Magna International Inc (MGA) 2013 Q4 法說會逐字稿

Welcome to the Magna International Inc.

fourth-quarter and year-end 2013 financial results conference call.

During the presentation all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded today, Monday, March 3, 2014.

I would now like to turn the conference over to Don Walker, Chief Executive Officer.

Please begin, Mr. Walker.

Thank you.

Good morning, everybody; welcome to our fourth-quarter and year-end 2013 conference call.

I apologize if we cut short anybody's viewing of the Oscars last night so you could read our press release at 5 AM this morning.

Joining me today is Vince Galifi, Chief Financial Officer, and Louis Toneli, Vice President of Investor Relations.

On Friday our Board of Directors met and approved our financial results for the fourth quarter and year end for December 31, 2013 and we issued a press release this morning.

You will find the press release, today's conference call webcast, our updated quarterly financial review and the slide presentation to go along with the call on our investor relations section of our website, www.Magna.com.

Before we get started just a reminder that the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation.

Such statements involve certain risks, assumptions, uncertainties which may cause the Company's actual or future results and performance to be materially different from those expressed or implied in these statements.

Please refer to today's press release for a complete description of our Safe Harbor disclaimer.

Overall we're pleased with Magna's performance in the fourth quarter; it was a great finish to 2013 with record sales and record earnings.

In North America we posted an adjusted EBIT percent excluding E-Car amortization of over 11% for the fourth quarter.

For the full year excluding E-Car amortization we posted adjusted EBIT percent of 10% in North America.

And we anticipate ongoing strong results in North America in 2014.

In Europe our progress continues; we reported adjusted EBIT of $111 million in Q4 compared to $24 million in Q4 of 2012 and we had to book $375 million of profit for the full year.

We have now had eight consecutive quarters of increased year-over-year adjusted EBIT in Europe.

We recorded for the restructuring charges in Europe this past quarter as we continue to take actions to improve European profitability.

For the third consecutive year we expect to improve adjusted EBIT for the full year 2014 compared to 2013 in our Europe segment.

Beginning with the fourth quarter of 2013 we have split our former Rest of World segment into Asia and Rest of World to be consistent with the way we look at our business.

In Asia, which for us currently includes China, Japan, Korea, India and Thailand, we reported fourth-quarter adjusted EBIT of $26 million for a 5.3% margin.

In addition, we posted a 5% margin for 2013 compared to a 3.8% for 2012 reflecting, among other things, higher contribution margin on increased sales driven by recent investments that have now launched.

In 2014 in Asia EBIT margin should benefit from lower new facility costs and additional contribution margin on our growing sales.

This is despite the fact that we are still investing heavily for growth in this region.

In rest of world, substantially all of which is South America, we posted an adjusted EBIT loss of $21 million for the fourth quarter.

For full-year 2013 we reported an adjusted EBIT loss of $76 million in line with our 2012 loss.

We have spoken to you previously about some of our challenges in South America, in particular those relating to inflationary costs and our lack of success in passing all those costs through to our customers.

We have reached some recent agreements with our customers which should reduce the losses this year and further discussions with our customers on these matters are ongoing.

In 2013 we continued to invest in our business.

Capital spending was $1.2 billion, a little less than previously anticipated as some of the spending has been shifted to 2014.

We also returned a significant amount to shareholders.

We paid dividends amounting to $284 million and we bought back over $1 billion of our stock.

We currently have a normal course issuer bid outstanding which will terminate in November of this year and under the bid, we can purchase an additional 9.5 million shares.

In late January we announced that Magna Steyr will continue its collaboration with the BMW Group through a new vehicle manufacturing contract for assembly vehicles -- our vehicle assembly facility in Graz, Austria.

The new production program will start following the end of production of the current MINI Countryman and MINI Paceman being assembled at Magna Steyr.

At this point we are unable to provide further details.

However, we are very pleased to secure this business in Graz with a very important customer.

To sum up a very strong 2013 and lots to look forward to from Magna as we look forward.

And with that I will now pass the call over to Vince Galifi.

Thanks, Don, and good morning, everyone.

