9
Martinrea International Inc.
Year ended
December 31, 2024
Year ended
December 31, 2023
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net income (loss) for the period
$
(34,546) $
153,665
Adjustments for:
Depreciation of property, plant and equipment and right-of-use assets
335,479
310,144
Amortization of development costs
11,070
10,298
Impairment of assets (note 9)
129,446
895
Unrealized gain on foreign exchange forward contracts
(2,286)
(3,937)
Finance expense (note 20)
76,014
80,323
Income tax expense (note 15)
87,149
43,492
Loss (gain) on disposal of property, plant and equipment
1,511
(1,039)
Deferred and restricted share units expense (note 16)
4,367
14,060
Stock options expense (note 16)
229
442
Share of loss of equity investments (note 8)
2,904
3,560
Net gain on disposal of equity investments (note 8)
-
(5,273)
Pension and other post-retirement benefits expense (note 14)
1,903
3,217
Contributions made to pension and other post-retirement benefits (note 14)
(3,734)
(1,990)
609,506
607,857
Changes in non-cash working capital items:
Trade and other receivables
130,338
89,896
Inventories
90,588
89,040
Prepaid expenses and deposits
1,776
2,019
Trade, other payables and provisions
(246,418)
(99,296)
585,790
689,516
Interest paid
(85,902)
(96,184)
Income taxes paid
(66,603)
(82,240)
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
433,285 $
511,092
FINANCING ACTIVITIES:
Decrease in long-term debt (net of deferred financing fees)
(24,917)
(71,647)
Equipment loan repayments
(13,990)
(17,104)
Principal payments of lease liabilities
(52,330)
(47,204)
Dividends paid
(15,188)
(15,958)
Exercise of employee stock options
270
261
Repurchase of common shares
(61,279)
(29,069)
NET CASH USED IN FINANCING ACTIVITIES
$
(167,434) $
(180,721)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (excluding capitalized interest)*
(275,521)
(295,286)
Capitalized development costs
(7,228)
(8,235)
Increase in investments (note 8)
(8,130)
(2,617)
Proceeds on disposal of property, plant and equipment
5,383
2,383
NET CASH USED IN INVESTING ACTIVITIES
$
(285,496) $
(303,755)
Effect of foreign exchange rate changes on cash and cash equivalents
792
(1,467)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(18,853)
25,149
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
186,804
161,655
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
167,951 $
186,804
*As at December 31, 2024, $78,547 (December 31, 2023 - $75,800) 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.
Martinrea International Inc.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Page 10
Martinrea International Inc.
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.
BASIS OF PREPARATION
(a)
Statement of compliance
These consolidated financial statements have been prepared in accordance with IFRS Accounting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”).
The consolidated financial statements of the Company for the year ended December 31, 2024 were approved by the Board of Directors on
March 6, 2025.
(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. Key assumptions include
projected future sales and earnings, 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
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 11
Martinrea International Inc.
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 an outflow of
resources to settle 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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 12
Martinrea International Inc.
(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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 13
Martinrea International Inc.
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, 2024.
(v)
Sale of receivables
Trade receivables are derecognized when the Company transfers the trade receivables and substantially all the risks and rewards of
ownership of the financial asset to another entity. If the Company retains substantially all the risks and rewards of ownership of a transferred
financial asset, the Company continues to recognize the financial asset and recognizes a financial liability for the proceeds received.
(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:
Basis
Rate
Buildings
Declining balance
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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 14
Martinrea International Inc.
(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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 15
Martinrea International Inc.
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). 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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 16
Martinrea International Inc.
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
CGUs.
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. The Company
recognizes gains or losses on the settlement of a defined benefit plan in profit or loss when the settlement occurs.
(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).
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 17
Martinrea International Inc.
(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.
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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 18
Martinrea International Inc.
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.
(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 (Loss) per share
The Company presents basic and diluted earnings (loss) 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 values 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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 19
Martinrea International Inc.
(v)
Recently adopted accounting standards and policies
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 recognizes no gain or loss relating to the right of use it retains.
The Company adopted the amendments to IFRS 16 effective January 1, 2024. The adoption of amendments to IFRS 16 did not 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 Company adopted the amendments to IAS 1 effective January 1, 2024. The adoption of amendments to IAS 1 did not have a material
impact on the consolidated financial statements.
(w)
Recently issued accounting standards
The IASB issued the following new standards:
IFRS 18, Presentation and Disclosure in Financial Statements
On April 9, 2024, the IASB issued IFRS 18, Presentation and Disclosure in Financial Statements (replacement to IAS 1). The new accounting
standard introduces three sets of new requirements to improve companies' reporting of financial performance and give investors a better basis
for analyzing and comparing companies:
•
improved comparability in the statement of profit or loss by introducing three defined categories for income and expenses (operating,
investing and financing) and requiring companies to provide new defined subtotals, including operating profit;
•
enhanced transparency of management-defined performance measures by requiring companies to disclose explanations of those
company-specific measures that are related to the income statement; and
•
enhanced guidance on how companies group information in the financial statements, including guidance on whether information is
included in the primary financial statements or is further disaggregated in the notes.
The new standard is effective for annual periods beginning on or after January 1, 2027. The Company is currently assessing the impact of the
new standard on the consolidated financial statements.
Amendments to IFRS 9 and IFRS 7, Classification and Measurements of Financial Instruments
On May 30, 2024, the IASB issued Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and
IFRS 7). The amendments include:
•
clarifying the requirements for the timing of recognition and derecognition of some financial assets and liabilities, with a new
exception for some financial liabilities settled through an electronic cash transfer system;
•
clarifying and adding further guidance for assessing whether a financial asset meets the solely payments of principal and interest
criterion;
•
adding new disclosures for certain instruments with contractual terms that can change cash flows (such as some instruments with
features linked to the achievement of environment, social and governance targets); and
•
updating the disclosures for equity instruments designated at fair value through other comprehensive income.
The amendments are effective for annual periods beginning on or after January 1, 2026. The adoption of amendments to IFRS 9 and IFRS 7 is
not expected to have a material impact on the consolidated financial statements.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 20
Martinrea International Inc.
3.
TRADE AND OTHER RECEIVABLES
December 31, 2024
December 31, 2023
Trade receivables
$
571,073 $
643,959
Other receivables
40,146
47,923
Foreign exchange forward contracts not accounted for as hedges (note 22(d))
2,286
3,937
$
613,505 $
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.
