Finning International Inc.

Mauk Breukels - Vice President, Investor Relations and Corporate Affairs Scott Thomson - President and Chief Executive Officer Anna Marks - Senior Vice President and Corporate Controller

Cherilyn Radbourne - TD Securities Ross Gilardi - Merrill Lynch Jacob Bout - CIBC Benoit Poirier - Desjardins Capital Markets Yuri Lynk - Canaccord Genuity Sara O’Brien – RBC Capital Markets Bert Powell – BMO Capital Markets Ben Cherniavsky – Raymond James & Associates

Thank you, operator and thanks to everyone for joining us. On the call with me today are Scott Thomson, President and CEO, and Anna Marks, Senior Vice President and Corporate Controller.

Today, Scott will start with his remarks and then Anna will provide the summary of the financial results for the quarter. Following the remarks by Anna and Scott, we will open the line to questions.

After the Q&A, Scott will make some concluding comments. An audio file of this conference call will be archived at finning.com.

Before I turn the call over to Scott, I want to remind everyone that some of the statements provided during this 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 part of our quarterly releases and filings.

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

Good morning, everyone. On the call today I will comment on our results for the quarter, our progress on the operational front and our market outlook.

I will start with a high-level summary. Canada delivered a strong quarter.

Profitability and return on invested capital improved considerably and we continue to make good progress with the execution of our operational priorities. In the UK and Ireland, we achieved record new equipment sales in a highly competitive market.

However, our profitability did not meet expectations as gross profit margins were lower and the coal mining sector remained weak. In South America, we are managing through a challenging macroeconomic environment.

Our results were negatively impacted by lower revenues and a number of one-time charges. After taking these one-time charges into consideration, I think of Q3 is flat to modestly below Q3 of last year from an earnings perspective.

Finally, I am pleased with our disciplined management of working capital and improved inventory turns which enabled us to generate strong, free cash flow for second consecutive quarter. I will now turn to a more detailed review of our operation, beginning with Canada.

I am pleased with the quarter in Canada. New equipment sales had a tough comparison with Q3 of last year when we reported near-record unit sales and large mining deliveries including new shovels to oil and sand customer.

Even though revenue is decreased by 10%, EBIT rose by 5%. The EBIT margin of 9.2 % was the highest since the fourth quarter of 2012.

This highlights continued progress on our operational priorities including service profitability and supply chain initiatives. Improved inventory management in capital efficiencies drove invested capital turnover up to 2.15 times from 1.95 times a year ago.

As a result of improved profitability and capital efficiency, Canada's return on invested capital increased to 16.8% from 15.9% year-over-year. Our customers are recognizing in the improvement in our operating performance as we are seeing customer loyalty scores trend up on a year-to-date basis.

A considerable amount of work is underway in all of our branches and I would like to recognize how our employees have stepped up to the task with an intense focus and commitment to our priorities. The recent employee opinion survey in Canada showed a 14 point increase in the executive management score.

This jump in support is a strong showing of our employee’s confidence in the course we have set to achieve operational excellence and a great testament to Juan Carlos and his team. Overall, it is fair to say that Canada transformation is running in line our expectation.

In terms of the outlook for Canada, we are encouraged by the demand for equipment and product support which remains strong across most sectors. With the exception of coal, the mining is stable and customers are aiming to maintain production levels.

For the fourth quarter, we expect strong equipment deliveries and solid product support revenues in Canada. Further on, we remain very positive about the medium-term growth prospects for our Canadian operation.

The development of LNG in northern BC and the construction site C will be meaningful opportunities for us. The oil sector also remains active.

We are watching the price of oil closely. We do not see any negative impact from the reduced price at this time.

In the UK and Ireland, the business is run below our expectations in the quarter and frankly on a year-to-date basis. The overall market has grown this year as macroeconomic conditions have remained stable.

In fact, the UK is the only bright spot in Europe. However, our business was affected by the continued weakness in the coal mining industry and a very competitive power systems environment.

Relatively strong sales of small machines impacted the sales mix and reduced our gross profit margin. In addition, power systems generated lower than expected profitability because of their sales mix.

Our bullish outlook in the first half of the year resulted in more inventory than we would have liked leading to disappointing free cash flow generation in the quarter. The UK's invested capital turnover improved since Q3 of last year and remains the highest for the whole company.

However, lower EBIT margin droves down the UK's return on capital. Looking ahead, the UK team is working hard to improve profitability and capital efficiency while the coal sector is anticipated to remain weak; we expect to be delivering higher margin power system projects in the fourth quarter.

We are also encouraged by the backlog of rebuild work which will support our parts and service business for the balance of the year. In South America, new equipment sales decline significantly from last year which isn’t a surprise.

This is mostly driven by the mining sector but we also see reduced equipment demand in construction and power systems. The market has shrunk and pricing and construction is aggressive but we've been able to grow market share and maintain our new equipment margins under these competitive conditions.

Product support in South America was lower than we expected in Q3. Demand for parts was stable but service revenue has decreased as customers continue to defer maintenance and keep repair costs to a minimum, we don't think this can continue for much longer.

While revenues were down, a number of unusual expenses are the main reason for South America's low profitability this quarter. First, we wrote off our capitalized ERP costs for South America as we do not have a near-term plan to implement a new system.

