Finning International Inc.

Mauk Breukels – IR and Corporate Affairs Doug Whitehead – Chairman Juan Villegas – EVP and COO Mike Waites – President and CEO Dave Smith – SVP and CFO

Yuri Lynk – Canaccord Genuity Bert Powell – BMO Capital Markets Sara O’Brien – RBC Capital Markets Ross Gilardi – Bank of America Neil Forster – Scotiabank Benoit Poirier – Desjardins Cherilyn Radbourne – TD Securities Kam Mangat – Salman Partners Theoni Pilarinos – Raymond James Tom Varesh – M Partners

Thank you, operator, and thank you, everyone, for joining us. On the call with me today are Douglas Whitehead, Chairman of Finning International; Mike Waites, President and CEO; Dave Smith, Executive Vice President and CFO; Juan Carlos Villegas, Executive Vice President and COO; and Anna Marks, Senior Vice President, Corporate Controller.

We will host the call today in two parts. In the first part, Doug will speak about the appointment of our new CEO, Scott Thomson.

After he has made his remarks, Doug will take any questions you may have about the appointment. Once the question period on the CEO appointment is over, Doug will leave the meeting, and the call will continue with the second part of the call, which is the review of the quarter.

The second part of the call is accompanied by a set of slides, which are available on our website, finning.com. The slides and an audio file of this conference call will be archived at finning.com as well.

Before I turn the call over to Doug, I want to remind everyone that some of the statements provided during this call and the information in the slides that accompany the call and in the press release is forward-looking. This forward-looking information is subject to risks and uncertainties, as discussed in the company’s Annual Information Form, under “Key Business Risks.”

Please treat this information with caution, as Finning’s actual results could differ materially from current expectations. Our forward-looking disclaimer statement is on slide two and is part of our quarterly releases and filings.

Finning does not accept any obligation to update this information. Doug, over to you.

Thanks, Mauk. Good morning, everybody.

I am going to try to simply talk a little bit about the announcement you saw yesterday. Most importantly, I will talk a bit about the process we used to arrive at that decision and, I guess, even more importantly, share the rationale with you about why we arrived at the decision that we did.

I think, as most of you know, the most challenging and important decision a board can make is the choice of the CEO. And, I guess, in that context, we worked pretty hard over a pretty reasonable period of time here to arrive at the decision.

And that decision, as you know, is to appoint Scott Thomson, who is currently EVP and CFO of Talisman. And prior to that, as the announcement indicates, he held very senior executive level positions with Bell Canada and Goldman Sachs.

I’m not going to get into his historical background but would have you know he is a native British Colombian and, while working in Calgary for the past five years, his home and his wife are here in Vancouver. A well-educated guy and, most importantly, as we moved towards the decision in checking references, we got very glowing reports from a couple of very well respected Canadian business leaders – Michael Sabia and Hal Kvisle.

And while he is, perhaps, a stranger to you, I certainly have known Scott for the last year, as we’ve been on the Interfor Board together. I want to be clear here.

Mike Waites was on the Talisman Board and was unaware of this application by Scott, and Mike rescued himself from any discussions on this matter here, although, I think, having made the decision, I think Mike would agree that Scott is a very, very impressive guy, and I think would agree that he has all the right stuff to be an outstanding CEO in the years to come. So with respect to the process, the Board formed a special review committee, made up of four individuals, who are or were CEOs, presidents of large organizations, Canadian public companies.

We had 12 formal meetings, and as many informal meetings. We decided early on that the business strategy and business issue should drive the selection process.

We vacillated between short-term need to get operationally excellent, and the medium to long-term need to have a strategic leader who could take us to the next level. We debated whether we should go internal or external.

We asked ourselves whether we needed a tough-minded grizzled veteran, or did we want a more modern, enlightened team leader. We asked ourselves again and again about how this would play out with the senior team, major customers and of course Caterpillar.

And no doubt we considered the shareholder needs and your needs as analysts in making this decision. We felt strongly coming off a five-year term CEO, and I think on that context, Mike made it very clear, when he took the job, that he would take it for five years.

We had hoped that we could encourage him to stay longer, but coming off the five-year term, we were absolutely determined that we needed somebody who could go 8 to 10 years in the role, and provide the continuity and stability that we needed. And then, finally, as I said earlier, we tried to stay true to the principle of the business issues, not personalities or other factors.

We wanted the medium- to long-term strategy to drive the decision here. And in that context, I’ll just give you very briefly my very high level, size up of a number of these factors, and try to relate to you what they meant to us as implications of the CEO.

So we think the broad strategy with its focus on mining, infrastructure, large and core equipment with high levels of product support, plus the focus of the emerging power systems business seems to be the right strategy, and the implications are we did not need somebody to come in and make radical strategic change. More importantly, we felt we needed creativity and imagination to grow businesses like power system and capture all the opportunities that will emerge.

There is no doubt operational excellence, margin EBIT percentage and working capital is highly necessary and the senior team here is, as you’ll hear shortly, is highly committed to that. But we saw that as a short-term imperative, and we felt that with Juan Carlos’ appointment as Chief Operating Officer, and some of the changes most particularly in Finning Canada that a lot of human resource is being presently devoted and a lot of the right stuff has gone into to making the changes that are necessary.

So what we felt we needed was somebody who could support all of this, who had the discipline, the focus, the results, the orientation to support the team in making this happen. We also feel the Cat relationship is excellent.

Our safety program is outstanding. Our governance standards are first class.

We’ve got conservative accounting, so we did not feel we needed a leader who had any particular strengths in any of these particular areas. Obviously we need to continue to leverage the Cat relationship as Mike has done so well over the last five years.

We have good revenue growth, and $10 billion is in our sites and more than anything I guess looking forward we felt we needed somebody who knows what $10 billion business looks like. It didn’t seem to make any sense to go back but rather to go forward and look at the kinds of complexities, the infrastructure, the organizational structures that make a larger business successful.

The Bucyrus integration in Canada operational improvement are priorities, so we need, as I said earlier, someone who can support the team be focused and disciplined in insuring this gets done. We also thought about the business in the future and it is becoming more complex.