On March 27, 2024, Martinrea entered into an accounts receivable program agreement to sell up to $100,000 in trade receivables without recourse and
on an uncommitted basis, subject to predetermined limits for certain customers. Under the agreement, the receivables are sold on a fully serviced basis,
so that the Company continues to administer the collection of such receivables. The Company derecognizes the trade receivables sold under the
program when it transfers substantially all the risks and rewards of ownership of the receivables. As at December 31, 2024, $32,986 (US $22,888) of
receivables were sold under the program, of which $9,236 (US $6,409) was held back from the sale proceeds, to be settled when the funds are received
from the customers, in accordance with the provisions of the program, with the net proceeds being used primarily to support the Company’s supply base.
4.
INVENTORIES
December 31, 2024
December 31, 2023
Raw materials
$
256,154 $
256,038
Work in progress
64,982
69,474
Finished goods
51,128
51,202
Tooling work in progress and other inventory
135,967
191,560
$
508,231 $
568,274
5.
PROPERTY, PLANT AND EQUIPMENT
December 31, 2024
December 31, 2023
Cost
Accumulated
amortization
and
impairment
losses
Net book
value
Cost
Accumulated
amortization
and
impairment
losses
Net book
value
Land and buildings
$
261,870 $
(61,976) $
199,894
$
240,789 $
(47,664) $
193,125
Leasehold improvements
94,528
(67,164)
27,364
86,038
(58,881)
27,157
Manufacturing equipment
3,592,179
(2,139,284)
1,452,895
3,131,621
(1,751,642)
1,379,979
Tooling and fixtures
40,572
(34,197)
6,375
38,627
(34,302)
4,325
Other assets
102,361
(72,663)
29,698
87,808
(59,052)
28,756
Construction in progress
232,778
-
232,778
310,429
-
310,429
$
4,324,288 $
(2,375,284) $
1,949,004
$
3,895,312 $
(1,951,541) $
1,943,771
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 21
Martinrea International Inc.
Movement in property, plant and equipment is summarized as follows:
Land and
buildings
Leasehold
improvements
Manufacturing
equipment
Tooling and
fixtures
Other
assets
Construction
in
progress
Total
Net as of December 31, 2022
$
173,433 $
30,205 $
1,310,227 $
5,145 $
30,675 $
399,088 $
1,948,773
Additions
25
-
5,115
6
886
287,066
293,098
Disposals
-
-
(986)
-
(223)
(135)
(1,344)
Depreciation
(7,003)
(4,362)
(239,027)
(779)
(9,760)
-
(260,931)
Impairment (note 9)
-
-
(666)
-
-
-
(666)
Transfers from construction in
progress
30,797
1,619
328,984
19
7,477
(368,896)
-
Foreign currency translation
adjustment
(4,127)
(305)
(23,668)
(66)
(299)
(6,694)
(35,159)
Net as of December 31, 2023
$
193,125 $
27,157 $
1,379,979 $
4,325 $
28,756 $
310,429 $
1,943,771
Additions
84
-
4,729
-
1,403
285,343
291,559
Disposals
(1,198)
-
(4,973)
(5)
(155)
(563)
(6,894)
Depreciation
(7,485)
(4,546)
(262,220)
(1,434)
(8,390)
-
(284,075)
Impairment (note 9)
(5,476)
(647)
(88,101)
(2,507)
(5,705)
(14,581)
(117,017)
Transfers from construction in
progress
5,166
4,091
331,138
5,541
12,203
(358,139)
-
Foreign currency translation
adjustment
15,678
1,309
92,343
455
1,586
10,289
121,660
Net as of December 31, 2024
$
199,894 $
27,364 $
1,452,895 $
6,375 $
29,698 $
232,778 $
1,949,004
6.
RIGHT-OF-USE ASSETS
December 31, 2024
December 31, 2023
Cost
Accumulated
amortization
and
impairment
losses
Net book
value
Cost
Accumulated
amortization
and
impairment
losses
Net book
value
Leased buildings
$
344,345 $
(192,304) $
152,041
$
316,314 $
(141,483) $
174,831
Leased manufacturing equipment
126,163
(63,660)
62,503
107,162
(44,985)
62,177
Leased other assets
5,767
(4,509)
1,258
5,364
(3,820)
1,544
$
476,275 $
(260,473) $
215,802
$
428,840 $
(190,288) $
238,552
Movement in right-of-use assets is summarized as follows:
Leased
buildings
Leased
manufacturing
equipment
Leased
other assets
Total
Net as of December 31, 2022
$
185,281 $
67,320 $
1,464 $
254,065
Additions
10,626
12,022
1,017
23,665
Lease modifications
13,647
19
22
13,688
Depreciation
(31,896)
(16,382)
(935)
(49,213)
Foreign currency translation adjustment
(2,827)
(802)
(24)
(3,653)
Net as of December 31, 2023
$
174,831 $
62,177 $
1,544 $
238,552
Additions
2,804
12,457
744
16,005
Lease modifications
5,808
-
-
5,808
Depreciation
(34,806)
(15,713)
(885)
(51,404)
Impairment (note 9)
(6,346)
(28)
(218)
(6,592)
Foreign currency translation adjustment
9,750
3,610
73
13,433
Net as of December 31, 2024
$
152,041 $
62,503 $
1,258 $
215,802
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 22
Martinrea International Inc.
7.
INTANGIBLE ASSETS
December 31, 2024
December 31, 2023
Cost
Accumulated
amortization
and
impairment
losses
Net book
value
Cost
Accumulated
amortization
and
impairment
losses
Net book
value
Development costs
$
151,921 $
(114,386) $
37,535 $
140,174 $
(97,431) $
42,743
Movement in intangible assets is summarized as follows:
Development costs
Net as of December 31, 2022
$
45,916
Additions
8,235
Amortization
(10,298)
Foreign currency translation adjustment
(1,110)
Net as of December 31, 2023
42,743
Additions
7,228
Amortization
(11,070)
Impairment (note 9)
(4,268)
Foreign currency translation adjustment
2,902
Net as of December 31, 2024
$
37,535
8.
INVESTMENTS
December 31, 2024
December 31, 2023
Investment in common shares of NanoXplore Inc.
$
51,462 $
54,384
Investment in shares and convertible debentures of AlumaPower Corporation.
4,036
4,036
Investment in shares and convertible debentures of Equispheres Inc.
9,030
1,000
Other
850
750
$
65,378 $
60,170
As at December 31, 2024, the Company held a 22.5%, 13.0%, and 6.8% equity interest (on a non-diluted basis) in NanoXplore Inc. (“NanoXplore”),
AlumaPower Corporation (“AlumaPower”), and Equispheres Inc. (“Equispheres”), respectively. 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. AlumaPower is a private company developing aluminum air battery technology for a
variety of end markets, including automotive. Equispheres is a private company developing technologies for the production and use of advanced
materials in additive manufacturing.
