Magna International Inc. (MG) Earnings Call Transcript & Summary

Welcome to the Annual Meeting for Magna International Inc. Our host for today's call is Bill Young, Chairman of the Board. [Operator Instructions] I would now like to turn the call over to your host. Mr. Young, you may begin.

Thank you. Good morning. The meeting will now come to order. As Chairman of Magna's Board of Directors, I welcome everyone participating in this virtual annual meeting of shareholders of Magna International Inc. Before I turn the meeting over to the Corporate Secretary, to handle the legal formalities. I would like to make a few general comments on behalf of the Board. It isn't possible to talk about 2020 without first addressing COVID and its impact. Pandemic strained the global fabric, affected our lives in ways we never imagined in many different levels. Nations and economies, companies and supply chains, social norms and workplace routines and to those who experienced tragedy through the loss of friends or loved ones, I offer my sincere condolences. Although not out of the woods yet, the global vaccine rollout gives us some room for optimism. If adversity is the true test of character, purpose-driven people-centered culture of Magna grows to the occasion. Board and management team prioritize the health and safety of its employees while keeping operations running and pitching in to help communities globally during the pandemic. As the economy started to bounce back in phases across the globe, Magna demonstrated its resilience, adaptability and agility, an unprecedented achievement. Restarting 340 manufacturing locations in 29 countries following the shutdown. To the Magna family of employees, on behalf of the Board, I want to express my gratitude for all of your efforts and diligence, not just at work but at home and in your communities. Notwithstanding the challenges of the pandemic, the company had a number of significant achievements. We outgrew the market in sales by 4%. Our dividend was increased for the 11th straight year. Magna was recognized as one of Fortune's most admired companies and among Forbes best employers. Hundreds of launches were flawlessly executed. Company received over 97 customer recognition awards, including an Automotive News Innovation Pace Award. And Magna embarked on a joint venture agreement with LG Electronics, to advance the company's electric drive capabilities. 2020 was a milestone for Magna for another reason. Don Walker retired after 33 years with the company. On behalf of the Board, management, employees and shareholders, I want to thank him once again for all he has done to shape the company into the incredible success it is today. I'm happy to say Swamy Kotagiri has seamlessly transitioned into the CEO role. His first 100 days were marked by a successful rollout of the company's go-forward strategy. Swamy's innovative strategic thinking, strong command of the business, sound judgment and belief in the power of Magna's culture, make him the right leader to continue building on the company's legacy of innovation and success. Additionally, Magna is fortunate to have strong leadership at all levels from divisional GMs and AGMs through group teams and up to corporate and executive management. One last milestone to touch on, today is Scott Bonham's last day on the Board. Since Scott first joined the Board in 2013, he has brought vital technology-focused insights and perspectives to board discussions and dealings with management. He was also a leading contributor to Magna's early focus on the Car of the Future. Extend thanks to Scott on behalf of the Board and shareholders. Today, we are welcoming Mary Lou Maher to the Board. With her extensive audit and financial expertise as well as our reputation as a respected business adviser to boards and management teams, we are confident that Mary Lou will be another valuable contributor to the Board. And an effective steward of shareholders' interest. I would like to close by thanking Magna's employees and management for their hard work, dedication and contribution to the company's continued success. On behalf of the Board, I extend thanks to our fellow Magna shareholders for your continued support. I would now like to ask Bassem Shakeel, Magna's Vice President, Corporate Secretary; to proceed with the legal formalities of today's meeting on my behalf. Bassem?

