Finning International Inc. (TSX: FTT) (“Finning”, “the Company”, “we”, “our” or “us”) reported fourth quarter and annual 2021 results today. All monetary amounts are in Canadian dollars unless otherwise stated.

HIGHLIGHTSAll comparisons are to Q4 and annual 2020 results unless indicated otherwise.

  • Q4 2021 EPS(1) was $0.66 per share. Annual 2021 basic EPS was $2.26 per share and Adjusted EPS(2)(4) was $2.18 per share.
  • Q4 2021 revenue of $1.9 billion and net revenue(2) of $1.8 billion were up 17% and 14%, respectively, from Q4 2020, with higher revenues in all lines of business driven by strong market activity and solid execution.
  • All regions demonstrated strong operating leverage, with consolidated EBIT(1) up 67% compared to Adjusted EBIT(3)(4) in Q4 2020. Q4 2021 EBIT as a percentage of net revenue(2) reached 10.1% in both Canada and South America.
  • For the full year 2021, EBIT increased by 41% and Adjusted EBIT increased by 63% from 2020 on 15% higher gross profit. 2021 SG&A(1) as a percentage of net revenue(2) was down 270 basis points from 2020, driving improved earnings capacity.
  • Adjusted ROIC(1)(2)(4) of 16.4% was up 680 basis points from Q4 2020, with significant increases in all regions. South America achieved a 20.3% ROIC(2).
  • Annual 2021 free cash flow(3) was $300 million, with net debt to Adjusted EBITDA(1) ratio (2)(4) of 1.1 at December 31, 2021, an improvement from 1.4 at December 31, 2020.
  • Consolidated equipment backlog(2) was $1.9 billion at December 31, 2021, up from $1.6 billion at September 30, 2021, higher in all regions, particularly in Canada, including a significant order from an oil sands operator.

“Our employees should be proud of the strong results we achieved in 2021, driven by successful execution to deliver on our strategic plan and improve our earnings capacity. We posted annual Adjusted EPS of $2.18 and exceeded our mid-cycle EPS and ROIC targets two quarters ahead of schedule, all while our revenue remained below pre-pandemic levels for the year. Across the business, we saw tremendous momentum in capturing product support opportunities and winning major equipment deals as market activity returned to pre-pandemic levels by the end of the year,” said Scott Thomson, president and CEO of Finning International.

“We expect upcycle demand conditions from the start of 2022 to be supported by ongoing economic growth and strength in commodity prices. We expect supply constraints to persist, and our global teams have been proactively purchasing inventory, sourcing used equipment, and offering rebuilds and rental options to meet strong customer demand. Our 2021 performance sets a strong foundation to capture upcycle opportunities as we remain focused on executing on our strategic plan to grow product support, reduce costs, and reinvest free cash flow to compound our earnings. We continue to target mid-teens and above EPS growth during this sustained upcycle,” concluded Mr. Thomson.

Q4 2021 FINANCIAL SUMMARY

Quarterly Overview$ millions, except per share amounts Q4 2021   Q4 2020   % change  
Revenue 1,949   1,666   17  
Net revenue 1,774   1,551   14  
EBIT 157   108   46  
EBIT as a percentage of net revenue 8.9 % 6.9 %  
EBITDA(2) 241   185   31  
EBITDA as a percentage of net revenue(2) 13.6 % 11.9 %  
Net income attributable to shareholders of Finning 104   72   44  
EPS 0.66   0.45   47  
Free cash flow 148   292   (50 )
Q4 2021 EBIT and EBITDA by Operation$ millions, except per share amounts Canada   South America   UK & Ireland   Corporate & Other   Finning Total   EPS
EBIT / EPS 92   59   12   (6 ) 157   0.66
EBIT as a percentage of net revenue 10.1 % 10.1 % 4.3 % n/m(1) 8.9 %  
EBITDA 142   81   23   (5 ) 241  
EBITDA as a percentage of net revenue 15.5 % 14.0 % 8.3 % n/m 13.6 %  
Q4 2020 EBIT and EBITDA by Operation$ millions, except per share amounts Canada   South America   UK & Ireland   Corporate & Other   Finning Total   EPS
EBIT / EPS 72   41   11   (16 ) 108   0.45
CEWS support (13 ) -   -   (1 ) (14 ) (0.07)
Adjusted EBIT / Adjusted EPS 59   41   11   (17 ) 94   0.38
Adjusted EBIT as a percentage of net revenue(2)(4) 7.7 % 8.3 % 3.7 % n/m   6.1 %  
Adjusted EBITDA(3)(4) 106   61   20   (16 ) 171  
Adjusted EBITDA as a percentage of net revenue(2)(4) 13.7 % 12.2 % 7.0 % n/m   11.0 %  

