Finning International Inc.

views updated

Finning International Inc.

666 Burrard Street, Suite 1000
Vancouver, British Columbia V6C 2X8
Canada
Telephone: (604) 691-6444
Fax: (604) 331-4899
Web site: http://www.finning.com

Public Company
Incorporated: 1933 as Finning Tractor & Equipment Company Ltd.
Employees: 11,409
Sales: CAD 3.59 billion (2003)
Stock Exchanges: Toronto
Ticker Symbol: FTT
NAIC: 333120 Construction Machinery Manufacturing

Finning International Inc. is a dealer for Caterpillar Inc. on a global scale. Finning International sells, rents, finances, and provides customer support services for equipment and engines made by Caterpillar, the world's leading manufacturer of heavy equipment. Finning International operates on three continents, serving customers in North America, Europe, and South America. The company's North American operations are conducted through Finning (Canada), an Edmonton, Alberta-based entity that operates as the Caterpillar dealer at 41 branch locations in Alberta, British Columbia, Yukon, and the Northwest Territories. Finning (UK) Ltd. operates as the national Caterpillar dealer for Great Britain, serving customers at 22 branch locations in England, Scotland, and Wales. In South America, Finning International operates 34 branch locations in Argentina, Bolivia, Chile, and Uruguay. Through a subsidiary named Hewden Stuart PLC, Finning International operates one of the largest rental companies in the United Kingdom. Hewden Stuart, with more than 300 offices, rents a full range of equipment, including small- and medium-sized construction equipment, tools, and cranes and self-propelled powered access platforms.

Origins

Finning International developed out of its founder's ties with Caterpillar Tractor Co., a relationship that began shortly after the heavy equipment maker was established in 1925. Earl B. Finning was working in California, employed as a salesman for Caterpillar's distributor for the region, when he began to dream of living elsewhere. In 1928, when he was in his 30s, Finning moved north, opting for the mostly undeveloped area of Canada's Pacific Coast. Finning settled in Vancouver, British Columbia, where he set up a small business selling and servicing heavy equipment. Before his first year in Vancouver was over, Finning formed a partnership with a man named Morrison, who had founded his own company, Morrison Tractor & Equipment Ltd., two years earlier. The pair worked together during the first years of the Great Depression, but Finning would have to endure much of the century's most devastating economic crisis on his own. In 1932, Morrison relinquished his interests in the company, leaving to Finning the daunting challenge of keeping a business afloat during the deleterious times.

Finning was awarded the Caterpillar dealership for most of British Columbia when he started out. He succeeded in staving off collapse, but his first years on his own offered little enjoyment. Incorporating the company as Finning Tractor & Equipment Company Ltd. at the beginning of 1933, he applied his own business philosophy to its operation. Finning, unlike most of his competitors, believed strongly that success depended on the availability of parts and reliable repair service. His mantra, according to company historians, was "We service what we sell," a mindset that distinguished Finning Tractor from others and won the loyalty of customers who depended heavily on their Caterpillar equipment in the rugged and isolated country of western Canada. Perhaps because of Finning's emphasis on stocking parts and providing repair service, the company stayed in business during the desperate years of the Great Depression, enjoying enough financial stability to open its first branch location in Nelson, British Columbia, in 1937. The satellite office in Nelson was the first branch office of what would become a network of Finning Tractor locations scattered throughout British Columbia, Alberta, the Yukon, and the Northwest Territories.

Post-World War II Expansion

Following World War II, the sparsely populated, mostly undeveloped province of British Columbia experienced a tremendous surge in growth. The growth was industrial, as the province's industries expanded at a robust pace, finding the financial resources to fund such expansion relatively easy to come by in the fertile economic climate present throughout North America following the war. The highly favorable economic conditions provided the impetus for British Columbia's mining, forestry, hydroelectric, and oil pipeline concerns to push forward with expansion plans, the execution of which would require the equipment sold by Finning Tractor. The company flourished in the decades following World War II, becoming one of the most successful companies on Canada's west coast.

