Finning International Inc. (TSX: FTT) (“Finning”, “the Company”,
“we”, “our” or “us”) is hosting its Investor Day on September 26,
2023 in Antofagasta, Chile starting at 7:30 AM Eastern Time. To
participate in our 2023 Investor Day virtually, please register for
the webcast. Following presentations by our leadership team,
participants will have an opportunity to ask questions. If you are
participating virtually, please use the Q&A function on the
webcast portal. The video webcast and the presentation slides will
be archived on our website following the live event.
“We are pleased to welcome investors and analysts to the
Antofagasta mining region in Chile. We look forward to introducing
our global leadership team and refreshed strategy, as well as
demonstrating our strong local leadership and capabilities in this
exciting growth region.
We have significantly exceeded our 2021 Investor Day Plan. The
strong operational execution by this management team has
transformed our return on invested capital and earnings capacity
today and for the future. Our refreshed strategy will build upon
this success and will focus on the following priorities: drive
product support, full-cycle resilience, and sustainable growth,”
said Kevin Parkes, president and CEO of Finning International.
Drive product support Our product support
business is our key value driver and remains by far the largest
opportunity for resilient, profitable growth. We are working to
capture an even greater share of the product support opportunity
across the full asset life cycle through further penetration of
customer value agreements, expanding our rebuild business, and
continuing to strategically grow our equipment population. On a
consolidated basis, we are targeting greater than 7% compounded
annual growth of our product support revenue from the last twelve
months ended Q2 2023 through 2025.
Full-cycle resilience Having a lower and more
flexible cost and invested capital base are critical enablers of
greater earnings consistency. We have made excellent progress
reducing our cost base and are pleased with our SG&A (1) as a
percentage of net revenue (2) reaching 17% over the last twelve
months ended Q2 2023. This is an area of continuous improvement,
and we are well on our way to reducing our SG&A as a percentage
of net revenue below 17% in a steady growth environment. Our
immediate top priority is to increase our invested capital turns
while concurrently improving customer service levels. This will be
achieved through a combination of systematic improvements in
working capital velocity as supply chain normalizes, as well as
optimizing lower ROIC (1) activities. We are targeting invested
capital turns (2) of 2.3 to 2.5 times by the end of 2025. In a
steady growth environment, we expect our invested capital (2)
improvement plan to unlock more than $450 million of capital.
Sustainable growthAs we reinvest in our
business, we will continue to grow product support and place a
greater emphasis on capturing attractive opportunities in the used,
rental, and power systems segments. Growth in these segments is
supported by strong mega trends, and we are optimally positioned in
our territories to benefit from these large addressable markets. We
are building our capabilities in these areas and see opportunities
to deploy capital with attractive returns through 2025 and
beyond.
“All these elements of our go-forward strategy are integrated
and critical to our long-term success. Product support is our most
profitable business and the foundation of our full-cycle
resilience. Growing the resilient and strategically important used,
rental, and power segments will also increase our equipment
population to help us drive even greater product support growth. As
we execute on our refreshed strategy, we expect our full-cycle ROIC
(2) to increase significantly from historical levels to the 18% to
25% range.
Importantly, our people are our biggest competitive advantage.
We will continue to foster a safe, secure and prosperous place to
work, and empower our employees to build long-term customer
loyalty. We look forward to many of you having the chance to meet
and interact with our great people in Chile over the next three
days,” concluded Mr. Parkes.
About FinningFinning is the world’s largest
Caterpillar dealer, delivering unrivalled service to customers for
90 years. Headquartered in Surrey, British Columbia, we provide
Caterpillar equipment, parts, services, and performance solutions
in Western Canada, Chile, Argentina, Bolivia, the United Kingdom,
and Ireland.