Thank you, Bill. Mr. Chairman, with your consent, I will confirm the proper calling of the meeting and presence of a quorum. The minutes of Magna's May 7, 2020, Annual Meeting of Shareholders will also be presented. Once those preliminary items have been addressed, we will cover the following items of business, identified in the notice of meeting. One, presentation of the company's 2020 annual report; two, nomination and election of directors; three, reappointment of Deloitte LLP as Magna's independent auditors and related matters; and four, an advisory vote on the company's approach to executive compensation. Only registered shareholders or duly appointed proxy holders of Magna are entitled to vote at this meeting. Please note the following with respect to voting and questions. Any voting during the meeting today will be conducted by virtual or online ballot. If you previously sent in your proxies or voted via telephone or Internet and are not changing your vote, you do not need to vote again. Your prior votes will be counted. However, if you are eligible to vote, but have not yet done so or if you want to change your vote, please vote online so that your vote will be counted in the final voting results. The Vote Here button is located on the lower right-hand side of your screen, and voting will be open throughout the formal portion of the meeting. Questions or comments relating to a motion on an item of business can be submitted using the Ask a Question text box on the lower left-hand side of your screen. Only shareholders and duly appointed proxy holders will be able to submit questions at the meeting today. After the formal portion of the meeting concludes, Swamy -- our Magna CEO, Swamy Kotagiri, will provide some remarks on behalf of management. We will then hold a general question-and-answer session following Swamy's remarks. Questions to be addressed in the general Q&A session can also be submitted using the Ask a Question text box in the lower left-hand side of your screen. Please note that we have asked Joseph Cosentino, an employee of Magna and a proxy holder, to move the motions at the meeting today to facilitate the proceedings. With respect to the proper calling of the meeting, I confirm that notice of this meeting was mailed on April 1, 2021, to each shareholder of record as of the close of business on March 19, 2021, each current director and new nominee and representatives of Deloitte LLP. Proof of the mailing in the form of a statutory declaration signed by an authorized representative on behalf of Broadridge Investor Communications Corporation will be kept with the records of the meeting, along with a copy of the notice. Broadridge has agreed to act as Scrutineer for this meeting through its representatives, Jeri Trotter, and Rosemary Colakic. Based on the Scrutineer's preliminary report, I can confirm that there is a quorum of shareholders participating directly or by proxy in this meeting. Notice of the meeting having been duly given and a quorum being present, with your consent and on your behalf, Mr. Chairman, I declare this annual meeting to be properly called and duly constituted for the transaction of business. The next item is the presentation of the minutes of the May 7, 2020 Annual Meeting of Shareholders. The meeting minutes were previously posted for review on Magna's website at magna.com and are available at the corporation's head office. A link to the minutes also appears in the lower right-hand side of your screen. No further action is required with respect to the minutes at this meeting. The meeting is now open to deal with the items of business listed on your screen. According to the preliminary Scrutineer's report, a clear majority of votes has been cast for the election of each nominee identified in the proxy circular, reappointment of Deloitte and the advisory resolution on executive compensation. The final voting results, which will include the results of online voting will be disclosed by press release and filed on SEDAR and EDGAR within 24 hours after this meeting. The first item of formal business is the presentation of Magna's 2020 annual report, which includes consolidated financial statements for the year ended December 31, 2020, together with the independent auditors' reports on the financial statements and on internal controls. A link to the corporation's 2020 annual report appears in the lower right-hand box of your screen. Apart from presenting the financial statements, no further action is required with respect to that. The second item on the agenda is the nomination and election of directors. The names of the 12 nominees listed in the management proxy circular are shown on your screen. I now ask Mr. Cosentino to read the names of Directors standing for election, and make the motion for the nomination of the directors.

I nominate the following persons for election as directors of the corporation; Peter G. Bowie; Mary S. Chan, the Hon. V. Peter Harder; Seetarama Swamy Kotagiri; Dr. Kurt J. Lauk; Robert F. MacLellan; Mary Lou Maher; Cynthia A. Niekamp; William A. Ruh; Dr. Indira B. Samarasekera; Lisa S. Westlak; and William L. Young.

Thank you. May I now have a motion for the election of the 12 nominees whose names are listed in the proxy circular and on your screen?

So moved.

Those shareholders and proxy holders who have not yet voted may do so by checking the for or withhold box on your screen for each individual director. I now invite discussion on the motion. Mr. Cosentino, have we received any questions or discussion on the motion?

We have not received any questions or discussion on the motion.

Discussion on the motion is now closed. As the preliminary Scrutineer's report confirms that a clear majority of votes has been cast election of each nominee, I declare the motion carried. The third item on the agenda relates to the reappointment of Deloitte LLP as Magna's independent auditors and authorization of the Audit Committee of the Board to fix their remuneration. Mr. Cosentino, may I have a motion?

So moved.

Those shareholders and proxy holders who have not yet voted may do so by checking the for or withhold box on your screen. I now invite discussion on the motion. We'll just pause a moment. Mr. Cosentino, have we received any questions or discussion on this motion?

