q1 2014 investor presentation - strongco · 10 robust order book $72m at december 31, 2012 $52m at...
TRANSCRIPT
Q1 2014 INVESTOR
PRESENTATION
May 27, 2014
1
FORWARD-LOOKING STATEMENTS
Today’s discussion may contain forward-looking statements that involve assumptions and
estimates that may not be realized and other risks and uncertainties. These statements relate to
future events or future performance and reflect management’s current expectations and
assumptions which are based on information currently available to the Company’s management.
The forward-looking statements include but are not limited to: (i) the ability of the Company to
meet contractual obligations through cash flow generated from operations, (ii) the expectation
that customer support revenues will grow following the warranty period on new machine sales
and (iii) the outlook for 2014. There is significant risk that forward-looking statements will not
prove to be accurate. These statements are based on a number of assumptions, including, but
not limited to, continued demand for Strongco’s products and services. A number of factors
could cause actual events, performance or results to differ materially from the events,
performance and results discussed in the forward looking statements. The inclusion of this
information should not be regarded as a representation of the Company or any other person that
the anticipated results will be achieved and investors are cautioned not to place undue reliance
on such information. These forward-looking statements are made as of the date of this
presentation, or as otherwise stated and the Company does not assume any obligation to
update or revise them to reflect new events or circumstances.
Additional information, including the Company’s financial statements, Management Discussion
and Analysis, and Annual Information Form, may be found on SEDAR at sedar.com.
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INVESTMENT HIGHLIGHTS
Strong growth strategy
Well-positioned in diversified and growing markets
Major Capex, sales re-organization completed
Strong customer relationships
Demonstrated performance improvement and results
Globally recognized manufacturers
3
AN INDUSTRY LEADER
Major multiline mobile equipment dealer
Major brands: sales and product support
Diversified by industry, geography and product line
27 branches in Canada, 5 branches in U.S.
750 employees
TSX: SQP
4
BRAND RECOGNITION – MAJOR BRANDS
CONSTRUCTION
5
VOLVO’S LARGEST NORTH AMERICAN DEALER in 2013 FOR 5 YEARS RUNNING
LARGEST PRODUCER OF RETAIL FINANCING FOR VOLVO FINANCE
MANITOWOC CRANE “ELITE” DEALER
RECOGNIZED AS
STRONG OEM RELATIONSHIPS
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BRAND RECOGNITION – COMPLEMENTARY BRANDS
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REVENUE CATEGORIES
SALES PRODUCT SUPPORT
RENTAL
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EXTENSIVE BRANCH NETWORK
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DIVERSE END-USE MARKETS
UtilitiesForestryQuarries and Aggregates
Mining
Non-Residential Construction
Industrial Material Handling
Oil & GasResidential Constructionand Landscaping
Waste ManagementInfrastructure
10
ROBUST ORDER BOOK $72M at December 31, 2012 $52M at December 31, 2013 $61M at March 31, 2014
VALUE AND GROWTH POTENTIAL
EQUIPMENT SALES PERFORMANCE Equipment sales up 5% in 2013 Market share gains in all regions except Eastern Canada
LOWER INVENTORY LEVELS Levels decreased by $32M in 2013 and sales climbed 5% over 2012
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IMPROVING ECONOMY Modest growth forecast for 2014 in Canada & United States4
ORGANIC GROWTH INVESTMENTS IN KEY MARKETS Increased operating capacity with new and upgraded facilities
ACQUISITION OPPORTUNITIES Consolidation of equipment dealers Other related businesses
POSITIVE LONG-TERM OUTLOOK Infrastructure deficit across Canada Substantial development planned for northern Alberta, northern Ontario, northern Quebec and Labrador
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KEY REGIONS
Alberta
Resumed momentum since flooding in spring 2013
Oil Sands activity growing at more controlled pace
Long-term outlook for Alberta is positive
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ECONOMIC OUTLOOK IN ALBERTA POSITIVE
CONTINUED GROWTH IN OIL SANDS
