“We are pleased to welcome investors and analysts to the Antofagasta mining region in
We have significantly exceeded our 2021 Investor Day Plan. The strong operational execution by this management team has transformed our return on invested capital and earnings capacity today and for the future. Our refreshed strategy will build upon this success and will focus on the following priorities: drive product support, full-cycle resilience, and sustainable growth,” said
Drive product support
Our product support business is our key value driver and remains by far the largest opportunity for resilient, profitable growth. We are working to capture an even greater share of the product support opportunity across the full asset life cycle through further penetration of customer value agreements, expanding our rebuild business, and continuing to strategically grow our equipment population. On a consolidated basis, we are targeting greater than 7% compounded annual growth of our product support revenue from the last twelve months ended Q2 2023 through 2025.
Full-cycle resilience
Having a lower and more flexible cost and invested capital base are critical enablers of greater earnings consistency. We have made excellent progress reducing our cost base and are pleased with our SG&A (1) as a percentage of net revenue (2) reaching 17% over the last twelve months ended Q2 2023. This is an area of continuous improvement, and we are well on our way to reducing our SG&A as a percentage of net revenue below 17% in a steady growth environment. Our immediate top priority is to increase our invested capital turns while concurrently improving customer service levels. This will be achieved through a combination of systematic improvements in working capital velocity as supply chain normalizes, as well as optimizing lower ROIC (1) activities. We are targeting invested capital turns (2) of 2.3 to 2.5 times by the end of 2025. In a steady growth environment, we expect our invested capital (2) improvement plan to unlock more than
Sustainable growth
As we reinvest in our business, we will continue to grow product support and place a greater emphasis on capturing attractive opportunities in the used, rental, and power systems segments. Growth in these segments is supported by strong mega trends, and we are optimally positioned in our territories to benefit from these large addressable markets. We are building our capabilities in these areas and see opportunities to deploy capital with attractive returns through 2025 and beyond.
“All these elements of our go-forward strategy are integrated and critical to our long-term success. Product support is our most profitable business and the foundation of our full-cycle resilience. Growing the resilient and strategically important used, rental, and power segments will also increase our equipment population to help us drive even greater product support growth. As we execute on our refreshed strategy, we expect our full-cycle ROIC (2) to increase significantly from historical levels to the 18% to 25% range.
Importantly, our people are our biggest competitive advantage. We will continue to foster a safe, secure and prosperous place to work, and empower our employees to build long-term customer loyalty. We look forward to many of you having the chance to meet and interact with our great people in
About Finning
Finning is the world’s largest Caterpillar dealer, delivering unrivalled service to customers for 90 years. Headquartered in
Contact Information
Director, Investor Relations
604-837-8241
FinningIR@finning.com
www.finning.com
Outlook Assumptions
In preparing the above outlook, we have made the following assumptions for 2024 and 2025: the average price of crude oil (West Texas Intermediate) of over
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 referred to above under the heading Outlook Assumptions and the assumptions and material risk factors referred to below. Forward-looking information in this news release includes, but is not limited to, the following: our strategy to focus on driving product support, full-cycle resilience, and sustainable growth; our expectation for greater than 7% compounded annual growth of our consolidated product support revenue from the last twelve months ended Q2 2023 through 2025, and our plans to capture a greater share of the product support opportunity across the full asset life cycle through further penetration of customer value agreements (CVAs), expanding our rebuild business, and continuing to strategically grow our equipment population (assumes aftermarket share growth across all sectors, an expanded and maturing equipment population with high utilization, increasing rebuild demand, our ability to successfully increase CVAs and our capacity and capabilities, including digital capabilities, and effective price management); our target of below 17% SG&A as a percentage of net revenue in a steady growth environment; our plans to enable greater earnings consistency through a lower and more flexible cost and invested capital base; our target for invested capital turns of 2.3 to 2.5 times by the end of 2025, including through systematic improvements in working capital velocity as supply chain normalizes and optimizing lower ROIC activities; our expectations for our invested capital improvement plan to unlock more than
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 stated 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
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 the assumptions referred to above under the heading Outlook Assumptions, and including: the specific assumptions stated above; that we will be able to successfully manage our business through volatile commodity prices, high inflation, increasing interest rates, supply chain challenges and the impacts of the
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 news 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.
Descriptions and components of the specified financial measures we use in this news 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.
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 and invested capital turnover) to assess financial performance against other companies and between reportable segments.
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 Revenue and SG&A 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
We use these specified financial measures to assess and evaluate the financial performance or profitability of our reportable segments.
SG&A as a % of net revenue is calculated as SG&A divided by net revenue. The most directly comparable GAAP financial measure to net revenue is total revenue. Net revenue is calculated as follows:
3 months ended | 2023 | 2022 | |||||||||
($ millions) | |||||||||||
Total revenue | 2,779 | 2,380 | 2,653 | 2,384 | |||||||
Cost of fuel | (220) | (236) | (285) | (277) | |||||||
Net revenue | 2,559 | 2,144 | 2,368 | 2,107 |
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.
(1) | Selling, General & Administrative Expenses (SG&A); Return on |
(2) | See “Description of Specified Financial Measures and Reconciliations” above. |
Source:
2023 GlobeNewswire, Inc., source