HIGHLIGHTS
All comparisons are to Q3 2022 results unless indicated otherwise.
- Q3 2023 EPS (1) of
$1.07 was up 9%, driven by higher revenues and strong operating margins partially offset by higher finance cost. - Q3 2023 revenue of
$2.7 billion and net revenue (2) of$2.4 billion were up 13% and 16%, respectively, driven by a 28% increase in new equipment sales and a 13% increase in product support revenue. - Q3 2023 EBIT (1) was up 12%. EBIT as a percentage of net revenue (2) was 10.3%, 40 basis points below Q3 2022, due to a higher proportion of large mining equipment sales in the revenue mix. EBIT as a percentage of net revenue was 10.8% in
Canada , 12.3% inSouth America , and 5.9% in theUK &Ireland . - Invested capital turnover (2) was 2.08 times, up from 1.96 times in Q3 2022.
- Q3 2023 Adjusted ROIC (1)(2)(4) was 20.2%, up 190 basis points from Q3 2022, led by
South America . - Q3 2023 free cash flow (3) was at breakeven compared to
$57 million use of cash in Q3 2022. Q3 2023 net debt to Adjusted EBITDA (1)(2)(4) was 1.8 times, comparable to Q3 2022. - Consolidated equipment backlog (2) was
$2.3 billion atSeptember 30, 2023 compared to$2.4 billion atJune 30, 2023 . Higher equipment backlog inSouth America , driven by significant mining orders, was offset by lower backlog inCanada due to strong deliveries, and lower backlog in theUK &Ireland .
“We delivered another strong quarter in Q3. I am very pleased with how we are executing and continue building on our strong momentum. I am proud of the team’s resilience in managing through specific challenges in the quarter, which included wildfires and port strikes in
Q3 2023 FINANCIAL SUMMARY
3 months ended | |||||||||
% change | |||||||||
fav (1) | |||||||||
($ millions, except per share amounts) | 2023 | 2022 | (unfav) (1) | ||||||
New equipment | 870 | 679 | 28 | % | |||||
Used equipment | 72 | 96 | (25 | )% | |||||
Equipment rental | 86 | 79 | 9 | % | |||||
Product support | 1,362 | 1,209 | 13 | % | |||||
Net fuel and other | 47 | 44 | 8 | % | |||||
Net revenue | 2,437 | 2,107 | 16 | % | |||||
Gross profit | 660 | 577 | 14 | % | |||||
Gross profit as a percentage of net revenue (2) | 27.1 | % | 27.4 | % | |||||
SG&A (1) | (412 | ) | (353 | ) | (17 | )% | |||
SG&A as a percentage of net revenue (2) | (16.9 | )% | (16.7 | )% | |||||
Equity earnings of joint ventures | 4 | — | |||||||
EBIT | 252 | 224 | 12 | % | |||||
EBIT as a percentage of net revenue | 10.3 | % | 10.7 | % | |||||
Net income attributable to shareholders of Finning | 156 | 149 | 4 | % | |||||
EPS | 1.07 | 0.97 | 9 | % | |||||
Free cash flow | — | (57 | ) | 100 | % |
Q3 2023 EBIT by Operation | South | Finning | |||||||||||
($ millions, except per share amounts) | America | Other | Total | EPS | |||||||||
EBIT / EPS | 137 | 104 | 19 | (8 | ) | 252 | 1.07 | ||||||
EBIT as a percentage of net revenue | 10.8 | % | 12.3 | % | 5.9 | % | n/m (1) | 10.3 | % |
Q3 2022 EBIT by Operation | South | Finning | |||||||||||
($ millions, except per share amounts) | America | Other | Total | EPS | |||||||||
EBIT / EPS | 125 | 85 | 21 | (7 | ) | 224 | 0.97 | ||||||
EBIT as a percentage of net revenue | 11.7 | % | 12.3 | % | 6.2 | % | n/m | 10.7 | % |
QUARTERLY KEY PERFORMANCE MEASURES
2023 | 2022 | 2021 | |||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | |||||||||||||||
EBIT ($ millions) | 252 | 242 | 239 | 214 | 224 | 190 | 140 | 157 | 150 | ||||||||||||||
