Robert Wildeboer - Executive Chairman and Chairman of Martinrea Honsel Group Pat D'Eramo - President and Chief Executive Officer Fred Di Tosto - Chief Financial Officer

Steve Arthur - RBC Capital Markets Mark Neville - Scotiabank John Rolfe - Argand Capital Michael Glen - Macquarie Todd Coupland - CIBC Mark Clark - Private Investor Ben Jekic - GMP Securities David O'Capal - Cormark Securities

Good morning, everyone. Thank you for joining us today.

We always look forward to talking with our shareholders, and we hope to inform you well and answer your questions. With me this morning are Pat D'Eramo, Martinrea's CEO and President, and our CFO, Fred Di Tosto.

Today, we will be discussing Martinrea's results for the second quarter ended June 30, 2017. I will make some brief opening remarks.

Pat will make some operational and strategic comments. Fred will review the financial results, and I'll finish with some closing comments.

And then we'll open the call for questions and we will endeavor to answer them. Our press release with key financial information discussed on a fairly detailed basis has been released.

Our MD&A and financials have been filed on SEDAR and should be available, along with our AIF. These reports provide a detailed overview of our company, our operations and strategy, and our industry and the risks we face.

Given the detail in our press release and filed documents, our formal remarks on the call today will be generally overview in nature. We're very open to discussing in our remarks and we hope in the Q&A some highlights of the quarter or year, the state of the industry today, how we are addressing the challenges and progress in our operations.

As always, we want you to see how we see the world. As for our usual disclaimer, I should note that some of the information that we are sharing with you today may include forward-looking statements, even if qualitative.

We remind you that these statements are based on assumptions that are subject to significant risks and uncertainties. This is particularly the case given the present automotive and economic environment.

Although Martinrea believes that the expectations reflected in these forward-looking statements are reasonable, we can obviously give no assurance that the expectations of any forward-looking statements will prove to be correct. Our public record, which includes an AIF and MD&A of operating results that I just mentioned, is available on SEDAR, and you may look at the full disclosure record of the company there.

I also refer you to the disclaimers in our press release, our MD&A and our AIF. A couple of comments at the outset.

First, we normally do not release on a Tuesday morning after a long weekend, but we have busy executives and directors schedules, particularly this week, and so we are getting an early start to the week. As you can tell by our press release and as Pat and Fred will outline to you, there are a lot of great things happening here, so we are getting your week off to a great start.

So with no further ado, here's Pat.

Thanks, Rob. As you have read in our second quarter report, our Q2 financial performance now makes it 11 consecutive quarters of year-over-year quarterly margin improvement and record quarterly earnings.

As a matter of fact, Q2 EPS hit an all-time high of $0.55. Our 6.9% Q2 operating income margin level clearly shows Martinrea's ability to achieve our 50% margin improvement target this year.

We are well on our way to achieving this goal. Net debt to adjusted EBITDA continues to trend downward, ending the quarter at 1.68x on a trailing 12-months basis, again showing the glide path to our goal of 1.5x by the end of '17.

Fred is going to go over the financials in a minute. But let me talk about our metrics in the future a bit.

In our press release, we've indicated that our third quarter, typically our slowest quarter because of automaker summer shutdowns, should have production sales in the range of $810 million to $850 million and adjusted earnings per share of $0.40 to $0.44 per share. Those profit numbers indicate another record year-over-year quarter.

Over time we have indicated that our operating margin metrics will continue to improve so that by 2020, we expect to achieve at or better than 8%. And we won't stop there.

We just want to give a time horizon for the anticipated progress. I do want to note that our Q2 EBITDA margin of 11.2% exceeds the global top 100 EBITDA average of 11% for 2016, as calculated by PWC.

Please don't forget that we are a relatively young company, built through the startup of many plants and by the purchase of many assets, most of which were distressed at the time which needed to be fixed. Our improving metrics show our ability to take assets and make them better.

We have many great plants now. Some of you have seen them, such as the Alfield plant we showed you after our AGM a few months ago.

As you can imagine, I'm very proud of our people in the organization. Their efforts continue to drive improvements throughout Martinrea, translating into continually improving financial results.

Lean activity on the plant side continues to take root, especially notable in our metallic and flexible manufacturing groups. Similarly, I see strong operational advancements in Martinrea Honsel, with a renewed focus on floor level problem solving, process improvements and team member engagement.

These teams are doing an exceptional job at sharing best practices and executing them quickly. Our work and continuous improvement has no final destination, but it continues to fuel our team members as they look forward to more opportunities, relentlessly.

Related to revenue growth, we won another $50 million in new business since our last call, including $15 million of aluminum structural components and fluid management systems work for Ford on the next generation F150 and Bronco, both starting in 2020, $15 million of steel structural components for General Motors on the upcoming autonomous vehicle starting in '18, and $20 million of aluminum structure components for Lucid starting in '19. Quoting activity continues to be robust, and we are happy with the progress in this area.

We're seeing particularly high volumes of quoting in the aluminum space, and we expect to see this trend continue, in particular with battery electric vehicles that have, in some cases, particularly complex parts for the electric motor housings as well as battery trays, that in some cases with cooling channels that require our fluids expertise. We're also seeing new engine designs to support hybrid vehicles.

Launch progress is remaining on pace. We continue to be particularly pleased with the Equinox/Terrain launches in Canada and Mexico.

All five plants are now making product, some at near full rate. I was in Mexico a few weeks ago at our Silao facility, where we christened our newly launched class A tandem press line.

