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Press release from Marketwire

Finning Reports Solid Fourth Quarter Results and Expects Growth In 2011

Wednesday, February 16, 2011

Finning Reports Solid Fourth Quarter Results and Expects Growth In 201116:30 EST Wednesday, February 16, 2011VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 16, 2011) - Finning International Inc. (TSX:FTT) - Q4 AND ANNUAL 2010 HIGHLIGHTS (from continuing operations)Q4 Basic EPS of $0.29 was up 123% from Q4 2009 and included an impairment charge on investments of $0.04 per share.Q4 EBIT of $79 million almost doubled from Q4 2009 and was in line with expectations. EBIT margin improved to 5.8% in Q4 2010 from 3.7% in Q4 2009 due to EBIT recovery in Canada. The Company generated $265 million in free cash flow in 2010, exceeding its target of $200 million. The net debt to total capital ratio was 33%, down from 39% at December 2009. Finning International Inc. (TSX:FTT) reported solid Q4 2010 results, which were in line with the Company's expectations and its positive medium-term outlook. Finning achieved Q4 2010 revenues of $1.4 billion, a 26% increase from Q4 2009. Earnings before interest and income taxes (EBIT) of $79 million doubled from Q4 2009 and EBIT margin of 5.8% was significantly higher than 3.7% in Q4 2009. The stronger results were primarily driven by improved profitability in Canada. Basic earnings per share (EPS) grew by 123% to $0.29 and included an impairment charge on investments of $0.04 per share and IT system implementation costs of $0.03 per share ($0.02 per share in Q4 2009). For the full year 2010, Finning's revenues increased by 4% from 2009 to $4.6 billion, driven by record product support activity. Modestly higher annual revenues combined with higher gross margins and a streamlined cost structure resulted in improved operating leverage and an 11% increase in EBIT from 2009 to $275 million. EBIT margin improved to 5.9% from 5.5% in 2009. Basic EPS grew by 9% to $1.00 and included non-operational charges of $0.21 per share ($0.08 per share in 2009). In May 2010, the Company completed the strategic realignment of its UK operations by selling Hewden, its UK rental business. This transaction resulted in an after-tax loss of $244 million or $1.43 per share. As a result, the total 2010 basic loss per share was $0.46 compared to $0.77 earnings per share in 2009. The results of operations of Hewden have been reclassified as discontinued operations for periods prior to sale. All numbers in this earnings release are from continuing operations and exclude the results of Hewden, including the loss on sale. The sale of Hewden positions our core UK dealership business for future success. "The fourth quarter results were in line with expectations and provided a solid finish to a successful year. Free cash flow totaled $265 million for the year exceeding our target. Since the fourth quarter of 2008, the beginning of the recession, the Company has generated over $900 million in free cash flow, significantly strengthening the balance sheet," said Mike Waites, president and CEO of Finning International Inc. "We are well positioned to capitalize on growth opportunities. We expect good top line growth in 2011 and beyond, reflecting robust commodity markets. And we are continuing to invest in our product line up and service capability to support customer demand. I am confident that we will drive margin expansion and achieve our EBIT growth projections."Order activity continued to be strong in the fourth quarter resulting in a consolidated order backlog of $1.3 billion, 6% higher than at September 30, 2010. Led by mining and a continued increase in new orders from the construction sector, the consolidated backlog increased in each consecutive quarter in 2010 and more than doubled from the end of 2009. The significantly higher backlog in each operation provides improved visibility into 2011 and beyond and supports the Company's expectation for a strong medium-term outlook. Consolidated revenues are projected to grow on average at 10 percent per annum over the next three years. In 2011, mining deliveries are scheduled towards the latter part of the year, which are expected to drive stronger results in the second half.Consolidated earnings growth is forecast to outpace revenue growth. The Company expects to make ongoing progress towards achieving a 10 percent consolidated EBIT margin in the medium term.Q4 2010 FINANCIAL SUMMARY (from continuing operations)C$ millions, except per share amounts (unaudited)Three months ended Dec 3120102009% changeRevenue1,3661,08126Earnings before interest and income taxes (EBIT) (1)794099Net Income5022131Basic EPS0.290.13123Earnings before interest, income taxes, depreciation and amortization (EBITDA) (1)128 84 52Free cash flow (1)(2)129130(1)Revenues of $1.4 billion were up 26% from Q4 2009, reflecting higher revenues in all operations. New equipment sales increased by 35%, driven by stronger sales in South America and UK & Ireland compared to Q4 2009. Product support revenues remained strong in all operations and grew by 24% on a consolidated basis. Used equipment sales declined by 8% in the quarter due to lower used equipment sales in Canada. Rental revenues were 17% higher compared to Q4 2009. Foreign exchange had a negative impact on quarterly revenues of approximately $67 million, as the Canadian dollar was 4% stronger relative to the U.S. dollar and 7% stronger relative to the U.K. pound sterling for Q4 2010 compared to Q4 2009. Gross profit increased by 34% from Q4 2009, and gross profit margin improved to 29.1% from 27.5% due to higher margins