Finning International Inc. (TSX: FTT) (“Finning”, the “Company”,
“we”, “our” or “us”) reported first quarter 2023 results today. All
monetary amounts are in Canadian dollars unless otherwise stated.
HIGHLIGHTSAll comparisons are to Q1 2022
results unless indicated otherwise.
- Q1 2023 EPS (1) was $0.89, up 51%
from Q1 2022, driven by revenue growth and expanded operating
margins. We took several actions in Q1 2023 to simplify our
operating model described on page 9. These actions had no net
impact on Q1 2023 EPS.
- Q1 2023 revenue of $2.4 billion and
net revenue (2) of $2.1 billion were up 22% and 23%, respectively,
from Q1 2022, led by a 27% increase in product support revenue and
18% higher new equipment sales. We continue to hire technicians and
increase our workshops' capacity to support growing product support
volumes.
- Q1 2023 EBIT (1) was $239 million.
Excluding the significant items described on page 9, Q1 2023
Adjusted EBIT (3)(4) was $216 million, up 54% from Q1 2022.
- All regions delivered solid
operating leverage. Q1 2023 Adjusted EBIT as a percentage of net
revenue (2)(4) was 11.3% in Canada, 11.5% in South America, and
5.7% in the UK & Ireland.
- Q1 2023 Adjusted ROIC (1)(2)(4)
increased to 19.7%, up 270 basis points from Q1 2022.
- Consolidated equipment backlog (2)
increased 6% from December 31, 2022, to $2.7 billion at March 31,
2023.
- Quarterly dividend was raised by 6%
to $0.25 per share, marking 22 years of consecutive dividend
growth.
“Q1 2023 was another great quarter for Finning. Our team once
again executed well enabling us to expand operating margins and
drive continued improvement of our Adjusted return on invested
capital, which is approaching 20%. The combination of our expanding
installed equipment base and execution of our product support
strategy drove strong product support revenue growth this quarter
which was the largest contributor to our strong earnings
growth.
In recent months, we have engaged with our leaders to simplify
and prioritize our strategy, which will focus on growth by design,
full cycle resilience, and empowerment of our regional teams to
continue delivering excellent results for our customers. As we
reinvest in our business, we will be intentional in targeting and
capturing addressable market opportunities, placing continued
emphasis on growing share in our aftermarket business, as well as
greater focus on attractive opportunities in used equipment,
rental, and power systems segments. We will also continue building
full cycle resilience into our operations. We took several actions
in the first quarter to streamline our operating model and reduce
our corporate overhead costs, and we will continue driving
productivity improvements, making our cost base more variable, and
growing resilient segments of our business so we can deliver strong
performance through all market conditions.
Business activity levels and customer confidence remain strong.
We are pleased to see a further increase in our equipment backlog,
service work in progress, and book of rebuilds as we continue to
execute and build on our strong momentum.” said Kevin Parkes,
president and CEO.
Q1 2023 FINANCIAL SUMMARY
|
|
Three months ended |
|
|
|
March 31 |
|
|
|
|
|
|
% change |
|
|
|
|
|
|
|
fav (1) |
|
|
($ millions, except per share amounts) |
2023 |
|
2022 |
(unfav) (1) |
|
|
New
equipment |
624 |
|
|
527 |
|
|
18 |
% |
|
|
Used
equipment |
92 |
|
|
79 |
|
|
17 |
% |
|
|
Equipment rental |
75 |
|
|
65 |
|
|
16 |
% |
|
|
Product
support |
1,308 |
|
|
1,027 |
|
|
27 |
% |
|
|
Fuel and other |
281 |
|
|
255 |
|
|
10 |
% |
|
|
Revenue |
2,380 |
|
|
1,953 |
|
|
22 |
% |
|
|
Net
revenue |
2,144 |
|
|
1,736 |
|
|
23 |
% |
|
|
Gross
profit |
622 |
|
|
490 |
|
|
27 |
% |
|
|
Gross
profit as a percentage of net revenue (2) |
29.0 |
% |
|
28.2 |
% |
|
|
|
|
SG&A
(1) |
(407 |
) |
|
(351 |
) |
|
(16 |
)% |
|
|
SG&A
as a percentage of net revenue (2) |
(19.0 |
)% |
|
(20.2 |
)% |
|
|
|
|
Equity
earnings of joint ventures |
1 |
|
|
1 |
|
|
|
|
|
Other
income |
41 |
|
|
— |
|
|
|
|
|
Other expenses |
(18 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT |
239 |
|
|
140 |
|
|
70 |
% |
|
|
EBIT as
a percentage of net revenue (2) |
11.2 |