It was a great event with our customers, local officials, our team members, and the governor of the state. We have also started construction on our second plant in Silao, Silao 2, which will support one of three significant programs over the new few years.

On the new product front, I mentioned in our last call, we introduced a new role, the product line executive, a position focused on bringing new product to market. This position will allow us to develop new products and revenue streams, reducing the potential burden on the related product group.

Some weeks ago we named our first executive to this role, focusing on developing and promoting our new aluminum hybrid subframe. We're excited about the prospects of this new product as well as the new role.

While we're on new products, just a quick update on our new tech center in Auburn Hills, Michigan. Weather permitting, we're targeting to move into our new facility this fall.

The new tech center will offer us additional space for engineering and lab space for testing and research and development. This new lease allows us to exit two separate facilities in the Detroit area and bring everyone together in one larger facility.

We have great expectations in the out years. For the first time, we will formally create our own in-house R&D activity, focused on delivering new products that promote our lightweight strategy.

I want to conclude by thanking the Martinrea team for their tremendous efforts in advancing the company on so many fronts, for having the faith and willingness to get onboard the continuous improvement train and having the perseverance to stick to it as well as the openness to see tremendous potential in front of us. Two and a half years ago, we set targets, made a strategy to achieve them with our 10 principles as our backdrop, driving our company to be a world-class supplier.

I'm not celebrating just yet, but the view looks very good from here. With that, I'm going to hand it off to Fred Di Tosto.

Fred?

Thanks, Pat, and good morning. The second quarter was a great quarter from many perspectives, our best quarter ever from an adjusted EPS and EBITDA perspective.

As Pat noted, Q2 financial results made it 11 consecutive quarters of year-over-year improved record financial performance. Based on our financial results, it is clear that we're getting stronger and making progress towards our goals as an organization.

Second quarter sales excluding $39 million in tooling sales, are just over $933 million, within our previously provided sales guidance range. Production sales continue to be impacted by lower volumes on passenger car platforms, while light truck volumes generally continue to be quite strong.

As Pat noted, we launched new work during the first half of the year, including a significant amount of steel metal forming work on the next generation GM Equinox/Terrain, positively impacting our top line. The move of the Equinox/Terrain suspension module assembly work we do for GM to the VAA pricing model as previously noted, did not have an impact on sales during the first half of the year, but will begin having an impact going forward, or starting in Q3, a phenomenon reflected in our Q3 sales guidance as highlighted by Pat.

Overall sales for the second quarter were slightly lower year-over-year by approximately $50 million or 5%, generally consistent with the flat volume market dynamics. I refer you to our Q2 MD&A for a full account of the year-over-year variances.

Adjusted net earnings per share in Q2 on a basic and diluted basis was $0.55 per share, in excess of the high end of our previously provided earnings guidance range. $0.55 represents a record quarter, up substantially year-over-year and quarter-over-quarter.

Margins were also up year-over-year, whether it be gross margin, adjusted operating income margin or adjusted EBITDA margin. Adjusted operating income margin for the quarter increased year-over-year and quarter-over-quarter to 6.9%, from 5.6% in both Q2 '16 and Q1 '17.

Again, a very healthy increase. Operational excellence activity, the cornerstone of our Martinrea 2.0 strategy, and general sales mix, including new and replacement work that launched and all programs that ended production during or subsequent to the second quarter of '16, contributed to the year-over-year and quarter-over-quarter margin increase.

Based on the positive margin trend over the past 11 quarters, it is absolutely clear that we're getting stronger in a lot of places. I'd like to reiterate our interim target of at least 6% operating income margin by the end of 2017, for '17.

Everything's on track. As a matter of fact, we're ahead of schedule.

We expect to achieve this milestone and won't stop there, as we expect to be at or better than 8% by 2020, as previously indicated. As our Q3 '17 guidance suggests, operating income margin for Q3 is expected to be somewhere north of 6%, depending on the level of tooling sales, up substantially from 4.7% in the same quarter last year.

So the year continues to trend very nicely. I also just wanted to quickly touch upon the balance sheet.

Net debt for the second quarter decreased yet again, following a decrease in Q1. As a result of our increasing margins and debt reduction, our trailing net debt to adjusted EBITDA now sits at 1.68x, a decrease from 1.78x at the end of Q1, 1.89x at the end of '16, 2x this time last year, and over 2.5x at the end of Q3 '14.

So leverage ratio has dropped drastically. Again, we are well on our way to meet our target which remains to be 1.5x net debt to adjusted EBITDA by the end of this year.

As you can tell by our financial performance, things are coming together quite nicely. We continue to consistently deliver improved operational and financial performance.

Martinrea 2.0 has really taken hold of the organization, and we believe things will continue to get better from here. Thank you.

And I'll turn you back over to Rob.

Thanks, Fred. Just a few general comments that are consistent with what I made at our AGM a few weeks ago.

I personally believe and have said before that a great company needs three basic things: strategic vision, operational excellence and financial discipline. And I believe you're seeing commitments to all three from our team, a team that can and will deliver on all three.

And we have been delivering in all these areas. We are a stronger company today, another record year, another record quarter.

We've been delivering on our promises on margin and debt to EBITDA. We're on track.

The train is leaving the station and picking up steam. At some point, even the skeptics will jump on the train.

Let's talk about the state of the industry or the macro view for a minute. We are positive and optimistic about our industry.

We were just at the Car Conference in Traverse City last week, and the industry is bullish everywhere. We recognize our industry is perceived as cyclical and has gone through some tough times periodically.

