Finning Reports Q3 2013 Results

Finning Reports Q3 2013 Results 
VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 11/14/13 -- Finning
International Inc. (TSX:FTT) - 
Q3 2013 HIGHLIGHTS 


 
--  Revenues rose by 12% to $1.8 billion. Higher revenues in Canada more
    than offset relatively flat revenues in South America and the UK and
    Ireland compared to Q3 2012. 
--  Product support revenues increased in all operations and were 14% higher
    on a consolidated basis, partly attributable to approximately $50
    million additional contribution from the expanded mining product line
    (the former Bucyrus business). 
--  Strong deliveries in Canada drove new equipment sales up 8% and
    contributed to a lower gross profit margin compared to Q3 of last year.
    The decline in the gross profit margin in Canada was partly offset by an
    improved gross profit margin in South America with more product support
    in the revenue mix relative to Q3 2012. 
--  EBIT rose by 10% to $136 million, driven primarily by Canada.
    Consolidated EBIT margin of 7.6% was slightly lower than in Q3 2012,
    largely due to increased mining new equipment sales. 
--  Compared to the second quarter of 2013, EBIT increased by 11% as higher
    EBIT in Canada more than offset a decline in EBIT in South America and
    the UK and Ireland. Consolidated EBIT margin of 7.6% was comparable to
    Q2 2013, despite a significant shift in revenue mix to new equipment
    sales in Canada. 
--  Basic EPS was $0.50 compared to $0.47 in Q3 2012 and $0.48 in the
    previous quarter. 
--  The Company generated $163 million of free cash flow in Q3 2013, driven
    by stronger cash flow from operations and improved working capital. The
    Company's net debt to total capital ratio declined to 48% at the end of
    September from 51% at the end of June. 
--  The order backlog stands at $1.0 billion, down 7% from the end of June,
    as very strong equipment deliveries during the quarter exceeded an 11%
    increase in order intake over Q2 2013.

 
Finning International Inc. (TSX:FTT) reported quarterly revenues of
$1.8 billion, a 12% increase over Q3 2012. Revenues grew in all lines
of business: the increase in new equipment sales was driven by
Canada, while product support revenues rose across all operations
compared to Q3 of last year. Quarterly earnings before finance costs
and income taxes (EBIT) grew by 10% to $136 million due to improved
EBIT results in Canada and the UK and Ireland. Quarterly EBIT margin
was 7.6%, which was comparable to the previous quarter and down
slightly from 7.8% in Q3 2012. Basic earnings per share (EPS)
increased by 6% to $0.50 relative to Q3 2012. 
"In the third quarter, we delivered results that were in line with
our expectations as strong equipment deliveries in Canada and
increased revenue from product support in all of our regions resulted
in an increase in EBIT. Our ability to deliver these results in an
uncertain economic environment speaks to the strength of Finning's
business model and the resiliency of the product support business.
The mining sector, particularly in South America, is under pressure
and we are actively managing our cost structure so that it remains in
line with expected business levels," said Scott Thomson, president
and chief executive officer of Finning International Inc. "I am
pleased with our third quarter free cash flow generation and we are
on track to achieve approximately a 45% net debt to capital ratio by
the end of the year, which is at the high end of our targeted range.
Operational excellence remains our top agenda item and I look forward
to providing a progress update along with our 2014 outlook at our
investor meeting next month." 
Q3 2013 FINANCIAL SUMMARY 


 
----------------------------------------------------------------------------
C$ millions, except per share amounts                                       
 (unaudited)                                   Three months ended Sep 30    
                                                2013     2012(7)    % change
----------------------------------------------------------------------------
Revenue                                        1,780       1,594          12
Earnings before finance costs and income                                    
 taxes (EBIT)                                    136         124          10
EBIT margin                                      7.6%        7.8%           
Net income                                        86          81           6
Basic EPS                                       0.50        0.47           6
Earnings before finance costs, income                                       
 taxes, depreciationand amortization                                        
 (EBITDA)(1)                                     191         178           7
Free cash flow(1)(2)                             163         (29)           
----------------------------------------------------------------------------
 