% |
|
8.1 |
% |
|
|
|
|
Adjusted
EBIT |
216 |
|
|
140 |
|
|
54 |
% |
|
|
Adjusted EBIT as a percentage of net revenue |
10.1 |
% |
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to shareholders of Finning |
134 |
|
|
92 |
|
|
45 |
% |
|
|
EPS |
0.89 |
|
|
0.59 |
|
|
51 |
% |
|
|
Adjusted EPS (2) |
0.89 |
|
|
0.59 |
|
|
51 |
% |
|
|
Free cash flow (3) |
(245 |
) |
|
(303 |
) |
|
19 |
% |
|
|
Q1 2023 EBIT by Operation |
|
|
South |
|
UK & |
|
|
|
Finning |
|
|
|
|
($ millions, except per share amounts) |
Canada |
|
America |
|
Ireland |
|
Other |
|
Total |
|
EPS |
|
|
EBIT / EPS |
126 |
|
|
74 |
|
|
15 |
|
|
24 |
|
|
239 |
|
|
0.89 |
|
|
|
Gain on
wind up of foreign subsidiaries |
— |
|
|
— |
|
|
— |
|
|
(41 |
) |
|
(41 |
) |
|
(0.21 |
) |
|
|
Severance costs |
4 |
|
|
7 |
|
|
2 |
|
|
5 |
|
|
18 |
|
|
0.09 |
|
|
|
Withholding tax on repatriation of profits |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
0.12 |
|
|
|
Adjusted EBIT / Adjusted EPS (3)(4) |
130 |
|
|
81 |
|
|
17 |
|
|
(12 |
) |
|
216 |
|
|
0.89 |
|
|
|
Adjusted
EBIT as a percentage of |
|
|
|
|
|
|
|
|
|
|
|
|
|
net revenue (2)(4) |
11.3 |
% |
|
11.5 |
% |
|
5.7 |
% |
|
n/m |
|
10.1 |
% |
|
|
|
|
Q1 2022 EBIT by Operation |
|
|
South |
|
UK & |
|
|
|
Finning |
|
|
|
|
($ millions, except per share amounts) |
Canada |
|
America |
|
Ireland |
|
Other |
|
Total |
|
EPS |
|
|
EBIT / EPS |
80 |
|
|
65 |
|
|
14 |
|
|
(19 |
) |
|
140 |
|
|
0.59 |
|
|
EBIT as a percentage of net revenue |
9.1 |
% |
|
11.4 |
% |
|
5.0 |
% |
|
n/m |
|
8.1 |
% |
|
|
|
QUARTERLY KEY PERFORMANCE MEASURES
|
|
|
2023 |
|
2022 |
|
2021 |
|
|
|
|
Q1 |
|
Q4 |
Q3 |
Q2 |
Q1 |
|
Q4 |
Q3 |
Q2 |
Q1 |
|
|
EBIT ($
millions) |
239 |
|
|
214 |
|
224 |
|
190 |
|
140 |
|
|
157 |
|
150 |
|
137 |
|
108 |
|
|
|
Adjusted EBIT ($
millions) |
216 |
|
|
214 |
|
224 |
|
190 |
|
140 |
|
|
157 |
|
150 |
|
137 |
|
93 |
|
|
|
EBIT as a % of net
revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
11.2 |
% |
|
9.0 |
% |
10.7 |
% |
9.4 |
% |
8.1 |
% |
|
8.9 |
% |
8.6 |
% |
8.0 |
% |
7.4 |
% |
|
|
|
Canada |
11.0 |
% |
|
11.0 |
% |
11.7 |
% |
10.0 |
% |
9.1 |
% |
|
10.1 |
% |
10.4 |
% |
9.3 |
% |
8.9 |
% |
|
|
|
South America |
10.5 |
% |
|
11.4 |
% |
12.3 |
% |
10.1 |
% |
11.4 |
% |
|
10.1 |
% |
9.2 |
% |
9.8 |
% |
8.6 |
% |
|
|
|
UK & Ireland |
5.1 |
% |
|
4.4 |
% |
6.2 |
% |
6.4 |
% |
5.0 |
% |
|
4.3 |
% |
5.6 |
% |
5.3 |
% |
3.2 |
% |
|
|
Adjusted EBIT as a
% of net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
10.1 |
% |
|
9.0 |
% |
10.7 |
% |
9.4 |
% |
8.1 |
% |
|
8.9 |
% |
8.6 |
% |
8.0 |
% |
6.3 |
% |
|
|
|
Canada |
11.3 |
% |
|
11.0 |
% |
11.7 |
% |
10.0 |
% |
9.1 |
% |
|
10.1 |
% |
10.4 |
% |
9.3 |
% |
7.7 |
% |
|
|
|
South America |
11.5 |
% |
|
11.4 |
% |
12.3 |
% |
10.1 |
% |
11.4 |
% |
|
10.1 |
% |
9.2 |
% |
9.8 |
% |
8.6 |
% |
|
|
|
UK & Ireland |
5.7 |
% |
|
4.4 |
% |
6.2 |
% |
6.4 |
% |
5.0 |
% |
|
4.3 |
% |
5.6 |
% |
5.3 |
% |
3.2 |
% |
|
|
EPS |
0.89 |
|
|
0.89 |
|
0.97 |
|
0.80 |
|
0.59 |
|
|
0.66 |
|
0.61 |
|
0.56 |
|
0.43 |
|
|
|
Adjusted EPS
(4) |
0.89 |
|
|
0.89 |
|
0.97 |
|
0.80 |
|
0.59 |
|
|
0.66 |
|
0.61 |
|
0.56 |
|
0.35 |
|
|
|
Invested capital
(2) ($ millions) |
4,545 |
|
|
4,170 |
|
4,358 |
|
4,076 |
|
3,777 |
|
|
3,326 |
|
3,335 |
|
3,277 |
|
3,177 |
|
|
|
ROIC (2) (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
20.2 |
% |
|
18.7 |
% |
18.3 |
% |
17.5 |
% |
17.0 |
% |
|
16.8 |
% |
15.6 |
% |
15.3 |
% |
12.5 |
% |
|
|
|
Canada |
19.4 |
% |
|
18.7 |
% |
18.2 |
% |
17.4 |
% |
17.4 |
% |
|
17.5 |
% |
16.5 |
% |
17.0 |
% |
15.6 |
% |
|
|
|
South America |
24.0 |
% |
|
24.5 |
% |
22.7 |
% |
22.3 |
% |
21.7 |
% |
|
20.3 |
% |
19.0 |
% |
17.2 |
% |
12.3 |
% |
|
|
|
UK & Ireland |
17.0 |
% |
|
17.0 |
% |
16.6 |
% |
16.2 |
% |
15.7 |
% |
|
14.8 |
% |
14.9 |
% |
12.9 |
% |
6.5 |
% |
|
|
Adjusted ROIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
19.7 |
% |
|
18.7 |
% |
18.3 |
% |
17.5 |
% |
17.0 |
% |
|
16.4 |
% |
14.7 |
% |
13.3 |
% |
10.0 |
% |
|
|
|
Canada |
19.6 |
% |
|
18.7 |
% |
18.2 |
% |
17.4 |
% |
17.4 |
% |
|
16.9 |
% |
15.3 |
% |
14.0 |
% |
10.8 |
% |
|
|
|
South America |
24.6 |
% |
|
24.5 |
% |
22.7 |
% |
22.3 |
% |
21.7 |
% |
|
20.3 |
% |
19.0 |
% |
17.2 |
% |
14.4 |
