Finning Reports Q4 and Annual 2019 Results

Nachrichtenquelle: globenewswire
12.02.2020, 15:00  |  122   |   |   

VANCOUVER, British Columbia, Feb. 12, 2020 (GLOBE NEWSWIRE) -- Finning International Inc. (TSX: FTT) (“Finning” or the “Company”) reported fourth quarter and annual 2019 results today. All monetary amounts are in Canadian dollars unless otherwise stated.

HIGHLIGHTS
All comparisons are to Q4 and annual 2018 results unless indicated otherwise.

  • Q4 2019 EBIT(2) and EBITDA(2)(3) increased by 6% and 21% respectively from Q4 2018 despite lower consolidated revenue and the impact of the social unrest in Chile. 

  • Q4 2019 EPS(2) was $0.31. The Company estimates that the social unrest in Chile and subsequent devaluation of the Chilean peso reduced Q4 2019 EPS by approximately $0.05. Q4 2019 product support revenue in South America was up 36% over Q4 2018.

  • Canada delivered record revenue for the full year 2019. Reported EBIT as a percentage of net revenue(1)(3) was 7.5%. Adjusted EBIT as a percentage of net revenue(3)(4) of 8.0% was the highest since 2007.

  • The UK and Ireland maintained profitability in 2019 while managing through political and economic uncertainty related to Brexit.

  • Annual free cash flow(3) was $42 million. Q4 2019 free cash flow was strong at $386 million, with a $225 million reduction in inventory.

“We are pleased with 2019 results in Canada and the UK & Ireland which demonstrate improved execution, stable gross profit margins, disciplined cost management, and market share gains. However, a difficult year in South America resulted in flat consolidated earnings per share year over year,” said Scott Thomson, president and chief executive officer of Finning.

“In 2020, we expect to benefit from several profitability drivers, including improved execution in South America, a lower cost base in Canada, and reduced finance costs. We expect to generate strong free cash flow in 2020, driven by inventory reductions, lower working capital requirements, and continued improvements in our supply chain. We will prioritize maintaining our strong balance sheet and returning capital to shareholders through dividends and share repurchases,” concluded Mr. Thomson.

Q4 2019 FINANCIAL SUMMARY
All comparisons are to Q4 2018 results unless indicated otherwise.

Quarterly Overview
$ millions, except per share amounts
Q4 2019 Q4 2018 % change
Revenue 1,911   1,842   4  
Net revenue(3) 1,757   1,842   (5 )
EBIT 97   91   6  
EBIT as a percentage of net revenue   5.5 %   4.9 %  
EBITDA 170   140   21  
EBITDA as a percentage of net revenue(3)   9.7 %   7.6 %  
Net income 50   55   (10 )
EPS   0.31     0.33      (8 )
Free cash flow 386   418      (7 )
             


Q4 2019 EBITDA and EBIT by Operation
$ millions, except per share amounts
Canada South America UK &
Ireland
Corporate
& Other
Finning Total EPS
EBITDA / EPS 114 51 15 (10) 170 0.31
EBIT 72 31 5 (11) 97  
EBITDA as a percentage of net revenue 11.8% 10.0% 5.4% - 9.7%  
EBIT as a percentage of net revenue 7.4% 6.0% 1.9% - 5.5%  
             


Q4 2018 EBITDA and EBIT by Operation
$ millions, except per share amounts
Canada South America UK &
Ireland
Corporate
& Other
Finning Total EPS
EBITDA / EPS 97  29  18  (4) 140  0.33
EBIT 71  12  12  (4) 91   
EBITDA as a percentage of net revenue 9.7% 5.8% 5.7% -  7.6%  
EBIT as a percentage of net revenue 7.1% 2.5% 3.7% -  4.9%  
             
  • Fourth quarter 2019 revenue was up 4%. Net revenue was down 5% mostly due to lower new equipment sales. New equipment sales declined by 21% and were down in all regions reflecting reduced market activity. Product support revenue was up 11%, driven by the recovery of product support volumes in South America since the launch of the ERP(2) system in Q4 2018.

  • Gross profit increased by 4% and gross profit as a percentage of net revenue(3) increased by 190 basis points to 24.3%, driven primarily by a shift in revenue mix to product support.

  • SG&A(2) increased by 3% mainly due to lower long-term incentive plan costs in Q4 2018 as well as additional costs from 4Refuel in 2019.

  • EBITDA increased by $30 million, driven by higher EBITDA in South America and the positive impact of the adoption of IFRS 16, Leases of approximately $20 million.

