investor presentation - los angeles, san francisco

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INVESTOR PRESENTATION Scott Thomson, President and CEO Greg Palaschuk, VP Treasurer Mauk Breukels, VP Investor Relations June 2014

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Page 1: Investor Presentation - Los Angeles, San Francisco

INVESTOR PRESENTATION Scott Thomson, President and CEO

Greg Palaschuk, VP Treasurer

Mauk Breukels, VP Investor Relations

June 2014

Page 2: Investor Presentation - Los Angeles, San Francisco

Forward Looking Information

2

This 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 is forward-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 report include, 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; EBIT margin; ROIC; market share growth; expected results

from service excellence action plans; anticipated asset utilization, inventory turns and parts service levels; the expected target range of the Company’s net debt to

invested capital ratio; and the expected target range of the Company’s dividend payout ratio. 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 reflect Finning’s expectations at June 18-19, 2014. Except as may be required by

Canadian securities laws, Finning does 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 results could 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 other statements 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 results or events to differ materially from those expressed in or implied by these forward-

looking statements include: general economic and market conditions; foreign exchange rates; commodity prices; 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 o f Caterpillar’s products and

Caterpillar’s timely supply of parts and equipment; Finning’s ability to continue to improve productivity and operational eff iciencies while continuing to maintain

customer service; Finning’s ability to manage cost pressures as growth in revenues occur; Finning’s ability to reduce costs 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 renew collective bargaining

agreements with satisfactory terms for Finning’s employees and the Company; the intensity of competitive activity; 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 market volatility; changes in political and

economic environments for operations; the integrity, reliability, availability and benefits from information technology and the data processed by that technology.

Forward-looking statements are provided in this report for the purpose of giving information about management’s current expectat ions 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 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 this 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 Section 4 of the Company’s current AIF.

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 or that 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, other business 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 unusual items 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 presents known risks affecting its business.

Monetary amounts are in Canadian dollars and from continuing operations unless noted otherwise

Page 3: Investor Presentation - Los Angeles, San Francisco

Overview of Finning International

World’s largest Caterpillar dealer serving customers for over 80 years

We sell, rent and provide parts and service for Caterpillar equipment

and engines

Operate in Western Canada, Chile, Argentina, Bolivia, Uruguay, UK

and Ireland

Main industries: mining (oil sands, copper, coal), construction, power

systems (EPG, petroleum, marine) and forestry

~14,700 employees worldwide (~65% technicians/mechanics)

3

(1) At May 30, 2014

Vancouver

(head office)

Edmonton

Fort McMurray British Columbia

Yukon

Alberta

The Northwest Territories

Santiago

Antofagasta

Bolivia

Argentina

Chile

Uruguay

Cannock

United Kingdom

Ireland

2013 Financial Statistics Market Statistics(1)

Revenue 6.8B Ticker FTT (TSX)

EBITDA 0.7B Share Price 29.16

FCF 0.4B % 52-Week High 92%

EPS 1.95 ADTV 0.5M

Invested Capital 3.1B Market Cap 5.0B

Net Debt 1.3B Enterprise Value 6.3B

ROE 19.7% S&P/DBRS Rating BBB+/A(low)

ROIC 15.7% Dividend Yield 2.4%

Dividend 10yr CAGR 13.1%

Page 4: Investor Presentation - Los Angeles, San Francisco

Finning History

4

Delivering Unrivalled Service to Customers for Over 80 Years

Page 5: Investor Presentation - Los Angeles, San Francisco

Compelling Value Proposition

Passionate and committed employees

Right people in the right places to execute on the plan

Best products, best territories

Aligned with Caterpillar, world’s best heavy equipment company

Resource-rich territories with significant organic growth opportunities

Compelling business model

Machine population provides embedded product support growth

Customer diversification across many attractive sectors

Significant opportunity to improve operating performance

Going forward, profit can grow faster than revenue and working capital management

will improve markedly

All priorities linked to improving return on invested capital

Opportunity to optimize and capitalize on historic investments with more disciplined approach

