Finning International Inc. · TSX:FTT
Finning International — Investor Presentation (December 2003)
59 slides from Finning International's investor presentation, Dec 18, 2003
Slide 1: 2004 Business Outlook
We will be Caterpillar’s best global business partner, providing unrivalled services that earn customer loyalty. 2004 BUSINESS OUTLOOK December 18, 2003 Wayne Bingham, EVP & Chief Financial Officer Tony Guglielmin, VP Corporate Development & Strategic Planning
Slide 2: Agenda
1 AGENDA • Corporate Strategies • 2003 Highlights • 2004 Outlook • Summary • Appendix • DBSi Update • Pensions • Currency • Long Term Incentive Program
Slide 3: Corporate Strategies
Corporate Strategies 2 Corporate Strategies • Maintain an excellent relationship with Caterpillar and marketing Caterpillar products and services • Diversify our marketing activities • By Geography • By Industry Segment • By Revenue Stream • Growing rental, parts and service businesses to provide in
Slide 4: Strategic Criteria
Corporate Strategies 3 Strategic Criteria Growth 15% per year Market Share 30% ROE 20%
Slide 5: Vision
Corporate Strategies 4 Vision We will be Caterpillar’s best global business partner, providing unrivalled services that earn customer loyalty
Slide 6: End Market Diversification
Corporate Strategies 5 End Market Diversification Serving a number of different industries New Equipment* Construction Plant Hire Petroleum 15% (rental) 4% 8% Other 10% Mining 33% Power 21% Forestry 9% * New equipment deliveries ($) for 2002
Slide 7: Gross Profit Stability
Corporate Strategies 6 Gross Profit Stability 100% 80% 60% 80.7% 69.3% 40% 20% 0% 1997 1998 1999 2000 2001 2002 Sep-03 Finance Rental Parts and Service Equipment
Slide 8: Finning's Formula for Future Growth
Corporate Strategies 7 Finning’s Formula for Future Growth • Continue to lever Caterpillar’s world renowned brand name • Solve difficult customer problems • Command strong regional market shares • Maximize parts, service, rental revenue • Clear financial expectations/metrics throughout the organizat
Slide 9: 2003 Highlights
2003 Highlights 8 2003 Highlights • Record third quarter revenues; record quarterly EPS • Completed acquisitions of Lex Harvey Materials Handling business and 3 South American CAT dealerships • Issued 200 million Sterling Eurobond - May 2003 • Strong backlog/order book • South America • Chile -- $12
Slide 10: Year to Date 2003 Results
2003 Highlights 9 Year to Date 2003 Results (C$ in millions except per share data) 2003 2002 Sept YTD Sept YTD Change • Revenue $2,660.3 2,359.8 + 13% • Net Income $103.9 $101.0 + 3% • Earnings per share $1.35 $1.32 + 2% • Return on Equity 15.0% 15.9% -0.9% pts • Normalized EPS $1.33 $1.19 + 12% ROE
Slide 11: 2004 Outlook
We will be Caterpillar’s best global business partner, providing unrivalled services that earn customer loyalty. 2004 OUTLOOK
Slide 12: Consolidated 2004 Outlook
2004 Outlook 11 Consolidated 2004 Outlook • Economic recovery continues • Commodity prices remain strong near current levels • Currencies remain near current levels • Strong order backlog in all operations • Cost pressures continue in 2004 • Pension expense • Currency effect • Strategies in place to
Slide 13: Consolidated 2004 Outlook
2004 Outlook 12 Consolidated 2004 Outlook • Revenue growth 5-8% (in C$) • Net income (normalized) up in the range of 5% over 2003 • “business as usual” • conservative assumptions for growth and commodity prices • includes material currency effect and increased pension expense • no LTIP expense
Slide 14: Issues for 2004
2004 Outlook 13 Issues for 2004 • DBSi “Go Live” in Finning (UK) • Higher initial running costs • Benefits materialize late 2004 and beyond • Cost pressures • Pensions • Employment (National Insurance in UK) • Currency • Details in Appendix
Slide 15: Key Economic Indicators- 2004
2004 Outlook 14 Key Economic Indicators- 2004 • GDP • Canada: 3.0% Argentina: 4.0% • UK: 2.6% Bolivia: 3.2% • Chile: 4.5% Uruguay: 4.5% • Currencies • CAD/USD:1.30 ARG/USD: 2.7 • CAD/£: 2.24 BOL/USD: 8.3 • CHP/USD: 634 URU/USD: 34.5
Slide 16: Key Economic Indicators- 2004
2004 Outlook 15 Key Economic Indicators- 2004 • Commodity price assumptions (conservative) • Oil: $27.00 • Gas: $4.75 MMBTU • Copper: $0.85-0.90 • Gold: $390.00
Slide 17: Canada - Outlook Summary