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)
$
6,821
Less: gain attributable to indirect retained interest
(1,548)
Net gain on disposal of equity investments
$
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 a result of stock options exercised within NanoXplore, the Company’s equity interest in NanoXplore decreased slightly to 22.5% from 22.7% during
the year ended December 31, 2024.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 23
Martinrea International Inc.
The Company applies equity accounting to its equity investment 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 shares in AlumaPower and Equispheres are classified as fair
value through other comprehensive income. Accordingly, the 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).
Movement in equity-accounted investments is summarized as follows:
Investment in
common shares of
NanoXplore
Investment in
common shares of
VoltaXplore
Net as of December 31, 2022
$
48,749 $
3,940
Additions
8,452
-
Share of loss for the period
(2,799)
(761)
Share of other comprehensive loss for the period
(18)
-
Disposal
-
(3,179)
Net as of December 31, 2023
$
54,384 $
-
Share of loss for the period
(2,904)
-
Share of other comprehensive loss for the period
(18)
-
Net as of December 31, 2024
$
51,462 $
-
As at December 31, 2024, the stock market value of the shares held in NanoXplore by the Company was $98,859.
9.
IMPAIRMENT OF ASSETS
During the fourth quarter of 2024, in conjunction with its annual business planning cycle, the Company recorded impairment charges on property, plant
and equipment of $102,103, right-of-use assets of $6,592, intangible assets of $1,250, and inventories of $475, totaling $110,420. Of this amount,
$65,270 relates to CGUs in the Europe operating segment, $25,829 relates to a CGU in the North America operating segment, and $19,321 relates to
CGUs in Brazil, China and South Africa, included in the Rest of the World operating segment. As at December 31, 2024, the Company’s CGUs were
recorded at carrying values that did not exceed their recoverable amounts determined using an income approach to determine fair value less costs to
sell. Discount rates used in the determination of the recoverable amounts of these CGUs ranged between 9.3% to 13.5%.
The Company also separately identified specific assets for which no further use was identified, and recorded impairment charges on property, plant and
equipment of $14,914, intangible assets of $3,018 relating to development costs, and inventories of $1,094, totaling $19,026. Of this amount, $9,841
were in the North America operating segment, and $9,185 were in the Rest of the World operating segment.
The impairment charges were recorded where the carrying amount of the assets exceeded their estimated recoverable amounts. Reasonably possible
changes in key assumptions could result in material changes to the carrying amounts of the CGUs.
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.
10.
TRADE AND OTHER PAYABLES
December 31, 2024
December 31, 2023
Trade accounts payable and accrued liabilities
$
1,024,716 $
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, 2024, the Company recognized $93,827 (2023 - $143,468) of revenues that were included in contract
liabilities at the beginning of the period.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 24
Martinrea International Inc.
11.
PROVISIONS
Restructuring
Claims and
Litigation
Total
Net as of December 31, 2022
$
4,380 $
3,526 $
7,906
Net additions
27,266
375
27,641
Amounts used during the period
(3,444)
(1,944)
(5,388)
Foreign currency translation adjustment
(425)
158
(267)
Net as of December 31, 2023
$
27,777 $
2,115 $
29,892
Net additions
12,644
2,097
14,741
Amounts used during the period
(35,505)
(2,200)
(37,705)
Foreign currency translation adjustment
232
(298)
(66)
Net as of December 31, 2024
$
5,148 $
1,714 $
6,862
(a)
Restructuring
Additions to the restructuring provision in 2024 totaled $12,644 and represent employee-related severance resulting from the rightsizing of
certain operations in Germany ($6,075), Mexico ($3,910), Canada ($1,995), and the United States ($664).
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.
(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.
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.
December 31, 2024
December 31, 2023
Banking facility
$
963,556 $
938,129
Equipment loans
17,858
31,107
981,414
969,236
Current portion
(10,445)
(12,778)
$
970,969 $
956,458
Terms and conditions of outstanding loans, in Canadian dollar equivalents, are as follows:
Currency
Nominal
interest rate
Year of
maturity
December 31, 2024
Carrying amount
December 31, 2023
Carrying amount
Banking facility
USD
SOFR + 1.70%
2027
$
556,297 $
529,496
CAD
CORRA + 1.70%
2027
157,259
408,633
CAD
CORRA + 1.95%
2027
250,000
-
Equipment loans
CAD
2.54%
2026
9,113
14,142
EUR
2.46%
2026
3,526
5,818
EUR
1.40%
2026
3,059
5,677
CAD
5.22%
2025
889
2,598
EUR
0.00%
2028
796
870
EUR
3.72%
2035
451
-
EUR
0.26%
2025
24
72
EUR
1.05%
2024
-
1,930
$
981,414 $
969,236
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 25
Martinrea International Inc.
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 credit lines, including the new non-amortizing term loan, 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, 2024, the Company had drawn US $386,000 (December 31, 2023 - US $401,000) on the U.S. revolving credit line, $160,000
(December 31, 2023 - $410,000) on the Canadian revolving credit line, and $250,000 (December 31, 2023 - $nil) on the Canadian non-amortizing term
loan. At December 31, 2024, the weighted average effective interest rate of the banking facility was 5.9% (December 31, 2023 - 7.1%). The facility
requires the maintenance of certain financial ratios with which the Company was in compliance as at December 31, 2024.
Deferred financing fees of $2,741 (December 31, 2023 - $1,367) have been netted against the carrying amount of the long-term debt.
On May 23, 2024, the Company finalized an eleven-year equipment loan with total borrowing capacity of €1,092 ($1,601), repayable in bi-annual
installments commencing in 2028 at a fixed annual interest rate of 3.72%.
Future annual minimum principal repayments as at December 31, 2024 are as follows:
Scheduled
principal
repayments
Scheduled
amortization of
deferred
financing fees
Carrying
amount of
outstanding
loans
Within one year
$
11,710 $
(1,265) $
10,445
One to two years
5,298
(1,265)
4,033
Two to three years
966,497
(211)
966,286
Three to four years
298
-
298
Thereafter
352
-
352
$
984,155 $
(2,741) $
981,414
Movement in long-term debt is summarized as follows:
Total
Net as of December 31, 2022
$
1,070,368
Net repayments
(71,647)
Equipment loan repayments
(17,104)
Amortization of deferred financing fees
1,022
Foreign currency translation adjustment
(13,403)
Net as of December 31, 2023
$
969,236
Net repayments
(22,759)
Equipment loan proceeds
442
Equipment loan repayments
(13,990)
Deferred financing fee additions
(2,600)
Amortization of deferred financing fees
1,226
Foreign currency translation adjustment
49,859
Net as of December 31, 2024
$
981,414
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 26
Martinrea International Inc.
