Martinrea International Inc.

Good evening, ladies and gentlemen. Welcome to the Martin Rea International first quarter 2025 results conference call. Instructions for submitting questions will be provided to you later in the call. I would now like to turn the call over to Mr. Rob Wildeboer.

Please go ahead, sir. Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business, and answering questions. We also know that we have many other stakeholders, including many employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary through our network. With me this evening are Rob Wildeboer, Martin Reyes' executive chairman, our president, Fred Dottosto, and our chief financial officer, Peter Cirillus. Today, we'll be discussing Martin Reyes' results for the first quarter ending March 31st, 2025. We have a number of things to discuss. I refer you to our usual disclaimer and our press release and our filed documents. On this call, I will outline some key highlights of the quarter and make some comments on the business. Brenda will discuss operations, followed by Peter on the financials, and then Rob will provide an overview of the current industry, geopolitical, and trade environment, especially regarding tariffs, and then we'll do a Q&A. Turning to the first quarter, our financial results improved over the fourth quarter on higher production sales and better margins. As we talked about on the last call, our Q4 results were impacted by an OEM inventory correction, which mainly affected the Detroit 3 customer base in North America. While we continue to see some impact from these adjustments in the first quarter, volumes improved in Q1 compared to Q4. Inventories are now at a more normal level based on days of sales and in line with market demand. Peter will review the financial performance in more detail later on the call. Overall, Q1 was a pretty good start to the year. Looking forward, U.S. tariffs on automotive imports are clouding the outlook for our business and industry. These tariffs have already had a disruptive effect on our business, with OEMs announcing temporary shutdowns of assembly plans and volume reductions of certain programs while they get a handle on the impact. Some of this is also due to continued weak volumes on EV programs. So far, the direct impact on tariffs on our business has been manageable, though it could accelerate, particularly if the U.S. levies additional tariffs on automotive parts. The situation is very fluid, and Rob will discuss the latest in a few minutes. Tariffs on auto parts could be disruptive for both suppliers and OEMs alike, especially if previously announced tariffs are left as is, this would have a compounding effect on the industry. The supply chain could become more erratic, as deciphering what portion of the vehicle is non-U.S. and therefore subject to tariffs could prove to be difficult. This, along with many in the supply base disputing responsibility for paying the tariffs, could result in OEM plant shutdowns and a stop-start pattern of production, like we saw during the chip shortage. In this type of environment, it could be more difficult to flex costs depending on how our customers manage this disruption. There is also the issue of who would ultimately bear the costs of these additional tariffs based on the jurisdiction and who is the importer of record. Tier 2s and Tier 3s will try to push a portion of their costs to Tier 1s, and Tier 1s, such as ourselves, will try to push costs to the OEMs. It's safe to say more of the tariff impact would eventually be passed down to the customer in the form of higher vehicle prices, potentially resulting in lower demand, followed by reduced vehicle production. IHS recently lowered its North American light vehicle production forecast this year to around 14 million vehicles, with little growth in 2026, reflecting a fairly cautious tariff scenario, including tariffs on auto parts. While this scenario is not a foregone conclusion by any means, it would be an unfortunate outcome, somewhat self-inflicted and avoidable. As such, we need a resolution on the tariff issue, whether it be through refining the USMCA or by some other means. In the meantime, we are focusing on items that are within our control. That includes continued operating improvements, taking costs out of the business, including our recently announced SG&A Cost Down Project, where we are targeting $50 million in annual cost improvement, generating free cash flow, and continuing to maintain a strong balance sheet. On that note, we will temporarily pause our share buybacks under the normal course issuer bid until the tariff issue is resolved or we have more visibility on what the impact on our business is likely to be. In the meantime, free cash flow will mainly go towards paying down debt. We'll manage this as we have challenges in the past and we will continue to strengthen our business with all the improvements we are making, not only on cost, but also through our innovations in machine learning with our advanced manufacturing team, as well as investments in emerging technologies through our Martin Rea Innovation Development Initiative. Once again, many thanks to the Martin Rea team for their hard work. And with that, I'll turn it over to Fred.