There will be no further system write-offs in any of our regions. Second, we ended a 23 day work stoppage during our collective agreement negotiations with the drills in shovels union representing roughly 15% of our workforce in South America during the quarter.

We maintain business operations and customer commitments during the stoppage but incurred cost to execute our contingency plans. The new agreement we reached is equitable and in line with the other collective agreements in South America.

Although labor disruptions are always unfortunate, our approach was necessary to manage the cost base of our operations. South America continue to take steps in the quarter to adjust the operations to current activity levels resulting in more layoffs and severance cost.

Since September last year, our workforce in South America is down by approximately 600 employees including another 100 employees in October. Despite these challenging times, the level of engagement amongst our employees in South America remains high.

This was demonstrated by increased participation in our annual employee survey and comparable scores to last year’s strong results. Had it not been for the ERP write off, strike and severance cost, our EBIT margin would have been 9.4% this quarter.

South America continues to have an absorption rate of more than a 100% which means that the product support business more than covers all our operating costs. I am pleased that our efforts to reduce inventory and invested capital in South America have been successful and this has reflected in the strong free cash flow from the region.

We expect Chile's mining slowdown to continue in 2015 due to reduced investment in projects. Mining customers remain focused on achieving improvements and labor productivity and after utilization and we expect them to delay equipment purchasing decisions.

However, I am encouraged by number of signs. First of all: copper fundamentals remain positive.

The price of copper has remained around $3 and copper production is up 4% over last year. There are also significant mining investments on the horizon.

The Chilean Mining Commission estimates likely investment of about $29 billion between 2014 and 2018. Codelco, the state owned copper mine plans to invest over 4.5 billion during this period.

Second: recent government announcements have removed some uncertainty. The changes to the tax regime which has been discussed for some time have been finalized and approved by the Chilean Congress.

In addition, the Chilean government has launched a U.S. $28 billion public investment plan through 2021.

For 2015, a splendid increase of 8% over 2014 has been announced. This is the biggest budget increase since 2009 and has made any effort to stimulate the economy, it will result in a 12% jump in infrastructure spent for new highways, ports, airports and energy projects.

The government’s infrastructure and energy agenda will positively impact activity levels in the second half of 2015 and offset some of the mining shortfall. Third: the Central Bank has been cutting interest rates and now projects 3% to 4% GDP growth in 2015.

This is up from approximately 2% in 2014. And last, we have a reason to believe that the product support activity will improve in 2015.

In mining, parts consumption will begin in for three new product support contracts. They vary in length from 3 to 8 years and cover shovels, tractors and other equipments.

Also, a number of large mining customers that indicated to us that they expect to increase the utilization of their machines next year as they remain constrained on capital. And in construction we expect that increased infrastructure activity should impact product support revenues positively.

While the environment is challenging, the underlying strength of the business is evident and the South American management team remains focused on what they can control, namely costs and capital efficiencies. A few comments on return on invested capital.

On a consolidated basis, we are seeing our capital efficiency metrics improve. Invested capital turnover, inventory turns and working capital sales ratio have all improved since Q3 last year.

While Canada's return on invested capital increased to 16.8% consolidated return on capital declined to 15.4% from 15.8% in Q3 2013 due to lower return on capital in South America resulting from the reduction and activity levels. Looking into the fourth quarter, we expect our Canadian results to reflect strong revenues and operating leverage.

However, expected improvements in Canada will be offset by a reduction in revenues and earnings from South America relative to last year. As this is typical for fourth quarters, we do project significant free cash flow generation for the remainder of the year which will give us substantial free cash flow over six quarters and by year-end we should be at the bottom of our net debt to invested capital target range.

So in summary, earnings per share in the quarter was impacted by number of one-offs and a challenging macroeconomic environment in South America. On the positive front, we see continued strong progress in the operational improvement agenda in Canada and that will continue to accelerate going forward.

I will now turn it over to Anna.

Thanks, Scott and good morning, everyone. I will now discuss our quarterly results in more detail and all my comparisons will be made to the third quarter of last year.

Revenues of $1.7 billion decreased by 6% primarily due to lower new equipment sales in Canada and South America, partly offset by growth in product support. A 13% decline in new equipment sales was driven by lower revenues in Canada compared to Q3 of last year which benefited from significant mining deliveries, so a difficult comparison.

Also, we saw reduced activity in South America where market conditions continue to be challenging. Partly offsetting this decline was a record new equipment sales in the UK and Ireland driven by healthy demand from the plant hire and power system segments.

Product support grew by 4% to record levels mostly due to higher part sales in Canada. With respect to our equipment backlog, it was relatively unchanged from the end of June at $1.1 billion as deliveries match new orders.

While the order intake in Canada and the UK and Ireland continued at these levels since its order intake was low reflecting the slowdown in the mining sector. Moving to gross profit, gross profit dollars were relatively flat year-over-year on 6% lower revenues.

We also saw gross profit margins improved by almost 2 percentage points to 30.6% reflecting the shift in revenue mix to product support and higher gross profit margin in all lines of business with the exception of rental. In Canada, we are seeing higher service margins from improved service efficiencies.