13.
LEASE LIABILITIES
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:
Total
Net as of December 31, 2022
$
273,120
Net additions
23,665
Lease modifications
13,688
Principal payments of lease liabilities
(47,204)
Termination of leases
(174)
Foreign currency translation adjustment
(4,119)
Net as of December 31, 2023
$
258,976
Net additions
16,005
Lease modifications
5,808
Principal payments of lease liabilities
(52,330)
Foreign currency translation adjustment
14,952
Net as of December 31, 2024
$
243,411
The maturity of contractual undiscounted lease liabilities as at December 31, 2024 is as follows:
Total
Within one year
$
64,035
One to two years
59,188
Two to three years
52,518
Three to four years
30,601
Thereafter
70,633
Total undiscounted lease liabilities at December 31, 2024
$
276,975
Interest on lease liabilities
(33,564)
Total present value of minimum lease payments
$
243,411
Current portion
(54,235)
$
189,176
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;
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 27
Martinrea International Inc.
•
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.
Information about the Company’s defined benefit plans as at December 31, 2024 and 2023, in aggregate, is as follows:
Accrued benefit obligation:
December 31, 2024
December 31, 2023
Other post-
retirement
benefits
Pensions
Total
Other post-
retirement
benefits
Pensions
Total
Balance, beginning of year
$
(26,854) $
(69,643) $
(96,497) $
(29,432) $
(67,095) $
(96,527)
Benefits paid by the plan
1,843
4,554
6,397
1,543
3,310
4,853
Current service costs
(49)
(1,168)
(1,217)
(52)
(1,351)
(1,403)
Interest costs
(1,305)
(3,149)
(4,454)
(1,413)
(3,144)
(4,557)
Curtailment gain
-
-
-
369
970
1,339
Special termination loss
-
-
-
-
(1,736)
(1,736)
Settlements
-
25,950
25,950
-
-
-
Actuarial gains (losses) - experience
(582)
(197)
(779)
101
258
359
Actuarial gains - demographic assumptions
-
-
-
3,239
-
3,239
Actuarial losses - financial assumptions
(764)
(851)
(1,615)
(1,539)
(1,433)
(2,972)
Foreign exchange translation
(1,155)
(1,067)
(2,222)
330
578
908
Balance, end of year
$
(28,866) $
(45,571) $
(74,437) $
(26,854) $
(69,643) $
(96,497)
Plan Assets:
December 31, 2024
December 31, 2023
Other post-
retirement
benefits
Pensions
Total
Other post-
retirement
benefits
Pensions
Total
Fair value, beginning of year
$
- $
75,539 $
75,539 $
- $
66,849 $
66,849
Contributions paid into the plans
1,838
1,896
3,734
1,539
451
1,990
Benefits paid by the plans
(1,838)
(4,554)
(6,392)
(1,539)
(3,310)
(4,849)
Interest income
-
3,510
3,510
-
3,274
3,274
Administrative costs
-
(205)
(205)
-
(134)
(134)
Settlements
-
(25,487)
(25,487)
-
-
-
Remeasurements, return on plan assets recognized
in other comprehensive income
-
1,973
1,973
-
9,035
9,035
Foreign exchange translation
-
799
799
-
(626)
(626)
Fair value, end of year
$
- $
53,471 $
53,471 $
- $
75,539 $
75,539
Asset ceiling
-
(1,925)
(1,925)
-
-
-
Accrued net benefit obligation, end of year
$
(28,866) $
5,975 $
(22,891) $
(26,854) $
5,896 $
(20,958)
Recorded on the consolidated balance sheets as follows:
Pension assets, net of asset ceiling
$
- $
17,493 $
17,493 $
- $
16,303 $
16,303
Pension and other post-retirement benefits
long-term liability
$
(28,866) $
(11,518) $
(40,384) $
(26,854) $
(10,407) $
(37,261)
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 28
Martinrea International Inc.
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 $17,493 (December 31, 2023 - $16,303).
During 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, 2024, the fair value of the buy-in assets of $15,156
(December 31, 2023 - $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.
During 2024, the Company fully settled pension obligations for its US registered defined benefit pension plan through lump sum payments and an
annuity purchase resulting in a settlement gain of $463 (US $336) for the year ended December 31, 2024.
Pension expense recognized in profit or loss:
December 31, 2024
December 31, 2023
Other post-
retirement
benefits
Pensions
Total
Other post-
retirement
benefits
Pensions
Total
Current service costs
$
49 $
1,168 $
1,217 $
52 $
1,351 $
1,403
Net interest cost (income)
1,305
(361)
944
1,413
(130)
1,283
Curtailment gain
-
-
-
(369)
(970)
(1,339)
Special termination loss
-
-
-
-
1,736
1,736
Settlements
-
(463)
(463)
-
-
-
Administrative costs
-
205
205
-
134
134
Pension expense
$
1,354 $
549 $
1,903 $
1,096 $
2,121 $
3,217
Amounts recognized in other comprehensive income (loss), before income taxes:
Year ended
December 31, 2024
Year ended
December 31, 2023
Actuarial gains (losses)
$
(421) $
9,661
Change in asset ceiling, net of interest
(1,925)
-
Amount recognized in other comprehensive income
$
(2,346) $
9,661
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:
December 31, 2024
December 31, 2023
Equity
50.9%
34.9%
Debt securities
20.2%
45.6%
Annuities
28.9%
19.5%
100.0%
100.0%
As at December 31, 2024 and 2023, 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, 2024
Year ended December 31, 2023
Canada
USA
Germany
Total
Canada
USA
Germany
Total
Present value of funded obligations
$
(34,053) $
- $
- $
(34,053) $
(34,461) $
(25,175) $
- $
(59,636)
Fair value of plan assets
53,333
138
-
53,471
50,764
24,775
-
75,539
Funding status of funded obligations
19,280
138
-
19,418
16,303
(400)
-
15,903
Effect of asset ceiling
(1,925)
-
-
(1,925)
-
-
-
-
Net balance sheet position of funded
obligations
17,355
138
-
17,493
16,303
(400)
-
15,903
Present value of unfunded obligations
(16,510)
(13,600)
(10,274)
(40,384)
(15,137)
(12,998)
(8,726)
(36,861)
Net balance sheet position of
obligations
$
845 $
(13,462) $
(10,274) $
(22,891) $
1,166 $
(13,398) $
(8,726) $
(20,958)
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 29
Martinrea International Inc.