Recent forecasts project an increase in production of oil sands operations to 5 million barrels/day by 2030 ̶ a 210% increase over 2011 levels
Total mined bitumen volumes expected to double by 2027Source: Canadian Association of Petroleum Producers
Forecasted Bitumen Volumes
0
500
1000
1500
2000
2500
3000
3500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Oil Sands Mining
Oil Sand in Situ
13
KEY REGIONS
Ontario Quebec New England
Slow, uncertain recovery
Strong pockets around large projects (e.g., mining and forestry in northern Ontario and the Pan-Am Games)
Customers continue to curtail equipment purchases unless absolutely necessary
Market for heavy equipment down close to 20% in 2013
Strongco’s unit sales down only 5% as we improved market share
Infrastructure deficit continues to grow
Near-term softness will continue due to Charbonneau Commission investigation, suspension of infrastructure spending and increased mining royalties
Acquired Chadwick-BaRoss for US$11.5M in February 2011
Small up-tick in U.S. residential housing and job creation were less noticeable in New England
Modest increase in demand for equipment overshadowedby an oversupply of equipment
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BENEFITS OF SCALE
UNIQUELY POSITIONED TO BENEFITFROM INDUSTRY CONSOLIDATION
OEM preference for larger, financially strong, professionally managed dealers
Ability to attract complementary brands
More efficient use of capital; more effective use of overhead
Improved inventory management ̶ equipment sharing, parts rationalization
Sharing of best practices
Optimum use of the most advanced computer management systems
More sophisticated sales and marketing organization
Brand recognition of Strongco
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GROWTHSTRATEGY
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GROWTH STRATEGY
ORGANIC
Increase market penetration of brands represented
Add key brands to service customers and increase throughput
Enhance market presence
Improve operations
ACQUISITION
Acquire dealerships
Focus on brands already represented
Target regions close to existing markets
17
EDMONTON VOLVO - ACHESON, ALBERTA
New branch opened March 2012
37,000-square-foot facility on 6.5 acres of land
Total capital cost: $10.7 million
Enabled significant growth in product support revenues
Improved customer support
EDMONTON CRANE
Existing Edmonton branch now dedicated to crane
Branch upgraded in 2013 – capital investment of $1.2 million
Enabled significant growth in product support revenues
Improved customer support
Regional management structure added
ORGANICGROWTH STRATEGY:
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GROWTH STRATEGY: ORGANIC
FORT MCMURRAY, ALBERTA
Direct service to the oil patch
New branch will carry Volvo and complementary brands (Manitowoc, National and Grove Crane products)
23,000-square-foot facility on 6 acres of land
Total capital cost: $18.7 million
Opened: Q1 2014
Further builds on growing presence in the province, provides higher visibility in key market
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GROWTH STRATEGY: ORGANIC
SAINT-AUGUSTIN-DE-DESMAURES, QUEBEC
New, larger facility replaces existing Ste-Foy branch
New branch to carry Volvo equipment
40,500-square-foot facility on 8 acres of land
Approximately 40 employees, including 15 expert technicians
Total capital cost: $8.9 million
Opened: Q4 2013
Betters position as a performance leader in the Quebec region
Photos: Johany Jutras
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CAPEX LARGELY COMPLETE
Major Capital Expenditures – 2011 to 2014:
– New Acheson Branch$10.7 million
– New Fort McMurray Branch$18.7 million
– New Saint-Augustin Branch$8.9 million
– Upgrade Edmonton Crane Branch$1.2 million
– Renovations Mississauga Branch$1.4 million
– New Dealer Management System (SAP)$5.7 million
No major capital expenditures planned for 2014 beyond completion of SAP implementation
$0.7 $0.3
$9.0
$5.9
$33.6
$9.0
2009 2010 2011 2012 2013 2014E
($ millions)
2009-2014
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EXPANSION OF COMPLEMENTARY BRANDS
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FINANCIAL RESULTS
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FINANCIALS
($ millions)
REVENUE 2009-2014