Thanks, Pat. Good evening, everyone. Looking at our operations, overall, we are executing well in a tough market. We continue to drive operating improvements through our monitoring operating system, and recent and ongoing investments in machine learning and other innovations are starting to enhance our productivity. In addition, we continue to receive recoveries for long shortfalls and lingering inflationary cost increases through commercial negotiations with our OEM customers, with tariffs now being added to the list of items to be negotiated, unfortunately. While the tariff situation creates a lot of uncertainty for us and our industry, The improvements we are making in our business will pay off and position us to emerge from this challenge as a much stronger supplier. This will become more evident as the tide turns for industry, which it always does. Looking at our segments, starting with North America, adjusted operating income was down 8% year-over-year on lower production sales, though adjusted operating income margin held steady. Solid results. especially considering that we still had some impact from the OEM vehicle inventory correction that continued into the first quarter, as Pat discussed. Note that production sales are down about $90 million year-over-year. Tooling sales, which we earn little, if any margin on, were up, and we maintained our margins. We're executing very well in North America, and the segment continues to be the main profit driver of our business. Turn to Europe. Adjusted operating income was a loss again this quarter, but much improved from Q4 as we benefited from operating improvements as well as some restructuring. Still, results were sharply lower year-over-year as we continued to face weak production volumes, particularly on EV programs, coupled with a higher and less flexible cost structure compared to North America. The rest of the world's segments saw improved profitability both year-over-year and quarter-to-quarter, mainly reflecting the timing of commercial settlements. As you know, this is a small segment for us, accounting for less than 3 percent of our consolidated sales, and changes in bonds and a small number of programs, as well as commercial settlements, can result in big swings of profits in this segment from quarter to quarter. As you might recall from the last call, we said we would maintain a minimal footprint in China and serve our customers increasingly through partnerships, given the competitive dynamics in this region, as well as geopolitical considerations. Our view hasn't changed, notwithstanding the relatively good results we had in this segment in the first quarter. Moving on, I am pleased to announce that we have been awarded new business worth $60 million in annualized sales of mature bonds, which includes $55 million in structural components in our lightweight structures commercial group with Mercedes and General Motors, and $5 million in our flexible manufacturing group with Volvo Truck. New business awards are the last four quarters of total $260 million. We continue to have a robust pipeline of RFQs that we're working on with a higher than normal level of program extensions in front of us. These program extensions generally allow us to reprice business to fully build in the higher inflationary costs that we've had to absorb the last few years, which benefits our margins. With that said, I'd like to thank our people for their commitment to the long-term success of the company. We truly value your contribution. Thank you. Now, here's Peter.

Thanks, Fred. Looking at the results year over year, we generated an adjusted EBITDA of $140.9 million in the first quarter, down from $162.8 million in quarter one, 2024, and adjusted operating income was $61.9 million, down from the $79.1 million that we had generated in quarter one, 2024, on production sales that were down about 10%. adjusted operating income margin came in at 5.3%, down 70 basis points year over year, which reflects a 13% decremental margin on the lower production sales, which is actually quite good and well below the typical range. As Pat and Fred noted, we had some lingering impact from the OEM and inventory correction in the first quarter, and the volumes were down year over year. Given this reality, we are pleased with our performance in the first quarter. Moving on, Free cash flow before IFRS 16 lease payments came in at negative 25.4 million, which compared to negative 1.4 million in quarter one of last year, reflecting lower EBITDA. Including lease payments under IFRS 16 accounting, free cash flow was negative 39.5 million. As we have mentioned before, we typically see negative free cash flow in the first quarter given a normal seasonal build in non-cash working capital. We expect free cash flow to improve as the year progresses based upon the typical seasonal pattern. Moving on, adjusted net earnings per share came in at 41 cents, which was down from 62 cents in the first quarter of 2024, given the decrease in operating income, a net foreign exchange loss compared to a net foreign exchange gain in the year-ago quarter, and a higher effective tax rate. Of note, adjusted EPS improved significantly over quarter four of last year. which, as you may recall, was impacted by an unusually high effective tax rate due to the rapid depreciation of the Mexican peso against the U.S. dollar. While this tax treatment does not impact cash, it resulted in a hit to our adjusted earnings per share in that period. The Mexican peso-U.S. dollar exchange rate stabilized in quarter one, and as a result, our effective tax rate normalized to approximately 30 percent, which is reflective of a more typical tax rate for us. Turning now to our balance sheet, Net debt excluding IFRS 16 lease liabilities increased by approximately $51 million over quarter four to $865 million, which reflects the negative free cash flow due to the aforementioned seasonal build in working capital, something we generally see in the first quarter of the year. Our net debt to adjusted EBITDA ratio ended the period at 1.64, up from 1.47 at the end of last year. We expect this to decline as we generate an increasing amount of free cash flow in the coming quarters, absent, of course, of any further potential tariff impacts. We expect to maintain our leverage ratio within our target of 1.5 or better on a full-year basis. We think that this range is a good place to be as it allows us to execute on our capital allocation priorities while maintaining a strong balance sheet. Turning to our 2025 outlook, We got off to a good start in the first quarter, with results that were in line with our expectations. As a reminder, our 2025 outlook calls for sales of 4.8 to 5.1 billion, an adjusted operating income margin of 5.3 to 5.8 percent, and free cash flow of 125 to 175 million. This outlook does not contemplate potential tariff impacts or any other government policy changes in the U.S. or elsewhere, specifically the tariff on auto parts. While it's difficult to quantify what the impact from tariffs would be, it would likely be significant if the tariffs were applied to auto parts and remain in place for an extended period. As Pat noted, IHS recently lowered its North America light vehicle production volume forecast by close to 1 million units, now sitting at around 14 million total vehicles for the full year of 2025. This reduction in large part reflects a fairly costless view on the likely impact of tariffs in the automotive industry, inclusive of tariffs on auto parts. Our guidance that we put forth in March does not reflect this type of reduction in volume and only assumes that we can manage tariffs that are currently in place, while making some reasonable assumptions around recovering tariff costs through our customer negotiations. Assuming a swift resolution on tariffs, we believe there is upside to current industry forecasts, though in a worst-case scenario where the tariffs remain in place, there could be further downside, including a potential full or partial shutdown of the industry. Notwithstanding, we have a number of levers at our disposal to enhance our margins, including our SG&A reduction project, restructuring actions, and operating improvements. This gives us confidence in our ability to manage the tariff environment. And with that said, I would like to thank our people for their hard work and perseverance during these chaotic times in our industry. And now, here's Rob.