Adjusted EBIT (3)(4) ($ millions) | 252 | 242 | 216 | 214 | 224 | 190 | 140 | 157 | 150 | ||||||||||||||
EBIT as a % of net revenue | |||||||||||||||||||||||
Consolidated | 10.3 | % | 9.4 | % | 11.2 | % | 9.0 | % | 10.7 | % | 9.4 | % | 8.1 | % | 8.9 | % | 8.6 | % | |||||
10.8 | % | 9.9 | % | 11.0 | % | 11.0 | % | 11.7 | % | 10.0 | % | 9.1 | % | 10.1 | % | 10.4 | % | ||||||
12.3 | % | 12.1 | % | 10.5 | % | 11.4 | % | 12.3 | % | 10.1 | % | 11.4 | % | 10.1 | % | 9.2 | % | ||||||
5.9 | % | 5.5 | % | 5.1 | % | 4.4 | % | 6.2 | % | 6.4 | % | 5.0 | % | 4.3 | % | 5.6 | % | ||||||
Adjusted EBIT as a % of net revenue (2)(4) | |||||||||||||||||||||||
Consolidated | 10.3 | % | 9.4 | % | 10.1 | % | 9.0 | % | 10.7 | % | 9.4 | % | 8.1 | % | 8.9 | % | 8.6 | % | |||||
10.8 | % | 9.9 | % | 11.3 | % | 11.0 | % | 11.7 | % | 10.0 | % | 9.1 | % | 10.1 | % | 10.4 | % | ||||||
12.3 | % | 12.1 | % | 11.5 | % | 11.4 | % | 12.3 | % | 10.1 | % | 11.4 | % | 10.1 | % | 9.2 | % | ||||||
5.9 | % | 5.5 | % | 5.7 | % | 4.4 | % | 6.2 | % | 6.4 | % | 5.0 | % | 4.3 | % | 5.6 | % | ||||||
EPS | 1.07 | 1.00 | 0.89 | 0.89 | 0.97 | 0.80 | 0.59 | 0.66 | 0.61 | ||||||||||||||
Adjusted EPS (2)(4) | 1.07 | 1.00 | 0.89 | 0.89 | 0.97 | 0.80 | 0.59 | 0.66 | 0.61 | ||||||||||||||
Invested capital (2) ($ millions) | 4,897 | 4,630 | 4,545 | 4,170 | 4,358 | 4,076 | 3,777 | 3,326 | 3,335 | ||||||||||||||
ROIC (2) (%) | |||||||||||||||||||||||
Consolidated | 20.7 | % | 20.8 | % | 20.2 | % | 18.7 | % | 18.3 | % | 17.5 | % | 17.0 | % | 16.8 | % | 15.6 | % | |||||
19.8 | % | 20.1 | % | 19.4 | % | 18.7 | % | 18.2 | % | 17.4 | % | 17.4 | % | 17.5 | % | 16.5 | % | ||||||
27.1 | % | 25.9 | % | 24.0 | % | 24.5 | % | 22.7 | % | 22.3 | % | 21.7 | % | 20.3 | % | 19.0 | % | ||||||
13.7 | % | 15.5 | % | 17.0 | % | 17.0 | % | 16.6 | % | 16.2 | % | 15.7 | % | 14.8 | % | 14.9 | % | ||||||
Adjusted ROIC | |||||||||||||||||||||||
Consolidated | 20.2 | % | 20.2 | % | 19.7 | % | 18.7 | % | 18.3 | % | 17.5 | % | 17.0 | % | 16.4 | % | 14.7 | % | |||||
19.9 | % | 20.2 | % | 19.6 | % | 18.7 | % | 18.2 | % | 17.4 | % | 17.4 | % | 16.9 | % | 15.3 | % | ||||||
27.6 | % | 26.4 | % | 24.6 | % | 24.5 | % | 22.7 | % | 22.3 | % | 21.7 | % | 20.3 | % | 19.0 | % | ||||||
14.1 | % | 15.9 | % | 17.4 | % | 17.0 | % | 16.6 | % | 16.2 | % | 15.7 | % | 14.8 | % | 14.9 | % | ||||||
Invested capital turnover (times) | 2.08 | 2.07 | 2.01 | 2.01 | 1.96 | 2.00 | 2.03 | 2.04 | 2.01 | ||||||||||||||
Inventory ($ millions) | 2,919 | 2,764 | 2,710 | 2,461 | 2,526 | 2,228 | 2,101 | 1,687 | 1,627 | ||||||||||||||
Inventory turns (dealership) (2) (times) | 2.58 | 2.49 | 2.51 | 2.61 | 2.52 | 2.50 | 2.66 | 3.09 | 3.09 | ||||||||||||||
Working capital to net revenue (2) | 27.6 | % | 27.5 | % | 28.0 | % | 27.4 | % | 27.1 | % | 25.1 | % | 23.8 | % | 22.9 | % | 23.0 | % | |||||
Free cash flow ($ millions) | — | 31 | (245 | ) | 332 | (57 | ) | (142 | ) | (303 | ) | 148 | 176 | ||||||||||
Net debt to Adjusted EBITDA ratio (times) | 1.8 | 1.8 | 1.7 | 1.6 | 1.8 | 1.8 | 1.6 | 1.1 | 1.3 | ||||||||||||||
Q3 2023 HIGHLIGHTS BY OPERATION
All comparisons are to Q3 2022 results unless indicated otherwise. All numbers, except ROIC, are in functional currency:
Canada Operations
- Net revenue was up 18%, driven primarily by a 57% increase in new equipment sales. New equipment sales were strong across all sectors, led by mining deliveries to oil sands customers.