Opportunity to generate positive free cash flow throughout the cycle

Continued commitment to dividend growth

Long-term growth rate of 13%; increased dividend by over 16% in May 2014

5

Page 6: Investor Presentation - Los Angeles, San Francisco

Broadest Range of Quality Caterpillar Products

6

Over 300 equipment product lines

Page 7: Investor Presentation - Los Angeles, San Francisco

Market Leader in Most Desirable Regions

7

2013 revenue by region

Page 8: Investor Presentation - Los Angeles, San Francisco

Powerful, Sustainable Business Model

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Page 9: Investor Presentation - Los Angeles, San Francisco

Diverse Customer Base

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63% of new equipment deliveries from non-mining

* Agriculture, industrial and government segments

Page 10: Investor Presentation - Los Angeles, San Francisco

NEW FOCUS

Driving Return on Invested Capital

Page 11: Investor Presentation - Los Angeles, San Francisco

Operational Priorities

Service Excellence

Drives lowest equipment owning and operating costs

Maximizes equipment uptime and improves customer loyalty

Increases service profitability

Attracts and retains technical talent

Supply Chain

Competitive advantage as a world-class distributor

Efficient supply chain drives customer loyalty

Reduces costs and invested capital

Improves cash generation

Market Leadership

Builds machine population and

drives future product support

Aligns with Caterpillar’s focus

on market share growth

Expands focus to entire product line

Asset Utilization

Optimizes footprint and distribution of activities

Maximizes return on investments made

Improves service delivery

Reduces costs and invested capital

11

Market Leadership Target ∆

in 3 Years

Revenue

Opportunity*

Core Equipment Market Share 2-4% 1% share = $35M

Parts Market Share 2-4% 1% share = $45M

Power Systems Revenue (Canada) 10-15% 5% growth = $20M

Service Excellence Target ∆ in 3 Years

Consolidated EBIT $ $40 – 60M

Supply Chain Target ∆

in 3 Years

Working Capital Reduction

Inventory Turns 0.5 – 0.9x 0.1 turn = $50M inventory

* Assumes no industry growth

Page 12: Investor Presentation - Los Angeles, San Francisco

Service Excellence

Improve labour recovery

Enhance leadership, competencies and technical skills

Improve parts availability by leveraging supply

chain efficiencies

Standardize processes and planning

Improve quoting to reduce bid variances

Implement consistent service delivery model in all branches

Governance, roles and responsibilities - clear accountability

Standard service rates and definitions

Enhance profitability visibility at branch level

Align compensation with customer loyalty and profitability

12

Canada - Action Plans

Page 13: Investor Presentation - Los Angeles, San Francisco

13

Supply Chain Canada - Reducing Lead Times and Transfer Points

Page 14: Investor Presentation - Los Angeles, San Francisco

Asset Utilization

Optimize allocation of work across facilities

Current mining facilities underutilized

Ensure more disciplined capital allocation going forward

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Canada - Action Plans

Page 15: Investor Presentation - Los Angeles, San Francisco

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All priorities are linked directly to EBIT or Invested Capital

Priorities Will Drive Improved Return on Invested Capital (ROIC)

Page 16: Investor Presentation - Los Angeles, San Francisco

2006 2007 2008 2009 2010 2011 2012 2013

ROIC 27.6% 26.8% 15.0% 10.2% 15.3% 16.0% 16.5% 15.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2006 2007 2008 2009 2010 2011 2012 2013

EBIT Margin 7.8% 8.3% 6.8% 5.5% 6.3% 6.3% 7.4% 7.7%

Inv. Cap. T/O 3.6x 3.2x 2.2x 1.8x 2.4x 2.5x 2.2x 2.0x

1.0x

2.0x

3.0x

4.0x

5.0%

6.0%

7.0%

8.0%

9.0%

Return on Invested Capital

16

Historical Performance

Results were adjusted to exclude discontinued operations

Economic

downturn

Significant Investments:

