Finning Reports Record Earnings in Q4 and FY2012

Finning Reports Record Earnings in Q4 and FY2012 
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 02/13/13 -- Finning
International Inc. (TSX:FTT) -  


 
Q4 2012 HIGHLIGHTS
 
--  Revenue of $1.8 billion was roughly on par with the record set in Q4
    2011. Lower revenues in Canada and the UK & Ireland were partly offset
    by the highest-ever revenue from South America.
 
--  EBIT grew by 40% to a new quarterly record of $150 million and included
    a $9.7 million gain on the sale of property in Canada. Consolidated EBIT
    margin rose for the fifth consecutive quarter to 8.4%, driven primarily
    by EBIT margin improvement in Canada.
 
--  Basic EPS of $0.61 surpassed the previous quarterly earnings record by
    24%.
 
--  The Company generated $245 million in free cash flow in Q4 2012. 

 
Finning International Inc. reported fourth quarter revenues of $1.8
billion, 2% below the record levels in Q4 2011, as lower new
equipment sales were partly offset by 11% growth in product support.
South America posted record revenues across most lines of business,
while revenues in Canada and the UK & Ireland decreased compared to
Q4 2011. Quarterly earnings before finance costs and income taxes
(EBIT) rose to a new record of $150 million. Quarterly EBIT margin
continued to show sequential improvement over the last five quarters
and reached 8.4% compared to 5.9% in Q4 2011. Basic earnings per
share (EPS) increased by 49% from Q4 of last year to $0.61, an
all-time high for the Company. Backlog declined from $1.4 billion at
the end of September to $1.2 billion at the end of December primarily
due to strong deliveries. While some customers remain cautious making
purchasing decisions, order intake in Q4 was 42% higher compared to
Q3 2012. 


 
For the full year 2012:
 
--  Finning achieved record annual revenues of $6.6 billion which grew by
    12% over 2011. New equipment sales increased by 7% to $3.1 billion - the
    highest level in Finning's history. Product support revenues also
    reached a new record, climbing by 18% to $2.8 billion.
 
--  The Company reported 31% EBIT growth over the prior year to a record-
    setting $496 million, and demonstrated sequential EBIT margin expansion
    throughout 2012. Annual EBIT margin improved to 7.5% from 6.4% in 2011,
    driven 
primarily by EBIT margin recovery in Canada. EBITDA of
    $709million was also at record levels.
 
--  Basic EPS increased to $1.96 from $1.51 in 2011 and was 25% higher than
    the previous annual earnings record reported in 2007.
 
--  Return on equity of 23.5% was the strongest in Finning's history.
 
--  The Company successfully executed on the acquisition and integration of
    the Bucyrus distribution and support business, which contributed
    incremental earnings of approximately $0.09 per share in 2012. 

 
"We had an outstanding 2012 marked by numerous strategic achievements
and record financial performance. Canada significantly improved
operating profitability and expanded product support capabilities in
the oil sands with the opening of a new service facility in Fort
McKay. South America eclipsed previous records across the board; and,
our UK and Ireland team enhanced our power systems capabilities with
two strategic acquisitions. In addition, we are capitalizing on
opportunities with mining customers following the successful Bucyrus
acquisition," said Mike Waites, president and CEO of Finning
International Inc. 
"We enter 2013 uniquely positioned to deliver improved profitability.
With the benefit of a full year with Bucyrus and continued product
support growth from the expanding and aging machine population, we
expect flat to ten percent revenue growth in 2013 over 2012. Having
delivered sequential improvement in our operating performance, we
expect continued progress in 2013 to drive higher EBIT margin, solid
earnings growth and continued strong return on invested capital,"
continued Mr. Waites. "I am confident that by leveraging our 80-year
heritage of superior customer service with our focus on advancing
operational excellence we will drive additional value to our
shareholders." 


