Finning International Inc. (TSX: FTT) (“Finning”, “the Company”,
“we”, “our” or “us”) reported third quarter 2021 results today. All
monetary amounts are in Canadian dollars unless otherwise stated.
HIGHLIGHTSAll comparisons are to Q3 2020
results unless indicated otherwise.
- Q3 2021 EPS(1) of $0.61 per share was a record third quarter
EPS performance.
- Q3 2021 revenue of $1.9 billion and net revenue(2) of $1.7
billion were up 23% and 21%, respectively, from Q3 2020, driven by
stronger new equipment sales in South America and the UK &
Ireland and product support revenue growth in all regions.
- Q3 2021 SG&A(1) as a percentage of net revenue(2) was
17.8%, down 230 basis points from Q3 2020, and down 50 basis points
from Q2 2021, reflecting savings from our 2020 cost reduction
program and ongoing initiatives to further reduce fixed costs.
- All regions delivered improved operating leverage in Q3 2021,
with consolidated EBIT(1) as a percentage of net revenue(2) of
8.6%, up 160 basis points compared to Adjusted EBIT as a percentage
of net revenue(2)(3) in Q3 2020. Q3 2021 EBIT as a percentage of
net revenue was 10.4% in Canada, 9.2% in South America, and 5.6% in
the UK & Ireland.
- Adjusted ROIC(1)(2)(3) of 14.7% was up 510 basis points from Q4
2020, with a significant increase in all regions. In South America,
Adjusted ROIC of 19.0% was the highest since 2012.
- Strong free cash flow(2) conversion in Q3 2021 resulted in free
cash flow of $176 million, bringing year-to-date free cash flow to
$152 million. Our net debt to Adjusted EBITDA(1) ratio (2)(3) was
1.3 at September 30, 2021, down from 1.4 at December 31, 2020.
- Consolidated equipment backlog(2) was $1.6 billion at September
30, 2021, up from $1.4 billion at June 30, 2021, driven by
increases in the UK & Ireland and Canada.
“Our global team continues to successfully execute on our
strategic plan to grow product support, reduce costs, and re-invest
free cash flow to compound our earnings. Strong operating leverage
drove a record third quarter EPS, and we now expect to achieve our
mid-cycle EPS and ROIC(2) targets ahead of schedule. We are working
closely with our customers to meet their equipment needs in an
environment of increasingly constrained supply. We have been
proactively managing our inventory, increasing it by $150 million
year to date, sourcing used equipment, and offering equipment
rebuilds and rental options. Our revenue outlook remains positive,
supported by our healthy backlog and strong market conditions, and
we continue to expect the mid-cycle environment to transition to
up-cycle in 2022,” said Scott Thomson, president and CEO of Finning
International.
“As part of our growth strategy, we are expanding our 4Refuel
capabilities to support our customers in their transition to
low-carbon fuels, including CNG(1), RNG(1), and hydrogen. Natural
gas, hydrogen, and electrification are becoming an increasingly
important aspect of our business as our customers are progressing
towards their long-term goals of achieving net zero greenhouse gas
emissions. With Caterpillar accelerating the development of
battery-powered mining equipment as well as natural gas blending
and fully hydrogen-capable power solutions, we are excited about
future opportunities to help our customers meet their goals and
utilize sustainable energy sources. In 2022, we will start using
natural gas to power a portion of 4Refuel and Finning service
vehicle fleets, which will help us achieve our own greenhouse gas
emission reduction target set out in our Sustainability Report,”
concluded Mr. Thomson.
