VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 16, 2012) - Finning International Inc. (TSX:FTT) -
Q4 2011 HIGHLIGHTS
- Revenue increased by 35% to a record $1.8 billion, driven by highest-ever new equipment sales in each region and record product support revenues.
- Consolidated EBIT grew by 28% to $107 million, led by best-ever results from South America.
- Basic EPS rose from $0.32 in Q4 2010 to $0.41, and included costs associated with the ERP system issues in Canada of approximately $0.12 per share.
- The Company generated $281 million in free cash flow in Q4 2011, and the net debt to capital ratio was 42.0% at year end.
- Order intake was very strong, exceeding Q3 2011 by 26%. Record deliveries in each region in the fourth quarter reduced the backlog to $1.5 billion at the end of 2011 compared to $1.8 billion at the end of Q3 2011.
Finning International Inc. (TSX:FTT) reported record quarterly revenues of $1.8 billion, a 35% increase over Q4 2010. Earnings before interest and income taxes (EBIT)(1) rose by 28% to $107 million, and EBIT margin was 5.9% compared to 6.2% in Q4 2010. Basic earnings per share (EPS) was $0.41, up 28% from $0.32 in Q4 2010.
For the full year 2011, from continuing operations, Finning achieved record revenues of $5.9 billion, a 29% increase over 2010. New equipment sales grew by 50%, while product support revenues climbed by 13% to $2.4 billion, the highest level in the Company's history. Annual EBIT increased by 33% to a new record of $380 million, and EBIT margin improved to 6.4% from 6.2% in 2010. Basic EPS grew by 42% to $1.51.
"We had numerous record setting achievements in the fourth quarter, including best-ever new equipment sales and total revenues from each of our operations. Our strong finish to 2011 capped a year of considerable progress for Finning," said Mike Waites, president and CEO of Finning International. "Our robust results, together with continued strong market conditions, provide us with significant momentum heading into 2012. We look forward to capitalizing on our tremendous growth opportunities, particularly with the addition of the former Bucyrus distribution business which provides us with an unparalleled solution portfolio for mining customers that truly sets Finning apart in our marketplace."
"Our focus in 2012 is squarely on consistently delivering on our Company's great potential. Our priorities are to improve profitability in our Canadian operations, successfully integrate the former Bucyrus business, and maintain a strong balance sheet," added Mr. Waites. "We fully intend to drive operating efficiencies, deliver strong earnings growth in 2012, and achieve steady progress towards our 9-10 percent EBIT margin target in 2013."
Q4 2011 FINANCIAL SUMMARY
Beginning with Q1 2011, the Company's financial results are reported under IFRS (International Financial Reporting Standards)(2).
|C$ millions, except per share amounts (unaudited)||Three months ended Dec 31|
|Earnings before interest and income taxes (EBIT)(1)||107||84||28|
|Earnings before interest, income taxes, depreciation and amortization (EBITDA)(1)||
|Free cash flow(1)(3)||281||122||130|
- Revenues of $1.8 billion were up 35% from Q4 2010 and achieved a quarterly record. Continued robust activity in mining and heavy construction drove best-ever new equipment sales in all operations, which were up 58% from Q4 2010. Product support revenues were up 10% from Q4 of last year and also reached a new record. Used equipment sales and rental revenues increased by 42% and 26% respectively from Q4 2010.
- Gross profit was 20% higher compared to Q4 2010. Gross profit margin declined to 26.2% from 29.3% as revenue mix shifted in favour of new equipment sales in all operations. Canada experienced the most significant shift in revenue mix due to large mining deliveries in the fourth quarter. New equipment sales contributed 55% to the total revenue compared to 47% in Q4 2010, while product support comprised 36% of the total revenue compared to 43% in Q4 of last year.
- Selling, general and administrative (SG&A) expenses as a percentage of revenue declined to 20.3% from 22.2% in Q4 2010, reflecting leverage to sales levels and the Company's commitment to drive SG&A as a percentage of revenue to approximately 20%.
- EBIT was up by 28% to $107 million, and consolidated EBIT margin was 5.9% compared to 6.2% in Q4 2010. The South American and UK and Ireland operations delivered continued improvement in operating leverage and achieved a record quarterly EBIT in functional currency. This was partially offset by a lower EBIT in Canada compared to Q4 2010, which reflected a significant shift in revenue mix to lower margin new equipment sales and higher operating expenses to support a return to normal product support levels following the ERP implementation in July 2011.
- Net income increased by 27% from Q4 2010 to $71 million and basic EPS climbed by 28% to $0.41. Foreign exchange had a positive impact of $0.03 per share compared to Q4 2010.
- EBITDA, which is an indicator of a company's cash operating performance, improved by 24% to $156 million. Quarterly free cash flow was $281 million, compared to $122 million in Q4 2010. As expected, the significant cash generation in Q4 2011 was driven by higher deliveries and related collections. For the full year, free cash flow was $221 million use of cash, reflecting the higher required level of working capital in 2011 to meet strong demand for equipment and parts, as well as higher receivables and inventory in Canada due to the ERP issues. The Company is closely managing its working capital to ensure a strong balance sheet.
