Martinrea International Inc. · TSX:MRE
Martinrea International — Q4 2017 Earnings Presentation
48 slides from Martinrea International's earnings presentation, March 2018
Slide 1: Martinrea International Inc. Q4 2017 Company Presentation
MARTINREA INTERNATIONAL INC. Q4 2017 Company Presentation ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy.
Slide 2: Company Overview
| MARTINREA = = A COMPANY OVERVIEW
Slide 3: Martinrea Overview
MARTINREA OVERVIEW Leading Tier One automotive supplier in steel metal forming, fluid management systems and aluminum parts Market statistics (TSX: MRE) Market Cap – approx. $1.3 Billion One of the fastest growing automotive parts suppliers in Enterprise Value – approx. $1.9 the past 15 years ($0 to
Slide 4: Martinrea's Global Presence
MARTINREA’S GLOBAL PRESENCE CANADA 13 Plants GERMANY 3 Plants SLOVAKIA 1 Plant US SPAIN CHINA 12 Plants 2 Plants 2 Plants MEXICO 10 Plants BRAZIL 1 Plant ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 4
Slide 5: Martinrea's Evolution
MARTINREA’S EVOLUTION NOV 2001 APR 2002 DEC 2005 MAY 2006 MAR 2009 JUL 2011 Royal Laser Acquires Acquires plant from Acquires Acquires Acquires majority Rea International Oxford Automotive Depco International SKD Automotive of Honsel (Fluid Management Systems) (Metallics) (Metallics) (Metallics) (Al
Slide 6: Martinrea's Products
MARTINREA’S PRODUCTS STEEL METAL FORMING ALUMINUM COMPONENTS FLUID MANAGEMENT SYSTEMS ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 6
Slide 7: Competitive Landscape
COMPETITIVE LANDSCAPE STEEL METAL FORMING FLUID MANAGEMENT ALUMINUM COMPONENTS (North America) SYSTEMS (Worldwide) (North America, China, Slovakia) Top three supplier in North America Second largest North American Leading supplier of light metal metal former by sales components Leader in growth sinc
Slide 8: Martinrea 2.0
MARTINREA = = A MARTINREA 2.0
Slide 9: Book of Martinrea: Where We Have Been, Are, Are Going
BOOK OF MARTINREA 2001 – 2014 2015 – 2020 Where We Have Where We Are Where We Are Been Now Going ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 9
Slide 10: 2017 Targets (Established at the End of 2014)
2017 TARGETS (ESTABLISHED AT THE END OF 2014) ADJUSTED OPERATING INCOME NET DEBT TO ADJUSTED EBITDA MARGIN RATIO 7.0% 3.00 6.0% >6.0% 2.50 >50% Improvement 2.54x 5.0% 2.00 4.0% 4.1% 1.50 3.0% <1.50x 1.00 2.0% 0.50 1.0% 0.0% 0.00 2014 2017 Q3 2014 2017 ©2018 Martinrea International Inc. Confidential
Slide 11: Martinrea Vision, Mission and Principles
MARTINREA VISION, MISSION AND PRINCIPLES MARTINREA VISION MARTINREA PRINCIPLES Our vision for the future is to be the best, preferred Our success will be based on the execution of our guiding principles, applied with integrity, in all that we do: and most valued automotive parts supplier in the worl
Slide 12: What is Martinrea 2.0?
