Finning International Inc.

Mauk Breukels – Investor Relations Scott Thomson – President & Chief Executive Officer Steve Nielsen – Chief Financial Officer

Michael Doumet – Scotiabank Cherilyn Radbourne – TD Securities Jacob Bout – CIBC World Markets Yuri Link – Canaccord Genuity Sarah O'Brien – RBC Capital Markets Ben Cherniavsky – Raymond James Bert Powell – BMO Capital Markets Michael Finnegan - Bank of America Maxim Sytchev - National Bank Financial

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

Following the remarks by Scott and Steve, we will open up the line to questions. 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 are 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. Thank you for joining us.

I will provide an overview of the quarter, share my perspective on what we are seeing in our end markets and finish with our priorities. Overall, our third quarter results demonstrate the successful implementation of our operational excellence initiatives, as well as benefit of our significant restructuring efforts.

Despite a 12% revenue decline year-over-year due to difficult market conditions, we achieved 5.4% EBIT margins, which represent sequentially profitability improvements. This reflects our continued focus on managing the factors within our control across our operations.

In Western Canada, market conditions have remained soft despite recent improvements in the price of oil and metallurgical coal. Our focus against this backdrop continues to be on improving our operating performance.

This is demonstrated by 6% EBIT margin, which is in line with Q2 excluding the benefit of PLM. Several factors supported us and maintaining profitability in the quarter despite lower than expected product support revenues.

Higher gross margins on new equipment sales were encouraging, as was improved service profitability and financial utilization on our rental fleets. Our new agreement with our Alberta Union came into effect near the end of the quarter and will enable us to operating more cost effectively going forward, particularly in the oil sands.

Excluding the impact of the fires in the prior quarter, Canada’s product support business was down approximately 8% compared to Q2. This reduction was driven by a slowdown during July and August in the oil sands, which has since rebounded to pre-buyer levels.

Mining product support volumes was 15% to 20% in September and October and are back to the average run rate of the six quarters prior to the fires. We believe July and August were impacted by customers not spending money on parts as they focused on minimizing equipment downtime and recapturing lost production immediately following the fire.

This was exacerbated by three months disruption at the Ekati diamond mine. That customer is now up and running at full capacity as of September.

As we look forward to 2017, we are very encouraged about the prospects for our product support business. As mentioned last quarter, our rebuild backlog at OEM is growing and I fully expect to see reasonable growth in product support in 2017 relative to 2016.

I am very pleased with the transformation of our Canadian business. Safety continues to improve; customer loyalty is an all time high, market share is growing and we are seeing improvements in how we deliver service to our customers.

With the changes to our mining footprints and the recent adjustment to our labor cost. We are now well positioned to deliver service to our customers in a sustainable fashion.

This has been a three year journey. As we advance our efforts to transform our Canadian operations, we continue to find opportunities to improve customer delivery, simplify our processes to make it easier to do business with us and reduce our overall cost structure.

Recently, we made the strategic decision to adjust our electric power generation business, which has improved our profitability by using third parties to perform packaging word. The decision resulted in exiting our Richmond facility and consolidating activities into existing underutilized facilities, specifically the Surrey truck facility.

Another example is the decision we announced internally last week to consolidate our two customer support centers into one. Activity from our Edmonton Center will transition the [camlets].

We believe having the team in one location provides better operating scale and will improve our service levels in the future. We continue to look for opportunities to consolidate support functions where it makes sense from a customer delivery perspective.

Finally you will recall last year we closed one building of COE in Red Deer. That transition has gone well and we are now able to take the further step of completely closing the COE.

We will begin working on an orderly transition that will largely be complete by early next year. Importantly, this closure supports us in our aim to improve customer service and optimize facility utilization, while still maintaining sufficient capacity to respond when demand normalizes.

As we transform our operations the changes we're making our are significant decisions that the Canadian executive team has not made lightly. We have been deliberate about our evolving our business with the needs of our customers firmly in mind.

I'm convinced the transformation underway is foundational to our long-term success in a changing environment and will result in a simpler customer interaction and a much more flexible and lower cost approach. Going forward, we will continue to advance our operational priorities and implement sustainable operational improvements to deliver shareholder value well into the future.

