15.11.2004

Hewden parent announce record profits

Finning International Inc chalked up record quarterly earnings in the three months to the end of September 2004, achieving C$43.1 (£18.8) million in earnings, up by 18 percent on 2003, and more than C$1 billion (£437million) in quarterly revenues. Year to date sales are also well up on last year.

Hewden revenues were up marginally in sterling terms, but a beneficial exchange rate saw this translate into an eight percent increase in Canadian dollars. Hewden's revenues were £78 million for the quarter and £228 million for the nine months year to date.

Margins at Hewden were said to have improved significantly, thanks to higher utilization, particularly in the tool hire sector. While Plant, crane and access rental were also showing signs of pricing improvement and better utilisation according to Finning.

Finning also announced plans to raise $300 (£131) million in a common share offering, aimed at funding part of the cost of refinancing a $425 (£185) million non-controlling partnership interest in Hewden Stuart PLC put in place at the time of the 2001 acquisition. . “The refinancing will yield up to C$25 (£10.9) million annual savings in the U.K. which will largely offset the impact from stock dilution”, says Doug Whitehead, president and CEO of Finning.

Finning took the opportunity of the quarterly conference call to confirm a number of senior management changes in the UK which will occur during the fourth quarter of 2004.

Stephen Mallett, currently Managing Director, Finning (UK) Ltd, will transfer to Finning International Inc. in Vancouver, to assume the role of President, Power Systems replacing Paul Jarvis.

Jarvis was CEO of Hewden Stuart PLC at the time of the Finning acquisition, and then managing director of the subsidiary until June 2003 when he moved to Canada, he has now left the Company.

Neil R. Dickinson will return to the U.K. to replace Stephen
Mallett as Managing Director, Finning (UK) Ltd.

Nicholas B. Lloyd has been appointed to the position of Managing Director, Finning Group, UK, in addition to his current role as Managing Director of Hewden Stuart. The role will include responsibility for the U.K. Materials Handling Division and will focus on the development of the group support services for all U.K. operations.

Lloyd was Managing director of Finning (UK) ltd from 1992 to 1999 following which he did a three year stint with Finning in South America.

Douglas W. Sprout will transfer from Vancouver to the U.K. to the newly created position of UK Executive Director, Support Services.

“These organizational changes represent an overall restructuring that is consistent with cutting costs, enhancing customer service, supporting the operations and providing a productive environment for all employees”. said Whitehead, He claimed that these changes alone would save over a million Canadian dollars (£437,000).

"Our business continues to be very good in Canada and in South America as we benefit from strong equipment related spending by our customers in the mining, oil & gas, forestry and construction sectors", "Our customers are benefiting from strong commodity prices, and their expansion plans translate into higher demand for our products. We have achieved record levels of revenues and earnings. As well, we have a record order backlog which supports continued growth for the Company" He continued.

Chief Financial Officer Wayne Bingham said that despite the revenue growth, Finning continues to focus on reducing costs by C$60 million a year by 2006. It seems that most of these cost savings will come from the UK, with C$20-25 million (£8 to £11 million) coming from savings at Hewden, a further C$20 (£8) million coming from Finning UK with another C$10 to 15 million coming group wide from the six sigma implementation. The balance coming from asset reductions, primarily in the UK.

The Hewden savings are related to the merging of the various business sectors into one organisation with the creation of a single back office, as well as a rationalization of the tool hire business to concentrate on professional hirers, moving away from the occasional and homeowner market. The depot network will move to a “hub and spoke” set up as part of this rationalisation. It is thought that these strategies will permit a smaller structure and product range with better utilisation rates.

When asked about the UK market Whitehead said that sales and marketing programmes instituted by Nick Lloyd since his arrival 18 months ago, were making a difference with “excellent volume coming through in tool hire, while “some daylight was showing in the plant hire market in terms of pricing” He said that the downside in earnings that they had seen since Finning had taken over Hewden (C$30 million in 2001 to C$23 million in 2003) was all related to pricing. With the market now firming and manufacturers no longer dumping product into the UK the market alone should produce the growth in profits at Hewden that Finning is looking for, while cost saving s would add to it.

When asked if Finning would take part in any of the rental market consolidation that seemed to be going on in the UK, Whitehead said “We want to get Hewden reformatted and in a robust position before we move into more additions, there are opportunities but prices are on the high side, we will get our house in order and wait for better pricing or look to benefit from improved market conditions resulting from consolidation by others”

Finning generated revenues of nearly C$3.6 billion (£1.57 billion) last year and earned a profit of C$132 (£57.7) million. The UK represents around 41 percent of Fining’s total sales.