I would like to review our financial results for the fourth quarter and year ended December 31, 2013.

Please note that the figures I'm going to be discussing today will be in US dollars.

The slide package accompanying our call this morning includes a reconciliation of certain key financial statement lines between reported results and results excluding unusual items.

In the fourth quarter of 2013, we recorded restructuring charges entirely related to our European exteriors and interiors business, impairment charges, a release of income tax valuation allowances and a deferred tax benefit associated with the elimination of the Mexican flat tax.

These together reduced pretax by $90 million, net income attributable to Magna by $11 million and EPS by $0.05 in the fourth quarter of 2013.

In the fourth quarter of 2012 we recorded restructuring and impairment charges, substantially all related to our European business; a re-measurement gain on the acquisition of STT; and the release of income tax valuation allowances.

These together reduced pretax by $45 million, increased net income by $48 million and increased EPS by $0.20 in the fourth quarter of 2012.

The following quarterly earnings discussion excludes the impact of these items.

In the fourth quarter our consolidated sales increased 14% relative to the fourth quarter of 2012 to $9.2 billion.

North American production sales increased 13% in the fourth to $4.4 billion reflecting in part a 6% increase in vehicle production to 4 million units.

In addition, the increase is a result of the launch of new programs, an increase in content on certain programs and acquisitions completed during or subsequent to the fourth quarter of 2012.

These factors were partially offset by the weakening of the Canadian dollar against the US dollar and net customer price concessions.

European production sales increased 17% from the comparable quarter reflecting in part a 5% increase in European vehicle production to 4.9 million units.

In addition, the increase is a result of the strengthening of the euro against the US dollar, acquisitions completed during or subsequent to the fourth quarter of 2012, substantially related to ixetic and the launch of new programs.

These factors were partially offset by a decline in content on certain programs and net customer price concessions.

Asian production sales increased 29% or $89 million to $399 million over the comparable quarter primarily as a result of higher production volumes, the launch of new programs, and the strengthening of Asian currencies against the US dollar.

This was partially offset by net customer price concessions.

Rest of World production sales declined 11% or $23 million to $188 million for the fourth quarter primarily as a result of the weakening of the Brazilian real and Argentine peso against the US dollar, partially offset by customer price increases and higher production volumes on certain programs.

Complete vehicle assembly volumes increased 17% from the comparable quarter and assembly sales increased 13% or $91 million to $788 million.

The increase largely reflects the launch of the MINI Paceman in the fourth quarter of 2012, the strengthening of the euro against the US dollar and the increase in assembly volumes for the Mercedes-Benz G class.

These factors were partially offset by lower volumes on the Peugeot RCZ.

In summary consolidated sales, excluding tooling, engineering and other sales, increased approximately 14% or just over $1 billion in the fourth quarter.

The increase reflects higher production sales in North America, Europe and Asia as well as higher complete vehicle assembly sales partially offset by lower production sales in our Rest of World segment.

Tooling, engineering and other sales increased 16% or $113 million from the comparable quarter to $841 million.

The net increase relates to sales on a number of programs.

Gross margin in the quarter increased to 13.9% compared to 12.3% in the fourth quarter of 2012.

The increase in gross margin percentage was primarily due to margins earned on higher production sales, incremental market burn on new programs that launched during or subsequent to the fourth quarter of 2012, productivity and efficiency improvements in certain facilities, the positive impact of previous restructuring activities, lower pre-operating costs incurred in new facilities and improved pricing on certain unprofitable contracts.

These items were partially offset by higher costs incurred in preparation for upcoming launches; a larger amount of employee profit-sharing; an increase in complete vehicle assembly sales which have a higher material content than our consolidated average; higher tooling, engineering and other sales that have low or no margins and operational inefficiencies and other costs at certain facilities.

Magna's consolidated SG&A as a percentage of sales was 4.7% in the fourth quarter of 2013, lower than the 5% recorded in the fourth quarter of 2012.

SG&A increased $28 million to $428 million in the fourth quarter of 2013 primarily due to higher labor and other costs to support the growth in sales.