Q3 2021 FINANCIAL SUMMARY
Quarterly Overview $ millions, except per share
amounts |
Q3 2021 |
|
Q3 2020 |
|
% change |
|
Revenue |
1,904 |
|
1,553 |
|
23 |
|
Net revenue |
1,748 |
|
1,443 |
|
21 |
|
EBIT |
150 |
|
138 |
|
9 |
|
EBIT as a percentage of net revenue |
8.6 |
% |
9.6 |
% |
|
EBITDA(2) |
230 |
|
215 |
|
7 |
|
EBITDA as a percentage of net revenue(2) |
13.2 |
% |
14.9 |
% |
|
Net income attributable to owners of Finning |
99 |
|
88 |
|
12 |
|
EPS |
0.61 |
|
0.54 |
|
13 |
|
Free cash flow |
176 |
|
316 |
|
(44 |
) |
Q3 2021 EBIT and EBITDA by Operation $ millions,
except per share amounts |
Canada |
|
South America |
|
UK & Ireland |
|
Corporate & Other |
|
Finning Total |
|
EPS |
|
EBIT / EPS |
84 |
|
58 |
|
17 |
|
(9 |
) |
150 |
|
0.61 |
|
EBIT as a percentage of net revenue |
10.4 |
% |
9.2 |
% |
5.6 |
% |
n/m(1) |
|
8.6 |
% |
|
|
EBITDA |
132 |
|
80 |
|
27 |
|
(9 |
) |
230 |
|
|
EBITDA as a percentage of net revenue |
16.5 |
% |
12.5 |
% |
9.0 |
% |
n/m |
|
13.2 |
% |
|
|
Q3 2020 EBIT and EBITDA by Operation $ millions,
except per share amounts |
Canada |
|
South America |
|
UK & Ireland |
|
Corporate & Other |
|
Finning Total |
|
EPS |
|
EBIT / EPS |
93 |
|
40 |
|
9 |
|
(4 |
) |
138 |
|
0.54 |
|
CEWS support |
(35 |
) |
- |
|
- |
|
(2 |
) |
(37 |
) |
(0.17 |
) |
Adjusted EBIT(2)(3) / Adjusted EPS(2)(3) |
58 |
|
40 |
|
9 |
|
(6 |
) |
101 |
|
0.37 |
|
Adjusted EBIT as a percentage of net revenue |
8.1 |
% |
8.2 |
% |
4.1 |
% |
n/m |
|
7.0 |
% |
|
|
Adjusted EBITDA(2)(3) |
106 |
|
59 |
|
18 |
|
(5 |
) |
178 |
|
|
|
Adjusted EBITDA as a percentage of net revenue(2)(3) |
14.6 |
% |
12.2 |
% |
7.9 |
% |
n/m |
|
12.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3 2021 INVESTED CAPITAL(2) AND ROIC
SUMMARYAll comparisons are to Q4 2020 results unless
indicated otherwise.
- Excluding the
impact of foreign exchange, invested capital increased by $272
million from December 31, 2020 driven primarily by higher
inventory, proactively ordered and sourced to meet growing customer
demand.
- While our inventory
increased by 10% from Q4 2020, our inventory turns(2) improved to
3.09 from 2.79 in Q4 2020. Working capital to net revenue ratio(2)
of 23.0% was at a historical low level, down by 530 basis points
from Q4 2020, reflecting improved supply chain efficiencies.
- Adjusted ROIC of
14.7% was up 510 basis points from Q4 2020 with a significant
increase in all regions driven by improved profitability and higher
invested capital turnover(2).
Invested Capital and ROIC |
Q3 2021 |
|
Q4 2020 |
|
Invested capital ($ millions) |
|
|
Consolidated |
3,335 |
|
3,067 |
|
Canada |
1,922 |
|
1,819 |
|
South America (US dollars) |
829 |
|
731 |
|
UK & Ireland (UK pound sterling) |
198 |
|
188 |
|
Invested capital turnover (times) |
2.01 |
|
1.68 |
|
Working capital to net revenue ratio |
23.0 |
% |
28.3 |
% |
Inventory ($ millions) |
1,627 |
|
1,477 |
|
Inventory turns (dealership) (times) |
3.09 |
|
2.79 |
|
Adjusted ROIC (%) |
|
|
Consolidated |
14.7 |
|
9.6 |
|
Canada |
15.3 |
|
10.5 |
|
South America |
19.0 |
|
12.9 |
|
UK & Ireland |
14.9 |
|
5.5 |
|
|
|
|
|
|
Q3 2021 HIGHLIGHTS BY OPERATION All comparisons
are to Q3 2020 results unless indicated otherwise. All numbers are
in functional currency: Canada – Canadian dollar; South America –
US dollar; UK & Ireland – UK pound sterling (GBP).
