Finning International Inc. · TSX:FTT
Finning International — Investor Day (May 2018)
67 slides from Finning International's investor day presentation, May 10, 2018
Slide 1: Investor Meeting
INVESTOR MEETING Vancouver May 10, 2018
Slide 2: Agenda
Agenda 10:00 Welcome and Introduction Mauk Breukels,VP Investor Relations 10:05 Strategic Plan Scott Thomson, President & CEO 10:25 People Chad Hiley, CHRO 10:30 Finning Digital Dave Cummings, EVP & CIO 10:50 South America Marcello Marchese, President, Finning South America 11:10 Canada Juan Carlos
Slide 3: Disclosures
Disclosures Forward-looking information This presentation includes “forward-looking information” (as defined in applicable Canadian securities legislation) that is based on expectations, estimates and projections that management believes are reasonable as of the date of this presentation, but may ul
Slide 4: Strategic Plan
STRATEGIC PLAN Scott Thomson, President and CEO INVESTOR MEETING Vancouver, May 10, 2018
Slide 5: Improved Performance
Improved Performance 2013 – 2017 Achievements 2017 ROIC and FCF Parts and equipment EARNINGS SUPPLY CHAIN CAPITAL turns improvement TORQUE EFFICIENCIES SERVICE Canada service EBIT EXCELLENCE ASSET UTILIZATION Canada, UK & Ireland Cost Control Supply Chain Improvements Operational Efficiency MARKET C
Slide 6: The Future - Megatrends
The Future - Megatrends A Shift in Resource Data & Insights Industry 4.0 Supply and Demand Driving Value Emerging market demand Digitally enabled lean Smart Iron increasingly with secure supply important New Competitive A New C2B Landscape Societal Deal Customer centricity Opportunities to Sustainab
Slide 7: The Future – Macro-Economic Trends
The Future – Macro-Economic Trends Finning Region Macro-Economic Trends Infrastructure Spending (2018-2020) Oil sands – product support focus WESTERN CANADA Construction, power systems, C$55 billion other mining – robust growth Copper mining recovery CHILE US$12 billion Improved business con
Slide 8: Strategic Framework
Strategic Framework PURPOSE VISION VALUES We believe in partnering and Leveraging our global expertise and We are trusted innovating to build and power insight, we are a trusted partner in We are collaborative a better world. transforming our customers’ performance. We are innovative We are passiona
Slide 9: Investment Aligned with 2018-2020 Priorities
Investment Aligned with 2018-2020 Priorities CUSTOMER DIGITAL GROWTH & LEAN & AGILE SUPPLY CHAIN CENTRICITY ENTERPRISE DIVERSIFICATION Ultra-Class Omni-Channel Product Support ERP Mining e-commerce • Condition Monitoring Vehicles • Data-driven Lead • Autonomy Data Driven Generation Decision Global C
Slide 10: Strong Alignment with Caterpillar
Strong Alignment with Caterpillar Exceptional Customer Experience OPACC Connectivity & Digital as ROIC Product Support Drivers Operational Excellence FOUNDATION Safety / Talent / Sustainability 10
Slide 11: Safe, Talented and Inclusive Team
Safe, Talented and Inclusive Team SAFETY Total Recordable Injury Frequency (TRIF) 0.99 0.36 2013 2018 Mar YTD TALENT INCLUSION Executive Office Candidates Women on Board of Directors 1 2014 4 2018 1 2014 4 2018 11
Slide 12: Execution Velocity – Global Leverage
Execution Velocity – Global Leverage New operating model 5 YEARS AGO 2018 FORWARD Finning International Finning Shared Canada Services Finning Finning International Finning UK & Ireland Digital Finning Finning Finning Finning Canada South UK & South America Ireland America 12
Slide 13: Value Creation
Value Creation Outcomes Transformed Sustainable Product Improved Operating and Attractive Opportunities Customer Experience Support Growth Financial Performance to Grow and Diversify 13
Slide 14: People
PEOPLE Chad Hiley, Chief Human Resources Officer INVESTOR MEETING Vancouver, May 10, 2018
Slide 15: Talent – Strengthened and Diversified Leadership Team