Our operating margin percentage was 6.6% in the fourth quarter of 2013 compared to 4.8% in the fourth quarter of 2012.

This increase substantially relates to the higher gross margin and lower SG&A and depreciation percentages.

In the fourth quarters of 2013 and 2012 EBIT included $40 million and $39 million respectively of amortization associated with a 2012 E-Car transaction or about $31 million after-tax.

Excluding this amortization our Q4 operating margin percentage was 7% compared to 5.3% last year.

In Q4 2013 our effective tax rate increased to 22.5% from 21.8% in the comparable quarter of 2012.

This is primarily as a result of changes in income mix partially offset by lower losses not benefited in Europe.

Net income attributable to Magna increased $166 million to $469 million for the fourth quarter of 2013 compared to $303 million in the comparable quarter.

Diluted earnings per share were $2.08, a record for any quarter compared to $1.29 in the fourth quarter of 2012.

Diluted EPS were negatively impacted by $0.14 in the current quarter and $0.13 in the comparable quarter as a result of the amortization of E-Car intangibles.

The increase in diluted earnings per share was a result of an increase in net income attributable to Magna and a decrease in the weighted average number of diluted shares outstanding during the quarter.

The decrease in the weighted average number of diluted shares outstanding was primarily due to the repurchase and cancellation of common shares pursuant to our normal course issuer bid.

And cashless exercise of options partially offset by the issue of shares related to the exercise of options and an increase in the number of diluted options outstanding as a result of an increase in the trading price of our stock as well as stock options issued.

During the quarter we purchased 3.6 million common shares, 2.5 million of these related to our recently renewed NCIB.

This leaves approximately 9.5 million shares available under our current bid.

I will now review our cash flow and investment activity.

During the fourth quarter of 2013 we generated $809 million in cash from operations prior to changes in non-cash operating assets and liabilities and $451 million in non-cash operating assets and liabilities.

For the quarter investment activities amounted to $506 million comprised of $463 million in fixed assets, a $34 million increase in investments and other assets and $9 million to purchase subsidiaries.

On Friday our Board of Directors declared a quarterly dividend of $0.38 per share with respect to our common shares.

The dividend, a new record and an increase of 19% over the third quarter dividend is payable on March 28 to shareholders of record on March 14, 2014.

Our balance sheet remains strong with $1.2 billion in cash net of debt as of December 31, 2013.

We also have an additional $2.2 billion in unused credit available to us.

We disclosed back in January that our Board and management are committed to utilizing our balance sheet to create value by moving to an adjusted debt to adjusted EBITDAR of between 1 and 1.5 times by the end of next year.

In addition, we intend to reduce our cash balance from current levels.

These moves, together with our dividend increase, reflect our Board's confidence in our business prospects and our commitment to creating further value for shareholders.

Now let me pass the call over to Louis.

Thanks, Vince, good morning, everyone.

I will review our updated 2014 full-year outlook.

I will only provide a summary of our outlook since we cover the details of our revised outlook in our press release.

With respect to our vehicle production expectations, we continue to expect 2014 North American light vehicle production to be approximately 16.7 million units, consistent with our January outlook.

The weakening of the Canadian dollar relative to the US dollar results in a reduced North American production sales outlook.

We expect 2014 total European light vehicle production to be approximately 19.3 million units compared to 19.1 million in our January outlook.

The small increase in European production volumes drives a modest increase in our expected 2014 production sales in Europe.

However, not significant enough for us to change our European production sales range from our January outlook.

Higher anticipated 2014 assembly volumes at Magna Steyr relative to our January view has resulted in an increased full-year assembly sale outlook.

The lower North American production sales are offset by the higher European production and assembly sales leaving our total sales outlook consistent with our January outlook.

We expect our consolidated operating margin percentage to be in the mid 6% range and our effective tax rate to be approximately 24.5%, both consistent with our January outlook.

And for the full year 2014 we expect fixed asset spending to be approximately $1.4 billion consistent with our January outlook.

Our expected restructuring costs for 2014, which are entirely related to our exteriors and interiors European operations, are expected to be approximately $75 million before tax.

