finningpresentation uk sep 2011_final
TRANSCRIPT
Mike Waites, President & CEO
September 2011
Investor Presentation
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; expected revenue and SG&A levels and EBIT growth; anticipated generation of free cash flow (including projected net capital and rental expenditures), and its
expected use; anticipated defined benefit plan contributions; the expected target range of Debt Ratio; the expected quantitative impact on the 2010 consolidated statements of
financial position and statements of income and comprehensive income of the Company‟s transition to IFRS effective January 1, 2010; and the impact on new and revised
IFRS that have been issued but are not yet effective. 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 September 14, 2011. 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
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 improve
productivity and operational efficiencies while continuing to maintain customer service; our ability to manage cost pressures as growth in revenues occur; our ability to attract
sufficient skilled labour resources to meet growing product support demand; our ability to negotiate and renew collective bargaining agreements with satisfactory terms for our
employees and the Company; 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; the integrity, reliability, and availability of
technology and the data processed by that technology; new or amended IFRS or interpretations that become effective prior to the inclusion of the Company‟s financial
statement of position in its first annual audited IFRS financial statements. 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 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
Finning International Inc. (TSX:FTT)
Exclusive Caterpillar dealer in some of most resource-rich territories
Unmatched products support capability
and customer relationships
Focused on operational excellence
Well-positioned for growth
Industries served
Mining (including oil sands)
Construction
Power systems
Other: petroleum, forestry, pipelines
Market cap ~ $4 billion
FY 2010 revenue = $4.6 billion
YTD ended Jun 30, 2011 revenue = $2.8 billion
12,900 employees, including ~ 5,700 skilled
technicians
Vancouver
Edmonton
Fort McMurray
Santiago
Antofagasta
FinningSouth America
Finning UKand Ireland
FinningCanada
Cannock
3
Solid Foundation
Revenue and earnings growing at a higher rate than invested capital
Streamlined, more efficient cost structure
Improved operating leverage driving more revenue to the bottom line
Solid free cash flow over the business cycle
Strong balance sheet
High performance culture
4
Creating Our Future
VisionProviding unrivalled services that
earn customer loyalty, we will be
CAT‟s best global business partner
Acquisition(s)
Power Systems
Core/BCP
Leadership
Mining Solutions
Ultimate
(2015)
Short-term
(2011)
Panorama
Implementation
Disciplined Growth FCF
Sales & Solutions
Service & Parts
Supply Chain
Safety
Systems
Intermediate
(2012-2014)
Operating
Leverage
10% EBIT
S
T
R
A
T
E
G
I
C
G
R
O
W
T
H
Operational
Excellence 5 x S
High Performance /
EngagementEBIT Improvement
Global
Solutions
Provider
Operational
Excellence
Solidify
Foundation
5
Investing in Our Future
Drive product support growth – truly differentiated service
Implement new ERP system (launched in Canada in July)
Disciplined capital spending
Fort McKay oil sands service facility – on track
Mining product support infrastructure in FINSA
Technical training
High performance culture – creativity, agility, resilience
World class safety and engagement
Strong Caterpillar relationships
Margin expansion – “The Power of 10” – sustainability 6
Capturing Growth
Growth within all our markets
Mining
• Oil sands: fleet replacement, capital spending on new projects
• Chile mining investment
• Mining equipment population expected to grow by ~50% over next 5 years
Construction and power systems
Growth with Caterpillar
New businesses
New products (e.g. 795F electric drive truck)
Global power systems
Technology
New territories (e.g. Ireland)7
Market Outlook
8
In light of macro-economic uncertainty, keeping very close to customers
and monitoring activity levels diligently
Long-term business fundamentals remain strong
Outlook into 2012 and 2013 positive
Healthy demand for commodities from large market in Asia supports
mining equipment and product support growth
Infrastructure activity is robust, particularly in South America and
Canada
Demand for energy continues to be solid
Oil & gas rebounding
Electric power generation (EPG) demand is growing
Expect softer Q3 due to short-term challenges with transition to our new ERP system in Canada and the impact of BC strike on product support revenues
Summary
9
Great Q2 results: significant improvement in operating leverage drove new earnings record
Investing in capabilities and capacity
New ERP system launched in Canada, working through startup challenges
Fort McKay on track; existing equipment and component rebuild facilities highly utilized
Outlook remains strong
Monitoring market activity levels closely and will act decisively to ensure our business activities match market demand
Well-positioned:
Limited fixed capital commitment
Disciplined working capital spend
Changed philosophy on rental
„Permanent‟ portion of SG&A reduced
Improved operating efficiencies
Remain focused on disciplined execution of our strategy
Appendix
Q2 2011 Highlights
11
Exceptionally strong Q2
New quarterly record for product support revenue
Remarkable growth in new equipment sales in all regions
Operating leverage drove record quarterly earnings
Compared to first half of 2010, operating at twice the profitability level
Managing demand-driven increase in working capital
Expect positive free cash flow later in 2011 with moderating inventory additions
FY 2011 free cash flow will be driven by working capital required; current forecast for negative annual FCF in 2011
Backlog up 14% from March 2011 to $1.7 billion, strong order intake continues
On track to achieve EBIT margin targets in 2013
Focused on Generating Operating LeverageOn Track to 10% EBIT Margin in 2013
EBIT Margin Targets – Solid Progress
Canada
FINSA
UK
9 – 10%
10 – 11%
7 – 8%Streamlined Cost Structure
Cost reductions
Improved productivity and efficiency
Operational excellence
Efficient Asset Base
Disciplined working capital management
Selected net rental additions
Increase in Revenues /
Gross Profits
Strong market activity
Market share growth
Margin improvements
+
ROE Target = 18%
12
Cash Engine for Growth
Cash for Growth
Dividends
Reduce debt
Acquisitions
Strategic shift in rental: net adds ~ $100-$150M per year*
Disciplined capital spending
~ $100M per year*
Strong cash flow from operationsEBITDA ~ $500 - 800M per year*
Enhanced focus on
working capital management
13* Averages over economic cycle
Outlook - Canada
Machine order intake is solid and expected to continue in 2011
Parts and machine/component rebuild activity robust
Rental activity strong
Oil sands activity increasing
Mine expansions (CNRL, Shell) and new players putting projects through the approval process (Total)
Other mining (coal, copper, gold, silver) seeing solid demand and the outlook remains strong for 2011 and beyond
Expect continued infrastructure activity
Starting to see some modest signs of forestry improvement with new demand from Asia
Expect softer Q3 due to short-term challenges with transition to our new ERP system in Canada and the impact of BC strike on product support revenues
14
Outlook - South America
Strong mining growth opportunities
Order intake solid
Product support very robust
Thriving construction & power systems
Private and public investments in infrastructure and energy
Mining contracts, expansions
Actively managing cost pressures of strong growth environment
Investing in service infrastructure
Additional opportunities based on Caterpillar growth and expansions
15
Outlook - UK and Ireland
Great turnaround in performance despite tough economic conditions
Coal mining
Mining equipment opportunities
Strong product support driver
Segmented approach working
Focus on construction segments with large products support opportunities (quarrying, re-handling, industrials, plant hire)
Successfully developing and rolling out low-cost distribution channels for smaller, building construction products
Power systems strengthening
UK renewables, mission critical, industrial and pleasure craft
Global markets - oil & gas, international marine 16
Mike Waites, President & CEO
September 2011
Investor Presentation