Martinrea International Inc. Business Report FY ended Dec. 2011 - FY ended Dec. 2012

Business Highlights

Financial Overview

(in million CAD)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 Rate of change (%) Factors
Overall
Net Sales 2,901.0 2,192.9 32.3 1)
Operating income 68.9 84.1 (18.1) -
Regional Net Sales
North America  2,297.8 1,887.2 21.8 2)
Europe  547.3 266.3 105.5 3)
Rest of World  55.9 39.4 41.9 4)

Factors
1) Net Sales
-The Company's consolidated revenues for the year ended December 31, 2012 increased by CAD 708.1 million or 32.3% to CAD 2,901.0 million as compared to CAD 2,192.9 million for the year ended December 31, 2011. The total overall increase in revenue was driven mainly by increases in revenues in the Company's North America and Europe operating segments of CAD 410.6 million and CAD 281.0 million, respectively.

2) North American Sales
-Included in the CAD 410.6 million increase in revenue generated in North America was an increase of 55.5 million CAD related to the operations of the Company's plant in Queretaro, Mexico, which formed part of the Honsel acquisition. The remainder of the increase in North America can be attributed to the launch of new programs during 2011 and 2012, overall improved production volumes in North American OEM light vehicle platforms, a CAD 53.0 million increase in tooling revenue, and the impact of foreign exchange on the translation of US dollar denominated revenue, which had a positive impact on revenue for the year ended December 31, 2012 of CAD 22.7 million compared to the year ended December 31, 2011.

3) European Sales
-Revenues for the year ended December 31, 2012 in the Company's Europe operating segment, comprised predominantly of the European operations of Martinrea Honsel, increased by CAD 281.0 million or 105.5% to CAD 547.3 million from CAD 266.3 million during the year ended December 31, 2011. Despite the increase in year-over-year revenue in Europe, average monthly revenue during the year decreased due to lower OEM light and medium-heavy vehicle production in Western Europe and the impact of foreign exchange on the translation of euro denominated revenue, which had a negative impact on revenue for the year ended December 31, 2012 of CAD 38.8 million compared to the year ended December 31, 2011.

4) Rest of World Sales
-Revenues for the year ended December 31, 2012 in the Company's Rest of World operating segment, currently comprised of the Brazilian operations of Martinrea Honsel and a start-up facility in China in its early stages, increased by CAD 16.5 million or 41.9% to CAD 55.9 million as compared to CAD 39.4 million for the year ended December 31, 2011. Despite the increase in year-over-year revenue, average monthly revenue in the Rest of World operating segment during the year decreased driven mainly by a decrease in OEM light and medium-heavy vehicle production volumes in Brazil and the impact of foreign exchange on the translation of Brazilian real denominated revenue, which had a negative impact on revenue for the year ended December 31, 2012 of CAD 16.4 million compared to the year ended December 31, 2011

Contracts

FY ended Dec. 31, 2012
-Hot stamping and assembly work for the "Chrysler 200"
-Metal forming work for GM's small pickup trucks
-Metal forming work for the Volkswagen "Golf"
-Metal forming work for the next generation Ford "Edge" and "MKX"
-Metal forming work for BMW on the next generation "X5" and "X6" and the new "X4" vehicles
-Mandates to Martinrea Honsel from GM for an aluminum engine cradle program
-Takeover work for Martinrea Honsel for an engine block from PSA

FY ended Dec. 31, 2011
-Welding assemblies for the Ford "Escape"
-Fuel and brake work for the Ford "Fusion"
-Replacement metallic work on GM pick-up trucks and sport small utility vehicle for 2013
-Incremental business on the GM truck platform
-Fluid management products for the GM small sport utility vehicle
-Variety of hot stamping products for the Ford "Escape" launching in 2012

Acquisitions

-On July 29, 2011, the Company closed an agreement to purchase a controlling interest in the assets of Honsel AG, a German-based leading supplier of aluminum components for the automotive and industrial sectors. The Company partnered with Anchorage Capital Group L.L.C. ("Anchorage") in the transaction and owns 55% of the acquired assets, with Anchorage owning the remaining 45%. Honsel AG's Nuremberg facility, primarily specializing in transmission parts, was acquired by ZF Friedrichshafen AG.

Restructuring

-In 2012, the Company closed its Steelmatic Wire subsidiary.

-In 2011, the Company decided to close its plant in Mexico City, Mexico and reallocate work to other plants. The closure was fully completed in the summer of 2012.

R&D

R&D Expenditure

(in million CAD)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 FY ended Dec. 31, 2010
Total 32.9 24.3 7.7

-The Company has approximately 125 employees working in design, engineering and program management.

R&D Facilities

-The Company has a technical center focused on research and development in Auburn Hills, Michigan as well as an engineering facility in Troy, Michigan.

Investment Activities

Capital Expenditures

(in million CAD)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 FY ended Dec. 31, 2010
Overall 199.3 149.5 90.9

FY ended Dec. 31, 2012
-Added expansions to metal forming facilities in Springfield, Tennessee and Jonesville, Michigan.
-Built up facility in Silao, Mexico
-Outfitted Martinrea Honsel Brazil with new and updated equipment
-Expanded landholdings of Martinrea Honsel Mexico to prepare for future expansion

FY ended Dec. 31, 2011
-Purchased new program equipment in response to newly awarded business scheduled to launch over the next two years
-Incremental capital expenditures relating to Martinrea Honsel
-Capital for a new plant opened in Silao, Mexico in 2011
-Expansion into China with a fluid system facility, which is expected to be operational in 2012