Canada
- Net revenue
increased by 11% from Q3 2020, driven primarily by higher product
support revenue, as well as strong used equipment sales and rental
revenue.
- Product support
revenue was up 12% from Q3 2020, higher across all sectors.
Construction product support revenue was up 16%, driven by a
growing market share, including a significant increase in
construction rebuilds.
- Used equipment
sales were up 35% and rental revenue was up 27% from Q3 2020 with
higher used equipment sales to mining customers and stronger demand
for used and rental equipment in construction. We are proactively
sourcing used equipment to meet customer needs in a constrained
supply environment.
- New equipment sales
were down 3% from Q3 2020 due to lower mining deliveries. New
equipment sales in construction were up 13%.
- Improved gross
profit margin and higher rental utilization, combined with lower
SG&A as a percentage of net revenue, resulted in a
significantly higher profitability. Q3 2021 EBIT as a percentage of
net revenue was 10.4%, up 230 basis points from Adjusted EBIT as a
percentage of net revenue in Q3 2020.
South America
- Net revenue was up
41% from Q3 2020 reflecting stronger market activity in Chile.
- New equipment sales
were up 126% from Q3 2020, driven by deliveries to Chilean mining
customers and improved demand for construction equipment to support
mining infrastructure and general construction projects.
- Product support
revenue increased by 16% year over year, up across all sectors.
Construction product support revenues increased in both Chile and
Argentina, with improved economic conditions.
- SG&A was up 6%
from Q3 2020 on a 41% increase in net revenues. EBIT as a
percentage of net revenue was 9.2%, up 100 basis points year over
year, largely due to the benefit of a lower cost base and improved
operating efficiencies.
United Kingdom & Ireland
- Net revenue increased by 28% from Q3 2020, driven by equipment
deliveries to HS2 customers and stronger product support activity
in all sectors. New equipment sales were up 45% and product support
revenue was up 8% from Q3 2020.
- EBIT as a percentage of net revenue was 5.6% demonstrating
operating leverage on strong revenue growth and improved gross
profit margins.
Q3 2021 MARKET UPDATE AND BUSINESS OUTLOOKThe
discussion of our expectations relating to the market and business
outlook in this section is forward-looking information that is
based upon the assumptions and subject to the material risks
discussed under the heading “Forward-Looking Information Caution”
at the end of this news release. Actual outcomes and results may
vary significantly.
Canada
The federal and provincial governments’ fiscal stimulus programs
are expected to continue supporting construction activity. We are
seeing robust demand for construction equipment with many projects
underway in Western Canada. Significant private sector investment
in LNG and power projects is expected to drive demand for
equipment, product support, heavy rentals, and prime and standby
electric power generation. We continue to successfully execute our
strategy to capture product support market share in construction by
leveraging our digital platform, CUBIQ, and offering a broader
scope of Customer Value Agreements and rebuild options to
construction customers.
We expect continued broad-based strength in commodity markets,
including base and precious metals, oil, natural gas, metallurgical
coal, lumber, uranium, and potash to provide a positive backdrop
for market activity in Western Canada.
We are actively quoting multiple requests for proposals for
equipment in hard rock mining. Oil sands customers are focused on
improving production efficiency, reducing costs, and lowering
emissions, while remaining disciplined on capital expenditures. We
expect the large and aging mining equipment population in Western
Canada to drive stable demand for product support, including
rebuilds, and opportunities for future fleet renewals.