 
Q4 2012 FINANCIAL SUMMARY
 
---------------------------------------------------------------------------
C$ millions, except per share amounts             Three months ended Dec 31
(unaudited)                                        2012      2011  % change
---------------------------------------------------------------------------
Revenue                                           1,779     1,811        (2)
Earnings before finance costs and income                                   
 taxes (EBIT)                                       150       107        40
Net income                                          105        71        49
Basic EPS                                          0.61      0.41        49
Earnings before finance costs, income taxes,                               
 depreciationand amortization (EBITDA)(1)           205       156        32
Free cash flow(1)(2)                                245       281       (13)
---------------------------------------------------------------------------
 
--  Revenues declined by 2% from Q4 2011 to $1.8 billion, with record
    revenues in South America partly offsetting lower revenues in Canada and
    the UK & Ireland. New equipment sales were down by 14% primarily due to
    lower new equipment sales in Canada compared to record sales in Q4 2011.
    Product support revenues increased by 11% driven by strong growth in
    South America. Used equipment sales and rental revenues both rose by 4%.
 
--  Gross profit was 10% higher compared to Q4 2011, reflecting a favourable
    shift in revenue mix to higher margin product support, as well as higher
    gross profit margins in most lines of business. Consolidated gross
    profit margin increased to 29.3% from 26.2% in Q4 2011.
 
--  Selling, general and administrative (SG&A) expenses as a percentage of
    revenue were 21.5% compared to 20.3% in Q4 2011 due to higher costs
    associated with product support growth. However, this was the lowest
    quarterly SG&A as a percentage of revenue reported in 2012.
 
--  EBIT increased by 40% to a record $150 million, driven by the best-ever
    EBIT achieved in South America and significantly improved EBIT results
    in Canada compared to Q4 2011. The fourth quarter results included a
    $9.7 million gain on the sale of property in Canada. Consolidated EBIT
    margin rose to 8.4% compared to 5.9% in Q4 2011 and 7.8% in Q3 2012. The
    sequential EBIT margin expansion over the last five quarters was mostly
    the result of significantly improved EBIT performance in Canada.
 
--  Net income of $105 million and basic EPS of $0.61 were both at record
    levels. The newly acquired Bucyrus distribution business contributed
    approximately $0.04 per share of incremental profit to Q4 2012. Fourth
    quarter results also included approximately $0.06 per share gain from
    the property sale in Canada.
 
--  EBITDA reached an all-time quarterly high of $205 million. Quarterly
    free cash flow was $245 million compared to $281 million in Q4 2011. The
    Company continues to focus on prudently managing working capital and
    reducing uncommitted inventory levels.
 
--  The Company's net debt to total capital ratio(5) declined to 50.0% at
    the year end from 52.3% at the end of September. The net debt to total
    capital ratio is temporarily above the 35-45% target range due to higher
    debt levels to fund the purchase of the former 
Bucyrus distribution
    business as well as working capital requirements. The Company expects
    net debt to total capital ratio to return within the target range by the
    end of 2013 as a result of strong free cash flow, lower capital
    expenditures and improved working capital metrics.
 
--  Order backlog declined to $1.2 billion at the end of December from $1.4
    billion at the end of September. Compared to Q3 2012, deliveries were
    higher and more than offset a 42% increase in the order intake during
    Q4. The Company reported no unusual order cancellations in any of its
    operations in the fourth quarter. The current backlog is approximately
    $300 million below December 2011 levels as customers are more cautious
    and taking longer to make purchasing decisions in light of improved
    equipment availability and uncertain economic conditions. 
 
Q4 2012 HIGHLIGHTS BY OPERATION
 
Canada
 
--  Revenues were 20% lower compared to the record levels in Q4 2011, mainly
    due to a 36% decline in new equipment sales from the exceptionally
    strong fourth quarter of 2011. While customers are taking a more
    cautious view on capital projects and expansions, market conditions in
    Western Canada were favourable in the fourth quarter. Product support
    revenues were comparable to Q4 2011 supported by stable activity in
    mining and heavy construction.
 
--  Canada's reported EBIT of $74 million was 70% higher than in Q4 2011 and
    included a $9.7 million gain on the sale of property. EBIT margin
    improved over the past five consecutive quarters and was 9.4% compared
    to 4.4% in Q4 2011, largely due to the reduction in ERP related costs.
 