Contact InformationIlona RojkovaDirector,
Investor
Relations604-837-8241FinningIR@finning.comwww.finning.com
Outlook AssumptionsIn preparing the above
outlook, we have made the following assumptions for 2024 and 2025:
the average price of crude oil (West Texas Intermediate) of over
US$65 per barrel, the average price of copper of over US$3.00 per
pound, and GDP (gross domestic product) growth in each of our
regions of more than 1%. See also the “Forward-Looking Information
Disclaimer” section of this news release for additional
assumptions, risks and uncertainties related to our outlook.
Forward-Looking Information Disclaimer
This news release contains information that is forward-looking.
Information is forward-looking when we use what we know and expect
today to give information about the future. All forward-looking
information in this news release is subject to this disclaimer
including the assumptions referred to above under the heading
Outlook Assumptions and the assumptions and material risk factors
referred to below. Forward-looking information in this news release
includes, but is not limited to, the following: our strategy to
focus on driving product support, full-cycle resilience, and
sustainable growth; our expectation for greater than 7% compounded
annual growth of our consolidated product support revenue from the
last twelve months ended Q2 2023 through 2025, and our plans to
capture a greater share of the product support opportunity across
the full asset life cycle through further penetration of customer
value agreements (CVAs), expanding our rebuild business, and
continuing to strategically grow our equipment population (assumes
aftermarket share growth across all sectors, an expanded and
maturing equipment population with high utilization, increasing
rebuild demand, our ability to successfully increase CVAs and our
capacity and capabilities, including digital capabilities, and
effective price management); our target of below 17% SG&A as a
percentage of net revenue in a steady growth environment; our plans
to enable greater earnings consistency through a lower and more
flexible cost and invested capital base; our target for invested
capital turns of 2.3 to 2.5 times by the end of 2025, including
through systematic improvements in working capital velocity as
supply chain normalizes and optimizing lower ROIC activities; our
expectations for our invested capital improvement plan to unlock
more than $450 million of capital in a steady growth environment
(assumes our ability to continue lowering fixed overhead costs,
greater penetration of product support contracts, our ability to
successfully execute on our invested capital velocity improvement
plans, and growth in demand in resilient segments: product support,
used equipment and power); our plans for sustainable growth,
including our expectation to continue growing product support
through a greater emphasis on capturing attractive opportunities in
the used, rental, and power systems segments, and our belief that
we are optimally positioned and have opportunities to deploy
capital in these areas with attractive returns through 2025 and
beyond (assumes that the megatrends supporting these areas and
customer demand will continue, and our ability to successfully
build our capabilities and execute on opportunities in used, rental
and power); and our expectation for a full-cycle ROIC target range
of 18-25% (assumes our ability to successfully execute on our
strategic initiatives and plans). All such forward-looking
information is provided pursuant to the ‘safe harbour’ provisions
of applicable Canadian securities laws. Unless we indicate
otherwise, forward-looking information in this news release
reflects our expectations at the date of this news release. Except
as may be required by Canadian securities laws, we do not undertake
any obligation to update or revise any forward-looking information,
whether as a result of new information, future events, or
otherwise.
Forward-looking information, by its very nature, is subject to
numerous risks and uncertainties and is based on a number of
assumptions. This gives rise to the possibility that actual results
could differ materially from the expectations expressed in or
implied by such forward-looking information and that our business
outlook, objectives, plans, strategic priorities and other
information that is not historical fact may not be achieved. As a
result, we cannot guarantee that any forward-looking information
will materialize.