SG&A costs were slightly higher than the prior year at 2% or $7 million, this reflected higher severance cost in all our operations compared to Q3 of last year and costs related to the labor disruption in South America which was resolved during the quarter. Consolidated EBIT declined by 16% or $21 million from Q3 2013 and EBIT margin was 6.8%, compared to 7.6% last year, $12 million of this decline was related to the ERP write-offs in South America.

The remainder was due to higher SG&A items, I have already mentioned. Let's now move to our EBIT performance by operation.

In Canada, EBIT increased by 5% to $80 million despite a 10% decline in revenues. EBIT margin rose to 9.2% from 7.9% a year ago.

Although this EBIT margin was matched in Q4 of 2012, it was the highest margin since the first quarter of 2011. Improved EBIT results were driven by continued progress on the execution of our supply chain and service profitability initiative as well as a shift in revenue mix to product support.

In South America, EBIT decreased by 43% to $32 million on a 14% decline in revenues and EBIT margin was 6.2% compared to 9.4% a year ago. Excluding the ERP write-off of approximately $12 million as well as severance and labor disruption cost of roughly $5 million this quarter EBIT margin would have been 9.4% in South America.

This is a healthy EBIT margin considering depressed activity level across all sectors in South America. As Scott mentioned, we continue to take steps to right size our business including further workforce reductions.

EBIT of $14 million in the UK and Ireland was up slightly in functional currency. However, EBIT margin declined to 4.8% from 5.3% a year ago.

The revenue growth this quarter was mostly driven by sales of small to mid-size machine and some project work in the power system sector. The revenue mix shifted to new equipment sales resulting in reduced gross profit margin and lower profitability compared to Q3 of last year.

Turning to earnings per share, basic reported EPS was $0.33 compared to $0.50 in Q3 of 2013. There were a number of notable items which negatively impacted EPS this quarter.

First: In September, the Chilean Government signed into law the tax reforms that we discussed last quarter, which includes the gradual increase in the corporate income tax rate from 20% to 27% over five years. As expected, this resulted in a one-time revaluation adjustment of our deferred income tax balances which reduced our EPS by about $0.04 a share.

Second: As we will not be implementing ERP system in South America in the near future, we decided to write-offs the previously capitalized cost which resulted in a non-cash charge of $0.06 a share. Third: global severance cost, together with costs related to the labor disruption in South America amounted to approximately $0.04 a share in Q3.

And finally a higher estimated annual effective tax rate in Argentina resulted in an EPS reduction of roughly $0.03 a share this quarter. As a result of the significant tax charges in Chile and Argentina this quarter, our effective tax rate was quite high at 39.2% up from 23.4% in Q3 of last year.

If we were to adjust for these two tax items, our effective tax rate would be around 26% this quarter. So in summary, Canada had a strong quarter reflecting good progress on the execution of our operational improvement priorities, In South America, we are managing through a very difficult macroeconomic environment and we are very pleased with the strong free cash flow we generated in Q3.

Our balance sheet is in great shape. Our net debt to invested capital ratio was 39.4% at the end of September, the lowest it has been in the last four years.

On this note, I’ll turn it over to Mauk for Q&A.

Operator, that concludes our remarks. Before we go the Q&A, 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.

Please go to the end of the queue if you have more questions. Operator, if you could please open up the line.

Thanks very much and good morning. The biggest question I have in the quarter relates to South America and if I look relative to Q2 your revenue was down about $50 million sequentially largely on lower new equipment sales and yet when I just saw the items in Q3 EBIT was down to $49 million from $57 last quarter and I just wonder if you can give me some color on that drop.

Sure. Cherilyn, I’ll start high level and then Anna can add.

If you compare South America results backing out the one-off 9.4% EBIT margin which is relatively consistent with last year, I think 9.4% there was some severance cost last year as well but relatively consistent. If you compare with Q2, it was down about 10% I think.

So there has been a slight loss of revenues and we haven’t been able to adjust the cost base as quickly in the third quarter as we would like to and that’s -- and why we took action again on another 100 people leaving the business. So, I suspect we are going to keep in that 9% to 10% range for EBIT margin in the fourth quarter and through next year.

Fourth quarter last year was a very strong, EBIT margin quarter and I think it was north of 11%, so we are not going to see that as we look forward to give forward but I feel comfortable that we are going to be in that 9% to 10% range for South America going forward.

And so can you just talk about what change in the business environment sort of Q2 to Q3, in South America that caused you to again take action against their cost base?

Yes and I think it's the product support item in the deferral of maintenance on the product support side you saw, product support, it’s down and functional currency mostly on the service side, not on the part side which product support obviously pretty valuable and profitable piece of the business. So the good news as we look forward and we look at the contract that we have recently signed and we think about the infrastructure spend that’s happening in Chile right now we feel comfortable that product support business is going to go back to normal growth type levels in 2015.

I think 2014 fourth quarter, I think we are going to have a continued flattish type products parts business in the fourth quarter. So I don’t think you are not going to see that improvement in the fourth quarter but as you look forward to the 2015, I feel comfortable that the products support business based on what we see both in the macro and also our own service contract piece of the business that but that will grow again in 2015.

