finning ny & boston presentation sep 5 & 6, 2012_website v2
TRANSCRIPT
New York, Boston
September 5-6, 2012
Investor Presentation
Mike Waites, President and CEO
Forward Looking Information
2
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; expected revenue and SG&A
levels and EBIT growth; anticipated generation of free cash flow (including projected net capital and rental expenditures), and its expected use; anticipated defined benefit plan contributions;
the expected target range of Debt Ratio; the impact of new and revised IFRS that have been issued but are not yet effective; the expected timetable for completion of the proposed
transaction between the Company and Caterpillar to acquire the distribution and support business formerly operated by Bucyrus in Finning’s Canadian dealership territory; growth prospects
for the former Bucyrus business acquired or being acquired by the Company in Finning’s dealership territories (Bucyrus) and the competitive advantages of the business being acquired;
expected future financial and operating results generated from Bucyrus; anticipated benefits and synergies of Bucyrus; and the expected impact of Bucyrus on Finning’s earnings. 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 Finning’s expectations at September 5, 2012. 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
Caterpillar’s products and Caterpillar’s 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 revenues occur; Finning’s ability to attract suffic ient skilled labour resources to meet growing product support
demand; 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 successfully integrate the distribution and support business formerly operated by Bucyrus after that transaction closes; 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, and availability of information technology and the data processed by that technology; operational benefits from the new ERP system. 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 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.
Finning cautions readers that the risks described in 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.
All amounts in this presentation are in Canadian dollars unless otherwise noted
Finning International Inc. (TSX:FTT)
World’s largest Caterpillar dealer
3 regions, 7 countries
15,000 employees
Key industries
Mining (oil sands, copper, coal)
Construction
Power systems
Market cap ~ $3.9 billion
Revenue
FY2011 = $5.9 billion
YTD ended Jun 30, 2012 = 3.2 billion
Quarterly dividend = $0.14 per share
Vancouver (head office)
Edmonton
Fort McMurray
Santiago
Antofagasta
South America 33%
UK & Ireland 14%
Canada 53%
Cannock
3
British Columbia
Yukon
Alberta
The Northwest Territories
Bolivia
Argentina
Chile
Uruguay
United Kingdom
Ireland
4
Operating in some of most resource-rich territories
Unmatched product support capability and customer relationships
Well-positioned to capture growth opportunities
Strong cash generating business model
Focused on disciplined and rigorous execution of our strategy
+ = Caterpillar Equipment
Proven Reliability
Finning Service
Unmatched Capabilities
Customer Value
First with Customers
Value Proposition
Intermediate
(2013-2014)
Operational
Excellence
5
Vision Providing unrivalled services that earn
customer loyalty, we will be CAT’s best
global business partner.
Acquisition(s)
Power Systems
Core/BCP
Leadership
Canada Business Recovery/
EBIT Improvement
Free Cash Flow/
Balance Sheet Deleverage Bucyrus Integration
High Performance/
Engagement
Sales & Solutions
Service & Parts
Supply Chain
Safety
Systems
Operational
Excellence 5 x S Operating
Leverage
9-10% EBIT
Ultimate
(2015)
Priorities
(2012)
Global
Solutions
Provider
Execution
S
T
R
A
T
E
G
I
C
G
R
O
W
T
H
Mining Solutions
Creating Our Future
Solid Foundation – The New Finning
Strategically re-positioned to drive operating performance regardless of market
conditions
Reduced rental exposure
Revenue and asset shift to core business and mining
Limited fixed capital commitments
Targeted investments to strengthen competitive advantage
Unparalleled product support infrastructure and capabilities
People development (technical and leadership) and high-performance culture
New ERP system
Increased focus on cost discipline and margin expansion
Driving operational excellence through productivity & efficiency improvements
Tremendous discipline on working capital
Reducing uncommitted inventory given current economic uncertainty
6
Strong Core Business
Product support growth
Significant installed base of large mining and heavy construction equipment
with high parts and service consumption
Unmatched product support infrastructure (e.g. component remanufacturing
and machine rebuild facilities in all regions)
Broad product support capabilities and differentiated technologies (e.g.
productivity optimization, remote condition monitoring & diagnostics)
Expanded product offering
Bucyrus (shovels, drills, underground)
795F electric drive truck
Truck bodies
Strong relationship and alignment
with Caterpillar
7
2012 Outlook
8
Market activity remains positive across our operations
Healthy order intake and strong backlog provide good visibility into the
balance of 2012
Robust demand for product support
Expect 2012 revenues to grow by 12-15% over 2011
Operating with caution
Monitoring business conditions closely
Taking prudent steps to reduce working capital
Optimistic about Q3 and Q4
Strong revenue levels
Continued improvement in EBIT margin performance
Improving working capital and debt ratios
2013 Tailwinds
Bucyrus
Annual revenue ~$700 million
EBIT margin of 7-8% within two years
Growth opportunities in product support
Canada business recovery
Improved profitability as ERP costs
gradually reduced by the end of 2012
Fort McKay oil sand service facility
Completed by the end of 2012 - on time,
on budget
Margin expansion
Expect continued EBIT margin improvement
On track to reach 9-10% EBIT margin target
in 2013
New Fort McKay oil sands service
facility: 16 bays, 160,000 sq. ft.
