HIGHLIGHTS
All comparisons are to Q4 2019 and annual 2019 results unless indicated otherwise.
- Q4 2020 EPS(1) of
$0.45 represented a 45% increase from Q4 2019 and included$0.07 ofCanada Emergency Wage Subsidy (“CEWS”). Q4 2020 Adjusted EPS(2)(3) was$0.38 , 25% higher than Q4 2019. - Q4 2020 revenue was
$1.7 billion , and net revenue(2) of$1.6 billion was down 12% from Q4 2019, as increased revenue in theUK &Ireland was offset by reduced market activity inCanada andSouth America . Compared to Q3 2020, net revenue increased by 7%, with growth in all regions. - Gross profit as a percentage of net revenue(2) of 26.9% in Q4 2020 was 260 basis points higher than Q4 2019, due to operational improvements and a revenue mix shift to product support revenue.
- For the full year 2020, SG&A(1) was down by
$115 million or 8% compared to 2019. Q4 2020 SG&A costs decreased by 3%, or$10 million , from Q4 2019. Savings from global cost initiatives were offset by$13 million higher long-term incentive plan (“LTIP”) expense in Q4 2020 compared to Q4 2019. - All our operations achieved improved profitability compared to Q4 2019, driven by a lower cost base, stable gross profit margins, and the resiliency of our product support business. EBIT(1) as a percentage of net revenue(2) was 9.3% in
Canada (7.7% on an adjusted basis), 8.3% inSouth America , and 3.7% in theUK &Ireland . - We have significantly strengthened our financial position throughout the year as we reduced our net debt(2) by
$615 million fromDecember 31, 2019 . EBITDA(1)(2) to free cash flow(2) conversion(2) was approximately 125% in 2020. Our net debt to Adjusted EBITDA(2)(3) ratio(2)(3) was 1.4 atDecember 31, 2020 , down from 2.0 atDecember 31, 2019 , and our finance costs decreased by 21% from 2019 to$85 million in 2020. - Equipment backlog(2) increased by 19% from
September 30, 2020 to$0.8 billion atDecember 31, 2020 , driven primarily by higher order intake(2) in theUK &Ireland related to initial equipment orders for HS2, and by mining inSouth America . Consolidated order intake in Q4 2020 increased by approximately 60% from Q3 2020 and was the highest since Q3 2018.
“We navigated through a very challenging year while operating safely, supporting our customers, and executing on our strategic priorities. Our Total Injury Frequency rate decreased by 35%, and our customer loyalty scores increased by 10% in 2020 compared to 2019. Our employees should be proud of these accomplishments, which demonstrate continued adaptability and unwavering commitment to providing essential services to our customers,” said
“We greatly appreciate the contributions of our many stakeholders in 2020. The combination of employee flexibility, liquidity from our capital markets partners, and government support programs in
“2020 was an exceptional execution year. Despite the challenges, we benefited from earlier investments in our digital capabilities and delivered on the commitments we set out at the beginning of the year. We improved our execution in
“Our outlook for 2021 remains positive, with key markets recovering, commodity prices at constructive levels, our customers increasing capital expenditures, and government stimulus spending supporting infrastructure projects. In 2021, we expect to benefit from several profitability drivers, including operating leverage in a recovering market, product support growth in all regions, significant progress towards our mid-cycle target of 17% SG&A as a percentage of net revenue(2), and effective allocation of capital,” concluded
Q4 2020 FINANCIAL SUMMARY
Quarterly Overview $ millions, except per share amounts | Q4 2020 | Q4 2019 | % change | |||
Revenue | 1,666 | 1,911 | (13 | ) | ||
Net revenue | 1,551 | 1,757 | (12 | ) | ||
EBIT | 108 | 97 | 11 | |||
EBIT as a percentage of net revenue(2) | 6.9 | % | 5.5 | % | ||
EBITDA | 185 | 170 | 9 | |||
EBITDA as a percentage of net revenue(2) | 11.9 | % | 9.7 | % | ||
Net income | 72 | 50 | 44 | |||
EPS | 0.45 | 0.31 | 45 | |||
Free cash flow | 292 | 386 | (24 | ) |
Q4 2020 EBIT and EBITDA by Operation $ millions, except per share amounts | Corporate & Other | Finning Total | EPS | ||||||||
EBIT / EPS CEWS support | 72 (13) | 41 - | 11 - | (16) (1) | 108 (14) | 0.45 (0.07) | |||||
Adjusted EBIT(2)(3) / Adjusted EPS | 59 | 41 | 11 | (17) | 94 | 0.38 | |||||
Adjusted EBIT as a percentage of net revenue(2)(3) | 7.7% | 8.3% | 3.7% | - | 6.1% | ||||||
Adjusted EBITDA | 106 | 61 | 20 | (16) | 171 | ||||||
Adjusted EBITDA as a percentage of net revenue(2)(3) | 13.7% | 12.2% | 7.0% | - | 11.0% |
Q4 2019 EBIT and EBITDA by Operation $ millions, except per share amounts | Corporate & Other | Finning Total | EPS | ||||||||
