Mr. Kevin Parkes reports

FINNING REPORTS Q3 2023 RESULTS

Finning International Inc. has released its third quarter 2023 results today. All monetary amounts are in Canadian dollars unless otherwise stated.

Highlights

All comparisons are with Q3 2022 results unless indicated otherwise.

• Q3 2023 EPS (earnings per share) of $1.07 was up 9 per cent, driven by higher revenues and strong operating margins partially offset by higher finance cost.
• Q3 2023 revenue of $2.7-billion and net revenue of $2.4-billion were up 13 per cent and 16 per cent, respectively, driven by a 28-per-cent increase in new equipment sales and a 13-per-cent increase in product support revenue.
• Q3 2023 EBIT (earnings before interest and taxes) was up 12 per cent. EBIT as a percentage of net revenue was 10.3 per cent, 40 basis points below Q3 2022, due to a higher proportion of large mining equipment sales in the revenue mix. EBIT as a percentage of net revenue was 10.8 per cent in Canada, 12.3 per cent in South America and 5.9 per cent in the United Kingdom and Ireland.
• Invested capital turnover was 2.08 times, up from 1.96 times in Q3 2022.
• Q3 2023 adjusted ROIC (return on invested capital) was 20.2 per cent, up 190 basis points from Q3 2022, led by South America.
• Q3 2023 free cash flow was at breakeven compared with $57-million use of cash in Q3 2022. Q3 2023 net debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was 1.8 times, comparable with Q3 2022.
• Consolidated equipment backlog was $2.3-billion at Sept. 30, 2023, compared with $2.4-billion at June 30, 2023. Higher equipment backlog in South America, driven by significant mining orders, was offset by lower backlog in Canada due to strong deliveries, and lower backlog in the U.K. and Ireland.

"We delivered another strong quarter in Q3. I am very pleased with how we are executing and continue building on our strong momentum. I am proud of the team's resilience in managing through specific challenges in the quarter, which included wildfires and port strikes in Canada, as well as very difficult operating conditions in Argentina, which we expect will continue while the country works through the election process. We are empowering our people to drive customer loyalty and execute on the strategic priorities we outlined at our 2023 investor day: drive product support, full-cycle resilience and sustainable growth. We see continued momentum in our business, supported by robust customer activity across our diverse end markets, healthy equipment backlog, and strong service levels. From a regional standpoint, Chile is mobilizing for growth, Canada is well positioned for steady growth, and our U.K. and Ireland business is resilient and sharing practices to drive innovation and efficiency within our company," said Kevin Parkes, president and chief executive officer.

Q3 2023 highlights by operation

All comparisons are with Q3 2022 results unless indicated otherwise. All numbers, except ROIC, are in functional currency: Canada -- Canadian dollar; South America -- U.S. dollar; U.K. and Ireland -- pound sterling (GBP). These variances and ratios for South America and U.K. and Ireland exclude the foreign currency translation impact from the Canadian dollar relative to the U.S. dollar and pound sterling, respectively, and are therefore considered to be specified financial measures. The company believes the variances and ratios in functional currency provide meaningful information about operational performance of the reporting segment.

Canada operations

• Net revenue was up 18 per cent, driven primarily by a 57-per-cent increase in new equipment sales. New equipment sales were strong across all sectors, led by mining deliveries to oil sands customers.
• Product support revenue increased by 10 per cent, led by strong mining activity.
• EBIT was up 10 per cent. EBIT as a percentage of net revenue was 10.8 per cent, below 11.7 per cent in Q3 2022, due to a higher proportion of large mining equipment sales in the revenue mix.

South America operations

• Net revenue increased by 20 per cent, driven by strong mining volumes. Construction and power systems revenues were also above Q3 2022.
• New equipment sales were up 37 per cent, reflecting deliveries of large mining equipment in Chile.
• Product support revenue was up 12 per cent, led by strong mining activity.
• EBIT was up 20 per cent. EBIT as a percentage of net revenue of 12.3 per cent was comparable to Q3 2022.
• South America generated adjusted ROIC of 27.6 per cent, an all-time high.

U.K. and Ireland operations

• Net revenue decreased by 17 per cent as lower equipment sales in construction were partially offset by higher revenues in power systems. Construction sales in Q3 2022 benefitted from HS2 deliveries.
• Product support revenue was up 6 per cent, supporting solid operating margin. EBIT as a percentage of net revenue was 5.9 per cent.