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.
Principal actuarial assumptions, expressed as weighted averages, are summarized below:
December 31, 2024
December 31, 2023
Defined benefit pension plans:
Discount rate used to calculate year end benefit obligation
4.4%
4.6%
Mortality table
CPM 2014, Pri 2012
Blue collar w/
MP-2021
CPM 2014, Pri 2012
Blue collar w/
MP-2021
Other post-employment benefit plans:
Discount rate used to calculate year end benefit obligation
5.0%
4.7%
Mortality table
CPM 2014, Pri 2012
Blue collar w/
MP-2021
CPM 2014, Pri 2012
Blue collar w/
MP-2021
Health care trend rates:
Initial health care rate
6.0%
5.0%
Ultimate health care rate
4.2%
4.2%
Sensitivity of Key Assumptions
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, 2024
December 31, 2023
Pension Plans
Change in
assumption
Increase in
assumption
Decrease in
assumption
Increase in
assumption
Decrease in
assumption
Discount rate
0.50%
Decrease by 6.2%
Increase by 7.1%
Decrease by 5.6%
Increase by 6.3%
Life Expectancy
1 Year
Increase by 2.6%
Decrease by 2.6%
Increase by 2.9%
Decrease by 2.8%
Other post-retirement benefits
Discount rate
0.50%
Decrease by 4.4%
Increase by 4.9%
Decrease by 4.8%
Increase by 5.2%
Medical costs
1.00%
Increase by 8.1%
Decrease by 7.2%
Increase by 8.9%
Decrease by 7.7%
15.
INCOME TAXES
The components of income tax expense are as follows:
Year ended
December 31, 2024
Year ended
December 31, 2023
Current income tax expense
$
(72,051) $
(67,075)
Deferred income tax recovery (expense)
(15,098)
23,583
Total income tax expense
$
(87,149) $
(43,492)
Taxes on items recognized in other comprehensive income (loss) or directly in equity were as follows:
Deferred tax benefit (charge) on:
Year ended
December 31, 2024
Year ended
December 31, 2023
Employee benefit plan actuarial losses (gains)
$
584 $
(2,526)
Foreign currency items
2,405
(548)
$
2,989 $
(3,074)
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 30
Martinrea International Inc.
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:
Year ended
December 31, 2024
Year ended
December 31, 2023
Income before income taxes
$
52,603
$
197,157
Tax at Statutory income tax rate of 26.5% (2023 - 26.5%)
13,940
52,247
Increase (decrease) in income taxes resulting from:
Utilization of losses previously not benefited
-
(5,418)
Changes in estimates related to prior years
(812)
417
Revaluations due to foreign exchange
44,146
(22,390)
Revaluations due to inflation
(8,061)
(6,589)
Tax rate differences in foreign jurisdictions
(934)
4,794
Current year tax losses not benefited and withholding tax expensed
26,829
10,501
Derecognition of previously recognized deferred tax assets
1,451
1,293
Non-deductible expenses
10,590
8,637
$
87,149
$
43,492
Effective income tax rate applicable to income before income taxes
165.7%
22.1%
The movement of deferred tax assets are summarized below:
Losses
Employee
benefits
Interest and
accruals
PPE and
intangible
assets
Other
Total
December 31, 2022
$
124,318 $
9,585 $
45,395 $
40,224 $
11,199 $
230,721
Benefit (charge) to income
(25,097)
2,813
15,205
42,797
1,481
37,199
Charge to other comprehensive income
-
(2,526)
-
-
(548)
(3,074)
Translation and other items
(1,880)
(114)
(1,387)
(1,884)
69
(5,196)
December 31, 2023
$
97,341 $
9,758 $
59,213 $
81,137 $
12,201 $
259,650
Benefit (charge) to income
1,639
(1,332)
15,708
(36,772)
(2,333)
(23,090)
Benefit to other comprehensive income
-
584
-
-
2,405
2,989
Translation and other items
6,640
407
5,818
4,811
1,869
19,545
December 31, 2024 before offset
$
105,620 $
9,417 $
80,739 $
49,176 $
14,142 $
259,094
Tax offset
(59,582)
December 31, 2024 after offset
$
199,512
The movement of deferred tax liabilities are summarized below:
PPE and
intangible
assets
Other
Total
December 31, 2022
$
(74,562) $
(7,791) $
(82,353)
Charge to income
(12,997)
(619)
(13,616)
Translation and other items
1,297
(265)
1,032
December 31, 2023
$
(86,262) $
(8,675) $
(94,937)
Benefit to income
5,392
2,600
7,992
Translation and other items
(3,587)
(703)
(4,290)
December 31, 2024 before offset
$
(84,457) $
(6,778) $
(91,235)
Tax offset
59,582
December 31, 2024 after offset
$
(31,653)
Net deferred asset at December 31, 2023
$
164,713
Net deferred asset at December 31, 2024
$
167,859
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 31
Martinrea International Inc.
During the year ended December 31, 2024, 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 $665,639 (December 31, 2023 - $614,228) in non-capital losses that are available to reduce taxable
income in future years. If unused, these losses will expire as follows:
Year
2025 - 2029
$
24,878
2030 - 2044
388,955
Indefinite
251,806
$
665,639
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 $12,648 (December 31, 2023 - $10,989).
A deferred tax asset of $74,412 in the United States (December 31, 2023 - $69,617) 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:
December 31, 2024
December 31, 2023
Tax losses in foreign jurisdictions
$
72,076 $
65,760
Deductible temporary differences in foreign jurisdictions
15,116
4,976
$
87,192 $
70,736
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
$1,080,127 at December 31, 2024 (December 31, 2023 - $1,067,384).
On June 20, 2024, the Canadian federal government enacted the Global Minimum Tax Act (“GMTA”) to implement Pillar Two from the OECD/G20
Inclusive Framework on Base Erosion and Profit Shifting. Canada’s GMTA imposes a 15% global minimum tax (“GMT”) on large multinational groups
with consolidated revenues of at least €750,000. The GMTA applies retroactively for fiscal years beginning on or after December 31, 2023. For the year
ended December 31, 2024, the Company meets the Country-by-Country Reporting Safe Harbour tests in all applicable jurisdictions, and no GMT has
been recognized in the consolidated financial statements. Additionally, no deferred tax liability has been recorded in connection with the GMT, as
management expects that the Company will continue to qualify for safe harbour relief in the foreseeable future, subject to ongoing assessment of
financial and tax positions in relevant jurisdictions.