EBIT / EPS | 72 | 31 | 5 | (11) | 97 | 0.31 | |||||
EBIT as a percentage of net revenue | 7.4% | 6.0% | 1.9% | - | 5.5% | ||||||
EBITDA | 114 | 51 | 15 | (10) | 170 | ||||||
EBITDA as a percentage of net revenue | 11.8% | 10.0% | 5.4% | - | 9.7% |
Q4 2020 | Q4 2019 | |
Invested capital ($ millions) | ||
Consolidated | 3,067 | 3,591 |
1,819 | 2,026 | |
731 | 918 | |
188 | 210 | |
Invested capital turnover(2) (times) | 1.68 | 1.92 |
Working capital(2) to net revenue ratio(2) | 28.3% | 27.8% |
Inventory ($ millions) | 1,477 | 1,990 |
Inventory turns (dealership)(2) (times) | 2.79 | 2.53 |
Adjusted ROIC(2)(3) (%) | ||
Consolidated | 9.6 | 12.0 |
10.5 | 14.4 | |
12.9 | 10.5 | |
5.5 | 12.1 |
Q4 2020 HIGHLIGHTS BY OPERATION
All comparisons are to Q4 2019 results unless indicated otherwise. All numbers are in functional currency:
- Net revenue decreased by 20%, largely due to a 47% decline in new equipment sales. Q4 2019 revenue benefited from large mining equipment packages that did not repeat in Q4 2020. Net revenue grew 6% from Q3 2020, driven by improving activity in mining and power systems deliveries.
- Product support revenue was 6% below Q4 2019 due to reduced activity in all sectors. Compared to Q3 2020, product support revenue increased by 5%, driven primarily by improved demand in the oil sands and higher rebuild activity.
- Due to a significant reduction in revenues in our Canadian operations year over year, we continued to qualify for CEWS and recognized
$13 million of this wage subsidy in Q4 2020, which is included in other income and excluded from our adjusted earnings. Support from the CEWS program allowed us to preserve over 500 jobs during 2020. We have rehired over 100 technicians sinceJune 2020 as market activity began to improve. Our strengthened financial position will enable us to make strategic investments early in the recovery cycle, including the purchase and capacity expansion of ourRegina facility inSaskatchewan , selected capacity expansions inAlberta , and the construction of new ultra-efficient facilities inKamloops andCampbell River, British Columbia in partnership with local Indigenous communities. - SG&A decreased by 7% from Q4 2019, reflecting cost savings from improved processes and efficiencies. However, these savings were partly offset by higher service and overhead costs, as new equipment preparation work was down significantly from Q4 2019 and we continued to use the CEWS program to retain technicians.
- Adjusted EBIT as a percentage of net revenue was 7.7%, up 30 basis points compared to Q4 2019 despite lower revenue, driven by a higher proportion of product support in the revenue mix, a reduced cost base, and operational improvements.
- Net revenue decreased by 3% from Q4 2019 mostly due to continued impacts of COVID-19 restrictions on mining operations and overall economic activity. Compared to Q3 2020, net revenue increased by 6%, driven by product support recovery.
- Product support revenue was down 4% from Q4 2019, impacted by COVID-19 restrictions on mining operations. Compared to Q3 2020, product support revenue was up 8%, reflecting a recovery of repair and maintenance work for Chilean mining customers.
- New equipment sales were 10% below Q4 2019. However, order intake in
South America increased by over 80% from Q3 2020, driven by mining. - EBIT as a percentage of net revenue was 8.3%, up 230 basis points from Q4 2019, reflecting the benefit of a lower cost base from leveraging one common technology system.
- Net revenue was up by 4% from Q4 2019, driven by an 18% increase in new equipment sales, attributable to deliveries of power systems projects to the data centre and electricity capacity markets. Product support revenue was up 3% from Q4 2019 due to higher service and rebuild activity, and related parts consumption in construction.
- EBIT as a percentage of net revenue was 3.7%, up 180 basis points from Q4 2019. An increase in profitability compared to Q4 2019 was driven by a new equipment product mix shift to power systems, improved quality of equipment inventory, and effective cost control. The number of
UK &Ireland employees on furlough was about 3% during Q4 2020, down from 20% in Q3 2020 and nearly 50% in Q2 2020. TheUK government’s furlough program has helped limit business disruptions and supported our rapid recovery in theUK andIreland . - An increase in order intake in the
UK &Ireland in Q4 2020 was driven in part by initial equipment orders related to HS2. We expect to start delivering equipment to this project in Q2 2021. Despite some delays, we are encouraged by these orders, and remain well positioned to capture further equipment and product support opportunities for this project.
