VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 8, 2012) - Finning International Inc. (TSX:FTT) -
Q2 2012 HIGHLIGHTS
- Revenue increased by 19% to $1.8 billion, as healthy market conditions in the second quarter drove growth in new equipment sales and record product support revenues.
- Strong results from South America and UK & Ireland contributed to record quarterly EBIT of $122 million.
- EBIT margin of 6.9% showed sequential improvement over the last three quarters, as the ERP related support and improvement costs in Canada were further reduced.
- Basic EPS of $0.47 was on par with a record setting $0.48 in Q2 2011, and included ERP related costs of approximately $0.07 per share.
- The order backlog increased to $1.7 billion from $1.6 billion at the end of March, supported by solid order intake in the second quarter.
- Reflecting stronger than expected revenue growth year to date and solid order backlog, the Company now expects its 2012 revenues, including the acquired former Bucyrus distribution business, to grow by 12% to 15% over 2011 (up from the previous guidance of 8% to 10%).
Finning International Inc. (TSX:FTT) reported second quarter revenues of $1.8 billion, a 19% increase over Q2 2011. Quarterly revenues grew in all regions and across all business lines compared to the second quarter of 2011. New equipment sales were particularly strong in Canada, while growth in product support was driven by South America. Quarterly EBIT (earnings before finance costs and income taxes) increased to $122 million. Quarterly EBIT margin of 6.9%, below 8.1% achieved in Q2 2011, showed sequential improvement over the last three quarters. Basic EPS (earnings per share) was $0.47 compared to $0.48 in Q2 2011.
"I am pleased with our strong quarterly revenues fuelled by a third consecutive quarter of record product support as well as solid new equipment sales. We reported sequential improvement in EBIT margin, and we continue to see healthy order intake levels and robust demand for product support, particularly in our resource-rich territories," said Mike Waites, president and CEO of Finning International Inc. "In light of uncertain global economic conditions, we are monitoring our end markets closely and are simply taking prudent steps to manage our inventory levels, in order to maintain a strong financial position."
"A highlight in the quarter was the successful closing of the former Bucyrus distribution businesses in the U.K. and South America, and integration is advancing ahead of plan and expectations," continued Mr. Waites. "We continue to make good progress against our priorities: driving improved EBIT margin performance, integrating the former Bucyrus business and strengthening our balance sheet. We have a strong strategy in place to drive shareholder value, and our recent appointment of Juan Carlos Villegas to chief operating officer underscores our commitment to disciplined execution."
Q2 2012 FINANCIAL SUMMARY
| C$ millions, except per share amounts (unaudited) | Three months ended Jun 30 | |||||
| 2012 | 2011 | % change | ||||
| Revenue | 1,765 | 1,481 | 19 | |||
| Earnings before finance costs and income taxes (EBIT) | 122 | 120 | 2 | |||
| Net income | 81 | 82 | (1 | ) | ||
| Basic EPS | 0.47 | 0.48 | (2 | ) | ||
| Earnings before finance costs, income taxes, depreciationand amortization (EBITDA)(1) | 177 |
160 |
11 |
|||
| Free cash flow(1)(2) | (31 | ) | (227 | ) | 86 | |
- Revenues increased by 19% from Q2 2011 to $1.8 billion, with higher revenues achieved in all regions and lines of business. New equipment sales were up 27%, driven by Canada. Product support set a new record as it grew by 13%, and was particularly strong in South America. Used equipment sales and rental revenues increased by 9% and 12% respectively.
- Gross profit was 16% higher compared to Q2 2011, however, gross profit margin declined to 28.9% from 29.7% primarily reflecting a shift in revenue mix to lower margin new equipment sales.
- Selling, general and administrative (SG&A) expenses as a percentage of revenue were 22.0% compared to 21.3% in Q2 2011. The Company continued to incur additional operating costs to support and improve the ERP system in Canada, although at a lower rate than in the prior three quarters.
- EBIT increased by 2% to a record $122 million. Strong EBIT performance in South America and UK and Ireland was partly offset by lower EBIT in Canada compared to Q2 2011. Additional operating expenses associated with the ERP support and improvement initiative negatively impacted the Company's EBIT by approximately $17 million in Q2 2012. The Company expects continued reduction in ERP related support and improvement costs for the balance of 2012. Consolidated EBIT margin was 6.9% compared to 8.1% in Q2 2011. Over the last three quarters, EBIT margin has improved sequentially, reflecting gradual progress with the ERP recovery plan.
- Net income of $81 million and basic EPS of $0.47 were marginally lower compared to the record setting results in Q2 2011. Q2 2012 results included approximately $0.03 per share of incremental profit from the former Bucyrus distribution business and approximately $0.07 per share of ERP support and improvement costs. Foreign exchange had a positive impact of $0.06 per share compared to Q2 2011.
