Finning International Inc.
TSX : FTT

Finning International Inc.

May 14, 2009 12:30 ET

Finning Announces First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 14, 2009) - Finning International Inc. (Finning) (TSX:FTT) -

Highlights

- Free cash flow improved significantly compared to the first quarter of 2008 from lower working capital and net rental spend

- First quarter revenues were down 5% overall from first quarter of 2008 on expected lower new equipment and rental revenues

- Higher customer support services revenues at all operations, up 16%

- Strong quarter from South American operations - higher revenues and record EBIT contribution

- Diluted earnings per share of $0.26 per share were down 35% from the first three months of 2008 due to lower revenues and costs associated with restructuring activities, as well as significant gains on sale of properties in the first quarter of 2008



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Three months ended March 31
---------------------------
$ millions, except per share data 2009 2008 Change
---------------------------
Revenue 1,364.3 1,430.2 (4.6)%
Earnings before interest and income taxes (1) 75.6 109.8 (31.1)%
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Net income 45.0 70.8 (36.4)%
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Diluted Earnings Per Share $ 0.26 $ 0.40 (35.0)%
---------------------------
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Free cash flow (1)(2) (1.8) (83.4)
---------------------------
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(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 Measure" in the Company's management discussion
and analysis that accompanies the first quarter interim consolidated
financial statements.

(2) Free cash flow is defined as cash flow provided by (used in) operating
activities less net capital expenditures.


Finning International Inc. (Finning or the Company) today reported first quarter revenue of almost $1.4 billion for 2009, a decrease of 4.6% from the first quarter of 2008. Earnings before interest and income taxes (EBIT) were $75.6 million in the first quarter of 2009, down 31.1% compared with the same period last year. First quarter net income was $45.0 million or $0.26 diluted earnings per share, a decrease of 35.0% compared with the first quarter of 2008. Lower revenues from new mobile equipment and rental contributed to the decline, partially offset by higher customer support services revenues. In response to the current economic downturn, the Company reduced its cost structure and as a result, incurred higher restructuring costs in the first quarter of 2009 compared with the same period in 2008. In addition, the results for the first quarter of 2008 included gains on the sale of certain properties.

"Clearly business conditions were dramatically different this quarter versus last year," said Mike Waites, Finning's President and CEO. "Equipment sales were down, as expected, however, customer support services revenue increased by 16% due to a growing installed base of machines from previous sales and as existing machines work longer. In addition our cost reduction initiatives began to take hold, which are expected to result in annualized cost savings of approximately $150 million."

"Our focus is to generate a significant amount of free cash flow this year," said Dave Smith, Executive VP and CFO. "We are pushing hard on working capital, reducing net rental additions, and controlling capital expenditures very carefully. The whole organization has this focus very clearly now as is evidenced by our improved first quarter free cash flow results. With this focus on cash generation, we intend to maintain our dividend levels and reduce our Debt Ratio by year end to the low end of our target range of 40-50%."

First Quarter Results

Finning's revenues in the first quarter of 2009 were almost $1.4 billion, down 4.6% from the first quarter of 2008, with lower revenues from both the Canadian and UK operations of the Company, partially offset by strong revenues from the Company's South American operations, which established record first quarter revenues. Revenue growth in South America was driven primarily by strong demand from mining customers in both new equipment and customer support services revenues. In Canada, revenues were down 10.1% from the first quarter of 2008 with lower new equipment revenues as a result of the current challenging economic conditions, offset by an increase in revenues from customer support services. In the U.K., revenues were down 19.6%, in local currency, in the first quarter of 2009 compared with the same period last year, with reduced new equipment sales and lower rental activity, partially offset by higher customer support services revenues.

Finning's global order book or backlog (the retail value of new equipment units ordered by customers for future deliveries) was $0.9 billion at the end of the first quarter of 2009, lower than the December 2008 level of $1.5 billion and the March 2008 level of $1.7 billion. Backlog was down in all operations, reflecting deliveries to customers and some cancellations. As expected, new order intake was lower than the first quarter of 2008 by approximately 55%.

