HIGHLIGHTS
All 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% inSouth America , and 5.7% in theUK &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 atMarch 31, 2023 . - Quarterly dividend was raised by 6% to
$0.25 per share, marking 22 years of consecutive dividend growth.
“Q1 2023 was another great quarter for Finning. Our team once again executed well enabling us to expand operating margins and drive continued improvement of our Adjusted return on invested capital, which is approaching 20%. The combination of our expanding installed equipment base and execution of our product support strategy drove strong product support revenue growth this quarter which was the largest contributor to our strong earnings growth.
In recent months, we have engaged with our leaders to simplify and prioritize our strategy, which will focus on growth by design, full cycle resilience, and empowerment of our regional teams to continue delivering excellent results for our customers. As we reinvest in our business, we will be intentional in targeting and capturing addressable market opportunities, placing continued emphasis on growing share in our aftermarket business, as well as greater focus on attractive opportunities in used equipment, rental, and power systems segments. We will also continue building full cycle resilience into our operations. We took several actions in the first quarter to streamline our operating model and reduce our corporate overhead costs, and we will continue driving productivity improvements, making our cost base more variable, and growing resilient segments of our business so we can deliver strong performance through all market conditions.
Business activity levels and customer confidence remain strong. We are pleased to see a further increase in our equipment backlog, service work in progress, and book of rebuilds as we continue to execute and build on our strong momentum.” said
Q1 2023 FINANCIAL SUMMARY
Three months ended | ||||||||||
% change | ||||||||||
fav (1) | ||||||||||
($ 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 | Finning | |||||||||||||||||
($ millions, except per share amounts) | America | 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 | Finning | ||||||||||||||||
($ millions, except per share amounts) | America | 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 | % | |||||
11.0 | % | 11.0 | % | 11.7 | % | 10.0 | % | 9.1 | % | 10.1 | % | 10.4 | % | 9.3 | % | 8.9 | % | ||||||
10.5 | % | 11.4 | % | 12.3 | % | 10.1 | % | 11.4 | % | 10.1 | % | 9.2 | % | 9.8 | % | 8.6 | % | ||||||
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 | % | |||||
11.3 | % | 11.0 | % | 11.7 | % | 10.0 | % | 9.1 | % | 10.1 | % | 10.4 | % | 9.3 | % | 7.7 | % | ||||||
11.5 | % | 11.4 | % | 12.3 | % | 10.1 | % | 11.4 | % | 10.1 | % | 9.2 | % | 9.8 | % | 8.6 | % | ||||||
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 | % | |||||
19.4 | % | 18.7 | % | 18.2 | % | 17.4 | % | 17.4 | % | 17.5 | % | 16.5 | % | 17.0 | % | 15.6 | % | ||||||
24.0 | % | 24.5 | % | 22.7 | % | 22.3 | % | 21.7 | % | 20.3 | % | 19.0 | % | 17.2 | % | 12.3 | % | ||||||
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 | % | |||||
19.6 | % | 18.7 | % | 18.2 | % | 17.4 | % | 17.4 | % | 16.9 | % | 15.3 | % | 14.0 | % | 10.8 | % | ||||||
24.6 | % | 24.5 | % | 22.7 | % | 22.3 | % | 21.7 | % | 20.3 | % | 19.0 | % | 17.2 | % | 14.4 | % | ||||||
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 OPERATION
All comparisons are to Q1 2022 results unless indicated otherwise. All numbers, except ROIC, are in functional currency:
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.
- 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 inMarch 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 onJune 8, 2023 , to shareholders of record onMay 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
The NCIB, which will begin on
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
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
Under the current NCIB, which expires on
MARKET UPDATE AND BUSINESS OUTLOOK
The 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
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
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
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
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
In
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
We expect continued strong demand for our power systems business in the
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 CALL
The Company will hold an investor call on
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
Phone: 604-837-8241
Email: 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) | ||||||||||||||||||||||||
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) | ||||||||||||||||
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 | ||||||||||||||
($) | |||||||||||||||||
EPS (a) | 0.89 | 0.89 | 0.97 | 0.80 | 0.59 | 0.66 | 0.61 | 0.56 | 0.43 | ||||||||
Significant items: | |||||||||||||||||
Gain on wind up of foreign subsidiaries | (0.21 | ) | — | — | — | — | — | — | — | — | |||||||
Severance costs | 0.09 | — | — | — | — | — | — | — | — | ||||||||
Withholding tax on repatriation of profits | 0.12 | — | — | — | — | — | — | — | — | ||||||||
CEWS support | — | — | — | — | — | — | — | — | (0.05 | ) | |||||||
Return on Energyst investment | — | — | — | — | — | — | — | — | (0.03 | ) | |||||||
Adjusted EPS | 0.89 | 0.89 | 0.97 | 0.80 | 0.59 | 0.66 | 0.61 | 0.56 | 0.35 | ||||||||
(a) The per share impact for each quarter has been calculated using the weighted average number of common shares outstanding during the respective quarters; therefore, quarterly amounts may not add to the annual or year-to-date total.
A reconciliation from EBIT to Adjusted EBIT for our Canadian operations is as follows:
3 months ended | 2023 | 2022 | 2021 | 2020 | |||||||||||||||||||
($ millions) | |||||||||||||||||||||||
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) | |||||||||||||||||||
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
3 months ended | 2023 | 2022 | 2021 | 2020 | ||||||||||||||||
($ millions) | ||||||||||||||||||||
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) | ||||||||||||||||||||||||||||||
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) | |||||||||||||||||||||||
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) | |||||||||||||||||||||||||
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) | |||||||||||||||||||||||||
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 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) | |||||||||||||||||||||||||||||
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
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) | |||||||||||||||||||||||||||||
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) | |||||||||||||||||||||||||||||
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
(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
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
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
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.
Source:
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