We have not received any questions or discussions on the motion.

The discussion on the motion is closed. As the preliminary Scrutineer's report confirm that a clear majority of votes has been cast for the reappointment of Deloitte. I declare the motion carried. The last item of business to be considered is the advisory resolution on Magna's approach to executive compensation as detailed in the management proxy circular for this meeting. May I have a motion in the form stated in the proxy circular, Mr. Cosentino?

So moved.

Those shareholders and proxy holders who have not yet voted may do so by checking the for or against box on your screen. I now invite discussion on the motion. We'll just pause a moment. Mr. Cosentino, have we received any questions or discussion on this motion?

We have not received any questions or discussions on this motion.

The discussion on the motion is closed. As the preliminary Scrutineer's report confirms that a clear majority of votes has been cast for the advisory resolution on executive compensation, I declare the motion carried. That concludes the formal portion of the meeting. However, management remarks and Q&A will follow. Please note that voting is now closed. As indicated earlier, final voting results, including online votes at today's meeting will be disclosed by press release and filed on SEDAR and EDGAR with 24 hours after the meeting. With the consent of the meeting, the meeting is now terminated. Please note that the management remarks which follow, are subject to and expressly qualified by the cautionary disclaimers that are set out in our most recent press release and regulatory filings. In particular, please refer to our most current MD&A, AIF and Form 40-F as replaced or updated by any of our subsequent filings. All of these documents are available at magna.com. I would now like to call on Swamy Kotagiri, Magna's Chief Executive Officer. Swamy?

Thank you, Bassem, and good morning, everyone, and thank you for joining us today. Many of you may have participated in our virtual Investor Day event on April 13 for anyone who might have missed. The event is archived on Magna's website. And earlier this morning, we issued our first quarter earnings press release. Despite industry headwinds and continuing uncertainty related to COVID, Magna has again delivered strong results. As I look ahead, I can't help but reflect on Magna's 60-plus years of success and growth, enabled by what I see as the company's 5 foundational strengths. Manufacturing expertise, entrepreneurial innovative thinking, a focus on disciplined, profitable growth, a decentralized structure. And at the core of our culture, our people who share a desire to be the best in everything we do. Mobility is evolving faster than ever before and bringing a number of new and exciting opportunities for Magna. When you look at the power of Magna, our ability to deliver a wide range of components, systems and complete vehicles is unique. No other supplier even compares. Our integrated systems approach enables us to provide numerous optimized solutions at the vehicle level, which positions us well beyond a traditional supplier role. And the 5 foundational elements I described a moment ago underlie our strategy to build on our strengths and realize the opportunities arising from future mobility. I truly believe those foundational elements will in every bit as important for Magna's next 60 years as they were for the last 60. I know that this meeting is an annual meeting of shareholders, but I would like to take a moment to focus on Magna's employees, not just because they're at the core of our culture and the foundation of our success, but also because they are collectively Magna's largest shareholder block. 2020 was a life-changing year due to COVID. And although we are still navigating through some of the challenges, I'm incredibly proud of our response. The resilience demonstrated by every one of our employees from shop floor through to management throughout the pandemic continues to inspire me and give me confidence in our collective future. I want to thank all of them for their ongoing dedication and can-do attitude. We have a tremendous opportunity to put our thumbprint on many things to come, and anything is possible with our entrepreneurial minded employees who come to work every day with energy, entrepreneurialism, eagerness to reimagine what could be, curiosity to try new approaches, intense desire to learn and dedication. Although we have been in business for more than 60 years, I believe we are just getting started, and I couldn't be more excited. Thanks to each and every one of you for joining us today. Bassem?

Thank you, Swamy. We'll now proceed with the question period. We have received a total of 5 questions. The first, Swamy, since you just completed your remarks, the first 2 questions are directed to you. First, please review plans for building Fisker vehicles in Europe.

As we kind of started with Fisker, we started off our engagement with the EV platform sharing, vehicle engineering and manufacturing corporation for the Fisker Ocean SUV, which is expected to launch late 2022. After the initial program award, Magna has been further sourced to develop the complete advanced driver assist systems for this vehicle. The Fisker Ocean will initially be manufactured exclusively by Magna at Magna's tires assembly facility in Europe. At this point, there isn't much else to share regarding this vehicle, except that we are really excited about this program, and the program seems to be on track.