That's helpful. That’s my two.

Thank you.

Thanks, Cherilyn.

Good morning. Thanks very much.

Hi Ross.

Hi Scott. I was wondering if you could just talk a little bit about the Bucyrus little bit, I mean we haven't heard about Bucyrus in a while and your South American aftermarket business being down 5% in local currency.

I hear in the maintenance deferrals but you got a competitor out there that's put up pretty good product, service growth year-to-date and as you mentioned copper price isn’t strong but it has been pretty range bound. So is Bucy losing any share?

Could that explain any of the weakness or do you really think this is general market conditions?

I don't think -- I mean our Bucy business is not performing as well as it ultimately well and that's for sure and there is a whole bunch of reasons that we have talked about on previous calls and I think we are getting better quarter by quarter on this as we learn more about that business and the supply chain and integrate better with Cat and we address some of the growing pains that we have had and it definitely had some growing pain. And if you actually compare year-over-year, our Bucy business in South America is better than 2013.

So that is not the reason for the decline in product support business and that being said, there is much that we can do with that drills and shovels business that will improve and that will be another driver of the improvement in 2015.

Okay and then could you clarify your comments on 2015 a little bit more for things you are saying you expect new equipment demand to remain low in 2015, you mention a bunch of puts and takes but are you expecting continued new equipment declines in ’15 or you just kind of saying flat at a low level?

I think it’s hard when you look at the new equipment revenue in the third quarter. It's hard to contemplate a scenario that’s lower than what we are currently in because we are not selling a lot of new equipment right now.

And this comes to the strength of the business model with the product support business but as we look at 2015, I don’t think it’s not going to be the lower than it is today in the third quarter but we see no ramp down from fourth quarter last year, the first quarter this year, the second quarter and now to the third quarter. So you may see some slight decline in new equipment in ’15 relative to ’14 in South America on the new equipment side, and feel differently much differently on the product support side and I think the product support business has a good underpinning and will see continued growth and you may see some modest declines in year-over-year, not relative to where we are today, but year-over-year as we look forward next year.

Is that a mining comment or is that overall?

Generally mining and we are actually starting to see some activity on new request but also a general construction as Chile has gone through what I would call this the political transformation with the new government, lack of physical clarity on taxes. There has been a freeze on the construction side and that has driven down industry units in the order of about 25% to 30%.

I think we are behind that now when the government has clear on the physical clarity when they come out and talk about infrastructure spend, when they talk about stimulus for the economy, I think they have recognized that the Chilean economy has slowed pretty significantly over the last three or four quarters. So as you look forward to 2015, I think that's going to reverse but it’s not going to be fourth quarter this year or first quarter next year, probably it’s a back-half 2015 type situation.

Got it, that's helpful. That's two and half.

Sorry Mauk, I hand it over.

Thank Ross.

Good morning. You mentioned that the decline in oil prices not having much of an impact in the oil sands, what do you view right now as being the major hinge-point in the impact on activity levels?

So we are obviously watching oil price pretty closely but when you look at lower WTI, when you factor in exchange rates, when you think about the titter differential, oil price for our customers in Western Canada is actually pretty strong, so point one. Point two, I think if you wait low for long or lower for longer on the oil price, I think you would see potentially some impact on activities but we are not projecting that and frankly we haven't seen that come through in our order book.

Our order intake this quarter was stronger than Q2 in our conversations with customers obviously there is the regular focus on cost and productivity et cetera but they're not talking about delays of projects in fact there's some pretty significant new projects on the books as we think about the oil sands in western Canada, I would say the area of weakness in Western Canada which we have seen and has impacted our product support growth in 2014 relative to 2013, Jacob is call. Now the good news is that I think we are through that so if we think about 2015, that won't be a problem for comparison purposes but it had been an issue in 2014 year-to-date.

Thank you for that. And then may be for my second question, how you are thinking about the organization in Western Canada specifically talking about that relationship between the Reman facility in western Canada or sorry in Edmonton, the centre of excellence in Red Deer, and Fort McKay.

Are you thinking of changing of that or what’s your level of thinking here right now?

As you think about those three facilities, we have actually done quite a bit of work on coordination between those three facilities. So, COE right now is primarily in new equipment prep area and that is the big change for the organization because we hit historically done the equipment prep throughout our branch network and we are now as consolidated that in COE, Fort McKay, much better coordination between the mine sites and Mildred Lake in Fort McKay and that has helped pretty significantly on freeing up service base in some of our oil sands operations that also increased in the utilization of Fort McKay.

And I think one of the main drivers of the improved performance in Canada right now is improvements in service and that all goes to utilization. So I think we are seeing improvement in utilization for Fort McKay.

On the OEM side or the Reman side, I have been focused this year on better coordination between our Canadian business and our Reman business, there is a big Reman opportunity in Western Canada when you think about the age of the truck and the economics associated with rebuilding engines as opposed to buying new. And so there is going to be over the next three or four years, I think a really important Reman opportunity but I want to make sure our Canadian business and our OEM business are coordinated on that and I don't think that’s always historically been the case, it is now because Juan Carlos is overseeing both of those and that goes to inventory management as well.