Thanks, Peter. Just eight weeks ago, we reported our annual results and gave a detailed overview of our industry and our position in it, including major issues and challenges facing us, including the slow take-up of EVs, geopolitical issues, especially relating to the US-China relationship, and trade and tariffs. That seems like ages ago, at least to me. But let me provide a general update on trade and tariffs, particularly focused on North America. First, We have had and still have no tariffs on USMCA compliant auto parts. Deadlines have consistently been moved back the latest to May 3rd. So note that for the most part, tariffs have not been applied to our products with some exceptions, such as some parts coming from Europe to the US, for example. Before we get to the latest pronouncements, which indicate no tariffs on USMCA compliant auto parts will continue, some context is relevant, I think. I remain of the view that tariffs on auto parts in North America traveling between Canada, the U.S., and Mexico make no sense. And the USMCA makes great sense for all three countries, OEMs, and parts makers. For 60 years, our immensely complex supply chain has seen no border between Canada and the U.S., and for over 30 years, no borders among the three countries. The supply chain is immensely complex to unravel or even to tariff. especially given the fact that parts may cross the border multiple times. Many are of the view that the imposition of tariffs on parts in North America will cause the industry to shut down, as a number of suppliers choose not to ship, either because they cannot afford tariffs on their inputs, do not have assurance the customer will bear the tariffs, or simply say, screw it. The supply base is not just the tier one suppliers like Martin Rea, but the Tier 2, 3, and even 4 suppliers who supply raw materials, brackets, or semi-processed goods to us. It will not take many suppliers to shut down the industry. And then the U.S. administration will have a much bigger problem on their hands than exists today. It is nice to see their broad range of industry players, including OEMs, have been speaking from the same script. And based on the most recent announcement, we got the result we were looking for. Second, There are tariffs on autos going into the U.S. from Canada and Mexico and into Canada from the United States. But some credit for domestically produced parts in each case. Automakers say much about them. But once again, I do believe this doesn't make much sense in North America, especially between Canada and the U.S. We import more cars and parts from the U.S. than we export. Why are we doing this is the obvious question. The bigger issue long-term for Canada is how will this affect its automotive footprint? We need and want assembly here in order to support our domestically owned auto supply base, which is large and significant to our country and province. Well, we have a new prime minister who has visited two of our plants and with whom we have had much frank and fruitful dialogue and who I am confident understands the issues and will address them. The basic fact is that Canada is a large economy, the ninth largest in the world, that buys 1.85 million vehicles, more per capita than the U.S. in some years. We produce 1.5 million or so. We are a significant market for OEMs. Canada traditionally followed policies that basically said, you sell here, you need to make here. The WTO didn't like that, but I think it's perfectly appropriate today. The government has shown its ability to attract investment here with carrots and support. See all the EV-related announcements of the past few years. The problem there is in the take-up of EVs, slow and inconsistent. But I think there are other carrots, such as subsidies for Canadian-made vehicles. And there are six, too. Penalties or extra costs on imported vehicles. Lots to talk about, but the point is this. It's in the best interest of the auto industry, OEMs, and suppliers alike to maintain the free trade deal that is the USMCA. Canada and Mexico should have preferential access to the US. It's in all our best interest. Third, what is the ultimate best result for North American and U.S. OEMs and suppliers? I've been advocating a five-part plan for years, and believe it or not, we may be lurching towards it or something like it. And I can tell you that government leaders in each of Mexico, Canada, and the U.S. are increasingly supportive. One, free trade in autos and parts between the U.S., Canada, and Mexico. Two, higher North American content in vehicles produced in North America. The U.S. has been advocating for that in interpreting the current USMCA. Canada and Mexico have opposed to the automakers, but this is a good way to go, and it will be good for all North American-based auto suppliers who are everywhere throughout North America. Three, higher penalties for noncompliance with rules of origin. Not a 2.5% penalty, which many simply accept, but higher and punitive, like 25%. Four, Measures to