Despite lower revenue for Finning in the first quarter of 2020, EBITDA was $170 million, a 5-percent increase compared to the first quarter of 2019. Earnings per share increased 9 percent compared to Q1 2019 adjusted results, reflecting improved execution in South America, the resiliency of Finning’s product support business, and reduced SG&A costs.
Product support revenue was up 4 percent compared to Q1 2019, driven by a 23-percent increase in product support revenue in South America from improved execution in Chilean mining operations.
Canadian operations benefited from a reduced cost base and resilient product support volumes, delivering improved profitability compared to Q1 2019 on lower revenue. Q1 2020 EBIT and EBITDA as a percentage of net revenue were 7.9 percent and 13.7 percent, respectively. Overall for Finning, based in Vancouver, B.C., Canada, a Caterpillar dealership with operations in western Canada, Argentina, Chile and Peru, and the U.K. and Ireland, net revenue in the first quarter of 2020 was $1.439 billion compared to $1.719 billion in the first quarter of 2019, a 16.3.-percent plunge. Rental revenue, however, declined from $58 million to $53 million, an 8.6-percent drop.
In Canada, net revenue decreased by 17 percent, driven by a 41-percent decline in new equipment sales. Market conditions across all sectors in Western Canada were challenging primarily because of lower oil and other commodity prices, and reduced construction activity, particularly in Alberta. Product support revenue declined by 6 percent, reflecting significantly weaker customer demand in construction, coal mining, and forestry. Mining product support revenue was slightly higher compared to Q1 2019. Used equipment and rental markets were also soft in Western Canada in Q1 2020, with revenues from these lines of business declining by 30 percent and 16 percent, respectively.
“I am proud of how the Finning team is managing through these challenging times as we continue to serve our customers and keep our employees safe,” said Scott Thomson, president and CEO of Finning International. “Our Total Incident Frequency rate decreased by 36 percent, and our customer loyalty scores increased by 6 percent in Q1 2020 compared to Q1 2019, both remarkable improvements achieved by our employees under challenging circumstances. We have taken decisive measures to protect the interests of all our stakeholders and further strengthen our financial position as we navigate through the COVID-19 impacts and volatility in commodity prices. I am confident that our resilient business model, improving execution, financial flexibility, and cost and capital discipline will serve us well in the current environment and position us for opportunities that lie ahead.
“Our global teams have responded very quickly and effectively as the crisis has unfolded. Robust continuity plans are in place, capital investments are being minimized, salary and work week flexibility measures are in place, and our supply chain is operating with minimal disruption. Our investments in digital and omni-channel technologies are playing a key role in minimizing customer disruption, and we are effectively scaling these platforms for accelerating adoption rates.”
Thomson added that COVID-19 had an impact on Finning’s business beginning in the first quarter of 2020.
“The impact on the UK & Ireland operations started earlier than in Canada or South America,” he said. “The most significant impacts on our operations from COVID-19 disruptions in Q1 2020 included delayed equipment deliveries in all regions, lower parts sales in the construction sector and lower rental utilization in March in all regions, reduced productivity at our component repair facilities and lower labor recovery at our branches due to shift separation and distancing measures, temporary closure of certain facilities in South America, and additional allowances for doubtful accounts related to an increase in customer credit risk.
“Looking ahead, the ultimate impact of COVID-19 is difficult to predict as it will depend heavily on the duration of social distancing and quarantine requirements. The timing and pace of macroeconomic and commodity market recovery, from the effects of both COVID-19 and low commodity prices, are unclear. We expect the impacts of these factors on our second quarter results will be material. In each of our regions, our customers have been reducing capital spending and implementing cost containment measures and business continuity protocols with a range of impacts on activity levels. Since the middle of March, some of our customers have scaled back or, in some cases, suspended operations to comply with requirements and recommendations of governments and health authorities and, in the case of the oil sands, in the face of infrastructure constraints. In each of our regions, our extensive connected asset data shows a decline in machine utilization hours in construction sectors starting in mid-March. While per unit operating hours in mining remain high, we are seeing an increase in parked trucks and support equipment. Our consolidated net revenue in April was down approximately 15 percent from average monthly net revenue earned in the first quarter of 2020. We will continue to control what we can and match our capital investments and cost base to activity levels and accelerate cost reductions where necessary. Our goal is to position ourselves for productivity, profitability and ROIC improvement in a recovering market. In the near term, our top priorities remain the safety of our employees and maintaining our strong liquidity position.”