% |
|
|
|
UK & Ireland |
17.4 |
% |
|
17.0 |
% |
16.6 |
% |
16.2 |
% |
15.7 |
% |
|
14.8 |
% |
14.9 |
% |
12.9 |
% |
7.6 |
% |
|
|
Invested capital
turnover (2) (times) |
2.01 |
|
|
2.01 |
|
1.96 |
|
2.00 |
|
2.03 |
|
|
2.04 |
|
2.01 |
|
1.93 |
|
1.78 |
|
|
|
Inventory ($
millions) |
2,710 |
|
|
2,461 |
|
2,526 |
|
2,228 |
|
2,101 |
|
|
1,687 |
|
1,627 |
|
1,643 |
|
1,593 |
|
|
|
Inventory turns
(dealership) (2) (times) |
2.51 |
|
|
2.61 |
|
2.52 |
|
2.50 |
|
2.66 |
|
|
3.09 |
|
3.09 |
|
2.84 |
|
2.83 |
|
|
|
Working capital to
net revenue (2) |
28.0 |
% |
|
27.4 |
% |
27.1 |
% |
25.1 |
% |
23.8 |
% |
|
22.9 |
% |
23.0 |
% |
24.0 |
% |
25.9 |
% |
|
|
Free cash flow ($
millions) |
(245 |
) |
|
332 |
|
(57 |
) |
(142 |
) |
(303 |
) |
|
148 |
|
176 |
|
(4 |
) |
(20 |
) |
|
|
Net debt to
Adjusted EBITDA (1) ratio (2)(4) (times) |
1.7 |
|
|
1.6 |
|
1.8 |
|
1.8 |
|
1.6 |
|
|
1.1 |
|
1.3 |
|
1.4 |
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2023 HIGHLIGHTS BY OPERATIONAll comparisons
are to Q1 2022 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 30% from
Q1 2022, with broad-based strength across all lines of
business.
- New equipment sales were up 52%,
driven by mining deliveries and higher volumes in the construction
and power systems sectors.
- Product support revenue increased
by 26%, led by mining, including increasing rebuild activity.
- Excluding severance costs described
on page 9, Adjusted EBIT was up 62% compared to Q1 2022 and
Adjusted EBIT as a percentage of net revenue was up 220 basis
points to 11.3%. SG&A as a percentage of net revenue declined
from Q1 2022.
- Canada’s Adjusted ROIC approached
20% in Q1 2023.
South America Operations
- Net revenue increased by 16% from
Q1 2022, driven primarily by mining product support.
- New equipment sales were up 8% from
Q1 2022 due to higher sales to large contractors supporting mining
operations and infrastructure construction in Chile.
- Product support revenue was up 19%,
driven by increased demand for component exchanges, equipment
overhauls, and fleet maintenance in mining, and higher volumes from
new mining product support contracts in Chile.
- We have accelerated productivity
initiatives to offset inflationary cost increases. As a result, 120
non-revenue generating managerial and administrative positions are
being eliminated. In addition, we have reduced contractor positions
and increased utilization of our shared services center in
Uruguay.
- Excluding severance costs described
on page 9, Adjusted EBIT was up 17% compared to Q1 2022, in line
with revenue growth. Adjusted EBIT as a percentage of net revenue
of 11.5% was slightly higher than Q1 2022.
- South America generated Adjusted
ROIC approaching 25% in Q1 2023.
UK & Ireland Operations
- Net revenue was up 5% from Q1 2022
as growth in product support more than offset lower new equipment
sales. Product support revenue was up 36%, driven primarily by
increased activity in construction and the full quarter of
contribution from Hydraquip(1), which was acquired in March
2022.
- New equipment sales decreased by
13% due to lower sales in construction, including lower HS2
deliveries compared to last year. In power systems, new equipment
sales exceeded Q1 2022.
- Excluding severance costs described
on page 9, Adjusted EBIT increased by 19% from Q1 2022 and Adjusted
EBIT as a percentage of net revenue increased by 70 basis points to
5.7%, reflecting a higher proportion of product support in the
revenue mix and operating leverage.
Corporate and Other Items
- Excluding significant items
described on page 9, corporate Adjusted EBIT loss was $12 million
in Q1 2023 compared to an EBIT loss of $19 million in Q1 2022
primarily due to lower LTIP expense.
- We streamlined our corporate
overhead costs by reducing non-revenue generating full-time and
contractor roles globally by over 400 people, including a 25%
reduction of vice president and above positions globally.
- The Board of Directors has approved
a 6% increase in the quarterly dividend to $0.25 per share from
$0.236 per share, payable on June 8, 2023, to shareholders of
record on May 25, 2023. This dividend will be considered an
eligible dividend for Canadian income tax purposes.