In South America, we are seeing some encouraging signs including a modest uptick in new equipment relative to the same timeframe last year. On the product support side, activity levels are down year-over-year however they have been flat three quarters in a row.

I continue to be optimistic about the changes occurring in Argentina. As the McMurray [ph] government demonstrates find of having a positive impact we are making a modest investment in inventory and are encouraged by the early progress to restore market presence.

The management team continues to operate with cost and capital discipline. This is demonstrated by continued progress on return on invested capital.

Despite revenues being down 9% over Q3 last year, Rolac [ph] is up relative to last year by over 100 basis points. In the U.K.

and Ireland we are pleased by the strength of our top line this quarter. Weakness in coal, steel and marine was more than compensated for by strong new equipment sales for the general construction market.

Our focus in this market remains the same, we are acting with urgency to improve our supply chain and increase asset velocity as we work to better position the business for the long-term. I'm proud of the team's ability to execute on implementing meaningful changes in our U.K.

and the progress we are making to return to historic profitability. While we are cautious about our outlook in this region given Brexit one common theme across all of our regions is the investment we are seeing in infrastructure.

In the U.K. the government has now major projects.

Construction of the GBP18 billion nuclear power plant was given the green light after the Brexit vote. Also planning continues for high speed rail to a GPB20 billion project and the government has just announced that wants to proceed with a GBP20 billion runway at Heathrow.

Between Chile, Argentina, Bolivia we are seeing over 20 projects ranging from $100 million to $16 billion for 2018 and beyond. In Canada, a federal and provincial governments of B.C., Alberta and Saskatchewan have made significant commitments to infrastructure investments.

In our Canadian territory we count more than 20 infrastructure and pipeline projects, which will cost in excess of $700 million each. We may start seeing benefits of these developments in Canada by the end of 2017.

Though this infrastructure spend is not a near term catalyst, we fully expect to benefit over the mid-to-long term. Against this current macroeconomic backdrop, I’m pleased with our performance as we head into the final stretch of the year.

Our balance sheet strength in this environment supports us in making prudent investments in digital technologies. We are working closely with caterpillar and building our own capabilities to further leverage the potential for digital to add value for our customers and drive lower cost to serve in our own business.

We are expanding the number of connected machine to provide customers with greater insight into their equipment and operations, as well as, meet their maintenance needs proactively. This allows us to add to our traditional product support role by monitoring equipment and diagnostic data to drive down equipment operating costs and improve productivity for our customers.

We have had significant traction escalating connection rates with the number of connected assets up almost 20% year-over-year and the number of retrofitted machines up 73% over the same period. As customers increasingly turned to online sourcing, we are also enhancing our ecommerce capabilities in all regions to provide increased access and purchasing flexibility, while delivering an industry leading customer experience.

In addition, we are taking advantage of the current downturn to implement an ERP in South America. This is a multi-year undertaking that is being developed and deployed under the close oversight of our CIO Dave Cummings who has temporarily relocated to Chile in order to closely collaborate with the executive team on this project.

Dave’s considerable experience leading the implementation of global technology solution serves well as we move forward with this long-term strategic solution. Given the learning in our Canadian business, we are taking particular care to move forward in a thoughtful and sage fashion and only after the appropriate planning, blueprinting and process changes are completed.

While we increase our focus on becoming more innovative in the way that we meet our customers’ needs we remain firmly committed to improving our performance through continued advancement of our operational priorities. The changes we are making today will set us up for stronger performance tomorrow.

Our aim is to be free cash flow positive through the cycle. As we have stated previously we will decide how best to put the cash in the fourth quarter.

We have an NCIB in place and we’ll take the share price into consideration before deciding to repurchase any shares. We also have a $350 million of debt maturing in 2018 with a 6% coupon.

We may want to strengthen our balance sheet even further and will continue to assess our options. Looking ahead we are working towards ensuring our earnings will grow at a rate significantly outpacing our revenue growth when demand normalizes.

While there is much work to be done I'm pleased with the progress we have made. We remain on track with our plans to continue investing to grow while transforming to a more agile, efficient and customer focused business.

As a result, I'm confident that we’ll be in a good position to take advantage of the upturn when it comes. I will now turn it over to Steve.

