Finning up 36% in Q4 but cautious on outlook
07 February 2023
Cat dealer Finning International has reported Q4 2022 revenue of $2.7 billion, up 36% from Q4 2021, reflecting high new equipment volumes and growth from its focus on product support.
The company said strong mining activity in Latin America would offset slowing construction demand in the UK and Ireland this year, but also indicated caution for 2023, with moves to reduce its debt exposure through a planned 25% reduction of expenditure and rental fleet additions.
“Looking ahead, we are mindful of the uncertain global business environment, including slowing rates of growth,” said Kevin Parkes, president and CEO.
“On balance, we see constructive demand conditions in our diverse end markets where we expect strength in mining and energy sectors to more than offset slowing construction markets in the UK and South America.” said Parkes.
For the fourth quarter of 2022 Finning’s Canada operations saw net revenue up 28% from Q4 2021, driven by continued strong market conditions in Western Canada. EBIT was up 39%.
The result was supported by growth in equipment sales, up 56%, supported by mining deliveries and higher volumes in the construction and power systems sectors.
Product support revenue was up 30%, reflecting demand in all sectors and supported by the positive impact of passing on supplier costs to customers.
In the South America operations, revenue increased by 34% from Q4 2021, driven by strong mining activity.
New equipment sales were up 54% from Q4 2021 due to higher deliveries to copper producers and large contractors supporting mining operations in Chile. EBIT increased by 51%. Product support revenue was up 25%, driven by Chilean mining.
Overall, operations in South America generated a record return on invested capital (ROIC) of 24.5% in 2022.
In the UK & Ireland, revenue was up 38% from Q4 2021, with increased volumes across all lines of business.
Strong new equipment sales, up 39%, were driven by power systems project deliveries, HS2 deliveries, and robust demand in the construction sector.
Product support revenue was up 38%, while the positive impact of passing on supplier costs, and the contribution from UK mobile hydraulic specialist Hydraquip acquired in March 2022 were also key factors.
Looking ahead, Finning’s Canada operations are expected to remain healthy, supported by the mining and energy sectors across Western Canada, and demand from the construction sector.
In Canada’s construction sector, “federal and provincial governments’ infrastructure programs and private sector investments in natural gas, carbon capture, utilization and storage, and various power projects are expected to continue driving demand for construction equipment and product support, rentals, and prime and standby electric power generation.”
Demand from energy customers is driving “a notable increase in quoting and order intake” in the power systems sector, with the company’s backlog in Canada at its highest levels since 2014.
Meanwhile, slowing economic growth and higher interest rates are expected to continue impacting construction activity in Chile in 2023. In Argentina, activity in construction, oil and gas, and mining is expected to remain stable, albeit offset by high inflation and currency restrictions.
In the UK and Ireland, with equipment deliveries to HS2 now largely completed, the company expects lower construction new equipment sales in the UK in 2023 compared to 2022.
“In addition, overall demand for construction equipment in the UK is expected to decline in 2023 due to slowing economic growth rates. However, we expect strong demand for product support to continue, driven by HS2 activity and high machine utilization rates across broader construction markets.”
Demand for the power systems business in the UK & Ireland is expected to remain robust, including in the data centre market.
Overall, the company is “reducing our capital expenditures budget in 2023 with a higher proportion allocated to reinvestment in rental fleet and strategic investments in electric drive mining trucks for demonstration purposes,” the company said.
Finning’s 2023 net capital expenditures and net rental fleet additions are expected to be in the range of $190 million to $240 million, which represents about 25% reduction from 2022.
“In 2023, we will be placing a higher priority on debt repayment and reduction in our net debt to Adjusted EBITDA ratio.”