Gross profit decreased 3.8% to $393.9 million in the first quarter of 2009 compared with the first quarter of 2008, reflecting lower revenues as noted above. However, quarterly gross profit margin (gross profit as a percentage of revenue) was slightly up from the prior year primarily due to the shift in revenues to higher margined customer support services revenues. Selling, general, and administrative (SG&A) costs decreased by 1.5% reflecting efficiencies and actions taken by the Company in the past 2 quarters to reduce its cost structure, responding to the global economic downturn.

Results from the first quarter of 2009 included restructuring costs of $5.8 million related to the depot and business support restructurings in the U.K. and other restructuring costs in response to the current economic downturn. In addition, costs related to the implementation of a new information technology system for the Company's global operations were $4.7 million in the quarter. In comparison, the results for the first quarter of 2008 included gains of $14.7 million on the sale of certain properties, partially offset by non-recurring costs of $5.3 million related to the integration of Collicutt.

EBIT for the quarter was $75.6 million, down 31.1% compared with EBIT of $109.8 million achieved in the first quarter of 2008.

- EBIT from Finning's Canadian reporting segment of $45.9 million in the first quarter of 2009 was 10.0% lower than the same period last year. The decrease in 2009 was primarily due to lower new equipment sales as a result of the economic downturn, primarily in the construction and conventional oil and gas sectors, and to a lesser extent the contractors who service the oil sands.

- EBIT for Finning's South American operations in the first quarter of 2009 of $46.8 million was 28.2% higher than the 2008 first quarter and was the highest quarterly EBIT ever recorded by Finning South America. The first quarter of 2009 includes the positive impact of translating U.S. dollar results with a weaker Canadian dollar, and in functional currency (the U.S. dollar), EBIT was 3.3% higher than the same period in 2008, reflecting strong volumes in new equipment sales and customer support services.

- For the UK Group, EBIT in the first quarter of 2009 decreased to a loss of $5.4 million compared to EBIT of $29.1 million in the first quarter of 2008, reflecting lower new equipment and rental revenues. The loss contributed by the rental services business was only partially offset by positive EBIT earned by the dealership. In addition, restructuring costs were incurred in the first quarter of 2009 related to the depot and business support restructurings in the U.K. The results for the first quarter of 2008 included significant gains on the sale of certain properties.

The Company's free cash flow (before dividends) for the first three months of 2009 was a use of cash of $1.8 million compared to a use of cash of $83.4 million in the prior year quarter. Management anticipates generating positive free cash flow in 2009 from disciplined working capital management and reduced net rental expenditures. This free cash flow is expected to be used for dividend payments and to reduce the Company's Debt Ratio to the lower end of management's target range.

Finning's net income for the quarter was $45.0 million compared with $70.8 million in the first quarter of 2008. Diluted Earnings Per Share (EPS) for the quarter was $0.26, down 35% compared to the 2008 diluted EPS of $0.40. Diluted EPS was positively impacted by approximately $0.12 per share from the impact of the weaker Canadian dollar compared to the prior quarter. As commodity prices (and typically the Canadian dollar) weaken, Finning's business in the mining and oil sands sectors slows. However, this is directionally offset by U.S. dollar based earnings translating into more Canadian dollars.

Important Events

- In April 2009, Finning achieved a significant milestone with the delivery of the 200th Caterpillar 797 off-highway truck in Canada. The Caterpillar 797, one of the world's largest mining trucks, was first introduced in 1999. While it took Finning (Canada) eight years of steady growth to reach the 100th truck delivery mark, it has taken only an additional two years to double the 797 fleet. The resulting large fleet of machines represents the foundation for Finning to grow its parts and service business while maximizing productivity and operating efficiency for its customers.