Thank you Scott, good morning everyone. Our third quarter earnings per share of $0.22 showed a modest improvement from adjusted earnings per share in the first and second quarters of this year as we began to realize cost savings from operational efficiencies and restructuring actions taken across the organization.

At the same time, we incurred higher costs associated with the long-term incentive plan which is tied to our share price movements. This reduced our third quarter earnings per share by about $0.03.

In Canada, new equipment sales were slightly higher than in the second quarter with some deliveries pushed into the fourth quarter. As Scott mentioned we experienced a significant slowdown in product support activity in oil sands in July and August following fires, as well as an unrelated destruction in operations of a major mining customer.

September and October mining volumes were back to the normal run rate of the prior six quarters. While improved activity in the oil sands appears to be holding up well, we expect product support and construction power systems and other mining to remain soft.

Despite lower than expected product support revenues in the third quarter, Canada's EBIT margin was 5.9%. We are realizing cost savings from the transformation initiatives to remain on track to reduce fixed SG&A cost in Canada by more than $150 million in 2016 compared to 2014.

We continue to expect an EBIT margin in the 6% to 7% range in the fourth quarter. In South America, new equipment sales were up modestly from the third quarter of last year driven improved construction activity in Argentina.

Product support revenues were similar to the first two quarters of the year as demand for mining appears to have stabilized albeit at lower levels from 2015. We've improved efficiency in our service business and continued to tightly control costs to maintain profitability in slow market environment.

EBIT margin was 8.7% in the third quarter. Importantly adjusted return on invested capital improved by over 100 basis points from last year to 15.6%, driven by steady profitability and reduced invested capital.

In the U.K. we are pleased with the progress we are making on our business transformation plan, which is returning to historic profitability levels in the third quarter.

EBIT margin of 3.8% showed significant improvement from the last three quarters, driven by considerable reduction in SG&A cost as a results of the U.K.' s transformational efforts.

Activity levels in general construction of plant hire sectors continued to be robust. However competitive pricing pressures continue and product support opportunities have shifted with the fundamental change in the coal industry and suppressed oil and gas markets.

Our U.K. team continues to position the business for success by reducing the cost structure and increasing supply chain velocity.

Excluding the impact of foreign exchange consolidated invested capital was down about $215 million from year end 2015, driven mostly by lower equipment inventory and rental assets in Canada. We have reduced new improvement inventories in Canada by about $125 million growing this year.

However as the Argentinean markets begin to recover we continue to strategically invest in inventory and rental assets to capture opportunities in the construction sectors. We remain focused on managing our working capital more efficiently in all regions including the reduction of excess inventory.

We generated strong free cash flow of $163 million in the third quarter and $257 million year-to-date and continue to expect 2016 free cash flow to be modestly above $300 million. This will be the first year in the past 10 plus years that we will generate positive free cash flow in each quarter.

Our net debt to invested asset capital was 35% at the end of September and net debt to adjusted EBITDA ratio 2.1. We expect to further strengthen our balance sheet and as Scott mentioned we are evaluating our capital allocation options.

The market conditions in all our territories remain uncertain and we expect the recovery to be slow. So we will continue to streamline our network, improve our business processes to ensure that our business is well positioned for continued improved profitability.

I will now turn it back to Mauk.

Operator that concludes our remarks. Before we go to the Q&A, we request everyone in 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 lines.

Good morning.

Hey Yuri.

Hey, Scott. So a lot of noise in the Canadian product support with the wildfires and whatnot.

I mean what's your take on how that market is evolving I mean for product support in the oil sands, we heard a lot, I guess, last year boat overburden removal being delayed and a lot of deferral of activity like that, we don't hear so much about that now. Is that still the case or is there something else structural in the market that's kind of keeping product support at even if you adjust and its flat you would think with production continuing that those deferrals of products can only go on so long.

Just any color on how you're thinking about that?

Yeah, I mean if we look back to last you know six or seven quarters we kind of had a pretty stable run rate and this mining. I’ll come to construction and power, but in the mining side pretty stable run rate and we saw that if you adjust for the really weak July and August and we saw that continue in 3Q, so when we look at September and October numbers we’re about that same level in the oil sands.