And I think the teams over the last six months, two quarters have done a really good job on improving that coordination and that's part of the reason you're seeing improved capital efficiency metrics in the organization and I expect that to accelerate as we go into 2015.

Thank you.

Good morning gentlemen. First question is on the inventory, when we look at the inventory it improved slightly on a sequential basis, I am just wondering now given that Cat cut down his production rate schedule, there is now more allocation, just wondering if it makes your job more difficult to reduce the inventory and assuming that you hit the low end of your guidance in terms of debt to cap, should we expect share buybacks soon to be announced?

I will take a crack at both of those. Let me start on the last question for share buyback.

We have been pretty consistent with shareholders that we need to execute first on the free cash flow side and we are feeling pretty comfortable with what we've done in the last six quarters. The deleveraging of the business from the 50% debt to cap to 39% debt to cap has been pretty significant and the fourth quarter is historically a pretty significant free cash flow generative quarter.

And I don't see any reason why that won’t be the case this year. So as we look into next year, we are going to be in a great shape from a debt to cap prospective and frankly below our target or at our target levels for leverage and I do think as we are thinking about the first for next year, we have to have that discussion on capital options whether it would be return on capital, dividends share repurchases or acquisition type opportunities.

So I am ready to engage in that, probably in the first quarter, end of the first quarter next year, Benoit. The second question with inventory, I am really proud of what we have done on the part side in particular from an inventory turns perspective; you're starting to see across all three regions improvements in the inventory turns.

On equipment turns, I think we are also making progress but it’s a little more difficult especially when you're in a very turbulent times in both South America, the UK and Canada. And we are seeing improvements year-over-year and that is obviously going to continue.

As we think of the fourth quarter, I think you'll continue to see lower inventory on the new equipment side. The integration and Cat and Fini is going very well.

Our forecasting capabilities year-over-year have increased substantially that’s been recognized by Cat and I think the integration between the two teams is really positive, more work to do obviously on that integration but I am pretty pleased with where we are so far.

And second question very quickly what should we expect on the effective tax rate going forward given the issue in Chile?

Hi Benoit, it’s Anna here. As I mentioned on the call today, I mean when you sort of look at what more normal effective tax rate would be for Q3 of roughly 26% and I think we are going to see something towards the higher end of our current range of the 20% to 25% going forward.

And then with Chile as you know, with the rates increasing over time by 2018 to 27% you should start seeing a slight increase going forward as well but more towards the higher end going forward.

So when you say 26% to 27%, it’s kind of a sustainable range, or it should trend toward the direction in the next three years Anna?

I would say that's a pretty good assumption Benoit.

Thanks very much for the time.

Benoit, the one addition I would have to that and the one wildcard is Argentina and we were highlighted for shareholders, not because we are trying to suggest these are one-offs or should be excluded from earnings per share, we are highlighting, I mean it’s a very difficult environment in Argentina right now. And devaluation of the currency is having an impact on our effective tax rate and you have seen actually 100% effective tax rate right now in Argentina this quarter.

And if you continue to see devaluation that type of effective tax rate in Argentina is going to continue and what we are trying to do is manage that business very prudently and that means lower U.S .dollars exposure in Argentina and we are spending a lot of time as the company trying to make sure we manage that appropriately so that we are prepared for continued devaluation of Argentina.

Okay, and is the increase in tax rate impacting the momentum and mining investments or does it make the region less doing for the company?

Chile started a with discussion around pretty significant increases in taxes, I mean the initial proposal I think was almost 75% type increase in effective tax rates and where they ended up, was I think very constructive. The tax rate going from 20% to 27% over a five-year period and so what that means for us talk all the one-offs noise, I mean the 1% increase this year is about $1 million.

So this is not a significant increase in our profitability in Chile and I think our mining customers will think about it the same way so that is not in my mind the driver to investment in Chile. I think there are some other issues in Chile from the cost side that, that we all have to address around water and energy and labor.

And that's why one of the reasons why I think the slowdown is happened in Chile because the cost for our customers that become very high but the tax rate as one example, I don’t think is a big driver.

Okay. Very, very good color Scott, thanks.

Thanks.

Good morning.

Hi, Yuri.

Hi. Scott.

When we talk about Canada for a minute here, can we talk about the outlook for new equipment deliveries in 2015, I think some of the -- assuming the oil price stays around these levels, I think you are gaining some share in the construction market, so those markets look good but they are all sand mining site, I mean what are some of the opportunities that I think you mentioned earlier in the call and should we expect to see flat new equipment deliveries next year or something better than that.

Yes, I think lot of the Q4 [Audio Gap] 2015 if you think about our overall revenue growth in Canada year-over-year it's about 8% and it's pretty significant revenue growth in Canada and then in the fourth quarter when we look at the order book, I feel pretty comfortable about the type of a pretty solid revenue quarter and a pretty solid EBITDA quarter in Canada relative to last year. As we think about 2015, I think it does comes to oil price discussion and at current oil prices, with current exchange rates and current differentials, we are not seeing an impact on activity.

And if that continues then I think you can start to continue to think about modest type growth. I don't think 8% seems too high in my mind given the type of environment we are in but modest growth in 2015 I think is pretty reasonable and then there are some one offs in western Canada that are pretty impactful in the oil sands, L&G and also SITECH and those might not be just 2015 that maybe 2016, 2017 but there is a - I think there is a really good underpinning of activity support in western Canada right now.

