Download - Finning rj conference june 15, 2010 final
June 15, 2010
Raymond James Infrastructure & Construction Conference
Dave SmithEVP and CFO
Forward-Looking Information
This report 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, 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; the estimated annualized cost savings and anticipated restructuring charges related to actions taken by the Company in response to the economic downturn; expected revenue levels and EBIT growth; anticipated effective tax rate; anticipated generation of free cash flow (including projected net capital and rental expenditures), and its expected use; anticipated defined benefit plan contributions; 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 June 15, 2010. 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 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 current Annual Information Form (AIF) in Section 4. 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.
All amounts in this presentation are in Canadian dollars unless otherwise noted
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Finning International Inc. (TSX:FTT)
World’s largest Caterpillar dealer
Exclusive rights to distribute Caterpillar equipment and parts
Operate in some of the most resource- rich territories in the world
Industries served
Mining (including oil sands)
Construction
Power systems
Other: petroleum, forestry, pipelines
Market cap ~ $3.0 billion
2009 revenue = $4.7 billion
10,700 employees, including over 5,500 skilled technicians
Cannock
Vancouver
Edmonton
Fort McMurray
Santiago
Antofagasta
Finning
South
America
Finning
UK
Finning (Canada)
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Value Proposition to Customers
Solutions to drive lowest owning and operating costs
Strong customer relationships
Large installed equipment fleet
Meeting customer need for maximum equipment uptime
+ =Caterpillar Equipment
Proven Reliability
Finning Service
Unmatched Capabilities
Customer Value
First with Customers
Shaping Finning’s Future
Improving EBIT margin performance
Permanent SG&A cost reductions Operational excellence driven by productivity improvements
Generating cash for growth
Strong EBITDA from operations Focus on working capital management Strategic shift to reduced rental expenditures Maintain strong balance sheet
Investing in core competencies
Mining Power systems Product support
Delivering consistent 15% Return on Equity5
Near-Term Priorities: Canada
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Improve EBIT margin Increase service labour profitability Leverage earnings:
revenue growth + disciplined cost control
Drive operational excellence Implement new ERP system Improve supply chain efficiencies
Capture growth opportunities Oil sands – largest product support
opportunity (COE, Fort McKay) Elevate focus on training Introduce new electric drive truck
Near-Term Priorities: United Kingdom
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Improve EBIT margin
Reduce stranded costs post-Hewden
Grow heavy construction
Coal, waste & recycling, scrap & demolition
Grow advanced energy solutions
Petroleum, water & utilities, marine, renewables
Focus on profitable small machine business through various channels
Near-Term Priorities: South America
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Capture growing market opportunities in mining, construction and power systems
Continue to invest in product support growth Expand CRC and Truck Shop Integrate 500 new employees Build Training Centre Build new branches
Introduce new series trucks 795 electric drive truck Technological enhancements
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Summary
Shaping Finning’s Future Improving EBIT margin performance
Generating strong free cash flow
Consistent 15% ROE
Investing in core competencies: mining, power systems,
product support
Near-term priorities Improve EBIT margin in Canada and UK
Drive operational excellence
Capture growing market opportunities in mining, construction and power systems
Appendix
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Diversification by Industry
New Equipment Sales ($ millions)
FY 2009 = $1,985FY 2008 = $2,929
Other includes agriculture, industrial and government sectors
Petroleum3%
Forestry2%
Other7%
PowerSystems
18% Mining43%
Construction27%
Construction20%
Mining47%
Petroleum3%
Forestry1%
Other6%
PowerSystems
23%
Strong mining sales visibility into 2011 / 2012
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Diversification by Line of Business
ProductSupport
32%
Rental12%
UsedEquipment
7%
NewEquipment
49%
Driving growth in higher margin product support revenue
Total Revenue ($ millions)
FY 2009 = $4,738FY 2008 = $5,991
$2,929$1,899
$713
$432
ProductSupport
40%
Rental11%
UsedEquipment
7%
NewEquipment
42%
$1,985$1,893
$510 $338
Excludes other revenue: $12 million in 2009 and $19 million in 2008 12
Focus on Execution
2009 Commitments 2009 Achievements 2010 Targets
Reduce SG&A Expenses $200 million over 2008 $110 million in targeted
cost savings $170 million over 2008 (excluding Hewden)
Free Cash Flow Over $300 million Record free cash flow
= $494 million ~ $200 million
39% at year end Mid 30% at year end