2004 Outlook 16 Canada - Outlook Summary • C$/US$ exchange rate stable – new benchmark • Low inflation and low interest rate environment • Alberta economy – same pace as 2003 • B.C. economy gradual improvement • Positioning for 2005-2009 infrastructure spending • Oil & gas strong • Forestry uncertai
Slide 18: Canada – 2004 Assumptions
2004 Outlook 17 Canada – 2004 Assumptions Oil & Gas • Oil Price: US $27 • Gas Price: US $4.75 • Sector activity up - Finning share steady • Oil & Gas well completion - 2001: 17,945 - 2002: 14,323 - 2003: 19,432 (est.) - 2004: 18,023 (est.) • Pipeline activity – Alaska/Mackenzie Valley 2005 or later
Slide 19: Canada – 2004 Assumptions
2004 Outlook 18 Canada – 2004 Assumptions Forestry • Increased housing starts in US • Finning market share gains continue • Resolution of trade dispute could boost growth Construction • Sector activity up 10% • Market share growth Rental • Total of 25 CAT Rental Stores by end of 2003 • Strong growth
Slide 20: Oil Sands - Present and Future
19 OIL SANDS - PRESENT AND FUTURE Securing Canada's Energy Future
Slide 21: Finning Oil Sands Current Activity
2004 Outlook 20 Finning Oil Sands Current Activity Market share for mining equipment: above 70% Total revenue: $285 million (2003) Total equipment in service: 350+ mining class machines Total trucks in service: 797’s: 71 793’s: 56 (plus additional 50 in general mining) Parts and service: “rule of th
Slide 22: Finning Oil Sands Opportunity
2004 Outlook 21 Finning Oil Sands Opportunity • $87 billion of projects in place or announced • $46 billion of new projects/expansions announced • $33 billion of conventional Oil Sands (truck and shovel) • $13 billion of SAGD (not as big an opportunity) • Total industry opportunity through 2012 base
Slide 23: Future Oil Sands Projects
Future Oil Sands Projects 22 Projected Company $$ Description Completion Virgin Oilsands properties Heartland Upgrader project is a demonstration project with potential to start a chain reaction of BA Energy Inc. 2006 $1 Billion mining & "in-situ" or underground extraction developments. Pit mine and
Slide 24: Future Oil Sands Projects - SAGD
Future Oil Sands Projects - SAGD 23 Projected Company $$ Description Completion Surmont project southeast of Fort McMurray. Regulators & ConocoPhillips 2006 $1.1 Billion ConocoPhillips have both approved phased plans for a in situ project. Phase 1 Hilda Lake northwest of Cold Lake. Project now on ho
Slide 25: Pipeline Opportunities
2004 Outlook 24 Pipeline Opportunities • Alaska and Mackenzie Valley pipelines ~C$37.5 Billion in Capex in the next 10 years • Mackenzie Valley (1400 km) • Construction expected to start 2007 – completion 2009 • Alaska Highway (2800 km) • Construction schedule unknown • Equipment industry opportunit
Slide 26: Finning (UK) - Outlook Summary
2004 Outlook 25 Finning (UK) - Outlook Summary • U.K. economy forecast growth 2.6% • Government infrastructure spend continuing • Integration of Lex Harvey business, contributing full year of revenue • Product mix shift – increase in Rental • Employment costs increasing • Pensions • National Insuran
Slide 27: Finning (UK) - 2004 Assumptions
2004 Outlook 26 Finning (UK) - 2004 Assumptions Construction • Overall activity flat - Finning share steady • Focus on General Construction sector • Improved efficiency in service operation • Parts and service has grown from 25% to 29.5% over past 4 years Materials Handling • Sector activity increas
Slide 28: Finning (UK) - Lex Harvey Acquisition
2004 Outlook 27 Finning (UK) - Lex Harvey Acquisition • Completed May 2003 • UK’s largest independent Lift Truck Distributor/Rental House • Complements existing Materials Handling Business • Contributes revenue £90mm (C$ 200 mm) p.a. • Full integration into Finning (UK) Ltd to be completed by end of
Slide 29: Transport Plan 2010
2004 Outlook 28 Transport Plan 2010 l Major Road Projects are underway according to the 10-year plan l December 2002 £5.5 Billion package announced for road improvement l July 2003 £7 Billion package for Britain’s most congested roads announced l £4 Billion allocated to 10 Year Plan funds and £3 Bil
Slide 30: £5.5 Billion Major Road Projects
2004 Outlook 29 £5.5 Billion Major Road Projects l M6 Between Manchester & Birmingham, Plans to widen from 3 to 4 lanes, between junctions 19 & 11a l M1 East Midlands, widen to 4 lanes, between junctions 21 & 30 l M4 & M5 near Bristol, provision of climbing lane for HGV,s l Plans to improve the A453
