Finning International Inc. (TSX: FTT) (“Finning”, “the Company”,
“we”, “our” or “us”) reported second quarter 2022 results today.
All monetary amounts are in Canadian dollars unless otherwise
stated.
HIGHLIGHTSAll comparisons are
to Q2 2021 results unless indicated otherwise.
- Q2 2022 EPS (1) was $0.80 per share,
up 43% from Q2 2021, driven primarily by higher revenues and
earnings in all operations. Over the last four quarters, we have
generated EPS of $2.66 per share.
- Q2 2022 revenue of $2.3 billion and
net revenue (2) of $2.0 billion were up 24% and 18%, respectively,
from Q2 2021, reflecting strong market conditions in all regions,
backlog deliveries, and continued execution of our product support
growth strategy.
- Q2 2022 EBIT (1) was up 39% from Q2
2021, driven primarily by higher revenues and improved operating
leverage. SG&A (1) as a percentage of net revenue (2) was
16.9%, down 140 basis points from Q2 2021.
- Q2 2022 EBIT as a percentage of net
revenue (2) was 10.0% in Canada and 10.1% in South America. UK
& Ireland’s EBIT as a percentage of net revenue was 6.4%,
reflecting structural improvement in profitability, including the
addition of Hydraquip.
- ROIC (1)(2) of 17.5% was up 420
basis points from Adjusted ROIC (2)(4) in Q2 2021, with
improvements in all regions driven by higher profitability.
- Consolidated equipment backlog (2)
was $2.1 billion at June 30, 2022, up 4% from March 31, 2022 and up
15% from December 31, 2021, with a growing proportion of mining
orders.
"We are pleased with our strong execution and
performance in the second quarter, which demonstrates our
significantly improved earnings capacity. One year on from our June
2021 investor day, we are very proud to have exceeded targets we
set out through focused execution of our simple plan to drive
product support, reduce costs, and reinvest to compound our EPS.
Over the last four quarters we have grown our product support
business by 14% compared to the four quarters ended Q2 2021,
delivered 17% SG&A this quarter, and reinvested $341 million in
strategic acquisitions and share repurchases resulting in EPS of
$2.66.
Following our strong EPS growth of 52% in the
first half of 2022 compared to Adjusted EPS (2) in the first half
of 2021, we expect demand conditions to remain favourable for the
remainder of 2022. Underpinned by our large and diverse backlog,
continued growth in product support, and disciplined operational
execution, we are projecting above mid-teens EPS growth in the
second half of 2022 compared to the second half of 2021. While
activity levels remain robust, we are closely monitoring leading
indicators and the impact of ongoing supply chain, labour,
inflation, and interest rate challenges on our customer activity
levels. We remain focused on actively managing these risks and are
capturing growth opportunities in a very disciplined manner.
Our business model is robust and our strong
performance in recent years is a huge credit to the efforts of our
great people. From delivering approximately $900 million of free
cash flow (3) during a very challenging 2020 to delivering $2.66
EPS over the last four quarters, the full-cycle resilience of our
business model and step-change improvement in our execution have
been on full display. Sustainable improvements in our operating
model efficiency, inventory management practices, and proactive
deployment of our digital capabilities make us confident that we
will continue to successfully navigate a very dynamic global
business environment going forward,” said Scott Thomson, president
and CEO of Finning International.