South America
We are monitoring the political and economic reform process in
Chile leading to the general elections in November 2021 and the
review of the mining royalty proposal. We remain constructive about
copper mining growth in Chile, and our outlook assumes a moderate
increase in mining royalties. While we believe that Chile will
remain a competitive copper producer globally, we recognize that
current political and economic uncertainty will continue to impact
our customers’ investment decisions, particularly as they relate to
greenfield and new expansion projects. In the near term, we expect
mining customers to continue taking advantage of the current strong
copper price and the low peso. The projected increase in copper
production(4), mature equipment population, and declining ore
grades are expected to drive improved demand for product
support.
Our outlook for the Chilean construction activity remains
strong, driven by improved demand for mining infrastructure and the
government’s investment in public works.
In Argentina, we expect to continue capturing improved activity
in construction, oil and gas, and gold mining, while managing
fiscal, regulatory, and currency risks, including ARS devaluation.
The overall business environment in the country remains challenging
due to ongoing fiscal, regulatory, and currency headwinds and added
uncertainty ahead of the legislative elections in November 2021.
UK & Ireland
The outlook for general construction equipment markets in the UK
remains strong, supported by the economic recovery and HS2
construction activity. Our backlog at September 30, 2021 includes
about £110 million of equipment orders related to HS2. We are
well-positioned to capture a large share of opportunities for the
remainder of HS2 Phase 1 and are actively quoting for 2022 HS2
orders.
Strong demand for our power systems solutions, particularly in
the data centre market, is expected to continue. We have a strong
backlog of power systems projects, with deliveries extending into
2022. Over the next 5 years, cloud data centre capacity is
projected to grow at a significant rate in the UK and Irish
markets(5). With our strong track record of project execution, we
are well positioned to capture opportunities related to this growth
trend.
Demonstrating Improved Earnings Capacity
We are proactively managing our business through the cycle with
the objective of growing and compounding our earnings at each
successive mid-cycle point.
We are closely monitoring inflationary pressures from price and
wage increases. Productivity initiatives are underway in our
regions to further reduce fixed costs and make our operations more
efficient. While we continue to make progress on our fixed cost
reduction program focused on people, facility, and supply chain
categories, it is becoming increasingly difficult to be
deflationary, particularly for our near-term incentive
compensation, transportation, and procurement initiatives. We are
also taking proactive steps to mitigate technical labour shortages
by leveraging our improved network capacity and newly implemented
continuous shifts in our larger facilities, conducting targeted
recruitment campaigns, and expanding our apprenticeship
programs.
Looking ahead, we expect ongoing challenges in the global supply
chain to result in longer lead times for equipment and parts in all
regions. We continue to actively manage supply chain constraints by
taking appropriate mitigation steps in collaboration with
Caterpillar and our customers, such as actively sourcing used
equipment, optimizing preparation time on equipment, and offering
rebuilds and rental options. We expect a tight supply environment
to continue driving strong demand for used equipment, rentals, and
rebuilds. We have also improved our supply chain capabilities,
including visibility and planning with Caterpillar. The use of data
and insights from connected machines has significantly improved our
planning processes and enables us to order the right inventory at
the right time. While we expect some delays in delivering equipment
to customers, we expect our current inventory strategy will enable
us to meet our mid-cycle revenue targets.
Our revenue outlook remains positive, and we continue to expect
the mid-cycle market conditions to transition to up-cycle in 2022.
We now expect to achieve our mid-cycle EPS and ROIC targets ahead
of schedule. In the fourth quarter, we expect strong new equipment
deliveries in Chile mining and UK construction, while, consistent
with prior years, both rental and labour utilization are expected
to be lower than in the third quarter. We expect to deliver strong
annual free cash flow in 2021, with positive free cash flow
generation in Q4 2021.
CORPORATE AND BUSINESS DEVELOPMENTS
Dividend
The Board of Directors has approved a quarterly dividend of
$0.225 per share, payable on December 9, 2021 to shareholders of
record on November 25, 2021. This dividend will be considered an
eligible dividend for Canadian income tax purposes.