--  Looking forward, Canada remains focused on driving operational
    excellence initiatives to improve working capital performance and
    increase service productivity. The Canadian operations expect to
    continue delivering improved EBIT margin performance in 2013. 
 
South America
 
--  Revenues rose by 31% from Q4 2011, driven by record revenues in most
    lines of business. In functional currency (USD), revenues grew by 35%
    reflecting strong mining and construction activity in Chile, as well as
    the contribution from the newly integrated Bucyrus distribution
    business. In functional currency, new equipment sales and product
    support revenues set new records, climbing by 23% and 33% respectively.
 
--  EBIT increased by 34% to a record $76 million. EBIT margin improved to
    9.8% from 9.5% in Q4 2011, reflecting leverage to record revenues
    through SG&A cost control and higher margins in most lines of business.
 
--  South America added approximately 1,000 employees to its workforce in
    2012, a 15% increase from 2011, as the Company welcomed the former
    Bucyrus employees and added headcount to support the 28% annual growth
    in product support business over last year.
 
--  Going forward, South American operations remain focused on managing cost
    pressures of the competitive labour market and driving operational
    excellence initiatives. 
 
United Kingdom and Ireland
 
--  Fourth quarter revenues declined by 4% from Q4 2011 (3% decline in
    functional currency), reflecting softer market activity in most sectors.
    In functional currency (GBP), new equipment sales decreased by 4% due to
    weaker economic conditions. Product support revenues were down by 5%
    over Q4 2011, primarily as a result of slower demand for parts.
 
--  EBIT declined by 30% to $10 million, and EBIT margin was 4.8% compared
    to 6.5% in Q4 2011, reflecting lower revenue levels and a pension
    curtailment gain of $6.4 million that was recorded in the fourth quarter
    of 2011.
 
--  Looking into 2013, the UK and Ireland operations are focused on driving
    value from completed strategic acquisitions, executing on operational
    excellence initiatives and sustaining financial performance through a
    period of soft demand. 

 
CORPORATE AND BUSINESS DEVELOPMENTS 
Dividend 
The Board of Directors has approved a quarterly dividend of $0.14 per
share, payable on March 14, 2013 to shareholders of record on
February 28, 2013. This dividend will be considered an eligible
dividend for Canadian income tax purposes. 
CEO Planned Retirement and Transition Plan for 2013 
On January 8, Finning announced that Mike Waites has decided to
retire in 2013 and will not seek re-election as a director at
Finning's 2013 annual meeting of shareholders. Mr. Waites will
continue to serve as president and CEO until a replacement is
appointed in order to facilitate an effective transition of
responsibilities. As part of the company's succession process, the
Board of Directors has retained an executive search firm to assist
with the process of selecting a successor to Mr. Waites and is
considering qualified internal and external candidates. 


 
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(C$ millions, except per share amounts)
 
                         --------------------------------------------------
                             Three months ended         Twelve months ended 
                                         Dec 31                      Dec 31
                         --------------------------------------------------
                                              %                            
Revenue                     2012    2011 change      2012      2011% change
                         --------------------------------------------------
  New equipment            847.7   990.0    (14)  3,077.2   2,889.0       7
  Used equipment            81.9    78.5      4     295.4     253.4      17
  Equipment rental         101.3    97.5      4     379.8     345.5      10
  Product support          712.0   642.6     11   2,815.4   2,395.6      18
  Other                     36.5     2.0    n/m      54.3      11.4     n/m
---------------------------------------------------------------------------
    Total revenue        1,779.4 1,810.6     (2)  6,622.1   5,894.9      12
---------------------------------------------------------------------------
Gross profit               521.9   474.5     10   1,964.8   1,679.7      17
Gross profit margin(3)     29.3%   26.2%            29.7%     28.5%        
SG&A                      (382.4) (367.0)    (4) (1,483.1) (1,279.3)    (16)
SG&A as a percentage of                                                    
 revenue                   (21.5)% (20.3)%          (22.4)%   (21.7)%      
Equity earnings              2.5     3.0             10.1       6.7        
Other income (expenses)      7.8    (3.2)             4.7     (27.4)       
---------------------------------------------------------------------------
EBIT                       149.8   107.3     40     496.5     379.7      31
EBIT margin(4)              8.4%    5.9%             7.5%      6.4%        
---------------------------------------------------------------------------
Net income                 105.4    70.6     49     337.6     259.4      30
---------------------------------------------------------------------------
Basic earnings per share                                                   
 (EPS)                      0.61    0.41     49      1.96      1.51      30
---------------------------------------------------------------------------
                                                                           