Q2 2022 FINANCIAL SUMMARY
|
Quarterly Overview |
|
|
|
|
% change |
|
|
($ millions, except per share amounts) |
Q2 2022 |
|
Q2 2021 |
|
fav (unfav) |
|
|
Revenue |
2,289 |
|
|
1,845 |
|
|
24 |
% |
|
|
Net revenue |
2,004 |
|
|
1,705 |
|
|
18 |
% |
|
|
EBIT |
190 |
|
|
137 |
|
|
39 |
% |
|
|
EBIT as a percentage of net revenue |
9.4 |
% |
|
8.0 |
% |
|
|
|
|
EBITDA (1)(2) |
271 |
|
|
215 |
|
|
27 |
% |
|
|
EBITDA as a percentage of net revenue (2) |
13.5 |
% |
|
12.6 |
% |
|
|
|
|
Net income attributable to shareholders of Finning |
126 |
|
|
91 |
|
|
37 |
% |
|
|
EPS |
0.80 |
|
|
0.56 |
|
|
43 |
% |
|
|
Free cash flow |
(142 |
) |
|
(4 |
) |
|
n/m (1) |
|
|
|
Q2 2022 EBIT and EBITDA by Operation |
|
|
South |
|
UK & |
|
|
|
Finning |
|
|
|
|
($ millions, except per share amounts) |
Canada |
|
America |
|
Ireland |
|
Other |
|
Total |
|
EPS |
|
|
EBIT / EPS |
102 |
|
|
64 |
|
|
23 |
|
|
1 |
|
190 |
|
|
0.80 |
|
|
EBIT as a percentage of net revenue |
10.0 |
% |
|
10.1 |
% |
|
6.4 |
% |
|
n/m |
|
9.4 |
% |
|
|
|
|
EBITDA |
149 |
|
|
87 |
|
|
33 |
|
|
2 |
|
271 |
|
|
|
|
|
EBITDA as a percentage of net revenue |
14.7 |
% |
|
13.7 |
% |
|
9.3 |
% |
|
n/m |
|
13.5 |
% |
|
|
|
|
Q2 2021 EBIT and EBITDA by Operation |
|
|
South |
|
UK & |
|
|
Finning |
|
|
|
|
($ millions, except per share amounts) |
Canada |
|
America |
|
Ireland |
|
Other |
|
Total |
|
EPS |
|
|
EBIT / EPS |
82 |
|
|
51 |
|
|
17 |
|
|
(13 |
) |
137 |
|
|
0.56 |
|
|
EBIT as a percentage of net revenue |
9.3 |
% |
|
9.8 |
% |
|
5.3 |
% |
|
n/m |
|
8.0 |
% |
|
|
|
|
EBITDA |
129 |
|
|
71 |
|
|
27 |
|
|
(12 |
) |
215 |
|
|
|
|
|
EBITDA as a percentage of net revenue |
14.7 |
% |
|
13.7 |
% |
|
8.5 |
% |
|
n/m |
|
12.6 |
% |
|
|
|
Q2 2022 INVESTED CAPITAL AND ROIC SUMMARYAll
comparisons are to Q4 2021 results unless indicated otherwise.
Invested capital (2) increased by $750 million from Q4 2021,
driven primarily by higher inventory levels.
Inventory increased by $541 million from Q4 2021, reflecting
increased parts inventory to support strong product support growth
rates and customer service levels, as well as higher new equipment
inventory to support the delivery of our large and diverse backlog.
As a result, Q2 2022 free cash flow was a use of cash of $142
million compared to a use of cash of $4 million in Q2 2021.
Consolidated ROIC of 17.5% was up 110 basis points from Adjusted
ROIC in Q4 2021, driven by improved profitability. ROIC increased
to 17.4% in Canada, 22.3% in South America, and 16.2% in the UK
& Ireland.
|
Key Performance Measures |
|
|
|
|
|
($ millions, unless otherwise stated) |
Q2 2022 |
|
|
Q4 2021 |
|
|
|
Invested capital |
|
|
|
|
|
Consolidated |
4,076 |
|
|
3,326 |
|
|
|
Canada |
2,319 |
|
|
1,876 |
|
|
|
South America |
1,203 |
|
|
1,026 |
|
|
|
UK & Ireland |
458 |
|
|
381 |
|
|
|
South America (US dollars) |
934 |
|
|
809 |
|
|
|
UK & Ireland (UK pound sterling) |
292 |
|
|
222 |
|
|
|
Adjusted ROIC |
|
|
|
|
|
Consolidated |
17.5 |
% |
|
16.4 |
% |
|
|
Canada |
17.4 |
% |
|
16.9 |
% |
|
|
South America |
22.3 |
% |
|
20.3 |
% |
|
|
UK & Ireland |
16.2 |
% |
|
14.8 |
% |
|
|
Invested capital turnover (2) (times) |
2.00 |
|
|
2.04 |
|
|
|
Inventory |
2,228 |
|
|
1,687 |
|
|
|
Inventory turns (dealership) (2) (times) |
2.50 |
|
|
3.09 |
|
|
|
Working capital to net revenue (2) ratio |
25.1 |
% |
|
22.9 |
% |
|
|
Net debt to Adjusted EBITDA ratio (2)(4) (times) |
1.8 |
|
|
1.1 |
|
|
Q2 2022 HIGHLIGHTS BY
OPERATIONAll comparisons are to Q2 2021 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 Operations
- Net revenue increased by 15% from
Q2 2021, driven by product support, as well as higher new equipment
and rental revenues.