Renewal of Share Repurchase Program
We have received approval from the Toronto Stock Exchange
("TSX") to renew our NCIB to purchase for cancellation up to
14,900,895 of our common shares, representing 10% of our public
float of 149,008,958 common shares as at April 30, 2023. As at
April 30, 2023, Finning had a total of 149,311,782 common shares
issued and outstanding.
The NCIB, which will begin on May 13, 2023 and end no later than
May 12, 2024, will be conducted through the facilities of the TSX
or other Canadian alternative trading systems, if eligible, and
will conform to their rules and regulations.
Our Board of Directors believes that, from time to time, the
purchase by us of our common shares represents a desirable use of
our available cash to increase shareholder value.
The average daily trading volume of our common shares over the
six-month period ending April 30, 2023, as calculated in accordance
with TSX rules, was 375,579 common shares. Consequently, under TSX
rules, we will be allowed to purchase daily, through the facilities
of the TSX, a maximum of 93,894 common shares representing 25% of
such average daily trading volume, subject to certain exceptions
for block purchases. All shares purchased pursuant to our NCIB will
be cancelled.
Purchases under our NCIB will be made by means of open market
transactions or such other means as the TSX may permit. The price
to be paid by us for any common share will be the market price at
the time of acquisition, plus brokerage fees.
In connection with the NCIB, we will enter into an automatic
share purchase plan ("ASPP") with a designated broker. The ASPP
will allow for the purchase of shares under the NCIB at times when
we would ordinarily not be permitted to purchase shares due to
regulatory restrictions and customary self-imposed blackout
restrictions.
The ASPP will provide a set of standard instructions to the
designated broker to make purchases under the NCIB in accordance
with the limits and other terms set out in the ASPP. The designated
broker will determine the timing of these purchases in its sole
discretion based on purchasing parameters set by us and subject to
the rules of the TSX, applicable securities laws, and the terms of
the ASPP. The ASPP has been pre-cleared by the TSX and will be
implemented as of May 15, 2023. All purchases made under the ASPP
will be included in computing the number of shares purchased and
cancelled by us under the NCIB. Outside of pre-determined blackout
periods, shares may be purchased under the NCIB based on
management's discretion, in compliance with TSX rules, and
applicable securities laws.
Under the current NCIB, which expires on May 12, 2023, we
obtained approval to purchase up to 8,000,000 common shares. As of
April 30, 2023, Finning purchased and cancelled 7,047,291 common
shares under the current NCIB on the open market through the
facilities of the TSX and other alternative Canadian trading
systems at a volume weighted average price paid of $30.83 per
common share (excluding commissions).
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
Our outlook for Western Canada is positive, supported by healthy
order activity, record backlog, and continued strong demand for
product support across all sectors.
In the mining and energy sectors, constructive commodity prices
and improved capital budgets are driving investment in renewal of
aging fleets and product support opportunities, including growing
demand for component remanufacturing and equipment rebuilds. We are
pleased to have received an order from Artemis Gold for the
previously announced mining equipment package valued at $134
million, which is expected to be fully included in our Q2 2023
backlog.
In the construction sector, federal and provincial governments’
infrastructure programs and private sector investments in power
projects are expected to continue driving healthy demand for
construction equipment and product support, rentals, and prime and
standby electric power generation.
In the power systems sector, activity levels and order intake
from energy customers remain strong, with a continued increase in
backlog in Q1 2023 to the highest levels since 2014.
South America Operations
Our outlook for Chile mining remains strong, supported by
increasing demand for copper, constructive copper price, and
improving political clarity. We are encouraged by the recent
government approvals for large-scale brownfield expansions. We are
seeing increasing customer confidence for re-investment into
existing fleets as well as brownfield and greenfield projects, and
we are encouraged by an increase in quoting and request for
proposal activity. We also expect continued strong demand for
mining product support and technology solutions.
In the construction sector, we continue to see strong demand
from large contractors supporting mining operations, particularly
in product support. About half our construction business in Chile
is related to the mining sector. We now expect infrastructure
construction activity in Chile to remain stable compared to 2022
levels.
In the power systems sector, order activity and order intake
remain strong, and our backlog includes additional orders for
large-scale data centre projects in Chile secured in Q1 2023. We
are well positioned to benefit from future opportunities in the
growing data centre market.
In Argentina, activity in construction, oil and gas, and mining
is expected to remain stable, with significant growth potential and
investment in lithium and oil and gas projects contingent on the
long-term political and economic climate. We expect high inflation,
currency restrictions, and new import regulations to continue
impacting our business in Argentina as we manage through the 2023
election process and the challenging fiscal, regulatory, and
currency environments.
UK & Ireland Operations
In the construction sector, order activity remains stable and
demand for equipment has been resilient to start the year. With
deliveries to HS2 largely completed, we expect lower construction
new equipment sales in the UK in 2023 compared to 2022. Demand for
product support is expected to remain strong, driven by high
machine utilization across construction markets and growing
contribution from Hydraquip.
We expect continued strong demand for our power systems business
in the UK & Ireland, including in the data centre market. We
have a solid backlog of power systems projects for delivery in
2023, and we have secured additional orders from data centre
customers in Q1 2023 for 2024 delivery.
Executing and Building on Strong Momentum
We are seeing positive momentum in our business, led by
increasing confidence and capital spending from our customers. We
are encouraged by healthy order intake and backlog build into 2024,
as well as strong demand for parts, service, and rebuilds. All our
operations continue to hire technicians and build our product
support capabilities to capture market growth and share in a
disciplined manner.