- EBITDA was 11% higher compared to Q2 2011 and reached a new record of $177 million. Quarterly free cash flow was $31 million use of cash, compared to $227 million use of cash in Q2 2011. The Company is continuing to experience increased requirements for working capital, in particular higher inventory and accounts receivable. Given the higher than expected sales year to date and continued strong market activity, the Company now expects more working capital will be required than previously anticipated. While the Company expects to generate positive free cash flow in the last two quarters of 2012, free cash flow for the full year is expected to be essentially break-even.
- The Company's net debt to total capital ratio(5) was 52.7% compared to 47.2% at the end March and 42.0% at December 2011, reflecting higher debt levels to fund increased working capital requirements and the purchase of the former Bucyrus distribution business from Caterpillar. Going forward, net debt to total capital ratio is expected to decline from the June peak levels, but remain above the 35-45% target range in 2012. Net debt to total capital ratio is expected to return to within the target range by the end of 2013.
- Order backlog increased to $1.7 billion at June 30 from $1.6 billion at the end of March 2012. New order intake was solid in Q2 2012, and was particularly good in South America. There were no unusual order cancellations in any of the Company's operations in the second quarter.
Q2 2012 HIGHLIGHTS BY OPERATIONS
Canada
- In western Canada, machine deliveries and equipment utilization remained robust across most sectors in the second quarter, translating into higher revenues in all lines of business compared to Q2 2011. New equipment sales rose by 64% and were particularly strong in mining and heavy construction. Product support revenues grew by 5% and reached a new record. Canada's total revenue increased by 29% over Q2 2011, with a significant shift in revenue mix to new equipment sales. As a result, Canada posted a lower gross profit margin compared to Q2 2011.
- In the second quarter, the Company continued to make good progress in executing on its ERP recovery plan. ERP related support and improvement costs were reduced further as user proficiency and operating efficiency continued to improve. The Company is implementing additional system enhancements to advance the ERP system's functionality and reduce costs and working capital. The Company remains on track to gradually reduce additional ERP related support and improvement costs throughout the remainder of 2012, and expects that the remaining costs will not be material to the Company's consolidated results in the second half of 2012.
- EBIT declined by 6% to $62 million, reflecting a lower gross profit margin and higher costs related to ERP system improvement. EBIT margin of 6.6% was below 9.0% achieved in Q2 2011. The margin continued to show sequential increase from 5.2% in Q1 2012, 4.4% in Q4 2011 and a negative 0.3% in Q3 2011. Finning Canada expects gradual improvement in its EBIT margin performance in the second half of 2012, and remains committed to achieving the 9% to 10% EBIT margin target in 2013.
South America
- Second quarter revenues increased by 8% from Q2 2011, driven by record product support revenues which more than offset lower new equipment sales. In functional currency (USD), revenues grew by 3% over Q2 2011 levels. New equipment sales declined by 10% in functional currency, reflecting fewer mining deliveries in Chile and reduced construction sales in Argentina, compared to very strong volumes in Q2 2011. Product support grew by 23% in functional currency, driven by continued strength in the Chilean mining industry and high utilization of the large population of mining equipment.
- SG&A costs as a percentage of revenue were higher compared to Q2 2011, primarily reflecting a 17% increase in the work force, including the former Bucyrus employees, and expenses associated with the newly acquired Bucyrus distribution business. The Company remains focused on improving operating efficiencies and managing the cost pressures associated with the strong demand for skilled workers in a highly competitive labour market.
- EBIT rose by 16% to $56 million. In functional currency, EBIT increased by 11% to record levels. EBIT margin improved to 9.8% from 9.1% in Q2 2011, primarily reflecting a shift in revenue mix to product support and higher margins on new equipment sales. Finning South America is expected to continue operating close to its 2013 EBIT margin target of 10% to 11%.
- In Argentina, the government continues to control imports and closely manage access to foreign exchange. The Company has taken steps to ensure customer demand for parts can be met to the greatest extent possible. The reduction in business volumes in Argentina compared to 2011 is partly offset by continued strong demand in Chile, and is not expected to have a material impact on the Company's consolidated revenues and earnings in 2012.
United Kingdom and Ireland
- Second quarter revenues grew by 15% from Q2 2011. Revenues increased across all lines of business and set a new record in functional currency. New equipment sales were up 20% (up 19% in functional currency, the U.K. pound sterling) driven by higher volumes in heavy construction, power systems and mining, including sales of former Bucyrus products. Product support revenues rose by 6% (up 5% in functional currency) and continued to benefit from solid demand for large equipment rebuilds.
- EBIT increased by 15% from Q2 2011 to $15 million and quarterly EBIT margin of 6.0% was equal to Q2 of last year. Finning UK & Ireland is committed to sustaining its improved operating performance and driving towards 7% to 8% EBIT margin target in 2013 by pursuing opportunities in higher margin equipment solutions and power systems segments and by maintaining discipline on costs.
CORPORATE AND BUSINESS DEVELOPMENTS
Dividend
The Board of Directors has approved a quarterly dividend of $0.14 per share, payable on September 7, 2012 to shareholders of record on August 24, 2012. This dividend will be considered an eligible dividend for Canadian income tax purposes.