- Product support revenue was up 23%
from Q2 2021, with increased spending by mining customers and
strong volumes in construction reflecting high equipment
utilization and successful execution of our strategy to grow
construction product support market share.
- New equipment sales were up 3% from
Q2 2021, driven by mining deliveries. Construction sales were below
Q2 2021, impacted by supply constraints and delivery delays.
- Rental revenue was up 32% from Q2
2021, reflecting strong customer demand in all sectors and higher
utilization rates.
- EBIT as a percentage of net revenue
was 10.0%, up 70 basis points from Q2 2021, mostly due to a higher
proportion of product support in the revenue mix.
South America Operations
- Net revenue increased by 20% from
Q2 2021, driven by new equipment sales, which were up 66% due to
mining deliveries in Chile. Product support growth was constrained
by the challenging supply environment, with product support revenue
increasing by 2% from Q2 2021.
- Despite the shift in revenue mix to
new equipment sales, EBIT as a percentage of net revenue was up 30
basis points from Q2 2021 to 10.1%, driven by our improved cost
structure, including the favourable impact of CLP devaluation.
UK & Ireland Operations
- Net revenue increased by 21% from
Q2 2021. New equipment sales were up 23%, driven by the
construction sector, including HS2 deliveries. Product support
revenue was up 25% from Q2 2021, reflecting higher activity in the
construction sector, as well as the contribution from Hydraquip,
which was acquired at the end of March 2022.
- EBIT as a percentage of net revenue
was 6.4%, up 110 basis points from Q2 2021, reflecting operating
leverage on strong revenue growth and structural profitability
improvements, including the addition of Hydraquip.
Corporate and Other Developments
- Corporate EBIT in Q2 2022 was $1
million compared to an EBIT loss of $13 million in Q2 2021, due to
the benefit of LTIP recovery in Q2 2022 compared to LTIP expense in
Q2 2021, as well as lower facility expenses in Q2 2022.
- The effective income tax rate in Q2
2022 was 26.3% compared to 22.9% in Q2 2021. The effective income
tax rate in Q2 2021 was lower due to the benefit of the revaluation
of our deferred tax balances in Argentina due to tax rate changes
and a higher proportion of income from lower tax
jurisdictions.
- The Board of Directors has approved
a quarterly dividend of $0.236 per share, payable on September 1,
2022, to shareholders of record on August 18, 2022. This dividend
will be considered an eligible dividend for Canadian income tax
purposes.
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 Operations
We expect elevated energy prices, project
backlogs, healthy customer balance sheets and high machine
utilization to continue supporting a strong demand environment
across Western Canada.
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 continue driving demand for construction
equipment and product support, heavy rentals, and prime and standby
electric power generation.
In the mining sector, customer balance sheet
health and steady increases in capital budgets are expected to
drive product support opportunities, renewals of aging fleets to
sustain production levels, and greenfield project developments. We
expect growing demand for component remanufacturing and equipment
rebuilds as customers are looking to extend the life of their
assets, as well as continued focus on productivity improvements
through data integration and autonomy implementation.
South America Operations
We continue to closely monitor the
constitutional reform process in Chile and the recently proposed
tax reform bill, including the proposal for a revised mining
royalty framework, which remains under discussion. Until this
process is completed, the timing of investment decisions related to
greenfield and new expansion projects will remain uncertain.
In the near term, we expect stable mining
activity in Chile to continue driving demand for maintenance and
replacement of maturing equipment fleets. Quoting activity for
partial fleet replacement remains strong across our customer base.
Delivery activity remains strong including for Teck’s QB2 mine as
they approach first production, as well as Codelco where we have
won several truck and support equipment packages. Longer term, we
expect Chile will remain an attractive place to invest as
electrification trends drive increasing global demand for
copper.
Our order intake for construction equipment in
Chile has softened, impacted by higher equipment prices, elevated
interest rates, and the weakening CLP. However, we expect
construction machine utilization to remain strong supporting
infrastructure projects.
In Argentina, activity in construction, oil and
gas, and mining is expected to remain stable, however, the risk of
significant ARS devaluation has increased. We are focused on
managing through challenging fiscal, regulatory, and currency
environments in Argentina.
UK & Ireland Operations
Deliveries to HS2 customers, investments in
other infrastructure projects, and high machine utilization hours
are expected to continue driving strong construction equipment
sales and product support in the UK.