EBITDA(1)                  205.1   155.7     32     709.0     553.8      28
Free Cash Flow(1)(2)       244.8   280.7    (13)    (37.4)   (220.8)     83
---------------------------------------------------------------------------
                                                             Dec 31, Dec 31,
                                                                 12      11
                                                 --------------------------
Total assets                                                5,118.0 4,085.4
Total shareholders'                                                        
 equity                                                     1,566.6 1,345.0
Net debt to total capital                                                  
 ratio(5)                                                     50.0%   42.0%
---------------------------------------------------------------------------
 
n/m = not meaningful as percentage change is significantly larger o
r not
      applicable

 
To download Finning's complete Q4 and annual 2012 results in PDF,
please open the following link:
http://media3.marketwire.com/docs/FinningQ412results.pdf 
To download the CEO and CFO certification letters once they have been
filed on SEDAR, please open the following link: http://www.sedar.com/
DisplayCompanyDocuments.do?lang=EN&issuerNo=00001068 
Q4 AND ANNUAL 2012 RESULTS INVESTOR CALL 
Management will hold an investor conference call on Wednesday,
February 13 at 11:00 am Eastern Time. Dial-in numbers: 1-866-226-1793
(anywhere within Canada and the U.S.) or (416) 340-2218 (for
participants dialing from Toronto and overseas). 
The call will be webcast live and subsequently archived at
www.finning.com. Playback recording will be available at
1-800-408-3053 from 1:00 pm Eastern Time on February 13 until
February 20. The pass code to access the playback recording is
4463383 followed by the number sign. 
ABOUT FINNING 
Finning International Inc. (TSX:FTT) is the world's largest
Caterpillar equipment dealer delivering unrivalled service to
customers for 80 years. Finning sells, rents and services equipment
and engines to help customers maximize productivity. Headquartered in
Vancouver, B.C., the Company operates in western Canada, Chile,
Argentina, Bolivia, Uruguay, as well as in the United Kingdom and
Ireland. 


 
Footnotes
 
1.  These amounts do not have a standardized meaning under generally
    accepted accounting principles. For a reconciliation of these amounts to
    net income and cash flow from operating activities, see the heading
    "Description of Non-GAAP and Additional GAAP Measures" in the Company's
    management discussion and analysis that accompanies the fourth quarter
    and annual consolidated financial statements.
 
2.  Free cash flow is defined as cash flow provided by (used in) operating
    activities less net additions to property, plant and equipment and
    intangible assets as disclosed in the Company's Consolidated Statements
    of Cash Flow.
 
3.  Gross profit margin is defined as gross profit as a percentage of total
    revenue. 
 
4.  EBIT margin is defined as earnings before finance costs and income taxes
    as a percentage of total revenue. 
 
5.  Net debt to total capital ratio is calculated as short-term debt and
    long-term debt, net of cash and cash equivalents (net debt) divided by
    total capitalization. Total capitalization is defined as the sum of net
    debt and all components of equity (share capital, contributed surplus,
    accumulated other comprehensive loss, and retained earnings). 