IT is more of a solution for us. Supply chain is important, customer relationship management.

We’re going to face unconventional kinds of competition coming at us, and I guess it was our view that we have a lot of intellectual capacity that knows the traditional Caterpillar business, but we felt we needed someone who had the vision, had the imagination to look out and be able to develop solutions to cope with what is likely to be quite a changed environment going forward. International economy, it’s enigmatic at best.

We’ve gone up and down. We really felt that we need a leader who understands the international businesses, understands the dynamics of the international economy, someone who not only has up market skills but also down market skills.

Like you, and all the team here, the share price is disappointing, and we clearly feel we need someone who is financial savvy, and able to capture the markets’ confidence in short order. When we got to look at the senior team we felt it’s very experienced.

And when we looked at the board, we felt that we had a board that’s been in place for a little bit, so we also felt we’ve got five CEOs, retired CEOs on the board, and while there is no doubt Scott does not have CEO experience, we felt that we had the necessary support all around him to be able to give him the mentoring and the support he needs to lead this organization into the future. So if I put this all together and trying to get into one-liner, what we really ended up with we felt we needed an aspirational strategic leader with the intellectual capacity and experience to deal with a large international business.

We felt the individual needed an action bias, tough mindedness and an execution discipline with respected achieving objective. Comfort with a decentralized organization in a unique business like a Caterpillar dealership and diving for building out the people systems and infrastructure support to run a big business.

And as I said, international experience and 10 year time horizon we felt were very important. So all of that was what we used as our criteria as we evaluated various candidates.

And at the end of the day, we felt and feel very strongly that Scott Thompson stands up very handsomely against that criteria. He is an aspirational leader.

He has great intellectual capacity; he has got big company experience. He has got an action bias.

He loves challenges. He’s proven that he can execute in a disciplined fashion, international experience.

He is a young executive with clearly got a 10-year time horizon, and he has a high value for building people, systems, infrastructure to support large complex business. I think you’ll experience him as a very humble guy with great listening skills and very engaging personality.

But he doesn’t lack, and what we’ll provide him with in the early days is the CEO experience that responsibility resides with the board, and the Cat dealer experience that anyone coming in from the outside will not have, and certainly the board, but more importantly the senior management team will be able to school him quickly on all of that. So that’s a snapshot.

There is much more detail and complexity surrounding the decision than that, but I think I’ve tried to give pretty good overview as to the process and the rationale for arriving at the decision we did. Operator, that concludes our remarks for the first part of this call.

Before we go into the Q&A with Doug we request everyone on the line that as a courtesy to your colleagues you ask no more than two questions when it is your turn. And then please go to the end of the queue if you have more questions for Doug.

Hi, guys. Question for Doug I think investors generally agree that the strategy is in place at Finning but they want to see continued improvement on operational excellence, especially the EBITDA margin.

So what does this say about the board’s commitment to dramatically improving as soon as possible the EBIT margin when you’re bringing in someone from not only outside of the company, but outside of the industry.

Well, Yuri, I mean, we see, Scott has added to the skills we have in place here. I think the Board and the senior management team and everybody in the company is equally committed to operational improvement.

I think we would all like to see it happen yesterday but the problems and the challenges are such that it may take a bit of time. I think Mike and Juan Carlos, who are here and will talk about it in a few minutes, I think are really the people to talk about it.

But the Board is solidly behind management in operational improvement. I think you will find Scott Thomson will bring new insights, new views.

I think he’ll bring a fresh pair of eyes and add to all the executives that are working on the operational improvement challenges right now.

And second, quick one, I guess, is Juan Carlos committed to the company for a certain amount of time? Is he under a contract there?

How do we think about that?

Well, he is sitting right here.

I’ve done all my career in this business. I really like Finning.

I’m really committed with the plan we have. I’m absolutely committed with Finning and the business and the Caterpillar model.

Yes.

Okay, thanks, guys.

Thanks. Doug, how much time did Scott spend with Caterpillar, or how involved was Caterpillar in this, and is his name going right away on the dealer principle agreement.

Good question. Cat’s view and it always has been this, is that they would like to be informed in advance as to the CEO of the company might be, but they recognize that this is an independent public company, and the decision rests with the Board.

We did introduce Scott to two of the senior executives as is protocol. Mike introduced Scott to Stu Levenick, last week, I think, and we went down with Stu to Peoria, I guess, the same week, and met with Doug Oberhelman and that is the usual way it goes.

So the two most senior executives had a chance to meet Scott, had an opportunity to tell us their views, and I think the reaction was highly positive. I think the relationship building with these two executives started then and got off to a very good footing.

I think Mike has set the gold standard in terms of Cat relationship, and we committed with Scott to maintain that level.

Thanks. And second question, just when you talk about strategy and somebody is going to think about things a little bit differently, but what – has the board now that he decision been made, what is the board’s near-term directive?

What is the highest priority thing that you have tasked with him out of the gate? Saying look, this is a deliverable or these things as a deliverable in short order.

Well, Bert, let me turn it around. Scott has already said that he will come in and expeditiously get to work.

He will analyze everything, and he will give regular reports to the board, 60 days, 90 days, 100 days, whatever. And I think we’re looking for him to get in, form his own views, do his own analysis, work with the senior team here, and put forward a plan in front of the board, topping the board can agree with or disagree with.

Much as with Mike or any CEO I think you really look for the CEO to work with the team and put forward the winning plan.

Okay, thank you.

Hi, Doug, just wondering your comments that Scott would come in and form his own views and do his own analysis, I’m just wondering does that put on hold in any way the current strategy in the Canadian operations for margin improvement and efficiency. Should we expect that the recent changes that were announced in Canada would at all stabilize for a moment, to put thing on hold, or do you go forward and he comes in, I’m just wondering on a timeframe how long we should expect this assessment period to go on before we see strategic moves to go forward in Finning Canada.

Sheryl, with Scott’s support we have...

Sara.

Sara. Sorry, Sara, we have certainly said to the team here to proceed forth with Hayes.

So there is no slowing down of anything. I’m sure that Juan Carlos if he hasn’t already will certainly review the organizational changes and whatever that are going on and the initiatives are going on.

