Raymond James - Infrastructure & Construction Conference
Raymond James Infrastructure & Construction Conference Dave Smith, EVP & CFO May 23, 2012
Forward Looking InformationThis report contains statements about the Company‟s business outlook, objectives, plans, strategic priorities and other statements that are not historical facts. A statement Finning makes isforward-looking when it uses what the Company knows and expects today to make a statement about the future. Forward-looking statements may include words such as aim, anticipate,assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive, target, and will. Forward-looking statements in this reportinclude, but are not limited to, statements with respect to: expectations with respect to the economy and associated impact on the Company‟s financial results; expected revenue and SG&Alevels and EBIT growth; anticipated generation of free cash flow (including projected net capital and rental expenditures), and its expected use; anticipated defined benefit plan contributions;the expected target range of Debt Ratio; the impact of new and revised IFRS that have been issued but are not yet effective; the expected timetable for completion of the proposedtransaction between the Company and Caterpillar to acquire the distribution and support business formerly operated by Bucyrus in Finning‟s Canadian dealership territory; growth prospectsfor the former Bucyrus business being acquired by the Company in Finning‟s dealership territories (Bucyrus) and the competitive advantages of the business being acquired; expected futurefinancial and operating results generated from Bucyrus; anticipated benefits and synergies of Bucyrus; the expected financing structure for the Bucyrus transaction in Finning (Canada); andthe expected impact of Bucyrus on Finning‟s earnings. All such forward-looking statements are made pursuant to the „safe harbour‟ provisions of applicable Canadian securities laws.Unless otherwise indicated by us, forward-looking statements in this report describe Finning‟s expectations at May 23, 2012. Except as may be required by Canadian securities laws, Finningdoes not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual resultscould differ materially from the expectations expressed in or implied by such forward-looking statements and that Finning‟s business outlook, objectives, plans, strategic priorities and otherstatements that are not historical facts may not be achieved. As a result, Finning cannot guarantee that any forward-looking statement will materialize. Factors that could cause actual resultsor events to differ materially from those expressed in or implied by these forward-looking statements include: general economic and market conditions; foreign exchange rates; commodityprices; the level of customer confidence and spending, and the demand for, and prices of, Finning‟s products and services; Finning‟s dependence on the continued market acceptance ofCaterpillar‟s products and Caterpillar‟s timely supply of parts and equipment; Finning‟s ability to continue to improve productivity and operational efficiencies while continuing to maintaincustomer service; Finning‟s ability to manage cost pressures as growth in revenues occur; Finning‟s ability to attract sufficient skilled labour resources to meet growing product supportdemand; Finning‟s ability to negotiate and renew collective bargaining agreements with satisfactory terms for Finning‟s employees and the Company; the intensity of competitive activity;Finning‟s ability to successfully integrate the distribution and support business formerly operated by Bucyrus after that transaction closes; Finning‟s ability to raise the capital needed toimplement its business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock market volatility; changes in political and economic environments foroperations; the integrity, reliability, and availability of information technology and the data processed by that technology; operational benefits from the new ERP system. Forward-lookingstatements are provided in this report for the purpose of giving information about management‟s current expectations and plans and allowing investors and others to get a betterunderstanding of Finning‟s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.Forward-looking statements made in this report are based on a number of assumptions that Finning believed were reasonable on the day the Company made the forward-looking statements.Refer in particular to the Outlook section of the MD&A. Some of the assumptions, risks, and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this report are discussed in the Company‟s current Annual Information Form (AIF) in Section 4.Finning cautions readers that the risks described in the AIF are not the only ones that could impact the Company. Additional risks and uncertainties not currently known to the Company orthat are currently deemed to be immaterial may also have a material adverse effect on Finning‟s business, financial condition, or results of operations.Except as otherwise indicated, forward-looking statements do not reflect the potential impact of any non-recurring or other unusual items or of any dispositions, mergers, acquisitions, otherbusiness combinations or other transactions that may be announced or that may occur after the date hereof. The financial impact of these transactions and non-recurring and other unusualitems can be complex and depends on the facts particular to each of them. Finning therefore cannot describe the expected impact in a meaningful way or in the same way Finning presentsknown risks affecting its business.All amounts in this presentation are in Canadian dollars unless otherwise noted 2