EARNINGS BEFORE TAXES 2009-2014($ millions)
0
20
40
60
80
100
120
140
160
2009 2010 2011 2012 2013 2014
Q1 Q2 Q3 Q4
-5
-4
-3
-2
-1
0
1
2
3
4
5
2009 2010 2011 2012 2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
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FINANCIALS
($ 000s)
EBITDA 2009-2014
EBITDA MARGIN 2009-2014(%)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2009 2010 2011 2012 2013 2014
0%
2%
4%
6%
8%
10%
12%
14%
2009 2010 2011 2012 2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
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2013 REVENUE BREAKDOWN
Other 11%
Case 7%
Manitowoc26%
EQUIPMENT SALES BY BRAND
Volvo49%
Used 7%
$133.2Product Support 27%
$31.3Equipment Rental7%
REVENUE BY CATEGORY
$321.2Equipment
Sales66%
Case 7%
Crane 26%
REVENUE BY BUSINESS UNIT
Multiline 55%
Other 26%
Case 6%
Manitowoc 9%
PARTS REVENUE BY BRAND
Volvo58%
Used 1%
($ MILLIONS)
Chadwick-BaRoss12%
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GROWTH IN RECURRING REVENUE
($ 000s)
PRODUCT SUPPORT REVENUE 2009-2014
0
5
10
15
20
25
30
35
40
2009 2010 2011 2012 2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
BALANCE SHEET STRATEGY
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Working with OEMs to achieve better inventory management and delivery processes
Focus on reducing inventory older than 12 months
Q1 Decision: One-time $1.3M reserve against aged inventory to be sold at auction
Strength in recent auction prices
More aggressive debt reduction; cash positive
Q2 Decision: Reallocate capital from real estate holdings
Proposed sale and leaseback of Fort McMurray, St. Augustin, Mississauga, Val D’Or and Moncton facilities
Gross proceeds of $47 million will be redeployed to reduce debt
Anticipated profit approximately $9 million, before taxes
Strengthened balance sheet combined with continued market share gains and earnings growth should lead to higher valuation
Longer term: pursue accretive acquisition opportunities in 2015 and beyond
Efficiently Deploy Capital
Reduce Cost of Capital
Reduce Equipment Inventory
Levels
BALANCE SHEET STRATEGY
29
FOCUS ON INVENTORY MANAGEMENT
($ millions)
EQUIPMENT INVENTORY 2010-2014
EQUIPMENT NOTES PAYABLE 2010-2014(%)
0
50
100
150
200
250
300
2010 2011 2012 2013 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
0
50
100
150
200
250
Q1 Q2 Q3 Q4
2010 2011 2012 2013 2014
Interest Free Interest Bearing
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
30
Operating line of US$3M renewable annually
Mortgage loans of US$3.1M for five branches in New England due 2017
U.S. Bank Credit
Facilities
FINANCIAL RESOURCES
Three-year committed facility to September 2015
Operating line of $30M – temporary increase to $35M until June 30, 2014
Term loans of $25M outstanding at March 31, 2014
Canadian Bank Credit
Facilities
Total lines of $300M with captive finance affiliate of OEMs and other lenders
Renewable annually
Availability of $75M at March 31, 2014
Equipment Finance Lines
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SHARE OWNERSHIP
Oakwest Corporation(Robert Beutel - Chairman)22.4%
Boeckh Investments 10.9%
Strongco Insiders 2.8%
Others56.2%
LISTED ON TSX (SQP)13.2 Million Shares Outstanding
Fidelity Management 7.7%
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SHARE PRICE
SHARE PRICE 2009 to April 30, 2014
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P/E / CCY 2014E
COMPARABLE VALUATION ANALYSIS
Source: Canaccord Genuity, ConsensusPriced as of May 8, 2014
Avg. 13.0x
20.1x
16.7x
14.1x
12.1x
10.8x
10.8x
10.0x
9.4x
0x 5x 10x 15x 20x 25x
Titan Machinery Inc
Toromont Industries Ltd
Finning International Inc
Wajax Corp
Cerf Inc
Cervus Equipment Corp
Rocky Mountain Dealership Inc
Strongco Corporation
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STRATEGIC FOCUS
Continue revenue and market share growth through enhanced presence and improved customer experience in key markets
Move beyond the “launch phase” of our new facilities and sales organization to reach the bottom line, and realize ROI
Improve inventory management to reduce ongoing debt levels and costs
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Improve operating efficiencies4
Continue to identify opportunities to accelerate growth (organic and external), to leverage Strongco’s scale and strong reputation in the marketplace5