Talent – Strengthened and Diversified Leadership Team Number of Recruited Executives 7 6 3 1 3 year plan to develop leaders at all levels in the organization with over 1,300 leaders to participate 2014 2015 2016 2017 Women in Leadership Roles (%) Employee Engagement Highlights 2017 2014 2017 26 23 2
Slide 16: Broadening Safety and Sustainability
Broadening Safety and Sustainability TRIF TIF Safety + Employee Health + Environment Widening the parameters of an injury with + Inclusive Workforce the goal of preventing future incidents Attention to leading indicators – hazard + Community Investment identifications and near misses Relentles
Slide 17: Finning Digital
FINNING DIGITAL Dave Cummings, EVP Digital and Technology INVESTOR MEETING Vancouver, May 10, 2018
Slide 18: Combination of Finning and new digital capabilities creates value
BUILT ON KNOWLEDGE & EXPERIENCE OF 85 YEARS 12,500 EMPLOYEES Digital investment focused on strengthening the differentiators of our existing business Combination of Finning and new digital capabilities creates value 18
Slide 19: Value Growth Enabled by Technology
Value Growth Enabled by Technology Differentiators and role of digital and technology in equipment industry have changed over time Value Machine Machine Fleet Network Driver Reliability Productivity Productivity Optimization Robust product Equipment and Fleet-wide Analysis of large and reliable part
Slide 20: Value Priorities
Value Priorities Creating Value for Customers and Generating Internal Efficiency and Profitability OUR PRIORITIES: Improving Customer Performance Use data to improve parts and service process Integrating data, equipment and customer knowledge Generating insights to deliver customer performan
Slide 21: Investing in Talent
Investing in Talent Built a tightly integrated team of experts with industry sector, geography, ethnic and gender diversity 35% Ethnic Diversity 37% Gender Diversity 70% External Hires AMAZON • AMEC • BUILD 12 20% Languages Spanish DIRECT • TRIMBLE • CAT • HOOTSUITE • GE DIGITAL • MICROSOFT • PWC •
Slide 22: Investing in Technology
Investing in Technology Invested in foundation of traditional information technology and digital capabilities Customer Experience Platform Apps & Condition Performance Digital Services Monitoring Solutions Finning Data Assets Analytics Models Analytics Services & APIs Finning Cloud - Analytics Core
Slide 23: Path to Demonstrable Growth
Path to Demonstrable Growth Over last three years we have invested in digital – and grown the key value performance metrics significantly Digital Parts and Service Equipment Performance Investments Digital Commerce Connectivity Solutions Success Based Funding MARKET FOCUS DRIFT UP EXPAND PARTNER Per
Slide 24: Digital Performance
Digital Performance 2017 Year End Trajectory 23 employees who ~ $150m registered Web Sites 37% 25% Online Lead * Consolidated +270% Gender Generation (2017) 1 Diversity Increase in Retro-fit Global Finning Cloud Connections Implemented Parts.Cat.Com Deployed in 50 45% YoY growth in All Regions Parts
Slide 25: South America
SOUTH AMERICA Marcello Marchese, President, Finning South America INVESTOR MEETING Vancouver, May 10, 2018
Slide 26: Chile and Argentina Infrastructure Opportunities
Chile and Argentina Infrastructure Opportunities Road Infrastructure Investment Chile Road Infrastructure Investment Argentina Source: Chilean Chamber of Construction Source: Argentina Government PPP program US$ billion US$ billion 12 14 10 12 10 8 8 6 6 4 4 2 2 0 0 2013-2017 2018-2022 2013-2017 201
Slide 27: Argentina – Oil & Gas Activity Accelerates
Argentina – Oil & Gas Activity Accelerates # Wells Forecast in Argentina Source: Argentina Chamber of Construction 2500 2000 Number of Wells 1500 1000 7bn 500 US$ 0 INVESTMENT 2017 2018 2019 2020 2021 2022 2018-2021 Source: BNA Conventional Shale Tight Finning well positioned: infrastructure & capab
Slide 28: Capturing Product Support Growth Opportunities
