Finning International Inc. (TSX: FTT) (“Finning”, “the Company”,
“we”, “our” or “us”) reported fourth quarter and annual 2020
results today. All monetary amounts are in Canadian dollars unless
otherwise stated.
HIGHLIGHTSAll 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 of Canada 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 the UK & Ireland was offset by reduced
market activity in Canada and South 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% in South America,
and 3.7% in the UK & Ireland.
- We have significantly strengthened
our financial position throughout the year as we reduced our net
debt(2) by $615 million from December 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 at December
31, 2020, down from 2.0 at December 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 at December 31, 2020,
driven primarily by higher order intake(2) in the UK & Ireland
related to initial equipment orders for HS2, and by mining in South
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 Scott Thomson,
president and CEO of Finning International.
“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 Canada and the UK have helped protect against
significant job losses while positioning our business for a strong
recovery.”
“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 South America, reduced our cost
base in Canada, built a strong backlog of projects in the UK, and
significantly lowered our finance costs.
“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 Mr. Thomson.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 |
Canada |
South America |
UK & Ireland |
Corporate & Other |
Finning Total |
EPS |
EBIT / EPSCEWS 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 |
Canada |
South America |
UK & Ireland |
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% |
|
Invested Capital(2) and
ROIC(1)(2) |
Q4 2020 |
Q4 2019 |
Invested capital ($ millions) |
|
|
Consolidated |
3,067 |
3,591 |
Canada |
1,819 |
2,026 |
South America (US dollars) |
731 |
918 |
UK & Ireland (UK pound sterling) |
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 |
Canada |
10.5 |
14.4 |
South America |
12.9 |
10.5 |
UK & Ireland |
5.5 |
12.1 |
Q4 2020 HIGHLIGHTS BY OPERATIONAll comparisons
are to Q4 2019 results unless indicated otherwise. All numbers are
in functional currency: Canada – Canadian dollar; South America –
US dollar; UK & Ireland – UK pound sterling (GBP).
Canada
- 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 since June 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 our Regina facility in
Saskatchewan, selected capacity expansions in Alberta, and the
construction of new ultra-efficient facilities in Kamloops and
Campbell 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.
South America
- 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.
United Kingdom & Ireland
- 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. The UK government’s
furlough program has helped limit business disruptions and
supported our rapid recovery in the UK and Ireland.
- 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
Canada
Oil sands production and capital expenditures are expected to
increase in 2021 compared to 2020 in response to strengthened oil
prices and the Alberta government’s removal of production
curtailments. We expect product support activity in the oil sands
to continue to improve, with higher fleet utilization driving
increased demand for maintenance and rebuilds.
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 the Golden
Triangle of British Columbia, which represent significant
greenfield opportunities. Higher demand for metallurgical coal is
expected to be partly offset by lower thermal coal production.
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 Western Canada is expected to
drive opportunities for future fleet renewals, rebuilds, autonomy
conversions, and continued demand for product support.
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 BC Highway works.
Other planned investments, such as the orphaned well abandonment
program in Alberta and irrigation expansion in Alberta and
Saskatchewan are expected to support a medium-term growth outlook
for the construction sector. The significant private sector
investment in LNG and power sectors will continue to provide
opportunities for equipment, product support, heavy rentals, and
prime and standby electric power generation in 2021. Cancellation
of the Keystone XL pipeline is not expected to have a material
impact on our business. We are seeing an increase in order intake
for construction equipment. However, in the near term, COVID-19
mitigation measures are expected to continue impacting activity
levels. Our focus remains on capturing product support market share
in construction sectors by leveraging our technology solutions to
strengthen relationships with our customers.
South America
We are optimistic about mining recovery in Chile. A positive
long-term outlook for copper, increasing copper production
forecasts, and an aging equipment population are expected to drive
improved demand for product support and higher RFP activity in
Chilean mining. We are actively quoting on multiple opportunities
for new mining equipment and autonomy solutions for both brownfield
expansions and greenfield projects. We are seeing an increasing
commercial momentum for copper and gold mines in Chile and
Argentina with significant projects advancing though feasibility
studies. According to Cochilco, the Chilean Copper Commission,
copper production in Chile is expected to increase to 7.1 million
tons by 2029 from 5.8 million tons in 2020. Chile’s portfolio of
mining projects includes a total investment of US$74 billion in 49
projects, mainly in copper, gold, iron, lithium and industrial
minerals. Opportunities in the Lithium Triangle region, covering
Chile, Argentina, and Bolivia, represent significant growth
potential as lithium production is expected to continue increasing
rapidly with the transition to electric vehicles.
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 US$34 billion of
public investment in infrastructure over 2020-2022 to jumpstart the
economy. As a result, we expect to see improved activity and strong
order intake in the construction and power systems markets in Chile
in 2021. Although currently muted, we continue to monitor the
potential for social unrest heading into the elections in November
2021.
In Argentina, we expect stability in gold mining and oil and
gas, and some recovery in construction activity in 2021. We expect
the overall business environment in Argentina to remain
challenging, and are actively managing key risks, including ARS
devaluation. We are maintaining a minimal level of investment in
this region to manage risks and support our customers.