Factors that could cause actual results or events to differ
materially from those expressed in or implied by this
forward-looking information include: the specific factors stated
above; the impact and duration of, and our ability to respond to
and manage, high inflation, increasing interest rates, supply chain
challenges, and the impacts of the Russia-Ukraine war; general
economic and market conditions, including increasing inflationary
cost pressure, and economic and market conditions in the regions
where we operate; the outcome and impact of the upcoming election
cycle in Argentina; government approvals of large-scale brownfield
expansions; the constitutional reform process and tax reform bill
in Chile; foreign exchange rates; commodity prices; interest rates;
the level of customer confidence and spending, and the demand for,
and prices of, our products and services; our ability to maintain
our relationship with Caterpillar; our dependence on the continued
market acceptance of our products, including Caterpillar products,
and the timely supply of parts and equipment; our ability to
continue to sustainably reduce costs and improve productivity and
operational efficiencies while increasing invested capital turns
and improving customer service levels; our ability to manage cost
pressures as growth in revenue occurs; our ability to effectively
integrate and realize expected synergies from businesses that we
acquire; our ability to deliver our equipment backlog; our ability
to negotiate satisfactory purchase or investment terms and prices,
obtain necessary regulatory or other approvals, and secure
financing on attractive terms or at all; our ability to manage our
growth strategy effectively; our ability to effectively price and
manage long-term product support contracts with our customers; our
ability to drive continuous cost efficiency in a recovering market;
our ability to attract sufficient skilled labour resources as
market conditions, business strategy or technologies change; our
ability to negotiate and renew collective bargaining agreements
with satisfactory terms for our employees and us; the intensity of
competitive activity; our ability to maintain a safe and healthy
work environment across all regions; our ability to raise the
capital needed to implement our business plan; business disruption
resulting from business process change, systems change and
organizational change; regulatory initiatives or proceedings,
litigation and changes in laws, regulations or policies, including
with respect to environmental protection, climate change and/or the
energy transition; stock market volatility; changes in political
and economic environments in the regions where we carry on
business; our ability to respond to climate change-related risks;
the availability of carbon neutral technology or renewable power;
the cost of climate change initiatives; the occurrence of one or
more natural disasters, pandemic outbreaks/resurgence,
geo-political events, acts of terrorism, social unrest or similar
disruptions; the availability of insurance at commercially
reasonable rates and whether the amount of insurance coverage will
be adequate to cover all liability or loss that we incur; the
potential of warranty claims being greater than we anticipate; and
the integrity, reliability and availability of, and benefits from,
information technology and the data processed by that technology;
and our ability to protect our business from cybersecurity threats
or incidents. Forward-looking information is provided in this news
release to give information about our current expectations and
plans and allow investors and others to get a better understanding
of our operating environment. However, readers are cautioned that
it may not be appropriate to use such forward-looking information
for any other purpose.
Forward-looking information provided in this news release is
based on a number of assumptions that we believed were reasonable
on the day the information was given, including the assumptions
referred to above under the heading Outlook Assumptions, and
including: the specific assumptions stated above; that we will be
able to successfully manage our business through volatile commodity
prices, high inflation, increasing interest rates, supply chain
challenges and the impacts of the Russia-Ukraine war, and
successfully execute our strategies to drive product support,
achieve full cycle resilience (based on assumptions that steps to
reduce overhead, drive productivity and optimize working capital
while supporting strong business growth will be successful and
sustainable) and sustainable growth (based on assumptions that we
will be able to grow product support in used, rental, and power
systems segments); that commodity prices will remain at
constructive levels; continued growth in demand for copper,
improving political clarity, government approvals of large-scale
brownfield expansions, and increasing customer confidence to invest
in Chile; that our customers will not curtail their activities;
that general economic and market conditions will continue to be
strong; that the level of customer confidence and spending, and the
demand for, and prices of, our products and services will be
maintained; that support and demand for renewable energy will
continue to grow; that present supply chain and inflationary
challenges will not materially impact large project deliveries in
our equipment backlog; our ability to successfully execute our
plans and intentions; our ability to attract and retain skilled
staff; market competition will remain at similar levels; identified
opportunities for growth will result in revenue; that we have
sufficient liquidity to meet operational needs; consistent and
stable legislation in the various countries in which we operate; no
disruptive changes in the technology environment; our current good
relationships with Caterpillar, our customers and our suppliers,
service providers and other third parties will be maintained and
that Caterpillar and such other suppliers will deliver quality,
competitive products with supply chain continuity; sustainment of
strengthened oil prices and the Alberta government will not
re-impose production curtailments; and strong recoveries in the
regions that we operate. Some of the assumptions, risks, and other
factors, which could cause results to differ materially from those
expressed in the forward-looking information contained in this news
release, are discussed in our current AIF and in our annual and
most recent quarterly MD&A for the financial risks. We caution
readers that the risks described in the annual and most recent
quarterly MD&A and in the AIF are not the only ones that could
impact us. Additional risks and uncertainties not currently known
to us or that are currently deemed to be immaterial may also have a
material adverse effect on our business, financial condition, or
results of operations.