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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 32
Martinrea International Inc.
16.
CAPITAL STOCK
Common shares outstanding:
Number
Amount
Balance as of December 31, 2022
80,387,095 $
663,646
Exercise of stock options
25,000
358
Repurchase of common shares under normal course issuer bid
(2,270,655)
(18,748)
Balance as of December 31, 2023
78,141,440
645,256
Exercise of stock options
25,000
350
Repurchase of common shares under normal course issuer bid
(5,378,592)
(44,418)
Balance as of December 31, 2024
72,787,848 $
601,188
The Company is authorized to issue an unlimited number of common shares. The Company’s shares have no par value.
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.
On April 29, 2024, the Company renewed the NCIB receiving approval from the TSX to acquire for cancellation up to an additional 6,435,000 common
shares of the Company. The renewed bid commenced on May 2, 2024 and spans a 12-month period.
During 2024, the Company purchased for cancellation an aggregate of 5,378,592 common shares for an aggregate purchase price of $62,497 resulting
in a reduction to capital stock of $44,418 and a decrease to retained earnings of $18,079. The shares were purchased and cancelled directly under the
NCIB.
Stock options
The following is a summary of the activity of the outstanding share purchase options:
Year ended December 31, 2024
Year ended December 31, 2023
Number of
options
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
Balance, beginning of period
2,328,500 $
13.56
2,435,000 $
13.50
Granted during the period
500,000
10.16
-
-
Exercised during the period
(25,000)
10.80
(25,000)
10.44
Cancelled during the period
-
-
(81,500)
12.53
Expired during the period
(558,500)
12.02
-
-
Balance, end of period
2,245,000 $
13.22
2,328,500 $
13.56
Options exercisable, end of period
1,710,000 $
14.12
2,103,500 $
13.49
The following is a summary of the issued and outstanding common share purchase options as at December 31, 2024:
Range of exercise price per share
Number
outstanding
Date of grant
Expiry
$10.00 - 12.99
525,000
2022 - 2024
2032 - 2034
$13.00 - 16.99
1,720,000
2015 - 2020
2025 - 2030
Total share purchase options
2,245,000
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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 33
Martinrea International Inc.
The key assumptions, on a weighted average basis, used in the valuation of options granted during the year ended December 31, 2024 are shown in the
table below. No options were granted during the year ended December 31, 2023.
Year ended
December 31, 2024
Expected volatility
42.29%
Risk free interest rate
2.90%
Expected life (years)
5.0
Dividend yield
1.97%
Weighted average fair value of options granted
$
3.17
For the year ended December 31, 2024, the Company expensed $229 (2023 - $442), to reflect stock-based compensation expense, as derived using the
Black-Scholes-Merton option valuation model.
Deferred Share Unit (“DSU”) Plan
The following is a summary of the issued and outstanding DSUs as at December 31, 2024 and 2023:
Year ended
December 31, 2024
Year ended
December 31, 2023
Outstanding, beginning of period
836,505
625,148
Granted and reinvested dividends
220,238
211,357
Redeemed
-
-
Outstanding, end of period
1,056,743
836,505
The DSUs granted during the year ended December 31, 2024 and 2023 had a weighted average fair value per unit of $11.50 and $13.19, respectively,
on the date of grant. For the year ended December 31, 2024, DSU compensation expense/benefit reflected in the consolidated statement of operations,
including changes in fair value during the period, amounted to a benefit of $302 (2023 - an expense of $3,498), recorded in selling, general and
administrative expense.
Unrecognized DSU compensation expense as at December 31, 2024 was $1,118 (December 31, 2023 - $1,791) 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, 2024 and 2023:
RSUs
PSUs
Total
Outstanding, December 31, 2022
558,474
478,624
1,037,098
Granted and reinvested dividends
450,131
364,840
814,971
Redeemed
(192,725)
(191,966)
(384,691)
Cancelled
(6,690)
(7,303)
(13,993)
Outstanding, December 31, 2023
809,190
644,195
1,453,385
Granted and reinvested dividends
504,322
414,014
918,336
Redeemed
(368,170)
(287,815)
(655,985)
Cancelled
(14,566)
(14,200)
(28,766)
Outstanding, December 31, 2024
930,776
756,194
1,686,970
The RSUs and PSUs granted during the year ended December 31, 2024 and 2023 had a weighted average fair value per unit of $11.86 and $14.16,
respectively, on the date of grant. For the year ended December 31, 2024, RSU and PSU compensation expense reflected in the consolidated statement
of operations, including changes in fair value during the period, amounted to $4,669 (2023 - $10,562), recorded in selling, general and administrative
expense.
Unrecognized RSU and PSU compensation expense as at December 31, 2024 was $5,801 (December 31, 2023 - $9,765) and will be recognized in
profit or loss over the remaining vesting period.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 34
Martinrea International Inc.
The key assumptions, on a weighted average basis, used in the valuation of PSUs granted during the year ended December 31, 2024 and 2023 are
shown in the table below:
Year ended
December 31, 2024
Year ended
December 31, 2023
Expected life (years)
2.27
2.25
Risk free interest rate
3.51%
4.31%
17.
EARNINGS (LOSS) PER SHARE
Details of the calculations of earnings (loss) per share are set out below:
Year ended December 31, 2024
Year ended December 31, 2023
Weighted
average
number of
shares
Per common
share amount
Weighted
average
number of
shares
Per common
share amount
Basic
75,500,954 $
(0.46)
79,608,262 $
1.93
Effect of dilutive securities:
Stock options
-
-
46,784
-
Diluted
75,500,954 $
(0.46)
79,655,046 $
1.93
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, 2024, 1,720,000 (2023 - 1,720,000) options were excluded from the diluted weighted average per share calculation as
they were anti-dilutive.
18.
RESEARCH AND DEVELOPMENT COSTS
Year ended
December 31, 2024
Year ended
December 31, 2023
Research and development costs, gross
$
38,389 $
35,948
Capitalized development costs
(7,228)
(8,235)
Amortization of capitalized development costs
11,070
10,298
Research and development costs, net
$
42,231 $
38,011
19.
PERSONNEL EXPENSES
The consolidated statement of operations presents operating expenses by function. Operating expenses include the following personnel-related
expenses:
Note
Year ended
December 31, 2024
Year ended
December 31, 2023
Wages and salaries and other short-term employee benefits
$
1,333,693 $
1,344,370
Expenses related to pension and post-retirement benefits
14
1,903
3,217
RSU and PSU compensation expense (including changes in fair value during the year)
16
4,669
10,562
DSU compensation expense (benefit) (including changes in fair value during the year)
16
(302)
3,498
Stock-based compensation expense
16
229
442
$
1,340,192 $
1,362,089
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 35
Martinrea International Inc.