That modest driven growth that's for Canada as a whole or are you talking new equipment sales in Canada?

I was referring to the new equipment activity. I think product support is I mean it's a very strong business parts that’s going to continue for 2015.

And just in that forecast of new equipment I mean is – what’s the nature of those deliveries is it mostly shift to construction equipment away from mining or do you have some line on site on Brownfield or Greenfield expansion?

Yes, across the board. Across the board.

Is Fort Hills something that might impact next year or is that 2016 event if you are successful there?

Yes, I am hesitant to get into conversations like that. I think we will leave it to the Fort Hill team to talk about their project.

Got it. Give it a try.

Okay lastly just some color in South America, you did mention three product support contracts that would help but can you give any color on when those are going to start up, when they were signed and any potential magnitude?

Yes, so the contracts we have seen this year is if you think about the product support business in south America, it's down in functional currency. I am not going to give the numbers exactly right but year-over-year probably 5% or 6% and that feels like the number – I mean the good news is then it's mostly been on service which is less profitable and parts have remained relatively flat which frankly is a surprise I mean you would expect parts to increase but it has been down little bit but the product support decline has been driven by service and that’s in sourcing from customers of some of the contracts and referrals was made.

What we are seeing now is we have actually found three relatively significant contracts in the last six months that haven’t started yet but we are expecting to start in 2015 and those are three year type contracts. So that should provide some positive underpinnings to our product support business as we go into 2015.

Okay. Thanks for the color.

Yes.

Hi! good morning.

Can you comment little bit outside of the mix impact in Canada, you are talking about some productivity improvement or utilization improvement in the service side, can you talk about other specifics that are showing improvement in profitability and how that kind of expected to flow in 2015 because I noticed in your comments you do say there will be a slow progress continue in Canada I just wonder is there anything to impede you from growing that further at this point?

Sara you actually have made the comment I think two quarters ago. You said can growth impede progress and I guess that's always the concern.

I mean if you have some real chunky growth prospects to that EMP progress but consider just assuming a steady state, the type of environment we are in now I don't see anything that can impede our progress on the improvements and the improvements yes there is a mix change but the improvements are pretty significant I mean the service is excellent agenda is resonating extremely well in the organization. It’s one of these initiatives that mechanics, no, should happen our customers wanted to happen and our shareholders wanted to happen.

One of these few initiatives where everyone looks at because wow this is great and it's in early days I mean we are in five or six branches now the meaningful branches. But that will continue to gain momentum.

And then supply chain, you see it in the inventory turns on the parts turns, but there is also some cost savings which we really didn’t talk about a lot in the investor day because I didn’t know how much to wait to get to some of these but think about transport savings and well transport saving is the perfect example when you consolidate your transport base from 400 to 300 to 200, and you have less touch points that results in less cost. Emergency orders is another example where we have gone from 50% to 35% to 27% and continuing to go down.

So those types of things I actually think that we are early days to tell you the truth on some of those improvements. So you are going to continue to see improvements in profitability year-over-year I mean not every quarter because of mix etcetera.

but year-over-year and the good news is I think you are starting to see that through the numbers. First quarter was tough EBITDA margin quarter for all the reasons that we talked about, second quarter improved past that and third quarter is better than that and continue I think we will continue to keep that momentum into 2015.

Okay great and then maybe can you talk about the [indiscernible] opportunity that’s not territory specific. Could you improve your utilization of your facilities by doing remain work for other territories?

No. I mean I think it is – in my mind it is territory specific.

I mean this is mostly South America and western Canada opportunity and in Western Canada right now I think we have a great opportunity for our customers get a little bit older and the second generation 797 engine are showing pretty good operating performance, availability of prime performance. So, this opportunity for us I think it's really helpful you are right it will keep the facilities working and utilized which again help some profitability but it mostly is territory specific opportunity in my mind.

Okay. Is that a push philosophy from setting or your clients are demanding this product now?

Probably little bit of both. I mean I think we spend a lot of time on it and we have got C175 second generation engine from KAT which is doing quite well and customer see the benefit of it as well because of the cost and so I think it's a little bit of both.

That's providing a great product and customers seeing the economic benefits of it.

Okay great. Thanks.

Thanks. Scott is South America you at the point given the in-sourcing with your technicians are you at the point where you are starting to lay technicians off?

We have done a little bit of that but I am – I think we need to be very careful on that piece. We are actually spending quite a bit of time training our technicians as you know but I think we’ve been down we opened up the training facility a couple of years ago and we have clearly as Murphy’s law will tell you it was opened at the peak of the market and so we have now got a training facility that was made for thousand employees that is not fully utilized but that being said it’s a great opportunity for us to take this down turn to increase the capabilities of our technicians.

So we are spending a lot of time on that. Now if activity, I think you always have to access the cost space and I don't think activity is going to get worse in south America so I think we are on our – we have got the right cost space but we are always going to have to assess that and there has been a few layoffs in that area but mostly we are focused on up scaling.

Okay. Thanks.