- Product support revenue increased by 10%, led by strong mining activity.
- EBIT was up 10%. EBIT as a percentage of net revenue was 10.8%, below 11.7% in Q3 2022, due to a higher proportion of large mining equipment sales in the revenue mix.
South America Operations
- Net revenue increased by 20%, driven by strong mining volumes. Construction and power systems revenues were also above Q3 2022.
- New equipment sales were up 37%, reflecting deliveries of large mining equipment in
Chile . - Product support revenue was up 12%, led by strong mining activity.
- EBIT was up 20%. EBIT as a percentage of net revenue of 12.3% was comparable to Q3 2022.
South America generated Adjusted ROIC of 27.6%, an all-time high.
- Net revenue decreased by 17% as lower equipment sales in construction were partially offset by higher revenues in power systems. Construction sales in Q3 2022 benefitted from HS2 deliveries.
- Product support revenue was up 6%, supporting solid operating margin. EBIT as a percentage of net revenue was 5.9%.
Corporate and Other Items
- Corporate EBIT loss was
$8 million in Q3 2023 comparable to Q3 2022. - The Board of Directors has approved a quarterly dividend of
$0.25 per share, payable onDecember 7, 2023 , to shareholders of record onNovember 23, 2023 . This dividend will be considered an eligible dividend for Canadian income tax purposes. - We repurchased 1.47 million shares in Q3 2023 at an average price of
$42.27 , representing 1.0% of our public float.
Appointment of
We are pleased to announce the appointment of
"We are pleased to welcome John to our Board. He brings a wealth of experience in executive and operational management, safety and strategic direction in the oil and gas sector. We look forward to gaining his valuable perspective and leveraging his direct industry knowledge,” said
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
As the completion of major pipelines creates additional capacity to move heavy oil and liquefied natural gas to end markets, we expect to see increased activity in the energy sector to grow production. Our mining and energy customers are steadily increasing their investment to renew, maintain, and rebuild aging fleets.
In the oil sands, based on customer commitments and discussions, we anticipate strong demand for product support, including component remanufacturing and rebuilds.
We expect ongoing commitment from federal and provincial governments to infrastructure development to support activity in the construction sector. In addition, growing demand for reliable, efficient, and sustainable electric power solutions across communities in
South America Operations
In
In the construction sector, we continue to see healthy demand from large contractors supporting mining operations, and we expect infrastructure construction in
In the power systems sector, activity remains strong in the industrial and data centre markets, and we are well positioned to benefit from growing demand for electric power solutions.
High inflation, currency restrictions, and new import regulations are expected to continue impacting our business in
In the construction sector, product support activity is expected to remain resilient, driven by steady machine utilization and growing contribution from
We expect continued strong demand for our
Executing Well and Building on Positive Momentum
Looking ahead, we are building capabilities and empowering our people to drive customer loyalty and execute on the strategic priorities we outlined at our 2023 Investor Day: drive product support, full-cycle resilience, and sustainable growth.
To support growth in the business and our strategic priorities, we now expect our 2023 net capital expenditures and net rental fleet additions to be approximately
To access Finning's complete Q3 2023 results, please visit our website at https://www.finning.com/en_CA/company/investors.html
Q3 2023 INVESTOR CALL
We 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 9 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
$170 million of profits from our South American operations, and incurred severance costs in each region as we reduced corporate overhead costs and simplified our operating model. As a result of these activities, our Q1 2023 financial results were impacted by significant items that we do not consider indicative of operational and financial trends:- Net foreign currency translation gain and income tax expense were reclassified to net income on the wind up of foreign subsidiaries;
- Withholding tax payable related to the repatriation of profits; and,
- Severance costs incurred in all of our operations.