Lastly, many of you will recall that back in January we disclosed, as part of our outlook, that we expected 2016 production sales to be approximately $3.6 billion higher than 2014 and provided our light vehicle production assumptions embedded in those numbers.

Further, we indicated that approximately 30% of that increase was related to Rest of World.

In splitting our former Rest of World segment between Asia and our new Rest of World segment, essentially all the 30% or approximately $1 billion of production sales increases, is associated with our Asia segment.

The growth from 2014 to 2016 is insignificant for Rest of World which is substantially all South America.

These details are included in our slide deck for today.

This concludes our formal remarks.

Thanks for your attention; we'd be pleased to answer any of your questions.

(Operator Instructions).

Peter Sklar, BMO Capital Markets.

In the results, as you pointed out, your North American business was particularly strong both in revenues and margins.

Are there any one or two things that you can point to?

Because it really -- the level of earnings really did jump from what you had been tracking over the last few quarters.

Yes I think if I -- Peter, it is Vince, good morning, by the way.

I guess just a couple things to note in North America, we really did have some strong sales.

And when you look at sequentially from Q3 to Q4, we had a lower amount of tooling sales.

Remember, tooling sales margins are zero or very close to zero.

So we had a higher percentage of production sales with a strong level of production sales and we had some pretty good pull through at our plant, higher contribution margin than average margin.

So when you add all that up ended up with a very, very solid operating margin for the quarter.

In terms of are there pluses and minuses that are worth mentioning?

At the yearend there's always pluses and minuses, but when you look at them in total there were significant to move the needle up or down in the quarter.

Okay.

And one follow-up question then if I may.

Just wondering based on what you are seeing and the production schedules what your outlook is for the GM trucks.

Now they are going to have some downtime due to the remodel.

But notwithstanding that, that there is some pre-build, it appears that inventories are higher.

Are you anticipating any downtime or production cuts or seeing that in the schedules other than what they will be doing for the remodel?

No, Peter, we are not saying anything like that.

Sales have been weak but it has been weather-related and all it takes is a strong month or two of sales to really get those inventory levels back in line.

So we are not seeing that in production schedules at all.

Okay, thank you.

Mark Neville, Scotia.

Maybe I will just follow up on one of Peter's questions.

On North American margins for 2013 you hit the high end of your guidance.

For the quarter you are well above.

For 2014 I mean we are calling for sales to go higher.

So how do you think about margins versus your guidance?

Yes, I think a couple things to think about.

When we look at 2013 to 2014, we still think that commodity costs are going to be a little bit of a headwind for us.

When we talked about the range for 2014 we talked about 9.5% to 10% -- remember it is a range and any given period could be at the high end or at the low end or might slightly increase it.

So I'd say based on the performance we had in Q4, if that continues to repeat itself, we would be more comfortable at the higher end of that range.

So we just had a strong quarter with strong sales and lots of contribution margin falling to the bottom-line.

Okay.

And North American sales guidance the adjustment downwards is that just currency?

All currency.

Yes, remember, when we went to Detroit we were looking at current exchange rates at the time and the Canadian dollar/US dollar was [up] 0.95, it is 0.9 now.

So it is strictly just currency movement downwards.

Okay, thanks a lot.

Rod Lache, Deutsche Bank.

Just to clarify, so your North American long-term margin target is 9.5% to 10%.

You did ex E-Car 10% for the year, 11% in the quarter.

You are posting really strong incremental margins and going forward you are expecting still pretty decent growth even from 2014 to 2016, I think it is like $1.5 billion in North America.

What would cause the incremental margins to come down to a level that is closer to what your EBIT margins would be in North America to allow that to kind of mathematically happen?

It is Don here.

We are only a month since a little over a month since we gave the guidance.

Haven't really had a chance to -- haven't seen obviously February results yet, and January -- we are taking a look at it; we have been spending a lot of time on year-end and other issues.

I would want to get another quarter behind us to say we are going to change the margin.

As Vince said, failing something unexpected we would expect to be at the higher end for sure.

Things are running well, but I would rather wait to see where Q1 comes in and we can decide whether we would change our margin guidance or not.