attract assembly into North America. Make it worth it to build here if you sell here. This could include carrots, such as investment and tax incentives, or potential sticks, such as quotas or tariffs. Note that North Americans buy between 19 and 20 million vehicles a year, but imports account for close to 5 million. Imagine another 2 to 3 million vehicles built in North America. Everybody wins here, including the supply base with North American content rules. We used a carrot approach to encourage EV investments in Canada. Even though EV adoption is stagnated, there is an effective way to encourage investment. Five, I believe tariffs on China are appropriate, but more than that, North America should not support direct Chinese investment in parts or auto companies in North America. The reality is that all Chinese parts suppliers and OEMs are in effect extensions of the state subsidized by it, And their investments do not add new investment, but they displace investment from market-oriented firms. Do all this, and we'll have a really solid North American market. And all this can happen quickly with the U.S. being the biggest beneficiary, in my view. So what's happening now? I won't get into detail as there are summaries all over the place produced by analysts, industry observers, and journalists, and you'll see a lot in the next few days. But here's what we have. The U.S. has alleviated to a large extent the problem of stacking tariffs. They would represent overkill that is not needed to meet intended policy goals. This is a good thing, and a supplier like ourselves is not caught up in a stacking problem. Good. Tariffs on autos that are made outside the U.S. but are imported into the U.S. continue to have tariffs, but a system of credits are introduced to lower the tariff impact for the importer. So the U.S. is trying to encourage more auto manufacturing in the U.S., reducing imports, but recognizing it will take time. The Section 232 auto tariff on parts will take effect May 3rd, but the exemption for USMCA-compliant parts continues. This is very good news for the USMCA and USMCA-compliant parts made by suppliers like us. In fact, it is a competitive advantage. The focus of the U.S. tariffs on auto remains on automotive assembly outside the U.S. and parts made outside the U.S. MCA. Things may change, of course, but here's where we're at. And as I said, five-point plan I just outlined. Under the U.S. MCA, it remains for Canada and Mexico to negotiate better tariff terms on auto assembly with the U.S., which makes sense to get to. That's what negotiations are all about. Also ensure we agree on the rules of origin and penalties for noncompliance. In terms of actual tariff impact, if there are tariffs placed on our auto parts, a few points to remember. Most of our parts go to the customer in truck country, so no tariff would be paid on those shipments. Parts that cross the border to a customer that would have a tariff would be paid for by the customer as importer of record. Parts crossing the border as an in-truck company transfer, where we are the importer of record, That would give rise to a tariff. Well, we would be talking to the customer about passing it on, much as we did with inflation during the pandemic. As for parts that we buy from suppliers, our contracts with our suppliers have them paying any tariff, but they will obviously try to negotiate and pass on the cost to us, just like we will do with our customers. The tariffs would cost us some, but most of the costs will not be directly borne by us at the end of the day. The big issue that remains in any tariff scenario is the effect on the industry. Higher tariffs would cost the OEMs a fortune if they absorb them, but tariffs passed on to the consumer would cost the industry if consumers bought materially fewer vehicles, and that would be a bad result for the auto industry, hence the latest U.S. announcement this week. One additional point. I do believe the administration, when it says that a goal of the tariffs and overall economic and trade policy is to help the U.S. auto industry, the problem is that the approach so far has not been helpful. I'm not sure it has even been coherent in Ottawa in general. That is what the markets have been telling us. Tariff noise has created a lot of storm clouds in the auto business and elsewhere, with stock prices of the Detroit 3 OEMs as well as U.S. and Canadian parts suppliers all down materially since the U.S. election in November of last year. That should tell us all something. The tariffs and threats have not helped those who they are ostensibly meant to help. So let's continue to focus on achieving a better result than this, Let's renew the USMCA, and let's get moving on making a prosperous industry here. We're making progress, in my view. Now it's time for questions. Shareholders, analysts, employees, even some competitors on the phone, so we may need to be a little bit careful with our comments, but we will answer what we can. Thank you all for calling in.

