VANCOUVER, British Columbia, Aug. 08, 2018 (GLOBE NEWSWIRE) -- Finning International Inc. (TSX:FTT) (“Finning” or
the “Company”) reported second quarter 2018 results today. All monetary amounts are in Canadian dollars unless otherwise stated.
Q2 2018 HIGHLIGHTS
All comparisons are to restated Q2 2017 results(1) unless indicated otherwise.
- EPS(2) of $0.48 per share was up 44% as revenues increased by 9%.
- Product support revenues were up 11% - strong activity across all regions.
- Canada’s revenues were up 15% reflecting strong market activity, and EBIT(2) margin improved by 150 basis points
to 8.5%, driven by leverage on fixed costs.
- South America’s revenues increased by 11% in functional currency, driven by 24% revenue growth in Chile.
- Invested capital turnover(3) and working capital to sales ratio(3) improved as a result of higher sales
coupled with supply chain efficiencies.
- Adjusted return on invested capital(3)(4) was 14.2%, the highest since Q2 2015.
“I am pleased with the strong earnings leverage and improved return on invested capital we delivered this quarter. We expect
positive market momentum to continue in our key regions. Significant infrastructure projects in Western Canada and the mining
recovery in Chile are expected to provide further upside in 2019. Our focus remains on growing our business in a profitable and
capital-efficient manner,” said Mr. Scott Thomson, president and CEO of Finning International.
Q2 2018 FINANCIAL SUMMARY
All comparisons are to restated Q2 2017 results(1) unless indicated otherwise. There were no significant items in Q2
2018 and Q2 2017.
|
|
|
|
Quarterly Overview
$ millions, except per share amounts |
Q2 2018 |
Q2 2017
Restated(1) |
%
change |
Revenue |
1,729 |
|
1,584 |
|
9 |
EBIT |
126 |
|
97 |
|
30 |
EBIT
margin |
7.3 |
% |
6.1 |
% |
|
EBITDA(2)(3) |
171 |
|
145 |
|
18 |
EBITDA
margin(3) |
9.9 |
% |
9.1 |
% |
|
Net income |
81 |
|
55 |
|
44 |
EPS |
0.48 |
|
0.33 |
|
44 |
Free cash
flow(3) |
(28 |
) |
(131 |
) |
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2 2018 EBIT and EBITDA by Operation
$ millions, except per share amounts |
Canada |
South
America |
UK &
Ireland |
Corporate
& Other |
Finning
Total |
EPS |
EBIT / EPS |
77 |
|
47 |
|
14 |
|
(12 |
) |
126 |
|
0.48 |
EBIT margin |
8.5 |
% |
8.5 |
% |
5.3 |
% |
- |
|
7.3 |
% |
|
EBITDA |
99 |
|
62 |
|
21 |
|
(11 |
) |
171 |
|
|
EBITDA
margin |
11.0 |
% |
11.2 |
% |
7.9 |
% |
- |
|
9.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2 2017 EBIT and EBITDA by Operation
$ millions, except per share amounts; restated(1) |
Canada
|
South
America |
UK &
Ireland |
Corporate
& Other |
Finning
Total |
EPS |
EBIT / EPS |
55 |
|
42 |
|
13 |
|
(13 |
) |
97 |
|
0.33 |
EBIT margin |
7.0 |
% |
8.1 |
% |
4.6 |
% |
- |
|
6.1 |
% |
|
EBITDA |
81 |
|
57 |
|
20 |
|
(13 |
) |
145 |
|
|
EBITDA
margin |
10.3 |
% |
11.0 |
% |
7.0 |
% |
- |
|
9.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
- Revenue was up 9%, with higher revenues in all lines of business except used equipment. New equipment sales increased by 12%,
driven mostly by higher sales in construction and mining in Canada. Product support revenues grew by 11% as a result of improved
customer activity in the Canadian construction and South American mining industries. Used equipment sales were down 19% (lower in
all regions), reflecting a tighter supply environment. Rental revenues increased by 6%.
- Gross profit increased by 10%. Gross profit margin of 26.9% was slightly ahead of 26.6% in Q2 2017 on improved margins in
rental, service, and new equipment.
- SG&A(2) costs as a percentage of revenue declined by 100 basis points from Q2 2017 to 19.9%, mostly due to
lower SG&A as a percentage of revenue in Canada. EBIT was up 30% to $126 million and EBIT margin increased by 120 basis
points to 7.3%, driven largely by improved profitability in Canada.
