Finning Reports Solid Q4 and Annual 2013 Results
VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb 19, 2014) -
Finning International Inc. (TSX:FTT) -
Q4 2013 HIGHLIGHTS
- Revenues rose by 3% to $1.8 billion driven by higher parts and
service revenues.
- Earnings before finance costs and income taxes (EBIT)(1) were
$145 million compared to $148 million in Q4 of last year. Excluding
one-time items, EBIT performance improved from Q4 of last
year.
- Basic earnings per share (EPS) of $0.54 were below $0.60 in Q4
2012, reflecting lower EBIT and higher provision for income
taxes.
- Improvements in working capital(1) decreased invested
capital(1) by $204 million from Q3 2013, mainly through the
reduction of equipment inventory in all operations.
- Free cash flow(1) of $365 million was $120 million higher than
in Q4 2012, driving the ratio of net debt to invested capital(1) to
41% at the end of 2013, down from 48% at the end of September 2013
and 50% at the end of 2012.
2013 ANNUAL HIGHLIGHTS
- Revenues grew by 3% to a record $6.8 billion. Product support
revenues rose by 12%, partly attributable to the contribution from
the mining shovels and drills business.
- EBIT increased by 7% to $521 million, and EBIT margin(1) rose
to 7.7% from 7.4% in 2012 due to improved EBIT margin in
Canada.
- Basic EPS increased to a record $1.95 from $1.90 earned in
2012.
- Free cash flow was $441 million, reflecting record earnings
before finance costs, income taxes, depreciation and amortization
(EBITDA)(1), lower working capital, and lower capital expenditures
compared to 2012.
Finning International Inc. (TSX:FTT) reported quarterly revenues
of $1.8 billion, a 3% increase over Q4 2012. Higher quarterly
revenues in Canada and the UK & Ireland more than offset a
revenue decline in South America compared to Q4 2012. Quarterly
EBIT was 2% below Q4 of last year, mostly due to a $5.5 million
write-off of the previously capitalized ERP costs in the UK in Q4
2013 and a $9.7 million gain on the sale of property in Canada in
Q4 2012. Similarly, quarterly EBIT margin of 8.1% was below 8.5% in
Q4 2012. Basic EPS was $0.54 compared to $0.60 in Q4 of last year.
For the full year 2013, revenues increased by 3% to a record $6.8
billion, driven by approximately $215 million of additional revenue
from the mining shovels and drills business, along with organic
growth in product support. EBIT rose by 7% to $521 million and EBIT
margin improved to 7.7% from 7.4% in 2012, reflecting higher EBIT
margin in Canada. Net income and basic EPS were up 3% and reached
new records of $335 million and $1.95, respectively. Full year free
cash flow was strong at $441 million and net debt to invested
capital declined to 41% at the end of 2013 from 50% at the end of
2012.
"Our Q4 results were in line with our expectations. Excluding
one-time items, operating results improved year over year, as we
grew our top line and improved EBIT performance in Canada.
Importantly, we generated significant free cash flow, which enabled
us to bring our net debt to invested capital ratio down to near the
midpoint of our target range," said Scott Thomson, president and
CEO, Finning International. "Going forward, we are driving higher
return on invested capital by executing on clear and measurable
plans to advance our operational priorities: customer & market
leadership, service excellence, supply chain optimization, and
asset utilization. Our increased focus on what we can control -
costs, working capital and capital investment - gives me confidence
in our ability to grow earnings faster than revenue and markedly
improve our capital efficiency."
