Finning International Inc. (FTT) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Finning International 2021 Annual and Special Meeting. My name is Hal Kvisle, and I'm the Board Chair. I would like to call this meeting to order. I am speaking to you today from Calgary, Alberta. Joining me from Fitting International's head office at Great Northern Way in Vancouver, British Columbia, are Scott Thompson, our President and CEO; and Jane Murdoch, our General Counsel, who are appropriately socially distanced. This year, we are holding our Annual and Special Meeting, both virtually and in person at our head office, taking precautions and compliance with all applicable health authority requirements and the corporation's protocols to ensure the health and safety of the participants and attendees. I will begin with some introductory matters and outline the order of business of this meeting. In a minute, I will introduce our board members. After I make those introductions, we will move on to the formal part of the meeting when we will discuss and vote on the proposed resolutions included in the management proxy circular for this meeting. In order to expedite our meeting formalities, either I, Jane Murdoch or Scott Thompson will move and second the required motions in our capacities as registered shareholders or proxyholders for registered shareholders of Fitting. Instructions on how to ask questions and how to vote will appear on your screens. Voting on all matters will be available throughout the meeting until the formal items of business have concluded, and I will advise you when voting is closed. Any person who is attending this meeting as a registered shareholder or a duly appointed proxyholder may address the meeting when there is a call to discuss a motion that is placed before the meeting. Anyone who is attending this meeting as a guest will not be able to address the meeting. If you would like to speak to any motion, please type in your question or comment in the message section once it opens during the discussion period for that motion. After we have completed voting on the business of the meeting, Scott will give a presentation, which will include viewing a brief video on sustainability at Finning, and we will then receive the results of the votes. We will then conclude the meeting and continue with a question-and-answer session. If you have any general questions not specifically related to the matters that are being put to a vote, we would ask that you hold those questions until the question-and-answer session. We commit to answering all questions either online during the Q&A session or by responding to the questioner directly after the meeting. We'll -- we will read out any questions received on the items of business in the meeting or those asked during our Q&A session. If we receive more than one question on a similar topic, we will group the questions together, and we will indicate if we do that. Now if there are no objections, I will ask our General Counsel, Jane Murdoch, to act as Secretary of the meeting; and Evelyn Hsu of Computershare Investor Services Inc. to act as Scrutineer. I will now ask the Secretary to report on the quorum for this meeting.

Mr. Chair, a quorum is present. According to registrations, there are 139 shareholders present in person or by proxy, representing 80.25% of the common shares outstanding.

Thank you, Jane. As we have a quorum and have received the affidavit of mailing from our register and transfer agent, I declare that this meeting is regularly called and properly constituted for the transaction of business. Now to the business of the meeting. I will now introduce the members of our Board of Directors. As noted in our management proxy circular, all of the current board members are standing for reelection. In addition to myself, the Board members are: Vicki Avril-Groves of Burr Ridge, Illinois, Vicki has been a Director since 2016 and is one of our designated financial experts; James Carter of Edmonton, Alberta, has been a Director since 2007, and is the Chair of our Human Resources Committee; Jacynthe Côté of Candiac, Quebec, has been a Director since 2014 and is Chair of our Safety, Environment and Social Responsibility Committee; Nicholas Hartery of Limerick in the Republic of Ireland has been a Director since 2014 and is the Chair of our Governance and Risk Committee; Mary Lou Kelley of South Bend, Indiana, has been a Director since 2018; Andres Kuhlmann of Santiago, Chile, has been a Director since 2019; Stuart Levinick of Naples, Florida, has been a Director since 2016 and is the Chair of our Audit Committee; Kathleen O'Neill of Toronto, Ontario, has been a Director since 2007 and is our second designated financial expert; Christopher Patterson of Greensboro, North Carolina, has been a Director since 2010; Edward Seraphim of North Vancouver, British Columbia, has been a Director since 2019; and finally, Scott Thomson, our President and CEO, has been a Director since 2013. Our first item of business today is the presentation of our annual financial statements. A copy of the 2020 financial report, which includes Finning's financial statements for the year ended December 31, 2020, together with the Auditor's report, are available via notice and access on our corporate website at finning.com. Those items were mailed to shareholders that requested it. If there is no objection from shareholders, we will dispense with reading the financial statements and the Auditor's report. We'll pause here for a moment to allow any questions to be entered. Jane, have we received any objections or questions related to the financial statements.

Mr. Chair, we've not received any objections or questions.

Thank you, Jane. As there are no objections or questions, we will now proceed to the next item of business. The first matter to be voted on today is the approval of the appointment of the Auditor. Your Board is recommending the reappointment of Deloitte LLP as Finning's Auditor for the fiscal year 2021. Jane, would you please move the motion to approve the appointment of Deloitte LLP as Finning's Auditor for fiscal 2021 with their remuneration to be determined by the Board of Directors?