So there is no slowing down in any of this.

Okay, thank you.

Yeah, good morning guys, thank you very much. Clearly, a lot went into Scott’s selection, it’s a very rigorous process.

I guess we noticed in Talisman proxy statement Scott received very positive marks on many criteria’s CFO at Talisman but also received below expectations on information technology due to outsourcing costs going above budget. Why did the board choose to overlook this in consideration of Scott’s hiring given some of the difficulties that Finning has encountered with its own IT cost over runs in recent years?

You know, that’s a matter with another public company which I really feel uncomfortable answering. I respect the question.

I think we looked at Scott’s achievement record, and not everybody gets everything 100%, but I think that specific issue is something that you probably need to deal with Talisman on.

Okay. And you spoke a little bit about the $10 billion revenue plan, you emphasized that in some of your opening remarks.

Should I take that to – should we take that to think that Finning is probably considering getting more acquisitive maybe than has been in the last couple of years?

Again, that’s a broad number that I think has been rolled out. I think Mike has made reference to that level of revenue being within spinning sights.

I wouldn’t take anything more from that. I would look back and look at the track record over the last decade, and it’s been pretty consistent with acquisitions.

I don’t think there is anything specific that is on anybody’s horizon, but if you look at the Bucyrus acquisition Mike and factor in normal growth I think its point.

I would suggest this is a good news story with the strength of the business, the organic growth we have. Bucyrus, the growth that we see in power systems is a great opportunity for us, and it really was a great story of how we could grow without doing other major things in fairly short order.

Okay. Thanks very much.

Well, thank you very everyone and thank you very much, Doug. That concludes our Q&A section first part of this call.

We’ll now move on to the second part of the call which is the review of the quarter. On this review Dave will begin with the summary of the financial results for the first quarter, Juan Carlos will talk our business conditions and the regions and provide an update on our operational excellence initiatives, and Mike will make concluding comments.

Following the prepared remarks, we’ll open up the line to questions. Dave, over to you.

Thanks, Mauk, and good morning, everyone. A few quick highlights for the quarter.

Revenues were up 8%. EBIT increased 21% and EPS was $0.43.

Our best first quarter EPS on record. Before I get into detailed comparison of Q1 results to prior year, I want to comment on the first quarter performance relative to our expectation.

On balance, the quarter was pretty solid for Q1, which has historically been our seasonal low for revenue. However, SG&A remains to work in progress, particularly in Canada.

Overall costs are coming out but at a slower rate than expected. Keep in mind we have new activities such as Fort McKay in the quarter which is still ramping up.

Operational excellence is a journey of changing processes and culture, and it takes time. In a quarter we continue to advance on a number of initiatives across all our regions to improve productivity and efficiencies.

Progress to date has enabled us to reduce about 400 positions globally, which did result in severance costs of approximately $4 million or $0.02 per share in Q1. We will see the benefits from this in the quarters ahead.

Productivity, efficiency, and cost structure continue to be key areas of focus for all our operation throughout the year. You’ll hear more from Juan Carlos in a few minutes.

On the revenue side we were right on plan. We saw strong revenues from South America where market conditions remained healthy in all segments.

In Canada, the new equipment sales were impacted by the slowdown in the mining sector, while product support was at record levels. Lower revenues from the U.K.

and Ireland were no surprise given soft market conditions in that region. Our gross profit margins were strong in most lines of business.

The consolidated backlog was 1.1 billion at the end of the March. Order activity was up in Canada and the U.K.

and Ireland and backlogs in those regions increased from December levels. However, South America saw decline and order intake mainly due to lower mining orders.

Our free cash flow, which is normally negative in Q1 due to inventory build for summer construction was about half the cash usage we expected as a result of strong focus on working capital, particularly equipment inventories. We reduced our equipment inventories in all operations and our uncommitted inventory versus come down as well.

Now let me turn to the first quarter results in more detail. I’m on slide four.

Consolidated revenues were 1.6 billion, driven by record product support. New equipment sales were slightly higher.

This was entirely due to strong deliveries in South America which more than offset lower volumes in Canada and the U.K. and Ireland.

We saw some strong growth in product support in Canada and SENSA reflecting solid machine utilization and mining and construction, as well as, incremental revenue from the former Bucyrus business. As this business is now integrated into our dealerships, we refer to as the expanded mining product line.

Gross profit margin increased to 31.4%, reflecting a favorable shift in revenue mix to product support, which reached 48% of total revenue and higher margins in most lines of business. As a result, gross profit rose by 12% year-over-year.

The SG&A expenses in the quarter were higher than last year and above our target levels primarily due to Canada. The EBIT margin was 7.4%, compared to 6.6%, demonstrating operating leverage over Q1 of last year.

The improved EBIT margin was driven by a higher proportion of product support in the revenue mix and improved EBIT margin performance in Canada. EPS included redundancy cost of approximately $0.02 per share and reflected the adoption of the amendment of IAS 19, which reduced first quarter results by approximately $0.02 per share in both 2012 and 2013.

We are pleased with our free cash flow performance in the quarter which was $93 million use of cash, a significant improvement over a negative 223 million free cash flow in Q 1 of last year. Our net debt to total capital ratio was 51.1% at the end of the March.

Slightly higher than the end of the December, but well ahead of our expectations. I’ll talk briefly about how – about the quarterly highlights in each operation.

Slide five summarizes our Canadian results. First quarter revenues were slightly lower compared to last year.

A 20% decline in new equipment sales was partly offset by record product support, driven primarily by our expanded mining product line. While mining customers reduced spending on new equipment and rebuilds, the fleets continued to be well utilized generating steady demand for parts and service.

The heavy construction sector was active, with good volumes in equipment sales and product support. Quarterly EBIT was up 46% to $57 million, and the EBIT margin improved to 7.5% from 5% a year ago.

While we benefited from the reduction in ERP-related costs, our first quarter results reflected expenses associated with new activities, including the expanded mining product line and the new Fort McKay service facility which just opened in December. We also incurred severance costs, as I’ve mentioned earlier.