- Finning qualified for and recorded a benefit from Q2 2020 to Q1 2021 related to CEWS (1), which was introduced by the
Government of Canada in response to the COVID-19 (1) pandemic for eligible entities that met specific criteria. - In
December 2020 , the shareholders of Energyst (1), which included Finning, decided to restructure the company. A plan was put in place to sell any remaining assets and wind up Energyst, with net proceeds from the sale to be distributed to Energyst’s shareholders. In Q1 2021, we recorded a return on our investment in Energyst.
A reconciliation from EBIT to Adjusted EBIT and Adjusted EBITDA for our consolidated operations is as follows:
3 months ended | 2023 | 2022 | 2021 | 2020 | ||||||||||||||||||
($ millions) | ||||||||||||||||||||||
EBIT | 252 | 242 | 239 | 214 | 224 | 190 | 140 | 157 | 150 | 137 | 108 | 108 | ||||||||||
Significant items: | ||||||||||||||||||||||
Gain on wind up of foreign subsidiaries | — | — | (41 | ) | — | — | — | — | — | — | — | — | — | |||||||||
Severance costs | — | — | 18 | — | — | — | — | — | — | — | — | — | ||||||||||
CEWS support | — | — | — | — | — | — | — | — | — | — | (10 | ) | (14 | ) | ||||||||
Return on Energyst investment | — | — | — | — | — | — | — | — | — | — | (5 | ) | — | |||||||||
Adjusted EBIT | 252 | 242 | 216 | 214 | 224 | 190 | 140 | 157 | 150 | 137 | 93 | 94 | ||||||||||
Depreciation and amortization | 94 | 94 | 92 | 87 | 84 | 81 | 81 | 84 | 80 | 78 | 77 | 77 | ||||||||||
Adjusted EBITDA (3)(4) | 346 | 336 | 308 | 301 | 308 | 271 | 221 | 241 | 230 | 215 | 170 | 171 | ||||||||||
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 | — | — | — | — | — | — | |||||||
Provision for income taxes on the significant items | — | — | 23 | — | — | — | — | — | — | |||||||
A reconciliation from EPS to Adjusted EPS for our consolidated operations is as follows:
3 months ended | 2023 | 2022 | 2021 | |||||||||||||
($) | ||||||||||||||||
EPS (a) | 1.07 | 1.00 | 0.89 | 0.89 | 0.97 | 0.80 | 0.59 | 0.66 | 0.61 | |||||||
Significant items: | ||||||||||||||||
Gain on wind up of foreign subsidiaries | — | — | (0.21 | ) | — | — | — | — | — | — | ||||||
Severance costs | — | — | 0.09 | — | — | — | — | — | — | |||||||
Withholding tax on repatriation of profits | — | — | 0.12 | — | — | — | — | — | — | |||||||
Adjusted EPS (a) | 1.07 | 1.00 | 0.89 | 0.89 | 0.97 | 0.80 | 0.59 | 0.66 | 0.61 |
(a) The per share impact for each quarter has been calculated using the weighted average number of common shares outstanding during the respective quarters; therefore, quarterly amounts may not add to the annual or year-to-date total.