Capturing Product Support Growth Opportunities CSAs (customer support agreements) and Performance Solutions Increase POPs (parts sales as a percentage of total parts opportunity) Improve customer satisfaction Have large impact in construction markets South America Construction CSA Opportunity
Slide 29: Capturing Product Support Growth Opportunities
Capturing Product Support Growth Opportunities Leads and sales management process improvements using advanced technology Condition monitoring Digital and marketing automation Lead Generation Tool – in early phase of implementation Positive impact on product support growth Lead Management P
Slide 30: Key Growth Drivers
Key Growth Drivers South America Equipment Backlog Rental US$ million 2% 400 Mining Power Systems 9% 60% 300 South America 200 Revenue Q1 2018 100 Construction 29% 0 Dec-16 Dec-17 Mar-18 Infrastructure and Product Support Growth Copper Mining Recovery Oil & Gas Opportunities Lead Generation Tool & C
Slide 31: Chile – Mining Recovery
Chile – Mining Recovery Cu Better copper prices Declining ore grades create underground opportunities Better investment climate Over US$12bn underground projects under construction Fraser Institute Mining Investment #39 #8 Attractiveness Index – Chile Ranking 2016 2017 Chile Copper Production (base
Slide 32: Positioned to Capture Growth in Mining
Positioned to Capture Growth in Mining REACTIVE ACTIVE ANTICIPATE DELIVERABLES Product Support Operational Performance Predictive Maintenance • From transaction to value-add + Mining Expertise • Data driven information: technology and autonomy = • Improved equipment reliability and availability Supe
Slide 33: Integrated Knowledge Centre
Integrated Knowledge Centre 33
Slide 34: Integrated Knowledge Centre (IKC)
Integrated Knowledge Centre (IKC) Reduces Cost and Improves Productivity/Safety for Mining Customers CUSTOMER DIGITAL Data Driven CENTRICITY ENTERPRISE Insights and Actions Innovative Integrated Process Models and Technologies Benefits Operations Best Practices Maintenance Best Practices 5-30% 3-7pt
Slide 35: Caterpillar AC Electric Drive Truck Advantage
Caterpillar 794 AC Electric Drive Truck Advantage Best in Class Equipment & Operational Support to Reduce Cost per Ton BIGGER FUEL COMPETITIVE PAYLOAD EFFICIENT ADVANTAGE SERVICEABILITY FASTER Modular design; Parts Superior braking commonality with mechanical & control drive; All caterpillar compone
Slide 36: Canada
CANADA Juan Carlos Villegas, President, Finning Canada INVESTOR MEETING Vancouver, May 10, 2018
Slide 37: Caterpillar Autonomy Solution
Caterpillar Autonomy Solution Superior Technology / Over 20% Productivity Improvement SCALABLE CUSTOMER ~100 trucks vs. 30 from competition FASTER 250+ auxiliary vs. 30 from competition than manned & competition CENTRICITY INTEROPERABLE with manned & competitive fleets ADVANCED FLEET PRODUCTION SYST
Slide 38: Caterpillar Autonomous Truck
Caterpillar Autonomous Truck Caterpillar Global Autonomous Truck Population 6 Customers 250 200+ Caterpillar 200 supporting 150 Largest global 7Sites 114 * autonomous 100 55 76 population by end of 2018 Competition 3 Customers supporting 6Sites 50 31 13 3 0 2012 2013 2014 2015 2016 2017 2018 E *
Slide 39: Finning Autonomy Trials
Finning Autonomy Trials Finning – Canada HAULING Oil Sands – Imperial Oil 797F D11 Copper – Teck 793F D10 UNDERGROUND Steelmaking Coal – Teck D11 remote control dozer Finning – South America Underground Autonomous Copper – El Teniente R1600H DOZING 39
Slide 40: Mining Pivoting to Growth
Mining Pivoting to Growth Total Mining Equipment Population 7,500 797 Population 310 Market share Product +110% 9 Mining Average Age support market size (years) Service (units) profitability Rebuild Forecast (2019 vs 2018) 3x 2018 vs 2017 797 Population by Age and Rebuilds # of trucks 80 70 60 50 40
Slide 41: Construction Continues to Rebound in 2018