Q4 2020 MARKET UPDATE AND BUSINESS OUTLOOK
Oil sands production and capital expenditures are expected to increase in 2021 compared to 2020 in response to strengthened oil prices and the
The outlook for copper, precious metals and other metals has improved, supporting increased activity in this mining sector. Diamond mining activity is expected to return to full capacity in the first quarter after selected shut-downs in 2020. We are actively quoting on multiple requests for proposals (RFPs) for equipment and product support, including projects in
We are well positioned to help our mining customers reduce cost per ton and improve operating efficiencies through initiatives such as autonomy and leveraging our technology solutions. The large and aging mining equipment population in
We are encouraged by significant infrastructure investments being made in both the public and private sectors. Large fiscal stimulus programs in each province are expected to provide a near-term positive impact on construction activity, including investments in Alberta’s light rail projects and
We are optimistic about mining recovery in
We expect mining product support revenue to recover in 2021 as customers are ramping up major maintenance work and preparing their equipment fleets to meet increasing production targets. However, COVID-19 related restrictions are expected to continue to limit the capacity of mining operations in the near term. While we have reached agreements with our own unions, we are monitoring the upcoming customer union negotiations closely.
The outlook for a recovery in the Chilean construction industry is positive. The Chilean government announced
In
A new trade deal between the
The outlook for general construction equipment markets in the
We expect continued strong demand for our power systems solutions, particularly in the data centre market, with the timing of project deliveries expected to be phased towards the second half of 2021.
Improved Earnings Capacity in a Recovery
Our overall outlook for 2021 remains positive. Led by strong recoveries in
The execution of our global cost initiatives is on track to deliver more than
In 2021, we expect to benefit from several profitability drivers, including operating leverage in a recovering market, product support growth in all regions, significant progress towards our mid-cycle SG&A target, and effective allocation of capital. Assuming an undisrupted market recovery and the successful execution of our profitability drivers, we expect 2021 earnings to exceed 2019.
We will be making strategic capital investments in our Canadian facility network and our digital capabilities in 2021, and expect our net capital expenditures and net rental fleet additions to be in the
We expect to deliver strong annual free cash flow in 2021. However, with increased inventory purchases, our EBITDA to free cash flow conversion is projected to be modestly below 50% for the year.
CORPORATE AND BUSINESS DEVELOPMENTS
Dividend
The Board of Directors has approved a quarterly dividend of
Amended and Restated Advance Notice By-Law
The Board of Directors has approved some minor changes to Finning’s Advance Notice By-Law to update the By-law and track current market best practices. Our Amended and Restated Advance Notice By-Law, which takes effect immediately, will be available for review under our profile on SEDAR at www.sedar.com.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
$ millions, except per share amounts | Three months ended | Twelve months ended | |||||||
2020 | 2019 | % change fav (unfav) | 2020 | 2019 | % change fav (unfav) | ||||
New equipment | 500 | 649 | (23) | 1,671 | 2,776 | (40) | |||
Used equipment | 93 | 99 | (6) | 308 | 361 | (15) | |||
Equipment rental | 49 | 55 | (10) | 196 | 246 | (20) | |||
Product support | 877 | 922 | (5) | 3,473 | 3,793 | (8) | |||
Net fuel and other | 32 | 32 | 120 | 114 | 5 | ||||
Net revenue | 1,551 | 1,757 | (12) | 5,768 | 7,290 | (21) | |||
Gross profit | 418 | 428 | (2) | 1,570 | 1,799 | (13) | |||
Gross profit as a percentage of net revenue | 26.9% | 24.3% | 27.2% | 24.7% | |||||
SG&A | (324) | (334) | 3 | (1,245) | (1,360) | 8 | |||
SG&A as a percentage of net revenue | (20.9)% | (19.0)% | (21.6)% | (18.7)% | |||||
Equity earnings of joint ventures | - | 3 | 3 | 15 | |||||
Other income | 14 | - | 115 | - | |||||
Other expenses | - | - | (51) | (29) | |||||
EBIT | 108 | 97 | 11 | 392 | 425 | (8) | |||
EBIT as a percentage of net revenue | 6.9% | 5.5% | 6.8% | 5.8% | |||||
Adjusted EBIT | 94 | 97 | (3) | 328 | 457 | (28) | |||
Adjusted EBIT as a percentage of net revenue | 6.1% | 5.5% | 5.7% | 6.3% | |||||
Net income | 72 | 50 | 44 | 232 | 242 | (4) | |||
Basic EPS | 0.45 | 0.31 | 45 | 1.43 | 1.48 | (3) | |||
Adjusted EPS | 0.38 | 0.31 | 25 | 1.14 | 1.65 | (31) | |||
EBITDA | 185 | 170 | 9 | 700 | 718 | (3) | |||
EBITDA as a percentage of net revenue | 11.9% | 9.7% | 12.1% | 9.9% | |||||
Adjusted EBITDA | 171 | 170 | 1 | 636 | 750 | (15) | |||
Adjusted EBITDA as a percentage of net revenue | 11.0% | 9.7% | 11.0% | 10.3% | |||||
Free cash flow | 292 | 386 | (24) | 870 | 42 | n/m | |||
Invested capital | 3,067 | 3,591 | |||||||
Invested capital turnover (times) | 1.68 | 1.92 | |||||||
Net debt to EBITDA ratio(2) | 1.2 | 2.1 | |||||||
Net debt to Adjusted EBITDA ratio | 1.4 | 2.0 | |||||||
ROIC | 11.4 | % | 11.2% | ||||||
Adjusted ROIC | 9.6 | % | 12.0% |
n/m – not meaningful
To access Finning's complete Q4 and annual 2020 results in PDF, please visit our website at https://www.finning.com/en_CA/company/investors.html