And, Rod, remember, as you look sort of longer-term, we are adding capacity in North America, we are adding to our fixed cost structure.

So to take the view that every additional dollar of revenue is based on contribution margin would be a false assumption.

There are fixed costs that are moving up as well.

And could you just also refresh us on what you are expecting in terms of the European margin trajectory in 2014?

What is the benefit from this -- the interior and exterior restructuring?

And lastly, just a housekeeping thing.

Do you happen to have with you the EBIT impact from FX and the acquisitions in the fourth quarter?

The EBIT -- can you repeat the last part of that question?

The earnings impact of FX and acquisitions in the quarter that just passed, you have historically given us some --?

We give FX on sales not on an EBIT basis.

So I guess when you -- maybe just in terms of the acquisitions, let's just try and look at that.

Sequentially Q4 to Q4, so that is a question of a year over year, when I look at the additional details and the EBIT contribution is about $125 million in sales.

And when I look at net acquisitions we're probably about close to neutral on that for the quarter on a quarter-over-quarter basis.

So it didn't really help on the EBIT side.

In terms of trajectory for adjusted EBIT margin in 2014, we closed off the year at 2.5%, when I look at the year prior we were at 1.3%.

We have talked about getting to the end of 2016 based on our business plan of somewhere between 4.25% and 4.75%.

2013 we made pretty significant headway already, probably a little bit ahead of where we thought we were going to be.

When I look at from the end of 2013 to 2016 we continue to believe and expect that the 2016 numbers that I just talked to you about are achievable.

And in particular in 2014 our view that we should have higher adjusted EBIT margin percentage relative to 2013.

But I am not sure it is going to be a complete step function, there might be a year that is a little bit better than the others.

But we do expect to move that margin up each and every year.

Now, Rod, I just -- while we are talking about Europe I just want you to just keep in mind one thing.

In the fourth quarter in Europe our adjusted EBIT percent was 2.8%.

We've been talking about in terms of looking at our operations in Europe; one of the things we've been doing is coming back for our customers to trying to get some price increases.

We were successful in the fourth quarter to get to retroactive price increases that goes back right to the first quarter of 2013.

And the impact of that retroactive price increase, which will carry forward, but we booked three quarters of retroactive amount, (inaudible) $15 million or about 0.4% one European margin.

So if you were to look at Q4 backing out the retro pricing margins would have then 2.4% versus the 2.8% that we reported.

Okay, was that the only region where that was a factor, the retroactive pricing adjustments?

The only other region where we had some success, again about $15 million was in South America, even though we have got a pretty substantial loss for the quarter a couple things happened in there.

One, we had a $50 million split equally between two items there was one item related to the purchase price adjustment to and acquisition we made a couple of years ago.

And the other relates to a again ongoing efforts to get price relief for increases in inflation and South America, we were able to secure some retroactive price increase going back to the beginning of the year and this will carry forward into 2014.

But again, if you look at that segment in Q4 at $15 million there that I would say is out of period income.

Now Rod, just back to the sales question.

Or your FX impact.

Production sales in North America were negatively impacted by about $90 million, in Europe FX contributed $93 million; this is year over year in the quarter.

And Rest of World was negative about $20 million.

Thanks.

Rich Kwas, Wells Fargo.

Just a question, Don, on the Rest of World on margin for this year you said expect improvement, but it sounds like still a loss.

Any sense for how we should think about the magnitude of the improvement on the loss for this year?

Yes, it is really hard to tell in South America because we've got so many unknowns going on in there, there is difficulties, we have a smaller operation in Argentina, but it does have a certain material impact on what we are doing in that reporting segment.

I would guess that we should probably cut the losses in half that we saw in 2013 to 2014.

But it depends on a number of factors, what happens with inflation, what happens with raw material, what we (inaudible) get from our customers, we are having some very difficult discussions down there with almost every customer you have got.

You're probably hearing the exact everything from every other major Tier 1 supplier.

But if I was -- that would be my best guess right now is to cut the loss in half.

We're making some operational improvements there and we are looking at doing some restructuring to some of our operations specifically in Argentina.

