Presenters: Remaining Group Members:

Lee, SaulengSadeddin, KhaledVardar, EzgiWilson, David

Arora, MilenQureshy, SherrySorbara, Domenico

Magna International Inc.

Agenda Company History Key Strategic Issues Future Challenges Company SWOT Analysis Company Performance Alternatives Decision Criteria Recommended Course of Action Implementation and Contingency

Plan

Company History1957: Frank Stronach opened a one-man tool and die shop called Multimatic1960: Received its first auto parts contract with General Motors to produce metal-stamped sun visor brackets1962: Magna Electronics Corporation Limited became a public company on the Toronto Stock Exchange under the symbol MG1969: Multimatic merged with Magna Electronics Corporation Limited, a publicly traded aerospace, defence and industrial components manufacturer1970: Automotive operations expanded to include a greater number of stamped and electro-mechanical components

1973: Magna Electronics Corporation Limited changed its name to Magna International Inc.1976: Magna implemented a major product diversification strategy and divisions were organized into main product groups

1960 1970 1980

1957 19601962 1973 19761969 1970

Continued1979: Magna enters the automotive plastics business1981: Magna sells its aerospace and defence operations

1984: Magna formally adopts a Corporate Constitution, entrenching its previous long-standing commitment guaranteeing the rights of employees, shareholders and management to share in the profits they help produce1987: Magna organizes its manufacturing divisions into Automotive Systems Operating Groups to become full-service suppliers for many key systems of the automobile

1989: Magna co-designs and co-develops the integrated child safety seat, recognized by the Smithsonian Institute as one of the great innovations of the 1980s1990: Ford Motor Company awards Magna the first major program to supply “bolt-in” door modules incorporating all interior door hardware

1992: Magna obtains a listing on the New York Stock Exchange

1980 1990 2000

1984 1989 19921979 1981 1987 1990

Continued1996: Magna undergoes a major European expansion, acquiring a number of European-based automotive systems suppliers1998: Magna acquires Steyr-Daimler-Puch, one of the world’s leading automotive technology and engineering companies with complete vehicle assembly capabilities

1999: Magna is named the world’s top auto parts company in Forbes Magazine2000: Magna spun off MEC, one of its business operations, as a separate public company2001: Magna announces the formation of the Magna Steyr Group

2005: Magna improves strategic positioning by privatizing three public subsidiaries (allows it to better exploit competencies)

1980 1990 2000

20051996 19991998 20002001

Key Strategic Issues Global recession has led to a market contraction,

therefore, Magna must: Find new buyers and new markets in order to survive this

contraction Better position itself for the period following the market

shakedown

Future Challenges This strategic issue translates into short-term and

long-term challenges for Magna: Short term challenges are manifested in a net income

decline of 89% in 2008 Long-term challenges include:

▪ OEM market dynamics (bankruptcies, consolidation, and government intervention)

▪ Tier 1 consolidation and bankruptcies ▪ Technology is shifting (more emphasis on greener technologies)

Company SWOT Analysis

STRENGTHS

• Technological resources• Innovation resources• Global base • Unique entrepreneurial culture

WEAKNESSES

• Overdependence on few customers• High overhead• Financial resources

OPPORTUNITIES

• International growth• Vertical integration• New technology• Diversification

THREATS

• Weakening automotive industry• Pricing pressure • Energy price volatility

Company Performance

Share Price 2004-2009

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

0

50

100

150

200

250

300

Sh

are

Pri

ce (

US

D)

Mergers and Acquisitions 2004

Takes minority stake in I&T GmbH (electrical) Completed the acquisition of the worldwide operations

of DaimlerChrysler Corporation's wholly-owned subsidiary, New Venture Gear Inc. (automotive transmissions and all-wheel drive transfer cases)

Acquires facility in Mexico from Wagon PLC (engineered metal)

2005 Acquires Tesma International Inc. (powertrain) Decoma (exterior), Inteir (interior), TS Fahrzeug-

Dachsysteme GmbH (roofing systems)

Continued 2006

Acquires Porsche Engineering Services NA from Porsche AG (automotive engineering services)

2007 Minority 20% ($1.54 billion USD) stake given to

Russian industrial conglomerates – Russian Machines

2008 Acquires Technoplast – Russian auto parts

manufacturer (plastic interior/exterior) Creditors force Russian stakeholder to give up 20%

stake in Magna

Continued Since the 1990s, Magna has made

24 acquisitions while taking stakes in 9 companies

Year Acquisitions Stakes

2009 0 0

2008 1 0

2007 0 0

2006 3 0

2005 3 0

2004 3 1

Income Statement

2004 2005 2006 2007 20080

10

20

Revenue (in billions of USD)

MARGIN ANALYSIS

Gross Margin 10.30%

Net Profit Margin -1.63%

Operating Margin -0.91%

2004 2005 2006 2007 20080

250

500

Net Income (in millions of USD)

