Finning Canada Investor Tour Presentations


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Finning Canada Investor Tour Presentations

  1. 1. June 25-26, 2013Finning Canada Investor Tour
  2. 2. Forward Looking Information2This 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 the Company’s Debt Ratio; the impact of new and revised IFRS that have been issued but are not yet effective. All such forward-looking statements are madepursuant 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 June 25, 2013. 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; risks associated with the conduct ofbusiness in foreign jurisdictions; foreign exchange rates; commodity prices; the level of customer confidence and spending, and the demand for, and prices of, Finning’s products andservices; Finning’s dependence on the continued market acceptance of Caterpillar’s products and Caterpillar’s timely supply of parts and equipment; Finning’s ability to continue to improveproductivity and operational efficiencies while continuing to maintain customer service; Finning’s ability to manage cost pressures as growth in revenues occur; Finning’s ability to reducecosts in response to slowing activity levels; Finning’s ability to attract sufficient skilled labour resources to meet growing product support demand; Finning’s ability to negotiate and renewcollective bargaining agreements with satisfactory terms for Finning’s employees and the Company; the intensity of competitive activity; Finning’s ability to realize expected benefits ofacquisitions; Finning’s ability to raise the capital needed to implement its business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock marketvolatility; changes in political and economic environments for operations; the integrity, reliability, and availability of information technology and the data processed by that technology;expected operational benefits from the new ERP system. Forward-looking statements are provided in this report for the purpose of giving information about management’s currentexpectations and plans and allowing investors and others to get a better understanding of Finning’s operating environment. However, readers are cautioned that it may not be appropriate touse 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
  3. 3. June 25, 2013Finning Canada Investor TourAndy Fraser, President, Finning CanadaStrategic Overview
  4. 4. Finning Canada2012 revenue = $3.3 billion2012 EBIT = $231 millionEmployees: ~6,000Industries:Mining (including oil sands)ConstructionPower systemsPetroleum / Oil & GasForestryPipelines80th anniversary in 20134VancouverEdmonton(OEM, PDC)Fort McMurray(4 branches + Fort McKay)Western CanadaRed Deer(COE)BritishColumbiaAlbertaYukonNorthwestTerritories
  5. 5. 2012 Canada Revenue Profile5Mining(incl. oil sands)32%PowerSystems12%Construction35%Mining(including oil sands)66%Power Systems8%Construction26%Product SupportRevenue by IndustryNew EquipmentSales by IndustryForestry4%Other6%Petroleum11%Revenueby Line of BusinessNewEquipment44%ProductSupport43%UsedEquipment5%Rental8%Other includes government and industrialProduct support for petroleum and forestryis allocated among above key industries
  6. 6. Strategic PrioritiesAdvance operational excellenceLeverage investmentsFort McKay oil sands service facilityExpanded mining product line (formerly Bucyrus)ERP systemGrow market share in construction, forestry and powersystems6Improve EBIT Margin
  7. 7. Operational ExcellenceKey focus areasSupply chainService efficiencySG&A cost managementFocus on disciplined executionOrganizational alignment7
  8. 8. Culture of AccountabilitySafetyLost time injury frequency (LTIF)= 0.14 in Q1/13Employee engagementRecord participation in 2012Technical trainingFocus on compliance anddiscipline8
  9. 9. Market OutlookMiningCustomers under pressure to reduce costsSoft market conditions for new equipment salesProduct support expected to remain activeLarge installed machine populationGood equipment utilization ratesFull-year’s contribution from expanded mining product lineHeavy construction and forestryExpect solid activity levels in new equipment and product supportPower SystemsContinued softness in conventional oil & gasEPG and marine expected to remain strong9
  10. 10. SummaryProviding superior customer serviceDriving operational excellenceFocus on disciplined execution10
  11. 11. June 26, 2013Finning Canada Investor TourDave Primrose, EVP, Mining, Construction and ForestryMining, Construction and Forestry
  12. 12. Construction and ForestryHeavy ConstructionContinued investment ininfrastructureAlberta: ring roads, airports, LRT’sBritish Columbia: Evergreen LineRapid Transit - Coquitlam toVancouver; Interior to LowerMainland (ILM) TransmissionProject - Nicola to CoquitlamNumerous pipeline projects inWestern Canada through 2020ForestryUS housing starts improvingDiversified markets12
  13. 13. Power SystemsPetroleum / Oil & GasMany idled drilling rigsExploration, well servicing and production companies leveraging existingassets, driving demand for product supportNatural GasLow prices expected to curtail explorationIncreased focus on producing more power using NGDesire to switch from diesel to NG (or dual fuel) growing in all marketsElectric Power Generation - new mines off-grid, requiringpowerhousesBC Hydro upgrading off-grid communitiesAlberta market remains buoyantSolid demand, particularly in mining13
  14. 14. Coal and Metals MiningTwo copper mines, Mt. Milligan and Red Chris, going into productionin 2013 - 2014Diamond mining activity continues strong as Dominion Diamondexpands in NWT by purchasing EkatiTeck Coal proceeds with site development of Quintette Coal in northeastern BCUnderground mining opportunities expand as product line andmarket growNumerous new mines at various stages throughout our territory14