UK & Ireland
A new trade deal between the UK and the European Union reached
in December 2020 is expected to remove uncertainty in our end
markets, with no additional tariffs imposed and continued access to
the single European market. We have completed significant planning
ahead of the Brexit leave date in conjunction with Caterpillar to
mitigate potential supply chain risks, and we are well positioned
to meet our customer needs. Economic activity in the UK &
Ireland continues to be affected by COVID-19 mitigation measures.
However, since we provide services to industries that are deemed
essential, we do not anticipate the latest lockdowns to impact the
sectors we serve in a material way.
The outlook for general construction equipment markets in the UK
is positive, driven by the HS2 project and the government’s
investment in other infrastructure initiatives to support the
economy. After some delays, we expect a strong ramp-up in HS2
construction activity in 2021. Our backlog at December 31, 2020
includes some initial equipment orders related to HS2, and we
expect to start delivering equipment to this project in Q2
2021.
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 Chile and the UK, we expect revenue growth in 2021,
however remaining below 2019 levels. COVID-19 mitigation measures
are expected to continue impacting our business in the first
quarter of 2021. We are seeing some restrictions at construction
sites in Canada, and our mining customers in Chile are currently
operating at reduced capacity.
The execution of our global cost initiatives is on track to
deliver more than $100 million of annualized cost savings. Our goal
is to reduce SG&A as a percentage of net revenue to about 17%
in mid-cycle.
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 $170 to $210 million range this year, dependent on the pace
of market recovery.
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
$0.205 per share, payable on March 11, 2021 to shareholders of
record on February 25, 2021. This dividend will be considered an
eligible dividend for Canadian income tax purposes.
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 December 31 |
Twelve months ended December 31 |
|
2020 |
2019 |
% changefav (unfav) |
2020 |
2019 |
% changefav (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 |
|
Dec 31, 2020 |
Dec 31, 2019 |
|
|
|
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 CALLThe Company will hold an
investor call on February 10, 2021 at 10:00 am Eastern Time.
Dial-in numbers: 1-800-319-4610 (Canada and US), 1-416-915-3239
(Toronto area), 1-604-638-5340 (international). The investor call
will be webcast live and archived for three months. The webcast and
accompanying presentation can be accessed at
https://www.finning.com/en_CA/company/investors.html.
ABOUT FINNINGFinning International Inc. (TSX:
FTT) is the world’s largest Caterpillar equipment dealer delivering
unrivalled service to customers for 88 years. Finning sells, rents,
and provides parts and service for equipment and engines to help
customers maximize productivity. Headquartered in Vancouver, B.C.,
the Company operates in Western Canada, Chile, Argentina, Bolivia,
the United Kingdom and Ireland.
CONTACT INFORMATIONAmanda HobsonSenior Vice
President, Investor Relations and Treasury Phone:
604-331-4865Email:
amanda.hobson@finning.comhttps://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 Invested Capital (ROIC).
(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 Regina, Saskatchewan facility, selected capacity
expansions in Alberta, and the construction of new ultra-efficient
facilities in Kamloops and Campbell River, British Columbia; we
expect to start delivering equipment to the HS2 project in the UK
in Q2 2021 and remain well positioned to capture further equipment
and product support opportunities for this project; our outlook for
our Canadian operations, including: oil sands production and
capital expenditures are expected to increase in 2021 compared to
2020, product support activity in the oil sands is expected to
continue to improve with higher fleet utilization driving increased
demand for maintenance and rebuilds (assuming sustainment of
strengthened oil prices and the Alberta Government will not
re-impose production curtailments); expected return of diamond
mining to full capacity in the first quarter (assumed based on the
improved outlook for copper and precious and other metals); the
Golden Triangle of British Columbia represents significant
greenfield opportunities (assumed based on request for proposal
(RFP) quoting activity for equipment and product support), higher
demand for metallurgical coal is expected to be partly offset by
lower thermal coal production; the large and aging mining equipment
population in Western Canada is expected to drive opportunities for
future fleet renewals, rebuilds and autonomy conversions and
continued demand for product support; large fiscal stimulus
programs in Alberta, British Columbia and Saskatchewan are expected
to provide near-term and medium-term positive impact and growth in
the construction sector; significant private sector investment in
LNG and power sectors will continue to provide opportunities for
equipment, product support, heavy rentals, and prime and standby
electric power generation in 2021; cancellation of the Keystone XL
pipeline is not expected to have a material impact on our business;
and in the near term, COVID-19 mitigation measures are expected to
continue impacting activity levels; our outlook for our South
American operations, including: we are optimistic about mining
recovery in Chile; our expectation that the positive long-term
outlook for copper, increasing copper production forecasts and an
aging equipment population will drive improved demand for product
support and higher RFP activity in Chilean mining; increasing
commercial momentum for copper and gold mines in Chile and
Argentina (assuming positive outcomes of feasibility studies for
significant projects in progress); significant growth potential
from opportunities in the Lithium Triangle region as lithium
production is expected to continue increasing rapidly with the
transition to electric vehicles; our expectation that mining
product support revenue will recover in 2021 as customers resume