Looking ahead, we are optimistic about 2023 and expect continued
momentum in our business to be underpinned by our record equipment
backlog and the successful execution of our product support growth
strategy, including increasing rebuild activity.
To access Finning's complete Q1 2023 results, please visit our
website at https://www.finning.com/en_CA/company/investors.html
Q1 2023 INVESTOR CALLThe Company will hold an
investor call on May 9, 2023 at 10:00 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 is the world’s largest
Caterpillar dealer, delivering unrivalled service to customers for
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 INFORMATIONIlona RojkovaDirector,
Investor Relations Phone: 604-837-8241Email: 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 (1) 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 EPS
Adjusted 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 EPS (the most directly comparable GAAP
financial measure) and Adjusted EPS can be found on page 10 of this
Earnings Release.
Adjusted EBIT and Adjusted EBITDA
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.
Adjusted EBITDA is calculated by adding depreciation and
amortization to Adjusted EBIT.
The most directly comparable GAAP financial measure to Adjusted
EBITDA and Adjusted EBIT is EBIT.
Significant items identified by management that affected our
results were as follows:
- In Q1 2023, we executed various transactions to simplify and
adjust our organizational structure. We wound up two wholly owned
subsidiaries, recapitalized and repatriated $170 million of profits
from our South American operations, and incurred severance costs in
each region as we reduced corporate overhead costs and simplified
our operating model. As a result of these activities, our Q1 2023
financial results were impacted by significant items that we do not
consider indicative of operational and financial trends:
- Net foreign currency translation gain
and income tax expense were reclassified to net income on the wind
up of foreign subsidiaries;
- Withholding tax payable related to the repatriation of profits;
and,
- Severance costs incurred in all of
our operations.
- Finning qualified
for and recorded a benefit from Q2 2020 to Q1 2021 related to CEWS
(1), which was introduced by the Government of Canada in response
to the COVID-19 (1) pandemic for eligible entities that met
specific criteria.
- In December 2020,
the shareholders of Energyst (1), which included Finning, decided
to restructure the company. A plan was put in place to sell any
remaining assets and wind up Energyst, with net proceeds from the
sale to be distributed to Energyst’s shareholders. In Q1 2021, we
recorded a return on our investment in Energyst.
- We accelerated
existing strategies to further improve employee and facility
productivity. As a result, we incurred severance costs related to
workforce reductions in all of our operations and restructuring and
impairment losses in our Canadian and South American operations in
Q2 2020.
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA
for our consolidated operations is as follows:
|
3 months ended |
2023 |
|
|
2022 |
|
2021 |
|
|
2020 |
|
|
|
($ millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
EBIT |
239 |
|
|
214 |
224 |
190 |
140 |
|
157 |
150 |
137 |
108 |
|
|
108 |
|
138 |
|
52 |
|
|
|
Significant items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on wind up of foreign subsidiaries |
(41 |
) |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
— |
|
— |
|
— |
|
|
|
|
Severance costs |
18 |
|
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
— |
|
— |
|
42 |
|
|
|
|
CEWS support |
— |
|
|
— |
— |
— |
— |
|
— |
— |
— |
(10 |
) |
|
(14 |
) |
(37 |
) |
(64 |
) |
|
|
|
Return on Energyst investment |
— |
|
|
— |
— |
— |
— |
|
— |
— |
— |
(5 |
) |
|
— |
|
— |
|
— |
|
|
|
|
Facility closures, restructuring costs, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and impairment losses |
— |
|
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
— |
|
— |
|
9 |
|
|
|
Adjusted EBIT |
216 |
|
|
214 |
224 |
190 |
140 |
|
157 |
150 |
137 |
93 |
|
|
94 |
|
101 |
|
39 |
|
|
|
Depreciation and amortization |
92 |
|
|
87 |
84 |
81 |
81 |
|
84 |
80 |
78 |
77 |
|
|
77 |
|
77 |
|
78 |
|
|
|
Adjusted EBITDA (4) |
308 |
|
|
301 |
308 |
271 |
221 |
|
241 |
230 |
215 |
170 |
|
|
171 |
|
178 |
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact on provision for income taxes of the significant
items was as follows:
|
3 months
ended |
2023 |
|
|
2022 |
|
2021 |
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
|
Significant
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on wind up of
foreign subsidiaries |
9 |
|
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
|
Severance
costs |
(5 |
) |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
|
Withholding tax on
repatriation of profits |
19 |
|
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
|
CEWS support |
— |
|
|
— |
— |
— |
— |
|
— |
— |
— |
2 |
|
|
Provision for income taxes on the significant items |
23 |
|
|
— |
— |
— |
— |
|
— |
— |
— |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation from EPS to Adjusted EPS for our consolidated
operations is as follows:
|
3 months
ended |
2023 |
|
|
2022 |
|
2021 |
|
|
|
($) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
|
EPS (a) |
0.89 |
|
|
0.89 |
0.97 |
0.80 |
0.59 |
|
0.66 |
0.61 |
0.56 |
0.43 |
|
|
|
Significant
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on wind up of
foreign subsidiaries |
(0.21 |
) |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
|
|
Severance
costs |
0.09 |
|
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
|
|
Withholding tax on
repatriation of profits |
0.12 |
|
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
|
|
CEWS support |
— |
|
|
— |
— |
— |
— |
|
— |
— |
— |
(0.05 |
) |
|
|
|
Return on Energyst
investment |
— |
|
|
— |
— |
— |
— |
|
— |
— |
— |
(0.03 |
) |
|
|
Adjusted EPS |
0.89 |
|
|
0.89 |
0.97 |
0.80 |
0.59 |
|
0.66 |
0.61 |
0.56 |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) The per share impact for each quarter has
been calculated using the weighted average number of common shares
outstanding during the respective quarters; therefore, quarterly
amounts may not add to the annual or year-to-date total.