So there hasn’t been an increase as your point and I think we’re at the cusp of that changing. I mean I think if you look to 2017 and you see our OEM facility, which is quite busy right now, which is the backlog where we're looking at rebuilding engine.

The type of improvements, I'm expecting 2017 versus 2016 in the order of 10%. Now that doesn't mean product support overall is going to grow 10% because there are some offset in the construction and power systems markets which are still pretty soft.

But I do expect in 2017 you're going to see modest growth and product support driven by mining or oil sands relative to 2016.

Okay. And that rebuild activity you're speaking about, are these closer to signed on paper and.

I think last quarter you mentioned that it was a lot of conversations at this point; I guess that’s just kind of firmed up? Would we see that in backlog, probably not I guess?

You won’t see in backlog, but I mean it’s actually starting right now. I mean, you’re seeing our OEM facility pretty busy and so we have pretty good, Steve and I spent the week last week in Edmonton with the team and we have pretty good clarity on – our pretty good line of sight into that 2017 engine rebuild opportunities, so I would say it’s starting to appear now.

Okay, great, last quick one for me, Scott. I mean how do you feel overall about your overall cost structure here, and you've done a great job obviously, the quarter was notable and that there were no restructuring or severance costs, it was pretty clean.

Are you happy with where you’re at or do you think – are you planning more action.

Yeah I mean when you look at the step back and you look at where we were three years ago, where we were $3.5 billion to $3.8 billion business growing to $5 billion and now we’re $2.8 billion business and we're not growing at 10%, we're growing at GDP infrastructure type is the catalyst going forward for our growth rates. So we have too much capacity in the system and that's what we've been working on over the last 1.5 year.

I think we've done a pretty good job getting that footprint down to you know a more reasonable size. Last quarter we made a decision in the power systems business it was an important decision and it was around getting out of line of business in power systems that we thought we could outsource and do in a more profitable fashion.

And as a result we closed down our Richmond facility and moved that to Surrey and that Surrey capacity was open because Cat had gone out of that on highway trucks and so we had some unutilized capacity. This quarter we look and we're going to close COE and we made the decision last year to close half of that operations, because we didn’t have the capacity.

And now as we look forward and we see the amount of capacity and how well that transition is gone it led us to make that second decision. So I think that’s kind of the main decision that was made for the fourth quarter.

And there will be obviously unfortunately headcount implications that that come along with that. And so this transformation continues, I think this is the last major restructuring from a foot print perspective.

But definitely you know this is a big decision that we've just taken here for the fourth quarter.

Okay. Any idea of what the potential cost savings would be, are they in excess of that 150 that you’ve talked about, it sounds like it.

Yes is the answer, but then now we're getting into 2017, right, I mean the 150 that we had given you guidance on as 2016 verses 2014 and as we look forward to 2017 some of these decisions will I mean clearly reduce the cost structure. But frankly we're looking through our customer lens and trying to make sure we are efficient with our customers in getting them better service, better customer delivery and that's why these decisions are being made not necessarily, just because of the impact on profitability.

Okay. Thanks very much guys.

I’ll turn it over.

Just going to follow-up, maybe to Yuri’s question here, so we've seen some continued restructuring in 2016. Could you help us out in the SG&A map going into 2017.

Maybe the other way to think about it is you know just in terms of a percentage of revenue how should we think of that going forward?

Hey Michael, this is Steve. Well, so first answer to the question we’re directly on the savings.

We have put 2014 as the benchmark because that was before the downturn really started, so relative to our commitment in Canada we will exceed the $150 million, adjusted for FX and globally will be close to $200 million. So we’ve met our commitment on that part of the restructuring, we look forward and what the dynamics of revenues, we would expect our SG&A to even with the reductions to be in the 20% to 21% range on the operating basis.

When we look at the – and when we talk about the $150 million to $200 million, we’re talking about fixed cost savings. So there is some you know – our cost structure is roughly 20% variable in SG&A nice so there is some tied to revenues, but was flat – relative flat projection to revenues that's how we would look at the map.