Okay, all right.

And then on the restructuring in Europe, the interior and exterior ops, are you -- after the $75 million this year are you going to be pretty much set there or do you expect incremental beyond this year?

I would think that $75 million that we expect for 2014 will finish most of the restructuring; we will still have some left in 2015, I would expect the number to be going down.

But that is what we have on the horizon right now.

If we decide to do something else then obviously that number will change.

But that is our view right now.

And then last one.

Vince, on the -- when you look at that there was a mention that Austrian tax, which was being able to you were able to get credit for a loss of another jurisdiction, and there's going to be a tax hit in the first quarter.

I assume that is not part of the 24.5% tax tied into that excluded from that?

So what happened there was that we were -- we had a valuation allowance for some losses in Europe, in Austria.

And were able to bounce it up to deferred tax asset on a balance sheet.

So we booked income, called it an unusual item in Q4.

So as 2014 rolls around and we generate income on that jurisdiction, going to have a tax provision -- we didn't -- we wouldn't have a tax provision in 2013 so it moves our tax rate up.

But this is already embedded in the 24.5% guidance that we have given you.

(multiple speakers)

Okay so it is included in the number, okay.

Great, thank you.

David Tyerman, Canaccord Genuity.

Just one clarification first.

On the retroactive price increase, is the $15 million in Europe or in Europe and South America?

There's two amounts.

There is $15 million in Europe and there is about I think $7.5 million in South America.

Okay, thank you.

Okay, and then the second question and it's just one that people have been hitting at on the margins.

You significantly exceeded your guidance for the year in Q4.

Is there something unusual in Q4 that happened that would cause -- that won't recur in the rest of 2014?

So, David, we talked to you about approximately $30 million that on a consolidated basis impacted us in Q4 positively, that is about 0.3% so in the quarter.

And it is about 0.1% for the full year.

So if you look at full-year if you back out that $30 million odd you are like 6.2% operating margin ex E-Car and our guidance is mid-6%.

So from 6.2% to mid-6% depending on how you define mid-6%, that is a growth year-over-year.

There isn't anything other than pluses and minuses in Q4 that are significant to mention.

The $30 million was the most significant items and we just talked about those.

Okay so just to clarify the $30 million, are the $15 million in Europe, the $7.5 million in South America and something else?

Yes, there is a purchase accounting adjustment in South America for about $7.5 million as well.

So two $7.5 million and $15 million in South America and an additional $15 million in Europe.

Okay.

Sorry, what is the purchase accounting adjustment?

It is all part of the -- purchase of half of (inaudible) [seating] group and as we continue to work through that transaction there was an adjustment to repurchase price which we recorded as income in the quarter.

Okay, okay, great.

Thanks.

(Operator Instructions).

Richard Hilgert, Morningstar.

Just wanted to ask a little bit about working capital first.

It looks like there are some pretty major swings going on.

For the full-year number you've got accounts receivable being off by almost $600 million.

But in the quarter then your payables were down $125 million.

Can you kind of walk us through a little bit about what was going on with working capital this year and where you are expecting it to go in 2014?

Sure, Richard, I can do that.

And when you look at historically working capital movements, if you look at production receivables or production payables, days in production receivables or days in production payables, Q4 2013 versus Q4 2012 is consistent.

What typically could change on a year-over-year basis is what happens to your tooling inventory or your tooling receivables or tooling payables, they don't follow a normal cycle.

But from last quarter -- sorry, from last year to this year that hasn't been much of an impact.

So the cash we generate from working capital is just a cycle of our business.

You'll notice last year Q4 we generated lots of cash from working capital.

Come Q1 of 2013 we invested that pretty well all back into the business.

So you can expect in Q1 of 2014 that we are going to make a pretty substantial investment in working capital as sales again pick up after the Christmas holidays.

Okay, thanks.

On South America, it looks like the losses have been going on down there for a little while now.

But you have mentioned in your prepared remarks about working on customer pricing.

Just curious if you are not able to get the kind of pricing that you are looking for given the size of the operation there, is that someplace -- is that a region where you would be willing to back out of?