We expect the positive impact from our operational excellence initiatives and workforce reductions to drive improved profitability in Canada in 2013. Turning to the results from South America on slide six, and the comparisons are all in U.S.

dollars. Revenues were strong, up 31% compared to Q1 last year.

New equipment sales were up 45%, reflecting higher deliveries to mining and construction customers in Chile. Product support grew by 19%, benefiting from our expanding mining product line and continued healthy demand for parts and service.

Quarterly EBIT increased by 17%. EBIT margin was 9% compared to 10% a year ago due to a lower gross profit margin, which was primarily impacted by the shift in revenue mix to new equipment sales.

With strong equipment utilization driving growth in product support, we expect to return to more normal EBIT levels in South America. Moving on to the U.K.

and Ireland – I’m on slide seven – and the comparisons there are in pound-sterling. Revenues declined by 10%, reflecting slower market activity in most sectors compared to last year.

We saw reduced spending on equipment and maintenance, which led to lower volumes for both new equipment sales and product support. While markets remain challenging, order activity levels in Equipment Solution segments did pick up during Q1.

Quarterly EBIT declined by just over a £1 million to ₤7 million, and the EBIT margin was 5.4%, slightly lower than a year ago. Our U.K.

and Ireland team continues to deliver good performance in a difficult economic backdrop. I’ll conclude my comments with the outlook for 2013.

In general, we’ve seen softer market conditions for mining equipment versus 2012, but, overall, we are very well positioned to have a solid year. Specifically, we remain cautious on new equipment sales and expect lower sales in 2013 compared to 2012.

On the product support side we expect to see continued growth to be driven by the large installed machine population in our territories, good equipment utilization rate and a full year’s contribution from the expanded lining product line. On balance we continue to expect consolidated revenues to be flat to up 10% over 2012.

We remain focused on advancing our operational excellence initiative to reduce cost and improve margins through the year which will drive 2013 earnings to grow at a rate higher than revenue. We project strong free cash flow in 2013 and expect to reduce our net debt to total capital ratio to well within our 35 to 45% target range.

On the dividend front we raised our quarterly dividend by 9% to $15.25 per share which is consistent with our dividend growth rate over the last five years. And we also increased our target dividend payout ratio to 25 to 35%.

I’ll leave it there and turn it over to Juan Carlos to give you an update on market conditions in each of our regions, and discuss the progress on our operational excellence initiative. Juan Carlos?

Thank you, Dave. I’ll cover two topics today, a brief update on market conditions as they set and a progress report on our operational excellence initiative.

I’ll begin with the U.K. and Ireland.

The economic conditions make this region difficult to forecast as things continue to fluctuate but without any major impact on financial results. We did see significant improvement on order intake over Q4 and product support still offers a good opportunity.

As for Canada, we continue to see demand for heavy construction equipment, and we’re also encouraged by growing forestry activity. A one business for you, that we don’t expect to have a very active year for mining new equipment sales.

The sourced base customers are focused on cost saving and some new projects expansions are delayed. Customers have postponed decision on other holds by saying that just last week we won a contract to build nine 797 trucks here in Canada from two different customers.

By all accounts, our perishable business will remain strong. We monitor machine utilization electronically and machine hour continues to be solid.

We also have the benefit of the expanding mining product line as we call now Bucyrus. Our new facility in Macau is running on plan and we are seeing good interests from our customers.

Turning to South America, our visibility on orders throughout the year give us confidence that we will meet our plans. As suspected we have seen mining customers reduced spending on new equipment, however, corporate of $3 plus is a still favorable equation and with the current equipment population active and at full capacity we expect another strong year in product support.

Construction and power systems sales are healthy in all four countries in South America, and we do not see any signs of productivity is slowing down. Let’s talk now about operational excellence.

As we shared with you in December, we see a great opportunity to improve profitability by focusing on operational excellence. What does this really mean?

Our aim is to improve the quality and consistency of our operating and financial performance. We will do this by leveraging the expertise experience and best practices throughout all our territories.

Our processes right from the Caterpillar factory, all the way to the customer, along with the discipline of the operations will be our competitive advantage. So what have we done since we last talked?

First, supply chain. This is the area where we anticipated the largest improvement for customer satisfaction, P&L and balance sheet.

The supply chain council is now operating with key owners in each territory sharing best practices. We define the governance model for the council, as well as key metrics for success.

We met with Caterpillar top management here in Vancouver and agree on an order customer review pilot project in Canada. These will identify the ultimate supply chain versus the current one and initiate the transformation process.

We expect low hanging fruit improvement to show as soon as this year but benefits would be most notable in 2013 and beyond. Second, I will comment on cross management.

We acknowledge we need to reduce our operating costs especially in Canada. All regions have targets and plans to reach the desired level.

In Canada we have set up a project management office that tracks progress and identifies action to ensure we meet our plans with respect to timing and financial impact. They expect to meet weekly to discuss progress against our plan and operational metric.

This is model after our successful Bucyrus integration experience. And finally, our third focus area is service efficiency.

This involves developing of a segmented commuter service approach to deliver the right value proposition to meet different needs. For example, this means we have been – by having different value proposition for mining customers we offer that the one that we offered to other customers segment.

We cannot offer exactly the same thing to everybody, not at the same cost. That provides you with the deal of the three key areas of improvement, as far as our operational excellence umbrella, supply chain, SG&A, service efficiency.

Then we go into a little bit more details of what this looks like in Canada. We are improving forecasting and planning processes to optimize inventories.

Our very good Caterpillar will take this initiative to a new level and help us to continue to reduce inventories while improving market share. We have significantly increased a number of line items which are automatically ordered and replenished by our part system.

In Q1 we could repeal about 1,000 of our fastest moving items automatically. By June we will be up to 80% of all our line items.

We manage around 90,000 line items in the warehouses. Among other benefits this has significantly improved our service level and reduced our emergency freight cost.

We used to ship 3,000 to 4,000 emergency orders per month. We are now down to about 500.

Caterpillar new distribution center in Spokane would allow us to reduce our inventory levels while increasing the number of line items we carry, and of course improve our customer satisfaction. Our new Fort McKay facility were introduction efficient services, processes, which will form the template for all branches.