Slide 31: £7 Billion Major Road Projects
2004 Outlook 30 £7 Billion Major Road Projects l Plans to widen most of the remaining three lane sections of the M25 to four lanes with £1.7bn investment over the next decade. l Plans to widen the M1 between the M25 and Milton Keynes to dual four lanes, costing £623m l Plans to widen the M1 between
Slide 32: Total Transport Ten-year Plan Expenditure
2004 Outlook 31 Total Transport Ten-year Plan Expenditure (Public and Private) Source Department Of Transport April 2003 Report: Delivering better transport: A summary of priorities for 2003-04
Slide 33: Hewden - Outlook Summary
2004 Outlook 32 Hewden - Outlook Summary • Construction (accounts for ~75% of Hewden business) and infrastructure spending growing in 2004, but at slower pace • 2005-2006 show signs of stronger growth for both public and private spending • Competitive landscape remains unsettled • Overcapacity remai
Slide 34: Hewden - Outlook Summary
2004 Outlook 33 Hewden - Outlook Summary • Cost pressures remains • Pensions/National Insurance • Focus on cost rationalization • Synergies with Finning (UK) under review • Reviewing new IT systems • Increased customer interface initiatives • Improved market segmentation and target marketing • Imple
Slide 35: Hewden - Business Segments
2004 Outlook 34 Hewden - Business Segments • Hewden operates in 3 business units (8 product focused channels) • Ranks #1 overall and #1, 2 or 3 in each business unit Depot Type # of Depots # of Employees Market Share Plant Hire 87 1362 #1 (Equipment/Hoists/Accommodation) Hire Centres 219 1525 #3 (To
Slide 36: Hewden - 2004 Assumptions
2004 Outlook 35 Hewden - 2004 Assumptions Plant Hire (Equipment/Hoists/Accommodation) • Sector flat - Hewden market share gains • Continue to add Caterpillar to the fleet (~2,000 units already in fleet) • Opportunities for market consolidation • Focus growth in South and Midlands Hire Centres (Tools
Slide 37: Hewden - 2004 Assumptions
2004 Outlook 36 Hewden - 2004 Assumptions Special Hire (Services/Access/Power/Mobile Cranes) • Sectors mixed - Hewden share steady to increasing • Increase focus on value added contract offerings (i.e. contract lifting in mobile cranes versus rent by the hour)
Slide 38: FINSA - Outlook Summary
2004 Outlook 37 FINSA - Outlook Summary • Economic growth in all 4 regions of FINSA (between 3.2-5.0%) • Commodity prices remain strong and stable • Exchange rates stable • FINSA operating under new organization structure in 2004 – organized by sector (i.e. mining, construction, power systems) • Foc
Slide 39: FINSA - 2004 Assumptions
2004 Outlook 38 FINSA - 2004 Assumptions Mining - Copper US$0.85 – 0.90 - Gold US$390 • Sector optimistic – but cautious • New mining projects limited in 2004 at current copper price – could change if prices reach and maintain $0.90 • Mining equipment revenue up 42% in 2004/P&S up 10% Construction a
Slide 40: Economic Indicators
2004 Outlook 39 Economic Indicators Bolivia 2.7 1.0 3.2 1.6 0.9 1.3 2.5
Slide 41: Copper Prices Recovering Nicely But Far From Historical Highs
2004 Outlook 40 Copper Prices Recovering Nicely But Far From Historical Highs $1.37 $0.98 (spot Dec.12/03) 1995 1996 1997 1998 1999 2000 2001 2002 2003
Slide 42: FINSA Mining Potential
2004 Outlook 41 FINSA Mining Potential • Total mining trucks currently in operation: 300+ units • Equipment industry Revenue Potential: $180mm p.a. - Equipment Revenue (to 2007): $528 million (268 units) - Product Support Revenue (10 years): $2.6 billion • Market share for mining equipment: above 65
Slide 43: FINSA Mining Potential
2004 Outlook 42 FINSA Mining Potential Identified mining projects/opportunities over next 5 Years Mine Commodity Owner Start-up CapEx (US$ mm) Spence Gold/Silver BHPB 2004/5 800 Veladero Gold Barrick 2004 500 Refugio Gold Kinross/Bema 2004 200 Cerro Casale Gold Placer Dome 2006 1,430 Pascua-Lama Gol
Slide 44: Power and Energy - Outlook Summary
2004 Outlook 43 Power and Energy - Outlook Summary • Expansion opportunities by new product lines/new markets/new territories • Leverage product support/distribution/rental competencies internationally • 2003 was very strong year (~20% over 2002) • Revenue flat over 2003 • 2003 included major “one-t
Slide 45: Power and Energy Systems