Investment in ComTech Energy, a leading provider of
low-carbon fueling solutions
In September 2021, we acquired a 54.5% controlling ownership
interest in Compression Technology Corporation (ComTech) through
our subsidiary, 4Refuel. Cash consideration for this acquisition
was $25 million, of which $20 million is to support future growth.
ComTech is an early-stage developer of alternative energy
infrastructure and provider of proprietary mobile fueling solutions
for low-carbon fuels, including CNG, RNG, and hydrogen, in North
America.
ComTech provides 4Refuel with the capability to be a leading
provider of turn-key, low-carbon energy solutions. It expands our
fueling capabilities beyond diesel and allows us to support our
customers’ energy transition journey, starting with solutions for
CNG and RNG. Our investment in ComTech leverages 4Refuel’s leading
mobile on-site refueling platform to enable customers to reduce
their emissions and improve productivity.
Sustainability-Linked Credit Facility
In September 2021, we secured sustainability-linked terms for
our $1.3 billion syndicated revolving credit facility. The amended
facility aligns cost of borrowing to our progress towards achieving
our absolute greenhouse gas (GHG) emissions reduction target. We
also extended the term of the credit facility from December 2024 to
September 2026. Our sustainability-linked credit facility further
demonstrates our commitment to reduce our absolute GHG emissions by
20% by 2027 from 2017 levels. Our initiatives focus primarily on
minimizing the environmental footprint of our facilities and
fleets, including the use of natural gas and hydrogen. In 2022, we
will start using natural gas to power a portion of 4Refuel and
Finning service vehicle fleets, which will help us achieve our GHG
emission reduction target.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
$
millions, except per share amounts |
Three months ended September 30 |
|
2021 |
|
2020 |
|
% changefav (unfav) |
|
New equipment |
631 |
|
435 |
|
45 |
|
Used equipment |
83 |
|
83 |
|
0 |
|
Equipment rental |
68 |
|
53 |
|
29 |
|
Product support |
932 |
|
842 |
|
11 |
|
Net fuel and other |
34 |
|
30 |
|
11 |
|
Net revenue |
1,748 |
|
1,443 |
|
21 |
|
Gross
profit |
461 |
|
390 |
|
18 |
|
Gross
profit as a percentage of net revenue(2) |
26.3 |
% |
27.0 |
% |
|
SG&A |
(311 |
) |
(290 |
) |
(7 |
) |
SG&A
as a percentage of net revenue |
(17.8 |
)% |
(20.1 |
)% |
|
Equity
earnings of joint ventures |
- |
|
1 |
|
|
Other
income |
- |
|
37 |
|
|
EBIT |
150 |
|
138 |
|
9 |
|
EBIT as
a percentage of net revenue |
8.6 |
% |
9.6 |
% |
|
Adjusted
EBIT |
150 |
|
101 |
|
48 |
|
Adjusted
EBIT as a percentage of net revenue |
8.6 |
% |
7.0 |
% |
|
Net income attributable to owners of Finning |
99 |
|
88 |
|
12 |
|
Basic
EPS |
0.61 |
|
0.54 |
|
13 |
|
Adjusted basic EPS |
0.61 |
|
0.37 |
|
65 |
|
EBITDA |
230 |
|
215 |
|
7 |
|
EBITDA
as a percentage of net revenue |
13.2 |
% |
14.9 |
% |
|
Adjusted
EBITDA |
230 |
|
178 |
|
29 |
|
Adjusted
EBITDA as a percentage of net revenue |
13.2 |
% |
12.3 |
% |
|
Free cash flow |
176 |
|
316 |
|
(44 |
) |
|
Sep 30, 2021 |
Dec 31, 2020 |
Invested
capital |
3,335 |
3,067 |
Invested
capital turnover (times) |
2.01 |
1.68 |
Net debt
to Adjusted EBITDA ratio |
1.3 |
1.4 |
ROIC |
15.6% |
11.4% |
Adjusted ROIC |
14.7% |
9.6% |
|
|
|
|
|
To access Finning's complete Q3 2021 results, please visit our
website at https://www.finning.com/en_CA/company/investors.html
Q3 2021 INVESTOR CALLThe Company will hold an
investor call on November 9, 2021 at 10:00 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 investor call will be
webcast live and archived for three months. The webcast and
accompanying presentation can be accessed at
https://www.finning.com/en_CA/company/investors.html.