And the way I think about it from a profitability perspective is you know last two quarters we've been running around 6% and EBIT and that's I think a little light relative to normalize because we had weakness in product support that we didn't expect and that was made out for by a combination of operational improvements and service and better performance in rental. As we look forward you have a little bit of benefit of lower labor costs in the fourth quarter because of the union agreement.

Now some of these changes that we’re making around COE will come through into 2017 and I think we’ll drive the profitability into that 7% type range and that’s not guidance, but that’s how we’re kind of we're thinking about the business for 2017. We had some modest product support growth.

Okay, thanks, its good color. I want to continue pushing on 2017 here.

I know you don't provide guidance, but I think question has had some success previously, so could you provide us with maybe some revenue trends into 2016 by geography or maybe asked another way, if we don't see any improvement in commodities, how should 2017 shape up.

Right okay, so let me and not in the spirit of not providing guidance, but giving you a little color. I think I’m pretty aligned with - there's not a catalyst in 2017 from a revenue perspective in any of our regions.

So I don't know if it's you know, plus 2% or 3% or minus 2% or 3%, but it didn’t have kind of flattish type area across with the company. When I look at that U.K.

I think the performance there over – what the actions that have been taken over the last nine months are pretty important and are going to ensure that we're successful, so I continue to see momentum. As we look at 2017 on a profitability perspective relative to ‘16.

Similar in Canada when I look at my view the product support will grow in 2017 versus 2016 modest growth, but I do think it's going to grow and I think you'll see some profitability improvement in 2017 relative to 2016 in Canada. And in South America, you know we’re at that bottom, it’s now been three quarters in a row where the product support has stabilized.

I don't see any catalyst for growth there; there is still a lot of fleets that are underutilized 18% to 20% type underutilization. And so the margin area that we’ve been in that 8.5, 8.7, 8.8, I mean it feels to me like that’s kind of where we're going to be for 2017.

Now what I would I would say is roll-up in South America improved year-over-year here and that improvement is I think, highlights what we're trying to do here. An improvement in light of a 9% reduction in revenue, you saw relic improvement in the Company, you’ve seen to $257 million with year-to-date free cash flow.

And as I look forward to 2017 I think you're going to see strong free cash flow performance despite some of the investments that I just talked about. So hopefully that gives you a little bit of sense of the year and I think it's pretty consistent with what Cat has been saying as well and so no real change I think.

Okay, that’s perfect, thanks guys.

Good morning guys.

Good morning Ben.

Can you hear me okay.

Yeah perfect.

Okay, thanks. So as you guys have been taking costs out of the regions in the branches, I noticed that you’ve been bulking off the head office in areas like strategy, M&A and in particular digital.

Can you first of all just talk about like what the strategic impetus is behind that. Look I know you mentioned your online initiative maybe you can elaborate a little bit on that.

Talk a little bit about the time line and potential size of the benefits like how we as analysts and investors should look at those investments and how they bear fruit over time and how we measure them? Then finally like what do they cost us and where do they show up in your G&A line, so that strike me as, I guess for lack of a better word you know overhead and managed overhead and support.

Yeah, sure, thanks. So actually I don't think you've seen a lot of that in the head office numbers, just I think what you've seen of the head office numbers in the relative expenses that’s driven out the overhead, but nevertheless you’re on to a good point.

So I’ll address the cons out. In the context of reducing headcount across the company by - in excess of 20% in reaction to the current environment.

We are also thinking about the long-term for this company and in my view the long term revolves significantly around digital. And so we have brought in capabilities and continue to bring in some capabilities to address the digital agenda.

Now when you say capabilities, I think it’s more in line with 50 to 60 people across all three regions with some head office, but there are some in the regions as well, so this is not overly material number of heads but it is, this dichotomy between on the one hand having to lay off people on the other hand investing for the future is judgment around short-term versus long-term. As we think about longer term and benefits of this, I see three priorities; one is using digital to lower the cost to serve and make us easier to do business with.

And so you will see that coming through our G&A line. And just as an example, this is a small example, but we went live today or last week on HCM, which is a talent management tool in Canada it’s a work day, people would know that.

And that's going to allow us to shut down four or five technology solutions that we previously used which will reduce costs for this business and it will make it a much better experience for employees and a much better way ability for us to manage our talent, so that’s as an example on the lower cost to serve. As you think about the two other priorities of digital; one is connected machines.