Q4 2013 FINANCIAL SUMMARY
$ millions, except per share amounts |
Three months ended Dec 31 |
|
2013 |
2012(2) |
% change |
Revenue |
1,796 |
1,746 |
3 |
EBIT |
145 |
148 |
(2) |
EBIT margin |
8.1% |
8.5% |
|
Net income |
93 |
103 |
(9) |
Basic EPS |
0.54 |
0.60 |
(10) |
EBITDA |
200 |
203 |
(1) |
Free cash flow |
365 |
245 |
49 |
- Revenues rose by 3% from Q4 2012 to $1.8 billion, with higher
revenues from Canada and the UK & Ireland more than offsetting
the revenue decline in South America. New equipment sales were the
highest of any quarter in 2013, but were 2% below Q4 2012 due to
lower sales volumes in South America compared to the record-setting
Q4 of last year. Product support revenues grew by 9%, driven mostly
by Canada. Used equipment sales and rental revenues were relatively
unchanged compared to Q4 of last year. A weakening Canadian dollar
had a positive impact on revenues of approximately $60 million
compared to Q4 2012.
- Gross profit increased by 6%, reflecting higher revenues and
gross profit margin compared to Q4 2012. Gross profit margin(1) was
30.9%, up from 30.0% in Q4 2012 due to a higher proportion of
product support in the revenue mix, most notably in South
America.
- Selling, general and administrative (SG&A) expenses were 5%
above Q4 2012. In Canada, higher SG&A costs reflected revenue
growth in all lines of business, as well as higher service related
costs. An increase in SG&A expenses in South America and the UK
& Ireland was due to a weaker Canadian dollar compared to Q4
2012.
- EBIT remained strong, but declined by 2% to $145 million due a
$5.5 million write-off of the previously capitalized ERP
development costs in the UK in Q4 2013 and a $9.7 million gain on
sale of property in Canada in Q4 2012, as well as higher SG&A
costs, discussed above. As a result, consolidated EBIT margin of
8.1% was below 8.5% in Q4 2012. Sequentially, EBIT margin improved
from 7.6% in Q3 2013.
- Net income declined by 9% to $93 million, mainly driven by a
higher provision for income taxes. The effective tax rate was
25.1%, up from 16.4% in Q4 2012. The higher effective tax rate in
Q4 2013 was primarily the result of foreign exchange impacts due to
the devaluation of the Argentinean peso. The effective tax rate in
Q4 2012 was unusually low due to the benefit of previously
unrecognized tax losses. Consequently, basic EPS of $0.54 was 10%
below $0.60 in Q4 2012.
$ millions |
Q4 2013 |
Q3 2013 |
Invested capital |
3,138 |
3,342 |
Return on invested capital(1) |
15.7% |
15.8% |
- Invested capital decreased by $204 million from Q3 2013, driven
by improvements in working capital, mainly through the reduction of
equipment inventory and lower accounts receivable in all
operations. During Q4, inventory levels declined by $149 million as
a result of strong equipment deliveries in all regions and
continued focus on inventory management. Return on invested capital
was similar to Q3 2013, as the invested capital calculation is
based on an average of the last four quarters.
- Strong free cash flow of $365 million in Q4 was driven by lower
working capital.
- Net debt to invested capital declined to 40.8% at the end of
2013 from 47.8% at the end of September and 50.0% at the end of
2012 and is within the Company's 35-45% target range. Net debt to
invested capital is at the lowest level since 2011, prior to the
acquisition of the former Bucyrus distribution business.
Backlog
- Q4 deliveries were higher than in any of the previous quarters
in 2013. While the order intake in Canada remained strong,
deliveries outpaced the order intake in South America and the UK
& Ireland. The order backlog(1) was $0.9 billion at the end of
December 2013, down from $1.0 billion at the end of September
2013.
Q4 2013 HIGHLIGHTS BY OPERATION
Canada
- Revenues were up 11% from a year ago, with higher revenues in
all lines of business. New equipment sales rose by 10% driven by
demand from all sectors. Product support revenues increased by 12%
and were higher across all sectors, despite challenges in the
mining product support business as commodity producers continued to
focus on cost reductions.
- EBIT was $69 million compared to $73 million in Q4 of last
year. The Q4 2012 EBIT included a $9.7 million gain on the sale of
property. As a result, EBIT margin of 7.9% was lower than 9.2% in
Q4 2012. Gross profit margin declined relative to Q4 2012,
primarily due to a higher proportion of the lower margin equipment
and parts in the sales mix. SG&A expenses were higher, largely
driven by higher service related costs.