For the most part, I believe external nonautomotive-related events drive this perceived cyclicality. The Last time industry volumes tanked in 2008 and 2009, we had a worldwide financial crisis and an oil price shock.

The previous time, 1990 to 1992, we had a significant recession, for those of us that can recall it. In really bad economic times, people by less cars.

People don't wake up and stop buying vehicles because they're out of fashion. The car is in fashion and will remain so.

At the same time, we are seeing a flattening of sales, even declines from last year a bit in terms of U.S. sales, as we saw in the July sales numbers.

As an aside, retail sales calculated on a daily basis in the U.S., were off less than 1% from last year's record highs. I note that Canadian sales are hitting record highs.

Overall though, I'd say we are at a plateau level. It is a good plateau and fairly sustainable it seems.

Note volumes are not much different than 15 years ago. From our perspective, the view from this plateau remains pretty good.

The automotive industry worldwide remains a growing one. Worldwide volumes are anticipated to increase over the next few years to 2023, by another 20 million units.

Note, we look at production volumes, not just sales. North American volumes remain solid for both North American consumption and for export, especially for Mexico.

Today, North America exports between 2 and 2.5 million vehicles to the rest of the world. And that number is expected to rise to 3.5 to 4 million within 5 years.

So that increased production mitigates a potential sales decline in the U.S., for example. And some production volumes in North America will continue to be strong.

At the same time, there's some volume softness in Q3. But having said that, we are predicting record third quarter results.

We think the macro picture is pretty good. In terms of other industry trends, such as electrification or driverless, we believe they will not adversely affect volumes or our business, indeed, they provide opportunity.

The new technologies we see in the industry are overall positive. Electrification, trends to more hybrids and even some pure electric vehicles over time, and it will take time.

Won't affect overall volumes and certainly support the overall trend to light-weighting, a core strength of ours. Batteries add lots of weight.

So light-weighting becomes more relevant. The support moves to more lightweight steels and aluminum, and even a battery-operated vehicle needs lots of lightweight parts like battery trays and so forth.

In sum, we don't fear electrification as we see as many or more opportunities as we see challenges. I note that we have already over $50 million of content on electric hybrid vehicle platforms such as Tesla, the Volt, and a number of hybrid platforms.

We won more work in the last quarter as announced. If sales of these vehicles go up over time, so will our revenues on those platforms.

Driverless technologies will be introduced over time. But the move to fully self-driving vehicles will likely take a very long time for regulatory and other reasons.

But vehicles are going to need structures, which we provide. We believe that if these technologies open the ability for people to travel by car when they otherwise cannot, such as for our parents or us when we get too old to drive, new markets will open up.

We will produce more vehicles in all likelihood, not less. The move to sharing vehicle, such as Uber, while perhaps causing some people to drive less, will increase wear and tear on vehicles being used for this form of ridesharing, lowering their shelf life before replacement.

I personally believe fewer people may take LRTs, streetcars and the like, and we may see added vehicle usage. Making car use easier and cheaper will tend to increase usage, not lower it.

In sum, there's a lot of opportunity out there, all good news. Let me touch briefly on NAFTA as it is a current topic of discussion, and formal negotiations will get underway next week.

Don't think there haven't been many discussions already. It seems to us that people are recognizing the value of the auto industry to North America and the U.S., and the fact that our integrated industry is competitive on a worldwide basis.

I believe that it is not in our mutual best interest to take measures that screw up a great integrated industry and add cost, leading to lower jobs. And I think most people in Canada, Mexico, and the U.S., are seeing that.

The NAFTA valuation cloud that seems to hang over Canadian auto parts companies should dissipate over time as we deal with our trade issues. We believe NAFTA can be improved.

We believe people will support an integrated automotive supply chain. At the same time, I would note that Martinrea, with the shape of our North American footprint, is marvelously positioned to serve our customers' assembly plants, whether they be in the U.S., Canada, or Mexico, from our plants in the U.S., Canada, or Mexico.

We believed from the outset there would be no BAT or Border Adjustment Tax. The BAT concept in particular is silly and it is now becoming clear it is dead in the water.

We believe overall content rules, or rules of origin for NAFTA, will not change materially, if at all. We believe there may be stronger enforcement of rules of origin and tracing rules, but we should be fine with those.

And we believe these may even be beneficial to North American-based suppliers, which is, of course, what we are. We've done a sensitivity analysis at various levels, and even increases in North American content levels are manageable and may even give us some competitive opportunities.

Note, half of our North American revenues are in the U.S. already.

In sum, we think we are going to be okay and maybe better than that. But we recognize people don't like uncertainty and we have to walk through some issues.

I will say this. We are working closely with governments in Canada, Mexico, and in the U.S., state and federal, and industry associations.

Nobody wants to make bad decisions. So I think we'll be just fine in the end and maybe better off, given our profile.

Apart from the macro level, we are very excited by what we are doing here at our company. We are focusing strongly on our operations, on our product mix, on our customers, with positive results.

We have never been stronger than we are today. And that's not just because of the financial results, our quality metrics, our safety metrics.

All metrics are improving in the right direction. We are putting pucks in the net.

We want to thank our people for bringing to you a really positive story. We want to thank our shareholders for your support.

We had our annual meeting in June, and it was great. And that's it for the formal remarks.

It's time for questions. I know that we tend to get a number of numerically focused questions, and that's okay.

But please do not forget the qualitative comments. The strength of a company is not built on numbers alone or financial models alone, but the quality of its people to make the future better than today.

Thank you.

I just had a couple of questions. First, on the longer-term margin objectives.