Corporate and other items

• Corporate EBIT loss was $8-million in Q3 2023 comparable with Q3 2022.
• The board of directors has approved a quarterly dividend of 25 cents per share, payable on Dec. 7, 2023, to shareholders of record on Nov. 23, 2023. This dividend will be considered an eligible dividend for Canadian income tax purposes.
• The company repurchased 1.47 million shares in Q3 2023 at an average price of $42.27, representing 1.0 per cent of the company's public float.

Appointment of John Rhind to the board of directors effective Jan. 1, 2024

The company is pleased to announce the appointment of John Rhind as an independent director to the board of directors effective Jan. 1, 2024. Mr. Rhind brings decades of business and executive leadership experience in the oil and gas industry, primarily focused on oil sands operations. Most recently, Mr. Rhind served as chair of the board of directors of Energy Safety Canada, after serving as its chief executive officer. Prior to that, Mr. Rhind served in several executive officer roles at Shell Canada Ltd., including as vice-president, operations, heavy oil. Before joining Shell, Mr. Rhind spent 25 years at Syncrude Canada Ltd., where he held management and operational roles across various business divisions, including mining, extraction and utilities.

"We are pleased to welcome John to our board. He brings a wealth of experience in executive and operational management, safety and strategic direction in the oil and gas sector. We look forward to gaining his valuable perspective and leveraging his direct industry knowledge," said Harold Kvisle, chair of Finning's board of directors.

Market update and business outlook

The discussion of the company's expectations relating to the market and business outlook in this section is forward-looking information. Actual outcomes and results may vary significantly.

Canada operations

The company's outlook for Western Canada is positive and reflects broad-based strength across the company's diverse markets.

As the completion of major pipelines creates additional capacity to move heavy oil and liquefied natural gas to end markets, the company expects to see increased activity in the energy sector to grow production. The company's mining and energy customers are steadily increasing their investment to renew, maintain and rebuild aging fleets.

In the oil sands, based on customer commitments and discussions, the company anticipates strong demand for product support, including component remanufacturing and rebuilds.

The company expects continuing commitment from federal and provincial governments to infrastructure development to support activity in the construction sector. In addition, growing demand for reliable, efficient and sustainable electric power solutions across communities in Western Canada creates opportunities for the company's power systems business.

South America operations

In Chile, Finning's strong outlook is underpinned by growing demand for copper and improving political clarity. The company is encouraged by the recent government approvals of large-scale brownfield expansions and increasing customer confidence to invest in brownfield and greenfield projects. Mining activity remains high, driving strong demand for equipment, product support and technology solutions.

In the construction sector, the company continues to see healthy demand from large contractors supporting mining operations, and it expects infrastructure construction in Chile to remain stable.

In the power systems sector, activity remains strong in the industrial and data centre markets, and the company is well positioned to benefit from growing demand for electric power solutions.

High inflation, currency restrictions and new import regulations are expected to continue impacting the company's business in Argentina. With the presidential election process concluding in November, the company expects volatility to continue in an already challenging fiscal, regulatory and currency environment. The company continues to actively manage and mitigate these risks, however, the prolonged import and currency restrictions associated with the election process increase the company's risk and likelihood of losses and negative tax impacts in the fourth quarter.

U.K. and Ireland operations

In the construction sector, product support activity is expected to remain resilient, driven by steady machine utilization and growing contribution from Hydraquip. With deliveries to HS2 completed, the company continues to expect lower construction sales in the United Kingdom in 2023 compared with 2022.

The company expects continued strong demand for its U.K. and Ireland power systems business for both primary and backup power generation, including in the data centre market and short-term capacity power for utilities and other applications.

Executing well and building on positive momentum

Looking ahead, the company is building capabilities and empowering its people to drive customer loyalty and execute on the strategic priorities the company outlined at its 2023 investor day: drive product support, full-cycle resilience and sustainable growth.

To support growth in the business and Finning's strategic priorities, the company now expects its 2023 net capital expenditures and net rental fleet additions to be approximately $300-million, above the previously communicated range of $190-million to $240-million. An increase in expenditures is primarily attributable to higher reinvestment in rental fleet, strategic investments in mining trucks and the timing of certain facility disposals.

To access Finning's complete Q3 2023 results, please visit the company's website.

Q3 2023 investor call

The company will hold an investor call on Nov. 7, 2023, at 10 a.m. Eastern Time. Dial-in numbers: 1-800-319-4610 (Canada and United States), 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 on the company's website.

About Finning International Inc.

Finning is the world's largest Caterpillar dealer, delivering unrivalled service to customers for 90 years. Headquartered in Surrey, B.C., the company provides Caterpillar equipment, parts, services and performance solutions in Western Canada, Chile, Argentina, Bolivia, the United Kingdom and Ireland.

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