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While the global recession interrupted the steady string of growth across key performance measures, profitability endured and the balance sheet continued to strengthen. This has been discussed at length throughout this MD&A.
Measuring Toromont's results against these strategies over the past five years illustrates that the Company has made significant progress.
Since 2008, revenues increased at an average annual rate of 4.1%. Product support revenue growth has averaged 6.9% annually. Revenue growth in continuing operations has been a result of:
-- Increased customer demand in certain market segments, most notably mining;-- Additional product offerings over the years from Caterpillar and other suppliers;-- Organic growth through increased rental fleet size and additional branches;-- Increased customer demand for formal product support agreements;-- Governmental funding programs such as the RinC program which provided support for recreational spending; and-- Acquisitions, primarily within the Equipment Group's rental operations.
Over the same five-year period, revenue growth has been constrained at times by a number of factors including:
-- General economic weakness, which has negatively impacted revenues since the latter part of 2008 through to early 2010;-- Inability to source equipment from suppliers to meet customer demand or delivery schedules; and-- Declines in underlying market conditions such as depressed US industrial markets.
Changes in the Canadian/U.S. exchange rate also impacts reported revenues as the exchange rate impacts on the purchase price of equipment that in turn is reflected in selling prices.
Toromont has generated significant competitive advantage over the past years by investing in its resources, in part to increase productivity levels.
Toromont continues to maintain a strong balance sheet. Leverage, as represented by the ratio of total debt, net of cash, to total capitalization (net debt plus shareholders' equity), was 25%, well within targeted levels.
Toromont has a history of progressive earnings per share growth. This trend was not continued in 2009 due to the weak economic environment, which reduced revenues. In 2010, earnings per share were negatively impacted by the issuance of shares in the year for the acquisition of ESIF. In 2011, on a continuing operations basis, earnings per share increased 32.5%, in line with earnings growth. In 2012, EPS increased 18% on a continuing operations basis.
Toromont has paid dividends consistently since 1968, and has increased the dividend in each of the last 22 years. In 2012, the regular quarterly dividend rate was increased 9% from $0.11 to $0.12 per share. In 2011, the dividend rate was apportioned between Toromont and Enerflex in conjunction with the spinoff of Enerflex, such that shareholders received the same dividend in total. Subsequent to the spinoff, Toromont increased the quarterly dividend rate 10%.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE FOURTH QUARTER 2012
Three months ended December 31($ thousands, except per share amounts) 2012 2011 $ change % change----------------------------------------------------------------------------Revenues $431,068 $408,432 $22,636 6%Cost of goods sold 312,109 304,665 7,444 2%----------------------------------------------------------------------------Gross profit 118,959 103,767 15,192 15%Selling and administrative expenses 57,149 55,549 1,600 3%----------------------------------------------------------------------------Operating income 61,810 48,218 13,592 28%Interest expense 2,747 2,124 623 29%Interest and investment income (1,887) (1,364) (523) 38%----------------------------------------------------------------------------Income before income taxes 60,950 47,458 13,492 28%Income taxes 16,023 13,235 2,788 21%----------------------------------------------------------------------------Net earnings $ 44,927 $ 34,223 $10,704 31%--------------------------------------------------------------------------------------------------------------------------------------------------------Earnings per share (basic) $ 0.59 $ 0.44 $ 0.15 34%--------------------------------------------------------------------------------------------------------------------------------------------------------Key ratios:Gross profit as a % of revenues 27.6% 25.4%Selling and administrative expenses as a % of revenues 13.3% 13.6%Operating income as a % of revenues 14.3% 11.8%Income taxes as a % of income before income taxes 26.3% 27.9%