Q4 2021 INVESTED CAPITAL AND ROIC SUMMARYAll comparisons are to Q4 2020 results unless indicated otherwise.

  • Excluding the impact of foreign exchange, invested capital(2) increased by $269 million from December 31, 2020 driven primarily by higher inventory to meet strong customer demand. An increase in accounts receivables due to an increase in sales activity in all operations was offset by higher accounts payable, mainly in Canada and South America, related to higher inventory purchases.
  • Inventory increased by about $200 million from Q4 2020 reflecting recovery in market activity and growing backlog. Inventory turns (dealership)(2) improved to 3.09 in Q4 2021 from 2.79 in Q4 2020 and working capital to net revenue ratio(2) of 22.9% was down by 540 basis points from Q4 2020, reflecting higher sales and improved supply chain efficiencies.
  • Adjusted ROIC of 16.4% was up 680 basis points from Q4 2020 with a significant increase in all regions driven by improved profitability and higher invested capital turnover.
Invested Capital and ROIC Q4 2021 Q4 2020
Invested capital ($ millions)    
Consolidated 3,326   3,067  
Canada 1,876   1,819  
South America (US dollars) 809   731  
UK & Ireland (UK pound sterling) 222   188  
Invested capital turnover(2) (times) 2.04   1.68  
Working capital to net revenue ratio 22.9 % 28.3 %
Inventory ($ millions) 1,687   1,477  
Inventory turns (dealership) (times) 3.09   2.79  
Adjusted ROIC (%)    
Consolidated 16.4   9.6  
Canada 16.9   10.5  
South America 20.3   12.9  
UK & Ireland 14.8   5.5  

Q4 2021 HIGHLIGHTS BY OPERATIONAll comparisons are to Q4 2020 results unless indicated otherwise. All numbers, except ROIC, are in functional currency: Canada – Canadian dollar; South America – USD; UK & Ireland – UK pound sterling (GBP). These variances and ratios for South America and UK & Ireland exclude the foreign currency translation impact from the CAD relative to the USD and GBP, respectively, and are therefore, considered to be specified financial measures. We believe the variances and ratios in functional currency provide meaningful information about operational performance of the reporting segment.

Canada

  • Net revenue increased by 19% from Q4 2020, driven primarily by significantly higher product support revenue and strong used equipment sales.
  • Product support revenue was up 17% from Q4 2020 reflecting strong rebuild activity in construction and increased spend in the mining sector.
  • Q4 2021 used equipment sales were up 84% from Q4 2020, with higher used equipment sales to mining and construction customers, reflecting our strategic focus on rebuilds and resale in response to strong customer demand and constrained supply of new equipment.
  • Rental revenue was up 22% from Q4 2020, fulfilling customer equipment needs in a tight supply environment. In addition, our heavy rental fleet was highly utilized in British Columbia to support flood mitigation and infrastructure repair work.
  • EBIT as a percentage of net revenue was 10.1%, up 240 basis points from Adjusted EBIT as a percentage of net revenue in Q4 2020, reflecting improved equipment margins, higher rental utilization, and lower SG&A as a percentage of net revenue compared to Q4 2020.
  • Q4 2021 Adjusted ROIC was 16.9%, up 640 basis points from Q4 2020, driven by significant improvement in profitability coupled with 20% increase in invested capital turnover.
  • During Q4 2021, we received an order from an oil sands operator to supply 20 Caterpillar 797F off-highway trucks. This purchase is part of a multi-year agreement focused on enhancing operational efficiency through equipment refresh, maintenance, repair and rebuild practices. Delivered through 2022, these trucks will replace aged competitive equipment and are expected to enhance fuel efficiency, reduce carbon footprint and improve emissions.