Thank you. We'll now take questions from the telephone lines. If you have a question, please press star 1. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from David Ocampo from Cormark Securities. Please go ahead.

Thanks. Good evening, gentlemen.

Good evening.

You guys paused your buyback program, which It certainly seems like the prudent thing to do, just given the uncertainty. But I am curious if you guys have paused any other discretionary spending, whether it's capital-related expenses or even hiring.

Yeah, so, David, I can say that, yes, we have put a tight leash on our spending, primarily some of the more discretionary spending like the travel and entertainment, these types of things. We're also working with our business leaders to reduce capital in the event that we would need to go there, given the uncertain environment. So making progress there as well. And yes, in the first quarter, we did resize some of our corporate functions early in the quarter. And as you know from our previous discussions with you, that we're taking on a restructuring program in Europe.

And in addition to that, we're not seeing the same level of activity from the customers for new business because they're somewhat idle waiting on some of this to pass so they know which direction to go on new product. We are seeing a lot of extensions of old product to buy time, I think, until, you know, we're going to build hybrids, we're going to build EVs, we're going to build ICE engines or whatever combination And what's the therapy in fact going to be on our investment? And until that settles out, I think some capital will be held up from spending just because the programs aren't there. Do you guys have an updated guidance or refresh for you on where 25 capex is going to come? And do you guys have any flexibility with your suppliers to drop that even further?

So as far as our guidance, On the capital, we would think you'll be coming in approximately $300 million, so we haven't changed that. I would say trending a little bit lower at this point in time based upon the comments that Pat made.

Okay. I think last quarter there was quite a bit of discussion on just the hidden assets at Martin Ray or whether it's the real estate or your position in Nano Explorer.

I'm just Curious, is there any additional thought on potentially monetizing it or on surfacing some of the value that may be hidden behind the scenes that investors may not be appreciating, whether it's a sell-down of your position in Nano Explore to potentially buy back from Martin Reyes stock here just in the current levels?

I think capital allocation is something that we always look at and we spend a lot of time talking about it. At the end of the day, we think that NanoExplorer and graphene are, you know, it's a wonderful product that is awaiting its time. That doesn't mean we're married to holding it forever. At the right price point, we would do something. I don't think investors necessarily appreciate it, but we do. And, you know, we'll see where that goes. In terms of things like real estate and so forth. We have a very good lending group. We actually have unsecured debt, but one of the reasons it's unsecured is because we have a lot of hard assets behind it, and that includes the real estate. So there's actually value in that in terms of the flexibility we have with our lending syndicate. But if somebody made us an offer for a building that we couldn't refuse, we'd have that discussion, I'm sure. We also like to own some of our real estate as well. We have a nice mix right now, at least. We like to keep some balance in that portfolio, but we're always open to ideas.

Just the last one, I think you guys disclosed previously a potential M&A transaction. Do you guys put that on pause in the event, just given the current market conditions?

I think it depends on the nature of the transaction. As you look at our history, some of the transactions were quite cheap. And so if we had an offer we couldn't refuse, we wouldn't refuse it, and we're always looking. And one of the realities, particularly when we have tougher times like we do now, is customers like us looking. And they might have a trouble supplier situation and said, you could really help us out if you do this. And that involves a lot of different discussions, which may be future work, other things that we can do. We've actually made some of our best transactions in the toughest times. But we'll always look. Pat, what do you think?

No, I agree 100%. And certainly there's a lot of distress out there, smaller suppliers in particular. I wouldn't say anything super big or hot on the stove at the moment, but there's some little ones out there that we've been asked to take a look at, and we're certainly doing that.

I think my question was more specific, I think, to that Tier 2 European supplier that you called out.

It may not close for another two, three-and-a-half years. That's kind of a two-year-out project. We're buying that over time, so right now there's no plan to change that. Yeah, still there. Okay, sounds good.

I'll hop back in the queue. Thanks a lot, everyone. Thank you. The next question is from Michael Glenn from Raymond James. Please go ahead.

Hey, good evening. So just to think about from Canada to the U.S., from Mexico to the U.S., maybe speak to the two separately. What's the prospect of your facilities in those markets supplying parts into U.S. assembly? Is that something that can be accomplished right now?

Yeah, we do some of that right now. We do that in a number of our groups. You know, I'd say, what, 75% of what we make in Canada goes into the U.S. now. Currently, yes. And Mexico, a lot of it goes local to Mexico, which is up in the U.S. Well, 25 direct. But the bottom line is, yes, we can do it, and we do do it currently. So could it shift?

Certainly. And if the question is can we supply U.S. assembly plants from Mexico and Canada, the answer is yes.

Okay. And then based on what we learned on Tuesday night with the revisions, those – parts would be deemed USMCA compliant?

Yes. There's things you got to do to make sure that they are compliant, but the vast majority of what we make in Mexico and Canada is USMCA compliant.

Okay. So we've read a few articles over the past week or so regarding, I believe Stellantis is going to move some volume from Mexico into the US, and then General Motors talked about moving volume from Mexico into the US. Do you anticipate, or the way those would line up, would you continue on with your supply related to whatever business you have there, or would you have to shift it to the US to continue to participate?

So let's use the GM example, because Mary Barra talked about it today, on making more vehicles or more trucks in Fort Wayne. We supply that vehicle in Canada, in the U.S., and in Mexico. We have duplicate tools in many cases because it's a big volume vehicle. So then shifting... production from, I don't know if it's coming from Mexico or Canada, that part I didn't hear, or if it's just additional volume because they're really competent. But we'll continue to supply it as is. And if one plant, you know, volume-wise starts to get a little stretched, we would bring it in from one of the other countries. So we see that as a pretty minor adjustment the way we run.