- In April 2009, Finning announced that it has realigned its Canadian operations and reduced its workforce by 170 positions to improve profitability and advance strategic priorities. These job cuts impact staff at locations across B.C. and Alberta. The Company expects to take a restructuring charge of approximately $4.5 million in the second quarter. Since the fourth quarter of 2008, Finning has acted quickly to respond to the current economic environment. Globally, the Company has had to take difficult but necessary steps to reduce its overall workforce by approximately 8% while reallocating resources to growing areas of the business. To further improve operating efficiencies, the Company has also implemented a number of additional cost savings initiatives. These cost reduction measures are expected to result in annual savings of approximately $150 million.

The Company also announced the realignment of executive positions to support continued good demand in the Canadian oil sands and growth in the customer support services areas of the business. Joining the Finning (Canada) operations is David Primrose as executive vice president of mining. Mr. Primrose has 20 years of experience gained across Finning's Canadian and U.K. operations, including in the oil sands and power systems, and was most recently senior vice president of corporate human resources. The Company also announced the appointment of Andy Bone as executive vice president of product support and operations for Finning (Canada). Mr. Bone who was most recently president of power systems has held several progressively senior management positions in his 29-year career with Finning. These appointments align executives with extensive operations experience to areas of continued strong demand and will support the company's successful execution of long-term strategic objectives.

Power Systems continues to be a key strategic growth area for the Company's business. Power Systems continues to be managed by in-country specialists with strategic global leadership from Mike Waites, President and CEO.

Market Outlook

The impact of the global economic slowdown continued through the first quarter of 2009 and the Company expects that challenging economic conditions will continue to impact business levels. Due to the current economic uncertainty, management's confidence in predicting future business levels is lower than in the past, particularly for the second half of 2009.

Demand for parts and service is expected to continue at good levels as a result of the large population of Caterpillar equipment operating in our territories. However, new equipment sales are anticipated to be at lower levels than in 2008. Rental revenues are also lower and the timing for a recovery in this line of business is difficult to predict.

In western Canada, the mining industry, which includes the oil sands, and the heavy construction sector remains active, although at lower levels than in 2008. Heavy construction customers are expected to benefit from significant infrastructure spending once the large government-sponsored projects commence. Equipment demand for the general construction, forestry, and conventional oil and gas industries has weakened and this situation is expected to continue at least through 2009.

In South America, demand for the Company's products and services remains good, although revenues are expected to moderate from the high levels achieved during the first quarter of 2009. In mining, demand for new equipment has softened somewhat, but product support revenues are expected to remain solid. At current copper prices, the Chilean mining industry is expected to remain healthy. Construction and power markets in Argentina and Chile are showing signs of weakening somewhat from the record levels of recent quarters.

Business conditions in the UK remain challenging. Demand for equipment and product support for power systems and coal mining continues at reasonable levels and several government supported large infrastructure projects have commenced improving activity levels in the heavy construction sector. Activity in certain specific market sectors such as waste and recycling also remains good. General construction continues to be weak and is not expected to recover soon. For Hewden, the UK equipment rental market continues to be very soft and the industry remains oversupplied and very price competitive.

In response to the slower business conditions, the Company has reacted quickly and taken measures to reduce operating costs. Finning's financial condition remains strong and the outlook for cash generation in 2009 is positive.

May 14, 2009

Common Share Dividend

The Board of Directors approved the Company's quarterly dividend at $0.11 per common share, payable on June 11, 2009, to shareholders of record on May 28, 2009. This dividend will be considered an eligible dividend for Canadian income tax purposes.



