Finning Reports Q4 and Annual 2015 Results
/EINPresswire.com/ -- VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 02/18/16 -- Finning International Inc. (TSX: FTT) reported fourth quarter and annual 2015 results today. All monetary amounts are in Canadian dollars unless otherwise stated.
HIGHLIGHTS
-- Excluding significant items(3) noted below, 2015 EBITDA(1)(2) would have
been $604 million (reported EBITDA was $126 million).
-- Annual free cash flow(2) was $325 million, including approximately $350
million in Q4.
-- Maintenance of strong financial flexibility into 2016. Net debt to
EBITDA ratio(2)(3) of 2.0x, and annual dividend of approximately 20% of
EBITDA, excluding significant items
-- Excluding significant items, South America's and Canada's Q4 2015 EBIT
margins(1)(2) would have been 9.0% and 5.7%, respectively (reported EBIT
margins were negative (57.5)% and negative (2.4)%, respectively),
contributing to an EPS(1) of $0.23 in Q4 (reported basic EPS loss was
$(1.82)).
-- In response to a decline in market activity and to optimize its
organizational structure, the global workforce was reduced by
approximately 13% in 2015. The Company is embarking on an additional
global workforce reduction of 400 to 500 people by mid-2016.
-- Significant customer wins:
-- In Q1 2016, Finning Canada was selected by Peace River Hydro
Partners to deliver 160 pieces of Caterpillar equipment for BC
Hydro's Site C Clean Energy Project, as well as perform equipment
condition monitoring and supply parts and maintenance labour.
-- In Q4 2015, Finning Canada accepted a notice of award from Canadian
Natural Resources Limited for the purchase of 12 used Caterpillar
797F trucks.
-- In Q4 2015, Finning South America received an equipment order from
Codelco's Ministro Hales (DMH) for 4 Caterpillar 797F off-highway
trucks and support equipment. DMH was the only mining company to
issue a public tender for ultra-class trucks in Finning's South
American territory during 2015.
"Finning continues to generate relatively consistent EBITDA and strong free cash flow despite very challenging market conditions," said Scott Thomson, president and CEO of Finning International. "This, combined with our ongoing efforts to right-size our business and implement sustainable operating improvements, enables us to maintain a strong balance sheet and dividends throughout the business cycle. Notwithstanding this progress, we are not immune to the challenges facing our customers across our key markets and geographies. Our performance in the fourth quarter was impacted by a number of one-time items, which reflect the difficult realities of our marketplace."
"We enter 2016 with the journey to transform our business well underway. Our business model is robust. We remain committed to delivering greater customer value. And we have clear plans to improve our operating results. Specifically, we are on track to achieve the previously announced $150 million in permanent SG&A cost savings and we expect additional structural cost savings from the workforce reductions announced today to address further declines in commodity prices and activity levels. These are difficult decisions for difficult times but I am confident that our operational excellence focus provides the right path to building a stronger, more agile company for today and tomorrow," concluded Mr. Thomson.
Q4 2015 FINANCIAL SUMMARY
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$ millions, except per share amounts Q4 2015 Q4 2014 % change
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Revenue 1,518 1,803 (16)
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EBIT(1)(2) (349) 142
EBIT margin (23.0)% 7.9%
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Net (loss) income (309) 107
Basic EPS (1.82) 0.62
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EBITDA (282) 194
Free cash flow 347 385 (10)
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Included in 2015 results are the following significant items that management does not consider indicative of operational and financial trends either by nature or amount. Of the significant items described, $10 million was recorded in depreciation and amortization expense in Q4 2015.
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Q4 2015 Significant Items by
Operation
$ millions, except per share South UK & Finning
amounts Canada America Ireland Other Total EPS
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Distribution network and
goodwill impairment - 324 14 - 338 1.56
Facility closures and
restructuring costs 40 3 2 - 45 0.19
Inventory and other asset
impairments 16 10 16 - 42 0.19
FX and tax impact on
devaluation of Argentine
peso - 12 - - 12 0.14
Severance costs - - 2 - 2 0.01
Gain on sale of Uruguay
business - - - (8) (8) (0.04)
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Total 56 349 34 (8) 431 2.05
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Q4 2014 Significant Items by South UK & Finning
Operation Canada America Ireland Other Total EPS
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Tax impact from inflation
adjustment in Argentina - - - - - (0.07)
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-- Revenues were down 16%, driven by a 28% decline in new equipment sales.
Order backlog(2) was $500 million at the end of Q4 2015, down from $600
million at the end of Q3 2015, reflecting reduced demand for new
equipment in all market segments due to a challenging economic
environment. Product support revenues decreased by 7%, impacted by lower
customer activity and equipment utilization, most notably in mining and
core industries.