Okay. And I'm just trying to For myself, and just to maybe hear you guys speak about it, it's maybe a bit of a broad question, but the risk associated with the parts infrastructure that you have set up in Mexico over the past number of years, I know it's been a substantial investment for you over time, and that's now a large business for you. Is that something, like how concerned are you regarding the outlook right now for that part of your business, what's made in Mexico?

The news that we got Tuesday and firmed up today and Rob talked about, USMCA compliant, the far majority of everything we make is USMCA compliant. So from a Terra point of view, not in the moment anyway, concern. There's some assemblies logistically that if a product was moved, We might want to move that product because some of our products are large, but a whole lot of our products, like I said, we can transport across the border given the capacity wherever it's at. So it would really depend on the part and the vehicle and how much work we do to that part before it goes into the vehicle from a size point of view. Larger parts certainly would be more challenging. but the typical part and smaller parts wouldn't be as much.

Let me make a comment on a broader perspective. The U.S. is obviously focused on getting more assembly capacity in the United States. If there's more assembly capacity in the United States, there's probably more workforce supply in the United States. The overall focus, even though the press talks a lot about taking work from Canada and Mexico, the real opportunity is The real focus of the tariffs is to get more assembly into the United States from other countries, i.e. Europe, Japan, and South Korea. And as I mentioned in my remarks, there is a lot of imports into North America, the vast majority of which, of course, go to the United States. So just imagine you can increase volume production by, say, 2 million units over the next couple of years. That's huge. That's 10 assembly plants Lots of different work, lots of work going on for North American-based suppliers because we'll be competing for a lot of that new capacity. And in that context, you've got to look at that context when you're talking about just Canada and Mexico. The other thing that I think we have to factor into the discussions, particularly in the Mexico situation, is the actual competitiveness of the product made. That competitor is not going to go away, especially when you look at what the peso has done, say, to the U.S. dollar over the last year, which we talked about, I think, in our last two calls. So I think that this is a long-term scenario that I think is good for the North American industry from a producer's point of view, and we're very bullish on that. In terms of how messy it's been, well, It might be the nature of the situation in terms of how things are done. But the focus of the U.S. is one that works. And ultimately, people are going to buy vehicles. People are going to need parts for vehicles. And the final thing I'll say is also recognize we didn't spend much time talking in our remarks, but the big issue for the United States is China, right? And in order to compete with China to have a healthy economy, automotive industry, you have to have healthy supply base, and that healthy supply base is not just in the United States. We don't have enough workers in the United States. It's hard to find them, even for the assembly and so forth. And at the end of the day, when you're dealing with supply chains and manufacturing supply chains are a lot more complex than some people sometimes figure, you're going to have to deal with that issue. You need people to make the stop. Okay. Thank you for all. Go ahead. We're not super worried. Yeah, we're paranoid, right? Like we're a supplier and we were in an industry where you get punched in the face on a regular basis and then you deal with that. But ultimately, and I think we've shown this, I think we've got enough credibility to say that very often the most difficult times are the ones where you have some opportunities and we have great people. They're very focused. And I think that, you know, people are going to need suppliers. The discussion is try and be the best supplier and you're going to have opportunities. And I think ultimately the silver lining for me is the biggest takeaway. I mean, and everything that's pointing to this right now is that Canada and Mexico is getting preferential treatment in our industry. And that's compared to the rest of the world. So, you know, it'll drive some opportunity in the next few years. for North America in general, because to Rob's point, the U.S. can't absorb all of this, right? And as you know, our biggest footprint, 75%, is in North America. So I think we're well-positioned at this point. We're well-positioned in the United States, too. We've got plants in Michigan all down to Mississippi and Alabama.

Okay, thank you guys for the insight.

Thank you. As a reminder, you may press star one if you have a question. The next question is from Donna Singh from CIBC. Please go ahead.

Hi, good evening. You did touch on this earlier, but could you provide more insight into the addition to the restructuring provision this quarter, and what should we expect for the remainder of the year?

Sure. So in the first quarter, we had about 16 million of our restructuring And as we pointed out in the guidance, we would expect to have about $55 million of cash invested in that, the resizing of the business. So in terms of the specifics around the $16 million in the first quarter, most of that was in Europe, Germany resizing, as we talked about, and then to a lesser extent, Canada and the rest of the world. So in terms of what to expect going forward, we still have to keep moving on in terms of the resizing in Europe, primarily EV, call it EV program related. So that's taking shape still and likely to be substantially moving through the second quarter. The rest of the world is pretty much, I would say, more or less complete, maybe a couple of lingering things there, but mostly we have to work on the European resizing.

Okay, thank you. And what conditions need to be met for you to consider resuming share buybacks?

