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June 15, 2010 Raymond James Infrastructure & Construction Conference Dave Smith EVP and CFO
Transcript
Page 1: Finning rj conference   june 15, 2010 final

June 15, 2010

Raymond James Infrastructure & Construction Conference

Dave SmithEVP and CFO

Page 2: Finning rj conference   june 15, 2010 final

Forward-Looking Information

This report contains statements about the Company’s business outlook, objectives, plans, strategic priorities and other statements that are not historical facts. A statement we make is forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements may include words such as aim, anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive, target, and will. Forward-looking statements in this report include, but are not limited to, statements with respect to: expectations with respect to the economy and associated impact on the Company’s financial results; the estimated annualized cost savings and anticipated restructuring charges related to actions taken by the Company in response to the economic downturn; expected revenue levels and EBIT growth; anticipated effective tax rate; anticipated generation of free cash flow (including projected net capital and rental expenditures), and its expected use; anticipated defined benefit plan contributions; and expected target range of Debt Ratio. All such forward-looking statements are made pursuant to the ‘safe harbour’ provisions of applicable Canadian securities laws.

Unless otherwise indicated by us, forward-looking statements in this report describe our expectations at June 15, 2010. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from our expectations expressed in or implied by such forward-looking statements and that our business outlook, objectives, plans, strategic priorities and other statements that are not historical facts may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize. Factors that could cause actual results or events to differ materially from those expressed in or implied by our forward-looking statements include: general economic and credit market conditions; foreign exchange rates; commodity prices; the level of customer confidence and spending, and the demand for, and prices of, our products and services; our dependence on the continued market acceptance of Caterpillar’s products and Caterpillar’s timely supply of parts and equipment; our ability to continue to implement our cost reduction initiatives while continuing to maintain customer service; the intensity of competitive activity; our ability to raise the capital we need 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 for operations outside Canada. Forward-looking statements are provided in this report for the purpose of giving information about management’s current expectations and plans and allowing investors and others to get a better understanding of our operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.

Forward-looking statements made in this report are based on a number of assumptions that we believed were reasonable on the day we made the forward-looking statements. Refer in particular to the Market Outlook section of the MD&A. Some of the assumptions, risks, and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this report are discussed in the Company’s current Annual Information Form (AIF) in Section 4. We caution readers that the risks described in the AIF are not the only ones that could impact us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our business, financial condition, or results of operations.

Except as otherwise indicated by us, forward-looking statements do 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 hereof. 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.

All amounts in this presentation are in Canadian dollars unless otherwise noted

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Page 3: Finning rj conference   june 15, 2010 final

Finning International Inc. (TSX:FTT)

World’s largest Caterpillar dealer

Exclusive rights to distribute Caterpillar equipment and parts

Operate in some of the most resource- rich territories in the world

Industries served

Mining (including oil sands)

Construction

Power systems

Other: petroleum, forestry, pipelines

Market cap ~ $3.0 billion

2009 revenue = $4.7 billion

10,700 employees, including over 5,500 skilled technicians

Cannock

Vancouver

Edmonton

Fort McMurray

Santiago

Antofagasta

Finning

South

America

Finning

UK

Finning (Canada)

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Page 4: Finning rj conference   june 15, 2010 final

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Value Proposition to Customers

Solutions to drive lowest owning and operating costs

Strong customer relationships

Large installed equipment fleet

Meeting customer need for maximum equipment uptime

+ =Caterpillar Equipment

Proven Reliability

Finning Service

Unmatched Capabilities

Customer Value

First with Customers

Page 5: Finning rj conference   june 15, 2010 final

Shaping Finning’s Future

Improving EBIT margin performance

Permanent SG&A cost reductions Operational excellence driven by productivity improvements

Generating cash for growth

Strong EBITDA from operations Focus on working capital management Strategic shift to reduced rental expenditures Maintain strong balance sheet

Investing in core competencies

Mining Power systems Product support

Delivering consistent 15% Return on Equity5

Page 6: Finning rj conference   june 15, 2010 final

Near-Term Priorities: Canada

6

Improve EBIT margin Increase service labour profitability Leverage earnings:

revenue growth + disciplined cost control

Drive operational excellence Implement new ERP system Improve supply chain efficiencies