- The Company's net debt to total capital ratio(6) was 42.0% compared to 48.7% at the end of September 2011 reflecting strong free cash flow in Q4 2011.
- As a result of the record level of equipment deliveries in all operations in the fourth quarter, consolidated backlog was $1.5 billion at year end, compared to $1.8 billion at the end of September. New order intake remained very robust in the quarter, up 26% compared to Q3 2011, and the Company saw no unusual order cancellations in any of its operations in Q4 2011. The backlog is approximately $200 million higher compared to December 31, 2010.
Q4 2011 HIGHLIGHTS BY OPERATIONS
- Fourth quarter revenues of $991 million were at record levels, up by 52% from Q4 2010. Deliveries to mining customers and continued strong demand for new equipment in most sectors drove highest-ever new equipment sales, which more than doubled from Q4 2010. Product support revenues were up 7% over Q4 2010, and increased by 39% from the third quarter, which was impacted by the ERP system implementation issues. Canada experienced a significant shift in revenue mix to new equipment sales which comprised 54% of total revenue compared to 39% in Q4 2010. Product support accounted for 33% of the total revenue compared to 47% in the fourth quarter of last year.
- Following the implementation issues of its new ERP system in Canada in July, the Company's parts activity levels are back to near normal. The system is reliable and user proficiency has improved. The Company's focus has been on mitigating the impact on customers which has temporarily increased SG&A expenses. These additional costs are expected to progressively decline with the majority being eliminated by mid-year. The Company will continue to improve the system's functionality and efficiency by implementing selective solution enhancements and process improvements which will remove manual workarounds and other incremental costs as well as improve working capital levels.
- EBIT declined by 9% to $43 million, partly reflecting substantial shift in revenue mix to lower-margin new equipment sales. As expected, Canada incurred higher than usual costs in the fourth quarter, including freight, consulting and people expenses, as the business has been returning to normal activity levels following the disruption caused by ERP system implementation issues. As a result, EBIT margin was 4.4% compared to 7.3% in Q4 2010. Finning Canada expects gradual improvement in its EBIT margin performance in 2012 from current levels, and remains committed to achieve a 9% to 10% EBIT margin target in 2013.
- Fourth quarter revenues increased by 17% from Q4 2010 to $593 million setting a new record, as South American operations achieved best-ever new equipment sales and product support revenues. In functional currency (USD), revenues rose by 16% from Q4 2010, with new equipment sales up 19% and product support climbing 13%. Quarterly revenues were higher across all sectors and lines of business, and were particularly strong in the Chilean mining sector.
- SG&A costs as a percentage of revenue declined from Q4 2010 reflecting increased productivity of the new hires and ongoing efforts to improve operating efficiencies.
- EBIT of $56 million reached a new record and was 42% higher compared to Q4 2010 (in functional currency, EBIT increased by 40%). EBIT margin improved to 9.5% from 7.9% in Q4 2010, driven by record revenues and lower SG&A as a percentage of revenue. Finning South America delivered strong operating leverage in the fourth quarter, and remains committed to achieve its EBIT margin target of 10% to 11% in 2013.
United Kingdom and Ireland
- Quarterly revenues increased by 20% from Q4 2010 to $227 million, driven by highest-ever new equipment sales, which were up 26% from Q4 of last year, and 11% growth in product support revenues. Increased activity in the heavy construction and power systems sectors was supported by coal mining, quarrying and plant hire industries. In functional currency, revenue was at a record level, and revenue growth was similar to the Canadian dollar numbers.
- EBIT more than doubled from Q4 2010 to $15 million, which included a $6 million pension curtailment gain. Quarterly EBIT margin rose to 6.5% from 3.4% a year ago. The UK & Ireland operations delivered significantly improved profitability in 2011, and are committed to achieving 7% to 8% EBIT margin target in 2013.
CORPORATE AND BUSINESS DEVELOPMENTS
The Board of Directors approved a quarterly dividend of $0.13 per share; payable on March 16, 2012 to shareholders of record on March 2, 2012.This dividend will be considered an eligible dividend for Canadian income tax purposes.
Acquisition of Portion of Bucyrus Distribution Business from Caterpillar
On January 18, 2012, Finning and Caterpillar announced that the companies had reached an agreement for Finning to acquire from Caterpillar the distribution and support business formerly operated by Bucyrus in Finning's dealership territories in Canada, South America and the U.K. The transaction is valued at approximately USD $465 million. Finning expects to fund the transaction through the issuance of U.S. and Canadian dollar denominated term debt. The transaction is expected to be accretive to Finning's 2012 earnings.
The acquired distribution and support business, which generated about USD $600 million in revenue in 2011, includes facilities and inventory primarily in South America and Canada, as well as approximately 900 former Bucyrus employees who are expected to transition to Finning upon closing of the acquisition. Subject to customary closing conditions, it is anticipated that the transaction will close in two phases: first in the Company's operations in South America and U.K. and Ireland, and subsequently in the Canadian operations. Both closings are expected to occur in the second quarter of 2012. After closing, Finning expects to begin providing sales, service and support for former Bucyrus mining products in all of Finning's dealership territories.