South America

  • Net revenue increased by 21% from Q4 2020. New equipment sales were up 68%, 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 10%, with higher activity across all sectors.
  • EBIT as a percentage of net revenue was 10.1%, up 180 basis points year over year, benefitting from improved operating leverage. SG&A costs were comparable to Q4 2020 on 21% higher revenues reflecting a streamlined cost structure and continued focus on driving efficiencies.
  • Q4 2021 ROIC of 20.3% was the highest since 2012, driven by significant improvements in both profitability and invested capital turnover in 2021.

United Kingdom & Ireland

  • Net revenue was 1% below Q4 2020 reflecting timing of power systems project deliveries. Revenue from the construction sector was up 26% compared to Q4 2020, driven by equipment deliveries to HS2 customers and higher product support activity.
  • EBIT was up 16% from Q4 2020, driven primarily by an increase in gross profit with a higher proportion of product support in the revenue mix and improved rental utilization compared to Q4 2020. EBIT as a percentage of net revenue was 4.3%.
  • Q4 2021 ROIC was 14.8%, reflecting strong revenue recovery, increased EBIT, and significant improvements in capital efficiency.

Q4 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

Strong commodity prices and broad-based economic growth in Western Canada in 2022 are expected to create robust demand for equipment and product support across all sectors.

The federal and provincial governments’ infrastructure programs and private sector investments in natural gas, carbon capture, utilization and storage, and various power projects are expected to drive demand for construction equipment and product support, heavy equipment rentals, and prime and standby electric power generation. Our focus remains on executing our strategy to capture product support market share in construction. We are leveraging our digital platform, CUBIQ™, and further building on our success with construction rebuilds and customer value agreements (CVAs).

Healthy commodity markets, including base and precious metals, oil, natural gas, metallurgical coal, lumber, uranium, and potash provide a positive backdrop for activity in Western Canada. In the oil sands, capital expenditures have begun to increase in response to recovering demand. We expect the large and aging mining equipment population in Western Canada to continue driving demand for product support, including rebuilds, and opportunities for fleet renewals.

South America

We expect a strong copper price to continue driving improved mining activity in Chile in 2022. The projected increase in copper production(5), large and mature equipment population, and declining ore grades are expected to support growing demand for mining parts and service, and fleet replacement.

We are closely monitoring the economic and constitutional reform process in Chile, and our current outlook assumes a moderate increase in mining royalties. While the timing of investment decisions related to greenfield and new expansion projects remains uncertain, we are constructive about long-term copper mining growth in Chile. We are in a great position to capture opportunities for new mining equipment and autonomous solutions for brownfield expansions and greenfield projects in the next mining upcycle.

Our positive outlook for the Chilean construction sector is predicated on strong demand for mining infrastructure and the government’s infrastructure investment program.

In Argentina, while we expect to benefit from improved activity in construction, oil and gas, and mining, the overall business environment in the country continues to be challenging. We remain focused on managing fiscal, regulatory, and currency risks, including high inflation and ARS devaluation expected in 2022.

UK & Ireland

Continued HS2 construction activity coupled with government investments in other infrastructure projects are expected to drive strong demand for construction equipment in the UK in 2022.

HS2 Phase 1, from London to Birmingham, is projected to require approximately 1,500 units of heavy construction equipment, representing a total industry opportunity of nearly £500 million from 2021 to 2024. By the end of 2021, we had captured more than £200 million of equipment orders for this project. Most Caterpillar machines working on the HS2 project are supported by a range of Finning customer value agreements, and our construction customers have the option to benefit from our CUBIQTM platform and our construction apps. We are well-positioned to continue capturing a large share of opportunities for the remainder of HS2 Phase 1.

Strong demand for our power systems solutions, including in the data centre market, is expected to continue. We have a solid backlog of power systems projects for deliveries in 2022. Cloud data centre capacity is projected to continue to grow over the next few years(6), and with our successful track record of project execution, we are well positioned to capture opportunities related to this trend.

Upcycle and Shift to Growth

Our market outlook is positive in all our regions. We expect upcycle demand conditions from the start of 2022 to be supported by ongoing economic growth and strength in commodity prices. We expect challenges in the global supply chain to persist, resulting in longer lead times for equipment and parts in all regions and driving strong demand for used equipment, rentals, and rebuilds.

