Finning International Inc. · TSX:FTT
Finning International — pres eo nov04
47 slides from Finning International's investor presentation, November 2004
Slide 1: Equity Offering
Equity Offering November 2004
Slide 2: Welcome and introduction by RBC Capital Markets
Good morning, ladies and gentlemen. I’m Ted McGurk of RBC Capital Markets. On behalf of our firm and our syndicate partners, I would like to welcome you to this information meeting on Finning International. I’ll start by introducing the senior executives from Finning who are here with us today…
Slide 3: Doug Whitehead, President and CEO
On my immediate right is Doug Whitehead, President and Chief Executive Officer. Doug joined Finning in 1999, initially as President and COO. He was appointed CEO in May of 2000. Under his guidance, Finning has achieved Doug Whitehead significant internal growth and excellent President and CEO financ
Slide 4: Wayne Bingham, EVP and CFO
Seated next to Doug is Wayne Bingham, the company’s Executive Vice President and Chief Financial Officer. Wayne joined Finning last year, bringing over 25 years senior financial and operational experience with him. He was previously CFO of Ontario Power Generation. Wayne Bingham Executive Vice Presi
Slide 5: Forward-Looking Statements
Forward-Looking Statements Good morning ladies and gentlemen. This presentation contains forward-looking statements and information which reflect Welcome, and thank you for joining us today. the current view of Finning International Inc. ("Finning" or the "Company") with respect to future events and
Slide 6: Announcement of equity issue and refinancing
On Monday of this week, we announced our intention to issue new equity as part of a refinancing initiative at Finning. This refinancing will help us improve performance, particularly in the UK, and it will strengthen our balance sheet in support of internal growth. Doug Whitehead It also provides a
Slide 7: Presentation Agenda
Presentation Agenda Over the next few minutes I’m going to tell you Business overview and operating strategy more about Finning and our strategies. Financial review Wayne Bingham will provide our financial review, including a review of this transaction, Transaction rationale and our thinking a
Slide 8: Finning International
Finning International Finning was founded in 1933 in Vancouver, BC Incorporated 1933 in Vancouver, BC with Caterpillar distribution rights for British Columbia. Largest Caterpillar dealer in the world Focused on three key geographies: Today, we’re the world’s largest CAT dealer, Western Canada
Slide 9: Relationship with Investors
Relationship with Investors The words “long” and “rewarding” also describe Public since 1969 (TSX:FTT) our relationship with shareholders. Investment grade credit: BBB+ / BBB (high) Finning became a public company back in 1969, $2.6 billion market capitalization when we were first listed on th
Slide 10: Relationship with Investors
Relationship with Investors We’ve returned additional value to shareholders Growing dividends by way of growing dividends. Increased four times since 2001 And we’ve demonstrated our commitment to Current yield 1.2% protecting shareholder interests. Exemplary corporate governance standards
Slide 11: Vision Statement
Vision Statement Finning’s vision is to be Caterpillar’s best global business partner, providing unrivalled services that earn customer loyalty. We will be Caterpillar’s best global business partner, providing unrivalled services that earn customer loyalty
Slide 12: Business Overview
Business Overview The reality is that 95% of our business revolves Sell new and used equipment and engines around Caterpillar. Provide parts and service We sell, rent, service, source financing for, and Equipment rentals even insure Caterpillar equipment and engines. We take care of pretty muc
Slide 13: Focus on Customers
Focus on Customers Finning’s role is to help customers achieve their Develop customized solutions that boost productivity objectives. customers’ return on equipment investment We do this in a number of ways: Lower customers’ total owning and operating costs over equipment lifespan We develop cus
Slide 14: Strategy
Strategy That suits us well, because if you look at our Leverage Caterpillar relationship business strategy…an expanded relationship with Caterpillar is at the top of our list of Diversify by: objectives. Geography Industry served Our strategies also include diversifying our Revenue stream
Slide 15: Prudent, Consistent Growth
Prudent, Consistent Growth Since 1982, Finning has been growing Organic growth plus strategic acquisitions steadily—and carefully. Revenue We’ve made eight major strategic acquisitions. C$ millions 4,000 Hewden (U.K.) 2001 And we’ve enjoyed strong organic growth in 3,500 Lex Harvey H. Leverton (U.
Slide 16: Geographic Diversification and Balance
Geographic Diversification and Balance One of our key objectives has been to achieve strong balance and diversification, in order to stabilize and enhance our earnings. Finning, today, is made up of five business units—all based on Caterpillar equipment and FINNING FINNING FINNING HEWDEN POWER & eng
Slide 17: Finning Canada
Finning Canada is our largest and oldest division, representing about 30% of our revenue. Our operations here are concentrated in BC, Alberta, the Yukon and the Northwest Terrritories, with heavy equipment sales and service to customers in the resource sectors.