- EPS of $0.48 per share was up 44% from $0.33 per share in Q2 2017, reflecting higher EBIT from increased revenues in Canada
and South America and improved profitability in all operations.
- Q2 2018 free cash flow was ($28) million use of cash compared to ($131) million use of cash in Q2 2017 as a result of higher
EBITDA and improved collections.
|
|
|
|
Invested Capital(3) and ROIC(2)(3) |
Q2
2018 |
|
Q4 2017
restated(1) |
|
Q2 2017
restated(1) |
|
Invested capital
($ millions) |
|
|
|
Consolidated |
3,362 |
|
2,830 |
|
3,108 |
|
Canada |
1,840 |
|
1,621 |
|
1,764 |
|
South America (U.S.
dollars) |
890 |
|
784 |
|
807 |
|
UK & Ireland (U.K. pound sterling) |
214 |
|
147 |
|
182 |
|
Invested capital turnover (times) |
2.13 |
|
2.09 |
|
1.97 |
|
Working capital to sales ratio |
26.9 |
% |
27.4 |
% |
29.1 |
% |
Inventory turns(3) (times) |
2.57 |
|
2.82 |
|
2.52 |
|
Adjusted ROIC
(%) |
|
|
|
Consolidated |
14.2 |
|
13.1 |
|
11.1 |
|
Canada |
15.1 |
|
13.2 |
|
11.0 |
|
South America |
17.7 |
|
18.1 |
|
16.0 |
|
UK & Ireland |
13.2 |
|
12.8 |
|
13.9 |
|
|
|
|
|
|
|
|
- Excluding the impact of foreign exchange, invested capital was up 17% from Q4 2017, primarily due to higher inventory
requirements to meet stronger demand across most markets. A decrease in accounts payable balances in South America due to timing
and investment in rental equipment in Canada also contributed to higher invested capital levels compared to Q4 2017.
- Invested capital turnover and working capital to sales ratio improved from Q4 2017, driven mostly by higher sales.
- Adjusted ROIC increased by 110 basis points from Q4 2017, driven mostly by Canada, and was the highest Adjusted ROIC since Q2
2015.
Q2 2018 HIGHLIGHTS BY OPERATION
All comparisons are to restated Q2 2017 results(1) unless indicated otherwise. All numbers are in
functional currency: South America – U.S. dollar; UK & Ireland – U.K. pound sterling.
Canada
- Revenues were up 15%, reflecting strong market activity. New equipment sales increased by 29% with higher deliveries to
construction and mining customers, while used equipment sales were 16% lower due to constrained supply of used equipment. Product
support revenues were up 13%, driven primarily by stronger demand for parts in the construction sectors.
- SG&A as a percentage of revenue declined by 210 basis points, reflecting leverage of incremental revenues on fixed costs
and cost discipline. As a result, EBIT of $77 million increased by 39% and EBIT margin of 8.5% improved by 150 basis points from
Q2 2017.
South America
- Revenues were up 11%, reflecting strong growth in Chile - up 24%. Product support revenues increased by 14%, driven by
Chilean mining. New equipment sales were up 9%. Higher sales in all sectors in Chile were partly offset by lower construction
sales in Argentina due to economic uncertainty and reduced government infrastructure spending.
- EBIT increased by 16%; EBIT margin was 8.5%, up from 8.1% in Q2 2017.
United Kingdom & Ireland
- Revenues declined by 5% largely due to delayed new equipment deliveries to certain construction customers. Product support
revenues were up 2%, driven by higher parts sales, particularly in power systems.
- EBIT was up 10% and EBIT margin increased by 70 basis points to 5.3% due to improved margins in most lines of business, a
higher proportion of product support in the revenue mix, and more parts sales through lower-cost e-commerce channels.