Construction Continues to Rebound in 2018 Market Size Service EBIT % units 16,000 14,000 12,000 10,000 0% 8,000 6,000 4,000 2,000 0 2013 2014 2015 2016 2017 2018E 2013 2014 2015 2016 2017 2018E Participation 70% 63% 59% 57% 60% 53% 50% 46% 38% 40% Participation and share 30% Parts revenue 20% 10
Slide 42: Key Growth Drivers
Key Growth Drivers Rental Canada Equipment Backlog 3% $ million 900 Power Systems Oil Sands 12% 35% 600 Canada Revenue Q1 2018 300 Construction 24% 0 Coal & Metals Mining Dec-16 Dec-17 Mar-18 25% Leverage connectivity to Transform retail Grow RUN sales using drive insights and experience for data-dr
Slide 43: Rental Transformation - RUN
Rental Transformation - RUN Highlights Flexible options Revenue realization – Rental integrated Maximized rental ROIC for customers everything for sale into dealership throughout the cycle Canada From To NEW RENTAL < 3 months 1-36 months Caterpillar % of fleet 40% 60%+ Adds from inventory Primary so
Slide 44: Grow New Equipment Sales Using Data-Driven Insights
Grow New Equipment Sales Using Data-Driven Insights Analytics are driving market knowledge and team behaviors Investing in new relationships based on New sales quoting tool, processes and shovel ready and future projects reporting ensure margin control Sales teams focused on region and industr
Slide 45: Leverage Connectivity to Deliver Insights and Parts Share
Leverage Connectivity to Deliver Insights and Parts Share Significant opportunity to capture parts market share with mid-size customer Finning has 2 x share with largest customers vs. mid-tier customers Customer Support Connectivity Agreements Ease Retrofits Cat Digital Inspection 183% SOS Condi
Slide 46: Transform Retail Experience for Mid-Market
Transform Retail Experience for Mid-Market Offer flexible options for customers across RUN needs (Rental, Used, New) Customer-centric retail experience, integrating RUN into locations Freeing up service capacity to support mid-market Increasing rental and used inventory to provide flexible opt
Slide 47: Maintaining Cost Discipline
Maintaining Cost Discipline Reduced Cost Structure Increased Absorption Rates (%) 2014 - 2016 CANADA 150 Annual savings $150M 125 Workforce(1) 21% Facility footprint 25% 100 Fixed SG&A(2) 22% 75 (1) Excluding Saskatchewan operations acquired in 2015 (2) Adjusted for significant items, excluding Sask
Slide 48: UK & Ireland
UK & IRELAND Kevin Parkes, Managing Director, Finning UK & Ireland INVESTOR MEETING Vancouver, May 10, 2018
Slide 49: UK Market Evolution: Shift from Mining to Core
UK Market Evolution: Shift from Mining to Core Mining Parts Core Parts Parts Revenue Recovered Since Mining % of parts revenue % of parts revenue Collapse (£M indexed to 100 in 2014) 80 105 60 59 100 48 95 40 90 23 85 20 7 80 0 75 2014 2018E 2014 2018E 2014 2015 2016 2017 2018E £500bn Infrastructure
Slide 50: Lean & Agile Business Model
Lean & Agile Business Model Successfully Repositioned for Profitability Improved Inventory Management Invested Capital Turnover REVENUE EBIT Aged Inventory Less product SG&A Driven by support in the mix lower cost structure >5 <5% >6 New Reduced cost structure maintains profitability on Parts Equipm
Slide 51: Investing in New Capabilities
Investing in New Capabilities Retail Transformation Performance Solutions Easier to do business, lower cost to serve Margin expansion through value added services OMNI CHANNEL DEVELOPMENT RETAIL AND ONLINE EXPERIENCE FOR MACHINES AND GENERATORS 51
Slide 52: Connectivity Enables Lean & Agile Service Model
Connectivity Enables Lean & Agile Service Model Connected Formatted Network Connected Standard Engineers Repair Options R Connected RR Vehicles 1 2 3 4 5 RRR Workforce Management R RR RR RRR RR RR RRR R R RRR R R RR R Connected Customers Customer Experience NPS Product Support Market Share 13% 12% 7
Slide 53: Global Supply Chain
GLOBAL SUPPLY CHAIN Steve Nielsen, EVP and CFO INVESTOR MEETING Vancouver, May 10, 2018
Slide 54: Equipment Supply Chain Improvements