Mr. Chair, I so move.

Thank you, Jane. Scott, would you please second that motion?

Mr. Chair, I second the motion.

Thank you, Scott. We'll pause for a moment to allow any questions to be entered. Jane, have we received any questions on this motion?

No, we've not received any questions.

As there are no questions, I now call for a vote on the motion before the meeting. All registered shareholders and proxyholders for registered shareholders who have already voted and do not wish to change their vote are not required to do anything further. All other registered shareholders and proxyholders for registered shareholders, please record your votes now. [Voting]

This motion requires a simple majority to pass. Thank you. Moving on, as part of Finning's commitment to strong corporate governance practices, once again, the Board is providing shareholders the opportunity to cast an advisory vote on our approach to executive compensation. The purpose of this advisory vote is to provide our shareholders with an opportunity to indicate their acceptance of the Board's overall approach to executive compensation at Finning, which is described in the management proxy circular for this meeting. The text of the resolution to approve Finning's approach to executive compensation is set out on Page 15 of the management proxy circular and is about to be projected on the screen. Jane, will you please move the motion to approve this resolution?

Mr. Chair, I so move.

Thank you, Jane. In my capacity as a registered shareholder or proxyholder for a registered shareholder, I will second the motion. We'll pause for a moment to allow questions to be entered. Jane, have we received any questions on this motion?

No, we've not received any questions.

Thank you. As there are no questions, I now call for a vote on the motion before the meeting. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. This motion requires a simple majority to pass. [Voting]

Thank you. The next item of business is to ratify, confirm and approve certain amendments to the corporation's By-Law #1. The Board of Directors has approved certain Amendments to By-Law #1 to modernize and align that By-Law #1 with evolving corporate governance practices and with laws surrounding the increased importance of facilitating electronic meetings, voting and notices. Details about the amendment are set out in the management proxy circular. The text of the resolution to ratify, confirm and approve the Amendments to By-Law #1 is set out on Page 15 of the management proxy circular and is about to be projected on the screen. Jane, will you please move the motion to approve the Amendments to By-Law #1?

Mr. Chair, I so move.

Thank you, Jane. Scott, would you please second that motion?

Mr. Chair, I second the motion.

Thank you, Scott. We'll now pause for a moment to allow any questions to be entered. Jane, have we received any questions on this motion?

No, we've not received any questions.

Very good. As long as there are no questions, I now call for a vote on the motion before the meeting. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. This motion requires a simple majority to pass. [Voting]

The next item of business is to ratify, confirm and approve certain amendments to the corporation's Advance Notice By-Law. The Board of Directors has approved certain amendments to the Advance Notice By-Law to align with current guidance of major proxy advisory firms on Advance Notice requirements. Details about the amendments are set out in the management proxy circular. The text of the resolution to ratify, confirm and approve the amendments to the Advance Notice By-Law is set out on Page 16 of the management proxy circular and is about to be projected on the screen. Jane, would you please move the motion to approve the amendments to the Advance Notice By-Law?

Mr. Chair, I so move.

Thank you, Jane. Scott, would you please second the motion?

Mr. Chair, I second the motion.

Thank you, Scott. We'll now pause for a moment to allow any questions to be entered. Jane, have we received any questions on this motion?

No, we've not received any questions.

As there are no questions, I now call for a vote on the motion before the meeting. Please record your vote now, remembering that if you have already voted in advance and do not wish to change your vote, no further action is required. This motion requires a simple majority to pass. [Voting]

Thank you. In accordance with Finning's By-Laws, the Board of Directors has set the number of Directors at 12. So today, we will elect 12 Directors. In accordance with Finning's Advanced Notice By-Law, Advance Notice must be provided for anyone to be nominated as a Director at this meeting. As no Advance Notice has been received, the nominees standing for election are the 12 nominees set forward in the management proxy circular, who I introduced to you earlier in the meeting and whose names will now be projected on the screen. Each of these nominees is nominated for election to hold office until the next annual election of Directors or until their successors are appointed. Our majority voting policy requires that we have a ballot vote on the election of each of the 12 nominees as Directors. This means that, although I will be asking for one motion to elect each of the nominees, registered shareholders and proxyholders will be able to vote for or withhold their votes in respect of each individual Director. May I now have a motion to elect each of the nominees as Directors of the corporation?

Mr. Chair, I so move.

Thank you, Jane. In my capacity as a registered shareholder or proxyholder for a registered shareholder, I second the motion. We'll now pause for a moment to allow any questions to be entered. Jane, have we received any questions on this motion?

No, we have not received any questions.