Following the announcement, Standard &Poor's and Dominion Bond Rating Service confirmed Finning's credit ratings of BBB+ and A (low) respectively.
Issuance of US $200 Million of Notes in the US Private Placement Market
On January 19, 2012, Finning announced that it completed a US private placement of US $200 million aggregate principal amount of senior unsecured notes which will rank pari passu with Finning's existing senior unsecured obligations. Proceeds will be used to repay debt including outstanding commercial paper borrowings and for general corporate purposes.
Acquisition of Damar Group Ltd in the U.K.
On February 3, 2012, the Company acquired 100% of the shares of Damar Group Ltd, an engineering company specializing in the water utility sector in the U.K. The acquired business provides opportunities for Finning to increase market share in the U.K. and Ireland water industries. It also increases Finning's mechanical, electrical and civil engineering capability to deliver a wide range of projects within its target power systems markets, which is a key strategic objective of the Company's U.K. and Ireland operations. Cash consideration of £5.7 million was paid at the time of acquisition, which may be subject to customary closing adjustments. Further contingent consideration (with a possible range of £nil-£9.5 million) may be paid on an annual basis after acquisition, contingent upon the acquired business's performance over the next three years.
Finning Canada and Alberta Union Sign Memorandum of Agreement to Extend Current Contract
On February 9, 2012, Finning Canada and the IAM - Local Lodge 99 representing approximately 1,700 hourly employees in Alberta and the Northwest Territories have reached a memorandum of agreement on a one-year extension to the current collective agreement. The agreement is subject to a ratification vote by the Union membership, which is expected to be concluded within one month. The Union Committee is recommending that its members accept the agreement. The current collective agreement is set to expire on April 30, 2012.
|SELECTED CONSOLIDATED FINANCIAL INFORMATION|
|(from continuing operations unless otherwise stated, C$millions, except per share amounts)|
|Three months ended Dec 31||Twelve months ended Dec 31|
|Revenue||2011||2010||% change||2011||2010||% change|
|Gross profit margin (4)||26.2||%||29.3||%||28.5||%||30.1||%|
|SG&A as a percentage of revenue||(20.3||) %||(22.2||) %||(21.7||) %||(23.1||) %|
|EBIT margin (5)||5.9||%||6.2||%||6.4||%||6.2||%|
|Income from continuing operations||70.6||55.5||27||259.4||181.1||43|
|Loss from discontinued operations, net of tax||-||-||-||(125.0||)|
|Net income (loss)||70.6||55.5||259.4||56.1|
|Basic earnings (loss) per share (EPS)|
|from continuing operations||0.41||0.32||28||1.51||1.06||42|
|from discontinued operations||-||-||-||(0.73||)|
|Total basic earnings per share||0.41||0.32||1.51||0.33|
|Free Cash Flow* (2)( 3)||281.0||122.3||130||(220.8||)||262.5||n/m|
|Dec 31, 11||Dec 31, 10|
|Total shareholders' equity||1,345.0||1,203.0|
|Net debt to total capital(6)||42.0||%||35.3||%|
|* Free cash flow from Hewden Stuart Limited has been included in the figures for periods prior to its sale.|
To download Finning's complete Q4 and annual 2011 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ411results.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 2011 RESULTS INVESTOR CALL
Management will hold an investor conference call on Thursday, February 16 at 11:00 am Eastern Time. Dial-in numbers: 1-866-223-7781 (anywhere within Canada and the U.S.) or (416) 340-8018 (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 16 until February 23. The pass code to access the playback recording is 1052651 followed by the number sign.
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.
- 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 Measures" in the Company's management discussion and analysis that accompanies the fourth quarter consolidated financial statements.
- Beginning in 2011, the Company's results are now being prepared in accordance with International Financial Reporting Standards ("IFRS"). Finning's accounting policies have changed and the presentation, financial statement captions and terminology used in this news release and the accompanying unaudited financial statements differ from that used in all previously issued financial statements and quarterly and annual reports. The new policies have been consistently applied to all of the years presented in this news release and all prior period information has been restated or reclassified for comparative purposes unless otherwise noted. Further details on the conversion to IFRS are provided in the management's discussion and analysis section of this news release and in the notes to Finning's unaudited consolidated financial statements as at and for the quarter ended December 31, 2011.
- Free cash flow is defined as cash flow provided by (used in) operating activities less net property, plant and equipment expenditures.
- Gross profit margin is defined as gross profit as a percentage of total revenue.
- EBIT margin is defined as earnings before interest 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 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 dealership territories (the Bucyrus transaction); growth prospects for the former Bucyrus business being acquired by the Company and the competitive advantages of the business being acquired; expected future financial and operating results generated from the Bucyrus transaction; anticipated benefits and synergies of the Bucyrus transaction; the expected financing structure for the Bucyrus transaction; and the expected impact of the Bucyrus transaction 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 15, 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.