We have heard from other OEMs that customers are coming back and wanting to renegotiate services contracts and which is natural I think to kind of expect that in this environment and I know not all OEMs are offerings are painted the same way but I am wondering what your experiences has been so far on that side.

Yes. So we have actually seen on a couple of our big customers we have seen some extensions which I was very pleased with three year type extensions that had kind of – obviously we need to work with our customers to help on the profitability but on terms that makes sense for us as well.

There has been some in-sourcing I mean I think this is in the driver of some of the reduction in products support that there has been some in-sourcing of service contracts and these things always go in waves. You see some in-sourcing and then when the market picks up, you see small sourcing.

Interestingly and this is why I think the service business I feel pretty comfortable we have seen customers come back to us now with three or four new contracts which will provide an underpinning, but you are right in the fourth or sorry in 2014 the decline in product support has been to in-sourcing of service contracts.

Have you seen any trends in terms of people moving away from regular schedule maintenance to now doing things on more of an as needed basis just to try and focus when cash flow?

Yea, no I think that's when you have seen the maintenance cap, I think in their quarter we called and talked about their resources industry across the globe and they talked about the maintenance and we are seeing that definitely in south America. Now that can't continue, I mean it's gone on for three quarters and copper production is actually up 4% in Chile.

So that can't continue. But definitely that has been a driver so far year-to-date.

You are not seeing in Canada?

No.

Okay, thanks.

Good morning guys.

Hey Ben.

I am just I am wondering the right off of ERP in south America if you can just talk a little more about the decision there to postpone the implementation and what that means about the general confidence you have in the system or what it's doing for you and Canada just timing issue you don't feel the time is right to plan now in south America what cause you to put the breaks on that project definitively?

Yes,. So this was cost that as we implemented in Canada.

There was the view that we are going to implement globally in our reasonable period of time. And I don't think that's the case.

I mean I look at our in south America right now I look at the UK I am not sure that UK need the full loan ERP system and I look at South America and either 2008 to 2010 cost and I am – we are not going to put an ERP system in south America until we have the capabilities to do it in very cost efficient and productive fashion and my judgments along with much allows and days coming as we need more work to do on the capabilities front. So that's the reason for the right off.

As you think about Canada it has no implication and I really want to make sure that there is no read through to our Canadian business because what we are seeing in our supply chain performance I think demonstrate that the system works in Canada is it perfect, no this is continuous improvement that we are going to connect, continue to make which you would expect with any ERP system but the system in Canada is working, it's reflected through our service fill rates with our customers. I think our fill rates right now are higher than the – significantly higher than they were before ERP implementation.

Our customer royalty scores are trending out. So there will be one, there is not much on the books for Canadian ERP system right now in any event but there will be no right off in Canada on in any of our regions going forward of systems.

This was simply a timing event related to South America.

So will it be fair to say that you are happy with the ERP investment in Canada but it's something that you need scale to justify so UK certainly doesn’t need it and right now South America probably doesn’t need it because it’s not going down mode and not growth mode? Yes.

The other thing is cost and system really works on a bigger operation or –

Yes, no this is purely an accounting issue. I mean this has been on the books for seven years.

Well not the right down I am saying system, I mean – going forward in other territories I imagine I am just trying to clarify the thought process that the system works and can be – but the cost can only be adjusted by the certain amount of scale in the operation.

No. I think –

Curious, you said that you don’t think that UK really needs it.

Yes, exactly so I think the UK business is relatively small business to go spend a lot of money on systems right now it doesn’t feel like the right thing to do. In South America, actually the down turn in the market may provide an opportunity to upgrade our systems capabilities but I want to make sure we have the capabilities to implement something before we do that and I think we have got some work to do on that front.

In Canada, the cost that were spent years ago are the cost and I mean those are sunk and right now we have got to focus on optimizing that system and I think to-date we are providing good service to our customers. Obviously it continues improvement and is possible to -- but we are going to look at region by region circumstance to determine when systems are required.

Okay. That's helpful.

My second question is just trying to get, trying to delineate what’s happening in Canada between mix and margin improvement because you did have a significant left in your EBITDA margin but there is also there is really two, there are lots of moving parts but there is really two major variables as I see it the mix and then what’s happen to total service profitability. Can you give us some colors to how those two factors influence for you to ended up?

Yes, I mean I think the – I mean clearly mix is helpful. But I guess the reason I am encouraged is and I see things that you don't see obviously but when service profitability numbers it's been a step change and improvements year-over-year and what I look at supply chain turns and some of the cost associated I feel pretty comfortable and then frankly when I look back historically I mean this is the highest margin that we have had in three years in Canada 9.2% despite similar quarters with similar mix.

And that's not -- there was fourth quarter 2012 that also got to 9.2% but I think there was some land gains in there as well. So this is truly a strong quarter in Canada and the GT percent is going up as well.

So I do think revenues down, EBITDA 5% I think we should be pretty happy with going on our Canadian business.

And G&A in Canada that's – which direction is that going? Is that stable or is it down?

Yes, they are actually and we don't – didn’t talk about this but there has been some cost reductions in the Canadian business on the SG&A side so SG&A as the percentage of sales is kind of trending down year-over-year and included in those Canadian numbers are some severance costs as well. So we have actually reduced the work force year-over-year and this is not because of a cost cutting initiative.