As there are no questions, I now call for the vote. I also note that this is the last item of business to be voted on. So after this vote, all polls will be closed. Please record your vote now, remembering again that if you have already voted in advance and do not wish to change your vote, no further action is required. [Voting]

Thank you. That concludes the voting. And as all items of business have now been voted on, the polls are now closed. While we're waiting for the results of the voting, I would ask Scott Thompson to give his presentation. Scott, over to you.

Thank you, Hal. Good afternoon, and welcome, everyone. It is my pleasure to be hosting our 2021 Annual and Special Meeting here at our head office on Great Northern Way in Vancouver with a virtual option to ensure we are aligned with current health authority guidelines. As we have done in prior years, after we complete the required business of the meeting, we will have time for questions. Questions may be submitted online through the meeting portal. To begin, I'd like to take a moment to introduce Finning's corporate officers, all of whom have joined this meeting today. Greg Palaschuk, Executive Vice President and Chief Financial Officer; and Chad Hiley, Chief Human Resources Officer; Dave Cummings, Executive Vice President and Chief Digital Officer; and Jane Murdoch, General Counsel; Anna Marks, Senior Vice President, Corporate Controller; and Amanda Hobson, Senior Vice President, Investor Relations and Treasury; Kevin Parkes, Finning Canada President; and David Primrose, Finning U.K. and Ireland Managing Director; and Juan Pablo Amar, Finning South America President; and Alex Zanelatto, Executive Vice President, Global Supply Chain. My thanks to the Board and Finning Executive Team, who continue to provide solid leadership and clear direction as we navigate unique challenges and embrace new opportunities together. Before I begin my formal remarks today, I want to remind everyone that some of the information being presented may be forward-looking. This forward-looking information reflects our current expectations and is subject to risks, uncertainties and other factors as discussed in our annual information form and in our MD&A. Please treat this information with caution as actual results may differ materially from our current expectations. Today, I'd like to touch on our successes in 2020 and the first quarter of 2021, talk a bit about our people and safety as we continue to navigate COVID-19 and close with some comments around our commitment to sustainability and outlook for the balance of the year. There's no question that 2020 was an unprecedented year that required us to be incredibly nimble and flexible in our approach. I cannot properly articulate how proud I am of our company, of our resilience and our ability to adapt safely with a focus on the health and well-being of our employees and communities and a continued commitment to providing essential services to our customers. The combination of employee flexibility, liquidity from our capital market partners and government support programs in Canada and the U.K. helped protect against significant job losses, while positioning our business for a strong recovery. And 2020 turned out to be an exceptional execution year for Finning. Some highlights we can be proud of included a 35% decrease in our total injury frequency and a 10% increase in our customer loyalty scores. We also benefited greatly from our investment in digital capabilities, improved our execution in South America, reduced our cost base in Canada, built a strong backlog of projects in the U.K. and significantly lowered our finance costs. As you are aware, we released our Q1 financial results yesterday, and we are encouraged by the broad-based recovery in our markets and the growth momentum heading into the second quarter despite continued challenges related to COVID-19. Importantly, we've improved our operating efficiency, strengthened our balance sheet and are well positioned to deliver results during this recovery period. We are capitalizing on growing demand for equipment across all markets and regions. Our consolidated equipment backlog and order intake are the highest we have seen in several years across all regions, an excellent sign and indication of market confidence. Specifically, we are pleased to have secured additional equipment orders for HS2, the high-speed rail project in the U.K., and we expect to start delivering those machines in the second quarter. We were also proud to announce contract wins with Chilean state-owned copper mining company, Codelco, the world's largest copper miner by production to deliver new trucks, product support and an autonomous technology pilot to its mining operations in Northern Chile later this year. In Canada, we are seeing construction markets continue to improve and along with an increase in the number of preventative maintenance contracts and equipment, which help us secure long-term relationships for the life of a machine. We've also seen a healthy increase in the number of machine rebuilds, which means customers have their equipment back at work, and they are reinvesting in their assets again. 4Refuel is also continuing to deliver strong performance with significant revenue synergies achieved between Finning and 4Refuel. An example is the recent contract signed with Aecon to deliver fuel to their machines while they complete the highway upgrades to the Kicking Horse Canyon in British Columbia over the next 3 years. Match this with the fact that cost savings from our global initiatives are tracking to exceed $100 million per year, and we expect to further improve our earnings capacity in the coming quarters. When it comes to our employees around the globe, we've worked hard to protect their health, well-being and ensure safe working conditions despite ever-changing COVID dynamics. We continue to encourage employees who can do so to work from home and remain vigilant in our facility processes and protocols, including deep cleaning and sanitizing, antigen testing and our own additional contact tracing. Where our employees need support when needing to isolate due to exposure, we make sure they have what they need to focus on their health. We are also offering paid time off for employees to get vaccinated as we support vaccination as key to economic recovery, business certainty and overall community health. While we are proud of all we have done to keep workplace COVID transmissions low, earlier this year, we were saddened by the loss of 2 of our colleagues to complications related to COVID unrelated to their places of work, one in the U.K. and one in South America. Our thoughts remain with their families and friends, and these losses serve as a reminder to all of us of the seriousness of the virus. We were also devastated by the loss of a colleague and the injury of another at a workplace accident in Edmonton, Alberta, this past March, during the servicing of an excavator in our yard. We are working through the investigation process with local authorities and are supporting our employees and the families impacted as they process the loss. This incident reinforces our need to ensure we keep safety top of mind above all else to ensure all our employees go home safe every day. As you are aware, we released our fourth annual sustainability report at the end of March and are proud of our continued progress related to sustainability and our commitment to being a responsible partner to our customers and communities we serve. Before I go over our 2020 highlights, I'd like to share with you a video that talks about our sustainability journey. [Presentation]