And we are streamlining administrative procedures and developing common practices in all branches as well. We are clear on the work ahead of us and we are executing with discipline.

As a result we expect continued progress ahead. When critical element of expanding operational excellence across the seven countries we operate in is to gain the full engagement and commitment of our 15,000 employees across the company.

To continue to be momentum, our top 35 leaders from across the global organization will be meeting in Vancouver this weekend to work on building the wining way and reinforce our commitment to operational excellence and the driver for financial performance and customer satisfaction. In summary, our end markets are unfolding as we are aligning in December.

We are extremely focused on the execution of our operational excellent initiative to drive sustainable profitable improvement. In time of a slower market activity, we have the opportunity to become a stronger company, better integrated internally and with Caterpillar, we are taking the opportunity to maximize our returns in the very near future.

I will now turn it over to Mike.

Okay. Thank you, Juan Carlos.

I’ll keep my comments for the quarter brief. In summary, the year has generally unfolding as we described when we met with you last December and look it was another record quarter.

It’s a record quarter even including the negative impacts of the accounting change and the labor liability. We continue to see the resiliency of our business with the large aging and growing installed base of equipment, and we know it’s being well utilized across all sectors and that’s driving increase product support revenues for us.

I’m still not sure that people truly understand the strength of our model and the strength of the product support business we have. This is our highest margin line of business, and as you know its proven to be very resilient through all parts of the cycle, and you only need to go back to 2009 to get confirmation of that.

We also have the benefit of opportunities resulting from the expanded mining product line up, and that’s very exciting. Importantly we are strongly focused on expanding our earnings consistently and Juan Carlos has already spoken to you about this in detail with you.

Our target is to consistently achieve the 9% to 10% EBIT margin as a significant increase over the historical levels. The timing of the achievement of this target will depend on our ability to successfully execute our operational excellence strategy and it may also be influenced by market conditions.

But let me say a few more words about this. If we go back over the last 10 years, our average EBIT margin was 6.8%.

Just for fun let’s call it seven, and if we compare that to 9% which is not guidance, it’s just simply illustrative. That’s close to 30% increase in EBIT profitability, which is truly impressive.

So, is this number achievable for us? Absolutely, yes.

I’m getting lots of questions about is it this quarter or next quarter, the exit rate, and this team understand sooner is much better than later. But it is absolutely achievable.

And my request of you is to think about this impact over the next 40 quarters, not over the next two to three quarters. So this will continue to be a great story for us and you just heard the focus that we have on this from Juan Carlos.

Moving on, based on the positive outlook for the full year, that’s earnings and cash obviously, we’re pleased to increase our quarterly dividend by 9%. And given yesterday’s announcement, this is obviously an exciting time for Finning, as it marks a new chapter for our company.

I have had the opportunity to work with Scott in my capacity as a Talisman Board member. He is a capable, strategic guy, with a deep understanding of how to create shareholder value and has played on a global and complex stage.

I have often expressed to you, my pride in the strong team, we have here at Finning, and I truly believe that Scott is joining a first-rate leadership team and a company well positioned for future growth. I’m confident that under Scott’s leadership and with the support of the Finning team, the company will create significant value for our shareholders.

Finning is a strong company with great fundamentals including industry and geographic diversification, resilient after-market revenue streams and low capital requirements. And so all of these factors give me great confidence in the exciting future of this company.

So, Mauk, I’ll stop there and turn it back to you.

Operator, that completes our remarks. Can you please open up the line for questions?

Question-and-Answer Session

Good morning, guys.

Hi Neil.

Just a question on FINSA margins, they were down 1% year-over-year due to mix, but if you look at it sequentially, the margins were 70 basis points versus Q4 not withstanding a better mix in Q1, more product support. So just wondering what accounted for the weaker performance sequentially?

And what does that imply for margins for the balance for the balance of the year in that segment?

Sequentially I have to go back, I don’t have the details right in front of me. There were some adjustments in contracts.

Every quarter we review our long-term contracts, make adjustments to things that are trending, consumption, availability, service, and those kinds of things. And in the quarter, Neil, we did see some adjustments which negatively impacted the quarter.

We do have these every quarter. It’s part of running a service-maintenance business.

This quarter we had a few that went against us. We believe we’ve dealt with that, and it shouldn’t be a major, major part going forward.

That would be the main item that I point to.

Okay. So just follow up to that, do you think, given that the margins were closer to 10% in Q4 and they were 10% in Q1, do you think it’s a sustainable move on a go forward basis that we are closer to 10% or 9%?

Well, I’m not going to give specific guidance on margins, Neil, but as I said in my comments, we do expect to see FINSA trending higher in the year to more normal levels.

I might add, I think that FINSA is a company that can deliver 10% EBIT consistently, unless it is going to have some ups and downs. There would be little things here and there, but, definitely, FINSA is prepared to deliver 10% consistently.

Okay. And then, sticking with FINSA, the product support revenues were down sequentially in Q1.

I understand there is seasonality in the business, but there is not a lot in South America. So I’m wondering, what – not a lot in South America and not a lot in product support.

So I’m just wondering, what accounted for the drop? In the balance of the year, do you expect this slide to continue, do you see it more stable or even growing from the 300 to $4 million that you booked in Q1.

Yeah. I think they also mentioned that Q1 is a good quarter.

The year typically in South America is off to a slower start. It is summer months.

There is a lot of vacations. Customers tend to postpone some maintenance.

And so if you look at Q1 of last year, it was the lowest quarter of the year as well. So we do see product support in FINSA growing, as the year goes on.

Yeah. We had a very slow January and February, but March picked up and came back to normal numbers.

Yeah.

So it’s pretty much a seasonal holidays, that type of thing.

Okay. So that’s my two.

I’ll get back in queue. Thank you.

Yeah. Good afternoon.

My question is more about the mining environment. I would just like to know maybe more color about how would you compare the current market versus the market back in 2009 when you look at the post – the projects that are being postponed, whether it’s more temporary or more permanent?

Yeah. There are different scenarios in the different territories in the comparison between the two years that I think that – let’s talk FINSA, first.

In 2009, we had – we saw a lot of cancellation, a lot of contractors coming out of the space and reducing their fleets. We haven’t seen anything like that this time.

