Finning, the world’s largest Caterpillar dealers, posted CDN $1.335 billion in net revenue in the second quarter 2020, compared to $1.995 billion in the second quarter of 2019, a 33-percent decline. Equipment rental dropped from $62 million to $41 million, a 33.9-percent plunge. The revenue decline was caused by the pandemic and low oil prices.
Finning Canada’s product support revenue dipped 24 percent as many customers parked their equipment fleets and temporarily shut down operations in response to low commodity prices and COVID-19 restrictions. Strong free cash flow conversion in the second quarter resulted in free cash flow of $312 million, bring year-to-date free cash flow to $262 million and further strengthening Finning’s financial and liquidity position. As of June 30, 2020, net debt to adjusted EBITDA ratio was 2.1, down from 2.8 on June 30, 2019.
For the first six months of 2020, net revenue decreased 25 percent from $3.714 billion in the first six months of 2020 to $2.774 billion this year. Rental revenue dropped from $120 million in the first six months of 2019 to $94 million this year.
Finning plans to reduce its global workforce by 8 percent by the end of 2020 compared to 2019.
“COVID-19 disruptions have significantly impacted our people, customers and operations,” said Scot Thompson, president and CEO of Finning International. “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 labor 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.”
Thomson expressed praise for Finning’s employees and their ability to remain focused in the face of COVID challenges.
“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,” he said. “Looking ahead, we are accelerating our strategic plans to position our business to achieve improved productivity, profitability, and ROIC 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.”
In Canada, net revenue tumbled 34 percent with lower revenues 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 percent because of significantly reduced customer activity, especially in Alberta. 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 because of the pandemic. Used equipment sales improved sequentially from the first quarter. Rental revenue dropped 35 percent from last year’s second quarter on lower rental utilization.
Finning said it expects to reduce its Canadian workforce by 11 percent by the end of 2020. In South America, net revenue decreased by 28 percent. In the United Kingdom and Ireland net revenue declined 45 percent.
Finning sells, rents, and provides parts and service for equipment and engines to help customers maximize productivity. Headquartered in Vancouver, B.C., the Company operates in Western Canada, Chile, Argentina, Bolivia, the United Kingdom and Ireland.