Finning International Inc.
First Quarter 2009 Results

Interim Consolidated Financial Statements

INTERIM CONSOLIDATED STATEMENTS OF INCOME

---------------------------------------------------------------------------
For three months ended March 31 2009 2008
($ thousands, except share and per share amounts) unaudited unaudited
---------------------------------------------------------------------------
Revenue
New mobile equipment $ 494,285 $ 601,940
New power and energy systems 137,959 124,100
Used equipment 92,492 94,196
Equipment rental 140,185 176,502
Customer support services 496,313 427,836
Other 3,032 5,617
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Total revenue 1,364,266 1,430,191
Cost of sales 970,375 1,020,576
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Gross profit 393,891 409,615
Selling, general, and administrative expenses 309,902 314,784
Other expenses (income) 8,435 (14,943)
---------------------------------------------------------------------------
Earnings before interest and income taxes 75,554 109,774
Finance costs 17,892 19,791
---------------------------------------------------------------------------
Income before provision for income taxes 57,662 89,983
Provision for income taxes 12,636 19,189
---------------------------------------------------------------------------
Net income $ 45,026 $ 70,794
---------------------------------------------------------------------------
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Earnings per share
Basic $ 0.26 $ 0.41
Diluted $ 0.26 $ 0.40

Weighted average number of shares outstanding
Basic 170,516,267 173,762,827
Diluted 170,860,908 175,085,850

These Interim Consolidated Financial Statements should be read in
conjunction with the Notes to the Interim Consolidated Financial Statements,
which can be found at www.sedar.com or the Company's website at
www.finning.com.


INTERIM CONSOLIDATED BALANCE SHEETS

---------------------------------------------------------------------------
March 31, December 31,
2009 2008
($ thousands) unaudited audited
---------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 104,750 $ 109,772
Accounts receivable 763,288 840,810
Service work in progress 113,366 102,607
Inventories 1,563,559 1,473,504
Other assets 241,065 288,102
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Total current assets 2,786,028 2,814,795

Finance assets 11,179 11,671
Rental equipment 930,739 987,835
Land, buildings, and equipment 491,992 470,859
Intangible assets 38,078 38,344
Goodwill 100,448 99,278
Other assets 281,086 297,593
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$ 4,639,550 $ 4,720,375
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LIABILITIES
Current liabilities
Short-term debt $ 208,417 $ 193,635
Accounts payable and accruals 1,160,729 1,316,818
Income tax payable 3,769 3,187
Current portion of long-term debt 2,629 2,643
---------------------------------------------------------------------------
Total current liabilities 1,375,544 1,516,283

Long-term debt 1,437,332 1,410,727
Long-term obligations 97,477 96,296
Future income taxes 125,620 129,965
---------------------------------------------------------------------------
Total liabilities 3,035,973 3,153,271
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SHAREHOLDERS' EQUITY
Share capital 555,418 554,966
Contributed surplus 28,002 25,441
Accumulated other comprehensive loss (169,250) (176,444)
Retained earnings 1,189,407 1,163,141
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Total shareholders' equity 1,603,577 1,567,104
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$ 4,639,550 $ 4,720,375
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These Interim Consolidated Financial Statements should be read in
conjunction with the Notes to the Interim Consolidated Financial Statements,
which can be found at www.sedar.com or the Company's website at
www.finning.com.


INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW

---------------------------------------------------------------------------
For three months ended March 31 2009 2008
($ thousands) unaudited unaudited
---------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 45,026 $ 70,794
Add items not affecting cash
Depreciation and amortization 74,361 75,784
Future income taxes (2,058) 1,896
Stock-based compensation 4,155 2,903
Gain on disposal of capital assets (2,083) (15,677)
Other 757 374
---------------------------------------------------------------------------
120,158 136,074
Changes in working capital items (105,464) (148,362)
---------------------------------------------------------------------------
Cash provided after changes in working capital items 14,694 (12,288)
Rental equipment, net of disposals 5,123 (87,840)
Equipment leased to customers, net of disposals 722 757
---------------------------------------------------------------------------
Cash flow provided by (used in) operating activities 20,539 (99,371)
---------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to capital assets (28,089) (22,446)
Proceeds on disposal of capital assets 5,783 38,371
Payments on settlement of derivatives (16,634) -
Acquisition of businesses - (136,369)
---------------------------------------------------------------------------
Cash used in investing activities (38,940) (120,444)
---------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in short-term debt 11,885 300,031
Increase (repayment) of long-term debt 16,418 (2,404)
Issue of common shares on exercise of stock options 452 420
Repurchase of common shares - (97,450)
Dividends paid (18,760) (17,263)
---------------------------------------------------------------------------
Cash provided by financing activities 9,995 183,334
---------------------------------------------------------------------------
Effect of currency translation on cash balances 3,384 1,819
---------------------------------------------------------------------------
Decrease in cash and cash equivalents (5,022) (34,662)
Cash and cash equivalents, beginning of period 109,772 61,860
---------------------------------------------------------------------------
Cash and cash equivalents, end of period $104,750 $ 27,198
---------------------------------------------------------------------------
---------------------------------------------------------------------------