A reconciliation from EBIT to Adjusted EBIT for our Canadian
operations is as follows:
|
3 months
ended |
2023 |
|
2022 |
|
2021 |
|
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
EBIT |
126 |
|
128 |
125 |
102 |
80 |
|
92 |
84 |
82 |
69 |
|
|
72 |
|
93 |
|
63 |
|
|
|
Significant
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs |
4 |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
— |
|
— |
|
20 |
|
|
|
|
CEWS support |
— |
|
— |
— |
— |
— |
|
— |
— |
— |
(10 |
) |
|
(13 |
) |
(35 |
) |
(60 |
) |
|
|
|
Facility closures,
restructuring costs, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and impairment losses |
— |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
|
— |
|
— |
|
5 |
|
|
|
Adjusted EBIT |
130 |
|
128 |
125 |
102 |
80 |
|
92 |
84 |
82 |
59 |
|
|
59 |
|
58 |
|
28 |
|
|
A reconciliation from EBIT to Adjusted EBIT for our South
American operations is as follows:
|
3 months
ended |
2023 |
|
2022 |
|
2021 |
|
2020 |
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
EBIT |
74 |
|
96 |
85 |
64 |
65 |
|
59 |
58 |
51 |
41 |
|
41 |
40 |
2 |
|
|
Significant
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs |
7 |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
— |
— |
17 |
|
|
|
Facility closures,
restructuring costs, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and impairment losses |
— |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
— |
— |
4 |
|
|
Adjusted EBIT |
81 |
|
96 |
85 |
64 |
65 |
|
59 |
58 |
51 |
41 |
|
41 |
40 |
23 |
|
A reconciliation from EBIT to Adjusted EBIT for our UK &
Ireland operations is as follows:
|
3 months
ended |
2023 |
|
2022 |
|
2021 |
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
EBIT |
15 |
|
16 |
21 |
23 |
14 |
|
12 |
17 |
17 |
7 |
|
11 |
9 |
(5 |
) |
|
|
Significant
item: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs |
2 |
|
— |
— |
— |
— |
|
— |
— |
— |
— |
|
— |
— |
4 |
|
|
|
Adjusted EBIT |
17 |
|
16 |
21 |
23 |
14 |
|
12 |
17 |
17 |
7 |
|
11 |
9 |
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation from EBIT to Adjusted EBIT for our Other
operations is as follows:
|
3 months
ended |
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
EBIT |
24 |
|
|
(26 |
) |
(7 |
) |
1 |
(19 |
) |
|
(6 |
) |
(9 |
) |
(13 |
) |
(9 |
) |
|
(16 |
) |
(4 |
) |
(8 |
) |
|
|
Significant
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on wind up of
foreign subsidiaries |
(41 |
) |
|
— |
|
— |
|
— |
— |
|
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
— |
|
|
|
|
Severance
costs |
5 |
|
|
— |
|
— |
|
— |
— |
|
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
— |
|
1 |
|
|
|
|
Return on Energyst
investment |
— |
|
|
— |
|
— |
|
— |
— |
|
|
— |
|
— |
|
— |
|
(5 |
) |
|
— |
|
— |
|
— |
|
|
|
|
CEWS support |
— |
|
|
— |
|
— |
|
— |
— |
|
|
— |
|
— |
|
— |
|
— |
|
|
(1 |
) |
(2 |
) |
(4 |
) |
|
|
Adjusted EBIT |
(12 |
) |
|
(26 |
) |
(7 |
) |
1 |
(19 |
) |
|
(6 |
) |
(9 |
) |
(13 |
) |
(14 |
) |
|
(17 |
) |
(6 |
) |
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
3 months
ended |
2023 |
|
|
2022 |
|
|
2021 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
|
Cash flow provided
by (used in) operating activities |
(166 |
) |
|
410 |
|
(24 |
) |
(112 |
) |
(273 |
) |
|
193 |
|
212 |
|
8 |
|
12 |
|
|
|
Additions to
property, plant, and equipment and intangible assets |
(79 |
) |
|
(78 |
) |
(33 |
) |
(30 |
) |
(30 |
) |
|
(45 |
) |
(38 |
) |
(17 |
) |
(33 |
) |
|
|
Proceeds on disposal of property, plant, and equipment |
— |
|
|
— |
|
— |
|
— |
|
— |
|
|
— |
|
2 |
|
5 |
|
1 |
|
|
|
Free cash flow |
(245 |
) |
|
332 |
|
(57 |
) |
(142 |
) |
(303 |
) |
|
148 |
|
176 |
|
(4 |
) |
(20 |
) |
|
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 |
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
|
|
Cost of sales |
1,758 |
|
|
2,025 |
|
1,807 |
|
1,761 |
|
1,463 |
|
|
1,465 |
|
1,443 |
|
1,396 |
|
1,189 |
|
|
1,248 |
|
|
|
Cost of
sales related to mobile refuelling operations |
(253 |
) |
|
(302 |
) |
(293 |
) |
(300 |
) |
(231 |
) |
|
(190 |
) |
(170 |
) |
(153 |
) |
(140 |
) |
|
(129 |
) |
|
|
Cost of
sales related to the dealership (3) |
1,505 |
|
|
1,723 |
|
1,514 |
|
1,461 |
|
1,232 |
|
|