We see that the postponement of the new project is really the miners becoming much more cautious about their investment. You’ve seen other overruns and difficulties that they have experienced with the environment approvals.

Cost of energies has gone up in Chile, mainly, to about 4 times the cost of energy here in Canada. So everybody is more cautious, trying to bring their cost down and renegotiating.

The engineering companies have really – I’m going to say, take – maximize the benefits out of the uptime. And now so the mining companies – they’re all kind of being much more cautious about how they do things.

That has put in a delay on the new projects, the new equipment fleets, but the current replenishment – the current utilization of the fleets remains unchanged. In Canada, it’s a little bit the same story from the cautions point of view.

Here, people are taking things in a perspective of reducing cost and not investing so much right now, but we still see pockets on activity here and there, the continuous slide of 787s over the course that I just mentioned. Part consumption was slightly below at the beginning in January and February as well.

It’s picking up again. We are seeing a good trend.

So the contractors were a little bit more concerned there, because there we don’t see them with a lot of work, but eventually the mining companies will need to keep the production up, will need to keep the products flowing, and they will need to manage their costs best ways they can. But they also need to improve their production.

So that will be the scenario.

Okay. And how should we think about the workforce?

You’ve already reduced your workforce by about 400 employees. Are you willing to adjust the workforce, assuming that something goes in the wrong direction?

Yes. We are willing to do that.

But the reduction in the labor force is not so much, the mechanics, the people in front, not the sales people, because the business activity continue quite good. We see a, still, opportunity for market share improvement.

In fact, we are expanding our sales force activity mainly in Canada. So as back office efficiency, improvement, ERP consequences, all those type of things is where we are reducing.

Part of our operational excellence activity is to find those places where we are duplicating, where we are not doing the right things, where we could streamline the processes.

Okay. Thank you.

That’s my two.

Thanks very much and good morning.

Hi, Cherilyn.

As I read the MD&A my impression was that a lot of the strength in customer support in particular, seem to be attributable to the Bucyrus business. So I wonder if you could just give us a bit of color on customer support activity levels in the base business in Q1.

Sure, Cherilyn. So overall, product support revenues are up about 12% year-over-year and up sequentially about 7%.

So when you look at it, you’re right, a majority of that increased in the Q1 over Q1 comparison would come from Bucyrus, but in the traditional business as well, the, say, Cat line was positive as well. As we look through the – and I guess that would maybe be driven by the fact that we didn’t have any Bucyrus in the first quarter.

But as I look at the full year basis, the – as we said, we expect product support to be strong. The contributions are much more balanced as – when you look at it as a full year-over-year type look.

So you did mention in your comments that the machine utilization levels remain strong. Are you getting this sense that people are spacing out their service intervals a little bit more or...?

I will say that – yeah, the answer is yes. They are maximizing the utilization of the equipment.

They are minimizing down time. They are trying to get the equipment running as much as possible.

There will be a moment when they will need to come back. As I said, January and February were the slow months, but April started – sorry, March picking up better.

So I believe that the product consumption will – especially, in the yellow line, as we call it, the Caterpillar line, will come back on normal growth path, and we will add back that to list.

Okay. And second question from me, as you look to optimize your supply chain management, can you just speak about whether you think that there is things you can learn from other Caterpillar dealers, and one interaction you’re having with Caterpillar as you roll out those initiatives.

Yes, you can always learn from others, absolutely. But I think that the biggest initiative we have right now is to work with Cat integrating our supply chain process from the beginning to the end.

As I mentioned, we had a meeting here in Vancouver with top Cat management including, Vice President of Supply Chain from Cat, Steve Larson, and with him we have had really good experience streamlining the supply chain processes in Canada so taken all what we learn out of there and streamline those processes here in Canada. With the Spokane warehouse, the opportunities are significant.

Okay. Thank you.

Good morning. Just circling back to the revenues in South America and the impact the new equipment revenues had on your margin I was curious to get some color on pricing trends and whether the market has gone competitive and where pricing is right now, that is also having an impact or had an impact on margins in Q1?

Kam, I’ll start off and then give it over to Juan Carlos. But just in general our margins had stayed quite firm across all the major lines, the new equipment and on parts and services as well.

I was going to say that. In fact, if anything we’re quite pleased about how well we’ve been able to hold our margins in all segments and equipment, and parts, on sales and rental everywhere.

Our margins have had really good pace right now. Our revenue management initiative, our very focused on maximizing our margin has been working well.

The competitive activity is there, no doubt, and we have a lot of competitors in all places. The competitors are more aggressive, absolutely.

I think that the more than we can prove that our value position is not price driven but is service driven. And we can maximize our customer machine utilization and productivity.

I’m not going to say that price is not relevant on the customers but value proposition waits more than the initial price.

Okay. Great.

And one last question, in South America when Bucyrus was being acquired, the commentary was that aftermarket support mix with increase 48%, the target was about 60% within three years. How are you progressing towards that goal?

I’ll make one comment and then than hand it over to Juan Carlos. I think that directionally that is still true, Kam.

I think actually when you – if you look at the numbers in the quarter its much higher than that because the new equipment revenue Bucyrus happened to be fairly low. So it’s been pretty steady on the part side but Juan Carlos why don’t you...

Yes...

On the growth and...

The most possible report that we have seen in product support for Bucyrus is our service revenue on service profitability is clearly there is a demand for services, for the Bucyrus customer, expanded product line for us now that is greater than we expect. So service is much better.

On parts, in Canada we’ve been doing really well, in fact, above plan. In South America where it is slightly slower than we expected, mainly because Caterpillar has been slower out of the gate to manufacture and capture all the manufacturing capability for the Bucyrus products that we call legacy products.

So that could ramp up a little bit slower than exacted especially impacting – in South America but in Canada much stronger than what we saw in the beginning.

Okay, great. And those were my two questions.

Thank you.

Hi guys, I probably should Doug this question, but there was comment about unconventional competition and as a long term strategy and what are the reasons they chose Scott Thompson just wondering if you can comment on the type of competition what unconventional competition might be?