  • EPS was $0.31 compared to $0.33 in Q4 2018. Q4 2019 EPS was positively impacted by improved profitability in South America driven by product support growth offset by approximately $0.05 per share estimated negative impact from social unrest in Chile, $10 million higher finance costs, as well as higher long-term incentive plan costs.

  • Free cash flow was strong at $386 million compared to $418 million in Q4 2018.
Invested Capital(3) and ROIC(2)(3)  Q4 2019  Q4 2018  Q3 2019
Invested capital ($ millions)      
Consolidated   3,591     3,163     3,907  
Canada   2,026     1,675     2,209  
South America (US dollars)   918     872     964  
UK & Ireland (UK pound sterling)   210     193     256  
Invested capital turnover(3) (times)   1.92     2.12     1.99  
Working capital(3) to net revenue ratio(3)   27.8 %   26.6 %   26.9 %
Inventory turns (dealership)(3) (times)   2.53     2.68     2.49  
Adjusted ROIC(3)(4) (%)      
Consolidated   12.0     13.5     12.2  
Canada   14.4     16.2     15.0  
South America   10.5     12.2     9.0  
UK & Ireland   12.1     14.2     14.1  
             
  • An increase in invested capital from Q4 2018 was driven mainly by the acquisition of 4Refuel ($241 million purchase price) and a decline in deferred revenues in Canada and UK & Ireland. 

  • A decrease in invested capital from Q3 2019 was driven primarily by a $225 million reduction in inventory, including lower new equipment inventories in Canada and the UK & Ireland and lower parts inventory in South America.

Q4 2019 HIGHLIGHTS BY OPERATION
All comparisons are to Q4 2018 results unless indicated otherwise. All numbers are in functional currency: South America – US dollar; UK & Ireland – UK pound sterling (GBP).

Canada

  • Net revenue decreased by 4% mostly due to slower customer activity in coal mining, construction and forestry. New and used equipment sales were down 8% and 22%, respectively, reflecting soft equipment markets across western Canada. Product support revenue was 2% below Q4 2018 which benefited from higher service revenue related to a large scale dragline maintenance project during that period.

  • EBITDA increased by $17 million primarily due to the benefit of the adoption of IFRS 16.

South America

  • Net revenue was up 2% as higher product support revenue was largely offset by lower new equipment sales. A 36% increase in product support revenue was driven by the recovery of parts volumes in Chilean mining since the launch of the ERP system in Q4 2018. New equipment sales were down 40% mostly due to disruptions and market slowdown in Q4 2019 related to the social unrest in Chile and significant deliveries of large mining equipment in Q4 2018. The social unrest in October 2019 and subsequent devaluation of the Chilean peso led to GDP contraction, increased uncertainty across all sectors, and a significant decline in customer activity in Chile in Q4 2019.

  • An increase in EBITDA and EBITDA as a percentage of net revenue compared to Q4 2018 was driven by significantly higher product support revenue.

United Kingdom & Ireland

  • Net revenue decreased by 17% primarily due to lower new equipment sales. A 24% decline in new equipment sales was predominantly driven by power systems due to the timing of project deliveries to the electricity capacity market, which were particularly strong in the second half of 2018. Construction revenues were slightly below Q4 2018 as equipment markets softened, reflecting continued uncertainty related to Brexit and slower economic growth in the UK in Q4 2019. Product support revenue decreased by 2%.

  • A decline in EBITDA and EBITDA as a percentage of net revenue from Q4 2018 was driven primarily by lower revenue across most lines of business, consistent with the reduction in market activity in Q4 2019.