ABOUT FINNING Finning International Inc. (TSX:
FTT) is the world’s largest Caterpillar dealer delivering
unrivalled service to customers for nearly 90 years. Headquartered
in Surrey, British Columbia, we provide Caterpillar equipment,
parts, services, and performance solutions in Western Canada,
Chile, Argentina, Bolivia, the United Kingdom, and Ireland.
CONTACT INFORMATIONAmanda HobsonSenior Vice
President, Investor Relations and Treasury Phone:
604-331-4865Email: FinningIR@finning.com
https://www.finning.com
FOOTNOTES
(1) 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); not meaningful (n/m); Compressed Natural Gas (CNG);
Renewable Natural Gas (RNG).
(2) 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 Q3 2021 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.
(3) Certain 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, 11, and 29-31 of the MD&A. The
financial metrics that have been adjusted to take into account
these items are referred to as “Adjusted” metrics.
(4) The Chilean Copper Commission (Cochilco) - Proyección de la
producción de cobre en Chile 2020 – 2031; DEPP 29/2020; Registro
Propiedad Intelectual © N° 2020-A-10631
(5) UK Data Center Market – Investment Analysis and Growth
Opportunities Publication (2020-2025); Ireland Data Center Market –
Growth, Trends and Forecasts Publication (2020-2025)
FORWARD-LOOKING INFORMATION
CAUTION
This news release contains information that is forward-looking.
Information is forward-looking when we use what we know and expect
today to give information about the future. In particular, all
information in the “Q3 2021 Market Update and Business Outlook”
section of this news release is forward-looking information and is
subject to this disclaimer including the assumptions and material
risk factors referred to below. Forward-looking information in this
news release includes, but is not limited to, the following: our
expectation to achieve our mid-cycle EPS and ROIC targets ahead of
schedule; our proactive management of inventory; our expectation
that the mid-cycle environment will transition to up-cycle in 2022;
our positive revenue outlook (relies on our healthy backlog and
strong market conditions) and expectation that the mid-cycle
environment will transition to up-cycle in 2022; expansion of
4Refuel capabilities to support customers’ transition to low-carbon
fuels, including CNG, RNG, and hydrogen and future opportunities to
help customers meet their goals to achieve net zero greenhouse gas
emissions and utilize more sustainable energy sources; our
intention in 2022 to start using natural gas to power a portion of
4Refuel and Finning service vehicle fleets, to help achieve our own
greenhouse gas emission reduction target; our proactive sourcing of
used equipment to meet customer needs in a constrained supply
environment; the expectation that federal and provincial fiscal
stimulus programs will continue supporting construction activity
and private sector investment in LNG and power projects will drive
demand for equipment, product support, heavy rentals and prime and
standby electric power generation in Western Canada; expected
positive market activity in Western Canada (assumes continued
broad-based strength in commodity markets); expected stable demand
for product support, including rebuilds, and opportunities for
future fleet renewals due to the large and aging mining equipment
population in Western Canada; the political and economic reform
process in Chile leading to the general elections in November 2021
and the review of the mining royalty proposal in Chile; our
constructive outlook for copper mining growth in Chile (assumes
there will be a moderate increase in mining royalties); our belief
that Chile will remain a competitive copper producer globally; the
continued impact of political and economic uncertainty in Chile on
our customers’ investment decisions; expectation that in the near
term mining customers will continue taking advantage of the current
strong copper price and low peso; expectation that the projected