We expect demand for our power systems business
in the UK & Ireland to remain robust, including in the data
centre market. We have a solid backlog of power systems projects
for deliveries in the second half of 2022 and in 2023, and we are
well positioned to capture further opportunities in the growing
data centre market.
The addition of Hydraquip, which we acquired in
March 2022, is expected to contribute to the structural improvement
in the UK & Ireland’s profitability going forward.
Well Positioned to Continue Navigating a Dynamic
Business Environment
We expect demand conditions to remain favourable
for the remainder of 2022. Underpinned by our large and diverse
backlog, continued growth in product support, and disciplined
operational execution, we are projecting above mid-teens EPS growth
in the second half of 2022 compared to the second half of 2021.
While activity levels remain robust, we are
closely monitoring leading indicators and the impact of ongoing
supply chain, labour, inflation, and interest rate challenges on
our customer activity levels. We remain focused on actively
managing these risks and are capturing growth opportunities in a
very disciplined manner.
As we deliver our large backlog, we expect to
generate positive annual free cash flow in 2022, with the amount of
free cash flow dependent on supply and delivery schedules.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
|
|
Three months ended June 30 |
|
|
|
|
|
|
|
% change |
|
|
($ millions, except per share amounts) |
2022 |
|
|
2021 |
|
|
fav (unfav) |
|
|
New equipment |
733 |
|
|
593 |
|
|
24 |
% |
|
|
Used
equipment |
86 |
|
|
99 |
|
|
(14 |
)% |
|
|
Equipment rental |
70 |
|
|
54 |
|
|
30 |
% |
|
|
Product
support |
1,075 |
|
|
927 |
|
|
16 |
% |
|
|
Net fuel and other |
40 |
|
|
32 |
|
|
22 |
% |
|
|
Net revenue |
2,004 |
|
|
1,705 |
|
|
18 |
% |
|
|
Gross profit |
528 |
|
|
449 |
|
|
18 |
% |
|
|
Gross
profit as a percentage of net revenue (2) |
26.3 |
% |
|
26.3 |
% |
|
|
|
|
SG&A |
(338 |
) |
|
(313 |
) |
|
(8 |
)% |
|
|
SG&A
as a percentage of net revenue |
(16.9 |
)% |
|
(18.3 |
)% |
|
|
|
|
Equity
earnings of joint ventures |
— |
|
|
1 |
|
|
|
|
|
EBIT |
190 |
|
|
137 |
|
|
39 |
% |
|
|
EBIT as a percentage of net revenue |
9.4 |
% |
|
8.0 |
% |
|
|
|
|
Net
income attributable to shareholders of Finning |
126 |
|
|
91 |
|
|
37 |
% |
|
|
Basic EPS |
0.80 |
|
|
0.56 |
|
|
43 |
% |
|
|
EBITDA |
271 |
|
|
215 |
|
|
27 |
% |
|
|
EBITDA
as a percentage of net revenue |
13.5 |
% |
|
12.6 |
% |
|
|
|
|
Free cash flow |
(142 |
) |
|
(4 |
) |
|
n/m |
|
To access Finning's complete Q2 2022 results, please visit our
website at
https://www.finning.com/en_CA/company/investors.html
Q2 2022 INVESTOR CALLThe
Company will hold an investor call on August 3, 2022 at 9:00 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
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 these significant items into account 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 8 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 |
2022 |
|
2021 |
|
|
2020 |
|
|
($
millions) |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
|
Dec 31 |
Sep 30 |
|
|
EBIT |
190 |
140 |
|
157 |
150 |
137 |
108 |
|
|
108 |
|
138 |
|
|
Depreciation and amortization |
81 |
81 |
|
84 |
80 |
78 |
77 |
|
|
77 |
|
77 |
|
|
EBITDA |
271 |
221 |
|
241 |
230 |
215 |
185 |
|
|
185 |
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
190 |
140 |
|
157 |
150 |
137 |
108 |
|
|
108 |
|
138 |
|
|
Significant items: |
|
|
|
|
|
|
|
|
|
|
|
CEWS support |
— |
— |
|
— |
— |
— |
(10 |
) |
|
(14 |
) |
(37 |
) |
|
Return on our investment in Energyst |
— |
— |
|
— |
— |
— |
(5 |
) |
|
— |
|
— |
|
|
Adjusted EBIT (3)(4) |
190 |
140 |
|
157 |
150 |
137 |
93 |
|
|
94 |
|
101 |
|
|
Depreciation and amortization |
81 |
81 |
|
84 |
80 |
78 |
77 |
|
|
77 |
|
77 |
|
|
Adjusted EBITDA (3)(4) |
271 |
221 |
|
241 |
230 |
215 |
170 |
|
|
171 |