Pat, you commented again on the 8%-plus goals by 2020. I'm wondering if you can just elaborate a little bit more on terms of that margin improvement.

What drives that? Is that all operational items?

Is it mix of business? And what kind of line of sight do you have on those things today?

First off, it's a mix, operational improvements probably 50% of that gain. Actually, I think there's more there, but conservatively I'll say 50%.

And the new business we brought on, which is better business, would be the other half. And absolutely, we have very pure line of sight given it's still a few years out.

But confidence level's high.

And looking at the launch schedules, is it relatively linear from 6% to 8%, or more towards the outer years?

No. I'd say a little slower this back half, and then it starts to pick up again.

'18, '19, and into '20's probably pretty steady. Some groups heavier.

Like I said, we have a lot of quoting going on in the limited space. We'll have a lot of activity in aluminum.

And we'll have quite a bit of activity in the fluids group as well.

Okay. And in terms of volume assumptions in there, are we assuming relatively flat through that era?

Or how contingent are these objectives on production volumes?

At least the next few years, relatively flat.

Just a final one just on CapEx levels running a little higher than they were a year ago, Fred, presumably to support some of this new business. Where do you see things wrapping up for this year?

And what's the right way to think about CapEx trends into '18, '19?

So the formal guidance this year is something in around $240 million. So that hasn't changed.

So I'm still expecting us to come in within that level this year, give or take. And obviously, timing of expenditures is a factor there.

Next year, I'm expecting a similar level just based on our backlog. And then beyond that, it's going to be based on the amount of work that we win.

And given the activity, I'm not expecting it to necessarily come down, but leveling off at the current levels as our margins expand.

This is Tammy on for Peter. I just have one for question.

In the North American segment, could you elaborate more on where you're seeing the operational improvements in terms of which particular plants?

Yes. I won't go into detail in the particular plant.

But I would say that in the metallics group in particular, we've seen the greatest gains, which was a little bit of our weak spot a few years ago. U.S.

improved a lot, Canada continues to do well and Mexico does exceptionally well. So, but the metallics group in particular has made probably the biggest impact.

Excellent quarter. Great job.

Just first on Europe, margins were down year-over-year and quarter-over-quarter, so still some volatility. But I guess our expectation that you'd be up in Q2, just I think you're past peak roll off in Germany, and you're ramping in Spain.

So maybe just a little more color on what happened there in the quarter. And just I guess longer term or bigger picture, sort of when will the majority of the programs that are under launch or launching get closer to mature volumes?

Just so we can get a sense of sort of when that maybe more normalization or stabilization in the margin there.

So I'll comment on that. So what happened in the quarter is, is Germany was fairly flat, although we did see a volume decline in Spain.

And although that plant is ramping up, the next wave of volume coming through on that program is not going to happen until next year. So year-over-year, the volumes are down; and as a result of that, mix created a decline in our margin.

That's really what it comes down to. And as it relates to the ramp-up in Europe, Germany is going to be fairly steady and flat this year.

And starting next year, it's going to start executing on a backlog of business and you start seeing that volume or the sales increase. Then Spain again has its next wave of volume on that program next year, and it'll be at peak by the end of next year.

Okay. And in North America, again, very, very strong quarter.

So I guess just aside from typical seasonality and maybe some soft spots in volume like we might see in Q3, but just I guess is there anything that we should be aware of or any big headwinds or anything just to sort of think about to see sort of any, again, maybe big impact on margin going forward or just from these levels, just to again get a sense of sort of where things are trending and where they go.

I don't think it's anything you don't already know relative to which vehicles are doing better than others. Our car volumes are down, but the SUV and truck volumes are going really well.

And our mix, we're pretty fortunate that our mix lays pretty well on top of where the popularity of vehicles is going. So I think that will help us.

Now, if that trend was to change, we still have car volumes out there, but certainly our truck and SUV, small SUV volumes have helped a lot.

Okay. So again, it doesn't sound like anything, I guess significant or potential headwinds, again, aside from volume, that you're thinking about or we should be aware of?

No.

No. And we have some launches coming.

We have the GM truck launch coming over the next number of months, and following the same model we've used in the Equinox/Terrain launch, our expectations actually are really positive; going early with equipment, going early with resources on a very high-volume platform. So our expectations are actually pretty good right now.

Okay. Maybe just one last one then.

Again, more litigation charges in Brazil. Do you have a line of sight on sort of when that should be wrapped up or sort of when you'll stop taking charges?

Or any sort of color you can provide?

Yes. I think a lot of the discussion about Brazil related to a big downsizing that occurred in 2012, when the plant basically went from 600-ish employees to 200-and-change.

And it takes a long time for the litigation to get through the system. And in Brazil, with respect to litigation charges, every labor court person believes that he's an employee advocate.

And so in that context, we're working through a number of those things. We've been in Brazil in the last little while, and I think that we've got a pretty good line of sight on what's happening there.

But in Brazil, it's a very litigious environment. When things like that happen with employees, we have lots of cases.

We work them through and we resolve them as best we can. But we think that overall, actually, our view of Brazil going forward, say over the next 5 years is more positive than the last 5 years, in part because the economy's at a trough.

We've been winning some work. We've got some good product going in there to serve our customers that aren't just Brazil customers, but customers elsewhere.

And we're actually more bullish in the overall view of Brazil than we sometimes sounded over the last couple of years.

It's unfortunate in the sense that we've had that kind of reduction based on the volume. But that plant is one of our better operating plants as it starts to pick up more work.