A reconciliation from EBIT to Adjusted EBIT for our Canadian operations is as follows:
3 months ended | 2023 | 2022 | 2021 | 2020 | ||||||||||||||||
($ millions) | ||||||||||||||||||||
EBIT | 137 | 136 | 126 | 128 | 125 | 102 | 80 | 92 | 84 | 82 | 69 | 72 | ||||||||
Significant items: | ||||||||||||||||||||
Severance costs | — | — | 4 | — | — | — | — | — | — | — | — | — | ||||||||
CEWS support | — | — | — | — | — | — | — | — | — | — | (10 | ) | (13 | ) | ||||||
Adjusted EBIT | 137 | 136 | 130 | 128 | 125 | 102 | 80 | 92 | 84 | 82 | 59 | 59 | ||||||||
A reconciliation from EBIT to Adjusted EBIT for our South American operations is as follows:
3 months ended | 2023 | 2022 | 2021 | 2020 | ||||||||||||||
($ millions) | ||||||||||||||||||
EBIT | 104 | 104 | 74 | 96 | 85 | 64 | 65 | 59 | 58 | 51 | 41 | 41 | ||||||
Significant item: | ||||||||||||||||||
Severance costs | — | — | 7 | — | — | — | — | — | — | — | — | — | ||||||
Adjusted EBIT | 104 | 104 | 81 | 96 | 85 | 64 | 65 | 59 | 58 | 51 | 41 | 41 | ||||||
A reconciliation from EBIT to Adjusted EBIT for our
3 months ended | 2023 | 2022 | 2021 | 2020 | |||||||||||||||
($ millions) | |||||||||||||||||||
EBIT | 19 | 18 | 15 | 16 | 21 | 23 | 14 | 12 | 17 | 17 | 7 | 11 | |||||||
Significant item: | |||||||||||||||||||
Severance costs | — | — | 2 | — | — | — | — | — | — | — | — | — | |||||||
Adjusted EBIT | 19 | 18 | 17 | 16 | 21 | 23 | 14 | 12 | 17 | 17 | 7 | 11 | |||||||
A reconciliation from EBIT to Adjusted EBIT for our Other operations is as follows:
3 months ended | 2023 | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||
($ millions) | ||||||||||||||||||||||||||||||
EBIT | (8 | ) | (16 | ) | 24 | (26 | ) | (7 | ) | 1 | (19 | ) | (6 | ) | (9 | ) | (13 | ) | (9 | ) | (16 | ) | ||||||||
Significant items: | ||||||||||||||||||||||||||||||
Gain on wind up of foreign subsidiaries | — | — | (41 | ) | — | — | — | — | — | — | — | — | — | |||||||||||||||||
Severance costs | — | — | 5 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Return on Energyst investment | — | — | — | — | — | — | — | — | — | — | (5 | ) | — | |||||||||||||||||
CEWS support | — | — | — | — | — | — | — | — | — | — | — | (1 | ) | |||||||||||||||||
Adjusted EBIT | (8 | ) | (16 | ) | (12 | ) | (26 | ) | (7 | ) | 1 | (19 | ) | (6 | ) | (9 | ) | (13 | ) | (14 | ) | (17 | ) | |||||||
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 | 2023 | 2022 | 2021 | |||||||||||||||||||
($ millions) | ||||||||||||||||||||||
Cash flow provided by (used in) operating activities | 37 | 66 | (166 | ) | 410 | (24 | ) | (112 | ) | (273 | ) | 193 | 212 | |||||||||
Additions to property, plant, and equipment and intangible assets | (50 | ) | (40 | ) | (79 | ) | (78 | ) | (33 | ) | (30 | ) | (30 | ) | (45 | ) | (38 | ) | ||||
Proceeds on disposal of property, plant, and equipment | 13 | 5 | — | — | — | — | — | — | 2 | |||||||||||||
Free cash flow | — | 31 | (245 | ) | 332 | (57 | ) | (142 | ) | (303 | ) | 148 | 176 | |||||||||
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 inventory related to the mobile refuelling operations), 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 | |||||||||||||||||||||
($ millions) | ||||||||||||||||||||||||
Cost of sales | 2,044 | 2,125 | 1,758 | 2,025 | 1,807 | 1,761 | 1,463 | 1,465 | 1,443 | 1,396 | ||||||||||||||
Cost of sales related to the mobile refuelling operations | (283 | ) | (237 | ) | (253 | ) | (302 | ) | (293 | ) | (300 | ) | (231 | ) | (190 | ) | (170 | ) | (153 | ) | ||||
Cost of sales related to the dealership (3) | 1,761 | 1,888 | 1,505 | 1,723 | 1,514 | 1,461 | 1,232 | 1,275 | 1,273 | 1,243 | ||||||||||||||
2023 | 2022 | 2021 | ||||||||||||||||||||||
($ millions) | ||||||||||||||||||||||||
Inventory | 2,919 | 2,764 | 2,710 | 2,461 | 2,526 | 2,228 | 2,101 | 1,687 | 1,627 | 1,643 | ||||||||||||||