I think all of them have come down to getting some better clarity around the tariff situation. It's obviously been very fluid. What we're doing is prudent in our view, and I think a lot of our peers are taking the same approach. It's a volatile environment, and we just want to get a little bit more clarity and visibility in terms of what environment we're working under. At this price, buy the stock.

okay thank you thanks very much thank you the next question is from michael glenn from raymond james please go ahead i'm back um i'm just wondering yeah i'm just wondering to uh you talked about the restructuring europe but Given what these tariffs mean for the Europe assembly into the U.S. right now, do you have any insights? What are your customers over in Europe? Number one, how much exposure do you have to Europe product that goes into North America? And what sort of production outlook have the OEMs over there shared with you for this year? That's

Yeah, I can maybe make a few comments there, Michael. So as far as our exposure of our European business coming into North America, it's very small. It's less than 5%, right? So the tariff situation here would not be so dramatic for us because we produce locally for the European market. Now, as far as, let's say, the dynamics relative to tariffs, it's been, let's say, more muted than than what we're hearing from the North American customers. And as far as what our forecasters say, let's call it IHS or S&P Global, the reduction based upon tariffs is to be around maybe a 1, 1.5% is what they forecast for the remainder of the year, as opposed to their very conservative view in North America, something north of 5%. The indication directly from the customer is not a reduction in anything that we've heard specific to tariffs. That's mostly been EV-related volume reductions.

Okay. Okay. Thank you. That's helpful.

All right. Thank you. Thank you. The next question is from Tammy Chen from BMO Capital Markets. Please go ahead.

Hi. Thanks for the questions here. I have two that are also tariff related. First, I'm just wondering, so, you know, when I saw the exemption for USMCA compliant parts, that was very encouraging to hear. But I'm wondering on this aspect, so, I mean, if I take GM as an example, when Mary this morning says one of the things that also sounds like they're starting to look at is to further increase U.S. parts content among their supply base, does it understand an assembled vehicle coming from Canada or Mexico to the U.S., the non-U.S. content part still has that tariff? So I'm just wondering, how do you or how should we interpret that aspect? Do you believe that your customers will gradually start to have that discussion with suppliers such as yourselves that although your parts are USMCA compliant, do you think they'll gradually want their supply base to have more and more of the content made in the US?

One answer is no, they don't want that at all. But but they might be forced to do that to a certain extent, right? The reason they're sourcing in different places is because cost, productivity, all that type of stuff. So that's my general comment.

The only one that can see where the car sits compliance-wise is the customer. And as a parts supplier, you know, we don't have a big role in that until they come to us and say, hey, what would it take for you to move component A from Mexico to the U.S. as an example? We expected to see a lot of that the first time that this current administration was in office because that was, you know, when USMCA first got settled. And I think we had one request to study it. Now, this one might be more than that with content differences. But at the moment, I don't foresee a tremendous amount of that. I think there'll be all kinds of studies. And they may settle on a product or products that they want to look at. But if they're going to move a supplier part from one country to another to get better overall compliance, it's going to be a part that has significant weighting. It may be a transmission or an engine or something like that. The majority of our stuff, as you guys know, are metal components, structures, things like that. So I would say we would not be top on their menu unless it was convenient. So I don't expect to see a lot of traffic there, but we won't know until we get the request.

I think it's also very early to conclude that the current tariff environment will be permanent. It will be very imprudent to make some big decision like this time when things aren't so early at this stage. I would say that. We were absolutely heavily involved in the USMCA negotiations. Actually, advising two of the three parties to it, Canada and Mexico. And in the context of the negotiation, there are things that you negotiate. And the U.S. needs things from Canada and Mexico, despite the rhetoric that they don't. And in the context of that, I fully expect the discussions to be focused on free trade in autos and parts between the three countries, and there's going to be some horse trading and that type of stuff. And in terms of the arrows in Canada's quiver, for example, it includes things like borders, investment in defense, natural resources, critical minerals. We've had these discussions. Canada has a whole playlist for it. Mexico has a playlist as well. And then the other thing I'll say is we've set up over a number of years a footprint where our approach to the customer has typically been, where do you want us to make this? and try to build capacity so that we can deal with that. I do think that over time, if there's more assembly in the United States, there's going to be more parts in the United States from places that have to locate fairly close to the customer. And that's an opportunity for us to grow our U.S. And like I said, you know, in the context of statements, a lot of statements get said, we'll see where we go.

Okay. I understand. That's helpful. Thank you. And since that segues to my follow-up question is, you know, I think at this point, year to date, we might have just seen very few actual downtime or similar type announcements by OEMs directly in response to the tariffs. We've gotten a little bit more clarity, you know, recently this past week. I'm sure you're having frequent discussions with your customers. I mean, do you expect At this point going forward, we'll start to see some more material production-related decisions by your customers now that we seem to be at a little bit more clarity in terms of the tariffs. And is your sense from your discussions with your customers, like is the hope or expectation still that ultimately tariffs on the sector just eventually goes away? Or do you think customers are now, your customers are now expecting that some form of auto tariffs may stay in the system for some amount of time, longer than initially thought. Thanks.

