Finning International Inc. · TSX:FTT
Finning International — Investor Day (June 2021)
70 slides from Finning International's investor day presentation, Jun 14, 2021
Slide 1: Finning Investor Day
Finning Investor Day June 14, 2021
Slide 2: Investor Day Agenda
Investor Day Agenda Pacific Daylight Time 8:00 Welcome Amanda Hobson SVP Investor Relations & Treasury Livestream 8:05 Strategic Plan Scott Thomson President & CEO Livestream Chad Hiley CHRO Pre-recorded 8:20 Sustainability Jane Murdoch General Counsel Pre-recorded 8:35 UK & Ireland David Primrose M
Slide 3: Finning Overview
Finning Overview Canada South America UK & Ireland Largest Caterpillar dealer Market Statistics(1) - FTT (TSX) Share price 31.70 Bolivia Unrivalled service since 1933 YT NU Market Cap 5.1B NWT S&P/DBRS rating BBB+/high Diversified by geography, customer Argentina Annual dividend / share 0.82 C
Slide 4: Strategic Plan
Strategic Plan Scott Thomson President and CEO INVESTOR DAY June 14, 2021
Slide 5: Executive Team
Executive Team Scott Thomson President & CEO Appointed June 2013 OPERATIONS FUNCTIONAL EXCELLENCE FINANCE DIGITAL Kevin Parkes Greg Palaschuk David Cummings President, Finning Canada EVP & Chief Financial Officer EVP & Chief Digital Officer January 2019 March 2020 June 2013 LEGAL HUMAN RESOURCES Jua
Slide 6: Executing on Our Strategy
Executing on Our Strategy We believe in partnering and innovating to build and power a better world Increased Focus on Sustainability Global Strategic Priorities – Driving Progress Customer Loyalty 4th Annual Customer Centricity 10 % 2020 vs 2019 Sustainability Report Lean & Agile Global Finning ~45
Slide 7: 2018 Investor Day Look Back – ROIC Potential Intact
2018 Investor Day Look Back – ROIC(1) Potential Intact On Track To Achieve Strong ROIC In a Recovering Market(2) Our 3-year plan was disrupted by a short upcycle in We also experienced challenges during ERP Robust execution accelerated through 2020 and 2018-2019, followed by political and econ
Slide 8: Built Foundation for Growth
Built Foundation for Growth Set Operational Excellence Invested in Executing to Demonstrate Foundation Capabilities Earnings Capacity Safety and Talent Leadership Succession Simple Execution Plan Market Leadership Digital Mid-Cycle Approach Service Excellence Omni-channel Caterpillar Alignment Suppl
Slide 9: Simple Execution Plan
FINNING Simple Execution Plan REBUILT AND READY. ———— LET'S DO THE WORK.
Slide 10: Rebuilt for Compounding Mid-Cycle Growth
Rebuilt for Compounding Mid-Cycle Growth Proactive approach Leveraging Data Reduce Amplitude Mid-Cycle A point in the economic cycle exhibiting historical average GDP growth rates and commensurate steady expansion of heavy equipment population as well as steady- state pricing, inflation and labor ma
Slide 11: Strong Alignment with Caterpillar to Drive Product Support
Strong Alignment with Caterpillar to Drive Product Support (1) Increase construction Double to $28B STRONG ALIGNMENT market share by 2026 Capture mining ME&T Services Revenues(2) from 2016 upcycle Strong Value Proposition to Meet Customers’ Product Support Needs Customer Value Component Integrated R
Slide 12: Cost and Capital Culture
Cost and Capital Culture 2013-2019 Cost Savings(3) SG&A Target(3) Key Initiatives Canada Mid-cycle SG&A 33% >$100M ~17% Employee and facility productivity Annualized, globally Net revenue per employee ~1/3rd of workforce to Consolidated SG&A as a RRR network service model & sq. ft. (‘000) (1) re
Slide 13: Ready for Strong Market Growth
Ready for Strong Market Growth Strong GDP Growth Expected in Each Region in 2021 and 2022 Western Canada(1) Chile(2) UK(2) 5.7% 6.2% 4.7% 3.8% 3.7% 3.8% 5.3% 5.1% 1.9% 2.3% 1.7% 0.7% 1.2% 1.0% 2.4% 1.7% 1.7% 1.3% 1.4% (0.2%) (0.2%) 2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 202
Slide 14: Sustainability at Finning
Sustainability at Finning ENVIRONMENT GHG emissions and energy use Waste management Spills and wastewater Customer safety, performance, and loyalty Product stewardship Responsible supply chain SOCIAL Safety and health Inclusion and diversity Employee development Visit our website f
Slide 15: Greenhouse Gas Emissions Reduction Initiatives