We have exceeded our mid-cycle EPS and ROIC targets two quarters ahead of schedule, and we continue to proactively manage our business with the objective of improving our earnings capacity and compounding our earnings at each successive mid-cycle point. We continue to target mid-teens and above EPS growth during this sustained upcycle.

We continue to drive fixed cost reduction initiatives globally, targeting further improvements across people, facilities, and supply chain productivity, and we expect to make further progress towards reducing our SG&A as a percentage of net revenue. However, it will take us longer than the previously communicated time frame of Q3 2021 to Q2 2022 to average 17% SG&A as a percentage of net revenue over the four-quarter period. This is primarily due to lower than projected new equipment deliveries in the second half of 2021 as a result of constrained supply, and higher than projected product support growth rates in Q4 2021, as well as inflationary headwinds. We remain committed to delivering fixed cost reduction initiatives, productivity gains, and strong operating leverage going forward.

As we continue to make strategic investments in our facilities network, digital platform, and rental fleet, our 2022 net capital expenditures and net rental fleet additions are expected to be in the range of $240 million to $280 million. We continue to advance our M&A strategy and expect to deploy capital with an initial focus on complementary businesses in the small to medium size range that are aligned with our product support growth strategy, drive improved outcomes for our customers, and deliver attractive rates of return.

We are monitoring the spread of the Omicron variant in our regions, particularly as it affects the staffing levels of our and our customers’ operations. We are leveraging the COVID-19 mitigation protocols we developed at the beginning of the pandemic and expect to successfully manage our day-to-day operations through the Omicron wave.

CORPORATE AND BUSINESS DEVELOPMENTS

Dividend

The Board of Directors has approved a quarterly dividend of $0.225 per share, payable on March 10, 2022 to shareholders of record on February 24, 2022. 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 December 31 Twelve months ended December 31
  2021   2020   % changefav (unfav) 2021   2020   % changefav (unfav)
New equipment 562   500   13   2,189 1,671   31  
Used equipment 124   93   33   409 308   33  
Equipment rental 68   49   39   235 196   20  
Product support 982   877   12   3,728 3,473   7  
Net fuel and other 38   32   20   135 120   12  
Net revenue 1,774   1,551   14   6,696   5,768   16  
                         
Gross profit 484   418   16   1,801   1,570   15  
Gross profit as a percentage of net revenue(2) 27.3 % 26.9 %   26.9 % 27.2 %  
                     
SG&A (328 ) (324 ) (1 ) (1,266 ) (1,245 ) (2 )
SG&A as a percentage of net revenue (18.5 )% (20.9 )%   (18.9 )% (21.6 )%  
                     
Equity earnings of joint ventures 1   -     2   3    
                     
Other income -   14     15   115    
                     
Other expenses -   -     -   (51 )  
                         
EBIT 157   108   46   552   392   41  
EBIT as a percentage of net revenue 8.9 % 6.9 %   8.2 % 6.8 %  
Adjusted EBIT 157   94   67   537   328   63  
Adjusted EBIT as a percentage of net revenue 8.9 % 6.1 %   8.0 % 5.7 %  
                         
Net income attributable to shareholders of Finning 104   72   44   364   232   57  
Basic EPS 0.66   0.45   47   2.26   1.43   58  
Adjusted EPS 0.66   0.38   71   2.18   1.14   90  
                         
EBITDA 241   185   31   871   700   24  
EBITDA as a percentage of net revenue 13.6 % 11.9 %   13.0 % 12.1 %  
Adjusted EBITDA 241   171   41   856   636   34  
Adjusted EBITDA as a percentage of net revenue 13.6 % 11.0 %   12.8 % 11.0 %  
Free cash flow 148   292   (50 ) 300   870   (66 )
  Dec 31, 2021 Dec 31, 2020        
Invested capital 3,326   3,067        
Invested capital turnover (times) 2.04   1.68        
Net debt to Adjusted EBITDA ratio 1.1   1.4        
Adjusted ROIC 16.4 % 9.6 %      
               

To access Finning's complete Q4 and annual 2021 results, please visit our website at https://www.finning.com/en_CA/company/investors.html

Q4 2021 INVESTOR CALLThe Company will hold an investor call on February 9, 2022 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 FINNINGFinning 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).
   