Finning issues $150 Million of Medium Term Notes
On June 13, 2012, Finning announced the issuance of medium term notes for aggregate gross proceeds of $150 million. The offering consists of $150 million 5.077% Medium Term Note Debentures due June 13, 2042, and will rank pari passu with existing senior unsecured obligations of Finning. Proceeds are expected to be used to fund the anticipated purchase from Caterpillar of the distribution and support business formerly carried on by Bucyrus International Inc. in Finning's territories in Canada. The acquisition is expected to close on or around October 1, 2012.
Executive Management Changes
On May 22, 2012, the Company announced the appointment of Juan Carlos Villegas, formerly president of Finning South America, to the newly created position of executive vice president and chief operating officer for Finning International Inc. Reporting to the CEO, Mr. Villegas will oversee and drive operational excellence across the Company's three operating units: Canada, South America, and the U.K. and Ireland; and will have a key role in increasing efficiencies and profitability. Mr. Villegas is succeeded by Marcello Marchese, who was appointed president, Finning South America on June 4, 2012.
| SELECTED CONSOLIDATED FINANCIAL INFORMATION |
| (C$millions, except per share amounts) |
| Three months ended Jun 30 | Six months ended Jun 30 | ||||||||||||
| Revenue | 2012 | 2011 | % change | 2012 | 2011 | % change | |||||||
| New equipment | 875.2 | 689.2 | 27 | 1,506.6 | 1,238.0 | 22 | |||||||
| Used equipment | 77.1 | 71.0 | 9 | 150.5 | 122.6 | 23 | |||||||
| Equipment rental | 91.3 | 81.8 | 12 | 182.5 | 160.1 | 14 | |||||||
| Product support | 718.8 | 635.7 | 13 | 1,393.8 | 1,228.2 | 13 | |||||||
| Other | 2.1 | 2.9 | (27 | ) | 2.9 | 6.3 | (54 | ) | |||||
| Total revenue | 1,764.5 | 1,480.6 | 19 | 3,236.3 | 2,755.2 | 17 | |||||||
| Gross profit | 509.2 | 440.0 | 16 | 953.7 | 837.3 | 14 | |||||||
| Gross profit margin(3) | 28.9 | % | 29.7 | % | 29.5 | % | 30.4 | % | |||||
| SG&A | (388.7 | ) | (315.8 | ) | (23 | ) | (733.9 | ) | (602.1 | ) | (22 | ) | |
| SG&A as a percentage of revenue | (22.0 | )% | (21.3 | )% | (22.7 | )% | (21.9 | )% | |||||
| Equity earnings | 3.4 | 1.0 | 5.3 | 1.8 | |||||||||
| Other expenses | (1.7 | ) | (5.6 | ) | (4.1 | ) | (10.8 | ) | |||||
| EBIT | 122.2 | 119.6 | 2 | 221.0 | 226.2 | (2 | ) | ||||||
| EBIT margin(4) | 6.9 | % | 8.1 | % | 6.8 | % | 8.2 | % | |||||
| Net income | 81.3 | 81.9 | (1 | ) | 148.3 | 153.4 | (3 | ) | |||||
| Basic earnings per share (EPS) | 0.47 | 0.48 | (2 | ) | 0.86 | 0.89 | (3 | ) | |||||
| EBITDA(1) | 177.4 | 160.1 | 11 | 324.2 | 307.6 | 5 | |||||||
| Free Cash Flow(1)(2) | (30.7 | ) | (226.8 | ) | 86 | (253.4 | ) | (383.2 | ) | 34 | |||
| Jun 30, 12 | Dec 31, 11 | ||||||||||||
| Total assets | 5,110.5 | 4,085.4 | |||||||||||
| Total shareholders' equity | 1,433.1 | 1,345.0 | |||||||||||
| Net debt to total capital(5) | 52.7 | % | 42.0 | % | |||||||||
To download Finning's complete Q2 2012 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ212results.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
Q2 2012 RESULTS INVESTOR CALL
Management will hold an investor conference call on Wednesday, August 8 at 10:30 am Eastern Time. Dial-in numbers: 1-800-769-8320 (anywhere within Canada and the U.S.) or (416) 340-8061 (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 12:00 pm Eastern Time on August 8 until August 15. 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 since 1933. 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
- 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 2nd quarter 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.
- 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).
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 Debt Ratio; the impact of new and revised IFRS that have been issued but are not yet effective; the expected timetable for completion of the proposed transaction between the Company and Caterpillar to acquire the distribution and support business formerly operated by Bucyrus in Finning's Canadian dealership territory; growth prospects for the former Bucyrus business acquired or being 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 August 8, 2012. 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 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 after that transaction closes; 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; 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.
Contact Information:
Mauk Breukels
Vice President, Investor Relations and Corporate Affairs
(604) 331-4934
mauk.breukels@finning.com
www.finning.com