Finning International Inc. (TSX:FTT) World‟s largest Caterpillar dealer operating Canada in some of most resource-rich territories ~50% 3 regions, 7 countries; 14,000 employees Yukon The Northwest Territories Key industries Mining (oil sands, copper, coal) South America Fort McMurray British ~35% Columbia Alberta Construction Edmonton Power systems Bolivia Antofagasta Vancouver Unrivalled product support capability and Chile (head office) customer relationship Argentina Uruguay Well-positioned to capture growth Santiago UK & Ireland Market cap ~ $4.1 billion ~15% United 2011 revenue = $5.9 billion Ireland Kingdom Cannock Quarterly dividend = $0.14 per share 3
Strategic Priorities Improve operating profitability in Canada Drives 9-10% EBIT margin in 2013 Strengthen balance sheet New Fort McKay oil sands service facility: Optimize strong free cash flow 16 bays, 160,000 sq. ft. to de-leverage Integrate Bucyrus successfully Capture growth opportunities in product support 4
Bucyrus Distribution Business Excellent strategic fit Mining solutions provider - broadest product portfolio Leverage existing customer base - strong market share in South America and Canada Significant product support growth opportunities Bucyrus contribution 2012 revenue ~$270 million (2012 calendar year ~$700 million) Accretive to 2012 EPS Expect EBIT margin of 7-8% within two years 5
Capturing Growth Growth within all our markets Mining equipment population to grow by ~50% over next 5 years Oil sands: new projects, fleet replacement, rebuilds Chile mining: ~$100B projected investment over next 10 years Heavy construction – infrastructure projects Power systems – demand for energy; value-added services Growth with Caterpillar New products: Bucyrus, 795F electric drive truck New businesses: truck bodies in FINSA Growth in product support Growing fleets of large mining equipment with high parts and service consumption 6
Outlook Expect robust market activity across most sectors in 2012 Revenues (including Bucyrus) to grow by 8-10% over 2011, led by strong product support Canada Executing on ERP recovery plan and eliminating incremental costs Expect continued improvement in EBIT margin throughout 2012 South America Strong product support driving profitability, new equipment sales moderate from 2011 Argentina: reduced construction volumes not expected to have material impact on consolidated revenues and earnings UK & Ireland Uncertain economic environment Market segmentation strategy: higher margin opportunities in equipment solutions and power systems 7
Q1 2012 Highlights Q1 results in line with expectations, very good start to the year Healthy market conditions continue in all territories New equipment sales moderated from record-setting Q4 Strong order intake in Q1 Backlog up 11% to $1.6 billion at the end of March Record product support revenues Large installed based of mining and construction equipment Strong activity driving high utilization rates Excellent results from FINSA and UK & Ireland EBIT margins close to 2013 targets Strong top line in Canada, sequential improvement in quarterly EBIT margin Progress on optimizing the ERP system and eliminating incremental costs Negative free cash flow of $223 million to support higher working capital requirements 9
Cash Engine for Growth Strong cash flow from operations EBITDA ~ $500 - 800M per year* Cash for Growth Disciplinedcapital spending Dividends Enhanced focus on~ $100M per year* Reduce debt working capital management Acquisitions Net rental additions ~ $100-$150M per year** Averages over economic cycle 8
Oil Sands Mining Fleet Growth Additional CAT Caterpillar Units Total Units Finning’sEquipment Type at Dec 31, 2011 at Dec 31, 2011 Market Share Units Projected 2012 to 2016*400 Ton Trucks (797) 243 276 88% 127320 – 340 Ton Trucks (future 795F/MT5500) 130240 Ton Trucks (793) 156 180 87% 57100 – 200 Ton Trucks (777-789) 400 408 98% 158Ultra Large Tractors (D11 & D10) 287 316 91% 155Large Tractors (D8 & D9) 243 273 89% 104Ultra Large Graders (24) 89 89 100% 78Large Graders (16) 83 84 99% 49Total 1,501 1,756 728 Projections include the existing projects and their expansions, as well as contractor equipment for: Syncrude (Base & Aurora), Suncor (Steepbank & Millennium), Shell/Albian (Muskeg River & Jackpine), CNRL (Horizon), Exxon/Imperial (Kearl), Suncor/Total (Fort Hills)* Includes units projected from 2012 to 2016, incremental to units at Dec 31, 2011 11
FINSA Mining Fleet Growth Additional CAT Caterpillar Units Total Units Finning’s Equipment Type at Dec 31, 2011 at Dec 31, 2011 Market Share Units Projected 2012 to 2016* Ultraclass Trucks Size (797-795) 212 508 55% 260 Large Mining Trucks (793 – 777) 749 1,208 69% 328 Large Wheel Loaders (994 – 992) 151 236 71% 37 Large Wheel Dozers (854 – 824) 137 253 84% 64 Track-Type Tractors (D11 – D9) 301 535 60% 138 Motor Graders (24 - 16) 152 253 71% 62 Underground 120 400 37% 90 Total 1,822 3,393 59% 979* Market share, PINS rolling 12 months as of June 2011.** Caterpillar projected includes units forecast for FINSA from 2012 till 2016 which are incremental to units at December 31, 2011. These projections constitute “forward-looking information” which reflect the current view of Finning of future events and are subject to risk and uncertainties. Actual results could differ materially from current expectations. 12
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