Greenhouse Gas Emissions Reduction Initiatives Absolute GHG Emissions Absolute GHG Emissions Reduction Target(3) Drivers of Lower Emissions 120,000 108,708 104,756 100,560 (3) 100,000 97,472 (1) 80,000 20% Tonnes of CO2e (2) 79,884 60,000 2017 to 2027 40,000 Emissions Reduction Initiatives 20,000 To
Slide 16: Helping Customers Reduce Their Environmental Footprint
Helping Customers Reduce Their Environmental Footprint Finning Component Remanufacturing Environmental Benefits of Remanufacturing 2020 STATISTICS Non-Hazardous Waste Reduces waste by Disposal Type Components Recycles thousands of tons of iron each year 14,359 remanufactured 27% Reduces the ne
Slide 17: Inclusion and Diversity
Inclusion and Diversity 4Refuel Broadening Inclusion Measuring and Promoting Workforce Diversity 570 UK & Ireland Indigenous Guiding Principles guide us in 1,440 Women in leadership roles recruitment, procurement, new business, 2020 statistics strategic relations, and community Canada Board 33% inve
Slide 18: UK & Ireland
UK & Ireland David Primrose Managing Director, Finning UK & Ireland INVESTOR DAY June 14, 2021
Slide 19: UK & Ireland Overview
UK & Ireland Overview Business Overview Strong Growth Profile(1) Net Revenue 17 locations, including 4 RRR hubs Q1 2021 LTM UK GDP forecast to HS2 - largest infrastructure Highly diversified customer base ~$900M grow 5.3% in 2021(2) project in Europe Highly competitive market Employees Recor
Slide 20: Strong Growth Profile - UK High-Speed Rail (HS2)
Strong Growth Profile - UK High-Speed Rail (HS2) Largest Infrastructure Project in Europe with ~ £100B Total Budget(1) 230 km high speed rail line from London to Birmingham Phase 1 Earthwork to be completed by 2024 Opening expected 2029 – 2033 Phase 2 Phase 1 2021-2024 Opportunity(2) 2021 Mach
Slide 21: Strong Growth Profile - Finning Performance Solutions
Strong Growth Profile - Finning Performance Solutions Enabling better knowledge and decision making based on real-time information linked to operational KPIs Digital Performance Solutions, Earthmoving Principles designed by Finning to meet customer requirements Subscription based digital services Mo
Slide 22: Strong Growth Profile - Cloud Data Centres
Strong Growth Profile - Cloud Data Centres Growing Data Centre Markets in Dublin and London Operational Data UK - 135 Current Capacity UK - 729MW Centres (currently) Ireland - 70 Q4 2020 Ireland - 900MW Accelerated Cloud adoption drives data centre demand Digital economy in the UK represents over
Slide 23: Drive Product Support - Construction and Power Systems
Drive Product Support - Construction and Power Systems Sales Execution and Customer Value Rebuild, Remanufacturing, and Data Driven Customer Value Proposition Agreements (CVAs) Exchange Options Lead Penetration Sales Execution Investment in aftermarket Longer term with richer value- 5-year war
Slide 24: Drive Product Support – Stepping up Growth Profile
Drive Product Support – Stepping up Growth Profile UK & Ireland Product Support Revenue (£) + HS2 Phase 2(2) + Market share / rebuilds upside + Growing digital performance solutions 2 2010-2020 % CAGR - Infrastructure delays 6-10% Product Support Revenue CAGR CAGR(1) Coal and North Sea Construction
Slide 25: Reduce Costs – RRR Network Transformation
Reduce Costs – RRR Network Transformation RRR Network Model – Response, Repair, Rebuild Parallels to Canada R RR The RRR network is a hub and spoke operating model designed to maximize customer service, R Whitehorse Glasgow British R Yellowknife labour, and inventory efficiency Alberta RRR Columbia
Slide 26: Canada
Canada Kevin Parkes President, Finning Canada INVESTOR DAY June 14, 2021
Slide 27: Canada Overview
Canada Overview Business Overview Strong Growth Prospects(1) Operating in British Columbia, Alberta, Saskatchewan, Net revenue Western Canada GDP to Infrastructure investment in Q1 2021 LTM Yukon, the Northwest Territories, and part of Nunavut grow ~6% in 2021 vs 2020(2) roadwork, pipelines, power
Slide 28: Canada Transformation Journey Sets Foundation for Product Support Growth
Canada Transformation Journey Sets Foundation for Product Support Growth Historical Transformation Context 2007-2015 2019 2020 Present RRR Network Construction Mining Super Design Aftermarket Customer Solutions Growth Phase Solutions Efficient Supply Product Support Chain Optimized Inventory Set to