9
Summary
Robust long-term fundamentals
Solid foundation
Strong core business
Significant tailwind into 2013
Focus on disciplined execution
Driving operational excellence
Committed to reach EBIT margin targets
in all operations
2012 priorities
Improve operating profitability in Canada
Successfully integrate Bucyrus into
each region
Drive strong free cash flow and
strengthen balance sheet
10
Appendix
Q2 2012 Highlights
Strong top line growth; record product support revenue for the third
consecutive quarter
Record EBIT and EBITDA driven by solid results from South America and
UK & Ireland
Robust market activity in all territories
Good quoting activity and solid order intake
Large equipment population drives growing demand for product support
ERP costs in Canada continued to decline
Sequential improvement in Canada’s operating profitability
Stepping up efforts to reduce incremental costs through second half
of 2012
Negative free cash flow driven by higher working capital requirements
Expect positive free cash flow in Q3 and Q4; essentially break-even
in FY2012
12
Cash Engine for Growth
Cash for Growth
Dividends
Reduce debt
Acquisitions
Net rental additions ~ $100-$150M per year*
Disciplined capital spending
~ $100M per year*
Strong cash flow from operations EBITDA ~ $500 - 800M per year*
Enhanced focus on
working capital management
* Averages over economic cycle 13
Oil Sands Mining Fleet Growth
* Includes units projected from June 30, 2012 to the end of 2016
99%
100%
89%
91%
98%
87%
88%
1,539
85
90
255
293
408
158
250
320 – 340 Ton Trucks (future 795F/MT5500)
Total
Large Graders (16)
Ultra Large Graders (24)
Large Tractors (D8 & D9)
Ultra Large Tractors (D11 & D10)
100 – 200 Ton Trucks (777-789)
240 Ton Trucks (793)
400 Ton Trucks (797)
40
69
80
165
158
67
147
86
90
287
322
416
278
Finning’s Market Share
Caterpillar Units at Jun 30, 2012 Equipment Type
Total Units at Jun 30, 2012
Additional CAT Units Projected 2012 to 2016*
726
131
182
1,792
Projections include the existing projects and their expansions, as well as
contractor equipment for: Syncrude (Base & Aurora), Suncor (Steepbank &
Millennium), Shell/Albian (Muskeg River & Jackpine), CNRL (Horizon),
Exxon/Imperial (Kearl), Suncor (Fort Hills)
14
FINSA Mining Fleet Growth
15
* Market share, PINS rolling 12 months as of June 2011.
** Caterpillar projected includes units forecast for FINSA from 2012 till 2016 which are incremental to units at December 31, 2011. These projections
constitute “forward-looking information” which reflect the current view of Finning of future events and are subject to risk and uncertainties. Actual
results could differ materially from current expectations.
Finning’s Market Share
Caterpillar Units at Dec 31, 2011 Equipment Type
Total Units at Dec 31, 2011
Additional CAT Units Projected 2012 to 2016*
59%
37%
71%
60%
84%
71%
69%
55%
749
1,822
120
152
301
137
151
212
Large Mining Trucks (793 – 777)
Total
Underground
Motor Graders (24 - 16)
Track-Type Tractors (D11 – D9)
Large Wheel Dozers (854 – 824)
Large Wheel Loaders (994 – 992)
Ultraclass Trucks Size (797-795)
328
979
90
62
138
64
37
260
1,208
3,393
400
253
535
253
236
508
Well Diversified Across End Markets
16
Mining
32%
Power
Systems
17%
Construction
40%
Mining
62%
Power Systems
10%
Construction
27%
Product Support Revenue
by Industry
New Equipment Sales
by Industry
Forestry
2%
Other
3%
YTD ending June 30, 2012
Petroleum
6%
Other*
1%
* Includes petroleum, forestry and other sectors
Well Diversified Across Regions
17
Canada
52%
UK and Ireland
10%
South America
38%
Product Support Revenue
by Operation
New Equipment Sales
by Operation
YTD ending June 30, 2012
Canada
51%
UK and Ireland
18%
South America
31%