- Drills & Shovels

- Fort MacKay

Underperforming working capital

ERP implementation

Page 17: Investor Presentation - Los Angeles, San Francisco

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

42

47

5352

5051 51

48

41

2012 2013 20142011

45%

35%

TARGET

RANGE

Strengthening Balance Sheet

Positive free cash flow through the cycle

Strong cash flow from operations

Improving working capital primarily through

higher inventory turnover

Capital expenditures to remain significantly

below 3-year average

Strong operating cash flow comfortably

supports debt levels and investment grade

ratings

17

Target

Range

Net debt to total capital ratio (%) FCF per Share (dollars)

Net debt / EBITDA

Page 18: Investor Presentation - Los Angeles, San Francisco

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Important component of total

shareholder return

Committed to growing dividend,

consistent with sustainable

earnings growth

Target payout ratio: 25-35%

10 year CAGR ~13%

5 year CAGR ~9%

Current dividend

Quarterly = $0.1775

Annualized = $0.71

Dividend yield ~2.4%*

0.20 0.22

0.28

0.36

0.43 0.44 0.47

0.51

0.55

0.5975

0.685

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Annual Dividends

Continued Commitment to Dividend Growth

* At May 30, 2014

Page 19: Investor Presentation - Los Angeles, San Francisco

GROWTH OPPORTUNITIES

Page 20: Investor Presentation - Los Angeles, San Francisco

Oil Sands

20

Benefitting from ongoing projected growth

Source: CAPP (Canadian Association of Petroleum Producers)

Page 21: Investor Presentation - Los Angeles, San Francisco

Western Canada LNG

21

Seizing new business opportunities

Projects proposed to transport gas from Western

Canada to Asia1 Investment

LNG Canada (Shell, Korea Gas, Mitsubishi, PetroChina) +28B

Pacific NorthWest (Petronas, Sinopec, Japex, Indian Oil) +20B

Kitimat LNG (Chevron & Apache) +11B

1Source: Finning Estimates

Page 22: Investor Presentation - Los Angeles, San Francisco

Copper in Chile

22

Participating in long-term growth

Source: Wood Mackenzie

Page 23: Investor Presentation - Los Angeles, San Francisco

Reasons for Optimism in the U.K.

23

UK Real GDP (% Change)

Source: Economist Intelligence Unit

-5.2

1.71.1

0.1

1.7

3.12.5

-6.0

-4.0

-2.0

0.0

2.0

4.0

2009 2010 2011 2012 2013 2014F 2015F

“We anticipate that the U.K.'s economic

recovery will continue to broaden, benefiting

the public finances.” S&P upgraded its

outlook on the U.K.'s triple-A credit rating

from negative to stable.

S&P; June 13, 2014

“UK economy settling into above-trend

growth.”

OECD; May 13, 2014

“We expect to see marked improvements in

British business investment and

productivity.” Britain's top business lobby

upgraded its economic growth forecasts for

2014 and 2015. The Confederation of

British Industry (CBI) predicted Britain's

economy will grow 3.0 percent in 2014,

raising its forecast from 2.6 percent

previously. It also upped its outlook for the

next year to show growth of 2.7 percent,

compared with 2.5 percent earlier.

CBI; May 11, 2014

Page 24: Investor Presentation - Los Angeles, San Francisco

Key Takeaways

Finning has a great business model with resource rich territories; general economic

trends support continued growth

Focus on what we can control: costs, working capital and capital investment

Significant increase in invested capital has offset profitability improvements over last

three years

Opportunity to materially increase Return on Invested Capital over time

Improved profitability, primarily in Canada

Working capital management

Improved capital discipline

Operational priorities linked to improving Return on Invested Capital; team aligned and

executing

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Page 25: Investor Presentation - Los Angeles, San Francisco

INVESTOR PRESENTATION Scott Thomson, President and CEO

Greg Palaschuk, VP Treasurer

Mauk Breukels, VP Investor Relations

June 2014