--  Revenues rose by 12% from Q3 2012 to $1.8 billion, driven by Canada.
    Revenues from South America and the UK and Ireland were comparable to Q3
    of last year. New equipment sales were up 8% with strong deliveries in
    Canada compensating for reduced sales volumes in other regions compared
    to Q3 2012. Product support revenues grew by 14%, including about $50
    million in additional contribution from the expanded mining product
    line, and were higher across all operations. Used equipment sales were
    very strong in all territories and increased by 45% on a consolidated
    basis. Rental revenues rose by 8% compared to Q3 2012. An appreciation
    of the US dollar relative to the Canadian dollar had a positive impact
    on revenues of approximately $50 million compared to Q3 2012. 
--  Gross profit increased by 5% from higher revenues, however, gross profit
    margin declined to 28.9% from 30.7% in Q3 2012 due to a lower gross
    profit margin in Canada, largely as the result of increased mining new
    equipment sales. This was partly offset by a higher gross profit margin
    in South America where the revenue mix was more heavily weighted to
    product support compared to Q3 2012. 
--  Selling, general and administrative (SG&A) expenses were 3% above last
    year due to higher SG&A costs in South America, while SG&A expenses in
    Canada were flat despite strong revenue growth. As a percentage of
    revenue, SG&A expenses declined to 21.3% from 23.1% in Q3 of last year. 
--  EBIT rose by 10% to $136 million, primarily reflecting higher revenues
    in Canada. Consolidated EBIT margin was 7.6%, similar to the second
    quarter of 2013 and down slightly from 7.8% achieved in Q3 2012. 
--  Net income and basic EPS increased by 6% to $86 million and $0.50,
    respectively, reflecting the higher EBIT described above, partly offset
    by an increase in the effective tax rate to 23.4% from 18.4% in Q3 2012,
    primarily due to foreign exchange impacts in Argentina. 
--  EBITDA was up 7% to $191 million. Quarterly free cash flow was $163
    million, compared to $6 million in the previous quarter and $29 million
    use of cash in Q3 2012, driven by stronger cash flow from operations and
    improved working capital. 
--  The Company's net debt to total capital ratio(5) was 47.8% at the end of
    September, down from 50.6% at the end of June. The Company expects
    strong free cash flow in Q4 2013 and the net debt to total capital ratio
    to decline to approximately 45% by the end of 2013, which is at the high
    end of the 35-45% target range. 
--  Order backlog was $1
.0 billion at the end of September, down from $1.1
    billion at the end of June, mostly due to significant deliveries in
    Canada in Q3. Order intake improved in Canada and South America compared
    to the first two quarters of 2013 and continued to be at good levels in
    the UK and Ireland. The order intake in Q3 was driven by demand from
    non-mining customers. There were no significant order cancellations in
    any of the Company's operations in the third quarter. 

 
Q3 2013 HIGHLIGHTS BY OPERATION 
Canada 


 
--  Canada achieved very strong revenues in Q3, up 25% from a year ago,
    driven by equipment sales and contribution from the expanded mining
    product line which was acquired in Q4 2012. New equipment sales rose by
    35% reflecting significant mining deliveries in the quarter, including
    $18 million from the expanded mining product line, as well as increased
    sales in construction and forestry. While cost containment measures by
    commodity producers in the oil sands have negatively impacted the
    product support business in the mining sector, product support revenues
    were up 17%, largely due to the $46 million contribution from the
    expanded mining product line. 
--  The gross profit margin declined, reflecting a high proportion of lower
    margin mining equipment in the sales mix. SG&A costs decreased
    marginally, despite higher revenues, as a result of supply chain
    efficiencies and operating improvements at the OEM Remanufacturing
    facility. EBIT increased by 29% to $76 million, driven by significantly
    higher revenues and $7 million of additional EBIT from the expanded
    mining product line, acquired in the fourth quarter of 2012. EBIT margin
    improved to 7.9% from 7.7% in Q3 2012, and was similar to the second
    quarter of 2013. 
--  Finning Canada has significant opportunities to improve performance and
    will remain focused on executing on its operational excellence agenda,
    which includes: gaining market share in non-mining segments, optimizing
    supply chain, increasing service profitability and improving asset
    utilization. .