major maintenance work and prepare their equipment fleets to meet
increasing production targets; that COVID-19 related restrictions
will continue to limit the capacity of mining operations in the
near term; our positive outlook for recovery in the Chilean
construction industry, including our expectation for improved
activity and stronger order intake in the construction and power
systems markets in Chile in 2021; and, in Argentina, our
expectation for stability in gold mining and oil and gas, and some
recovery in construction activity in 2021, and that Argentina will
remain challenging; our outlook for our UK & Ireland
operations, including: our expectation that the new trade deal
between the UK and the European Union reached in December 2020 will
remove uncertainty in our end markets, with no additional tariffs
imposed and continued access to the single European markets and
that we are well positioned to meet our customers’ needs given the
significant planning ahead of the Brexit leave date in conjunction
with Caterpillar to mitigate potential supply chain risks; our
expectation that the latest COVID-19 lockdowns will not materially
impact the sectors we serve (assumed the industries we serve will
continue to be deemed essential and not covered by the lockdown
orders); our positive outlook for general construction equipment
markets in the UK; driven by the HS2 project and the government’s
other infrastructure initiatives, expected strong ramp-up in HS2
construction activity in 2021 and that we will start delivering
equipment to HS2 in Q2 2021; and our expectation for continued
strong demand for our power systems solutions, particularly in the
data centre market, with project deliveries expected towards the
second half of 2021; statements regarding our improved earnings
capacity in a recovery, including: our overall positive outlook for
2021 and expected revenue growth in 2021 (assuming strong
recoveries particularly in Chile and the UK), however remaining
below 2019 levels; our expectation that COVID-19 mitigation
measures will continue impacting our business in the first quarter
of 2021; that our global cost initiatives are on track to deliver
more than $100 million of annualized cost savings; our goal to
reduce SG&A as a percentage of net revenue to about 17% in
mid-cycle; our expectation to benefit in 2021 from profitability
drivers, including: operating leverage in a recovering market,
product support growth in all regions, progress towards our
mid-cycle goal of 17% SG&A as a percentage of net revenue, and
effective allocation of capital, and that our 2021 earnings will
exceed 2019 (assuming an undisrupted market recover, for example,
undisrupted by COVID-19 impacts, commodity price volatility or
social unrest, and successful execution of our profitability
drivers); our plans to make strategic capital investments in our
Canadian facility network and digital capabilities in 2021 and our
expectation that our 2021 net capital expenditures and net rental
fleet additions will be in the $170 to $210 million range this
year, dependent on the pace of market recovery; and our expectation
that we will deliver strong free cash flow in 2021, but that with
increased inventory purchases, our EBITDA to free cash flow
conversion will be modestly below 50% for the year; and the
Canadian income tax treatment of the quarterly dividend. All such
forward-looking statements are made pursuant to the ‘safe harbour’
provisions of applicable Canadian securities laws.
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 European Union as a result of Brexit;
the level of customer confidence and spending, and the demand for,
and prices of, our products and services; our ability to maintain
our relationship with Caterpillar; our dependence on the continued
market acceptance of our products, including Caterpillar products,
and the timely supply of parts and equipment; our ability to
continue to sustainably reduce costs and improve productivity and
operational efficiencies while continuing to maintain customer
service; our ability to manage cost pressures as growth in revenue
occurs; our ability to negotiate satisfactory purchase or
investment terms and prices, obtain necessary regulatory or other
approvals, and secure financing on attractive terms or at all; our
ability to manage our growth strategy effectively; our ability to
effectively price and manage long-term product support contracts
with our customers; our ability to reduce costs in response to
slowing activity levels; our ability to drive continuous cost
efficiency in a recovering market; our ability to attract
sufficient skilled labour resources as market conditions, business
strategy or technologies change; our ability to negotiate and renew
collective bargaining agreements with satisfactory terms for our
employees and us; the intensity of competitive activity; our
ability to raise the capital needed to implement our business plan;
regulatory initiatives or proceedings, litigation and changes in
laws or regulations; stock market volatility; changes in political
and economic environments in the regions where we carry on
business; our ability to respond to climate change-related risks;
the occurrence of natural disasters, pandemic outbreaks,
geo-political events, acts of terrorism, social unrest or similar
disruptions; fluctuations in defined benefit pension plan
contributions and related pension expenses; the availability of
insurance at commercially reasonable rates and whether the amount
of insurance coverage will be adequate to cover all liability or
loss that we incur; the potential of warranty claims being greater
than we anticipate; the integrity, reliability and availability of,
and benefits from, information technology and the data processed by
that technology; and our ability to protect our business from
cybersecurity threats or incidents. Forward-looking information is
provided in this news release for the purpose of giving information
about management’s current expectations and plans and allowing
investors and others to get a better understanding of our operating
environment. However, readers are cautioned that it may not be
appropriate to use such forward-looking information for any other
purpose.
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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