realized in equipment sales and rental. New equipment sales contributed 46% to the total revenue in Q4 2010 compared to 43% in Q4 2009, with product support contribution of 43%, similar to Q4 2009. Selling, general and administrative (SG&A) expenses as a percentage of revenue decreased to 22.3% from 23.0% in Q4 2009, reflecting the lower cost structure and continued focus on cost containment and productivity initiatives. In absolute dollars, SG&A expenses were 23% higher than in Q4 2009, supporting higher volumes and the growing product support business. For the full year, the Company achieved the targeted permanent cost reductions and continued to implement productivity and efficiency initiatives. The Company's goal on an annual basis is to drive SG&A expenses as a percentage of revenue to approximately 20% in the medium term. EBIT increased by 99% to $79 million, and consolidated EBIT margin of 5.8% improved significantly from 3.7% in Q4 2009 due to EBIT recovery in Canada. Improving EBIT margin performance remains at the top of the Company's priorities. For the full year, 2010 EBIT margin increased to 5.9% from 5.5% in 2009. Net income increased by 131% to $50 million. Basic EPS of $0.29 was up 123% compared to $0.13 in Q4 2009 and included an impairment charge on investments of $0.04 per share and IT system implementation costs of $0.03 per share. Foreign exchange had a negative impact of $0.03 per share compared to Q4 2009. EBITDA, which is an indicator of a company's cash operating performance and generation of operating cash flow, was $128 million, up 52% from Q4 2009. Q4 2010 HIGHLIGHTS BY OPERATIONS CanadaFourth quarter revenues rose by 12% from Q4 2009. Strong growth in product support revenues, which were up by 30%, was partly offset by lower new and used equipment sales, which were down by 2% and 20% respectively from Q4 2009. Rental revenues increased by 28% in the quarter. Growth in product support was driven by mining and substantial improvement in non-mining sectors. SG&A costs were higher than in the prior year, both in absolute dollars and as a percentage of revenue, reflecting increased costs in line with higher product support revenues. EBIT was $45 million in the quarter compared to a break even in Q4 2009. EBIT margin of 6.7% was slightly lower than in Q3 2010 but improved from the first two quarters of 2010. Finning Canada continues to drive higher EBIT margin by maximizing gross profit margin and focusing on cost containment, productivity improvements and supply chain efficiencies. Order activity remained very solid in Q4 2010 and is expected to continue to increase in 2011 as market conditions are expected to remain favorable in all sectors. South AmericaFourth quarter revenues reached a new record. They increased by 50% from Q4 2009 and were driven by strong new equipment sales and continued growth in product support revenues. In functional currency (USD), quarterly revenues were up 57% from Q4 2009. In functional currency, new equipment sales almost doubled in the quarter due to mining deliveries and increased demand from the construction sector in Chile and Argentina. Product support revenues continued to grow at a solid rate, and increased by 27% in functional currency. SG&A costs declined as a percentage of revenue compared to Q4 2009 but increased in absolute dollars in line with higher volumes. The Company is incurring higher people costs as many technicians are being recruited and trained to meet current and anticipated customer demand driven by large investments in mining projects in Chile. EBIT of $40 million increased by 22% from Q4 2009 and was 28% higher in functional currency. New equipment sales accounted for 51% of the total revenue compared to 40% in Q4 2009, reflecting a higher volume of large mining equipment sales. The shift in revenue mix and people costs to meet future growth resulted in an EBIT margin of 7.8%, down from 9.6% in Q4 2009. This decline is expected to be temporary with EBIT margin returning to more normal levels in 2011. Order intake from mining and construction customers continued to be strong in Q4 2010. Large investments in mining projects and in infrastructure and energy continue to support a strong outlook for South American operations. United Kingdom and Ireland (continuing operations)Quarterly revenues were up 33% from Q4 2009. In functional currency (GBP), quarterly revenues increased by 44%, driven by an 83% increase in new equipment sales and 15% higher product support revenues compared to Q4 2009. Stronger quarterly revenues reflected improved demand from coal mining, quarrying and heavy construction customers, as well as additional revenues from the Irish operations. EBIT was $5 million compared to $6 million in Q4 2009. EBIT margin was 2.4% in the quarter, compared to 4.2% in Q4 2009. Gross profit margin was lower in Q4 2010 due to the shift in revenue mix to more new equipment sales, which contributed 61% to total revenue compared to 48% in Q4 2009. SG&A expenses as a percentage of revenue declined from Q4 2009. EBIT margin is expected to improve in 2011 with higher revenues and a lower SG&A percentage. Order intake increased in the quarter compared to Q3 2010. The outlook for the coal mining, quarrying, waste management and plant hire sectors remains positive, while the impact of the Government proposed spending cuts on other sectors is uncertain. CORPORATE AND BUSINESS DEVELOPMENTSExecutive AppointmentOn December 16, 2010, Finning announced the appointment of Rebecca Schalm to the position of Senior Vice President, Human Resources, effective January 17, 2011. Ms. Schalm will be responsible