And as Rob talked about, we have won some good work down there and we're starting to see the volumes are starting to move finally.

A couple of quarters ago, I think on the fourth quarter call, you guys had given some sort of broad guidance for 2018 revenues. I think the range was $3.85 million to $4.35 million.

You had said with the VAA impact taking about $250 million off of that, you were likely to come in towards the low end. Given sort of what's happened since then, some incremental softening in North America production volumes, on the other hand, you guys have won some new business, do you think the lower end of that is still something that's achievable for 2018?

I would say yes, and there's a couple of factors that play into that. And really, that takes us into a flat top line environment for us over the next 2 to 3 years.

And we do have some growth coming up just based on our backlog. But as you noted, we have that module business that's moving to a VAA pricing model, and that's going to mask that growth.

And the number's actually more in the range of $300 million as supposed to $250 million. So it's quite substantial.

So with those factors, I'm expecting the top line to be somewhat flat from current levels for the next 2 to 3 years. So maybe just slightly shy of that, a little under the range that you had indicated.

But nonetheless, somewhat consistent with where we are today.

That VAA runoff, and I think Fred mentioned it in his remarks, basically starts now. Or started in July, right?

That program ended officially in July. So you start seeing that impact in Q3, and it's reflected in our guidance, for Q3's.

Just when you think about the 8%, and you highlighted the comment regarding 50% of the move coming from sort of new business/better business, like what has changed there exactly? Can you just talk a little bit about that in terms of how you're bidding on the work differently?

Is that what we're thinking about happening here?

Yes, there's a combination of things. One is when we bought some of the assets in the past that were in trouble, they had some underwater business.

In fact, some of them had quite a bit of underwater business. And that's falling off.

That's one. Two, about 2 1/2 years ago, we installed a hurdle rate requirement for capital.

So our business units have to meet that hurdle rate. And of course, like everybody else, you want to work that hurdle rate to improve over the course of the launch.

They've been relatively successful with doing that. So it's a mix of those two things, along with, as you improve the operation, those type of improvements get embedded in your new programs.

So it's sort of a trifecta effect that allows this to happen.

Okay. That's great.

And then that underwater business, I guess you have very good visibility on the timing of when that sort of comes off?

Yes. There's some programs that tend to linger.

The OEs decide they want to extend a program. And of course, we negotiate to try to at least bring those to breakeven at that point.

And there's some of that that goes on for sure. But for the most part, those extensions tend to be 6 months to 1 year.

Okay. And then just in terms of the OEMs, it's kind of no secret regarding what's happening in the back half of the year from production.

Have you seen any change in them coming back to the supply base and looking for incremental savings from you guys or anybody else?

Well, there's no change. It's constant.

That's just the part of the business. There's a process, and all the OEs have a process.

They're similar, though, I would say some's approach are different than others. But that continuous view for finding savings is confident.

And I would say we're probably seeing more pressure to provide VA/VE-type solutions, which in our case has been a benefit because of our focus on technology and continuous improvement, we're able to start identifying some of those things. So, but I wouldn't say I've seen a significant swing.

It's just pretty much always there.

Okay, great. And then the $50 million in electric and hybrid work that you're doing, can you identify some products in particular that you're manufacturing?

We have quite a bit of content on the Volt, the new Volt that just came out with General Motors. We do a bunch of structural components of the underbody.

We do brake lines for the model S for Tesla. And we do also some steel structure components for the Volt, as Rob indicated.

And some of the new work that we just announced this quarter, we're doing a bunch of aluminum structural components for Lucid Motors for their upcoming vehicle platform, and we have some more incremental content on GM's autonomous electric vehicle, which is actually earmarked for their ridesharing program, so.

Yes. So there we have a trifecta.

We're on electric. We're on driverless.

And we're on rideshare. So we got all 3 for people.

And when you see, based on what you see in terms of electric, hybrid or autonomous, like is there a content, for Martinrea in particular, is there a differential? Is there a large differential in the content per vehicle opportunity for you versus internal combustion?

Interestingly enough, when you look at our product, especially in the aluminum - well, let's start with the metallic space. There's really no difference.

They all need structures. We provide structures to both.

And when you take a look at what we're providing for the Terrain and Equinox, fundamentally is similar to what we're providing for the Volt and now the autonomous Volt. So that's why we continue to say it doesn't matter to us what type of vehicle it is, because they all need a structure.

And this is a great example of it. In our aluminum business, one of the things we are seeing is more structural components being engineered, which is a good opportunity for us.

And then recently, a lot of our quoting, and I referred to it briefly, a lot of our quoting has been on electric vehicles for aluminum in things like battery trays and motor housings. And what's interesting about a motor housing is that it's a very complicated part and you have to be really good at what you do to produce it.

And we think we'll see some good margin opportunities as we go to electric, especially in aluminum, and, of course, on our light-weighting and steel as well. So I would say those are the primary changes we're seeing.

But when you look at the volumes as a whole of the electric vehicles, where we're noticing, and the data is out there, is in the hybrid. We believe the hybrids will be the dominant force for some years to come, which is a great opportunity for us and all of our business, including our fluids business.

Just one interesting fact. GM's new Equinox is about 10% lighter than its previous version of the Equinox, and that's because of the use of high-strength steel, which we do an awful lot of in our program.

So the reality is that whatever the nature of the vehicle, light-weighting is still absolutely critical. We're there in steel.

We're there in aluminum. And predictions are that 97% of the light-weighting over the next decade and a half is going to come from aluminum and steel improvements.

So we're right there.