WHAT IS MARTINREA 2.0? Martinrea 2.0 is the framework to become a great company . . . diverse people and groups working together toward a single vision. • Fostering principles-based leadership • Promoting positive behaviors • Creating a strong lean culture • Implementing best practices Through our 4
Slide 13: Our Strategy: 4-Pillar Business Strategy
OUR STRATEGY 4-PILLAR BUSINESS STRATEGY TAKE ACTION! HIGH OPERATIONAL FINANCIAL CUSTOMER PERFORMANCE EXCELLENCE MANAGEMENT IS KING! CULTURE COMPANY DEPLOYMENT PLANS BUSINESS UNIT PLANT ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 13
Slide 14: Change the Way We Think
CHANGE THE WAY WE THINK LEARN TO UN-LEARN –Break the habit, cherish the experience PRIDE IS THE ENEMY. PRIDE KILLS CONTINUOUS IMPROVEMENT –Pride for your people not for your practice –Be humble about the way you operate –Always remember there is a better way TOOLS WILL FOLLOW –Share what you learn ©
Slide 15: Attributes of the Martinrea 2.0 Manufacturing System
ATTRIBUTES OF THE MARTINREA 2.0 MANUFACTURING SYSTEM RESPECTING our people DEVELOPING our people Learn by DOING ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 15
Slide 16: Results to Date
| MARTINREA = = A RESULTS TO DATE
Slide 17: Financial Performance
FINANCIAL PERFORMANCE ADJUSTED OPERATING INCOME MARGIN NET DEBT TO ADJUSTED EBITDA RATIO 7.0% 3.00 6.0% 6.4% 2.50 2.54x 5.0% 2.37x 5.0% 2.00 2.16x 4.0% 4.6% 1.89x 4.1% 1.50 3.0% 1.45x 1.00 2.0% 0.50 1.0% 0.00 0.0% Q3 2014A 2014A 2015A 2016A 2017A 2014A 2015A 2016A 2017A 2017 FINANCIAL TARGETS WERE A
Slide 18: Safety and Quality Performance
SAFETY AND QUALITY PERFORMANCE SAFETY QUALITY TOTAL RECORDABLE INJURY FREQUENCY PR/R’s Improved by 30% Improved by 60% SEVERITY SCORE Improved by 65% SAFETY AND QUALITY PERFORMANCE HAVE IMPROVED ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 18
Slide 19: Martinrea 2.0 – Next Steps
MARTINREA 2.0 – NEXT STEPS 2017-2020 19
Slide 20: New Target Setting Through 2020
NEW TARGET SETTING THROUGH 2020 ADJUSTED OPERATING INCOME MARGIN 2017 - 2020 2014 - 2017 EXPECTED DRIVERS Achieved predominantly through - Operational Excellence/Lean operational improvements - Innovative Flexible Processing - Evolution of Book of Business 10.0% 9.0% 8.0% >9.0% 7.0% >8.0% 6.0% 6.4%
Slide 21: Process Innovation
| MARTINREA = = A PROCESS INNOVATION
Slide 22: Flexible Assembly – Metallics
FLEXIBLE ASSEMBLY – METALLICS IMPLEMENT FLEXIBLE BUILD PROCESSES (WELD EXAMPLE) THEN NOW 40% Less Capital 20% Less Labor Lifespan: 6 Years Lifespan: 12+ Years Tooling change-over: 4 weeks Tooling change-over: 30 Minutes Service part Capability: None Service part Capability: Capable Volume Flex Capab
Slide 23: Process Innovation for High Pressure Die Casting
PROCESS INNOVATION FOR HIGH PRESSURE DIE CASTING MICRO SPRAY TECHNOLOGY – FOR HP DIE CASTING: IS A TECHNOLOGY FOR DIE SURFACE LUBRICATION WHICH USES A MINIMUM AMOUNT OF LUBRICANT AND INTERNAL COOLING Effects: improvement of casting surface, extension of die life up to approx. 120-150k shots (from 10
Slide 24: Products, Innovation and Beyond 2020
PRODUCTS, INNOVATION AND BEYOND 2020 24
Slide 25: A Light Weighting Company
A LIGHT WEIGHTING COMPANY DEFINITION: Continuously developing and evolving core metallic products (high strength steel, aluminum, assemblies, etc.) to reduce vehicle weight and CO2 emissions, improving overall vehicle efficiency (MPG). 25