Description of Specified Financial Measures and
Reconciliations
Specified Financial Measures
We believe that certain specified financial measures, including
non-GAAP (1) financial measures, provide users of our news release
with important information regarding the operational performance
and related trends of our business. The specified financial
measures we use do not have any standardized meaning prescribed by
GAAP and therefore may not be comparable to similar measures
presented by other issuers. Accordingly, specified financial
measures should not be considered as a substitute or alternative
for financial measures determined in accordance with GAAP (GAAP
financial measures). By considering these specified financial
measures in combination with the comparable GAAP financial measures
(where available) we believe that users are provided a better
overall understanding of our business and financial performance
during the relevant period than if they simply considered the GAAP
financial measures alone.
Descriptions and components of the specified financial measures
we use in this news release are set out below. Where applicable,
quantitative reconciliations from certain specified financial
measures to their most directly comparable GAAP financial measures
(specified, defined, or determined under GAAP and used in our
consolidated financial statements) are also set out below.
Invested Capital
Invested capital is calculated as net debt plus total equity.
Invested capital is also calculated as total assets less total
liabilities, excluding net debt. Net debt is calculated as
short-term and long-term debt, net of cash and cash equivalents. We
use invested capital as a measure of the total cash investment made
in Finning and each reportable segment. Invested capital is used in
a number of different measurements (ROIC and invested capital
turnover) to assess financial performance against other companies
and between reportable segments.
Invested Capital Turnover
We use invested capital turnover to measure capital efficiency.
Invested capital turnover is calculated as net revenue for the last
twelve months divided by average invested capital of the last four
quarters.
Net Revenue and SG&A as a % of Net
Revenue
Net revenue is defined as total revenue less the cost of fuel
related to the mobile refuelling operations in our Canadian
operations. As these fuel costs are pass-through in nature for this
business, we view net revenue as more representative than revenue
in assessing the performance of the business because the rack price
for the cost of fuel is fully passed through to the customer and is
not in our control. For our South American and UK & Ireland
operations, net revenue is the same as total revenue.
We use these specified financial measures to assess and evaluate
the financial performance or profitability of our reportable
segments.
SG&A as a % of net revenue is calculated as SG&A divided
by net revenue. The most directly comparable GAAP financial measure
to net revenue is total revenue. Net revenue is calculated as
follows:
|
3 months
ended |
2023 |
|
|
2022 |
|
|
($
millions) |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
|
|
Total revenue |
2,779 |
2,380 |
|
2,653 |
2,384 |
|
|
Cost of
fuel |
(220) |
(236) |
|
(285) |
(277) |
|
|
Net revenue |
2,559 |
2,144 |
|
2,368 |
2,107 |
|
ROIC and Adjusted ROIC
ROIC is defined as EBIT for the last twelve months divided by
average invested capital of the last four quarters, expressed as a
percentage.
We view ROIC as a useful measure for capital allocation
decisions that drive profitable growth and attractive returns to
shareholders.
(1) |
Selling, General & Administrative Expenses (SG&A); Return
on Invested Capital (ROIC); generally accepted accounting
principles (GAAP). |
|
|
(2) |
See “Description of Specified
Financial Measures and Reconciliations” above. |
Finning (TSX:FTT)
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Finning (TSX:FTT)
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