Reality is, is as we move to electric vehicles and hybrid vehicles, our opportunities increase because the need for light-weighting even goes higher because batteries weigh quite a bit. And there's a lot of work toward how do you get further on a charge?

And one of the best ways to do it is to lighten up the vehicle. So we see the electric vehicle and the hybrid vehicles as a great growth opportunity for us.

I just wanted to briefly follow up on Spain. Just give us a little color on why is the volume actually down there?

Is it market? What's going on to cause that volatility in revenue?

Yes. There's some sales declined on some of the vehicles that we provide for.

But as Fred said, these parts in particular, control arms and knuckles, they go on multiple products. So as Jaguar Land Rover added to their new products, it creates a volume opportunity.

So the current products that we're putting those parts on increases next year because they're going to start putting those same products on another model. So overall, we see growth but there has been some flatness this quarter on the current sales volume of the current vehicles.

Okay. And that's just basically demand in the market for those particular vehicles?

But you've got new programs which you expect to help fill that in, in '18 and '19?

That's right. That's right.

The amount of vehicles that the product goes on increases this next year.

Okay. I mean you've talked about the aluminum business having a, if you think about it in the context of, let's say 2 or 3 years, I thought you talked about a fairly substantial increase in that business over the next few years.

Even with this volatility and in some of the badges, do you still view that as a growth business if you think about it in 2 or 3 years?

Yes. Yes, because, again, the demand of the new vehicles, we're seeing a lot of new engine programs that are for hybrids, battery trays.

And again structural parts, we're seeing a lot more activity on structural parts as well, because, again, everybody's focused on lightening the vehicle. So, yes, I think the opportunity's maybe even better than what we expected.

I think we said last quarter or the quarter before, I forget, that we think we can build a book of business to double over a 5-year period. So depending on the pricing and depending on whether the work hits our hurdle rates, we should be able to do that.

We're certainly seeing a lot of supporting activity.

Rob, and then I just wanted to follow up. I mean, I get your point on exports being a driver of production growth.

Is it enough, in your mind, over the next year or 2, to actually drive revenue growth for Martinrea in a flat production or in a flat sales environment?

Well, I think Fred answered the question with respect to our revenues over the next several years.

Yes.

I think that I'm looking at the words WRDS report or the Car report, and we just spent a lot of time talking about volumes last week in Traverse City, where half the industry was there. And the consensus view is we're seeing a flatness in production volume this year, maybe next, but then increasing.

And I think, like I said, we look at production volumes. And then with respect to U.S.

sales, I mean they're still pretty good. And I know a lot of people look at, for example, July sales being off.

But if you calculate the retail sales, because fleet sales are more periodic, and if you calculate the selling days, I mean, it was pretty close to where it was last year, which was a record. So I think that what we're seeing and what we're seeing the car companies talking is we're seeing flatness.

And that means, if it's an overall flatness, we're going to have some months that are a little better and some that are a little lower. U.S.

sales are off a little bit this year from where they were last year, which was a record. Canadian sales keep hitting records every month.

And Mexico's up a little bit as well. So whether we look at it on a production side or a sales side, and, ultimately, of course, sales are important when it relates to production, we do think that we're in a pretty flat market and the production overall should increase.

Now, with respect to the customers that we have, we have an increasingly diverse range of customers. So we look at what Ford does, what GM does, what Chrysler does, but increasingly what the transplants are doing because we're getting increasing work in aluminum and in steel on those as well.

And so, we don't necessarily follow the industry completely. But how it affects our particular revenues, I think Fred's commented on.

I hope that helps.

One of the other things that doesn't get a lot of attention so much, but if you look at the growth charts globally, just about every country in the world or significant area is growing over the course of the next 10, 20 years, as you know. But when you go to Japan and Korea, you see a decline.

It's the only place on the chart that shows a decline. And really what that is, is the transfer of capacity from Japan and Korea to North America.

And as you know, they're building more plants; Hyundai, Toyota. Toyota just announced with Mazda yesterday or the day before, to build a new plant.

So that's going to increase the production volume. Won't necessarily affect the sales, because those are imports currently.

And we see some growth there as well. And as Rob said, we have a lot more focus on the Asian customers as of late and are starting to make some good progress there.

Congratulations on the quarter. I'm going to take my questions or my points away from the numbers a little bit and production levels and revenues and whatnot, and I'm just going to speak about being a consumer.

So as a parent of four children, I drive a Highlander. And I'm looking at getting a new hybrid.

And the new hybrid XLV, which isn't the limited, is $60,000. And so I've done a ton of research, because I'm thinking $60,000, ton of money.

What do I buy? And when I look at it in the near term, there's nothing out there that is hybrid or electric in terms of family vehicles.

As a matter of fact, there's nothing out there that's much bigger than a Tesla 3, which is, I mean, family of 4, great, but no hatch, right. So, and I look further down the road and I don't see that type of opportunity coming to me as a, you know, more than a family of 2, in the near future.

So I think that what our business is up to in terms of near-term, seems pretty predictable. But there's a couple of variables I see, or one variable in particular in the near term that I think, how is this going to impact us?

So the question is, as people see new opportunities for electric or hybrid vehicles coming faster over the next 2, 3, 4, years, do you see downward pressure on resale value of your internal combustion energy cars? And do you see people in the near term saying, hey, I'm going to hold off a little bit on buying a new internal combustion engine car because resale values are probably going to drop?

Well, there's a lot of activity if you look at the current ICE engine, as we call it, that's improved tremendously. And hybrids come in a couple of forms.