Slide 26: Light Weighting Trend Driven by CO2/MPG Regulations
LIGHT WEIGHTING TREND DRIVEN BY CO2/MPG REGULATIONS 65 TARGETS IN MPG/GRAMS OF CO2 10% reduction in weight provides a 6- 60 7% improvement in fuel economy 55 2025 55/110 50 45 2021 61/95 40 35 2020 55/105 30 25 2020 50/116 20 2000 2005 2010 2015 2020 2025 ©2018 Martinrea International Inc. Confident
Slide 27: Market Trends – Aluminum (North America)
MARKET TRENDS – ALUMINUM (NORTH AMERICA) + 42% Aluminum Net Pounds per North American Light Vehicle (55 Years of Uninterrupted Growth) *Source: North American Light Vehicle Content Aluminum Study, Ducker Analysis (1Q2017) ©2018 Martinrea International Inc. Confidential and proprietary. Do not distri
Slide 28: Martinrea's Position
MARTINREA’S POSITION PROPULSION AND STRUCTURAL COMPONENTS HIGH STRENGTH STEELS ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 28
Slide 29: Material Options – Crossmembers and Control Arms
MATERIAL OPTIONS – CROSSMEMBERS AND CONTROL ARMS STEEL ALUMINUM – SOLID ALUMINUM – HOLLOW 41.2 lbs 34.0 lbs 27.3 lbs STEEL ALUMINUM – SOLID ALUMINUM – HOLLOW 11.2 lbs 9.9 lbs 6.2 lbs ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 29
Slide 30: Lightweight Products
LIGHTWEIGHT PRODUCTS General Motors reduced the weight of the 2018 Equinox/Terrain by 10% or 400 lbs by using lighter body parts and frames. Martinrea’s metallic content on the 2018 Equinox/Terrain ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 30
Slide 31: Martinrea Honsel Aluthinfer Bore Spray Coating
PLASMA SPRAY STEEL COATING FOR ENGINE BLOCKS MARTINREA HONSEL ALUTHINFER® = BORE SPRAY COATING: IS A TECHNOLOGY TO REPLACE IRON LINERS IN ENGINE BLOCKS BY A THIN (100 MICRON) STEEL LAYER Effects: weight reduction of block, better wear performance, less friction, less oil and fuel consumption, better
Slide 32: Electric Vehicle – Aluminum Potential
PRODUCT ELECTRIC VEHICLE – ALUMINUM POTENTIAL TODAY’S FUEL TANK Tomorrow: Battery Housing TODAY’S ENGINE Tomorrow: Inverter & Electric Motor BODY COMPONENTS Structural Today and Tomorrow ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 32
Slide 33: Growing Technology and Innovation
GROWING TECHNOLOGY AND INNOVATION IDEA RESEARCH DEVELOP TESTING ANALYSIS INTRO NEW MARTINREA TECH CENTER OPENED IN 2017 ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 33
Slide 34: Capless Fuel Filler
CAPLESS FUEL FILLER TODAY’S DESIGN OUR NEW DESIGN • First capless unit to market • Smallest in industry • Welded two piece design • Half the weight of current model • Eliminates deep drawn funnel cost • Requires deep draw funnel • Retains best refueling performance • Best refueling performance • Sel
Slide 35: Hybrid Design Development
HYBRID DESIGN DEVELOPMENT ALUMINUM EXTRUSIONS LIGHTWEIGHT WELDED ONTO ALUMINUM SOLUTION SIDERAILS • Lower costs across platforms • Tighter packaging • More flexible HOLLOW • Greater stiffness ALUMINUM CASTED • Necessary crash SIDERAILS performance ©2018 Martinrea International Inc. Confidential and
Slide 36: Whatever the Future Holds, Martinrea Will Be a Leader
WHATEVER THE FUTURE HOLDS, MARTINREA WILL BE A LEADER ELECTRIFIED CONNECTED SHARED AUTONOMOUS ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 36
Slide 37: Financials
WwW ARTINREA = = ww FINANCIALS
Slide 38: Sales