PROFITABILITY

Return on Assets -2.45%

Return on Equity -4.26%

Return on Investment -3.86%

Continued Year on year, Magna’s revenues fell

9.07% from $26.07 billion USD to $23.70 billion USD

This, along with an increase in the cost of goods sold expense, has contributed to a reduction in net income from $663.00 million USD to $71.00 million USD – a 89.29% decrease

Cash Flow

2004 2005 2006 2007 2008-5000

5001000

Cash Flow (in millions of USD) Cash Flow per Share

5.02

Price/Cash Flow per Share 9.83

2004 2005 2006 2007 20080

1

2

Cash (in billions of USD)Book Value per Share 72.67

Tangible Book Value per Share 60.91

Continued In 2008, cash reserves at Magna fell

by $197.00 million USD However, the company earned $1.05

billion USD from its operations for a cash flow margin of 4.45%

In addition, the company generated $89.00 million USD in cash from financing while $1.06 billion USD was spent on investing

Balance Sheet

2004 2005 2006 2007 20080

10

Total Assets (in billions of USD) CREDIT RATIOS

Current Ratio 1.50

Quick Ratio 1.11

2004 2005 2006 2007 20080

5001000

Total Debt (in millions of USD)

LONG-TERM SOLVENCY

Total Debt/Total Equity 0.0582

Total Debt/Total Capital 0.055

Continued Magna has a debt-to-total capital

ratio of 0.05%, little changed from the previous year's 0.00%

Alternatives

Continue with the Status Quo The acquisition of Opel and the joint venture with Ford, will

help Magna survive and would give Magna a chance to become an OEM and gain market share especially in Europe

However, industry dynamics require immediate action for the long-term health and growth of the business

If they do not react further to the changes of their external environment, its net income is expected to eventually decrease and the cash flow situation to worsen and ultimately end in bankruptcy

Pros Cons

No costs and efforts to implement

Loss of the market share in the long-term

Minimal investment required and easiest to implement

Loss of further growth opportunity

Increase Investment in Emerging Markets Involves finding new clients in emerging markets or

supplying global OEMs who are operating in such markets World motor vehicle production is actually increasing in

emerging markets (Asia/Oceania and Eastern Europe)

Pros Cons

Increase sales High capital costs

Increase JV/collaboration (reduces risks)

Higher potential for failure due to riskier position

Familiarity with markets targeted

Increase Investment in New Green Technologies Capitalize on a core competence in R&D Government financial support for green technology in cars Already has an electric car in development through a JV

with Ford

Pros Cons

Opportunity to be the first mover with emerging trends

High risk, possibility of investing in the wrong technology

Potentially high return on investment

Opportunity to be a technological leader

Diversify into Other Industries

Pros Cons

Reduce risk Potential loss of market share in the core industry

Secure new buyers Lack of expertise in the new industry, need to go through the learning curve

Already existing facilities could be adapted to accommodate new uses

Longer time to realize a return

Potential increase in sales due to new buyers

Decision Criteria

Decision Criteria Weight OptionsA B C D

Market share growth 0.10 5 / 0.5 7 / 0.7 7 / 0.7 1 / 0.1Profit potential 0.30 1 / 0.3 5 / 1.5 7 / 2.1 7 / 2.1Diversification 0.30 1 / 0.3 2 / 0.6 8 / 2.4 10 / 3

Risk 0.10 10 / 1 7 / 0.7 1 / 0.1 1 / 0.1Technology leadership 0.20 2 / 0.4 2 / 0.4 10 / 2 1 / 0.2Sum of weights 1.00Total Score 2.5 3.9 7.3 5.5

Scale: 1 = Weak; 10 = Strong

Recommended Course of Action In the short-term:

Minimize costs Ensure financial viability

In the mid- to long-term: Invest heavily in the development of Green Technologies▪ Leverage R&D core competencies▪ Exploit growth potential▪ Exploit potential for higher margins

Emphasize a greater level of diversification▪ Geographically▪ Product array▪ Number and variety of customers

Implementation and Contingency Plan Environmental focus is a departure from

regular operations Direction will need to come from key

stakeholders in order to circumvent organizational inertia

Will require responsibilities to be shared with superiors and the board of directors will need to sign-off on influential decisions

R&D teams dedicated to green innovation will need to be established

Need to hire the right people to lead and manage

Continued Employ individuals most qualified – will

help to avoid issues such as groupthink Heterogeneous top management team to

oversee the project Team members with diverse backgrounds

but similar behaviours will help to achieve optimal strategic decisions

Explore possibility of acquiring a market leader in green automotive technology

Continued Considering joint venture with major

automobile manufacturer that has a strong green focus – will help reduce risk and create synergies

Motivate and evaluate progress of the initiative by measuring performance Best method to use is the Balance

Scorecard Will make the assessment of strategic

operation clear and concise

Questions