Capture growth opportunities Oil sands – largest product support

opportunity (COE, Fort McKay) Elevate focus on training Introduce new electric drive truck

Page 7: Finning rj conference   june 15, 2010 final

Near-Term Priorities: United Kingdom

7

Improve EBIT margin

Reduce stranded costs post-Hewden

Grow heavy construction

Coal, waste & recycling, scrap & demolition

Grow advanced energy solutions

Petroleum, water & utilities, marine, renewables

Focus on profitable small machine business through various channels

Page 8: Finning rj conference   june 15, 2010 final

Near-Term Priorities: South America

8

Capture growing market opportunities in mining, construction and power systems

Continue to invest in product support growth Expand CRC and Truck Shop Integrate 500 new employees Build Training Centre Build new branches

Introduce new series trucks 795 electric drive truck Technological enhancements

Page 9: Finning rj conference   june 15, 2010 final

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Summary

Shaping Finning’s Future Improving EBIT margin performance

Generating strong free cash flow

Consistent 15% ROE

Investing in core competencies: mining, power systems,

product support

Near-term priorities Improve EBIT margin in Canada and UK

Drive operational excellence

Capture growing market opportunities in mining, construction and power systems

Page 10: Finning rj conference   june 15, 2010 final

Appendix

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Page 11: Finning rj conference   june 15, 2010 final

Diversification by Industry

New Equipment Sales ($ millions)

FY 2009 = $1,985FY 2008 = $2,929

Other includes agriculture, industrial and government sectors

Petroleum3%

Forestry2%

Other7%

PowerSystems

18% Mining43%

Construction27%

Construction20%

Mining47%

Petroleum3%

Forestry1%

Other6%

PowerSystems

23%

Strong mining sales visibility into 2011 / 2012

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Page 12: Finning rj conference   june 15, 2010 final

Diversification by Line of Business

ProductSupport

32%

Rental12%

UsedEquipment

7%

NewEquipment

49%

Driving growth in higher margin product support revenue

Total Revenue ($ millions)

FY 2009 = $4,738FY 2008 = $5,991

$2,929$1,899

$713

$432

ProductSupport

40%

Rental11%

UsedEquipment

7%

NewEquipment

42%

$1,985$1,893

$510 $338

Excludes other revenue: $12 million in 2009 and $19 million in 2008 12

Page 13: Finning rj conference   june 15, 2010 final

Focus on Execution

2009 Commitments 2009 Achievements 2010 Targets

Reduce SG&A Expenses $200 million over 2008 $110 million in targeted

cost savings $170 million over 2008 (excluding Hewden)

Free Cash Flow Over $300 million Record free cash flow

= $494 million ~ $200 million

39% at year end Mid 30% at year end

Net Debt to Total Capital Low end of 40-50% range

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Page 14: Finning rj conference   june 15, 2010 final

Improve Operating Leverage

EBIT Margin Targets

Canada FINSA UK

9 – 10%10 – 11% 7 – 8%*Reduced Cost Structure

Permanent SG&A cost reductions

Productivity improvements

Reduced Asset Base

Disciplined working capital management

Reduction in net rental additions

Increased Revenue

Volumes return as economy recovers

+

14* cost of capital

Increase ROIC

ROE Target = 15%

Page 15: Finning rj conference   june 15, 2010 final

Cash Engine for Growth

Solid Free Cash Flow

Dividends

Debt reduction

Acquisitions

Strategic shift in rental spending:~$100-150M net

Strategic shift in rental spending:~$100-150M net

Disciplined capital spending~$100M per year

Disciplined capital spending~$100M per year

Strong cash flow from operationsEBITDA ~$400-600M per year

Strong cash flow from operationsEBITDA ~$400-600M per year

Enhanced focus on working capital management

Enhanced focus on working capital management

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Page 16: Finning rj conference   june 15, 2010 final

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Key Growth Opportunity: Mining

Demand for mining equipment continues to grow New mines and expansions Fleet replacement cycle Many large global customers are low cash cost

producers Strong commodity cycle

Long-term mining product support opportunities

Large machines = more parts and service

24/7 operations = heavy demands on equipment

Finning advantage: lowest “cost per ton” solution World-class mining support infrastructure Best trained people in the industry High entry barriers

Page 17: Finning rj conference   june 15, 2010 final

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Oil Sands Mining Fleet Projections

