Transcript of "Finning ny & boston presentation sep 5 & 6, 2012_website v2"
Investor PresentationMike Waites, President and CEO New York, Boston September 5-6, 2012
Forward Looking InformationThis 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 isforward-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 reportinclude, 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&Alevels 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 proposedtransaction between the Company and Caterpillar to acquire the distribution and support business formerly operated by Bucyrus in Finning’s Canadian dealership territory; growth prospectsfor 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 suchforward-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 resultscould 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 otherstatements 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 resultsor events to differ materially from those expressed in or implied by these forward-looking statements include: general economic and market conditions; foreign exchange rates; commodityprices; 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 ofCaterpillar’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 maintaincustomer service; Finning’s ability to manage cost pressures as growth in revenues occur; Finning’s ability to attract sufficient skilled labour resources to meet growing product supportdemand; 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 toimplement its business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock market volatility; changes in political and economic environments foroperations; the integrity, reliability, and availability of information technology and the data processed by that technology; operational benefits from the new ERP system. Forward-lookingstatements 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 betterunderstanding 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 orthat 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, otherbusiness 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 unusualitems 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 presentsknown risks affecting its business.All amounts in this presentation are in Canadian dollars unless otherwise noted 2
Finning International Inc. (TSX:FTT) World’s largest Caterpillar dealer Canada 53% 3 regions, 7 countries Yukon The Northwest 15,000 employees Territories Key industries South America Fort McMurray British Mining (oil sands, copper, coal) 33% Columbia Alberta Edmonton Construction Bolivia Power systems Antofagasta Vancouver (head office) Chile Market cap ~ $3.9 billion Argentina Uruguay Santiago Revenue UK & Ireland FY2011 = $5.9 billion 14% United YTD ended Jun 30, 2012 = 3.2 billion Ireland Kingdom Cannock Quarterly dividend = $0.14 per share 3
Value PropositionCaterpillar Equipment + Finning Service = Customer Value Proven Reliability Unmatched Capabilities First with Customers 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 4
Creating Our Future Mining Solutions Power Systems Ultimate Vision (2015) Providing unrivalled services that earn customer loyalty, we will be CAT’s best Global global business partner. Solutions Provider S T R Core/BCP Acquisition(s) A Leadership T E Safety G Sales & SolutionsIntermediate I Operational (2013-2014) C Excellence 5 x S Service & Parts Operating Operational Excellence G Supply Chain Leverage 9-10% EBIT R Systems O W T Priorities H (2012) Execution Canada Business Recovery/ Free Cash Flow/ High Performance/ Bucyrus Integration EBIT Improvement Balance Sheet Deleverage Engagement 5
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 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 8
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 New Fort McKay oil sands service On track to reach 9-10% EBIT margin target facility: 16 bays, 160,000 sq. ft. in 2013 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
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 Strong cash flow from operations EBITDA ~ $500 - 800M per year* Cash for Growth Disciplinedcapital spending Dividends Enhanced focus on~ $100M per year* Reduce debt working capital management Acquisitions Net rental additions ~ $100-$150M per year** Averages over economic cycle 13
Oil Sands Mining Fleet Growth Additional CAT Caterpillar Units Total Units Finning’sEquipment Type at Jun 30, 2012 at Jun 30, 2012 Market Share Units Projected 2012 to 2016*400 Ton Trucks (797) 250 278 88% 147320 – 340 Ton Trucks (future 795F/MT5500) 131240 Ton Trucks (793) 158 182 87% 67100 – 200 Ton Trucks (777-789) 408 416 98% 158Ultra Large Tractors (D11 & D10) 293 322 91% 165Large Tractors (D8 & D9) 255 287 89% 80Ultra Large Graders (24) 90 90 100% 69Large Graders (16) 85 86 99% 40Total 1,539 1,792 726 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)* Includes units projected from June 30, 2012 to the end of 2016 14
FINSA Mining Fleet Growth Additional CAT Caterpillar Units Total Units Finning’s Equipment Type at Dec 31, 2011 at Dec 31, 2011 Market Share Units Projected 2012 to 2016* Ultraclass Trucks Size (797-795) 212 508 55% 260 Large Mining Trucks (793 – 777) 749 1,208 69% 328 Large Wheel Loaders (994 – 992) 151 236 71% 37 Large Wheel Dozers (854 – 824) 137 253 84% 64 Track-Type Tractors (D11 – D9) 301 535 60% 138 Motor Graders (24 - 16) 152 253 71% 62 Underground 120 400 37% 90 Total 1,822 3,393 59% 979* 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. 15
Well Diversified Across End Markets Product Support Revenue New Equipment Sales by Industry by Industry Other* Forestry Other Power Systems 1% Petroleum 2% 3% 10% Mining 6% Mining 62% 32%Construction Power 27% Systems 17% Construction * Includes petroleum, forestry and other sectors 40% YTD ending June 30, 2012 16
Well Diversified Across Regions Product Support Revenue New Equipment Sales by Operation by Operation UK and Ireland UK and Ireland 18% 10% Canada Canada 51% 52%South America 38% South America 31% YTD ending June 30, 2012 17
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