1,275 |
|
1,273 |
|
1,243 |
|
1,049 |
|
|
1,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
|
|
Inventory |
2,710 |
|
|
2,461 |
|
2,526 |
|
2,228 |
|
2,101 |
|
|
1,687 |
|
1,627 |
|
1,643 |
|
1,593 |
|
|
1,477 |
|
|
|
Fuel
inventory |
(12 |
) |
|
(12 |
) |
(12 |
) |
(13 |
) |
(11 |
) |
|
(9 |
) |
(6 |
) |
(3 |
) |
(3 |
) |
|
(3 |
) |
|
|
Inventory related to the dealership (3) |
2,698 |
|
|
2,449 |
|
2,514 |
|
2,215 |
|
2,090 |
|
|
1,678 |
|
1,621 |
|
1,640 |
|
1,590 |
|
|
1,474 |
|
|
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:
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
Cash and cash equivalents |
(129 |
) |
|
(288 |
) |
(120 |
) |
(170 |
) |
(295 |
) |
|
(502 |
) |
(518 |
) |
(378 |
) |
(469 |
) |
|
(539 |
) |
(453 |
) |
(338 |
) |
|
|
Short-term debt |
1,266 |
|
|
1,068 |
|
1,087 |
|
992 |
|
804 |
|
|
374 |
|
419 |
|
114 |
|
103 |
|
|
92 |
|
217 |
|
158 |
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
253 |
|
|
114 |
|
106 |
|
110 |
|
63 |
|
|
190 |
|
191 |
|
386 |
|
326 |
|
|
201 |
|
200 |
|
200 |
|
|
|
Non-current |
675 |
|
|
815 |
|
836 |
|
807 |
|
909 |
|
|
921 |
|
923 |
|
903 |
|
973 |
|
|
1,107 |
|
1,136 |
|
1,348 |
|
|
|
Net debt (3) |
2,065 |
|
|
1,709 |
|
1,909 |
|
1,739 |
|
1,481 |
|
|
983 |
|
1,015 |
|
1,025 |
|
933 |
|
|
861 |
|
1,100 |
|
1,368 |
|
|
|
Total
equity |
2,480 |
|
|
2,461 |
|
2,449 |
|
2,337 |
|
2,296 |
|
|
2,343 |
|
2,320 |
|
2,252 |
|
2,244 |
|
|
2,206 |
|
2,184 |
|
2,127 |
|
|
|
Invested capital |
4,545 |
|
|
4,170 |
|
4,358 |
|
4,076 |
|
3,777 |
|
|
3,326 |
|
3,335 |
|
3,277 |
|
3,177 |
|
|
3,067 |
|
3,284 |
|
3,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 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, and EBIT divided by net revenue. Net revenue is calculated
as follows:
|
3 months
ended |
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
Total revenue |
2,380 |
|
|
2,653 |
|
2,384 |
|
2,289 |
|
1,953 |
|
|
1,949 |
|
1,904 |
|
1,845 |
|
1,596 |
|
|
1,666 |
|
1,553 |
|
1,419 |
|
|
|
Cost of
fuel |
(236 |
) |
|
(285 |
) |
(277 |
) |
(285 |
) |
(217 |
) |
|
(175 |
) |
(156 |
) |
(140 |
) |
(127 |
) |
|
(115 |
) |
(110 |
) |
(84 |
) |
|
|
Net revenue |
2,144 |
|
|
2,368 |
|
2,107 |
|
2,004 |
|
1,736 |
|
|
1,774 |
|
1,748 |
|
1,705 |
|
1,469 |
|
|
1,551 |
|
1,443 |
|
1,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
|
($
millions) |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
Mar 31 |
|
Dec 31 |
Sep 30 |
Jun 30 |
|
|
Total current assets |
4,974 |
|
|
4,781 |
|
4,652 |
|
4,098 |
|
4,030 |
|
|
3,619 |
|
3,620 |
|
3,416 |
|
3,319 |
|
|
3,214 |
|
3,261 |
|
3,416 |
|
|
|
Cash
and cash equivalents |
(129 |
) |
|
(288 |
) |
(120 |
) |
(170 |
) |
(295 |
) |
|
(502 |
) |
(518 |
) |
(378 |
) |
(469 |
) |
|
(539 |
) |
(453 |
) |
(338 |
) |
|
|
Total
current assets in working capital |
4,845 |
|
|
4,493 |
|
4,532 |
|
3,928 |
|
3,735 |
|
|
3,117 |
|
3,102 |
|
3,038 |
|
2,850 |
|
|
2,675 |
|
2,808 |
|
3,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
3,763 |
|
|
3,401 |
|
3,196 |
|
2,789 |
|
2,647 |
|
|
2,155 |
|
2,156 |
|
1,942 |
|
1,817 |
|
|
1,623 |
|
1,717 |
|
1,735 |
|
|
|
Short-term debt |
(1,266 |
) |
|
(1,068 |
) |
(1,087 |
) |
(992 |
) |
(804 |
) |
|
(374 |
) |
(419 |
) |
(114 |
) |
(103 |
) |
|
(92 |
) |
(217 |
) |
(158 |
) |
|
|
Current
portion of long-term debt |
(253 |
) |
|
(114 |
) |
(106 |
) |
(110 |
) |
(63 |
) |
|
(190 |
) |
(191 |
) |
(386 |
) |
(326 |
) |
|
(201 |
) |
(200 |
) |
(200 |
) |
|
|
Total
current liabilities in working capital |
2,244 |
|
|
2,219 |
|
2,003 |
|
1,687 |
|
1,780 |
|
|
1,591 |
|
1,546 |
|
1,442 |
|
1,388 |
|
|
1,330 |
|
1,300 |
|
1,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital (3) |
2,601 |
|
|
2,274 |
|
2,529 |
|
2,241 |
|
1,955 |
|
|
1,526 |
|
1,556 |
|
1,596 |
|
1,462 |
|
|
1,345 |
|
1,508 |
|
1,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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); favourable (fav);
unfavourable (unfav); not meaningful (n/m); Hydraquip Hose &
Hydraulics Ltd. and Hoses Direct Ltd. (Hydraquip); generally
accepted accounting principles (GAAP); Canadian Emergency Wage
Subsidy (CEWS); Novel Coronavirus (COVID-19); Energyst B.V.