(2) See “Description of Specified Financial Measures and Reconciliations” later in this Earnings Release.
   
(3) These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” later in this Earnings Release.
   
(4) Certain financial measures 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 starting on page 8 of this Earnings Release. The financial measures that have been adjusted to take into account these items are referred to as “Adjusted measures”.
   
(5)  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
   
(6) UK Data Center Market – Investment Analysis and Growth Opportunities Publication (2020-2025); Ireland Data Center Market – Growth, Trends and Forecasts Publication (2020-2025)

 

Description of Specified Financial Measures and Reconciliations                                

Specified Financial Measures

We believe that certain specified financial measures, including non-GAAP financial measures, provide users of our Earnings Release with important information regarding the operational performance and related trends of our business. The specified financial measures we use do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Accordingly, specified financial measures should not be considered as a substitute or alternative for financial measures determined in accordance with GAAP (GAAP financial measures). By considering these specified financial measures in combination with the comparable GAAP financial measures (where available) we believe that users are provided a better overall understanding of our business and financial performance during the relevant period than if they simply considered the GAAP financial measures alone.

We use KPIs to consistently measure performance against our priorities across the organization. Some of our KPIs are specified financial measures.

There may be significant items that we do not consider indicative of our operational and financial trends, either by nature or amount. We exclude these items when evaluating our operating financial performance. These items may not be non-recurring, but we believe that excluding these significant items from GAAP financial measures provides a better understanding of our financial performance when considered in conjunction with the GAAP financial measures. Financial measures that have been adjusted to take into account these significant items are referred to as “Adjusted measures”. Adjusted measures are specified financial measures and are intended to provide additional information to readers of the Earnings Release.

Descriptions and components of the specified financial measures we use in this Earnings Release are set out below. Where applicable, quantitative reconciliations from certain specified financial measures to their most directly comparable GAAP financial measures (specified, defined, or determined under GAAP and used in our consolidated financial statements) are also set out below.

Adjusted basic EPS

Adjusted basic EPS excludes the after-tax per share impact of significant items that we do not consider to be indicative of operational and financial trends either by nature or amount to provide a better overall understanding of our underlying business performance. The tax impact of each significant item is calculated by applying the relevant applicable tax rate for the jurisdiction in which the significant item occurred. The after-tax per share impact of significant items is calculated by dividing the after-tax amount of significant items by the weighted average number of common shares outstanding during the period.

A reconciliation between basic EPS (the most directly comparable GAAP financial measure) and Adjusted basic EPS can be found on page 9 of this Earnings Release.

EBITDA, Adjusted EBITDA, and Adjusted EBIT

EBITDA is defined as earnings before finance costs, income taxes, depreciation, and amortization. We use EBITDA to assess and evaluate the financial performance of our reportable segments. We believe that EBITDA improves comparability between periods by eliminating the impact of finance costs, income taxes, depreciation, and amortization.

Adjusted EBIT and Adjusted EBITDA exclude items that we do not consider to be indicative of operational and financial trends, either by nature or amount, to provide a better overall understanding of our underlying business performance.

EBITDA is calculated by adding depreciation and amortization to EBIT. Adjusted EBITDA is calculated by adding depreciation and amortization to Adjusted EBIT.

The most directly comparable GAAP financial measure to EBITDA, Adjusted EBITDA, and Adjusted EBIT is EBIT.

A reconciliation from EBIT to EBITDA, Adjusted EBIT, and Adjusted EBITDA for our consolidated operations is as follows:

  3 months ended 2021     2020
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31     Dec 31 Sep 30 Jun 30 Mar 31
  EBIT 157 150 137 108     108   138   52   94
  Depreciation and amortization 84 80 78 77     77   77   78   76
  EBITDA 241 230 215 185     185   215   130   170
                         
  EBIT 157 150 137 108     108   138   52   94
  Significant items:                  
    CEWS support (10 )   (14 ) (37 ) (64 )
    Return on our investment in Energyst (5 )        
    Severance costs         42  
    Facility closures, restructuring costs, and                  
      impairment losses         9  
  Adjusted EBIT 157 150 137 93     94   101   39   94
  Depreciation and amortization 84 80 78 77     77   77   78   76
  Adjusted EBITDA 241 230 215 170     171   178   117   170
                         