Slide 29: Oil Sands - Large-Scale and Long-Life Resource
Oil Sands - Large-Scale and Long-Life Resource 30+ ofin aresource life typical oil sands Key Characteristics of Oil Sands Mining YEARS mining project Long-life, non-declining production Improving asset operating cost profile underpinned by >30 billion structures through continuous barrels of res
Slide 30: Stable Demand for Mining Product Support – Upside Potential for Rebuilds
Stable Demand for Mining Product Support – Upside Potential for Rebuilds Product Support Drivers Mining Equipment Lifecycle Large, Stable and Highly Utilized Caterpillar Fleets Ultra Class Other Large Support Average Age Trucks Mining Trucks Equipment Significant base of equipment across asset typ
Slide 31: OEM - World Class Facility with Expanded Capacity For Growth
OEM - World Class Facility with Expanded Capacity For Growth Selected Recent Projects to Improve Capacity and Capabilities Automated Engine Block Washer Automated Machining Centre Facility Performance Metrics Example Repair Capability ~25% Increase G3616 In total volume year over year Gas Compressio
Slide 32: Western Canadian Natural Gas Opportunity
Western Canadian Natural Gas Opportunity Natural Gas – Montney Shale Formation Natural Gas – A Highly Economic Transition Fuel British Natural Gas vs. Other Fuels: Dual Gas Blending Well Columbia Montney Shale Formation 449Tcf ~ 50% Reduces GHG Emissions(3) Service Engines (5) LNG Canada Montney Sha
Slide 33: Drive Product Support - Construction
Drive Product Support - Construction Sales Execution and Customer Value Rebuild, Remanufacturing, and Customer Value Proposition Agreements (CVAs) Exchange Options Data Driven Lead Penetration Investment in aftermarket Longer term with richer value- Extended 5-year warranty talent and resource
Slide 34: Drive Product Support – Steady Mining Growth, Construction 2x
Drive Product Support – Steady Mining Growth, Construction 2x Canada Product Support Revenue ($) + New mine development + Market share / rebuilds upside + Growing digital performance solutions + Oilsands stability - Regulatory environment 5% CAGR - Capital restraint 5-8% 2010-2020 CAGR(1) Product Su
Slide 35: Canada’s RRR Transformation Journey
Canada’s RRR Transformation Journey RRR Network Highlights RRR RR R R Whitehorse Response British R Yellowknife Alberta Repair Columbia Fort McMurray / Fort McKay Terrace RRR Rebuild Fort St. John Peace River R R Houston R Saskatchewan R Bay Capacity 10 + 5 - 10 2-4 Grande RR Prince Prairie George R
Slide 36: Reduce Costs
Reduce Costs 2020 Cost Reductions Restructuring plans accelerated to further leverage back-office functions, streamline the reporting structure, and relocate service to lower cost operations Continued to re-shape the existing branch structure to a hub and spoke operating model designed to improv
Slide 37: South America
South America Juan Pablo Amar President, Finning South America INVESTOR DAY June 14, 2021
Slide 38: South America Overview
South America Overview Business Overview Strong Growth Profile(1) Operating in Chile, Argentina, and Bolivia Net Revenue Chile GDP forecast to grow US$34B Chile infrastructure Q1 2021 LTM RRR facilities network model: 38 branches and 3 parts ~6% in 2021 vs 2020(2) investment for 2020-2022(4) dis
Slide 39: Strong Growth Profile While Monitoring Uncertainty
Strong Growth Profile While Monitoring Uncertainty Macroeconomic Drivers Electrification Infrastructure Spending Energy Transition + Accelerated mining capex with Significant stimulus to support Chile positioned for investment in increased copper and lithium demand economic recovery renewables and h
Slide 40: Strong Industry Growth Profile – Inflecting Chile Copper Production Profile
Strong Industry Growth Profile – Inflecting Chile Copper Production Profile Chile Copper Production Profile(1) Significant Mining Projects(2) Estimated Production Greenfield Projects (in CuEq Ktonnes) 8,000 7,248 QB2(4) ~315 7,000 1,682 Nueva Union ~250 6,000 Santo Domingo ~125 5,000 1,421 Ktonne Ag