(Energyst).
(2) See
“Description of Specified Financial Measures and Reconciliations”
on page 8 of this Earnings Release.
(3) These
are non-GAAP financial measures. See “Description of Specified
Financial Measures and Reconciliations” on page 8 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: all information in the
section entitled “Market Update and Business Outlook”, including
for our Canada operations: our expectation of a positive outlook
for Western Canada (based on assumptions of healthy order activity,
record backlog (and our ability and timing to deliver our backlog),
continued strong demand for product support across all sectors,
continued constructive commodity prices, improved customer capital
budgets, investments in renewals of aging fleets, growing demand
for component manufacturing and equipment rebuilds, that the mining
equipment package valued at $134 million for Artemis Gold will be
included in our Q2 2023 backlog, and strong activity levels and
order intake from energy customers), and continued healthy demand
for construction equipment and product support, rentals and prime
and standby electric power generation (based on assumptions of
federal and provincial governments’ infrastructure programs and
private sector investments in power projects); for our South
America operations: our expectation of a strong outlook for mining
in Chile in 2023 and for continued strong demand for product
support and technology solutions (based on assumptions of
increasing demand for copper, a constructive copper price, and
improved political clarity), increasing customer confidence for
re-investment in existing fleets, and brownfield and greenfield
projects (assumes approved projects will proceed as anticipated and
that increases in quoting and request for proposal activity is
reflective of opportunities), our expectation for infrastructure
construction activity in Chile to remain stable compared to 2022
levels (based on assumptions of continued strong demand from large
contractors supporting mining infrastructure and product support),
our expectation to benefit from future opportunities in the growing
data centre market (based on assumptions of strong order activity
and intake, and our backlog which includes orders for large-scale
data centre projects in Chile), and that in Argentina, activity in
construction, oil and gas, and mining are expected to remain
stable, with significant growth potential and investment in lithium
and oil and gas projects, contingent on political and economic
climates, and the impact of high inflation, currency restrictions
and new import regulations on our and our customers’ businesses
(based on assumptions that we and our customers will be able to
manage through the challenging fiscal, regulatory, and currency
environments); for our UK & Ireland operations: our expectation
of lower construction new equipment sales in 2023 (based on
deliveries to HS2 being largely completed), continued strong demand
for product support (based on the assumption of continued high
machine utilization rates across construction markets and growing
contribution from Hydraquip); that demand for our power systems
business will remain strong, including in the data centre market,
that we have a strong backlog of power systems projects for
delivery in 2023, and that we have secured additional orders from
data centre customers for 2024 delivery (assumes no disruption to
our ability to deliver our backlog); and for 2023 overall: that
there is positive momentum in our business led by strong business
activity levels and increasing confidence and capital spending
(based on assumptions of healthy order intake and backlog build
into 2024, and strong demand for parts, service and rebuilds), that
we will continue to hire technicians and build our product support
capabilities to capture market growth and share, our efforts to
simplify our strategy to focus on growth by design, full cycle
resilience and empowerment of regional teams, and our expectation
of continued momentum in our business (based on assumptions of our
record equipment backlog, and successful execution of our product
support growth strategy, including increasing rebuild activity);
our plans to reinvest in our business and potential areas of
emphasis such as aftermarket, used equipment, rental and power
systems segments, and to drive productivity improvements, make our
cost base more variable and grow resiliency through all market
conditions; our intention to purchase common shares under our
renewed NCIB for a further year and implement an automatic share
purchase plan with a designated broker in connection with the
renewed NCIB (no assurance is given as to the number of common
shares to be purchased under the NCIB, or if any will be
purchased); 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 specific factors noted
above; the impact and duration of, and our ability to respond to
and manage, high inflation, increasing interest rates, supply chain
challenges, and the impacts of the Russia-Ukraine war; general
economic and market conditions, including increasing inflationary
cost pressure, and economic and market conditions in the regions
where we operate; the outcome and impact of Chile’s mining royalty
bill, constitutional reform process and proposed tax reform bill;
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 as growth in revenue occurs; our
ability to effectively integrate and realize expected synergies
from businesses that we acquire; our ability to deliver our
backlog, including under our agreement with Artemis Gold; 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; business disruption
resulting from business process change, systems change and
organizational change; regulatory initiatives or proceedings,
litigation and changes in laws or regulations, including with
respect to environmental protection and/or energy transition; 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; and our ability to protect our
business from cybersecurity threats or incidents. 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 volatile commodity prices, high inflation,
increasing interest rates, supply chain challenges and the impacts
of the Russia-Ukraine war, and successfully execute our economic
condition and business cyclicality mitigation strategies, including
preparing for future waves (if any) of COVID-19; an undisrupted
market recovery, for example, undisrupted by further 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 support and
demand for renewable energy will continue to grow; 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; that our current good relationships with
Caterpillar, our customers and our suppliers, service providers and
other third parties will be maintained and that Caterpillar and
such other suppliers will deliver quality, competitive products
with supply chain continuity; 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 the regions where we operate. 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. 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. 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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