Finning leveraged his company's success to create his vision of what a Caterpillar dealership should be. He placed a high priority on establishing a network of Finning Tractor branch locations, consistently opening new satellite offices once he had begun to do so in 1937. Finning also directed that branch locations be opened in the most remote areas, creating a comprehensive network that left few potential customers without the ability to turn to Finning Tractor for their heavy equipment needs. When major government highway, hydroelectric, and defense contracts materialized during the 1950s and 1960s, Finning Tractor was there to serve, maintaining a presence in areas eschewed by his competitors.

Finning presided over his company's defining era of growth, turning what could have been a one-location Caterpillar dealership into a network of offices that aided in the industrialization and modernization of British Columbia. His three-decade-long reign of command ended with his retirement in 1962, when Maury Young was appointed president and general manager of Finning Tractor. In 1965, Finning passed away, leaving his family to take control of the company. The Finning family would hold a sizable interest in the company for the next several decades, but Finning Tractor was essentially Young's company from the late 1960s forward. Young was appointed chief executive officer in 1967, a position from which he would exert considerable influence over Finning Tractor's development. Earl Finning's contribution to the development of Finning Tractor was immense and not to be forgotten, but Young's influence over the company rivaled that of his mentor's. Earl Finning created Finning Tractor, but Maury Young turned Finning Tractor into Finning International.

Using the foundation created by Finning, Young took the company to a higher plateau. His seminal contribution to Finning Tractor occurred roughly 20 years after he was named president of the company, but in the interim his achievements were not to be ignored. Finning Tractor was generating nearly CAD 80 million in revenue when Young took control of the company. In 1969, he presided over the company's initial public offering of stock and used the proceeds to finance expansion during the 1970s. Finning Tractor began manufacturing its own line of equipment during the decade, equipment that was designed primarily for use by the forestry industry. In 1971, GM Phillpot Co. was acquired, an acquisition that later led to the formation of the Allied Products division, which was organized into three separate operations: Materials Handling, Drills and Compressors, and Non Cat (Caterpillar) Forestry. The company recorded phenomenal growth during the decade, doubling its sales and profits twice over. By the end of the decade, after becoming the Caterpillar dealer in the Yukon in 1977, Finning Tractor stood as an imposing force, controlling much of western Canada. The fertile economic conditions that had supported the company's growth since the end of World War II evaporated as the new decade began, but the company responded to the anemic economic conditions by executing the boldest move in its history.

Going Abroad in 1983

During the early 1980s, a recessive Canadian economy delivered a stinging blow to Finning Tractor's markets. The resource industries of western Canada fell into a slump, causing a lull in the bustling mining, forestry, and construction activity that had underpinned Finning Tractor's growth. Young, and the company's newly appointed president, Vin Sood, responded to the bleak market conditions by taking the greatest geographic leap in Finning Tractor's history. Young and Sood decided to find growing markets elsewhere, choosing the United Kingdom as the company's new proving ground. In 1983, they acquired two U.K. Caterpillar dealerships, Bowmaker (Plant) Ltd. and Caledonian Tractor and Equipment Co. Ltd., which gave the company the right to represent Caterpillar in western England, Scotland, and Wales. The two acquisitions were merged in 1984, creating Finning Limited, the U.K. arm of Finning Tractor.

The foray into the United Kingdom marked the beginning of Finning Tractor's transformation into a multinational corporation. The company did not forsake its Canadian business, however. Following the acquisition of the two U.K. dealerships, Finning Tractor was generating roughly CAD 450 million in sales annually. The company's revenue volume represented a dramatic increase from the less than CAD 100 million it was collecting 15 years earlier. In the years to come, the company's revenue totals would increase at an even more vigorous rate, as management demonstrated an eagerness to broaden Finning Tractor's geographic scope. In 1989, the company directed its attention toward its Canadian operations, acquiring the R. Angus Caterpillar dealership in Alberta. The acquisition gave the company the right to represent Caterpillar in all of Alberta and in the Northwest Territories west of the Saskatchewan-Alberta border.

Company Perspectives:

The Finning Formula: Leverage the CAT brand; Command strong regional market shares; Maximize parts, service and rental revenue; Solve difficult customer problems; Establish clear financial expectations throughout the organization; Transfer the formula to other geographies.