Slide 18: Finning UK
Finning UK represents a little over 20% of our revenue. This is a division we built up in order to expand our geographic diversification and reduce our dependence on Western Canada’s resource industry. This division primarily services the construction and materials handling markets, as well as the s
Slide 19: Finning South America
Our South American division, FINSA, is a newer region for us, and one of our fastest growing. It generates about 20% of our revenue. We started here in 1993 in Chile, serving the mining, construction, forestry and marine industries. In 2003, we acquired dealerships in Argentina, Uruguay and Bolivia.
Slide 20: Hewden
In 2001, our acquisition of Hewden Stuart strengthened our presence in the UK, and further diversified our revenue streams. Equipment rental is the fastest growing segment of the equipment industry, and Hewden is Europe’s largest equipment rental business. Although we had a tough start at Hewden wit
Slide 21: Power Systems
Power Systems Finally, we have Power Systems, which was Created in 2001 to maximize sale formed in 2001, and currently represents about and service opportunities for 10% of our revenue. engines in all territories Key segments: distributed power, marine, industrial, on-highway Sales from this uni
Slide 22: End Market Diversification
End Market Diversification Through these businesses Finning serves a broad range of industries. New Equipment Deliveries* Construction 27% Forestry 8% This slide illustrates our new equipment deliveries to various industries over the last nine months. Power Petroleum 20% 6% More importantly, our rev
Slide 23: Revenue Diversification
Revenue Diversification If you look back to 1997, you’ll see that Finning used to be much more dependent on equipment Sales Revenue = $2.3B Sales Revenue = $4B sales. Rental Finance Rental 24% 3% 4% Finance 55% While equipment sales are important, they’re 39% 1% somewhat cyclical, and the margins ar
Slide 24: Gross Profit Stability
Gross Profit Stability In the process we’ve enhanced our margins. Gross Profit = $609M Gross Profit = $1.2B Looking at the pie chart on the right, you’ll see Rental that the combination of parts, service and Finance 5% Rental 28% 80% rentals generated about 80% of our gross profit 9% 69% in the last
Slide 25: Clear Performance Targets
Clear Performance Targets There’s one other Finning strategy I’d like to Set and achieve challenging, but realistic, touch on before turning things over to Wayne. financial and operating targets 15% revenue & earnings growth At Finning, we believe that the way to achieve 20% return on equity s
Slide 26: Financial review introduction
Thanks Doug. I’m going to provide an overview of our financial performance; touch on our cost reduction initiatives; and, review our rationale for replacing the minority interest position in Hewden. Wayne Bingham I’ll also talk about the reasons why we feel this Executive Vice President offering is
Slide 27: Revenue Growth
Revenue Growth As Doug mentioned, our revenue has grown at very attractive rates. $ billions 13 % Since 1999, the compound annual growth rate R= 4.0 CAG has been approximately 13%, and this year 3.5 3.59 we’re poised to break through the $4 billion 3.0 3.25 3.21 mark. 2.5 2.46 2.0 2.23 1.5 This grow
Slide 28: Basic EPS Growth
Basic EPS Growth In the case of earnings per share, we’ve achieved compound average earnings growth of $ approximately 23% since 1999. 3% 1.80 R =2 CAG 1.60 1.72 1.71 That’s well ahead of our 15% target. And it’s 1.40 well ahead of our revenue growth, underscoring 1.20 1.37 the success of our busine
Slide 29: Normalized EPS Growth
Normalized* EPS Growth It’s our practice to also provide “normalized” results. $ =2 4% Normalized earnings are adjusted to exclude items R CAG 1.80 1.75 that are not reflective of ongoing earnings– 1.60 1.66 restructuring charges and one time gains and 1.54 1.40 expenses for example. 1.20 1.00 Compl
Slide 30: Record Q3 Revenue
Record Q3 Revenue Turning to our quarterly results for 2004, I’m pleased to report that our top line momentum continues to build. $ millions 1,100 We exceeded the $1 billion revenue mark in both the second and third quarters–two back- 1,000 968 1,033 1,086 to-back records. 900 925 874 800 861 Clearl
Slide 31: Record Q3 EPS
Record Q3 EPS But the really encouraging trend is seeing our top line growth starting to carry through to the Basic Earnings per Share bottom line in our most recent quarter. $ 0.60 Basic earnings per share grew to $0.56 during 0.55 0.56 the third quarter of 2004–a new record, and a 0.50 17% increas
Slide 32: Record Q3 EPS (Normalized)
Record Q3 EPS On a normalized basis, EPS was also $0.56 during the third quarter, a 10% increase over Normalized* Earnings per Share the $0.51 we achieved last year. $ 0.60 As with revenue, our strong third quarter EPS 0.55 0.56 performance reflects very good operating 0.50 0.51 results from South A