Some key highlights we are proud of from 2020 include our efforts to support our customers in the move towards a low-carbon economy through offering emission-reduced products like Caterpillar's Tier 4 machines, dynamic gas blending engines that displace diesel use and other renewable power options. We are also committed to reducing our own absolute GHG emissions by 20% by 2027 from our 2017 baseline. Also notable was our ability to recycle nearly 10,000 tons of nonhazardous and nearly 3,000 tons of hazardous waste, while we kept nearly 3,000 tons of metal out of landfills and scrapyards through component remanufacturing at OEM. At 4Refuel, we had 0 significant spills while delivering and pumping nearly 861 million liters of fuel across Canada and in Texas. Our commitment to the next generation of employees continues as we supported more than 80 STEM-focused charitable organizations and reached 100,000 youth through the delivery of virtual programs delivered by community partners. We also committed to and launched our indigenous guiding principles in Canada, formalizing our acknowledgment of the work we will continue to do in support of reconciliation and equity of opportunity for the indigenous communities in our operating area. This year, for the first time, we chose to align our sustainability report with the task force on climate-related disclosures, and we map those disclosures to the Sustainability Accounting Standards Board. We will continue to build on this work year-over-year to provide more transparency on our climate-related risks and opportunities and tighter alignment with TCFD disclosures. If you have not yet read the 2020 report, I encourage you to do so. It is available on our website under Sustainability. Our outlook for the balance of the year is encouraging. We are optimistic for greater economic momentum in the second half of 2021 as the vaccine rollout ramps up in each of our regions. We plan to stay the course as we know what we are doing right now is working. We are winning equipment deals, growing our product support market share and maintaining our focus on cost and operational efficiencies. With the strong backlog building up and positive market momentum, we are optimistic about our outlook for the remainder of 2021 and growth opportunities ahead. In closing, I want to thank Finning employees, our customers, shareholders and partners for their support during the past year and as we face the continued challenges of COVID-19. The Finning Executive Team are aligned and motivated in our commitment to continue our work together on this journey. Now I will turn the meeting back over to Hal to provide the results of our shareholder votes, conclude our formal meeting and open our question-and-answer period.

Thank you, Scott. Just bear with me 1 second here. We now have the voting results for the appointment of the Auditor, advisory vote on executive compensation, Amendments to By-Law #1, Amendments to the Advance Notice By-Law and the election of the 12 Directors. I will ask Jane Murdoch to provide the voting results.

Mr. Chairman, the Scrutineer's report for the appointment of Deloitte LLP as Auditor of the corporation and to have the Directors fix the Auditor's remuneration states we have 99.59% of eligible votes in favor. For the approval of Finning's approach to executive compensation, we have 91.9% of eligible votes in favor and 8.1% against. For the approval of Finning's amended and restated By-Law #1, we have 99.24% of eligible votes in favor and 0.76% against. For the approval of Finning's amended and restated Advance Notice By-Law, we have 99.97% of eligible votes in favor and 0.03% against. And all Directors were elected individually, with each Director receiving at least 96% of eligible votes in favor.

Thank you, Jane. I declare the resolutions carried by the required simple majority, and I confirm that all of the nominees for election as Directors of the corporation received more votes for their election than votes withheld, and therefore, the nominees are declared elected as Directors. There being no further business, this concludes the formal portion of our meeting, and I now declare the Annual and Special Meeting concluded. I will now open the floor for questions from shareholders. Registered shareholders and proxyholders of registered shareholders may now ask questions through the virtual platform.

Mr. Chair, we've received no questions.

Thank you, Jane. That then concludes our question-and-answer session. We appreciate the strong show of support seen today in the votes of our shareholders, and we wish you and your families and loved ones' continued health and safety. Thank you for joining us today, and that concludes this Annual General Meeting.