From
the 1999 Annual Report
Dear Shareholders, Customers, and Employees:
I am pleased to report that Finning International
provided shareholders with significantly higher
earnings in 1999 even though markets were still
in recovery mode. Net income and cash flow increased
while overall assets were diligently reduced.
Strategically, the Company has started to re-design
itself, shifting from a selling business that
provides product support to a customer support
business that sells. Finning’s operations
are focused on growing value-added businesses
and developing new standards and internal processes.
These improvements are unfolding at a time when
many of our customers are seeing momentum returning
to their industry sectors.
Looking back to the first quarter of 1999, our
Company was facing low commodity prices with Chilean
and British economies in decline. To counter these
market conditions, we moved quickly to implement
cost and asset reduction programs. Despite a decline
in revenue of 14%, the Company’s operating
margins improved in 1999 and net income increased
to $59.6 million from $3.2 million in the previous
year. Clearly, these results could not have been
achieved without the teamwork and commitment of
Finning employees throughout our organization.
During the year, our major corporate objectives
were to reduce assets by $180 million and lower
operating expenses by $22 million. These ambitious
goals were to be achieved without any adverse
effect on customer service – and they were.
At the end of the year, we exceeded our planned
objectives as inventory levels dropped by $203
million and expenses declined by $30 million.
Total debt decreased by $234 million, restoring
strength to the Company’s balance sheet.
Through our internal re-design process, the Company
is revisiting many of its performance benchmarks.
We are targeting those areas where Finning can
improve operating efficiency and strive for “best
in class”. Based on this process, we have
set goals for the Company in terms of asset management,
productivity and growth. We recognize our customers
must see the benefits of these efforts and service
levels must continue to be the highest in the
marketplace.
Consequently, our operations are assigning more
service technicians to the field so they can respond
faster to customer demands, thereby increasing
machine availability. Additionally, customer service
levels have been enhanced with centralized call
centers. In 1999, test pilot programs in each
of our operations showed improved inventory turnover
rates through focused asset and logistics management.
Finning (Canada), with Caterpillar’s support,
launched a new e-commerce initiative to sell over
the internet. Building on this success, the e-commerce
channel will be expanded company-wide in 2000.
We see the internet becoming increasingly important
in serving our existing customers and reaching
new customers.
A vital component of our business is Caterpillar’s
leadership in technology, providing the most highly
productive equipment in the industry. Our dedicated
sales teams, working closely with Caterpillar,
are focused on growing market share and advancing
Cat’s expanding product line. For example,
in the U.K., we see significant growth opportunities
with Caterpillar’s new compact equipment
line. In Canada, the new 797 mine truck performed
well in field-testing and in 1999 we sold nine
of these units to our largest customers in the
Athabasca Oil Sands. In 2000, these new trucks
– the largest in the world – will
also be delivered to customers in Chile to further
improve copper mining productivity. Recent major
initiatives by Caterpillar in agriculture and
power systems will open new markets in many of
Finning’s operations.
A key area of focus for management in 1999 was
safety in the work environment. At Finning, we’re
only safe when each of us cares about each other
– and ourselves. “No Accidents Today”
is the daily goal we will use to gain world class
status for safety in our workplace. With everyone’s
commitment we will achieve that standard. In addition,
the Company will continue to meet environmental
requirements through recycling, re-use and waste
disposal programs.
On the topic of management, I have announced
that I will be stepping down from the position
of Chairman and C.E.O. at the Company’s
annual meeting on April 26th. One of my major
responsibilities before retiring has been to help
set a strategic course for the Company and ensure
there is strong management in place to execute
that plan. We have internationally experienced
executives leading each of our operations, and
we have selectively recruited top talent to take
advantage of new technology opportunities. I know
that Finning will achieve its future goals with
the strong team in place under the leadership
of Doug Whitehead.
I am also very pleased to announce the appointment
of Mr. John Cleghorn, of Royal Bank of Canada,
and Mr. John Willson, of Placer Dome, to Finning’s
Board of Directors. Their experience will provide
additional strength to the Company’s Board
which will play an important role in the future
growth of the Company.
As I look back over my 31 years with Finning,
I am very proud to have served with such a team
of talented people. The Company has grown tremendously
– both internally and through acquisitions
– and it is now an international operation
with solid roots in three continents. I see a
bright future for exceptional shareholder returns
as Finning engages in new e-commerce channels,
expanded product lines, greater customer support
services and other opportunities for growth. Finning
has remained profitable and served its shareholders
well over 67 years of change – not because
it coped with change, but because it drove change.
Going forward, Finning’s management will
continue this effort under the guidance of our
Board of Directors.
After years of valued service, Carl Cederberg,
Michael Koerner and Bob Wyman will be retiring
in early 2000. Carl joined Finning in 1971. After
numerous successful postings, his distinguished
career concludes as President of Finning Chile.
Michael joined the Board in 1978 and served with
distinction in the role of Chairman of the Audit
Committee. Bob joined the Board in 1987 and served
on a number of committees and was non-executive
Chairman of the Board from 1992 to 1996. Their
contributions were significant in building the
long- term success of the Company.
Finning’s success over the years would
not have been possible without its valued relationship
with Caterpillar. Through Caterpillar’s
leadership in equipment design, manufacture and
service, we have been able to help our customers
be successful. I have had the good fortune to
work with some of the senior officers who have
helped forge the indelible Caterpillar stamp of
success on the heavy equipment industry worldwide.
I especially appreciated the opportunity of working
with the executive team under the very able guidance
of Glen Barton, Chairman and Chief Executive Officer.
It has been an honour and pleasure to serve as
Chairman and CEO of this wonderful Company. I
wish to thank the Board, the Management, and every
Employee, who have all shown their commitment
to making our Company and our customers successful.
In conclusion, I wish to thank our shareholders
for their confidence over the years. Let me assure
you that Finning management is well prepared for
the unfolding opportunities of the new business
world and keenly aware of its responsibility to
deliver growth in shareholder value.
Sincerely,
(signed)
James F. Shepard
Chairman and Chief Executive Officer |