CORPORATE AND BUSINESS DEVELOPMENTS

Dividend
The Board of Directors has approved a quarterly dividend of $0.205 per share, payable on March 12, 2020 to shareholders of record on February 27, 2020. 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 Dec 31 Twelve months ended Dec 31
    2019     2018   % change
fav (unfav)
  2019     2018   % change
fav (unfav)
New equipment 649   822   (21 ) 2,776   2,740   1  
Used equipment 99   119   (17 ) 361   371   (3 )
Equipment rental 55   64   (14 ) 246   239   3  
Product support 922   834   11   3,793   3,632   4  
Net revenue from 4Refuel 30   -     108   -      
Other revenue 2   3       14      
Net revenue 1,757   1,842   (5 ) 7,290   6,996   4  
Gross profit 428   413   4   1,799   1,768   2  
Gross profit as a percentage of net revenue   24.3 %   22.4 %   24.7 % 25.3 %  
SG&A (334 ) (324 ) (3 ) (1,360 ) (1,327 ) (2 )
SG&A as a percentage of net revenue(3)   (19.0 )%   (17.6 )%   (18.7 )% (19.0 )%  
Equity earnings of joint ventures & associate 3   2     15   12    
Other expenses -   -     (29 ) (30 )  
EBIT 97   91   6   425   423   0  
EBIT as a percentage of net revenue   5.5 %   4.9 %   5.8 % 6.0 %  
Adjusted EBIT(3)(4) 97   91   6   457   446   2  
Adjusted EBIT as a percentage of net revenue   5.5 %   4.9 %   6.3 % 6.4 %  
Net income 50   55   (10 ) 242   232   4  
Basic EPS   0.31     0.33   (8 ) 1.48   1.38   7  
Adjusted EPS(3)(4)   0.31     0.33   (8 ) 1.65   1.65   0  
EBITDA 170   140   21   718   610   18  
EBITDA as a percentage of net revenue   9.7 %   7.6 %   9.9 % 8.7 %  
Adjusted EBITDA(3)(4)   170     140   21   750   633   19  
Adjusted EBITDA as a percentage of net revenue(3)(4)   9.7 %   7.6 %   10.3 % 9.0 %  
Free cash flow 386   418   (7 ) 42   78   (46 )
  Dec 31, 2019 Dec 31, 2018          
Invested capital 3,591   3,163            
Invested capital turnover (times) 1.92   2.12            
Net debt to Adjusted EBITDA ratio(3)(4) 2.0   1.7            
ROIC 11.2 % 12.8 %          
Adjusted ROIC 12.0 % 13.5 %          
                   






To access Finning's complete Q4 and annual 2019 results in PDF, please visit our website at https://www.finning.com/en_CA/company/investors.html

Q4 2019 INVESTOR CALL
The Company will hold an investor call on February 12, 2020 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 https://www.finning.com/en_CA/company/investors.html.

ABOUT FINNING
Finning International Inc. (TSX: FTT) is the world’s largest Caterpillar equipment dealer delivering unrivalled service to customers for 87 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
Amanda Hobson
Senior Vice President, Investor Relations and Treasury
Phone: 604-331-4865
Email: amanda.hobson@finning.com
https://www.finning.com

FOOTNOTES

  1. Following the acquisition of 4Refuel, management views total revenue less cost of fuel (net revenue) as more representative in assessing the performance of the business as the cost of fuel is fully passed through to the customer and is not in the Company’s control. The Company’s results and non-GAAP financial measures, including key performance indicators and ratios, previously reported or calculated using total revenue or sales are now reported or calculated using net revenue. For 2018 results of all operations, net revenue is the same as total revenue. For 2019 results of the Company’s South American and UK & Ireland operations net revenue is the same as total revenue.

  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); Enterprise Resource Planning (ERP).

  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 2019 management discussion and analysis (MD&A). Management believes that providing certain non-GAAP financial measures provides users of the Company’s MD&A and 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 financial measures (where available) set out in the 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 financial measures alone.

  4. Certain 2019 and 2018 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 pages 5, 6 and 39-42 of the MD&A. The financial metrics that have been adjusted to take into account these items are referred to as “Adjusted” metrics.

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 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: the expected benefits from profitability drivers, including improved execution in South America, a lower cost base in Canada and reduced finance costs; strong free cash flow generation in 2020, driven by inventory reductions, lower working capital requirements, and continued improvements in the Company’s supply chain; prioritization of maintaining a strong balance sheet and returning capital to shareholders through dividends and share repurchases; and the Canadian income tax treatment of the quarterly dividend. 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 report. 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 a number of 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 and economic and market conditions in the regions in which Finning operates; 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 sustainably reduce costs and 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 regulatory or other 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 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 including but not limited to (i) that the Company will be able to maintain improved execution in South America and a lower cost base in Canada, reduce its finance costs, reduce its inventory, lower its working capital requirements, continue to improve its supply chain and maintain a strong balance sheet while returning capital to shareholders; (ii) that general economic and market conditions will be maintained; (iii) that the level of customer confidence and spending, and the demand for, and prices of, Finning’s products and services will be maintained; (iv) Finning’s ability to successfully execute its plans and intentions; (v) Finning’s ability to attract and retain skilled staff; (vi) market competition; (vii) the products and technology offered by the Company’s competitors; and (viii) that our current good relationships with Caterpillar, our suppliers, service providers and other third parties will be maintained. 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 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.

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