You have the simpler hybrids, which you see a lot more start, stop kind of activity, usage of brakes to generate, kind of not adding the electric motor and battery so much as efficiencies in the car.

Sure. The big GM vehicles type.

Right. A lot more, if you map it out, there's a tremendous amount of increase there in the short term.

And then, of course, the full hybrid, which most are offering some form of that now. But again, you look forward, look at the quoting activity we're seeing, there's going to be a lot more of it.

But make a plan today, that car's not going to come out for 2 or 3 years; average age of a car is 11 years. So I don't think that the hybrid impact or the electric impact is going to necessarily impact the price of your trade-in directly.

Of course, that's beyond my field of expertise. That's more of an opinion.

Yes. It's interesting that you make the point of the consumer because the reality is that ultimately volumes in any particular vehicle or size of vehicle will be made by the consumer as a whole.

And they've shown, for example, in the past several years a big move back to trucks. There was a move into cars when oil was very expensive in 2008 and 2009.

And ultimately, consumers are very aware of the value proposition of their vehicle. Perhaps one of the most expensive purchases they're going to make in their lifetime.

And ultimately, no matter how we talk about these things, the customer's going to make determinations on what they want to buy. And so we can look at pure electric plug-in vehicles, of which there were 86,000 sold in the first half of this year.

There were 450,000 F150s sold. Consumer's sending a message there.

And I think what the car companies are focused on is being able to provide the different technologies that are available to consumers so that they can effectively get enough into consumers' hands to make a profit. And the reality is there's a lot of speculation over there.

We think that electrification is clearly coming. We embrace it.

We think it's great. We think the form of electrification in North America is going to be hybrid, much more than pure electric vehicle, at last for the next decade or so.

And we think there's going to be a lot of internal combustion engines that are produced. Right now there's 90 million-plus produced every year in the world, and every prediction I've seen says there will be more than 90 million produced in 2030.

And so, as we go forward, the reality is that the customer's going to make a decision and look at the value proposition, just as you're doing. And we'll continue to make lightweight structures and safe structures for whatever vehicle you buy, whether it's new or on resale.

Okay. Thanks.

I think it's an interesting point, nonetheless. So, Pat, you came out of the truck industry at a certain point.

You were in the technological role over there. Are we, as a business - we talk a lot about cars.

Are we making assertive and aggressive moves into other areas of industry, other areas of automotive industry, such as trucks and the former company you were with, which was an international outfit that would need a lot of light-weighting in the future?

Yes, in the CB market, there's definitely a lot of need for light-weighting. They view it a little bit differently because of the scale.

But it's coming; and, in fact, it's already underway. I'd say from our perspective, where we are making some inroads, at least on the quoting business, is in our FMG group which has the industrial group.

So we're quoting on fuel tanks, for example, and other parts where they're looking for light-weighting and lower volume. It's an interesting industry because it's very cyclical.

But certainly, we'd like to take advantage of it because a lot of things are common. The other place that we have some opportunity is in our fluids business, and we have done some work there as well.

So I'd say it's on the radar. We're doing some work, but it's not a full court press at this time.

Okey-dokey. Thank you.

And I'll just have one other point. I've been in Martinrea for 10 years or so, and it's a bit of a pet peeve of mine.

And that's that, when I talked to my investment advisor at RBC, 2 or 3 years ago, Martinrea, he had no idea what it was. This year he's saying, yes, sure, let's buy some more in your portfolio.

So you got the guy on the street like me. Canada is the only place really where you can actively trade Martinrea easily.

And you've got Linamar and you've got Magna. And so, if I want to do a little due diligence, it's very difficult to do.

Meanwhile, GM, the relatively new CEO of GM, has said, hey, you know what? We're going to be the world leaders in the push into hybrid, the push into electric, the push into electric particularly.

And we're right there hand-in-hand with GM. And a big piece in June in the New York Times around the direction that GM is going and why they're going there and how they're going to get there and how this CEO since she came into power there is really turning the company around in a new direction.

And when you look at our contracts, there's GM, GM, GM, GM, GM in our top 10. So this is great.

And as far as I'm concerned, when I go to our website, my opportunity to do any due diligence off of our website to have any information about the business other than what we're saying, of course, which is quite thorough in our financial statements and et cetera, but from the layperson's perspective, from my [Technical Difficulty] limited marketing, to get the word out that we're a green company, that we're a light-weighting company. Hey, general public, go pressure your investment advisor to that, et cetera, et cetera.

Because it appears to me with the volatility in the share price, we go from $9 to $12 and back to $9.82, that's really substantial volatility. And I think if we got more buyers in there, there'd be less volatility, more appreciation of the share price.

And I think that the company needs to take a more active role via the website and other vehicles, to help people to do due diligence, because due diligence in this area is vast, it comes from all different sources, and you really got to do a lot of it to see where the plums are and to really create a picture for yourself of Martinrea. So I think we got to do a better job of getting the story out there to everybody.

Okay, that's good. We're here with our Director of IT in the room, and I'm looking at him at saying, hey, why isn't our website better?

That's pretty good.

Now, on the other hand, we are happy with - we do have a new website, as you know, which is much better than the old one. But certainly, the content we can take a better look at.

And we do have discussions on occasion about how we can market ourselves better. But our mantra lately has been, let's keep our heads down, do what we said we're going to do and show the world that we are capable of following up on our commitments.

But given the view from here and where we know we're headed, certainly we could probably do a better job of talking about the things we're headed toward.

Yes. I think just a couple of comments.