* Includes units projected from 2010 to 2014, incremental to units at Dec 31, 2009

99%

100%

94%

89%

95%

90%

88%

1,251

72

69

214

236

310

133

217

330/340 Ton Trucks (future 795)

Total

Large Graders (16)

Ultra Large Graders (24)

Large Tractors (D8 & D9)

Ulltra Large Tractors (D11 & D10)

100 – 200 Ton Trucks (777-789)

240 Ton Trucks (793)

400 Ton Trucks (797)

752

31

85

86

155

125

91

180

1,354

73

69

228

264

326

148

246

Finning’s Market Share

Caterpillar Unitsat Dec 31, 2009Equipment Type

Total Unitsat Dec 31, 2009

Projections take into account the following projects, expansions of existing operations as well as contractor equipment: Syncrude, Suncor, Shell Albian, CNRL, Kearl

Additional CAT Units Projected 2010 to 2014*

Page 18: Finning rj conference   june 15, 2010 final

FINSA Mining Fleet Projections

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* Caterpillar projected includes units forecast for FINSA from 2010 till 2014 which are incremental to units at December 31, 2009 Projections take into account all FINSA's projects

59%

28%

80%

65%

74%

63%

58%

54%

596

1,527

73

160

281

148

125

144

Large Mining Trucks (793 – 777)

Total

Underground

Motor Graders (24 - 14)

Track-Type Tractors (D11 – D9)

Large Wheel Dozers (854 – 824)

Large Wheel Loaders (994 – 992)

400 Ton Trucks (797)

233

758

60

65

101

75

33

191

1,028

2,586

261

200

432

200

198

267

Finning’s Market Share

Caterpillar Unitsat Dec 31, 2009Equipment Type

Additional CAT Units Projected

2010 to 2014*

Total Units at Dec 31, 2009

Page 19: Finning rj conference   june 15, 2010 final

UK Opportunities – Heavy Construction and Power Systems

Dominate coal mining

Grow 777 population to 400+ trucks

Maximize mining product support

Diversify to high growth sectors

Waste & recycling, scrap & demolition

Power Systems growth areas

Biogas-to-energy and data centres

Global engineering, procurementand construction (EPC)

Integrated managed services:marine, petroleum

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Page 20: Finning rj conference   june 15, 2010 final

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2010 Outlook - Continuing Operations

Revenues slightly below 2009

Lower new equipment sales, primarily due to Canada

Modest product support growth in all operations

Expected EBIT improvement in second half of the year

EBIT expected to be roughly flat to 2009

EBIT margin to improve modestly in 2010 on lower revenue levels

Recovery is gaining momentum in all regions, led by mining

Signs of improvement in non-mining sectors

Page 21: Finning rj conference   june 15, 2010 final

Q1 2010 Highlights

Q1 results in line with expectations

Product support revenues increased in all operations in local currency Strong product support growth in mining Improving activity in non-mining sectors

On track to achieve targeted cost reductions of $170 million (adjusted for Hewden)

Strong free cash flow of $99 million. Expected to moderate for the next two quarters. On track for ~ $200 million in FCF for 2010.

Order intake increased from Q4/09 driven by mining. Backlog of $900 million is 60% higher than at Dec 31, 2009

Quarterly dividend raised to $0.12 per share from $0.11 per share

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Page 22: Finning rj conference   june 15, 2010 final

Q1 2010 Results

C$ millions Q1 2010 Q1 2009 Q1-10/Q1-09 Q4 2009 Q1-10/Q4-09

Revenue 1,028 1,364 (25%) 1,135 (9%)

Gross profit 305 384 (20%) 301 1%

GP margin 29.7% 28.1% 26.5%

SG&A (262) (300) 13% (261) 0%

Other income (expenses) (6) (8) (10)

EBIT 37 76 (51%) 30 24%

EBIT margin 3.6% 5.5% 2.6%

Net Income 20 45 (55%) 16 23%

Diluted EPS 0.12 0.26 (54%) 0.10 20%

EBITDA 95 150 (37%) 89 6%

New equipment sales down 45% from Q1/09, down 26% from Q4/09

Product support revenues flat year over year, up 5% from Q4/09

FX negative impact of $0.08 per share compared to Q1/09 due to stronger Canadian dollar

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