increase in copper production, mature equipment population, and
declining ore grades will drive improved demand for product support
in Chile; our outlook for the Chilean construction industry, driven
by improved demand for mining infrastructure and the government’s
investment in public works; our expectation that we will continue
capturing improved activity in construction and oil and gas, and
gold mining in Argentina and manage fiscal, regulatory and currency
risks, including ARS devaluation, and our view that the overall
business environment in Argentina remains challenging, risks being
related to fiscal, regulatory and currency headwinds and added
uncertainty related to the legislative elections to be held in
November 2021; the continued strong outlook for the UK general
construction equipment market (assumes continuing economic recovery
and HS2 construction activity) and our position to capture a large
share of opportunities for the remainder of HS2 Phase 1 and 2022
HS2 orders; expected continued strong demand for our power systems
solutions, particularly in the data centre market (assumes
projected significant growth in cloud data centre capacity in the
UK & Ireland markets over the next 5 years will materialize)
and our ability to capture opportunities related to that growth
trend; our proactive management of our business through the cycle
with the objective of growing and compounding our earnings at each
successive mid-cycle point; our close monitoring of inflationary
pressures from price and wage increases and productivity
initiatives to further reduce fixed costs and make our operations
more efficient; progress on our fixed cost reduction program and
anticipated difficulty to be deflationary; our proactive steps to
mitigate technical labour shortages; our expectation that
challenges in global supply chain will be ongoing and result in
longer lead times for equipment and parts in all regions and our
management of these constraints (assumes our mitigation steps,
including collaboration with Caterpillar and our customers, will be
successful) and continue to drive strong demand for used equipment,
rentals and rebuilds; our ability to order the right inventory at
the right time (assumes our successful visibility and planning
processes through the use of data and insights from connected
machines); our expectation that our current inventory strategy will
enable us to meet our mid-cycle revenue targets; our expectation to
achieve our mid-cycle EPS and ROIC targets ahead of schedule;
expected strong new equipment deliveries in the fourth quarter in
Chile mining and UK construction; our expectation that, consistent
with prior years, both rental and labour utilization will be lower
than in the third quarter; our expected strong annual free cash
flow in 2021 and positive free cash flow generation in Q4 2021; the
Canadian income tax treatment of the quarterly dividend; and our
commitment to reduce our absolute GHG emissions by 20% by 2027 from
2017 levels. All such forward-looking information is provided
pursuant to the ‘safe harbour’ provisions of applicable Canadian
securities laws.
Unless we indicate otherwise, forward-looking information in
this news release reflects our expectations at the date in this
news release. Except as may be required by Canadian securities
laws, we do not undertake any obligation to update or revise any
forward-looking information, whether as a result of new
information, future events, or otherwise.
Forward-looking information, by its very nature, is subject to
numerous risks and uncertainties and is based on a number of
assumptions. This gives rise to the possibility that actual results
could differ materially from the expectations expressed in or
implied by such forward-looking information and that our business
outlook, objectives, plans, strategic priorities and other
information that is not historical fact may not be achieved. As a
result, we cannot guarantee that any forward-looking information
will materialize.
