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Linamar sees small Q3 loss, but 'significant' opportunities for new business wins

TORONTO - Auto supplier Linamar Corp. (TSX:LNR) says the unprecedented slump in vehicle sales continues to take its toll on the company's bottom line, but the downturn is also providing "significant short-term opportunities" in the form of new business wins.

TORONTO - Auto supplier Linamar Corp. (TSX:LNR) says the unprecedented slump in vehicle sales continues to take its toll on the company's bottom line, but the downturn is also providing "significant short-term opportunities" in the form of new business wins.

Linamar chief executive Linda Hasenfratz said the company has secured $300 million of annualized new business in 2009, all of which will begin production before the middle of next year. This is a 60 per cent increase over the value of new business wins in the first nine months of 2008.

"The dire situation in the automotive industry is taking its toll on the supply base, with more than 50 bankruptcies already this year and possibly more to come. At the same time, our customers are actively looking to rationalize their supply base dramatically," Hasenfratz said Thursday on a conference call with analysts.

"I think it's important to note that we fully expect to continue to see these high levels of opportunities for us over the coming years thanks to a combination of little to no capital available to invest in new programs and technologies on the part of our customers," she said.

Linamar says a key advantage it has over competitors was a decision it made to invest in more expensive but more versatile machinery that can easily be retooled to suit different components, rather than cheaper machinery that requires less manpower but is only suited to one industry.

"This means we can re-allocate equipment in slow times to utilize for new business and therefore dramatically reduce (capital expenditures) without impeding our ability to grow with new business," Hasenfratz said.

Linamar reported Thursday a third-quarter net loss of $500,000 or one cent per share, compared with a year-ago profit of $12 million or 17 cents per share as sales dropped to $421.1 million from $540.4 million.

The company, based in Guelph, Ont., said its profit excluding one-time items - including $1.6 million in after-tax severance costs - was $1.1 million or two cents per share compared with a year-earlier $14.7 million or 22 cents per share. In the second quarter of 2009, the company saw an adjusted operating loss of $10.1 million or 16 cents per share, and sales increased 11.4 per cent quarter-over-quarter.

"Earnings were negatively impacted by substantial sales declines in both our industrial and powertrain businesses from Q3 a year ago. However, we are very pleased to see sales levels ticking up in our powertrain segments in particular, driving us back into a profitable position this quarter," Hasenfratz said.

Linamar saw its content per vehicle decline by 25.2 per cent year-over-year in North America and 17.5 per cent in Europe. Other sales were down 53 per cent due to lower demand for the company's Skyjack lifting equipment and off-road vehicle components, offset by higher energy and heavy machinery sales.

Hasenfratz said she believes the North American auto industry has hit bottom and automotive production volumes are starting to rebound to a "realistic run rate of between 13 million and 15 million vehicles over the next four to five years."

In Europe, the outlook isn't as positive, as government incentive programs are drawing to a close and vehicle sales are expected to fall off in response.

The parts producer has suffered alongside its peers from an unprecedented slump in vehicle sales that saw two major automakers, Chrysler and General Motors, file for bankruptcy protection in the U.S. earlier this year.

Hasenfratz said the company is on track to exit 2009 with more cash and less debt than it had at the beginning of the year.

Shares in the company, which reported after the close of markets, were down 42 cents at $15 on the Toronto Stock Exchange.

 
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