15.02.2006

New Record for Finning

Finning International has reported record full year revenues of C$4.8 billion (£2.03/$4.12 billion). Net income rose by 43 percent to C$164 million (£81.85/$140 million).

Hewden sales fell in Canadian dollar terms to C$655 million (£297/$565 million) but increased by 3.2 percent in sterling. Earnings Before Interest $ Tax grew by 2.1 percent in local currency, to £25.1 million a modest decline in Canadian dollar terms.

Hewden was helped by higher rental rates and volume, but most of this was offset by higher costs, including higher credit and collection costs and the inability to pass on the steep rise in fuel prices.

Hewden also implemented a number of cost saving initiatives during the year, including a reduction in headcount of 120 and the purchase of a new integrated IT system that will bring savings and customer service improvements in 2007, says the company.

During the year Hewden invested £82 million in its rental fleet a small reduction on 2004.

Finning UK, the Cat dealer in the UK, saw sales rise by 7.6 percent in dollar terms and 16 percent in sterling. Gross profit rose by four percent in local currency, but earnings halved as a percentage of revenue.

The company says that its UK materials handling business was a major disappointment in 2005, with its negative result more than offsetting the improvement in construction equipment and power systems.

The UK materials handling division's poor results were not only due to a very competitive marketplace, says the company, other difficulties include:

The merging of two very different business models, Finning Materials Handling with Lex Harvey, which has proven to be a challenging and costly process that has still not been resolved.

Planned system upgrades have been deferred leaving the division grappling with two incompatible information systems. At the same time a higher proportion of its customers financed their long-term rental contracts externally.

This increased new equipment sales revenue, but had the effect of reducing the division’s long term rental fleet and related rental revenues. As of December 31, 2005, its long-term rental fleet was around 11,000 units, down seven percent from 2004.

The company also experienced slowing demand for short-term fork lift rental. As a result, the short-term fleet was reduced to 2,500 units by the end of 2005 compared with 3,000 at the same point in 2004.

Finning says that efforts are ongoing to improve the results of the Materials Handling division, including senior management changes, more favourable financing terms and manufacturer supported pricing incentives.

Finning and CAT to double UK market share

Finning has also agreed a 3 year strategic plan with Caterpillar to support the U.K. effort to grow market share across all divisions and improve profitability.

The plan is based on a mutual commitment to double the
present market share while improving the profitability of the dealership to the median level of dealers in the Caterpillar network.

Caterpillar has agreed to ensure that its products in
the U.K. will have market based pricing and that its equipment will at least have parity in terms of key technical capabilities and specifications.

Finning has agreed to adjust its centralised service on larger equipment to a more decentralised, regional model, moving service closer to the customer.

In addition, it has agreed to launch a new “Cat Compact” distribution channel for the smaller equipment in the product line.
and has alrady appointed a general manager who is proceeding to pilot it in two regions.

Finning says that Caterpillar alliance with JLG to produce a full line of CAT branded telehandlers by late 2006, will be critical, given that telehandlers are a key product for Finning and one of the largest segments in the U.K. equipment market.


Doug Whitehead, president and CEO of Finning International
Inc., said, “For the full year 2005, the very good performance of our Canadian and South American operations offset
the weak performance out of the U.K.”.

“As a result, earnings per share increased to a record level of $1.85. Our Canadian operations could
have done even better, however the six-week strike in the fourth quarter cost us an estimated $0.04 per
share”.

“Looking ahead, improving the performance of our UK operations is our number one priority in 2006. We have numerous initiatives underway in the U.K. that are all focused on making the businesses more efficient and improving results while still providing superior service to our customers. Our order backlog remains at a record level and we expect business will continue to be strong in 2006".