Slide 41: Strong Product and Service Offerings to Drive Opportunity and Capture Growth
Strong Product and Service Offerings to Drive Opportunity and Capture Growth Growth Context Expanded Product and Service Offerings Mature Ultra Class Population(1) Electric Drive Autonomous Integrated Truck Haulage System Knowledge Centre Caterpillar Average Age Trucks Years 228 ~11 Improved control
Slide 42: Winning Equipment Replacement and Greenfield Opportunities
Winning Equipment Replacement and Greenfield Opportunities Codelco - Radomiro Tomic (Replacement) Teck - QB2 (Greenfield / Autonomy) 22 New Trucks Full Fleet 5-year Product Support 5-year Product Support Agreement Equipment Support Agreement 797F 400 Ton 794AC 320 Ton Mechanical Drive Electric Drive
Slide 43: Drive Product Support - Construction
Drive Product Support - Construction Sales Execution and Customer Value Rebuild, Remanufacturing, and Customer Value Proposition Agreements (CVAs) Exchange Options Data Driven Lead Penetration Investment in aftermarket talent and Longer lasting with richer value-add Extended 5-year warranty re
Slide 44: Drive Product Support – Constructive Backdrop
Drive Product Support – Constructive Backdrop South America Product Support Revenue (US$) + Greenfield investment 3% CAGR 2010-2020 + Market share / rebuilds upside + Growing digital performance solutions - Chile elections and political landscape - Chile investment climate 5-9% Product Support Reven
Slide 45: Reduce Costs
Reduce Costs 2020 - accelerated strategic plans to drive employee and facility productivity Successfully leveraged one common ERP system to generate significant operating efficiencies and reduce costs Restructured operations and consolidated facilities network Maximized flexibility and competi
Slide 46: Digital
Digital Dave Cummings EVP and Chief Digital Officer INVESTOR DAY June 14, 2021
Slide 47: Our Investment Strategy in Digital Serves Multiple Objectives
Our Investment Strategy in Digital Serves Multiple Objectives Performance Solutions Partner Customer Digital Commerce Transactions Serving performance solutions Serving digital transactions, processes to our customers and interactions to our customers Be our customer’s trusted partner for digitally
Slide 48: Growth in Digitizing our Customer Interactions
Growth in Digitizing our Customer Interactions Digital Transactions Customer Growth Active Users Year to Date Active Users YTD by Year and Month Active Users 1,835 1,579 3,400+ 1,263 949 668 Connected Assets 60,000+ January 2021 February 2021 March 2021 April 2021 May 2021 In 6 Countries Consistentl
Slide 49: Autonomy: Driving Equipment Asset and Fleet Performance
Autonomy: Driving Equipment Asset and Fleet Performance Caterpillar Autonomous Haulage System Mining 20%+ Productivity Improvement Potential Performance Solutions Scalable Interoperable ~100 trucks and 250+ auxiliary vs with conventional and competitors’ limited scalability of competitors’ fleets Co
Slide 50: Our Performance Solutions Strategy Serves the Hierarchy of Customer Needs
Our Performance Solutions Strategy Serves the Hierarchy of Customer Needs Finning Performance Solutions Customer Needs Value Drivers 5. Production Guarantee Managed Optimal mix of 1-4 below plus potential add-ons including autonomy, Outcomes Dirt-as-a-Service combined with full-service commitments
Slide 51: Introducing Finning CUBIQ
Introducing Finning CUBIQ™: A new name and brand for Finning’s Digital Services We have a strong 88-year legacy, and we want to continue to grow the expertise for which we are renowned. We also want to continue demonstrating to customers that we are the innovative partner they need to build and
Slide 52: The Finning CUBIQ Platform and Industry Offering
The Finning CUBIQ Platform and Industry Offering The CUBIQ platform, along with its apps and services ecosystem provides the opportunity for combining third party and Finning-developed digital performance solutions products integrated into a single pane of glass solution to help our customers achiev
Slide 53: Financial Performance
Financial Performance Greg Palaschuk EVP and CFO INVESTOR DAY June 14, 2021
Slide 54: Simple Execution Plan
FINNING Simple Execution Plan REBUILT AND READY. ———— LET'S DO THE WORK.