-- Gross profit decreased by 22% as a result of lower revenues, lower
margins on equipment and rental, and a $36 million impairment on aged,
customized, and industry-specific inventory and other assets due to
prolonged weak market conditions, particularly in the mining and oil and
gas sectors. Excluding inventory and other asset impairments, gross
profit margin(2) would have been slightly above Q4 2014, primarily due
to a favourable shift in revenue mix to product support and improved
service margins, particularly in Canada.
-- EBIT loss was $(349) million and EBIT margin was negative (23.0)%
compared to EBIT of $142 million and EBIT margin of 7.9% in Q4 2014.
Included in EBIT were significant items totaling $431 million. In
addition, weak market conditions across all regions resulted in reduced
business volumes and lower margins on equipment and rental compared to
Q4 2014. The Company achieved its targeted SG&A cost savings from
workforce reductions and operational improvement initiatives, and is
taking additional actions to address further reduction in activity
levels.
-- Basic EPS loss was $(1.82) compared to basic EPS of $0.62 in Q4 2014.
Excluding significant items in both periods, basic EPS would have been
$0.23 per share in Q4 2015 and $0.55 per share in Q4 2014.
EBITDA and Free Cash Flow
-- EBITDA loss was $(282) million and EBITDA margin was negative (18.6)%.
Excluding significant items, EBITDA would have been $139 million and
EBITDA margin would have been 9.1%, compared to $194 million and 10.7%
in Q4 2014.
-- Free cash flow was $347 million compared to $385 million in Q4 2014
despite significantly weaker market conditions in Canada.
-- The Company's balance sheet remains strong with a net debt to invested
capital ratio(2) of 36.7% at the end of 2015, compared to 38.7% at
September 30, 2015 and 31.4% at the end of 2014. Excluding significant
items, net debt to EBITDA ratio would have been 2.0 at the end of 2015.
-- During Q4, the Company repurchased 1.2 million of its shares for
cancellation. For the full year 2015, the Company allocated
approximately $91 million to the repurchase of about 4.4 million shares
or approximately 2.5% of all shares which were outstanding at January 1,
2015.
Invested Capital
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Q4 2015 Q3 2015 Q4 2014
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Invested capital(2) ($ millions)
Consolidated 3,240 3,802 3,106
Canada 1,760 1,871 1,475
South America (U.S. dollars) 811 1,108 1,162
UK & Ireland (U.K. pound sterling) 157 219 157
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Invested capital turnover(2) (times) 1.75 1.85 2.10
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Return on invested capital(2) (%)
Consolidated (3.0) 11.0 15.3
Canada 5.5 10.9 17.1
South America (12.8) 13.2 14.6
UK & Ireland (1.4) 10.5 16.3
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-- Excluding the impact of foreign currency translation of about $40
million, consolidated invested capital decreased by approximately $600
million from Q3 2015, reflecting lower intangible assets from impairment
of the shovels and drills distribution network and goodwill; reduced
inventories; lower fixed assets due to facility closures and impairment
on properties; and a decrease in rental assets. The Company will
continue to focus on reducing inventory levels, and tightly managing
capital and rental expenditures.
-- In Canada, invested capital decreased by about $110 million from Q3
2015 driven by lower accounts receivable, lower parts inventories,
and a decrease in fixed and rental assets from facility closures and
impairments. The Canadian operations continue to focus on reducing
equipment inventory to align with lower activity levels.
-- In South America, invested capital declined by approximately US$300
from Q3 2015 due to lower intangible assets from impairment of the
distribution network and goodwill, as well as lower equipment
inventories.
-- In the UK & Ireland, invested capital was down by approximately GBP
60 million from Q3 2015, driven mostly by lower equipment inventory.
-- Total inventory was reduced by nearly $170 million in Q4 2015,
excluding impairment.
-- Invested capital turnover declined to 1.75 times from 1.85 times in Q3
2015 due to significantly lower revenues over the last four quarters.
-- ROIC(1) decreased to negative (3.0)% from 11.0% in Q3 2015, primarily
due to the impairment of the distribution network as well as other
significant items, notably facility closure and restructuring costs, and
inventory and other asset impairments. In addition, the market downturn
continued to negatively impact ROIC in all operations.
Q4 2015 HIGHLIGHTS BY OPERATION
Canada
-- Revenues were down 26%, with lower revenues in all lines of business.
New equipment sales declined by 46% reflecting reduced demand for
equipment across all markets. Product support revenues were down 10%
mostly due to lower service revenues, as customers continued to postpone
maintenance and in-source some service work. Rental revenues declined by
31%, impacted primarily by weaker demand and increased competition for
short-term rentals.