Or what would you do down there if the customer pricing situation didn't improve for you?

Well, I think the customers are also having difficulty and many of them talked about it I think in their results just because of the financial situation, what is going on in (inaudible) in our case, specifically in Argentina, but Brazil also has been a challenge.

Supply and demand basically dictates what price we're going to get longer-term.

As we quote new business one of the things we are doing is making sure we have an agreement up front with our customers on how we are going to handle things like inflation, wage increases, material costs, etc.

So we want to build it in going forward on existing contracts; it's an ongoing discussion.

Quite frankly some of the smaller suppliers in South America in the past would have gotten the increases and if they didn't they just stopped shipping to the customer.

We don't want to be doing that, major Tier 1s don't want to do that.

But we are also not in the business to be losing money.

So that is why we are restricting any more capital going down there unless we have a balanced contract with our customers.

As I said, given what is going on in Argentina the business climate and a number of other things, that is not an area we would -- we see as a place we certainly wouldn't be putting more money in there and it would be an area we would prefer not to be working, quite frankly, unless something changes.

Brazil long-term I think we will be a good place to do business.

It goes in cycles up and down right now, it is a pretty difficult environment.

However, longer-term Brazil I think we'd still be looking at grows -- as long as we have the proper terms in our contract.

Okay, good.

Since we have got the Fiat/Chrysler merger going on -- or further integration going on.

And since Fiat has a large operation in South America and you have had a pretty good relationship with Chrysler over the years, is there some opportunity there for you in South America?

Well, I think there is opportunity with us with a number of different customers, Fiat is obviously big down there and a lot of what we will end up doing will be dependent on what the terms of the contract are -- if we can make acceptable returns given the risk factors we have got.

So I think there is lots of interest by many of our customers for the major Tier 1s like Magna to grow in South America.

But before we do that we are just going to make sure that we can get acceptable returns, which obviously right now you can see by our numbers we are not there.

Okay, thanks again for taking my questions.

Todd Coupland, CIBC World Markets.

I just wanted to follow up one question on North America and one on Europe.

First on North America, so when you were saying you haven't seen any shifts in production in the quarter thus far, you are taking into account the slower sales that we have seen for the first two months in -- because of weather?

So what you are saying is production will just continue and inventory will catch up over the course of the year, is that what you are saying?

What I am saying is that our most recent releases don't sort of point towards hitting the brakes on production.

Now having said that next week things could change.

I mean it depends on -- it is not a static thing, it is dynamic.

But we are not saying any major shifts, major cuts in production at this point in time.

If sales in March are slow it could have an impact on obviously inventory levels and production levels.

But we're not seeing it right now.

Okay.

And then just on Europe where you are commenting moving ahead a little bit quicker than you expected.

How much of a tail wind is the pickup in the market there or is it mostly what you are doing internally?

Could you just talk about the sensitivity to the strength in that market over there?

Todd, it is Vince.

Good morning, by the way.

If you kind of think about where we are in Europe on production sales, we will take vehicle assembly up for the time being.

And our sales were just under $10 billion for 2013.

And even though we raised our guidance up for vehicle production in Europe in our most -- in this current release that we issued this morning, our estimate for production sales in Europe are kind of $9.5 billion to $9.9 billion in 2014.

So we are not expecting projecting that it is going to be sales that's driving the improvements in operating margin.

What we have been talking about for some time is what is driving up margin for us is some of the benefits of the restructuring that we have taken place, we have been moving our manufacturing footprint to lower-cost regions.

Don has got a big push on more costs on (inaudible) and we are seeing the benefits of that in Europe and that is going to continue.

We have been exiting certain nonstrategic businesses and we have had some success with some pricing.

So all the things we said we were going to do we are doing.

And we expect that that will continue in the next couple of years.

Certainly as we continue to have (inaudible) [fully from] process as this new business comes on we should continue to see higher margins.

But again, that is going to be more mid- to long-term than sort of immediate.

I would say just generally in Europe we have had a lot of work to do over the last number of years.

And discussions that I have had with our key customers over there I think we are through most of our pricing issues, our quality, delivery is good, we've made some operational improvements, we have got a good plan on what we want to do with restructuring.

