Rental store reports
Finning reports 34 percent Q2 decline
By Finning International
By Finning International
Finning International reported its Q2 results:
- Net revenue decreased by 34% with lower revenue across all sectors and lines of business reflecting challenging market conditions from COVID-19 and volatility in commodity prices. New equipment sales were down 49% due to significantly reduced customer activity, particularly in Alberta. Product support revenue declined by 24% as customers in the oil sands and other mining operations parked a portion of their fleets during Q2 2020 and postponed major rebuilds and non-essential maintenance. In the construction sector, product support volumes were impacted by parked fleets, lower equipment utilization hours, temporary shutdowns of customer operations, and deferral of some customer projects due to COVID-19. Used equipment sales improved sequentially from Q1 2020. Rental revenue was down 35% from Q2 of last year on lower rental utilization.
- Due to a significant reduction in revenues year over year, the Company’s Canadian operations qualified for CEWS and, as a result, recognized $60 million of this wage subsidy in Q2 2020. The Company estimates that approximately 500 full-time jobs, including technical capabilities and talent, have been preserved in Canada as a result of this program.
- SG&A was reduced by 11% compared to Q2 2019, a lower decrease compared to other regions due in part to the preservation of employment as a result of the above-noted government support program. Without the benefit of the wage subsidy, the Company would have taken available alternative actions in Canada, which would have reduced SG&A by a further $15 to 20 million in Q2 2020, and SG&A would have been approximately 20% lower than Q2 2019.
- The Canadian operations are taking methodical and strategic actions to continue improving employee and facility productivity. These actions include re-shaping the facilities network and workforce reductions. As a result, the Company’s Canadian operations recorded severance and facility restructuring costs totaling $25 million in Q2 2020. The Canadian workforce is expected to be reduced by 11% by the end of 2020 from the end of 2019.
- The Canadian operations benefitted from the strong performance of 4Refuel in Q2 2020. 4Refuel achieved 5% growth in Adjusted EBITDA on a 4% decline in net revenue compared to Q2 2019 and contributed $13 million of positive free cash flow in Q2 2020. 4Refuel contributed $33 million of positive free cash flow since the acquisition date of February 1, 2019. In July 2020, 4Refuel secured a fueling agreement with AECON for a portion of the Coastal GasLink Project in Northern British Columbia.
“I am pleased with how our global teams have been navigating through various stages of lockdowns and re-openings across our regions, with a focus on safely servicing our customers and controlling what we can – costs and capital. In these challenging times, our Total Injury Frequency rate decreased by over 40%, and our customer loyalty scores increased by 20% in Q2 2020 compared to Q2 2019. In Q2 2020, our SG&A(2) was down 12% year over year, and our net capital expenditures were minimized to $7 million. This performance speaks to the resiliency of our business model and adaptability and engagement of our people,” said Scott Thomson, president and CEO of Finning International.
“COVID-19 disruptions have significantly impacted our people, customers, and operations. Our challenges in the second quarter included postponed equipment orders and deliveries, an unprecedented slowdown in product support activity in most sectors, and reduced productivity and labour utilization at our branches. Where we have qualified, the use of government programs has helped us to preserve a significant number of jobs and technical capabilities through a unique period of significant uncertainty, and has provided an effective bridge to enable us to ramp up faster as the economy recovers.”
“While Q2 was difficult and the pace of economic recovery in our regions remains uncertain, we have seen signs of our markets recovering since May, with notable increases in rental activity, machine utilization hours, and product support revenue run rates. With the recent recovery in oil prices, most oil sands producers have put their truck fleets back to work and are expected to be operating at pre-COVID-19 levels by the end of August. The price of copper has also improved, providing continued support and stability for copper mining in Chile. However, increased cases of COVID-19 infections in South America have presented a significant challenge for our customers and our operations in the region, and we have deployed necessary resources and efforts to maintain operations and keep our employees safe. In the UK and Ireland, construction and power systems projects have resumed, and earthmoving work on the High Speed Rail 2 mega-project, which represents a significant opportunity for Finning, is expected to begin later this year.”
“Despite the unique times and numerous challenges we have faced, I am pleased with how our teams have stayed focused on what we set out to do at the beginning of the year, namely improving execution in South America, lowering the cost base in Canada, positioning to capture HS2 opportunities in the UK, and reducing our finance costs. Looking ahead, we are accelerating our strategic plans to position our business to achieve improved productivity, profitability, and ROIC(2)(3) in each region. I am confident that our continued vigilance on costs, improved productivity, and tight management of invested capital will ensure we maintain our financial strength and are well positioned to succeed in the upcoming recovery phase,” concluded Mr. Thomson.