Finning regains competitive edge: the heavy equipment dealer has improved sales and operating debt

Money Digest, August, 2000 by Patrick McKeough

Finning International (TSE: FTT: Recent price: $13; Rating:

The company serves customers in forestry, mining and quarrying, construction, pipeline and oilfield construction, power generation and agriculture. In 1999, Western Canada accounted for 46% of sales, Britain for 32% and Chile for 17%. The remaining 5% of sales came from its international equipment trading division.

Company Financials

Finning's revenues rose steadily from $1.8 billion in 1995 to $2.6 billion in 1998, then fell to $2.2 billion in 1999. Per-share profits hovered around $1 from 1995 to 1997 before plunging to $0.04 in 1998 when the company restructured and moved its head office. Helped by reduced inventories, lower costs and improved operating efficiencies, per-share profits recovered to $0.75 in 1999, despite a 14% drop in revenues when compared to revenues a year earlier.

In the first quarter of 2000, earnings rose 114% to $13.4 million or $0.17 a share, from $6.2 million or $0.08 a share a year earlier. Finning's revenues rose 12% to $612.7 million from $549 million a year earlier. This was mainly due to strength in Western Canada, where new equipment sales to the mining, oil and forestry industries rose 65%. Customers such as the Ekati diamond mine in the Northwest territories and the massive Syncrude oil sands project in Alberta contributed to the gains. However, Finning was able to reduce inventories by 16% or $126 million, which resulted in improved operating debt.

In Britain, cost reductions continue to drive recovery since price competition from other heavy equipment dealers is developing and sales growth has weakened due to delays in large projects. Finning, with the help of Caterpillar, will lower prices to increase its market share.

Service and Support

In streamlining its operations these past couple of years, Finning placed an increasing emphasis on developing a reputation for strong after-sale service and support. It now provides faster service and employs global positioning technology to better allocate its field technicians to maintenance and service contracts.

The company is putting its service capabilities and reputation to even greater use with its new Web site. It will provide a connection between buyers and sellers of heavy equipment and used parts. Finning will inspect and guarantee equipment sold through the site.

Finning is a