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation from basic EPS to Adjusted basic EPS for our
consolidated operations is as follows:
|
3 months
ended |
2022 |
|
2021 |
|
|
($) |
Jun 30 |
Mar 31 |
|
Jun 30 |
Mar 31 |
|
|
Basic EPS |
0.80 |
0.59 |
|
0.56 |
0.43 |
|
|
Significant
items: |
|
|
|
|
|
|
CEWS support |
— |
— |
|
— |
(0.05 |
) |
|
Return on our investment in Energyst |
— |
— |
|
— |
(0.03 |
) |
|
Adjusted basic EPS (a) |
0.80 |
0.59 |
|
0.56 |
0.35 |
|
(a) |
|
The per share impact for each quarter has been calculated using the
weighted average number of common shares outstanding during the
respective quarters; therefore, quarterly amounts may not add to
the annual or year-to-date total. |
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA
for our Canadian operations is as follows:
|
3 months
ended |
2022 |
|
2021 |
|
|
2020 |
|
|
($
millions) |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
|
Dec 31 |
Sep 30 |
|
|
EBIT |
102 |
80 |
|
92 |
84 |
82 |
69 |
|
|
72 |
|
93 |
|
|
Significant item: |
|
|
|
|
|
|
|
|
|
|
|
CEWS support |
— |
— |
|
— |
— |
— |
(10 |
) |
|
(13 |
) |
(35 |
) |
|
Adjusted EBIT |
102 |
80 |
|
92 |
84 |
82 |
59 |
|
|
59 |
|
58 |
|
|
Depreciation and amortization |
47 |
47 |
|
50 |
48 |
47 |
46 |
|
|
47 |
|
48 |
|
|
Adjusted EBITDA |
149 |
127 |
|
142 |
132 |
129 |
105 |
|
|
106 |
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA
for our South American operations is as follows:
|
3 months
ended |
2022 |
|
2021 |
|
2020 |
|
|
($ millions) |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
|
|
Reported and Adjusted
EBIT |
64 |
65 |
|
59 |
58 |
51 |
41 |
|
41 |
40 |
|
|
Depreciation and amortization |
23 |
23 |
|
22 |
22 |
20 |
20 |
|
20 |
19 |
|
|
Adjusted EBITDA |
87 |
88 |
|
81 |
80 |
71 |
61 |
|
61 |
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA
for our UK & Ireland operations is as follows:
|
3 months
ended |
2022 |
|
2021 |
|
2020 |
|
|
($ millions) |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
|
|
Reported and Adjusted
EBIT |
23 |
14 |
|
12 |
17 |
17 |
7 |
|
11 |
9 |
|
|
Depreciation and amortization |
10 |
10 |
|
11 |
10 |
10 |
10 |
|
9 |
9 |
|
|
Adjusted EBITDA |
33 |
24 |
|
23 |
27 |
27 |
17 |
|
20 |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA
for our Other operations is as follows:
|
3 months
ended |
2022 |
|
|
2021 |
|
|
2020 |
|
|
($
millions) |
Jun 30 |
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
Jun 30 |
|
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
|
EBIT |
1 |
(19 |
) |
|
(6 |
) |
(9 |
) |
(13 |
) |
(9 |
) |
|
(16 |
) |
(4 |
) |
|
Significant
items: |
|
|
|
|
|
|
|
|
|
|
|
CEWS support |
— |
— |
|
|
— |
|
— |
|
— |
|
— |
|
|
(1 |
) |
(2 |
) |
|
Return on our investment in Energyst |
— |
— |
|
|
— |
|
— |
|
— |
|
(5 |
) |
|
— |
|
— |
|
|
Adjusted
EBIT |
1 |
(19 |
) |
|
(6 |
) |
(9 |
) |
(13 |
) |
(14 |
) |
|
(17 |
) |
(6 |
) |
|
Depreciation and amortization |
1 |
1 |
|
|
1 |
|
— |
|
1 |
|
1 |
|
|
1 |
|
1 |
|
|
Adjusted EBITDA |
2 |
(18 |
) |
|
(5 |
) |
(9 |
) |
(12 |
) |
(13 |
) |
|
(16 |
) |
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 from cash flow used in or provided
by operating activities to free cash flow is as follows:
|
3 months ended |
2022 |
|
|
2021 |
|
|
($
millions) |
Jun 30 |
|
|
Jun 30 |
|
|
Cash flow (used
in) provided by operating activities |
(112 |
) |
|
8 |
|
|
Additions to
property, plant, and equipment and intangible assets |
(30 |
) |
|
(17 |
) |
|
Proceeds on disposal of property, plant, and equipment |
— |
|
|
5 |
|
|
Free cash flow |
(142 |
) |
|
(4 |
) |
|
|
|
|
|
|
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 |
2022 |
|
|
|
2021 |
|
|
($
millions) |
Jun 30 |
|
Mar 31 |
|
|
Jun 30 |
|
Mar 31 |
|
|
Cost of sales |
1,761 |
|
1,463 |
|
|
1,396 |
|
1,189 |
|
|
Cost of
sales related to mobile refuelling operations |
(300 |
) |
(231 |
) |
|
(153 |
) |
(140 |
) |
|
Cost of sales related to the dealership |
1,461 |
|
1,232 |
|
|
1,243 |
|
1,049 |