- Invested capital declined by $228 million from the end of
September, driven by reduced equipment inventory, lower accounts
receivable, higher accounts payable and a reduction in rental
inventory.
South America
- Revenues declined by 9% (down 14% in functional currency - USD)
from the record revenues in Q4 2012; however, Q4 saw the highest
revenue of all 2013 quarters. New equipment sales were down 23% in
functional currency from an exceptionally strong Q4 of last year,
reflecting slower mining activity and reduced construction demand
in Chile and Argentina. While copper prices and production levels
remained steady, demand for equipment replacement and additional
fleets has slowed as mining customers continued to focus on
controlling costs. Product support revenue was down slightly in
functional currency compared to Q4 2012, with higher product
support in mining offset by a decline in non-mining sectors.
- EBIT of $76 million was comparable to Q4 2012 (down 6% in
functional currency) reflecting lower revenues. The EBIT margin
increased to 11.3% from 10.3% a year ago as a result of a shift in
revenue mix to higher margin product support and favourable
adjustments to certain mining service contracts. Product support
contributed 51% to total revenue compared to 44% in Q4 2012, while
new equipment sales comprised 45% vs. 50% a year ago.
- Invested capital declined by US$33 million in functional
currency from Q3 2013 driven by reduced equipment and parts
inventory due to improved inventory management. However, the
weakening Canadian dollar against the U.S. dollar resulted in a $12
million increase in invested capital in South America compared to
Q3 2013.
United Kingdom & Ireland
- Revenues increased by 14% (up 7% in functional currency - GBP),
driven by new equipment sales and product support, which grew by 6%
and 4%, respectively, in functional currency compared to Q4 of last
year.
- Gross profit margin was similar to Q4 2012, and the SG&A
costs remained flat in functional currency despite revenue growth.
EBIT of $8 million included a $5.5 million write-off of previously
capitalized ERP implementation costs, following the deferral of an
ERP system decision in the UK for 2-3 years and the resulting time
delays and uncertainties in recognizing future benefits. As a
result, EBIT margin of 3.3% was below 4.2% a year ago.
- Invested capital decreased by approximately £10 million in
functional currency and $2 million in Canadian dollars compared to
Q3 2013, primarily due to lower equipment inventory and an increase
in accounts payable.
CORPORATE AND BUSINESS DEVELOPMENTS
Dividend
The Board of Directors has approved a quarterly dividend of
$0.1525 per share, payable on March 20, 2014 to shareholders of
record on March 6, 2014. This dividend will be considered an
eligible dividend for Canadian income tax purposes.
Board of Directors appointment
On November 26, Finning announced the appointment of Kevin A.
Neveu as the newest member of the Company's Board of Directors. Mr.
Neveu is currently chief executive officer of Precision Drilling
Corporation, a Calgary-based service provider to the oil and gas
industry. Previously, he held senior management roles with National
Oilwell Varco and its predecessor companies. Mr. Neveu's
appointment is consistent the Board's strategy on director renewal
and with this appointment, Finning's Board membership will be
increased to eleven directors.
Finning Canada employees in Alberta and Northwest Territories
ratify new labour agreement
On December 6, the Company announced that the hourly employees
of its Canadian division, represented by the International
Association of Machinists and Aerospace Workers - Local 99
("IAMAW"), have voted in support of the previously announced
tentative collective agreement. The new three-year collective
agreement covers approximately 2,200 hourly-paid Finning Canada
employees in Alberta and the Northwest Territories and expires on
April 30, 2016. The new agreement provides for annual wage
increases of 3% in year one, 3.5% in year two and 3.75% in year
three.