I’m not quite sure to be honest with you. I’m trying to remember–if that’s your recollection, it’s the word that was used.

I simply say over the years, we’ve always had competition and we’ve always taken it on head on with what Juan Carlos just talked about. It’s a valley proposition that we have and the life cycle economics lowest cost of ownership to our customers.

There is a lot of competition out there. As you know we’ve seen competition, more competition from Asia, we’re in position to deal with that.

We’re seeing a lot of cat product come in. Cat has a product line to deal with some of that, and the whole world is getting more competitive.

I feel very good about our ability to continue to compete, to move up the value chain with the services that we offer including and power systems, the branch network and rebuild capability that we have. And it’s going to continue, and I think we’ll continue to take it on very well.

Okay. Great.

And just maybe Juan Carlos, if you could go over just order of priority. I think I missed some of the comments on supply chain cost management and service efficiency.

On supply chain, did you comment that it would be more 2015 and beyond that we would see the benefits from that, maybe if you could give us timeline for each of these when we should start to see the benefits start to roll in EBIT margins in Canada?

As I said part of those benefits will be in 2013, and we are starting to see some of that now. Some of them will reflect in lower inventory plus the improvement of capital ratios.

That should start happening as we speak. The biggest benefit on the cost front, on the efficiency front probably we’re going to see them mostly at the end of this year and most notably in 2014.

What I view say ‘15, I hope and my expectation is that by the end of 2014 our supply chain streamlined process and restructuring and transformation would be completely done. So by ‘15 it would be maximizing whatever we could expect out of this transfer imagination.

Okay. Great.

And just in terms of cost management and service efficiency. Is there I mean, SG&A coming down service efficiency and the value propositions changing.

What’s the timeline that we could expect some benefits out of those?

Let me jump in first. We have a number of projects that we’re currently tracking, and they will add benefits through reduction through the year.

Our process is from order to cash are still heavy, but as you know those – if you take people out, you’re not able to complete the things that you have now. So the idea around productivity efficient is to streamline or move those things.

And as we can do that we can take people out. We’re getting better at it.

We need to get behavior of people to apply the ERP processes more diligently. We have seen clear examples of where the process is followed as it is supposed to be.

We get market improvement in the performance, and we continue to focus on that. We continue to focus on training.

We continue to look at some tweaks in the system to streamline it. So we’ll see those benefits coming in.

We’ve got service efficiency objectives that are targeting the prices to get the biggest benefit. We did a lot of work a few years ago with an organization where we’re redeploying those service models to the largest priority areas, and I think we’ll start to see benefits in that towards later in the year, and definitely as we go into ‘14.

A little bit more, we have nine projects for cost management, and I was just thinking how to answer that question, one of them is related to service. That related to service is opened up into two, one the old sense efficiency and the other one is network branches.

Both of these projects are being attacked and we expect target benefits to be achieved this year. So there is a very clear target for this year.

So the streamline to redefine of the way that we provide services will be starting probably in the second half of this year, and we’ll see the additional benefits early in ‘14 for service in both areas old Samsung and branches.

Okay, that’s helpful. Thank you.

And just the last a follow-on in terms of Juan Carlos you made a comment about you need sort of labor buy in, do you feel that you’re in a good place with that for filling so making these efficiency changes, that there is buy in from the employee pool?

Growing by the day.

Sorry?

I’d say yes. Growing every day.

I think, there is more and more, there is a clear buy-in into what we are doing is the right thing to do. Spending last week with Andy and this team in Canada, a day with the full management team, and I think that, yeah, absolutely they are more and more involved, and now as I said we’re going to have this 35 leaders coming in this Friday.

We’re going to spend Saturday, Sunday, Monday, and Tuesday revising everything, including operational excellence. But I don’t think there is any doubt that we need to improve and do better things.

It’s that we need to do it the same way everywhere and we need to label them as Finning way. So, that becomes our competitive advantage, not only in the marketplace, but in front of the complete universe of the stakeholders that we have, including yourself.

Okay. Thank you very much.

Thanks. Dave, I’m wondering if you could share with us any thoughts you have about creating more variable cost structures inside Finning, and thinking about the cost following the cycle a little bit more and your ability to do that given the nature of the territories you serve?

Yeah. Sure, Bert.

Definitely something we’ve been giving some thought to, and I talked about back in Investor Day about one of the core financial objectives around asset returns and getting adequate return on invested capital. And Juan Carlos, in Canada, specifically, we’re in the supply chain area and how can we leverage the new Spokane parts distribution center from Caterpillar.

And there is really a lot of great ideas of IC coming out of that. I mean, we have major distribution facilities in Canada to cover our territory.

There are some transformational ideas coming out of that work with Caterpillar. They’re quite keen on it, and so are our guys.

Cristian Chávez, as you know, came up from South America, probably our best supply chain guy in the company, and he’s been there now a couple of months. So I think that’s one area, Bert, where we can reduce the physical footprint that we have potentially quite significantly, more efficiently – big win for our customers, big win for us in terms of just the touch we have to move parts through the system.

I think we’re being more and more capital disciplined, as we look at spending. As you know, we have spent quite a bit over the last couple of years.

We purposely reduced that spend in 2013, and we’re watching asset performance more carefully by segment, by market within each ring. We’ll look at assets and make sure that they fit the strategies going forward.

So there is a few more ideas that I have. I don’t want to get into specifics on it.

But the answer to your question is we need to look at ways that we can lighten our fixed footprint and how we do business, and we think that’s consistent with the way the business is unfolding in the future with things like e-Business and so forth – possibility.

Okay. Thanks.

And just back to the parts and service part of the story. When you look out today and look at your customer base, how much of the rebuild capability are they looking to you to provide to help them manage costs lower?

In other words, looking at taking a truck that they might have bought new and going back and saying, “We’re going to rebuild this.” Is there more of that going on today, given the miners’ needs to cut cost?

I’d say that it’s been a trend for the last couple of years. We were a little bit concerned that they could stop.

But with the trend that I’ve just mentioned here in Canada, in South America, we have a similar thing. We have a major copper customer that had made the decision top pretty much overhaul the full fleet rather than buying new equipment and tenderize.