20.
FINANCE EXPENSE AND OTHER FINANCE INCOME
Year ended
December 31, 2024
Year ended
December 31, 2023
Debt interest, gross
$
(78,380) $
(85,839)
Interest on lease liabilities
(10,925)
(11,250)
Capitalized interest - at an average rate of 7.1% (2023 - 7.3%)
13,291
16,766
Finance expense
$
(76,014) $
(80,323)
Year ended
December 31, 2024
Year ended
December 31, 2023
Net foreign exchange gain
$
5,888 $
5,152
Other income, net
1,025
1,501
Other finance income
$
6,913 $
6,653
21.
OPERATING SEGMENTS
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:
Year ended December 31, 2024
Production Sales
Tooling Sales
Total Sales
Property, plant and
equipment and
Right-of-use assets
Operating Income
(Loss)
North America
Canada
$
515,765 $
76,639 $
592,404 $
290,937
USA
1,457,087
12,961
1,470,048
556,873
Mexico
1,841,314
146,275
1,987,589
894,943
Eliminations
(183,339)
(76,881)
(260,220)
-
$
3,630,827 $
158,994 $
3,789,821 $
1,742,753 $
210,565
Europe
Germany
732,381
91,569
823,950
226,872
Spain
227,226
11,634
238,860
140,664
Slovakia
53,214
2,115
55,329
-
Eliminations
(380)
(2,736)
(3,116)
-
$
1,012,441 $
102,582 $
1,115,023 $
367,536 $
(54,586)
Rest of the World
115,010
19,445
134,455
54,517
(31,371)
Eliminations
(21,203)
(3,969)
(25,172)
-
-
$
4,737,075 $
277,052 $
5,014,127 $
2,164,806 $
124,608
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 36
Martinrea International Inc.
Year ended December 31, 2023
Production Sales
Tooling Sales
Total Sales
Property, plant and
equipment and
Right-of-use assets
Operating Income
(Loss)
North America
Canada
$
711,263 $
202,160 $
913,423 $
323,961
USA
1,473,325
80,627
1,553,952
580,305
Mexico
1,743,663
206,234
1,949,897
788,538
Eliminations
(234,494)
(160,037)
(394,531)
-
$
3,693,757 $
328,984 $
4,022,741 $
1,692,804 $
267,103
Europe
Germany
855,073
83,242
938,315
266,181
Spain
203,990
13,879
217,869
129,338
Slovakia
50,074
1,680
51,754
15,355
Eliminations
(2,634)
(632)
(3,266)
-
$
1,106,503 $
98,169 $
1,204,672 $
410,874 $
(8,307)
Rest of the World
136,499
11,060
147,559
78,645
10,318
Eliminations
(27,013)
(7,956)
(34,969)
-
-
$
4,909,746 $
430,257 $
5,340,003 $
2,182,323 $
269,114
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, 2024
Total
Level 1
Level 2
Level 3
Cash and cash equivalents
$
167,951 $
167,951 $
- $
-
Investment in shares of AlumaPower (note 8)
4,036
-
-
4,036
Investment in shares of Equispheres (note 8)
9,030
-
-
9,030
Foreign exchange forward contracts not accounted for as hedges (note 3)
2,286
-
2,286
-
December 31, 2023
Total
Level 1
Level 2
Level 3
Cash and cash equivalents
$
186,804 $
186,804 $
- $
-
Investment in shares and convertible debentures of AlumaPower (note 8)
4,036
-
-
4,036
Investment in convertible debentures of Equispheres (note 8)
1,000
-
-
1,000
Foreign exchange forward contracts not accounted for as hedges (note 3)
3,937
-
3,937
-
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 37
Martinrea International Inc.
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, 2024
Fair value
through profit
or loss
Fair value
through other
comprehensive
income
Financial
assets at
amortized
cost
Amortized
cost
Carrying
amount
Fair value
FINANCIAL ASSETS:
Trade and other receivables
$
- $
- $
611,219 $
- $
611,219 $
611,219
Investment in shares of AlumaPower
-
4,036
-
-
4,036
4,036
Investment in shares of Equispheres
-
9,030
-
-
9,030
9,030
Foreign exchange forward contracts not
accounted for as hedges
2,286
-
-
-
2,286
2,286
$
2,286 $
13,066 $
611,219 $
- $
626,571 $
626,571
FINANCIAL LIABILITIES:
Trade and other payables
-
-
-
(1,024,716)
(1,024,716)
(1,024,716)
Long-term debt
-
-
-
(981,414)
(981,414)
(981,414)
$
- $
- $
- $
(2,006,130) $
(2,006,130) $
(2,006,130)
Net financial assets (liabilities)
$
2,286 $
13,066 $
611,219 $
(2,006,130) $
(1,379,559) $
(1,379,559)
December 31, 2023
Fair value
through profit
or loss
Fair value
through other
comprehensive
income
Financial
assets at
amortized
cost
Amortized
cost
Carrying
amount
Fair value
FINANCIAL ASSETS:
Trade and other receivables
$
- $
- $
691,882 $
- $
691,882 $
691,882
Investment in shares and convertible
debentures of AlumaPower
-
2,671
-
1,365
4,036
4,036
Investment in convertible debentures of
Equispheres
-
-
-
1,000
1,000
1,000
Foreign exchange forward contracts not
accounted for as hedges
3,937
-
-
-
3,937
3,937
$
3,937 $
2,671 $
691,882 $
2,365 $
700,855 $
700,855
FINANCIAL LIABILITIES:
Trade and other payables
-
-
-
(1,176,579)
(1,176,579)
(1,176,579)
Long-term debt
-
-
-
(969,236)
(969,236)
(969,236)
$
- $
- $
- $
(2,145,815) $
(2,145,815) $
(2,145,815)
Net financial assets (liabilities)
$
3,937 $
2,671 $
691,882 $
(2,143,450) $
(1,444,960) $
(1,444,960)
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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 38
Martinrea International Inc.
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
29.1%, 21.9%, and 10.3% of its production sales for the year ended December 31, 2024 (2023 - 25.9%, 20.5%, and 14.9%). 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, 2024 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:
December 31, 2024
December 31, 2023
0-60 days
$
565,970 $
633,984
61-90 days
852
2,158
Greater than 90 days
4,251
7,817
$
571,073 $
643,959
(b) Liquidity risk
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, 2024, the Company had cash of $167,951 (December 31, 2023 - $186,804) 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 CORRA 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:
Carrying amount
December 31, 2024
December 31, 2023
Variable rate instruments
$
963,556 $
938,129
Fixed rate instruments
17,858
31,107
$
981,414 $
969,236
Sensitivity analysis
An increase of 1.0% in all variable interest rate debt would, all else being equal, have an effect of $10,013 (2023 - $10,570) on the Company’s
consolidated financial results for the year ended December 31, 2024.
