Linamar Business Report FY2008(FY ended Dec. 2008)

Business Highlights

Financial Overview
(in million Canadian dollars)
FY2008 FY2007 Rate of change (%) Factors
Overall Corporate Results
Sales 2,257.0 2,313.6 (2.4) -
Operating Earnings 103.6 172.2 (39.8) -
Sales 1,813.4 1,795.9 1.0 1)
Operating Earnings 67.3 105.1 (36.0) 2)

1) Sales for the Powertrain/Driveline Segment decreased by $6.0 million, or 1.4% in the fourth quarter compared with 2007.
The sales decrease in the fourth quarter was impacted by significant volume reductions by North American OEMs notably GM, Chrysler and Ford.
The decrease was offset by:
-the acquisition of the driveline plant in Swansea, Wales from Visteon in the third quarter of 2008;
-the ramping up of key programs that were in the start-up phase in 2007 including new 4 cylinder engine programs and 6 speed transmissions;
-the growth in Europe; and
-the continuing ramp up of the Asian operations.

For the year, sales increased $17.5 million in comparison with the same period of 2007. The increase is a result of the same sales growth items that helped mitigate the decline in sales in the fourth quarter. The year was also impacted by a full year of sales from the acquisition of the driveline plant in Mexico in 2007. These growth factors were also impacted by volume reductions by North American OEM's as was seen in the fourth quarter, but to a lesser extent.

2) Fourth quarter operating earnings for Powertrain/Driveline was lower by $23.8 million or 140.8% over the same quarter of 2007. The 2008 operating earnings for Powertrain/Driveline were lower by $37.8 million or 36.0% over the same period in 2007.
The Powertrain/Driveline segment experienced the following in the fourth quarter:
-improved margins as key programs exited the start up phase;
-improved margins as a result of increased focus on cost reductions;
-improved results in Asia from the sales growth; and
-in 2007, the segment's portion of the foreign exchange loss on the Hungarian Forints held in Escrow.
These improvements were more than offset by:
-under absorption of fixed costs due to the significant volume reductions by North American OEMs notably GM, Chrysler and Ford;
-capital asset impairments that were recognized on certain specific programs due to the continuing suppression of volumes that are expected to continue in the short to midterm period of 2009;
-expenses relating to the release of employees as the company adjusted to new sales volumes;
-increased raw material costs driven by high commodity price levels including metal market surcharges; and
-increased engineering costs with the addition of the Driveline Systems Engineering Group.

In addition to the items that impacted the fourth quarter, the segment experienced the following positive impacts in 2008 in comparison to 2007:
-elimination of the Ontario capital tax; and
-the segment's portion of the foreign exchange gain on the repatriation of Hungarian Forints held in escrow.
These improvements were limited by:
-a program specific asset write-down in the first quarter of 2008 as previously discussed.


-The Company was added to Ford Motor Company's list of Aligned Business Suppliers along with six others with the announcement of its Aligned Business Framework (ABF) to strengthen its collaboration with select suppliers. (From a press release on Aug 15, 2008)

-The Company acquired Visteon's automotive manufacturing facility in Swansea, Wales, U.K. Linamar, manufacturing camshafts and other key engine components at the plant after revamping the production lines. The Swansea facility is the first production foothold in the U.K. and it will become the Group's fifth plant and the third engine focused facility in Europe. Initially focusing on the production of camshafts, flywheels, and connecting rods, the Company will look into expanding the scope of business to other engine components as soon as the production gets on track. The acquisition includes the addition of 400 skilled employees. The Company had also acquired from Visteon its production facility in Mexico. (From an article in the Nikkan Jidosha Shimbun on Aug.14, 2008)


R&D Structure
-Linamar acquired McLaren Performance Technologies in 2003 to integrate the team with Linamar's Operating Group as an internal advanced product and process development resource. In 2005, McLaren Performance Technologies Division developed a new mission statement and organizational structure to focus on delivering innovative cost-effective products in support of the Linamar Group strategies and goals. In early January 2006, Linamar announced the establishment of the Linamar Automotive Customer Center that combined the Detroit-based sales team with McLaren Performance Technologies to support the Group. Throughout 2006, McLaren Performance Technologies Division will focus on delivering their mandate, which is to offer support in the design, testing and analysis of engine transmission and chassis systems.