CORPORATE AND BUSINESS DEVELOPMENTS
Dividend
The Board of Directors has approved a quarterly dividend of $0.20 per share, payable on September 6, 2018 to shareholders of record
on August 23, 2018. This dividend will be considered an eligible dividend for Canadian income tax purposes.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
|
|
|
$ millions, except per share amounts |
Three months ended June 30 |
Six months ended June 30 |
|
2018 |
2017
restated(1) |
% change
fav (unfav) |
2018
|
2017
restated(1) |
%
change
fav (unfav) |
New equipment |
623 |
|
556 |
|
12 |
|
1,207 |
|
981
|
|
23 |
|
Used equipment |
78 |
|
96 |
|
(19 |
) |
174 |
|
169
|
|
3 |
|
Equipment rental |
57 |
|
54 |
|
6 |
|
107 |
|
105
|
|
2 |
|
Product support |
968 |
|
874 |
|
11 |
|
1,904 |
|
1,723
|
|
10 |
|
Other |
3 |
|
4 |
|
|
7 |
|
7 |
|
|
Total revenue |
1,729 |
|
1,584 |
|
9 |
|
3,399 |
|
2,985 |
|
14 |
|
Gross profit |
466 |
|
422 |
|
10 |
|
906 |
|
815 |
|
11 |
|
Gross profit margin |
26.9 |
% |
26.6 |
% |
|
26.6 |
% |
27.3 |
% |
|
SG&A |
(345 |
) |
(331 |
) |
(4 |
) |
(673 |
) |
(638 |
) |
(5 |
) |
SG&A as a percentage of revenue |
(19.9 |
)% |
(20.9 |
)% |
|
(19.8 |
)% |
(21.4 |
)% |
|
Equity earnings of joint ventures & associate |
5 |
|
5 |
|
|
6 |
|
4 |
|
|
Other income |
- |
|
1 |
|
|
- |
|
2 |
|
|
EBIT |
126 |
|
97 |
|
30 |
|
239 |
|
183 |
|
31 |
|
EBIT margin |
7.3 |
% |
6.1 |
% |
|
7.0 |
% |
6.1 |
% |
|
Adjusted EBIT(3)(4) |
126 |
|
97 |
|
30 |
|
232 |
|
183 |
|
27 |
|
Adjusted EBIT margin(3)(4) |
7.3 |
% |
6.1 |
% |
|
6.8 |
% |
6.1 |
% |
|
Net income |
81 |
|
55 |
|
44 |
|
152 |
|
102 |
|
48 |
|
Basic EPS |
0.48 |
|
0.33 |
|
44 |
|
0.90 |
|
0.61 |
|
48 |
|
Adjusted EPS(3)(4) |
0.48 |
|
0.33 |
|
44 |
|
0.87 |
|
0.61 |
|
43 |
|
EBITDA |
171 |
|
145 |
|
18 |
|
328 |
|
276 |
|
19 |
|
EBITDA margin |
9.9 |
% |
9.1 |
% |
|
9.7 |
% |
9.2 |
% |
|
Adjusted EBITDA(3)(4) |
171 |
|
145 |
|
18 |
|
321 |
|
276 |
|
16 |
|
Adjusted EBITDA margin(3)(4) |
9.9 |
% |
9.1 |
% |
|
9.4 |
% |
9.2 |
% |
|
Free cash flow |
(28 |
) |
(131 |
) |
79 |
|
(291 |
) |
(207 |
) |
(41 |
) |
|
June 30, 2018
|
Dec 31,
2017
restated(1) |
|
|
|
Invested capital |
3,362 |
|
2,830 |
|
|
|
|
Invested capital turnover (times) |
2.13 |
|
2.09 |
|
|
|
|
Net debt to invested capital(3) |
37.0 |
% |
30.2 |
% |
|
|
|
ROIC |
14.3 |
% |
13.1 |
% |
|
|
|
Adjusted ROIC |
14.2 |
% |
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
To download Finning's complete Q2 2018 results in PDF, please open the following link: http://resource.globenewswire.com/Resource/Download/dc00b55b-3898-4d62-ab53-06549f2aa1f6
Q2 2018 INVESTOR CALL
The Company will hold an investor call on August 8, 2018 at 11:00 am Eastern Time. Dial-in numbers: 1-800-319-4610
(Canada and US), 1-416-915-3239 (Toronto area), 1-604-638-5340 (international). The call will be webcast live and archived for
three months at http://www.finning.com/en_CA/company/investors.html. Finning no longer provides a phone playback recording; please use
the webcast to access the archived call.
ABOUT FINNING
Finning International Inc. (TSX:FTT) is the world’s largest Caterpillar equipment dealer delivering unrivalled service to customers
for 85 years. Finning sells, rents, and provides parts and service for equipment and engines to help customers maximize
productivity. Headquartered in Vancouver, B.C., the Company operates in Western Canada, Chile, Argentina, Bolivia, the United
Kingdom and Ireland.