Inventory related to the mobile refuelling operations | (17 | ) | (14 | ) | (12 | ) | (12 | ) | (12 | ) | (13 | ) | (11 | ) | (9 | ) | (6 | ) | (3 | ) | ||||
Inventory related to the dealership (3) | 2,902 | 2,750 | 2,698 | 2,449 | 2,514 | 2,215 | 2,090 | 1,678 | 1,621 | 1,640 | ||||||||||||||
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 | (168 | ) | (74 | ) | (129 | ) | (288 | ) | (120 | ) | (170 | ) | (295 | ) | (502 | ) | (518 | ) | (378 | ) | (469 | ) | (539 | ) | |||||
Short-term debt | 1,372 | 1,142 | 1,266 | 1,068 | 1,087 | 992 | 804 | 374 | 419 | 114 | 103 | 92 | |||||||||||||||||
Long-term debt | |||||||||||||||||||||||||||||
Current | 203 | 199 | 253 | 114 | 106 | 110 | 63 | 190 | 191 | 386 | 326 | 201 | |||||||||||||||||
Non-current | 955 | 949 | 675 | 815 | 836 | 807 | 909 | 921 | 923 | 903 | 973 | 1,107 | |||||||||||||||||
Net debt (3) | 2,362 | 2,216 | 2,065 | 1,709 | 1,909 | 1,739 | 1,481 | 983 | 1,015 | 1,025 | 933 | 861 | |||||||||||||||||
Total equity | 2,535 | 2,414 | 2,480 | 2,461 | 2,449 | 2,337 | 2,296 | 2,343 | 2,320 | 2,252 | 2,244 | 2,206 | |||||||||||||||||
Invested capital | 4,897 | 4,630 | 4,545 | 4,170 | 4,358 | 4,076 | 3,777 | 3,326 | 3,335 | 3,277 | 3,177 | 3,067 | |||||||||||||||||
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 EBIT as a % of net revenue 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 ratios are calculated, respectively, as gross profit divided by net revenue, SG&A divided by net revenue, and EBIT 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 | 2021 | 2020 | |||||||||||||||||||||||||
($ millions) | |||||||||||||||||||||||||||||
Total revenue | 2,704 | 2,779 | 2,380 | 2,653 | 2,384 | 2,289 | 1,953 | 1,949 | 1,904 | 1,845 | 1,596 | 1,666 | |||||||||||||||||
Cost of fuel | (267 | ) | (220 | ) | (236 | ) | (285 | ) | (277 | ) | (285 | ) | (217 | ) | (175 | ) | (156 | ) | (140 | ) | (127 | ) | (115 | ) | |||||
Net revenue | 2,437 | 2,559 | 2,144 | 2,368 | 2,107 | 2,004 | 1,736 | 1,774 | 1,748 | 1,705 | 1,469 | 1,551 | |||||||||||||||||
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 | 5,217 | 4,985 | 4,974 | 4,781 | 4,652 | 4,098 | 4,030 | 3,619 | 3,620 | 3,416 | 3,319 | 3,214 | |||||||||||||||||
Cash and cash equivalents | (168 | ) | (74 | ) | (129 | ) | (288 | ) | (120 | ) | (170 | ) | (295 | ) | (502 | ) | (518 | ) | (378 | ) | (469 | ) | (539 | ) | |||||
Total current assets in working capital | 5,049 | 4,911 | 4,845 | 4,493 | 4,532 | 3,928 | 3,735 | 3,117 | 3,102 | 3,038 | 2,850 | 2,675 | |||||||||||||||||
Total current liabilities | 3,690 | 3,569 | 3,763 | 3,401 | 3,196 | 2,789 | 2,647 | 2,155 | 2,156 | 1,942 | 1,817 | 1,623 | |||||||||||||||||
Short-term debt | (1,372 | ) | (1,142 | ) | (1,266 | ) | (1,068 | ) | (1,087 | ) | (992 | ) | (804 | ) | (374 | ) | (419 | ) | (114 | ) | (103 | ) | (92 | ) | |||||
Current portion of long-term debt | (203 | ) | (199 | ) | (253 | ) | (114 | ) | (106 | ) | (110 | ) | (63 | ) | (190 | ) | (191 | ) | (386 | ) | (326 | ) | (201 | ) | |||||
Total current liabilities in working capital | 2,115 | 2,228 | 2,244 | 2,219 | 2,003 | 1,687 | 1,780 | 1,591 | 1,546 | 1,442 | 1,388 | 1,330 | |||||||||||||||||
Working capital (3) | 2,934 | 2,683 | 2,601 | 2,274 | 2,529 | 2,241 | 1,955 | 1,526 | 1,556 | 1,596 | 1,462 | 1,345 | |||||||||||||||||
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 7 of this Earnings Release.
(3) These are non-GAAP financial measures. See “Description of Specified Financial Measures and Reconciliations” on page 7 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 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 but not limited to: 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
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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