SELECTED CONSOLIDATED FINANCIAL INFORMATION |
(C$ millions, except per share amounts) |
|
|
Three months ended Dec 31 |
Twelve months ended Dec 31 |
Revenue |
2013 |
2012(2) |
% change |
2013 |
2012(2) |
% change |
|
New equipment |
834.5 |
847.7 |
(2) |
2,908.3 |
3,077.2 |
(5) |
|
Used equipment |
82.1 |
81.9 |
0 |
303.3 |
295.4 |
3 |
|
Equipment rental |
102.2 |
101.4 |
1 |
391.9 |
379.8 |
3 |
|
Product support |
774.3 |
712.0 |
9 |
3,143.8 |
2,815.4 |
12 |
|
Other |
2.7 |
2.7 |
0 |
8.7 |
7.8 |
11 |
|
|
Total revenue |
1,795.8 |
1,745.7 |
3 |
6,756.0 |
6,575.6 |
3 |
Gross profit |
554.2 |
523.6 |
6 |
2,080.4 |
1,967.2 |
6 |
Gross profit margin |
30.9% |
30.0% |
|
30.8% |
29.9% |
|
SG&A |
(402.7) |
(384.0) |
(5) |
(1,555.5) |
(1,490.4) |
(4) |
SG&A as a percentage of revenue |
(22.4)% |
(22.0)% |
|
(23.0)% |
(22.7)% |
|
Equity earnings |
0.3 |
2.5 |
|
9.3 |
10.1 |
|
Other income (expenses) |
(6.3) |
5.6 |
|
(13.5) |
1.7 |
|
EBIT |
145.5 |
147.7 |
(2) |
520.7 |
488.6 |
7 |
EBIT margin |
8.1% |
8.5% |
|
7.7% |
7.4% |
|
Net income |
92.9 |
102.6 |
(9) |
335.3 |
326.8 |
3 |
Basic EPS |
0.54 |
0.60 |
(10) |
1.95 |
1.90 |
3 |
|
|
|
|
|
|
|
EBITDA |
200.3 |
203.0 |
(1) |
736.4 |
701.1 |
5 |
Free Cash Flow |
364.9 |
244.8 |
|
440.7 |
(37.4) |
|
|
|
|
Dec 31, 13 |
Dec 31, 12 |
Total assets |
|
|
5,057.6 |
5,118.0 |
Total shareholders' equity |
|
|
1,857.8 |
1,566.6 |
Net debt to invested capital(1) |
|
|
40.8% |
50.0% |
Return on invested capital(1) |
|
|
15.7% |
16.5% |
To download Finning's complete Q4 and annual 2013 results in
PDF, please open the following link:
http://media3.marketwire.com/docs/FTT0219.pdf
Q4 AND ANNUAL 2013 RESULTS INVESTOR CALL
The Company will hold an investor conference call on Wednesday,
February 19 at 5:30 pm Eastern Time. Dial-in numbers:
1-866-225-0198 (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 7:00 pm Eastern Time on February 19 until
February 26. The pass code to access the playback recording is
4463383 followed by the number sign.
ABOUT FINNING
Finning International Inc. (TSX:FTT) is the world's largest
Caterpillar equipment dealer delivering unrivalled service to
customers for over 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
- These financial metrics do not have a standardized meaning
under IFRS, which are also referred to herein as generally accepted
accounting principles (GAAP). Management's Discussion and Analysis
(MD&A) includes additional information regarding these
financial metrics, including definitions, under the heading
"Description of Non-GAAP and Additional GAAP Measures".
- Prior year comparative figures have been restated to reflect
the Company's adoption of the amendments to International
Accounting Standard (IAS) 19, Employee Benefits, for the
financial year beginning 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; EBIT margin; ROIC; market
share growth; expected results from service excellence action
plans; anticipated asset utilization, inventory turns and parts
service levels; and the expected target range of the Company's net
debt to invested capital 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 February 19, 2014.
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 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 Company's 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 Section 4 of the Company's Annual Information Form (AIF).
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.
Finning International Inc.Mauk BreukelsVice President, Investor
Relations and Corporate Affairs(604)
331-4934mauk.breukels@finning.comwww.finning.com
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