CONTACT INFORMATION
Mauk Breukels
Vice President, Investor Relations and Corporate Affairs
Phone: (604) 331-4934
Email: mauk.breukels@finning.com
https://www.finning.com
FOOTNOTES
(1) |
The 2017 comparative results described in this earnings release have been restated to
reflect the Company’s adoption of IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial
Instruments effective for the financial year beginning January 1, 2018. More information on the impact of this adoption
can be found in note 1 of the Company’s interim condensed consolidated financial statements. |
|
|
(2) |
Earnings Before Finance Costs and Income Taxes (EBIT); Basic Earnings per Share (EPS);
Earnings Before Finance Costs, Income Taxes, Depreciation and Amortization (EBITDA); Selling, General & Administrative Expenses
(SG&A); Return on Invested Capital (ROIC). |
|
|
(3) |
These financial metrics, referred to as “non-GAAP financial measures”, do not have a
standardized meaning under International Financial Reporting Standards (IFRS), which are also referred to herein as Generally
Accepted Accounting Principles (GAAP), and therefore may not be comparable to similar measures presented by other issuers. For
additional information regarding these financial metrics, including definitions and reconciliations from each of these non-GAAP
financial measures to their most directly comparable measure under GAAP, where available, see the heading “Description of
Non-GAAP Financial Measures and Reconciliations” in the Company’s Q2 2018 management discussion and analysis (the Interim
MD&A). Management believes that providing certain non-GAAP financial measures provides users of the Company’s consolidated
financial statements with important information regarding the operational performance and related trends of the Company's
business. By considering these measures in combination with the comparable IFRS measures set out in the Interim MD&A,
management believes that users are provided a better overall understanding of the Company's business and its financial
performance during the relevant period than if they simply considered the IFRS measures alone. |
|
|
(4) |
Certain 2018 and 2017 financial metrics were impacted by significant items management
does not consider indicative of operational and financial trends either by nature or amount; these significant items are
described on page 30-32 of the Interim MD&A. The financial metrics which have been adjusted to take into account these
items are referred to as “Adjusted” metrics. |
FORWARD-LOOKING DISCLAIMER
This news release 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 terminology such as aim, anticipate,
assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive,
target, and will, and variations of such terminology. Forward-looking statements in this report include, but are not limited to,
statements with respect to: expectations with respect to market momentum in the Company’s key regions, further upside in 2019 from
infrastructure projects in Western Canada and mining recovery in Chile; and the Company’s continuing focus on growing its business
in a profitable and capital-efficient manner. 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 reflect Finning’s expectations at the date in this
news release and the Interim MD&A. 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 ability to maintain its relationship with Caterpillar; Finning’s dependence on the continued market acceptance of its
products, including Caterpillar products, and the 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 revenue occurs; Finning’s ability to negotiate satisfactory purchase or investment terms and prices, obtain necessary
approvals, and secure financing on attractive terms or at all; Finning’s ability to manage its growth strategy effectively;
Finning’s ability to effectively price and manage long-term product support contracts with its customers; Finning’s ability to
reduce costs in response to slowing activity levels; Finning’s ability to attract sufficient skilled labour resources as market
conditions, business strategy or technologies change; 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 occurrence of one or more
natural disasters, pandemic outbreaks, geo-political events, acts of terrorism or similar disruptions; fluctuations in defined
benefit pension plan contributions and related pension expenses; the availability of insurance at commercially reasonable rates or
that the amount of insurance coverage will be adequate to cover all liability or loss incurred by Finning; the potential of
warranty claims being greater than Finning anticipates; the integrity, reliability and availability of, and benefits from
information technology and the data processed by that technology; and Finning’s ability to protect itself from cybersecurity
threats or incidents. Forward-looking statements are provided in this news release and the Interim MD&A 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 including but not limited to (i) that general economic and market conditions
will be maintained; (ii) that the level of customer confidence and spending, and the demand for, and prices of, Finning’s products
and services will be maintained; (iii) Finning’s ability to successfully execute its plans and intentions; (vi) Finning’s ability
to attract and retain skilled staff; (iv) market competition; (v) the products and technology offered by the Company’s competitors;
and (vi) that our current good relationships with Caterpillar, our suppliers, service providers and other third parties will be
maintained. Refer in particular to the “Outlook” section of the Interim MD&A for forward-looking statements. 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 current AIF and in the annual MD&A for the
financial risks.
Finning cautions readers that the risks described in the annual MD&A and 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 operation.