VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb 13, 2013) - Finning International Inc. (FTT.TO) -
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 (unaudited)||Three months ended Dec 31|
|Earnings before finance costs and income taxes (EBIT)||150||107||40|
|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
- 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.
- 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
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 Dec 31||Twelve months ended Dec 31|
|Revenue||2012||2011||% change||2012||2011||% change|
|Gross profit margin(3)||29.3%||26.2%||29.7%||28.5%|
|SG&A as a percentage of revenue||(21.5)%||(20.3)%||(22.4)%||(21.7)%|
|Other income (expenses)||7.8||(3.2)||4.7||(27.4)|
|Basic earnings per share (EPS)||0.61||0.41||49||1.96||1.51||30|
|Free Cash Flow(1)(2)||244.8||280.7||(13)||(37.4)||(220.8)||83|
|Dec 31, 12||Dec 31, 11|
|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 or 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.
Finning International Inc. (FTT.TO) 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.
- 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.
- 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.
- Gross profit margin is defined as gross profit as a percentage of total revenue.
- EBIT margin is defined as earnings before finance costs and income taxes as a percentage of total revenue.
- 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).
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 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.