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
2021 |
|
|
($
millions) |
Jun 30 |
|
Mar 31 |
|
|
Jun 30 |
|
Mar 31 |
|
|
Inventory |
2,228 |
|
2,101 |
|
|
1,643 |
|
1,593 |
|
|
Fuel
inventory |
(13 |
) |
(11 |
) |
|
(3 |
) |
(3 |
) |
|
Inventory related to the dealership |
2,215 |
|
2,090 |
|
|
1,640 |
|
1,590 |
|
|
|
|
|
|
|
|
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:
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
($
millions) |
Jun 30 |
|
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
Jun 30 |
|
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
|
Cash and cash equivalents |
(170 |
) |
(295 |
) |
|
(502 |
) |
(518 |
) |
(378 |
) |
(469 |
) |
|
(539 |
) |
(453 |
) |
|
Short-term debt |
992 |
|
804 |
|
|
374 |
|
419 |
|
114 |
|
103 |
|
|
92 |
|
217 |
|
|
Current portion of long-term
debt |
110 |
|
63 |
|
|
190 |
|
191 |
|
386 |
|
326 |
|
|
201 |
|
200 |
|
|
Non-current portion of long-term debt |
807 |
|
909 |
|
|
921 |
|
923 |
|
903 |
|
973 |
|
|
1,107 |
|
1,136 |
|
|
Net debt |
1,739 |
|
1,481 |
|
|
983 |
|
1,015 |
|
1,025 |
|
933 |
|
|
861 |
|
1,100 |
|
|
Total
equity |
2,337 |
|
2,296 |
|
|
2,343 |
|
2,320 |
|
2,252 |
|
2,244 |
|
|
2,206 |
|
2,184 |
|
|
Invested capital |
4,076 |
|
3,777 |
|
|
3,326 |
|
3,335 |
|
3,277 |
|
3,177 |
|
|
3,067 |
|
3,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
2022 |
|
|
2021 |
|
|
2020 |
|
|
($
millions) |
Jun 30 |
|
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
Jun 30 |
|
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
|
Total revenue |
2,289 |
|
1,953 |
|
|
1,949 |
|
1,904 |
|
1,845 |
|
1,596 |
|
|
1,666 |
|
1,553 |
|
|
Cost of
fuel |
(285 |
) |
(217 |
) |
|
(175 |
) |
(156 |
) |
(140 |
) |
(127 |
) |
|
(115 |
) |
(110 |
) |
|
Net revenue |
2,004 |
|
1,736 |
|
|
1,774 |
|
1,748 |
|
1,705 |
|
1,469 |
|
|
1,551 |
|
1,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
($
millions) |
Jun 30 |
|
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
Jun 30 |
|
Mar 31 |
|
|
Dec 31 |
|
Sep 30 |
|
|
Total current assets |
4,098 |
|
4,030 |
|
|
3,619 |
|
3,620 |
|
3,416 |
|
3,319 |
|
|
3,214 |
|
3,261 |
|
|
Cash
and cash equivalents |
(170 |
) |
(295 |
) |
|
(502 |
) |
(518 |
) |
(378 |
) |
(469 |
) |
|
(539 |
) |
(453 |
) |
|
Total current assets in working capital |
3,928 |
|
3,735 |
|
|
3,117 |
|
3,102 |
|
3,038 |
|
2,850 |
|
|
2,675 |
|
2,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
2,789 |
|
2,647 |
|
|
2,155 |
|
2,156 |
|
1,942 |
|
1,817 |
|
|
1,623 |
|
1,717 |
|
|
Short-term debt |
(992 |
) |
(804 |
) |
|
(374 |
) |
(419 |
) |
(114 |
) |
(103 |
) |
|
(92 |
) |
(217 |
) |
|
Current
portion of long-term debt |
(110 |
) |
(63 |
) |
|
(190 |
) |
(191 |
) |
(386 |
) |
(326 |
) |
|
(201 |
) |
(200 |
) |
|
Total current liabilities in working capital |
1,687 |
|
1,780 |
|
|
1,591 |
|
1,546 |
|
1,442 |
|
1,388 |
|
|
1,330 |
|
1,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital |
2,241 |
|
1,955 |
|
|
1,526 |
|
1,556 |
|
1,596 |
|
1,462 |
|
|
1,345 |
|
1,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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” on page 7 of this Earnings
Release. |
|
|
|
(3) |
|
These are non-GAAP financial
measures. See “Description of Specified Financial Measures and
Reconciliations” on page 7 of 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 these items into account are referred to as
“Adjusted measures”. |
Forward-Looking Information Disclaimer
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 belief that we
will continue to successfully navigate the dynamic global business
environment; our expectation to generate positive annual free cash
flow in 2022 (assumes no disruptions to our ability to deliver our
backlog); our expectation for demand conditions to remain
favourable for the remainder of 2022; and our projections of above
mid-teens EPS growth in the second half of 2022 compared to the
second half of 2021 (assumes continued strong commodity prices,
