Tesma International Inc TSM A TSX www tesma

Tesma International, Inc. TSM. A - TSX www. tesma. com

Company Description Tesma International is a leading global supplier of highly engineered engine, transmission fueling systems and components for the automotive industry n Major product areas are front-end accessory drive systems, water and oil pumps and die castings n

FY 2002 Results Summary • Quarterly sales up 14% to $347. 4 million (increase in North American vehicle production volumes of 6%) • $4. 6 million increase in tooling sales to $29. 7 million (highest quarterly level ever) • Strengthening of the Euro versus the Canadian dollar in the quarter and continued growth in export sales • Sales for the year increased 12% to $1, 341. 6 million • Income before income taxes increased by 31% to $33. 6 million from $25. 7 million a year ago, due to North American production volumes, increased volumes and higher content on some existing and newly-launched production programs, improved operating efficiencies, including the North American die casting facility • Partially offset by 4% decrease in European vehicle production volumes in the quarter • NI for quarter decreased 12% to $22. 5 million from $25. 6 million a year ago • NI for year decreased to $83. 8 million from $88. 8 million in fiscal 2001, because of one-time nature of tax refunds • Diluted EPS was $0. 74 compared to $0. 86 a year ago • Diluted EPS for year was $2. 81, down from $3. 00 in the same period a year ago

Terminology Used n Enterprise Multiple - A ratio used to determine the value of a company. The enterprise-multiple looks at a firm as a potential acquirer would because it takes debt into account - an item which other multiples like the P/E ratio do not. n Enterprise Multiple = Enterprise Value/EBITDA n Enterprise Value - A measure of a company's value, calculated by: market capitalization plus debt & preferred shares minus cash and cash equivalents. n Market Cap - The total dollar value of all outstanding shares, calculated by multiplying the number of shares times the current market price. n **Think of enterprise value as theoretical takeover price. In the event of a buyout an acquirer would have to take on the company's debt but would pocket its cash. ** n EBITDA - can be used to analyze the profitability between companies and industries because it eliminates the effects of financing and accounting decisions. n **A low ratio indicates that a company might be undervalued**

Terminology cont. n P/E Ratio - A valuation ratio of a company's current share price to its per-share earnings. n P/E Ratio = MVPS/EPS n Sometimes the P/E is referred to as the "multiple" because it shows how much investors are willing to pay per dollar of earnings. n In general, a high P/E means high projected earnings in the future. But the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry, or to the market in general, or against the company's own historical P/E.

Brief Overview TSM. A-TSX (today’s close) 12 -18 mo. Price Target $25. 75 $33. 00 Key Indices: • 3 -5 -Yr. EPS Gr. Rate (E): • 52 -week • Shares • Float • Avg. Daily Trading • Market Capitalization • Dividend/Yield • Fiscal Year Ends • Book Value • 2003 ROE • Net Cash • Preferred • Common • Convertible Available NA $39. 58 -$25. 00 32. 3 million 16. 4 million 23, 700 $815. 6 million $0. 64/2. 5% July $19. 17 per Share 15. 6% $67. 1 million Nil $619. 2 million No

What are analysts saying? • Sector Outperformer rating • 12 -18 month target price of $33. 00 based on a 4. 25 x multiple on 2003 E EV/EBITDA • Forecasting Q 1/03 EPS of $0. 85 versus $0. 75 last year (2002) • Above-average return on capital employed • Recent equity offering likely satisfied a lot of the short-term demand for the stock

More Summary Info. 2002 2003 E 2004 E EPS 2. 81 3. 15 3. 40 P/E 9. 0 x 8. 0 x 7. 4 x EV/EBITDA Multiples 3. 5 x 3. 3 x 2. 9 x

Stock Price Performance

Stock Price Performance (more detailed)

Industry Trends and Risks n n n n NA auto production would need to fall 15% before industry stocks would be at long term average multiple on 2003 E EPS Vehicles at highest affordability since 1979 Lots of incentive packages with NA manufacturers (i. e. 0% financing) Stocks already contracted 31% from average highs (not expected to go lower) Price wars b/w Big 3 (DCX, GM, Ford) - helps affordability, but may hurt sales Union strikes possible Losing market share to foreign manufacturers (Audi, BMW, Honda, etc. ) Consumer confidence low according to surveys