I think in general there's a macro view in Canada of auto and auto parts right now. There's no question that Canadian auto parts companies, and that includes our friends at Magna and Linamar, for example, trade at a discount these days, to what auto parts companies trade in the United States.

Now, what are the reasons for that? Perhaps the NAFTA cloud is a reason.

Perhaps people are focused on what is dominant in Canadian marketplaces. We have a lot of financial institutions.

We have a lot of natural resources companies. And a lot of investors have lots of knowledge of that stuff.

I think that trends flow in the marketplace. Sometimes the Canadian auto parts guys who traded at a multiple higher than the U.S.

folks over the last 15 years - and we've been an auto parts company for 15 years; we've seen that - sometimes it's at a discount. The CEOs of each of those companies would have the same discussion, right, would have the same discussion in terms of discounts.

What our focus has been is, put pucks in the net. Basically show the world that we can take the assets that we've built from scratch, the ones that we've bought that have been distressed, and then we can turn them into world-class operations and that ultimately that will prove success.

The reality is, we have world-class plants in each of our divisions. Our customers know it.

That's why we win quality awards. That's why we win towards.

That's why we've grown our various businesses against the best competitors in the world. And I think we're putting pucks in the net.

We are improving every day, every month. And in the general remarks that I said is, we're stronger than we've ever been.

Well, we have the same people improving every day, and we're going to be stronger going forward. We have an excellent team here.

We have excellent processes. We're going to keep putting pucks in the net.

And what happens when you continue to do that is they say, I'll take a look at value; I think that the company is going to go up in value over time. And that's kind of where we do.

And when it comes to the green thing, the fact is, we make parts that customers need and that people need. We are very strong into structure.

We are very strong into light-weighting. Those are key trends that are not going to go away over the next 20 years.

And because of that, we'll win work. We'll win numbers.

Our bottom line will improve. And over time we're going to make returns for stakeholders, regardless of what the particular trends are at a particular time.

Right now, people are concerned about the cyclicality of auto. I think we've had discussions on this call that I don't - I think the valuation of auto companies is cyclical.

But I think that the auto industry does pretty well when you're in strong economic times. And I think we're in pretty good economic times in North America.

So I don't know if that answers your question. But that's our view on the world.

And we can't spend every day worrying about what is trendy. We have to build a business that's going to be sustainable for the long term, and that's what we spend every day thinking about.

I appreciate your answer and I agree with it 100%. My point really is this.

If you hire a university student for $20 an hour, you tell him, hey, go out there and get us the best possible pieces that highlight what we're up to. So when people come to our website, at the top of the Investor page there is due diligence for you and there's 20 or 30 pieces there that talk about our business, that talk about our industry, that talk about our opportunity in the near term and the further term from other people's perspectives.

We get all kinds of new buy-in, doesn't cost us a penny. That's really my point.

That's a good idea. That's a good idea.

Appreciate it.

Great. Okay.

That's what I'm looking for. Thank you.

That's it for today. By the way, again congratulations.

Great quarter. Beautiful company.

I love being involved in it. But I've got my pet peeves out here.

Thanks.

All right. Thanks very much.

Congrats from me as well on a great quarter. I just wanted to ask a question.

I'm thinking that maybe the previous analyst has asked sort of a related question. But on the question of Honsel, so now for a couple of quarters there's this idea that especially in Germany, it's sort of going to be a flat second half of the year but then the pickup is coming next year.

Just wanted to ask, are there specific larger contracts that you're seeing? And is it one of those that you have noted in the press release?

Yes. So we note all incremental work in the press releases.

I think when you look at Europe in particular next year, you have the next wave of volume coming through in Spain with Jaguar Land Rover. We talked about that.

And then you also have a fairly large engine block program that's going to kick in next year with Ford, which impacts both Germany and Spain on the high-pressure die casting side. And as well as you also have another engine block with Volvo kicking in next year as well in Germany.

So we were expecting '17 to be somewhat slower from a launch perspective, and things will start picking back up again in 2018 on the back of those programs. And we have also some smaller programs that are kicking in as well.

For the rest of the world, I believe we were previously expecting an improvement in the next couple of quarters. Is this still on track?

And how should we think about EBIT margins for the back half of year and into 2018?

So the rest of the world, we talked about the Brazil costs that impacted the results this quarter. And absent that, we would have seen an improvement quarter-over-quarter.

The expectation is, is it'll improve for all intents and purposes. Our China operations are, let's call it in startup mode.

And we have one new program that's kicking in later this year with Jaguar Land Rover that's going to go into our aluminum plant there, and that'll help. And then thereafter, we have a couple more programs kicking in '18, '19.

So again, that book of business is growing. And as the volumes increase, you'll start seeing improved operating margins there.

Thanks. And one more here.

Can you talk a little bit about Alfield and how that's going and progressing? And any timelines for implementing flexible manufacturing into other plants?

Yes. It's done exceptionally well, as I've mentioned before.

We're painting a tour route in there because so many people wanted to see it. But it's going well.

It's a first phase. I think I mentioned before that when we designed our new weld lines and assembly lines in the metallics business, we were already in the process of purchasing these lines.

So the generation we have in there is our first generation. Subsequent to that, as we get into the programs we've won in Jonesville and Shelbyville and Hopkinsville, it'll go even a step further.

But overall, they've done a lot with it. We're really pleased with it and happy to show it to you.

Well, thank you very much. Thank you very much, everyone, for calling in and listening.

If anyone has a further question or would like to discuss any issues concerning our company, feel free to contact any of us at 416-749-0314. Thank you and have a fantastic day.