The impact on provision for income taxes of significant items was as follows:

  3 months ended 2021   2020
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  Significant items:                  
    CEWS support 2   4 10 16  
    Severance costs   (10 )
    Facility closures, restructuring costs,                  
      and impairment losses   (2 )
  Provision for income taxes on significant                  
    items 2   4 10 4  
                         

A reconciliation from basic EPS to Adjusted basic EPS for our consolidated operations is as follows:

  3 months ended 2021     2020
  ($) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  Basic EPS 0.66 0.61 0.56 0.43     0.45   0.54   0.12   0.33
  Significant items:                  
    CEWS support (0.05 )   (0.07 ) (0.17 ) (0.30 )
    Return on our investment in Energyst (0.03 )        
    Severance costs         0.20  
    Facility closures, restructuring costs,                  
      and impairment losses         0.04  
  Adjusted basic EPS (1) 0.66 0.61 0.56 0.35     0.38   0.37   0.06   0.33
                         

(1)   The per share impact for each quarter has been calculated using the weighted average number of common shares outstanding during the respective quarters; therefore, quarterly amounts may not add to the annual or year-to-date total.

A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our Canadian operations is as follows:

  3 months ended 2021     2020
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  EBIT 92 84 82 69     72   93   63   60
  Significant items:                  
    CEWS support (10 )   (13 ) (35 ) (60 )
    Severance costs         20  
    Facility closures, restructuring costs, and                  
      impairment losses         5  
  Adjusted EBIT 92 84 82 59     59   58   28   60
  Depreciation and amortization 50 48 47 46     47   48   47   43
  Adjusted EBITDA 142 132 129 105     106   106   75   103
                         

A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our South American operations is as follows:

  3 months ended 2021   2020
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  EBIT 59 58 51 41   41 40 2 38
  Significant items:                  
    Severance costs   17
    Facility closures, restructuring costs, and                  
      impairment losses   4
  Adjusted EBIT 59 58 51 41   41 40 23 38
  Depreciation and amortization 22 22 20 20   20 19 22 22
  Adjusted EBITDA 81 80 71 61   61 59 45 60
                         

A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our UK & Ireland operations is as follows:

  3 months ended 2021   2020
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  EBIT 12 17 17 7   11 9 (5 ) 1
  Significant item:                  
    Severance costs   4  
  Adjusted EBIT 12 17 17 7   11 9 (1 ) 1
  Depreciation and amortization 11 10 10 10   9 9 9   10
  Adjusted EBITDA 23 27 27 17   20 18 8   11
                         

A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our Other operations is as follows:

  3 months ended 2021     2020  
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  EBIT (6 ) (9 ) (13 ) (9 )   (16 ) (4 ) (8 ) (5 )
  Significant items:                  
    CEWS support           (1 ) (2 ) (4 )  
    Return on our investment in Energyst       (5 )          
    Severance costs               1    
  Adjusted EBIT (6 ) (9 ) (13 ) (14 )   (17 ) (6 ) (11 ) (5 )
  Depreciation and amortization 1     1   1     1   1     1  
  Adjusted EBITDA (5 ) (9 ) (12 ) (13 )   (16 ) (5 ) (11 ) (4 )
                         

EBITDA to Free Cash Flow Conversion

EBITDA to free cash flow conversion is calculated as free cash flow divided by EBITDA. We use EBITDA to free cash flow conversion to assess our efficiency in turning EBITDA into cash.

Equipment Backlog

Equipment backlog is defined as the retail value of new equipment units ordered by customers for future deliveries. We use equipment backlog as a measure of projecting future new equipment deliveries. There is no directly comparable GAAP financial measure for equipment backlog.