I think tariffs on Europe and Asia coming into the United States are going to stay. I think it's going to be there for autos, and I think there's a good chance it's going to be there for parts. I may be wrong, but You know, that is consistent with the focus of more assembly in the United States because the low-hanging fruit is not in Canada for sure. I mean, Canada's got a trade deficit with the United States in auto and parts. And I do think that the sources of manufacturing are going to be from OEMs in those places. They're going to say, that's a good market there. It doesn't make sense for me to make in, say, Japan. And it makes more sense for me to make in the United States. And that's why there's a lot of incentives. The U.S. wants that. They want more production. And that's how you get the success. So why fight over 200,000 vehicles made by the Detroit 3 in Canada, like reducing their footprint, when you can get a plant from a big OEM in Japan that produces 200,000 vehicles, right? So I think that's going to be the nature of of that discussion. The other thing is, so I do think we'll have that. The other thing is just in the context of what's worked, terror-free movement in North America has worked pretty well. And I will tell you one story that I don't know how far, how many people have insight on this, but a very good source basically said that the reason that the OEMs didn't fight the tariff announcement that first came out, obviously, a few months ago, was they were told by the White House there would not be tariffs on parts and vehicles in North America because they saw the value of the USMCA. So if that was a conclusion then, then I think that's where we're going to try and work to here. But in order to do that, some people got to do some negotiating at the country level.

Interesting. Those are all my questions. Thank you.

Thank you. Thank you. The next question is from Brian Morrison from TD Collin. Please go ahead.

Good evening. I apologize. I joined late, so I missed a lot of the call. But I wanted to ask, similar to Tammy's question, on your new business awards, are you being told by the OEMs at all where to build these parts?

Well, in any new business award, it's part of the award. We We negotiate where we will build it, and then that's part of their approval process when we get the award. So the one thing, and maybe you missed this too, is there's not as many new business awards because there's been a lot of extensions of current programs while the OEMs try to figure out, you know, where to go with what kind of vehicles to build. So we're seeing a little bit of a throttling there. So we are still winning some stuff, and basically when we get the PO – It tells you this is where we're going to build it. And in fact, typically even in the RFQ stage, that's identified.

And what we've seen also, Brian, is in some of our recent quoting activity, the customer will say, hey, we would like you to look at a couple scenarios, build it in the U.S., and let's say we would suggest, well, we don't have a particular, let's say, a production line for that product in the U.S., so we're going to give you two quotes, one with what it would take to do it, plus what we already currently have in terms of a capacity footprint. So we have started to see that more frequently than in the past.

And we're actually even being proactive on that front in some cases. Given our global footprint, we've got presence in Canada, U.S., Mexico, you know, we'll be proactive and say, okay, listen, we can service you out of Canada or Mexico, but we have this made-in-USA option as well for you, right? So we've done that actually on one occasion. And I suspect that we'll likely need to do, you know, apply that type of thinking going forward just given the the environment right now.

Right. Makes sense. And then I guess, just sorry, on your guidance, it's unchanged for the year. I see that. But it seems like North American production forecasts have come down, especially from the IHSs of the world. I'm wondering what is factored into your North American production forecast in your guidance.

So, Brian, in the short term, you know, we haven't seen a substantial reduction in releases, right? So, it's humming along, if you will. As we mentioned, we start to see now here in 2025 a more seasonal pattern, which was a little bit broken last year. So, you know, production and improvements quarter over quarter until you have the seasonal reduction in the fall. That's what we're seeing here in the short term. As far as the longer term, We're taking into consideration some of those IHS outlooks. Of course, we do think that they're a little bit conservative, obviously, because they built their latest forecast without the clarity that we had two days ago. They built theirs, I think, the 16th or 17th of the month, so a couple days ago. And it was 5% down. Um, juxtapose that with what we're seeing from the customers. If there's a, there's a, there's a, there's a gap there in the short term.

So, sorry, are you looking for flat year over year or what's in your assumption?

A flat year over year is what we had 24 to 25 is what we have a flattish outlook.

Yeah, you may have missed this. The guidance is not based on IHS, the current IHS on. So, um, they're, As Peter noted, their current projection for North America is quite cautious, if you will, 14 million units. And it does assume tariffs and auto parts. We did confirm that with them. So given the clarity we have this week, I suspect they'll likely end up adjusting their forecast going forward.

So to just maybe rephrase, to be more clear, Brian, our current outlook, which we talked about in the last call and reiterated here, does not include those, let's say, IHS assumptions.

Thank you very much.

Thank you. Thank you, Your Honour, for the questions registered at this time. I would like to turn the meeting back over to Mr. Wildeboer.

Thank you. Thank you all for giving up part of your evenings to talk with us. Have a good night. Any of us are available. for questions at the contact numbers in the press release. Have a good night. Go Leafs go.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.