public and private sector investment, economic forecasts, delivery
of our backlog, continued growth in product support, disciplined
operational execution, inventory management and deployment of our
digital capabilities, and that we and our customers can
successfully navigate supply chain, labour, inflation, and interest
rate challenges); all information in the section entitled “Market
Update and Business Outlook” regarding our expectations for our
Canada operations (based on assumptions of elevated energy prices,
project backlogs, healthy customer balance sheets and increases in
capital budgets, high machine utilization, government
infrastructure programs and private sector investments in natural
gas, carbon capture, utilization and storage, and power projects,
and a continued focus on productivity improvements, component
remanufacturing and rebuilds), our expectations for our South
America operations (based on assumptions related to Chile of
continued stable mining activity driving demand for maintenance and
replacement of maturing equipment fleets, expectations that
construction machine utilization will remain strong supporting
infrastructure projects, and electrification trends driving
increased global demand for copper in the longer term; and
assumptions related to Argentina of activity in construction, oil
and gas, and mining remaining stable and our ability to manage
fiscal, regulatory, and currency environments), our expectations
for our UK & Ireland operations (based on assumptions of
continued HS2 deliveries and investments in other infrastructure
projects, projections of continued growth in the data centre market
and our ability to capture opportunities in that market, and our
ability to successfully integrate Hydraquip into our business and
realize the expected synergies from the acquisition); 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 of 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,
customers and suppliers in response; general economic and market
conditions, including increasing inflationary cost pressure, and
economic and market conditions in the regions where we operate; the
outcome of Chile’s constitutional reform process and proposed tax
reform bill, including the proposal for a revised mining royalty
framework; foreign exchange rates; commodity prices; 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; our ability to
effectively integrate and realize expected synergies from
businesses that we acquire; 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 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; 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; 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 to give information about our current expectations and
plans and allow 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, inflationary
pressures 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 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
continue to be strong; 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 and
inflationary 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; 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
the annual and most recent quarterly MD&A and in the AIF 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.
Except as otherwise indicated, forward-looking
information does not reflect the potential impact of any
non-recurring or other unusual items or of any dispositions,
mergers, acquisitions, other business combinations or other
transactions that may be announced or that may occur after the date
of this news release. The financial impact of these transactions
and non-recurring and other unusual items can be complex and
depends on the facts particular to each of them. We therefore
cannot describe the expected impact in a meaningful way or in the
same way we present known risks affecting our business.
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