And the feedback I am getting from our customers is they want to grow with us, they want us to be competitive obviously, but they see is good solid supplier.

And so I think we are through the heavy lifting in Europe and it is going to be just continuing to focus on operations excellence, launches and so hopefully we can start to see some growth in the outer years again in Europe as our customers are indicating they want to grow with us.

That is great.

Thanks for much.

Good luck.

David Tyerman.

Yes, just on the -- the D&A line, that has come down quite a bit -- or sorry, gone up quite a bit as a percent of sales in 2013.

I was wondering if you had any thoughts like it was 2.6% in 2012 and 3.1% in 2013 any thoughts on where we are heading on that line.

What number, SG&A you say?

D&A.

No, D&A.

Well, D&A excludes the amortization of E-Car in 2013, right.

Okay, yes, absolutely.

That's 106 incremental 2013 versus 2012 (inaudible).

Okay, that is good.

Okay, that is fine.

And then on SG&A, it has been coming down or was down in 2013 anyway.

Is that sort of mid-4% level sustainable or is really 5% a better number?

David, I guess the best thing we could really tell you is longer-term SG&A as a percent of sales should continue to come down.

But that is all embedded in our operating margin guidance.

Sure, okay.

And then the last question I had just on the excess financial resources.

Is there any update on how you see that unfolding in the next year or two?

I'm sorry, the balance sheet?

Yes.

The excess financial resources you have.

David, just I want to go back to SG&A.

There is going to be a step function you realize in 2015 on SG&A.

You will recall as part of the (inaudible) of arrangement that we continue to pay Frank Stronach a consulting fee.

Right.

That stops in 2014.

Yes.

So we are paying right now (inaudible).

We are actually paying 2% of pretax profit before profit-sharing and that goes to 0% in 2015.

And that 2% is right to the bottom line, we are not taking a 2% and allocating it to others.

That is just a pure save from a P&L or cash perspective.

So that will be a step function starting and 2015.

Just with respect to the balance sheet, our views haven't changed at all.

As we look at the balance sheet we want to -- I call it [GAAP] in terms of where we want to get to.

We want to get to about a 1 to 1.5 times adjusted debt to adjusted EBITDA by the end of 2015.

If you sort of look at where we are at the end of Q4 of 2013, we have got a gap to get to sort of one times $1.7 billion and to get to 1.5 it is $3.2 billion.

So how we are going to close that gap?

There are a couple ways we are going to do that.

The first which is what we prefer to do is to continue to invest in the business.

Whether that's through additional capital programs, whether that is through M&A that meets our strategic objective.

We just (inaudible) the dividend, but to the extent that we're unable to deploy that capital in the business in an effective way -- and remember, we continue to generate cash, so that number continues to grow.

We will use that cash to buy back some stock under an NCIB.

And you know we've got about another $9.5 million remaining on our current bid.

Now we are pretty active leading up to the quarter, and we will continue to purchase shares in the foreseeable future.

So do you think that you do generate, as you say, a lot of free cash.

So do you think that you can just do this under an NCIB?

It doesn't seem like you would be able to?

David, when you look at the growth under an NCIB, we got capacity to do approximately 20 million shares under an NCIB.

So I'm just going to use simple math, but if you (inaudible) to use $100 share price, that is $2 billion a year.

And I would be quite surprised if in the next couple years that we weren't looking at some acquisitions that could continue to grow our business.

It is going to be a combination of things that will get us to the right target from a capital structure perspective.

Okay, fair enough.

Thank you.

Mr. Walker, this concludes the Q&A session at this time.

We have no other registrants.

I will turn the call back to you.

Okay, great.

Well, thanks, everybody, for getting up early, reading our press releases.

It was a good year, pleased with what we did in 2013.

We still have a lot of opportunities in front of us.

So we're looking forward to another exciting year.

So thanks for joining us in the call today and enjoy the rest of your day.

Thank you.

Ladies and gentlemen, this does conclude the conference call for today.

We thank you all for your participation.

Have a great day, everyone.