Free Cash Flow

Free cash flow is defined as cash flow provided by or used in operating activities less net additions to property, plant, and equipment and intangible assets, as disclosed in our financial statements. We use free cash flow to assess cash operating performance, including working capital efficiency. Consistent positive free cash flow generation enables us to re-invest capital to grow our business and return capital to shareholders. A reconciliation of free cash flow is as follows:

  3 months ended 2021     2020  
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  Cash flow provided by (used in) operating 193   212   8   12     317   340   319   (14 )
    activities                  
  Additions to property, plant, and equipment                  
    and intangible assets (45 ) (38 ) (17 ) (33 )   (34 ) (26 ) (17 ) (38 )
  Proceeds on disposal of property, plant, and                  
    equipment   2   5   1     9   2   10   2  
  Free cash flow 148   176   (4 ) (20 )   292   316   312   (50 )
                       

Inventory Turns (Dealership)

Inventory turns (dealership) is the number of times our dealership inventory is sold and replaced over a period. We use inventory turns (dealership) to measure asset utilization. Inventory turns (dealership) is calculated as annualized cost of sales (excluding cost of sales related to the mobile refuelling operations) for the last six months divided by average inventory (excluding fuel inventory), based on an average of the last two quarters. Cost of sales related to the dealership and inventory related to the dealership are calculated as follows:

  3 months ended 2021     2020  
  ($ millions) Dec 31 Sep 30   Dec 31 Sep 30
  Cost of sales 1,465   1,443     1,248   1,163  
  Cost of sales related to mobile refuelling operations (190 ) (170 )   (129 ) (124 )
  Cost of sales related to the dealership 1,275   1,273     1,119   1,039  
             
    2021     2020  
  ($ millions) Dec 31 Sep 30   Dec 31 Sep 30
  Inventory 1,687   1,627     1,477   1,626  
  Fuel inventory (9 ) (6 )   (3 ) (2 )
  Inventory related to the dealership 1,678   1,621     1,474   1,624  
             

Invested Capital

Invested capital is calculated as net debt plus total equity. Invested capital is also calculated as total assets less total liabilities, excluding net debt. Net debt is calculated as short-term and long-term debt, net of cash and cash equivalents. We use invested capital as a measure of the total cash investment made in Finning and each reportable segment. Invested capital is used in a number of different measurements (ROIC, Adjusted ROIC, invested capital turnover) to assess financial performance against other companies and between reportable segments. Invested capital is calculated as follows:

    2021     2020  
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  Cash and cash equivalents (502 ) (518 ) (378 ) (469 )   (539 ) (453 ) (338 ) (260 )
  Short-term debt 374   419   114   103     92   217   158   329  
  Current portion of long-term debt 190   191   386   326     201   200   200   200  
  Non-current portion of long-term debt 921   923   903   973     1,107   1,136   1,348   1,381  
  Net debt 983   1,015   1,025   933     861   1,100   1,368   1,650  
  Total equity 2,343   2,320   2,252   2,244     2,206   2,184   2,127   2,233  
  Invested capital 3,326   3,335   3,277   3,177     3,067   3,284   3,495   3,883  
                     

Invested Capital Turnover

We use invested capital turnover to measure capital efficiency. Invested capital turnover is calculated as net revenue for the last twelve months divided by average invested capital of the last four quarters.

Net Debt to Adjusted EBITDA Ratio

This ratio is calculated as net debt divided by Adjusted EBITDA for the last twelve months. We use this ratio to assess operating leverage and ability to repay debt. This ratio approximates the length of time, in years, that it would take us to repay debt, with net debt and Adjusted EBITDA held constant.

Net Revenue, Gross Profit as a % of Net Revenue, SG&A as a % of Net Revenue, EBITDA as a % of Net Revenue, and EBIT as a % of Net Revenue

Net revenue is defined as total revenue less the cost of fuel related to the mobile refuelling operations in our Canadian operations. As these fuel costs are pass-through in nature for this business, we view net revenue as more representative than revenue in assessing the performance of the business because the rack price for the cost of fuel is fully passed through to the customer and is not in our control. For our South American and UK & Ireland operations, net revenue is the same as total revenue.

We use these specified financial measures to assess and evaluate the financial performance or profitability of our reportable segments. We may also calculate these financial measures using Adjusted EBITDA and Adjusted EBIT to exclude significant items we do not consider to be indicative of operational and financial trends either by nature or amount to provide a better overall understanding of our underlying business performance.