Net Debt to Total Capital Low end of 40-50% range
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Improve Operating Leverage
EBIT Margin Targets
Canada FINSA UK
9 – 10%10 – 11% 7 – 8%*Reduced Cost Structure
Permanent SG&A cost reductions
Productivity improvements
Reduced Asset Base
Disciplined working capital management
Reduction in net rental additions
Increased Revenue
Volumes return as economy recovers
+
14* cost of capital
Increase ROIC
ROE Target = 15%
Cash Engine for Growth
Solid Free Cash Flow
Dividends
Debt reduction
Acquisitions
Strategic shift in rental spending:~$100-150M net
Strategic shift in rental spending:~$100-150M net
Disciplined capital spending~$100M per year
Disciplined capital spending~$100M per year
Strong cash flow from operationsEBITDA ~$400-600M per year
Strong cash flow from operationsEBITDA ~$400-600M per year
Enhanced focus on working capital management
Enhanced focus on working capital management
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Key Growth Opportunity: Mining
Demand for mining equipment continues to grow New mines and expansions Fleet replacement cycle Many large global customers are low cash cost
producers Strong commodity cycle
Long-term mining product support opportunities
Large machines = more parts and service
24/7 operations = heavy demands on equipment
Finning advantage: lowest “cost per ton” solution World-class mining support infrastructure Best trained people in the industry High entry barriers
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Oil Sands Mining Fleet Projections
* Includes units projected from 2010 to 2014, incremental to units at Dec 31, 2009
99%
100%
94%
89%
95%
90%
88%
1,251
72
69
214
236
310
133
217
330/340 Ton Trucks (future 795)
Total
Large Graders (16)
Ultra Large Graders (24)
Large Tractors (D8 & D9)
Ulltra Large Tractors (D11 & D10)
100 – 200 Ton Trucks (777-789)
240 Ton Trucks (793)
400 Ton Trucks (797)
752
31
85
86
155
125
91
180
1,354
73
69
228
264
326
148
246
Finning’s Market Share
Caterpillar Unitsat Dec 31, 2009Equipment Type
Total Unitsat Dec 31, 2009
Projections take into account the following projects, expansions of existing operations as well as contractor equipment: Syncrude, Suncor, Shell Albian, CNRL, Kearl
Additional CAT Units Projected 2010 to 2014*
FINSA Mining Fleet Projections
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* Caterpillar projected includes units forecast for FINSA from 2010 till 2014 which are incremental to units at December 31, 2009 Projections take into account all FINSA's projects
59%
28%
80%
65%
74%
63%
58%
54%
596
1,527
73
160
281
148
125
144
Large Mining Trucks (793 – 777)
Total
Underground
Motor Graders (24 - 14)
Track-Type Tractors (D11 – D9)
Large Wheel Dozers (854 – 824)
Large Wheel Loaders (994 – 992)
400 Ton Trucks (797)
233
758
60
65
101
75
33
191
1,028
2,586
261
200
432
200
198
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Finning’s Market Share
Caterpillar Unitsat Dec 31, 2009Equipment Type
Additional CAT Units Projected
2010 to 2014*
Total Units at Dec 31, 2009
UK Opportunities – Heavy Construction and Power Systems
Dominate coal mining
Grow 777 population to 400+ trucks
Maximize mining product support
Diversify to high growth sectors
Waste & recycling, scrap & demolition
Power Systems growth areas
Biogas-to-energy and data centres
Global engineering, procurementand construction (EPC)
Integrated managed services:marine, petroleum
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2010 Outlook - Continuing Operations
Revenues slightly below 2009
Lower new equipment sales, primarily due to Canada
Modest product support growth in all operations
Expected EBIT improvement in second half of the year
EBIT expected to be roughly flat to 2009
EBIT margin to improve modestly in 2010 on lower revenue levels
Recovery is gaining momentum in all regions, led by mining
Signs of improvement in non-mining sectors
Q1 2010 Highlights
Q1 results in line with expectations
Product support revenues increased in all operations in local currency Strong product support growth in mining Improving activity in non-mining sectors
On track to achieve targeted cost reductions of $170 million (adjusted for Hewden)
Strong free cash flow of $99 million. Expected to moderate for the next two quarters. On track for ~ $200 million in FCF for 2010.
Order intake increased from Q4/09 driven by mining. Backlog of $900 million is 60% higher than at Dec 31, 2009
Quarterly dividend raised to $0.12 per share from $0.11 per share
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Q1 2010 Results
C$ millions Q1 2010 Q1 2009 Q1-10/Q1-09 Q4 2009 Q1-10/Q4-09
Revenue 1,028 1,364 (25%) 1,135 (9%)
Gross profit 305 384 (20%) 301 1%
GP margin 29.7% 28.1% 26.5%
SG&A (262) (300) 13% (261) 0%
Other income (expenses) (6) (8) (10)
EBIT 37 76 (51%) 30 24%
EBIT margin 3.6% 5.5% 2.6%
Net Income 20 45 (55%) 16 23%
Diluted EPS 0.12 0.26 (54%) 0.10 20%
EBITDA 95 150 (37%) 89 6%
New equipment sales down 45% from Q1/09, down 26% from Q4/09
Product support revenues flat year over year, up 5% from Q4/09
FX negative impact of $0.08 per share compared to Q1/09 due to stronger Canadian dollar
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