-- EBIT loss was $(17) million and EBIT margin was negative (2.4)%.
Excluding significant items discussed in the table above, EBIT would
have been $39 million and EBIT margin would have been 5.7% compared to
Q4 2014 EBIT of $73 million and EBIT margin of 7.7%. The impact on
profitability from significantly lower revenues was partly offset by
SG&A cost savings from workforce reductions and business transformation
initiatives, as well as the shift in revenue mix to product support.
EBIT margin, excluding significant items, was below 7.0% in Q3 2015,
excluding severance costs and the loss on a building sublease, as the
benefits of permanent SG&A cost savings were not fully realized in Q4
2015, while market activity declined rapidly.
South America
-- Revenues declined by 11% (down 24% in functional currency - U.S.
dollars) due to reduced market activity in all sectors. New equipment
sales decreased by 23% (down 35% in functional currency), driven by a
slowdown in economic activity in Chile, particularly in the mining
sector. Product support revenues were down 6% (down 20% in functional
currency), reflecting reduced mining production levels, lower equipment
utilization, and continued delay of major repairs by mining customers.
-- EBIT loss was $(303) million and EBIT margin was negative (57.5)%.
Excluding significant items discussed in the table above, EBIT would
have been $46 million and EBIT margin would have been 9.0%. This was
below Q4 2014 EBIT of $59 million and EBIT margin of 9.8%. Significantly
lower volumes across all markets were partly offset by a higher
proportion of product support in the revenue mix and SG&A cost savings.
Excluding significant items previously noted, Q4 2015 EBIT margin
improved from Q3 2015 EBIT margin of 8.4%, excluding severance costs,
reflecting savings from workforce reductions.
United Kingdom & Ireland
-- Revenues increased by 11% from Q4 2014 (down slightly in functional
currency - U.K. Pound Sterling). New equipment sales were down 6% in
functional currency, primarily due to lower activity in power systems.
Product support was 5% below Q4 2014 in functional currency, impacted by
reduced demand from the oil & gas sector in the North Sea. Offsetting
these revenue declines, used equipment sales more than doubled from Q4
2014, albeit at lower margins.
-- EBIT loss was $(31) million and EBIT margin was negative (10.7)%.
Excluding significant items discussed in the table above, EBIT would
have been $3 million and EBIT margin would have been 0.8%. The decrease
from Q4 2014 EBIT of $11 million and EBIT margin of 4.3% was primarily
due to lower gross profit margins on new, used and rental equipment,
reflecting competitive market pressures. The Company's focus on reducing
used equipment inventory in the UK had a negative impact on margins in
Q4 and throughout 2015. Going forward, the UK & Ireland operations are
expected to return to historic profitability levels.
CORPORATE AND BUSINESS DEVELOPMENTS
Dividend
The Board of Directors has approved a quarterly dividend of $0.1825 per share, payable on March 17, 2016 to shareholders of record on March 3, 2016. This dividend will be considered an eligible dividend for Canadian income tax purposes.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
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$ millions, except per
share amounts Three months ended Dec 31 Twelve months ended Dec 31
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Revenue 2015 2014 % change 2015 2014 % change
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New equipment 530 740 (28) 2,188 2,885 (24)
Used equipment 91 85 8 341 271 26
Equipment rental 70 91 (23) 293 358 (18)
Product support 823 882 (7) 3,352 3,381 (1)
Other 4 5 16 23
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Total revenue 1,518 1,803 (16) 6,190 6,918 (11)
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Gross profit 413 529 (22) 1,814 2,062 (12)
Gross profit margin 27.2% 29.3% 29.3% 29.8%
SG&A (390) (393) 1 (1,542) (1,556) 1
SG&A as a percentage
of revenue (25.7)% (21.8)% (24.9)% (22.5)%
Equity earnings of
joint venture and
associate 1 6 5 12
Other (expenses) /
income (35) - (44) (14)
Impairment on
distribution network
and goodwill (338) - (338) -
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EBIT (349) 142 (105) 504
EBIT margin (23.0)% 7.9% (1.7)% 7.3%
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Net (loss) income (309) 107 (161) 318
Basic EPS (1.82) 0.62 (0.94) 1.85
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EBITDA (282) 194 126 720
Free cash flow 347 385 (10) 325 483 (33)
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Dec 31, 15 Dec 31, 14
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Invested capital 3,240 3,106
Invested capital turnover (times) 1.75 2.10
Net debt to invested capital 36.7% 31.4%
Return on invested capital (3.0)% 15.3%
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2015 Significant Items Q4 2015 Full Year 2015
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EBIT ($m) EPS ($) EBIT ($m) EPS ($)
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Distribution network and goodwill
impairment 338 1.56 338 1.54
Facility closures and restructuring
costs 45 0.19 53 0.23
Inventory and other asset
impairments 42 0.19 42 0.19
FX and tax impact on devaluation of
Argentine peso 12 0.14 12 0.14
Severance costs 2 0.01 48 0.21
Gain on sale of Uruguay business (8) (0.04) (8) (0.04)
Saskatchewan dealership acquisition
costs - - 3 0.01
Capital loss utilized and Alberta
tax rate change - - - (0.05)
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Total 431 2.05 488 2.23
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2014 Significant Items Q4 2014 Full Year 2014
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EBIT ($m) EPS ($) EBIT ($m) EPS ($)
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Severance and labour disruption
costs - - 17 0.07
ERP write-off in South America - - 12 0.06
Tax impact from inflation adjustment
in Argentina - (0.07) - (0.07)
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Total - (0.07) 29 0.06
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To download Finning's complete Q4 and annual 2015 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ415results.pdf.