SALES Sales growth has been 3,968 staggering (CAGR ~ 20% from 4,000 3,867 2009 to 2016) 3,599 162 253 3,690 211 3,500 245 Excluding FX impacts, growth is 3,222 expected to normalize over the IN MILLIONS OF CANADIAN DOLLARS 203 next three years; sales expected 3,000 2,901 to exceed $4.0 billion in 20
Slide 39: Highlights of Recent New Business Awards
HIGHLIGHTS OF RECENT NEW BUSINESS AWARDS Annualized Sales at Peak Customer Products SOP Volumes Jaguar/Land-Rover Aluminum knuckles and control arms $200,000,000 2015-2018 Jaguar/Land-Rover Aluminum battery housing and other components $20,000,000 2020 General Motors Pick-up trucks and SUVs – steel
Slide 40: North American Platform Portfolio – F2017
NORTH AMERICAN PLATFORM PORTFOLIO – F2017 1. Ford Escape 6. Chrysler 300/Challenger/Charger 2. GM Equinox /Terrain 7. Jeep Wrangler 3. Ford Fusion/Edge 8. Dodge Ram 4. GM Pickups, SUVs 9. Jeep Grand Cherokee 5. GM Malibu/Impala 10. BMW SUV ©2018 Martinrea International Inc. Confidential and propriet
Slide 41: Adjusted Operating Income Margin
ADJUSTED OPERATING INCOME MARGIN 10% 9% Operating income margin >9.0% of 6.4% for 2017 7.0% 8% representing a >50% >8.0% ADJUSTED OPERATING INCOME MARGIN % improvement from 2014 7% Margins expected to 6% 6.4% continue to increase to >8% by 2019 and > 9% by 2020 5% 5.0% 4.6% 4% 4.1% Road map in place
Slide 42: Drivers of Margin Expansion
DRIVERS OF MARGIN EXPANSION OPERATIONAL EXCELLENCE EVOLUTION OF BOOK OF BUSINESS Lean transformation Lower margin work rolling off and being replaced with higher margin work Lean, efficient, always improving Scale up by sharing (read across) Strict adherence to Martinrea 2.0 investment hurdle rates
Slide 43: Full Year Financials: Adjusted Net Earnings Per Share
ADJUSTED NET EARNINGS PER SHARE $250.00 $2.50 FULL YEAR FINANCIALS $200.00 $1.91 $2.00 IN MILLIONS OF CANADIAN DOLLARS $1.50 166 $150.00 $1.38 $1.50 130 $0.97 $0.98 119 $100.00 $0.88 $1.00 $0.79 $0.61 82 83 73 67 $50.00 $0.50 52 $0.00 $0.00 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A NET EARNING
Slide 44: Balance Sheet
BALANCE SHEET OPERATING CASH FLOW The Company is a significant cash flow generator with 400 IN MILLIONS OF CANADIAN DOLLARS $406 operating cash flow increasing 300 $308 $348 $259 every year since 2010 200 $237 100 $142 $146 $89 0 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A CAPEX Investments in t
Slide 45: Macroeconomic Outlook
C=) e —«& he Aj <" w MACROECONOMIC OUTLOOK
Slide 46: Macroeconomic Outlook – Automotive
MACROECONOMIC OUTLOOK – AUTOMOTIVE GLOBAL PRODUCTION VOLUME BRIDGE – 2016 TO 2023F (MILLIONS) BETWEEN 2016 AND 2023 GLOBAL VEHICLE PRODUCTION will likely increase by over 19 MILLION UNITS ©2018 Martinrea International Inc. Confidential and proprietary. Do not distribute or copy. 46
Slide 47: U.S. Automotive Sales
U.S. AUTOMOTIVE SALES 8 years 8 years February 2018 Pent-up demand 17.1mm SAAR FUNDAMENTALS ARE STILL STRONG: • Oil and gas prices remain low • Financing is available at low rates • Average vehicle age ~ 12 years • Employment/participation levels are strong • Annual population growth adding new driv
Slide 48: Legal Disclaimer
LEGAL DISCLAIMER • The Company prepares its financial statements in accordance with International Financial Reporting Standards (“IFRS”). The Company considers certain non- IFRS financial measures as useful additional information in measuring the financial performance and condition of the Company. T
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