 
Forward-Looking Disclaimer 
This report contains statements about the Company's business outlook,
objectives, plans, strategic priorities and other statements that are
not historical facts. A statement Finning makes is forward-looking
when it uses what the Company knows and expects today to make a
statement about the future. Forward-looking statements may include
words such as aim, anticipate, assumption, believe, could, expect,
goal, guidance, intend, may, objective, outlook, plan, project, seek,
should, strategy, strive, target, and will. Forward-looking
statements in this report include, but are not limited to, statements
with respect to: expectations with respect to the economy and
associated impact on the Company's financial results; expected
revenue and SG&A levels and EBIT growth; anticipated generation of
free cash flow (including projected net capital and rental
expenditures), and its expected use; anticipated defined benefit plan
contributions; the expected target range of the Company's Debt Ratio;
the impact of new and revised IFRS that have been issued but are not
yet effective; growth prospects for the former Bucyrus business
acquired by the Company in Finning's dealership territories (Bucyrus)
and the competitive advantages of the business being acquired;
expected future financial and operating results generated from
Bucyrus; anticipated benefits and synergies of Bucyrus; and the
expected impact of Bucyrus on Finning's earnings. All such
forward-looking statements are made pursuant to the 'safe harbour'
provisions of applicable Canadian securities laws. 
Unless otherwise indicated by us, forward-looking statements in this
report describe Finning's expectations at February 12, 2013. Except
as may be required by Canadian securities laws, Finning does not
undertake any obligation to update or revise any forward-looking
statement, whether as a result of new information, future events, or
otherwise. 
Forward-looking statements, by their very nature, are subject to
numerous risks and uncertainties and are based on several assumptions
which give rise to the possibility that actual results could differ
materially from the expectations expressed in or implied by such
forward-looking statements and that Finning's business outlook,
objectives, plans, strategic priorities and other statements that are
not historical facts may not be achieved. As a result, Finning cannot
guarantee that any forward-looking statement will materialize.
Factors that could cause actual results or events to differ
materially from those expressed in or implied by these
forward-looking statements include: general economic and market
conditions; foreign exchange rates; commodity prices; the level of
customer confidence and spending, and the demand for, and prices of,
Finning's products and services; Finning's dependence on the
continued market acceptance of Caterpillar's products and
Caterpillar's timely supply of parts and equipment; Finning's ability
to continue to improve productivity and operational efficiencies
while continuing to maintain customer service; Finning's ability to
manage cost pressures as growth in revenues occur; Finning's ability
to reduce costs in response to slowing activity levels; Finning's
ability to attract sufficient skilled labour resources to meet
growing product support demand; Finning's ability to negotiate and
renew collective bargaining agreements with satisfactory terms for
Finning's employees and the Company; the intensity of competitive
activity; Finning's ability to successfully integrate the
distribution and support business formerly operated by Bucyrus;
Finning's ability to raise the capital needed to implement its
business plan; regulatory initiatives or proceedings, litigation and
changes in laws or regulations; stock market volatility; changes in
political and economic environments for operations; the integrity,
reliability, and availability of information technology and the data
processed by that technology; expected operational benefits from the
new ERP system. Forward-looking statements are provided in this
report for the purpose of giving information about management's
current expectations and plans and allowing investors and others to
get a better understanding of Finning's operating environment.
However, readers are cautioned that it may not be appropriate to use
such forward-looking statements for any other purpose. 
Forward-looking statements made in this report are based on a number
of assumptions that Finning believed were reasonable on the day the
Company made the forward-looking statements. Refer in particular to
the Outlook section of the MD&A. Some of the assumptions, risks, and
other factors which could cause results to differ materially from
those expressed in the forward-looking statements contained in this
report are discussed in the Company's current Annual Information Form
(AIF) in Section 4. 
Finning cautions readers that the risks described in the AIF are not
the only ones that could impact the Company. Additional risks and
uncertainties not currently known to the Company or that are
currently deemed to be immaterial may also have a material adverse
effect on Finning's business, financial condition, or results of
operations. 
Except as otherwise indicated, forward-looking statements do not
reflect the potential impact of any non-recurring or other unusual
items or of any disposit
ions, mergers, acquisitions, other business
combinations or other transactions that may be announced or that may
occur after the date hereof. The financial impact of these
transactions and non-recurring and other unusual items can be complex
and depends on the facts particular to each of them. Finning
therefore cannot describe the expected impact in a meaningful way or
in the same way Finning presents known risks affecting its business.
Contacts:
Finning International Inc.
Mauk Breukels
Vice President, Investor Relations and Corporate Affairs
(604) 331-4934
mauk.breukels@finning.com
www.finning.com
 
 
Press spacebar to pause and continue. Press esc to stop.