This is more capabilities focused and organizational, right sizing the organization is getting the right people focus on the right places but there are some severance cost included in that 9.2% which actually makes the performance even a little bit stronger. And I don't think this cost reduction when you think 6%, 7%, 8% revenue growth year-to-date, I don't think this cost – the cost focus reduction focus is not going to be big layoff in Canada because we have actually got a very robust market.

But I think the team is doing a very good job on cost control.

Just to clarify something you said there Scott and I think you mentioned it earlier in one of the questions when talking about expectations going forward for Canada, I thought I heard you say 8% growth doesn’t seem too high does that mean you think you can do 8% growth or what you would – I just want to make sure clarify what you meant by that comment.

Yes good, helpful that you clarify because I don't want to leave wrong impression. No I was saying that year-over-year revenue growth in Canada has been 8% and that I don't think we should expect that into 2015 that being said despite people being very mindful, I do think we are seeing modest increase in activity levels as we go into 2015.

So something below 8 but above zero.

I think that – I don't want to get into the guidance but below 8 I think is the fair assumption.

Okay. Thanks a lot.

Yes, just some pack on the inventory I was wondering if you could provide more color about how much of the inventory reduction was driven by the ramp up of the ERP system. I am wondering here whether it will be tougher to improve the inventory given going forward given the ERP system is already at a very, very good fill rate?

Yes that's interesting question. I think part of that is probably true.

I mean as you think about our journey over the last three or four years, I think during the ERP implementation we ended up with too much inventory through our network in Canada. So, too much equipment through the branch network and too many parts through the branch network.

And part of the improvement is yes coming up some of that and running off some of the inventory. I do think there is further improvements there potential because as you move or consolidate slow moving parts and slow moving equipment into center or areas where you don't have all of the inventory through the branch network, I think you can have lower investment on slow moving things and higher investment in fast moving things.

So despite the fact that I think that we have made improvements I think there is a lot more improvement we will be able to make over the next couple of years.

Okay and just for your lower gross margin in UK and Ireland was it more matter product mix or is the coal products that their higher margin start?

Yes, I was – I mean three reasons. Now that these answers are easy, there are three reasons though.

One is a mix issues. So more smaller machines.

Two is slightly lower margins on power systems, project, more competitive environment and then third is the overall equipment market has been very strong in the UK and Ireland, the coal mining sector has been weak and the coal mining sector is a big consumer parts which has high margin. So those three things have led to a little bit less profitability.

I think the good news going forward is we have got some great new products coming into the UK market with cash that will I think help and on some of the profitability and some power system projects which I think will be really helpful going forward. So I am encouraged to what we are seeing going in UK going forward so as long as that overall macro environment stays constructive, as UK really is an island of help over Europe and when I look at some of the neighbors in France and Germany and their economic activity it's pretty negative right now.

So I think we are fortunate to be where we are in the UK.

Okay and last question just on the CapEx fund and also investment in rental what should we be looking for in 2015 in terms of investments?

So capital and rental we have said we are going to do and that investments at the end of year will come in as we thought. We spend a lot of time with CAT on rental this year and rental is increasing percentage of the overall market.

We spend a lot of time on the business model with CAT and you are going to see more investments on the rental business next year from filling into western Canada. I think less so in South America given the overall market dynamics and less so in the UK just because the competitive nature of the business but in Canada we are going to invest in that rental business and I am convinced based on other work we have done for the last six months, this is going to be a good business force going forward.

Okay. On a consolidated basis, rental should still be up slightly I guess, right?

When you think about next year relative to this year, yes.

Yes, Okay perfect. And on CapEx side should it stay around kind of $100 million stuff?

Yes, I mean the CapEx as we have talked about a lot we have done a lot of investment into this business and I don't see significant step changes of investment required and last you see big requirements on L&G going forward that will be I mean we will all be happy if that’s the case. But just on a steady pace basis, I don't see huge requirements.

Okay and last one any update on the search for CFO?

In process. I mean we are spending, Joe and I are spending a lot of time on it and we have seen a lot of candidates.

I am going to make sure we get the right candidate and I have spent a lot of time on it and expect to have the right person at the right time. I don't know – I don't have an exact projection right now but I am spending a lot of time on it.

That's okay. Perfect.

Thanks again.

Good.

Yes, thanks guys. I just had one last one.

So Scott on the free cash flow and the comments obviously in the fourth quarter, I think last year you guys posted like $365 million in free cash flow in Q4 should we be thinking of a number comparable to above that this year or was some of that last year one time went for?

Yes, some of that last time year was one time went for and we had a system that we were able to get out of the system from an equipment perspective. And so I wouldn't be expecting that type of number.

That being said, the fourth quarter if you go back historically always going pretty strong quarter and the thing we have said we are going to be at the low end of the range. So I am expecting free cash flow in the fourth quarter that’s meaningful.

Okay. Got you.

Thank you.

Good. Thank you.

So in summary the current market uncertainty particular in South America underscores the important sustain on our path. We will remain focused on our operational excellence agenda and execute what we can control.

So thank you very much for listening today. I am looking forward to speaking with you again when we report next quarter.