2004 Outlook 44 Power and Energy Systems Electric Power • Sector activity flat - Finning share steady • Opportunities for “green power” – landfill gas/flare gas/wind power • Opportunities in Bolivia to meet power needs Gas and Petroleum • Sector activity up - Finning share steady • Increased activit
Slide 46: Power and Energy Systems
2004 Outlook 45 Power and Energy Systems Marine • Sector activity flat - Finning share up • Opportunities in pleasure craft and commercial (MaK) Industrial • Sector activity up - Finning share steady/up • Strong performance from Diperk (Chile) On-Highway Truck (BC/Alberta) • Sector activity up - Fin
Slide 47: Power and Energy Systems
2004 Outlook 46 Power and Energy Systems Canada UK Chile Argentina/ Bolivia/Uruguay • CAT ü ü ü ü • MAK ü* ü ü* ü • F.G. Wilson ü F.G.WILSON • Perkins ü** ü • Solar Turbine*** ü ü ü ü *Acquired in 2003 **As of January 1, 2004 ***Sales agent only – project to project
Slide 48: 2004 Summary
2004 Outlook 47 2004 Summary • Economic growth positive in all markets • Commodity prices strong and stable • Strong order backlog • Cost pressures being managed • Pensions (~$0.10/share in 2004) • Currency effect (~$0.16-0.18/share in 2004) • Strategies in place to reduce cost • Focus on integratio
Slide 49: 2004 Summary
2004 Outlook 48 2004 Summary • Revenue up 5-8% • Net Income up in the range of 5% in 2004 - “business as usual” • Strategic acquisitions (not included in outlook for 2004) • UK rental market “tuck-ins” • Cat Rental Store expansion • New geographies (2004 and beyond)
Slide 50: Appendix
2004 Outlook 49 Appendix FINNING INTERNATIONAL INC,
Slide 51: DBSi Summary
2004 Outlook 50 DBSi Summary l Project is on budget and on time (est. $20 mm in 2003) l Finning UK “Go Live” in January 2004 l Major components of system include l Customer Relationship Management (Seibel) l Finance (SAP) l Engine Business Management (project management) l Rental l 11 CAT Dealers cu
Slide 52: Pensions
2004 Outlook 51 Pensions l Finning has Defined Benefit (DB) plans in Canada, Finning (UK) and Hewden l Also have Defined Contribution (DC) plan in Canada and Finning (UK) l Total assets in DB plans (approx.) l Canada: $230 million l Finning (UK): £104 million l Hewden: £40 million l Issues for DB pl
Slide 53: Pensions
2004 Outlook 52 Pensions l Has resulted in increase in plan deficits for DB plans l December 31, 2001: $66.6 million l December 31, 2002: $107.6 million l December 31, 2003: $142.0 million (est.) l Effect is to increase annual plan expense l 2002: $16.3 million l 2003: $23 million (est.) l 2004: $35
Slide 54: Pensions
2004 Outlook 53 Pensions l 2004 Assumptions (expected) Canada Finning (UK) Hewden Discount rates 6.50% 5.75% 5.75% Asset return 7.75% 7.25% 7.25% l 2003 Assumptions Canada Finning (UK) Hewden Discount rates 7.00% 5.75% 5.75% Asset return 8.50% 7.25% 7.25%
Slide 55: Currency
2004 Outlook 54 Currency l Finning provided substantial disclosure on foreign exchange in Q3 Interim l Investments (balance sheet) hedged where possible l Unhedged amounts flow through CTA account on balance sheet l Minimal “in-country” exposure l Operations “buy/sell” in same currency l Use local c
Slide 56: Currency
2004 Outlook 55 Currency l ~80% of Finning revenues are non-Canadian dollar based l Finning (UK) and Hewden are based in £ l Finning (Canada) equipment, parts and used equipment are indexed to CAD/USD and CAD prices adjusted to reflect changes in currency l FINSA revenues linked to USD and local cur
Slide 57: Long Term Incentive Plan
2004 Outlook 56 Long Term Incentive Plan l Finning issued Deferred Share Units (DSU)/Share Appreciation Rights (SAR) in 2002 and 2003 l Response to shareholder concerns with traditional options l Fully expensed for DSU when vested l SAR’s expensed over vesting period l Once vested, all units “marked
Slide 58: Long Term Incentive Plan
2004 Outlook 57 Long Term Incentive Plan l Strong price appreciation in 2003 resulted in $10.3 million (pre-tax) booked to income (to Q3) l At September 30, 2003 l 442,819 DSUs vested/442,319 not vested l 168,875 SARs vested/187,125 not vested l Full disclosure in Notes to Financial Statements l Wil
Slide 59: Disclaimer
58 Disclaimer This presentation contains forward-looking statements and information which reflect the current view of Finning International Inc. ("Finning" or the "Company") with respect to future events and financial performance. Any such forward-looking statements are subject to risks and uncertai
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