These Interim Consolidated Financial Statements should be read in
conjunction with the Notes to the Interim Consolidated Financial Statements,
which can be found at www.sedar.com or the Company's website at
www.finning.com.


First Quarter Conference Call

Management will hold an investor conference call on Thursday, May 14, 2009 at 4:00 pm Eastern Time. Dial-in numbers:

1-866-898-9626 (anywhere within Canada and the U.S.)

(416) 340-2216 (for participants dialing from Toronto and overseas)

The call will be webcast live at http://www.finning.com/investors/investors.aspx and subsequently archived on the Finning website. Playback recording will be available at 1-800-408-3053 from 7:00 pm Eastern Time on May 14, 2009 until the end of business day on May 21, 2009. The passcode to access the playback recording is 7383887 followed by the number sign.

About Finning International Inc.

Finning International Inc. sells, rents, and provides customer support services for Caterpillar equipment and engines, and complementary equipment, in Western Canada (Alberta, British Columbia, the Northwest Territories and the Yukon Territory and a portion of Nunavut), the U.K. and South America (Argentina, Bolivia, Chile and Uruguay). Headquartered in Vancouver, B.C., Canada, Finning International Inc. (www.finning.com) is a widely held, publicly traded corporation, listed on the Toronto Stock Exchange (symbol FTT). Complete financial statements and Management's Discussion and Analysis can be accessed at www.finning.com.

Forward-Looking Disclaimer

This report and the Company's Management's Discussion & Analysis (MD&A), consolidated financial statements, and notes to consolidated financial statements filed separately contains statements about the Company's business outlook, objectives, plans, strategic priorities and other statements that are not historical facts. A statement we make is forward-looking when it uses what we know and expect 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, 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; the estimated annualized cost savings and anticipated restructuring charges related to actions taken by the Company in response to the economic downturn; anticipated generation of free cash flow, and its expected use; and expected target range of 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 our expectations at May 14, 2009. Except as may be required by Canadian securities laws, we do 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 our expectations expressed in or implied by such forward-looking statements and that our business outlook, objectives, plans, strategic priorities and other statements that are not historical facts may not be achieved. As a result, we 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 our forward-looking statements include: general economic and credit market conditions; foreign exchange rates; commodity prices; the level of customer confidence and spending, and the demand for, and prices of, our products and services; our dependence on the continued market acceptance of Caterpillar's products and Caterpillar's timely supply of parts and equipment; our ability to continue to implement our cost reduction initiatives while continuing to maintain customer service; the intensity of competitive activity; our ability to raise the capital we need to implement our business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock market volatility; changes in political and economic environments for operations outside Canada. 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 our 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 and the Company's MD&A, consolidated financial statements, and notes to consolidated financial statements filed separately are based on a number of assumptions that we believed were reasonable on the day we made the forward-looking statements. Refer in particular to the Market 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 2008 Annual Information Form (AIF) on pages 31-44.

We caution readers that the risks described in the AIF are not the only ones that could impact us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our business, financial condition, or results of operations.

Except as otherwise indicated by us, 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. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business.

Additional information relating to the Company, including the Company's AIF, annual report, management information circular, and other filings with Canadian securities regulators, can be found on the SEDAR (System for Electronic Disclosure and Retrieval) website at www.sedar.com.

Next Quarterly Results August 11, 2009

Finning International's second quarter results for 2009 will be released and an investor conference call will be held on August 11, 2009.

To download Finning's complete First Quarter 2009 Results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ109.pdf

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