 
South America 


 
--  Revenues declined slightly, by under 1%, but were down 5% in functional
    currency (USD) due to lower new equipment sales compared to Q3 2012. New
    equipment sales decreased by 20% in functional currency, reflecting
    slower construction activity in Chile and Argentina, as well as reduced
    mining deliveries. While copper prices have remained healthy and
    production levels held steady, increased focus on cost containment has
    resulted in slower pace of equipment replacement and fleet additions for
    brownfield projects. Product support revenues grew by 7% in functional
    currency driven by mining. Cost reductions by mining customers have
    resulted in a slower pace of growth in product support, including the
    expanded mining product line. However, the parts business for the
    expanded mining product line showed significant sequential improvement
    through 2013. 
--  In Argentina, the Company continued to be restricted with respect to the
    importation of equipment and parts. The Company has adjusted its cost
    structure in Argentina to align with lower revenue levels and mitigate
    the financial impact of the restrictions. 
--  EBIT of $56 million was 3% below Q3 2012 and was down 8% in functional
    currency due to approximately $5 million lower EBIT from the expanded
    mining product line, as well as higher SG&A costs, which were primarily
    the result of charges on a specific power systems contract and costs
    associated with a workforce reduction. As a result, the EBIT margin
    declined to 9.4% from 9.6% a year ago. 
--  South American operations are well positioned to capture equipment and
    product support opportunities. As demand from mining and construction
    has slowed in the region, the business is focused on controlling costs
    and implementing supply chain improvement initiatives.

 
United Kingdom and Ireland 


 
--  Revenues were similar to Q3 2012 level (down 3% in functional currency -
    GBP), as lower new equipment sales and rental revenues were mostly
    offset by growth in product support and used equipment sales compared to
    last year. New equipment sales decreased by 10% in functional currency
    due to slow economic conditions and reduced market activity in mining
    compared to last year. Product support revenues rose by 3% driven by
    higher service revenues across multiple sectors. 
--  EBIT was up by 17% to $12 million (up 14% in functional currency) and
    EBIT margin improved to 5.3% from 4.6% a year ago, reflecting lower
    depreciation expense and a higher gross profit margin partly due to more
    product support in the revenue mix compared to Q3 of last year. 
--  The UK and Ireland operations continue to successfully capture value-
    added opportunities in Equipment Solutions and Power Systems during
    challenging market conditions. The operations remain focused on
    controlling costs and improving efficiencies to achieve solid financial
    performance and maintain excellent customer loyalty scores.

 
CORPORATE AND BUSINESS DEVELOPMENTS 
Dividend 
The Board of Directors has approved a quarterly dividend of $0.1525
per share, payable on December 12, 2013 to shareholders of record on
November 28, 2013. This dividend will be considered an eligible
dividend for Canadian income tax purposes. 
Finning Canada and Alberta Union reach memorandum of agreement for
new collective agreement 
On November 7, the Company announced that Finning Canada and the
International Association of Machinists and Aerospace Workers - Local
Lodge 99 (IAMAW) representing Finning's hourly employees in Alberta
and the Northwest Territories reached a memorandum of agreement on a
new three-year collective agreement. The agreement is subject to a
ratification vote by the union membership, which is expected to be
concluded in approximately one month. The union bargaining committee
is recommending that its members accept the agreement. The previous
collective agreement, governing 2,100 hourly Finning workers in
Alberta and the Northwest Territories, expired on April 30, 2013. 
Finning South America Announces Significant Contract with Codelco 
On November 12, Finning announced that its South American operation
was awarded a contract valued at US$190 million with Codelco, Chile's
state owned copper mining company. Under this contract, Finning will
supply 10 Caterpillar 797F trucks to Codelco's Ministro Hales mine in
Calama, Chile. Finning will begin delivering this equipment in 2013.
In addition, Finning has been awarded a ten-year maintenance services
contract for the trucks. 