for providing leadership and oversight to Finning's global efforts to build on the talents of its employees to achieve the Company's strategic objectives. Ms. Schalm's extensive experience includes providing consulting services in the areas of executive selection, integration and leadership development, succession and talent management, and senior team development. Ms. Schalm earned a Ph.D. in Industrial/Organizational Psychology from the University of Guelph.Dividend The Board of Directors approved a quarterly dividend at $0.12 per common share, payable on March 18, 2011, to shareholders of record on March 4, 2011. This dividend will be considered an eligible dividend for Canadian income tax purposes.SELECTED CONSOLIDATED FINANCIAL INFORMATION: Q4 AND ANNUAL 2010(from continuing operations unless otherwise stated, C$ millions, except per share amounts)Three months ended Dec 31Twelve months ended Dec 31Revenue2010 2009 % change2010 2009 % change New equipment633.9 469.9 351,940.6 1,983.8 (2) Used equipment61.1 66.2 (8)272.4 290.2 (6) Equipment rental84.6 72.2 17299.9 310.2 (3) Product support583.1 469.0 242,117.7 1,883.7 12 Other3.6 3.5 310.7 12.0 (11)Total revenue1,366.3 1,080.8 264,641.3 4,479.9 4Gross profit397.9 297.2 341,385.2 1,288.2 8Gross profit margin(3)29.1%27.5%29.8%28.8%SG&A(304.4) (248.2) (23)(1,069.6) (1,007.6) (6)SG&A as a percentage of revenue(22.3)%(23.0)%(23.0)%(22.5)%Other expenses(14.4) (9.3) (55)(40.6) (33.7) (20)EBIT(1)79.1 39.7 99275.0 246.9 11EBIT margin(4)5.8%3.7%5.9%5.5%Income from continuing operations50.1 21.7 131170.7 156.7 9Loss from discontinued operations, net of tax- (5.4)(249.1) (25.9)Net income (loss)50.1 16.3(78.4) 130.8Basic earnings (loss) per share (EPS) from continuing operations0.29 0.13 1231.00 0.92 9 from discontinued operations- (0.03)(1.46) (0.15)Total basic earnings (loss) per share0.29 0.10(0.46) 0.77EBITDA(1)128.0 84.2 52450.7 442.4 2Free Cash Flow*(1) (2)129.0 130.4 (1)264.9 493.9 (46)Dec 31, 10 Dec 31, 09Total assets*3,613.6 3,671.4Total shareholders' equity*1,386.6 1,515.7Net debt to total capital(5) *33.0% 39.3%* Free cash flow and assets from Hewden have been included in the figures for periods prior to the sale. To download Finning's complete Q4 and Annual 2010 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ410results.pdfTo download the CEO and CFO certification letters once they have been filed on SEDAR, please open the following link: http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00001068Q4 2010 RESULTS INVESTOR CALLManagement will hold an investor conference call on Thursday, February 17 at 11:00 am Eastern Time. Dial-in numbers: 1-866-223-7781 (anywhere within Canada and the U.S.) or (416) 340-8018 (for participants dialing from Toronto and overseas).The call will be webcast live and subsequently archived at www.finning.com. Playback recording will be available at 1-800-408-3053 from 1:00 pm Eastern Time on February 17 until February 24. The pass code to access the playback recording is 4463383 followed by the number sign.ANNUAL GENERAL MEETING – MAY 11, 2011Finning International's Annual General Meeting will be held at the Terminal City Club, 837 West Hastings Street, Vancouver, British Columbia on May 11, 2011 at 2 pm Pacific Time.ABOUT FINNINGFinning International Inc. (TSX:FTT) is the world's largest Caterpillar equipment dealer delivering unrivalled service to customers since 1933. Finning sells, rents and services equipment and engines to help customers maximize productivity. Headquartered in Vancouver, B.C., the Company operates in western Canada, Chile, Argentina, Bolivia, Uruguay, as well as in the United Kingdom and Ireland. FootnotesThese amounts do not have a standardized meaning under generally accepted accounting principles. For a reconciliation of these amounts to net income and cash flow from operating activities, see the heading "Description of Non-GAAP Measures" in the Company's management discussion and analysis that accompanies the fourth quarter and annual consolidated financial statements. Free cash flow is defined as cash flow provided by (used in) operating activities less net capital expenditures. Gross profit margin is defined as gross profit as a percentage of total revenue. EBIT margin is defined as earnings before interest and income taxes as a percentage of total revenue. Net debt to total capital ratio is calculated as short-term debt and long-term debt, net of cash and cash equivalents (net debt) divided by total capitalization. Total capitalization is defined as the sum of net debt and all components of equity (share capital, contributed surplus, accumulated other comprehensive loss, and retained earnings). Forward-Looking DisclaimerThis 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 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; and the expected quantitative impact on the consolidated statement of financial position of the Company's transition to IFRS at January 1, 2010. 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 February 16, 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 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; our ability to control cost pressures as growth in revenues occur; our ability to attract sufficient skilled labour resources to meet growing product support demand; 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; 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 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.FOR FURTHER INFORMATION PLEASE CONTACT: Mauk BreukelsFinning International Inc.Director, Investor Relations and Corporate Affairs(604) 331-4934mauk.breukels@finning.comwww.finning.com