Factors that could cause actual results or events to differ
materially from those expressed in or implied by this
forward-looking information include: the impact and duration of the
COVID-19 pandemic and measures taken by governments and businesses
in response; general economic and market conditions and economic
and market conditions in the regions where we operate; foreign
exchange rates; commodity prices; the impact of changes in the UK’s
trade relationship with the European Union as a result of Brexit;
the level of customer confidence and spending, and the demand for,
and prices of, our products and services; our ability to maintain
our relationship with Caterpillar; our dependence on the continued
market acceptance of our products, including Caterpillar products,
and the timely supply of parts and equipment; our ability to
continue to sustainably reduce costs and improve productivity and
operational efficiencies while continuing to maintain customer
service; our ability to manage cost pressures as growth in revenue
occurs; our 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; our
ability to manage our growth strategy effectively; our ability to
effectively price and manage long-term product support contracts
with our customers; our ability to reduce costs in response to
slowing activity levels; our ability to drive continuous cost
efficiency in a recovering market; our ability to attract
sufficient skilled labour resources as market conditions, business
strategy or technologies change; our ability to negotiate and renew
collective bargaining agreements with satisfactory terms for our
employees and us; the intensity of competitive activity; our
ability to maintain a safe and healthy work environment across all
regions; our ability to raise the capital needed 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 in the regions where
we carry on business; our ability to respond to climate
change-related risks; the occurrence of natural disasters, pandemic
outbreaks, geo-political events, acts of terrorism, social unrest
or similar disruptions; fluctuations in defined benefit pension
plan contributions and related pension expenses; the availability
of insurance at commercially reasonable rates and whether the
amount of insurance coverage will be adequate to cover all
liability or loss that we incur; the potential of warranty claims
being greater than we anticipate; the integrity, reliability and
availability of, and benefits from, information technology and the
data processed by that technology; and our ability to protect our
business from cybersecurity threats or incidents; the actual impact
of the COVID-19 pandemic; and, with respect to our normal course
issuer bid, our share price from time to time and our decisions
about use of capital. Forward-looking information is provided in
this news release for the purpose of giving information about our
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 information for any other purpose.
Forward-looking information provided in this news release is
based on a number of assumptions that we believed were reasonable
on the day the information was given, including but not limited to
the specific assumptions stated above; that we will be able to
successfully manage our business through the current challenging
times involving the effects of the COVID-19 response, stretched
supply chains, competitive talent markets, and changing commodity
prices, and successfully implement our COVID-19 risk management
plans; an undisrupted market recovery, for example, undisrupted by
COVID-19 impacts, commodity price volatility or social unrest; the
successful execution of our profitability drivers; that increased
maintenance work by mining customers following the lessening of
COVID-19 restrictions and protocols will continue; that our cost
actions to drive earnings capacity in a recovery can be sustained;
that commodity prices will remain at constructive levels; that our
customers will not curtail their activities; that general economic
and market conditions will improve; that the level of customer
confidence and spending, and the demand for, and prices of, our
products and services will be maintained; that present supply chain
challenges will not materially impact large project deliveries in
our backlog; our ability to successfully execute our plans and
intentions; our ability to attract and retain skilled staff; market
competition will remain at similar levels; the products and
technology offered by our competitors will be as expected; that
identified opportunities for growth will result in revenue; that we
have sufficient liquidity to meet operational needs; consistent and
stable legislation in the various countries in which we operate; no
disruptive changes in the technology environment and that our
current good relationships with Caterpillar, our customers and our
suppliers, service providers and other third parties will be
maintained; sustainment of strengthened oil prices and the Alberta
government will not re-impose production curtailments; quoting
activity for requests for proposals for equipment and product
support is reflective of opportunities; that there will be a
moderate increase in mining royalties in Chile; and strong
recoveries in our regions, particularly in Chile and the UK. Some
of the assumptions, risks, and other factors which could cause
results to differ materially from those expressed in the
forward-looking information contained in this news release are
discussed in our current AIF and in our annual and most recent
quarterly MD&A for the financial risks, including for updated
risks related to the COVID-19 pandemic.
We caution readers that the risks described in our AIF and in
our annual and most recent quarterly MD&A are not the only ones
that could impact us. We cannot accurately predict the full impact
that COVID-19 will have on our business, results of operations,
financial condition or the demand for our services, due in part to
the uncertainties relating to the ultimate geographic spread of the
virus, the severity of the disease, the duration of the outbreak,
the steps our customers and suppliers may take in current
circumstances, including slowing or halting operations, the
duration of travel and quarantine restrictions imposed by
governments and other steps that may be taken by governments to
respond to the pandemic. Additional risks and uncertainties not
currently known to us or that are currently deemed to be immaterial
may also have a material adverse effect on our business, financial
condition, or results of operation.
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