 
SELECTED CONSOLIDATED FINANCIAL INFORMATION                                 
(C$ millions, except per share amounts)                                     
                                                                            
                  ----------------------------------------------------------
                    Three months ended Sep 30     Nine months ended Sep 30  
                  ----------------------------------------------------------
Revenue                 2013   2012(7) % change      2013   2012(7) % change
                  ---------
-------------------------------------------------
 New equipment         777.0     722.9        8   2,073.9   2,229.5      (7)
 Used equipment         91.3      63.0       45     221.2     213.5        4
 Equipment rental      103.8      96.0        8     289.7     278.5        4
 Product support       805.7     709.6       14   2,369.4   2,103.4       13
 Other                   2.4       2.2        3       6.0       5.1       16
----------------------------------------------------------------------------
Total revenue        1,780.2   1,593.7       12   4,960.2   4,830.0        3
----------------------------------------------------------------------------
Gross profit           514.3     489.9        5   1,526.2   1,443.6        6
Gross profit                                                                
 margin(3)             28.9%     30.7%              30.8%     29.9%         
SG&A                 (378.9)   (368.5)      (3) (1,152.8) (1,106.4)      (4)
SG&A as a                            
                                       
 percentage of                                                              
 revenue             (21.3)%   (23.1)%            (23.3)%   (22.9)%         
Equity earnings          2.6       2.3                9.0       7.6         
Other income                                                                
 (expenses)            (2.4)       0.1              (7.2)     (4.0)         
----------------------------------------------------------------------------
EBIT                   135.6     123.8       10     375.2     340.8       10
EBIT margin(4)          7.6%      7.8%               7.6%      7.1%         
----------------------------------------------------------------------------
Net income              86.2      81.2        6     242.3     224.2        8
----------------------------------------------------------------------------
Basic earnings per                                                          
 share (EPS)            0.50      0.47        6      1.41      1.30        8
----------------------------------------------------------------------------
                                                                            
EBITDA(1)              190.7     177.7        7     536.2     498.0        8
Free Cash                                                                   
 Flow(1)(2)            162.6    (28.8)               75.8   (282.2)         
----------------------------------------------------------------------------
                                               Sep 30, 13     Dec 31, 12    
                                               -----------------------------
Total assets                                      5,138.6       5,118.0     
Total                                                                       
 shareholders'                                                              
 equity                                           1,746.0       1,566.6     
Net debt to total                                                           
 capital(1)(5)                                      47.8%        50.0%      
Return on                                                                   
 equity(1)(6)                                       21.2%        22.8%      
----------------------------------------------------------------------------

 
To download Finning's complete Q3 2013 results in PDF, please open
the following link:
http://media3.marketwire.com/docs/FinningQ313results.pdf 
Q3 2013 RESULTS INVESTOR CALL 
The Company will hold an investor conference call on Thursday,
November 14 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 November 14 until
November 21. The pass code to access the playback recording is
4463383 f
ollowed 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
third quarter 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).  
(6) Return on equity is calculated as net income divided by the
weighted average of shareholders' equity, both for the last twelve
month period.  
(7) Prior year comparative figures have been restated to reflect the
Company's adoption of the amendments to International Accounting
Standard (IAS) 19, Employee Benefits, which became effective on
January 1, 2013.  
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 margin growth; anticipated
generation of free cash flow and its expected use; the impact of new
and revised IFRS that have been issued but are not yet effective; and
the expected target range of the Company's Debt Ratio. 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 November 13, 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.
F
actors 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; risks associated with the conduct of business in foreign
jurisdictions; 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 realize expected benefits of
acquisitions; 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, availability and benefits
from information technology and the data processed by that
technology. 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 dispositions, 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
 
 
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