TO
OUR SHAREHOLDERS
Doug Whitehead,
President and C.E.O.
Finning International achieved record net income
in 2002. This excellent performance was accomplished
by employees throughout the Company successfully
implementing our strategic plan. The Company's
revenues of $3.21 billion in 2002 compare with
$3.25 billion in 2001. Revenues were essentially
flat as commodity prices and general economic
activity were fair to poor in our markets —
Western Canada, the United Kingdom and Chile.However,
our net earnings were $132.3 million ($1.72 per
share), compared with 2001 net earnings of $103.9
million ($1.37 per share). This dramatic increase
reflects the success of a number of initiatives
undertaken before and during 2002.
Geographic Diversification
The 2002 achievement likely to have the biggest
impact on the Company going forward is our agreement
to acquire Caterpillar dealerships in Argentina,
Uruguay and Bolivia.These acquisitions add to
our geographic diversification, which reduces
our exposure to economic cycles that inevitably
occur in specific countries and industries. The
significance of the South America acquisitions
becomes obvious with one glance at the map. After
successfully increasing revenue and earnings performance
in Chile since Finning acquired the CAT dealership
there a decade ago, we can now apply the same
strategies to almost the entire Southern Cone
of the continent.
Revenue Stream Diversification
In 2002, we continued our strategy of reducing
our revenue dependence on sales of new and used
equipment and increasing the proportion of revenue
from rental, parts and service. The result was
a gross margin on revenues of 29.9% compared with
27.9% earned in 2001. Our transition toward a
customer service culture throughout the entire
Company is continuing, and we believe the major
share of the financial gains from this strategy
is still to be realized.
The increase in rental revenue has come primarily
from our growing Hewden Stuart subsidiary in the
U.K., acquired in 2001, and from the successful
expansion of our CAT rental stores in Western
Canada and Chile. Economic conditions have also
prompted some customers to rent heavy equipment
until their business improves enough to make purchase
viable.
Improved Return on Assets
We undertook several initiatives in 2002 to continue
to improve the returns we generate with our assets.
In January, the Company concluded a $79 million
sale and leaseback transaction in which we sold
a number of our Canadian properties and entered
into long-term leases with the purchaser. In October,
our Hewden Stuart subsidiary sold its Tower Cranes
business because it did not fit the strategic
growth plan. In addition, in December we sold
substantially all our Canadian conditional sales
contract portfolio to Caterpillar Financial Services
Limited and securitized a portion of our trade
receivables for combined proceeds of $120 million.
These and other initiatives taken during the year
improve our return on existing assets and strengthen
our balance sheet to enable us to pursue new acquisitions
and seize other growth opportunities in core businesses.
We welcome our new colleagues in Argentina, Uruguay
and Bolivia. After some tough economic times,
we believe these countries are now poised for
years of growth and prosperity. Finning appreciates
having the opportunity to contribute to this exciting
future. The year's excellent performance
could not have been attained without the hard
work and talent of our employees throughout the
Company. I also want to add my personal thanks
and gratitude to our Board of Directors.
Everything we do, of course, is based on our
relationship with Caterpillar Inc. Caterpillar
is the worldwide leader in designing and manufacturing
high quality, dependable heavy-duty equipment.
We are today the world's largest Caterpillar
equipment dealer. Our corporate vision is to be
Caterpillar's best global business partner,
providing unrivalled services that earn customer
loyalty.
Tomorrow
We expect to deliver another strong bottom-line
performance in 2003, despite anticipating another
year of challenging economic conditions. Over
the longer term, additional strategic initiatives
combined with economic growth and stable commodity
prices will position the Company to benefit accordingly.
We have set a number of challenging objectives
for 2003 and the years that follow, including:
- A
long-term revenue growth rate of 15% a year. We
did not meet this goal in 2002 and we will be
hard-pressed to meet it in 2003. However, we did
perform at this level throughout the 1990s, and
we are confident we will return to this growth
rate when business cycles improve over the
medium term.
- A
long-term return on equity rate of 20% a year.
In 2002, our return on equity was 15.7%,
compared with 14.1% in 2001. We anticipate
increasing ROE 1% each year through 2006.
- A market share of 30% in all
our markets. We exceed this objective now in
most markets, but we intend to reach this target
in all our sectors.
We are determined to continue to build value
for our shareholders by enhancing our reputation
as a Company that sets goals and achieves them. |