Thanks, Swamy. And just since you're all warmed up, let me give you the second question. How do you anticipate the chip shortage will affect Magna's productivity in the next 6 months? And of course, this is referring to the semiconductor chip shortage.

Yes, the chip shortage has been on for a little while now. And as we look at the industry reports and our own experience, we see the impact continuing throughout the year, more so maybe in the second quarter, easing out in the third and fourth. It's a very fluid situation as we continue to monitor different work streams. The first quarter results that we just published, despite the challenges and all the inefficiencies associated with the start stop, working collaboratively with the OEMs. We have been able to manage through. And we are keeping a very close track and our finger on the pulse. Hopefully, we'll get past it in the near future.

Thank you. The next 3 questions are for Bill Young. I'll read each question, Bill. First, do the directors agree that Magna's primary objective is to legally and ethically maximize shareholder return on investment and that it is therefore inappropriate for any employee of the company to use or direct the use of company assets to promote or support social causes?

No, the Board does not agree. While Magna operates globally, it is incorporated in Ontario, Canada. Under applicable corporate law in Ontario, directors are required to act with a view to the best interests of the corporation as a whole, not just shareholders. Additionally, case law applicable in Ontario, allows Directors of Ontario companies to consider the interests of stakeholders other than shareholders. This is a different legal standard than the standard, which applies in some other common law jurisdictions such as Delaware. Magna has a long history of supporting social, cultural, education and philanthropic objectives, primarily in the communities around the world in which Magna's employees live and work. In addition to being the right thing to do morally, these initiatives are an important part of Magna's strategy by helping the company to build its brand, attract employees and develop strong ties in the places we operate. To put it differently, these initiatives do not reduce shareholder value, we believe they help build them.

Thank you, Bill. Next question from shareholder, [ David Dose ]. Why can we give shares to executives and directors, pay them and allow them to purchase shares at a reduced rate the 75% to 80% -- 85% of the current price and require them to hold the shares for a specified period of time depending on the discount? Giving away shares that are created for such use diminishes the equity and voting power of each shareholder, all shares used for such purposes should be purchased by the company on the open market.

Magna's Director compensation is aligned with corporate governance best practices and compensation norms for companies listed on the TSX and New York Stock Exchange, which we have professional advisers review periodically. In order to align the interests of directors with those of shareholders, a significant proportion of Director compensation is deferred in the form of DSUs, which are notional stock units that cannot be monetized until a director retires from the Board. When the DSUs are redeemed, Magna shares are purchased on the open market, and this ensures there is no dilution to shareholders.

Thank you, Bill. The last question comes from Shareholder [ Manfred Merer ]. And he asks, considering the dire situation of your labors at an average wage of $27,000 annually and those who might have lost their job altogether due to COVID-19, would it not be appropriate if the members of your Board with an average compensation of $200,000, sacrifice at least 25% of the amount for the benefit of all those in your company that really suffer from the pandemic? An active kindness and generosity like this would not only create invaluable goodwill, therefore, creativity and efficiency among your employees, but also enormous public esteem for your Board members and the company.

Thank you for the question. Recognizing the challenging situation faced by employees as COVID spread early last year, each director voluntarily took a 20% reduction in compensation for half of 2020. Director compensation was reinstated to normal levels effective for the fourth quarter onwards. Having responded to the core question, I have to address 2 inaccurate statements made in the question. First, Magna's workers did not face a dire situation. Without repeating the extensive disclosure the company has made, Magna management has gone to great lengths to protect employee health, safety, and economic well-being during the pandemic. Despite those best efforts, there were Magna employees who lost their jobs altogether. This is always very regrettable. Where there were opportunities in nearby Magna facilities, the company tried to redeploy rather than lay off such employees. But where layoffs were unavoidable, Magna provided above-market exit packages. Second, I do not know where the average wage of $27,000 comes from, but this is inaccurate. Magna pays its factory line workers and skill trades significantly more than that amount.

Thank you, Bill. And thank you, Swamy. As there are no further questions that have come through, we can wrap up. I thank everyone for the questions, and we wish to thank everyone participating in this virtual meeting. We hope you each stay healthy and well. Thank you again.

This now concludes the meeting. Thank you for joining, and have a pleasant day.