(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, 2024, the Company had committed to the following foreign exchange contracts:
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 39
Martinrea International Inc.
Foreign exchange forward contracts not accounted for as hedges and fair valued through profit or loss
Currency
Amount of U.S.
dollars
Weighted average
exchange rate of
U.S. dollars
Maximum period in
months
Buy Mexican Peso
$
81,592 $
20.8355
1
The aggregate value of these forward contracts as at December 31, 2024 was a pre-tax gain of $2,286 and was recorded in trade and other
receivables (December 31, 2023 - pre-tax gain of $3,937 recorded in trade and other receivables).
The Company’s exposure to foreign currency risk reported in the foreign currency was as follows:
December 31, 2024
USD
EURO
PESO
BRL
CNY
Trade and other receivables
$
314,371 €
77,985 $
64,329 R$
26,197 ¥
59,071
Trade and other payables
(406,531)
(171,618)
(718,970)
(66,613)
(87,903)
Long-term debt
(386,000)
(5,230)
-
-
-
$
(478,160) €
(98,863) $
(654,641) R$
(40,416) ¥
(28,832)
December 31, 2023
USD
EURO
PESO
BRL
CNY
Trade and other receivables
$
355,463 €
95,758 $
94,082 R$
34,796 ¥
104,647
Trade and other payables
(491,150)
(215,929)
(570,269)
(71,276)
(111,242)
Long-term debt
(401,000)
(9,842)
-
-
-
$
(536,687) €
(130,013) $
(476,187) R$
(36,480) ¥
(6,595)
The following summary illustrates the fluctuations in the foreign exchange rates applied:
Average rate
Closing rate
Year ended
December 31, 2024
Year ended
December 31, 2023
December 31, 2024
December 31, 2023
USD
1.3627
1.3508
1.4412
1.3204
EURO
1.4802
1.4562
1.5021
1.4598
PESO
0.0759
0.0754
0.0709
0.0781
BRL
0.2589
0.2688
0.2327
0.2729
CNY
0.1897
0.1911
0.1977
0.1859
Sensitivity analysis
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 (loss) and would have
increased (decreased) equity, profit or loss and comprehensive income for the year ended December 31, 2024 and 2023 by the amounts shown
below, assuming all other variables remain constant:
Year ended
December 31, 2024
Year ended
December 31, 2023
USD
$
(2,588) $
(9,962)
EURO
4,864
463
BRL
1,462
13
CNY
2,025
(404)
$
5,763 $
(9,890)
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.
(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.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 40
Martinrea International Inc.
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:
December 31, 2024
December 31, 2023
Future minimum lease payments*
$
1,142 $
1,066
Capital and other purchase commitments
452,815
511,012
Letters of credit
21,774
18,401
$
475,731 $
530,479
*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:
December 31, 2024
December 31, 2023
Less than one year
$
720 $
626
Between one and five years
422
440
$
1,142 $
1,066
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
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 $38,691 (BRL $166,277) including interest and penalties to December 31, 2024 (December 31, 2023 - $42,539 or BRL $155,897). 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
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 41
Martinrea International Inc.
vigorously defend against the assessments. The assessments are at various stages in the process. Three assessments totaling $22,944 (BRL $98,604)
including interest and penalties as at December 31, 2024 have entered the judicial litigation process. The Company’s subsidiary may be required to
present guarantees related to these assessments up to $21,835 (BRL $93,839) 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 for the
years 2013, 2015 and 2016, based on the notices issued by the tax authorities, is approximately $141,187 (MXN $1,991,745) including interest and
penalties to December 31, 2024 (December 31, 2023 - $91,423 or MXN $1,170,668). 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.
The Company’s subsidiary in Meschede, Germany, Martinrea Honsel Germany GmbH, is currently being assessed by the German Federal and State Tax
Authorities for tax deductions taken mainly in respect of certain intra-company transactions for the years 2014 to 2016. The potential exposure under
these assessments, based on the notices issued by the tax authorities, is approximately $30,407 (EURO €20,243) including interest and penalties to
December 31, 2024. 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. A small provision related to this matter in the amount of $450 has been
recorded, which the Company believes is adequate for all open tax years based on its assessment of many factors, including interpretations of
international tax laws and prior experience.
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, 2024, the amount of the off-balance sheet program financing was $9,948 (December 31, 2023 - $16,457) 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 2023 or 2024. 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:
Year ended
December 31, 2024
Year ended
December 31, 2023
Salaries, pension and other short-term employee benefits
$
15,563 $
14,657
RSU, PSU and DSU compensation expense (benefit) (including changes in fair value during the year)
3,084
11,625
Stock-based compensation expense
187
322
Net expense
$
18,834 $
26,604
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 42
Martinrea International Inc.
26.
SUBSEQUENT EVENT
On February 1, 2025, the President of the United States issued executive orders imposing 25% tariffs on non-energy imports originating from Canada,
Mexico and China, with an initial effective date of February 4, 2025. On February 3, 2025, the President postponed the effective date of these tariffs to
March 4, 2025. On March 5, 2025, the President postponed the effective date of the 25% tariffs on Canada and Mexico to April 2, 2025 for some
automakers that comply with the terms of the existing US-Mexico-Canada Agreement (“USMCA”).
The imposition of tariffs on goods originating from Canada and Mexico into the United States, and any retaliatory tariffs, may have an adverse impact to
the automotive industry, including the Company, its suppliers and customers, which may result in a material impact on the Company’s operations and
financial position. The ultimate magnitude and duration of the business and economic impacts of any such tariffs are uncertain.
Martinrea International Inc.
Notes to the Consolidated Financial Statements
(in thousands of Canadian dollars, except per share amounts)
Page 43
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)
Member, Human Resources and Compensation Committee
(2)
Member, Audit Committee
(3)
Member, Corporate Governance and Nominating Committee
(4)
Lead Director
Corporate Executive Officers
Pat D’Eramo, Chief Executive Officer
Rob Wildeboer, Executive Chairman
Fred Di Tosto, President
Peter Cirulis, 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)
MARTINREA INTERNATIONAL INC.
Website: www.martinrea.com
Investor Information: investor@martinrea.com