Equipment Supply Chain Improvements Key Performance Drivers End-to-End Improved Demand and Advanced Technology in Process Improvement Supply Planning Key Processes Improvements - New Equipment Lower Inventory Increased Inventory Turns Shorter End-to-End Cycles ($ millions) (X times) (days) 800 4.2 7
Slide 55: Parts Supply Chain Improvements
Parts Supply Chain Improvements Key Performance Drivers Improved Reduced Network Routes Increased Direct Shipments Inventory Management and Touches to Customers Improvements - Parts Lower Inventory Increased Inventory Turns Increased Customer Loyalty ($ millions) (X times) (net promoter score) 750 4
Slide 56: Transformed and Globally Leveraged Supply Chain
Transformed and Globally Leveraged Supply Chain Drives Significant Competitive Advantage Data Driven Planning Global Supply Chain design puts the customer at the centre of our business and focuses on enhancing their experience across all channels Efficient Working Capital Talent, Processes and Techn
Slide 57: Supply Chain Benefits Align With Global Strategic Priorities
Supply Chain Benefits Align With Global Strategic Priorities Customer Digital Lean and Agile Centricity Enterprise Global Finning Priorities Canada UK & Ireland South America 1. Equipment Supply Chain Velocity Complete In Progress 2019 2. E-Commerce Capabilities Customer Customer Life Cycle Lower De
Slide 58: Financial Performance
FINANCIAL PERFORMANCE Steve Nielsen, EVP and CFO INVESTOR MEETING Vancouver, May 10, 2018
Slide 59: Investor Value Proposition
Investor Value Proposition KEY GROWTH DRIVERS Infrastructure Opportunities Revenue Growth Markets Copper Mining Outsized Growth Directionally consistent with previous Power Systems upcycles; key growth drivers provide upside Customer Support Agreements Digital / E-Commerce Product Lead Generation To
Slide 60: Earnings Torque
Earnings Torque 2013 2017 Target SG&A costs ~23% ~20% ~18% as % revenue Revenue $6.8B Revenue Decline $6.3B Revenue Growth Business Transformation Lower Cost to Serve Overhead reduction Digital / e-commerce Facility optimization ERP in South America Supply chain efficiencies - parts Glob
Slide 61: Financial Objectives – Canada
Financial Objectives – Canada Revenue Growth KEY GROWTH DRIVERS Infrastructure Opportunities ROIC Potential Markets Copper Mining Outsized Growth Power Systems 9.5% 19% 20% 21% 22% Customer Support Agreements 9.0% 18% 19% 20% 21% Digital / E-Commerce EBIT Margin 8.5% 17% 18% 19% 20% Product Lead Gen
Slide 62: Financial Objectives – South America
Financial Objectives – South America Revenue Growth KEY GROWTH DRIVERS Infrastructure Opportunities ROIC Potential Markets Copper Mining Outsized Growth Power Systems 10.0% 20% 21% 22% 23% Customer Support Agreements EBIT Margin 9.5% 19% 20% 21% 22% Digital / E-Commerce 9.0% 18% 19% 20% 21% Product
Slide 63: Financial Objectives – UK & Ireland
Financial Objectives – UK & Ireland Revenue Growth KEY GROWTH DRIVERS Infrastructure Opportunities ROIC Potential Markets Copper Mining Outsized Growth Power Systems 5.0% 18% 19% 19% 20% Customer Support Agreements EBIT Margin 4.5% 16% 17% 17% 18% Digital / E-Commerce 4.0% 14% 15% 15% 16% Product Le
Slide 64: Capital Allocation
Capital Allocation Goal - Positive Free Cash Flow Through the Cycle Uses of Cash (2013-2017) GROWTH SHAREHOLDERS Share repurchases Technology Dividends Dividend Acquisition of Ultra-Class Mining Vehicles Share Repurchases Saskatchewan dealer RUN Free Cash Flow Complementary Acquisitions ~$1.8 billio
Slide 65: Closing Comments
CLOSING COMMENTS Scott Thomson, President and CEO INVESTOR MEETING Vancouver, May 10, 2018
Slide 66: Summary
Summary Positive macro-economic backdrop in all GLOBAL STRATEGIC PRIORITIES regions Use of technology to improve customer Customer Centricity experience and reduce cost to serve Significant product support growth Lean & Agile Global Finning opportunities Positioned for profitable and capital
Slide 67: Investor Meeting
INVESTOR MEETING Vancouver May 10, 2018