The most directly comparable GAAP financial measure to net revenue is total revenue. The ratios are calculated, respectively, as gross profit divided by net revenue, SG&A divided by net revenue, EBITDA divided by net revenue, and EBIT divided by net revenue. Net revenue is calculated as follows:

  3 months ended 2021     2020  
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  Total revenue 1,949   1,904   1,845   1,596     1,666   1,553   1,419   1,558  
  Cost of fuel (175 ) (156 ) (140 ) (127 )   (115 ) (110 ) (84 ) (119 )
  Net revenue 1,774   1,748   1,705   1,469     1,551   1,443   1,335   1,439  
                     

ROIC and Adjusted ROIC

ROIC is defined as EBIT for the last twelve months divided by average invested capital of the last four quarters, expressed as a percentage.

We view ROIC as a useful measure for capital allocation decisions that drive profitable growth and attractive returns to shareholders. We also calculate Adjusted ROIC using Adjusted EBIT to exclude significant items that we do not consider to be indicative of operational and financial trends either by nature or amount to provide a better overall understanding of our underlying business performance.

Working Capital & Working Capital to Net Revenue Ratio

Working capital is defined as total current assets (excluding cash and cash equivalents) less total current liabilities (excluding short-term debt and current portion of long-term debt). We view working capital as a measure for assessing overall liquidity.

The working capital to net revenue ratio is calculated as average working capital of the last four quarters, divided by net revenue for the last twelve months. We use this KPI to assess the efficiency in our use of working capital to generate net revenue.

Working capital is calculated as follows:

    2021     2020  
  ($ millions) Dec 31 Sep 30 Jun 30 Mar 31   Dec 31 Sep 30 Jun 30 Mar 31
  Total current assets 3,619   3,620   3,416   3,319     3,214   3,261   3,416   3,828  
  Cash and cash equivalents (502 ) (518 ) (378 ) (469 )   (539 ) (453 ) (338 ) (260 )
  Total current assets in working capital 3,117   3,102   3,038   2,850     2,675   2,808   3,078   3,568  
                     
  Total current liabilities 2,155   2,156   1,942   1,817     1,623   1,717   1,735   2,112  
  Short-term debt (374 ) (419 ) (114 ) (103 )   (92 ) (217 ) (158 ) (329 )
  Current portion of long-term debt (190 ) (191 ) (386 ) (326 )   (201 ) (200 ) (200 ) (200 )
  Total current liabilities in working capital 1,591   1,546   1,442   1,388     1,330   1,300   1,377   1,583  
                     
  Working capital 1,526   1,556   1,596   1,462     1,345   1,508   1,701   1,985  
                     

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. All forward-looking information in this news release 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 of upcycle demand conditions from the start of 2022 (assumes ongoing economic growth and strength in commodity prices), that supply constraints will persist; our strong foundation to capture upcycle opportunities; our strategic plan to grow product support, reduce costs, and reinvest free cash flow to compound our earnings; our target mid-teens and above EPS growth during this sustained upcycle; delivery during 2022 on an oil sands operator’s order for 20 Caterpillar 797F off-highway trucks; our expectation that these trucks will enhance fuel efficiency, reduce carbon footprint per tonne and improve emissions; all information in the “Q4 2021 Market Update and Business Outlook” section of this news release regarding our expectations for Canada (based on assumptions of strong commodity prices and broad-based economic growth in Western Canada, federal and provincial government infrastructure programs and private sector investments in natural gas, carbon capture, utilization and storage and power projects, and our ability to leverage CUBIQ™ and drive continued success with construction rebuilds and CVAs, and continued capital expenditures in the oil sands), South America (based on assumptions related to Chile of a continued strong copper price, a projected increase in copper production, a moderate increase in mining royalties, a strong demand for mining infrastructure and the government’s infrastructure investment program), the UK & Ireland (based on assumptions of continued government investments in infrastructure projects and projections of continued growth in cloud data centre capacity) and the upcycle and shift to growth (based on assumptions of ongoing economic growth and strength in commodity prices and that we will successfully mitigate the effects of persistent challenges in the global supply chain, drive improved earnings capacity and fixed cost reduction initiatives and manage our day-to-day operations through the Omicron wave); and the Canadian income tax treatment of the quarterly dividend. 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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