So, yes, maximizing their assets, the overhauling of large mining equipment is a pretty good path for some of them. And when they want to do that type of overhaul, we have the facilities, the capacity, the technicians, the endorsement from Cat, because we can even rebuild a new mining equipment to new and give it a serial number for, I’m going to say, about 60 to 65% of the cost of the new equipment.

So that’s quite significant, and that program is gaining more momentum.

I think, if I can jump in too, Bert, I think, to Cherilyn’s point, if customers on rebuilds can maybe choose to defer that a few months or a quarter and still survive. So I think we’re seeing a little bit of that just in the cautious nature of the decision process that they’re going through now.

We’re also seeing examples of where they’re doing a partial rebuild instead of a full rebuild. But I think at the end of the day as I inferred earlier, that could be building a bit of a backlog, that eventually those machines they are going to keep in service, they’re going to need some work, in parts.

Okay. Thank you.

Good morning. I wondering if you could provide a bit more color on how much Bucyrus contributed in the quarter.

You talked about a little bit – about it on the product support side. But wanting to know what the new equipment sales would look like if we took out Bucyrus?

New equipment sales were not significant in Bucyrus. Theoni, going forward we’re not going to give specific numbers on Bucyrus.

But, directionally the main contribution from Bucyrus is on product support. There was some new equipment, but the revenues were largely from the traditional line.

And I expect that to continue to be the case for the full year. You know, it contributes definitely, but not proportionately different than the rest of our business.

Okay. Great, thank you.

I just wanted to ask a follow up on the operational excellence. And so it sounds like on the supply chain side you’re expecting the biggest benefits to come in 2014 and beyond, particularly in Canada.

But it sounds like you’ve already done a lot in Canada in terms of reducing emergency freight costs, automating up to 80% of line items. So I’m just wondering what is the biggest hold there or what types of things are you doing beyond that?

Will give you all that benefit in 2013.

I can start. I mean, we’ve reduced a number of positions, Neil, as we talked about earlier.

The benefit of that has yet to be seen and those come on the efficiencies and productivity improvements that we’ve seen coming out of last year, so there’s more opportunity to do that as the programs advance. The supply chain side that Juan Carlos mentioned that 80% on auto replenishment will be about midyear that that happens so that’s yet to come.

The benefits that we’re seeing on the reduction in emergency freight and tell you, that’s a significant number, that did come, that has had an effect. We’re down to 500 orders a month rather than 3,000 or 4,000 in fourth quarter of last year.

So those are the kinds of changes, but that will continue to improve. We’ve got quite a number of people that are handling the reorder of all the units that are not on auto replenishment for example.

And as those things can come online that helps with being able to do that more efficiently and we can see productivity from that. So there is definitely more to come on that side and on the service side as well.

Yeah, and I think that we have given you some ideas of what could that look like. We have a very large warehouse in Spokane owned by Caterpillar.

We have about 80 point of sales in Canada. We have 80% of sales in Canada.

We have eight, ten major warehouses. We have a big major warehouse in Edmonton in truck, so all that combined how could that give us a benefit of expediting customer services, lower now our inventory, reducing our footprint and reducing our cost, so I will stop there but that’s something the type of – of things that we could be looking at.

It sounds like it’s just in 2014 and it’s more you’re realizing a full year of the impact of the things that you are in the process of doing today.

Yes.

Okay. And in terms of head count reduction, do you feel that the business is the right sized for the time based on what you know today about the market, or would you expect further staffing reductions, and if you do, if you could give us a sense of the magnitude.

Well, we are monitoring the market very closely to see how things evolve. For now we’ve taken the decisions that we’ve needed to take.

If the market slows down of course we’re going to need to look at different decisions, but right now everything we’re trying to do is to continue to streamline our processes, improve our efficiencies, and if that means that some positions need to be left open, then that’s what we feed to do, but for now we’ve done good progress.

Okay. Thank you.

Good morning. The question I had was can you provide some more color on what’s going on in Argentina and how it’s impacting your costs.

And to that end, how long are you going to continue servicing that market given the current environment or doing the things they way you are. Are you giving any thought to a possible exit from that market?

Hi, Tom. It’s Dave.

We are very pleased to have the Argentina dealership. We think there is great – it has been a great territory for us.

It will be a great territory for us for a long time. We have no intentions of exiting.

I mean, Argentina goes through economic challenges pretty regularly. As you see through history, this time around, it’s been around, currency control, access to imports, companies have been required to balance the importation by exporting certain products.

We’ve had to do some of that. We’ve set up controls and are comfortable with how we’re doing that.

It is causing a little bit of a drag on earnings because it’s not something we prefer to do. The current government and administration feels that’s important.

We’re working with them as all companies are there to do that. We’ve adjusted our business last year, and the results of our operations, I’m pleased to say, have been very, very good.

We’ve been focused on maximizing part flow to our customers and keeping them operating. We have adjusted the size of our business accordingly, and we have been able to import what we feel we need to, when we need to, and we’ve been able to access currency to pay our bills as they come due.

So as far as how long that continues, if you have a good idea, I would love to hear it, but I think that as long as the current government is in power, we are operating on the assumption that it will continue.

And you’ll continue with it? You’re going to stick with it indefinitely.

Yes, long-term we’re committed to Argentina. The Caterpillar and Finning brand is very successful in Argentina.

I think there is, you know, far more opportunities there as they work through this and the country continues to evolve and grow, so no plans to change.

One of the beauties that we have as a Cat dealer with footprint in seven different territories, is that, that we can maximize our opportunities when things are difficult, but also Argentina is such a rich country. And it has its ups and downs, but as long as you are close to it, you control it.

You know, guys, I’ve been working in this business for a long time, and all my career has been also connected to Argentina. And Argentina has tremendous momentum that you get a lot of good benefits.

Some moments are difficult, but even in the difficult moments you know how to manage, you understand that business, you have the right people managing, it’s a good business to be in. It’s a business you don’t want to exit.

Great. Okay, that’s all I had.

Thank you.

Well, thank you very much, operator. And thank you, everyone, for your participation today.

We look forward to speaking with you again after the second quarter. Bye for now.