Q4 2020 INVESTOR CALL
The Company will hold an investor call on
ABOUT FINNING
CONTACT INFORMATION
Senior Vice President, Investor Relations and
Phone: 604-331-4865
Email: amanda.hobson@finning.com
https://www.finning.com
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) These financial metrics, referred to as “non-GAAP financial measures”, do not have a standardized meaning under International Financial Reporting Standards (IFRS), which are also referred to herein as Generally Accepted Accounting Principles (GAAP), and therefore may not be comparable to similar measures presented by other issuers. For additional information regarding these financial metrics, including definitions and reconciliations from each of these non-GAAP financial measures to their most directly comparable measure under GAAP, where available, see the heading “Description of Non-GAAP Financial Measures and Reconciliations” in the Company’s 2020 management discussion and analysis (MD&A). Management believes that providing certain non-GAAP financial measures provides users of the Company’s MD&A and consolidated financial statements with important information regarding the operational performance and related trends of the Company's business. By considering these measures in combination with the comparable IFRS financial measures (where available) set out in the MD&A, management believes that users are provided a better overall understanding of the Company's business and its financial performance during the relevant period than if they simply considered the IFRS financial measures alone.
(3) Certain 2020 and 2019 financial metrics 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 on pages 5, 9 and 41-43 of the MD&A. The financial metrics that have been adjusted to take into account these items are referred to as “Adjusted” metrics.
FORWARD-LOOKING INFORMATION CAUTION
This news release contains information about our business outlook, objectives, plans, strategic priorities and other information that is not historical fact. Information we provide is forward-looking when we use what we know and expect today to give information about the future. Forward-looking information may include terminology such as aim, anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive, target, and will, and variations of such terminology. Forward-looking information in this news release includes, but is not limited to, the following: our positive outlook for 2021; 2021 profitability drivers will include operating leverage in a recovering market, product support growth in all regions, significant progress towards our mid-cycle target of 17% SG&A as a percentage of net revenue and effective allocation of capital; our plans to make strategic investments early in the recovery cycle, including the purchase and capacity expansion of our
Unless we indicate otherwise, forward-looking information in this news release reflects our expectations at the date in 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 impact and duration of the COVID-19 pandemic and measures taken by governments and businesses in response; general economic and market conditions and economic and market conditions in the regions where we operate; foreign exchange rates; commodity prices; the impact of changes in the UK’s trade relationship with the
Forward-looking information made 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 the effects of the COVID-19 response; that commodity prices will remain at constructive levels; that our customers will not curtail their increasing capital expenditures; that our action plan to minimize the impact of Brexit will be successful; that general economic and market conditions will improve; that the level of customer confidence and spending, and the demand for, and prices of, our products and services will be maintained; our ability to successfully execute our plans and intentions; our ability to attract and retain skilled staff; market competition will remain at similar levels; the products and technology offered by our competitors will be as expected; that identified opportunities for growth will result in revenue; consistent and stable legislation in the various countries in which we operate; no disruptive changes in the technology environment and that our current good relationships with Caterpillar, our customers and our suppliers, service providers and other third parties will be maintained. 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 news release are discussed in our current AIF and in our annual MD&A for the financial risks, including for updated risks related to the COVID-19 pandemic.
We caution readers that the risks described in the AIF and in the annual and most recent quarterly MD&A are not the only ones that could impact the Company. We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations, financial condition or the demand for our services, due in part to the uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, the steps our customers and suppliers may take in current circumstances, including slowing or halting operations, the duration of travel and quarantine restrictions imposed by governments of affected countries and other steps that may be taken by such governments to respond to the pandemic. Additional risks and uncertainties not currently known to us or that are currently deemed to be immaterial may also have a material adverse effect on our business, financial condition, or results of operation.
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