Slide 55: Drive Product Support
Drive Product Support Consolidated Product Support Revenue ($) + > Construction market share + Accelerated Chile greenfield + Oilsands stability and rebuilds + Growing CUBIQ - Canadian regulatory pressure - Chile political landscape 5-9% Product Support Revenue CAGR CAGR(1) 2021 Base Construction CA
Slide 56: Drive Product Support – While Managing Margin and Competitive Pressures
Drive Product Support – While Managing Margin and Competitive Pressures Business Mix Operational Execution Data and Analytics Matured life-cycle commercial Proactive and accurate Focused on market share in governance inventory orders product support biased products Growing aftermarket market share –
Slide 57: Reduce Costs – Summary of 2020 Cost Reduction Program
Reduce Costs – Summary of 2020 Cost Reduction Program In 2020 we accelerated strategic plans to drive employee and facility productivity, while maximizing flexibility and competitiveness to serve customers In Canada we further leveraged back-office functions, streamlined reporting structure and
Slide 58: Reduce Costs – Reset SG&A Run Rate Pivoting to Impact
Reduce Costs – Reset SG&A Run Rate Pivoting to Impact Quarterly Net Revenue and SG&A Trending(1) 375 2,200 Consolidated SG&A Net Revenue Revenue Backlog 1,700 $1.2B 350 Net Revenue (in millions $) Q1 2021 SG&A (in millions $) 1,200 325 Execution Impact SG&A as % of Net 700 Revenue 300 18.5% 200 Marc
Slide 59: The Next $50m+ of Fixed Cost Reductions – 2021+
The Next $50m+ of Fixed Cost Reductions – 2021+(1) People and Technology Productivity Facilities Productivity Supply Chain End-to-end spend management: Further back-office consolidation Further branch and office space procurement and business collaboration and efficiencies reduction to reduce price
Slide 60: Supply Chain and Working Capital
Supply Chain and Working Capital Days in Inventory Days Payable / Procurement Days Sales Outstanding Data driven inventory management, more Standardization and extension of standardized inventory strategy informed Targeting 3-5 day DSO improvement(1) commercial payment terms by sales tools and conne
Slide 61: Solid Track Record of Balanced Return of Capital
Solid Track Record of Balanced Return of Capital – Updated Mid-Cycle Approach Dividend Per Share Growth Share Repurchases Counter-Cyclical Free Cash Flow in millions $870 $0.82 $0.73 $483 $325 $370 $0.47 $165 $78 $42 2014 2015 2016 2017 2018 2019 2020 $0.22 $0.10 Finning Share Price (TSX:FTT) $40 20
Slide 62: We Have Set Up an Internal Competition for Re-Investment Capital
We Have Set Up an Internal Competition for Re-Investment Capital(1) Organic business development and acquisitions will be competing with share repurchases to attract capital Caterpillar Territories Rental & Used Maximum Uptime Opportunity and timing is not in our control Enhancing capabilities to dr
Slide 63: Strong Balance Sheet with Capacity to Re-Invest and Capital to Allocate
Strong Balance Sheet with Capacity to Re-Invest and Capital to Allocate EBITDA to FCF Conversion Net Debt / EBITDA(1) Re-investment Capacity Mid-Cycle Target + Mid-Cycle Target = Upcoming Mid-Cycle(1) ~50% 2.0x 1.0B Organic Growth Dividend Growth Acquisitions vs. Share Repurchases Debt Repayment I
Slide 64: Illustrative Mid-cycle and Sustained Up-cycle Potential
Illustrative Mid-cycle and Sustained Up-cycle Potential(1) Upcoming Mid-cycle Q3 2021 – Q2 2022 Sustained Up-cycle Potential Net Revenue ($B) $7.1 - $7.5 Product Support Revenue CAGR Product Support Revenue CAGR 8% 5-9% Mining base and construction inflection 2021 Base SG&A (% of Net Revenue) 17% SG
Slide 65: Closing
Closing Scott Thomson President and CEO INVESTOR DAY June 14, 2021
Slide 66: Simple Execution Plan
FINNING Simple Execution Plan REBUILT AND READY. ———— LET'S DO THE WORK.
Slide 67: Disclosures
Disclosures Forward-looking information This presentation contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation, including information about: being on track to achieve strong ROIC in a recovering market, in line with our 2018 guidance, albeit
Slide 68: Disclosures
Disclosures Although we believe that the expectations represented by such forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. Our most recently filed annual information form (AIF) and most recent annual and quarterly management’s dis
Slide 69: Slide Notes
Slide Notes Slide 3 Slide 17 (1) At June 10, 2021 (1) At March 31, 2021 (2) Last 12 months ended March 31, 2021 (2) Black, Indigenous, and people of colour (3) This is a non-GAAP financial measure. See slide 68 for more information (3) Lesbian, Gay, Bisexual, Transgender, Queer or Questioning and Tw
Slide 70: Slide Notes
Slide Notes Slide 32 • Teck QB2 – Based on company’s provision for CuEQ; (1) Canada Energy Regulator https://www.teck.com/operations/chile/projects/quebrada-blanca-phase-2/ (2) Wood MacKenzie • Nueva Union – Converted 315K Au to CuEQ; (3) Clean Energy Fuels https://www.teck.com/operations/chile/proj