  15. 15. Mining Support Capabilities15AlbertaBritishColumbiaKamloopsSparwoodCalgaryFortMcMurrayRed DeerCentre of ExcellenceEdmontonOEM ComponentRemanufacturingTracker PartsDistribution CentreTumblerRidgePrince GeorgeFort McKayService FacilityCaterpillar,Illinoisnewequipment toassemble
  16. 16. OEM Remanufacturing325,000 square foot purpose built “5 Star” facilityMeets Caterpillar’s highest contamination control standards530 employees, two shift operationFully integrated facilityInvestments in inspection, salvage and testing technologiesReman components reduce equipment owning and operating costsTypically 50% to 75% of cost of new componentsFinning Canada mining and heavy construction product supportfocusCritical customer requirementsAvailabilityQuality and reliabilityCost efficiency, continuous improvementSupporting services16
  17. 17. Center of Excellence (COE)171. Machine Overhauls / RebuildsOverhauling equipment for its second life under various options –45% to 75% of new priceFinning - customer programCAT certified powertrain programCAT complete machine certificationSupport capabilitiesComponent repairsReady-to-go ‘modules’ (e.g., cabs,grader circles, track frames, radiators)Engineered products (e.g., handrails, platforms)2. New Equipment PreparationNew equipment delivered from CAT to COE where it is assembled andmodified to meet customer specifications
  18. 18. Center of Excellence (COE)18D11 dozer with>82,000hrs
  19. 19. Expanded Mining Product LineBucyrus acquisition meeting business case expectationsService on plan; parts ahead of planEquipment sales slower, as expectedOngoing transition to genuine Caterpillar parts andcomponentsExpanded electric drive truck options with Unit Rig in additionto 795Existing models updated and new models introduced19
  20. 20. Operational ExcellenceSupply ChainGlobal Supply Chain CouncilImproving forecasting and planning forequipmentLeveraging Spokane Parts Distribution CenterService ExcellenceCustomer-centric business balanced withoperating disciplineLeveraging scale and repeatable processesCaterpillar Production System (CPS)SG&A initiativesThird party benchmark and assessment ofSG&A costsDeveloping and implementing sustainableprocess improvements in product support areas20
  21. 21. Strong Competitive AdvantageLeading market position – broadest product lineProduct support capabilitiesService cultureFocus on operational excellenceEnhancing customer service and loyaltyDriving sustainable improvement in operating profitability21
  22. 22. June 26, 2013Finning Canada Investor TourBrent Davis, VP, Oil SandsOil Sands
  23. 23. 23Finning Oil Sands LocationsCNRLTotal E&PSyncrudeSyncrudeSuncorSuncorShellSyncrudeFort HillsEnergyImperialOilShellExxonMobilSyncrudeFortMcMurrayFort McKayAthabasca RiverMildred Lake BranchFort McMurrayTown Shop BranchPower SystemsBranchShell/Albian2 warehousesFort McKayService FacilityThe Cat Rental Store
  24. 24. $2005 2006 2007 2008 2009 2010 2011 2012Oil Sands Revenue GrowthTotal revenue2012: ~$1 billion7-year CAGR (2005 to 2012) ~17%24Oil Sands RevenueNew EquipmentProduct Support
  25. 25. 797 Population Growth797 Population in Oil Sands at Year-End25102500501001502002503001999 2003 2004 2005 2006 2007 2008 2009 2010 2011 20122000 2001 2002
  26. 26. 1st 797 – 100,000 Hours26
  27. 27. Oil Sands Product Support~1,100 regional employees, including~550 mechanics and apprentices5 branches, including new Fort McKayservice facility4 parts warehouses (Mildred Lake, FortMcMurray, 2 at Shell/Albian)Parts distribution center (Edmonton)OEM - component remanufacturingfacility (Edmonton)COE - equipment assembly and rebuildfacility (Red Deer)Dedicated business units at mine sitesOver 200 fully equipped field servicetrucks27
  28. 28. Fort McKay – Game ChangerKey stats16 bays; 160,000 sq. ft.$110M investment: 2011 and 2012Operational in Q4 2012;24 x 7 in January 2013~120 employeesRepair and maintenance facilitySupports contractors andproducersRegional training centreCapacity to rebuild 797 trucksRamping up on plan28
  29. 29. Operational ExcellenceDriving velocity, process, technologyVelocity - capacity planning and equipment schedulingBay scheduler – efficient planningWarehouse – staging, not stocking – parts as requiredProcess - Caterpillar Production System (CPS) – make it visualLean and operational efficiencyIn bay monitors – real time updates on job progressTechnology – enablerElectronic penToolhound29Customer-centric business balancedwith operating discipline
  30. 30. ChallengesLevel of commodity prices for new mines and expansionsCustomers focused on cost containmentPricing differential - pipeline capacityEnvironmental concernsAttracting and retaining technical labour30
  31. 31. Building for the FutureKeyano FinnTech ProgramCustomized Heavy Equipment Technician apprenticeshipprogram (CAT, Finning, Keyano)$3.5M investment from CAT and FinningLaunched in Feb 2012Will graduate up to 48 2nd year apprentices per yearFirst graduate class - end of 201331
  32. 32. OpportunitiesSignificant product support opportunityLarge and well-utilized equipment populationAging fleets drive demand for component remanufacturing andrebuildExpanded mining product lineEquipment opportunityFuture fleet replacement – 797’s 100,000 hoursFuture mine expansions and new projectsExpanded mining product line (e.g. electric drive truck, largehydraulic mining shovel)32Reducing customer operating costsby improving equipment productivity
  33. 33. PrioritiesDeliver superior customer serviceDrive efficiency and productivityAttract and retain techniciansCapture product support opportunities33