During the 1990s, Finning Tractor again began to look at foreign markets for growth opportunities. Management searched for markets that were showing increasing activity in the sectors that Finning Tractor served—mining, forestry, construction, and other industries that needed Caterpillar's heavy equipment and diesel engines. During the early 1990s, the company saw rapid growth in such sectors in Chile, which led to the acquisition of Gildemeister S.A.C. in 1993. Gildemeister had served as Chile's only Caterpillar dealer since 1940. The acquisition, renamed Finning Chile S.A. four years later, gave Finning Tractor the right to serve all of Chile. The company's 60th anniversary also marked an increased involvement in the United Kingdom. Leverton, the only other Caterpillar dealer in England, was acquired, giving Finning Tractor control over all of England, Scotland, and Wales.

Finning Tractor recorded enormous revenue growth during the 1990s. The company entered the decade with approximately CAD 1 billion in sales and it exited the decade with sales in excess of CAD 2.2 billion. Finning Tractor's international expansion played a large role in fueling the sales growth, a contribution the company formally acknowledged in 1997, when the name Finning International Inc. was adopted as the corporate title for all of the company's operations.

Finning International in the 21st Century

The company's expansion continued as it entered the 21st century, an era in the company's development that was led by a new president and chief executive officer. Doug Whitehead was appointed to both posts in 2000, joining Finning International after serving as chief executive officer of Fletcher Challenge Canada Ltd., a unit of a massive New Zealand-controlled forestry conglomerate.

Under Whitehead's guidance, Finning International assumed an aggressive acquisitive posture during the first years of the new century. In 2001, the company acquired Hewden Stuart PLC, one of the largest rental companies in the United Kingdom. Through three divisions—general hire, tool hire, and lifting hire—Hewden rented a broad range of equipment at more than 300 locations scattered throughout the United Kingdom. In 2002, the company's Chilean entity, Finning Chile, acquired Distribuidora Perkins S.A.C., the exclusive distributor of the product lines for Perkins Engines and FG Wilson in Chile. The following year, Whitehead led the company's charge into South America, where during a four-month period he secured control over nearly the entire continent. In January 2003, the company acquired Macrosa Del Plata S.A., the Caterpillar dealer in Argentina, and General Machinery Co., S.A., the Caterpillar dealer in Uruguay. In April 2003, Finning International acquired Matreq Ferreyros S.A., the Caterpillar dealer in Bolivia.

As Finning International planned for the future, the company's first 70 years in business offered compelling evidence that success would continue. The company never posted an annual loss during its first seven decades of business. Although Whitehead faced a formidable task to match the contributions of his two most notable predecessors, Finning and Young, his move to entrench the company's presence in South America offered proof that he, too, held lofty ambitions for Finning International. The company entered the mid-2000s as the largest Caterpillar franchise in the world, with annual sales climbing toward CAD 4 billion. In the years ahead, the company was expected to strengthen its presence globally and hold sway as one of Canada's largest companies.

Principal Subsidiaries

Hewden Stuart PLC; Macrosa Del Plata S.A. (Argentina); Matreq Ferreyros S.A. (Bolivia); General Machinery Co. S.A. (Uruguay); Finning Chile S.A.; Finning (UK) Ltd. (U.K.); Finning (Canada) Ltd.

Principal Divisions

Finning (Canada); Finning (UK) Ltd.; Finning South America; Hewden Stuart.

Principal Competitors

AGCO Corporation; CNH Global N.V.; Western Power & Equipment Corp.

Key Dates:

1928:: Earl B. Finning moves to Vancouver, British Columbia, and becomes a partner in Morrison Tractor & Equipment Ltd.
1932:: Morrison divests his interests, making Finning the sole owner of the company, which he incorporates as Finning Tractor & Equipment Company, Ltd. the following year.
1937:: Finning Tractor opens its first branch location in Nelson, British Columbia.
1967:: Two years after Earl Finning's death, Maury Young is appointed chief executive officer.
1969:: Finning Tractor completes its initial public offering of stock.
1983:: Finning Tractor enters the United Kingdom through the acquisition of two Caterpillar dealerships.
1986:: The Finning family divests its controlling stake in the company.
1987:: Finning Tractor changes its name to Finning Ltd.
1993:: Finning Ltd. acquires the Caterpillar dealership in Chile.
1997:: Finning International Inc. is adopted as the company's corporate title.
2001:: Finning International acquires Hewden Stuart PLC.
2003:: Caterpillar dealerships are acquired in Argentina, Bolivia, and Uruguay.