Outlook - Q 1/2003 E EPS (ending Oct. 31/2002) $0. 85 Versus $0. 75, Up 13% Year Over Year • Analysts expect revenues up 16% (mgmt 10%) year over year in Q 1/2003 ending October 31 (today) • GM accounts for about 50% of North American sales, and this customer has had the best sales momentum of the Big Three • Ramp-up of the new 4. 2 litre Vortec engine (powers the Trailblazer/Envoy mid size SUVs) has been a big boost to Tesma’s sales (this is 7% of North American sales) • European market accounts for 25% - 30% of total sales • The company’s German die casting operation, continues to generate substantial losses (approx. $3 million in its most recent quarter) and is a substantial drag on the European division’s overall profitability • However, new mgmt’s in place at this business and a turnaround plan is being implemented • At its Q 4/2002 loss rate, Eralmetall is a drag of approximately $0. 35. $0. 40 on annual EPS

Tesma Top Five Programs By Revenue Rank OEM Key Vehicles 1 GM Full size Pickups, SUVs 2 GM Mid Size SUV's (Envoy, Trailblazer) 3 Ford F F-Series Pickups 4 Ford F Taurus 5 Ford F Focus Source: Company Reports

Medium/Longer-term Outlook • Attacking very large addressable market • Has 10% share of available engine content and about 4% of available transmission content • Working expand product offering (addressable market should grow higher) • Well positioned to benefit from trends 1. Engines become lighter --> need increased for Noise/Vibration/Harshness (NVH) parts 2. Diesel engines growing in popularity in Europe in particular, also tend to run rougher, due to their higher compression ratios, resulting in an increased need for NVH products 3. Company is targeting complete systems, such as engine front covers, which can be worth in excess of $125 per unit • Long-term (three- to five-year) revenue growth approx. 12%-13% • 2002, took in $306 million in net new business versus 2002 full-year sales of $1. 3 billion • Considering putting a greenfield plant in Wales to service Jaguar (track record of generating high ROI) • Has a substantial amount of new fuel systems business, which at full volumes, will double the size of this business for Tesma by 2005

Cash Flow/Balance Sheet • For FY 2003, operating cash flow of $179 million and capital expenditures of around $125 million expected • Mgmt’s goal to make an opportunistic acquisition that adds a new process/technology or a new customer (Tesma is currently weak with Daimler. Chrysler) • Hopes to complete acquisition over the next four to six months

Company-specific Risks • Above-average exposure to GM in North America • Currently a plus, but this level of concentration could obviously work against Tesma if GM’s fortunes reverse • Recent equity issue, closed in July, represented approx. 120 days of average trading volume on the stock • Deal likely satisfied a lot of the short-term demand for Tesma stock • However, Tesma will remain a controlled company, as Magna owns a 44% economic interest and controls 89% of the total votes attached to the A&B shares combined

Industry Comparison P/E Ratio 2002 2003 Decoma 8. 5 8. 2 Intier 10. 2 9. 4 Linamar 10. 8 11. 6 Magna 11. 2 8. 0 Westcast 9. 3 Tesma 9. 0 8. 0 Lowest EV/EBITDA: 2002 3. 5 x versus 4. 2 x average, and 2003 3. 3 x versus 3. 8 x average. Also, below it’s 95 -01 average of 4. 5 x. P/E Ratio is also well below the competition (cheaper/undervalued). Thus, it is my belief that Tesma is undervalued versus the competition when using EV/IBITDA and P/E!

Valuation/Recommendation • Currently trades at 3. 3 x analysts 2003 E EV/EBITDA forecast, versus its Canadian competitors at 3. 8 x (signal that undervalued) • Pretax return on capital employed expected to be 18% this year (second highest in Canadian auto parts) versus average of 15. 6% with competition • Given its strong technology base and small market share, Tesma should have an above-average long-term growth profile • Thus, strong buy, Sector Outperformer rating and a 12 -18 month target price of $33. 00, based on a 4. 25 x multiple on 2003 E EBITDA

Tesma Inc. Stmt. (summarized)

Tesma CF Stmt. & B/S