Slide 33: Cost Savings Program
Cost Savings Program To help build on this positive trend, Finning is currently at work on a number of cost control initiatives. Target $60 million by ’06 We’re putting the finishing touches on a new program Hewden Stuart initiatives designed to save $60 million per annum of ongoing costs Disp
Slide 34: Transaction Rationale
Transaction Rationale Finally, we have the initiative that brings us here today— our refinancing of the minority interest in our Hewden Provides full flexibility to optimize operation. UK operations When we acquired Hewden in 2001, $425 million of the Enhances ability to finance internal growth
Slide 35: Transaction Rationale (continued)
Transaction Rationale (Transaction Rationale continued) Provides full flexibility to optimize At Finning, we view our strong balance sheet and UK operations investment grade credit ratings as major competitive Enhances ability to finance internal growth by advantages. strengthening balance sheet
Slide 36: Transaction Impact
Transaction Impact Based on an equity issue of $300 million, dilution in 2005 will be limited to just $0.04 per in millions except per share amounts share, or about 2% due to the net reduction in I/B/E/S 2005 EPS estimate $2.17 financing charges. Pro-forma adjustments Elimination of non-controlling
Slide 37: Outlook
Outlook Thanks Wayne. Broad economic growth We see real value in this refinancing, Strong commodity markets particularly as it affects our flexibility to make Copper: US$1.35/lb changes in the UK and to grow our business. Gold: US$420/oz Oil: US$50 bbl. As I said at the outset, economic co
Slide 38: Strong Order Backlog
Strong Order Backlog We’re already seeing the positive impact on our order book. C$ millions 700 We currently have a record $647 million in 600 orders. That’s up over 50% from the end of 2003 and there’s more to come. 500 400 300 200 100 0 J F M A M J J A S O N D J F M A M J J A S 2003 2004
Slide 39: Opportunities in UK
Opportunities in UK The U.K. has embarked on an ambitious decade-long infrastructure improvement program valued at £180 £180B infrastructure plan provides billion. strong growth platform Growing order backlog We expect that both Finning U.K. and Hewden will benefit from new government spending o
Slide 40: Hewden improvement initiatives
Over at Hewden, improving the bottom line is also a central focus. As Wayne indicated, Hewden has already turned the corner with two consecutive quarters of profit increases and better-than-expected EBIT. We have a number of projects underway that will continue this trend. First, we’re shifting Hewd
Slide 41: Hewden Opportunities (continued)
(Hewden Opportunities continued) Our Hewden strategy also calls for greater integration with our UK dealerships. Going forward, we’re going to be looking at these businesses on a combined basis. We plan to merge back offices and support systems to cut costs. This step will also help us share custome
Slide 42: Power Systems Opportunities
Power Systems Opportunities Turning to Power Systems, our outlook for this Goal to double revenues to $1B business unit is very positive. by 2008 Growing global demand for gas Demand for gas compression and distributed field compression and distributed electrical power generation is growing arou
Slide 43: Opportunities in Canada
Opportunities in Canada But it’s in Canada and South America that we Oil Sands – $5-6B opportunity see the greatest opportunities for growth. Arctic Gas Pipelines – Starting with Canada, Finning is the pre- $750M opportunity eminent service provider to Western Canada’s Other opportunities grow
Slide 44: Opportunities in South America
Opportunities in South America The same goes for South America. New mining projects provide $1.5B opportunity Record high copper and gold prices are driving mine expansions and new mine openings. Economic recovery stimulating infrastructure projects and general construction We’ve identified new
Slide 45: Key Strengths
Key Strengths We see unprecedented opportunities ahead for our five business units—virtually all of it organic growth in Outstanding growth opportunities existing markets. The growth potential is truly outstanding! Refinancing supports productivity initiatives and growth This refinancing will he
Slide 46: Thank you
Thank you Doug and Wayne. Finning has a long track record of rewarding investors, and with the completion of the Hewden refinancing, is positioned to generate significant new value. Equity Offering November 2004
Slide 47: Offering Summary
Offering Summary I’ll now summarize the key terms of the offering. Terms Approximately $300 million treasury offering of The offering will be approximately $300 million common shares in size, issued by way of common shares, and Pricing pricing will be in the context of the current market. In con