Q4 2015 RESULTS INVESTOR CALL
The Company will hold an investor call on February 18 at 11:00 am Eastern Time. Dial-in numbers: 1-866-225-0198 (within Canada and the US) or 416-340-2216 (Toronto area 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 until February 25, 2015. The pass code to access the playback recording is 2919458 followed by the number sign.
ABOUT FINNING
Finning International Inc. (TSX: FTT) is the world's largest Caterpillar equipment dealer delivering unrivalled service to customers for over 80 years. Finning sells, rents, and provides parts and services for equipment and engines to help customers maximize productivity. Headquartered in Vancouver, B.C., the Company operates in Western Canada, Chile, Argentina, Bolivia, the United Kingdom and Ireland.
FOOTNOTES
(1) Earnings Before Finance Costs and Income Taxes (EBIT); 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).
(2) These financial metrics do not have a standardized meaning under
International Financial Reporting Standards, and may not be comparable
to similar measures used by other issuers. The Company's Management's
Discussion and Analysis (MD&A) includes additional information
regarding these financial metrics, including definitions, under the
heading "Description of Non-GAAP Measures".
(3) Included in 2015 results are significant items that management does not
consider indicative of operational and financial trends either by
nature or amount. Of the significant items described, $10 million was
recorded in depreciation and amortization expense in Q4 2015. For
further details on these significant items, please refer to page 2 of
the Company's earnings release.
FORWARD-LOOKING DISCLAIMER
This report contains statements about the Company's business outlook, objectives, plans, strategic priorities and other statements that are not historical facts. A statement Finning makes is forward-looking when it uses what the Company knows and expects 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; workforce reductions; distribution network and goodwill impairment charges; facility closures; expected revenue; expected free cash flow; EBIT margin; expected range of the effective tax rate; ROIC; market share growth; expected results from service excellence action plans; anticipated asset utilization; inventory turns and parts service levels; the expected target range of the Company's net debt to invested capital ratio; and the expected financial impact from acquisitions. 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 reflect Finning's expectations at February 17, 2016. Except as may be required by Canadian securities laws, Finning does 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 the expectations expressed in or implied by such forward-looking statements and that Finning's business outlook, objectives, plans, strategic priorities and other statements that are not historical facts may not be achieved. As a result, Finning 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 these 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, Finning's products and services; Finning's dependence on the continued market acceptance of products and timely supply of parts and equipment; Finning's ability to continue to improve productivity and operational efficiencies while continuing to maintain customer service; Finning's ability to manage cost pressures as growth in revenue occurs; Finning's ability to reduce costs in response to slowing activity levels; Finning's ability to attract sufficient skilled labour resources as market conditions, business strategy or technologies change; Finning's ability to negotiate and renew collective bargaining agreements with satisfactory terms for Finning's employees and the Company; the intensity of competitive activity; Finning's ability to raise the capital needed to implement its 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, availability and benefits from information technology and the data processed by that technology. 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 Finning's 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 Finning believed were reasonable on the day the Company made the forward-looking statements. Refer in particular to the Outlook section of this 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 Section 4 of the Company's current AIF.
Finning cautions readers that the risks described in the MD&A and the AIF are not the only ones that could impact the Company. Additional risks and uncertainties not currently known to the Company or that are currently deemed to be immaterial may also have a material adverse effect on Finning's business, financial condition, or results of operations.
Except as otherwise indicated, 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. Finning therefore cannot describe the expected impact in a meaningful way or in the same way Finning presents known risks affecting its business.
Contacts:
Finning International Inc.
Mauk Breukels
Vice President, Investor Relations and Corporate Affairs
(604) 331-4934
mauk.breukels@finning.com
www.finning.com
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