For each machine that we connected, we expect to see an improvement in product support of 10 points and that is coming from Cat looking at their whole universe. So getting these machines connected is a massive priority for me and you see 20% improvement in our machines connected this year, year-to-date versus last year and importantly 73% improvement in retrofitted machines this year.

Now is there a lot of money being spent on that? Frankly, not a lot because technology has evolved, at such a place you can use a self install low cost sensor to get it on every machine and territory and we're going to accelerate our efforts in that level, in that area.

And then the third priority is ecommerce and this is particularly important for our U.K. business.

As I think about the importance of low cost to serve and the cost difference of delivering product via an ecommerce channel as opposed to a traditional channel that is extremely important, that doesn't mean by the way that the traditional channel goes away. I mean, it’s an omnichannel approach, where you have both ecommerce and bricks-and-mortar.

But you can be very thoughtful about how much bricks-and-mortar and where you need it et cetera and that’s the path that Kevin is heading down in the U.K., ultimately it will be important for our Canadian business. And so we're investing there and probably third step is our South America business, but that is the third priority of digital agenda, so hopefully that gives you a little bit of insight into what we're thinking about.

And the corporate development and M&A and strategic front, you’ve been adding some horsepower there what are your thoughts for that?

Yeah adding a little bit of horsepower, but I mean as I think about, I mean, when we say horsepower, I mean, we're talking of couple of people. But you know as I think about the business going forward, this business is generating a lot of free cash flow.

And as we think about digital as an example, there's a build versus buy conversation that we have to be having in terms of capabilities. So and we aren’t overly material, but we're thinking about how to bring capabilities into the business from a technology perspective.

As we think about areas of expansion, I think we need to be thoughtful about with free cash flow, do you repurchase shares, do you pay down debt, do you think about growth, and that growth ideally is very consistent with what Cat’s thinking about. So I mean we’re not spending a lot of time on that right now, Ben, that obviously there's some thought going into the future growth options for the Company.

That’s helpful. My second question then would be, again going back to inventories, you had some free cash flow in the quarter.

But your inventory level is really, they haven't come down all that much and certainly by a turnover perspective, inventory turns, working capital, sales ratio, there’s lot of those numbers having to show major risks. Obviously the market is still very slow, but that, but to me that runs a little bit counter to some of your own commentary around the supply chain and efficiencies and productivity et cetera.

If it’s not showing up in those metrics, how is it showing up and when can we expect to see better ratios are?

Ben, this is Steve. So fair question and we have gained great momentum in our supply chain management when we look at our year-to-date cash flow.

Then you can see that we're starting to smooth out the normal cycle of investing in inventory, monetizing it through the sales cycle. To be specific about our inventory targets we've reduced inventory in Canada, new equipment inventory by $125 million.

That's offset by investments in new equipment in Argentina as part of our resurgence planned there. Even though we've made great progress and smoothed out the curve, there’s still seasonal curve in the U.K.

and so we have about $30 million of inventory in the U.K., which will - we expect to fell through in the fourth quarter. Parts overall are down, but because of the activity coming through, starting to come through in the shops it's offset by service working process.

And lastly we have some as you know as part of our cash is generated by defleeting out of network pull [ph] and part of that inventory is its held-for-sale, its classified as inventory on our books. But those components that are netting down, so we're watching each those components, we feel good about our velocity of parts and our improvements.

Our focus is now on new equipment. We feel good about our progress and we think it will continue to materialize as we go forward over the coming quarters.

But ultimately your improvements in the supply chain and efficiencies should show up in higher turnover and working capital sales ratios, if they not or do we have to wait for the market to come back before those numbers improve?

No, I think they improve before the market comes back, but definitely the turnover will improve more slowly while we wait for some tailwinds on the top line. But as we went through those composition of the change in inventory we’re being thoughtful about growing the business or the opportunities where we have opportunities for the business such as Argentina.

Our rental and CapEx are very flexible investments so more we freely acknowledge; more work to be done we’re pleased with our progress. But definitely more work to be done.

Okay thanks for answering questions.

Good morning. Results coming into the U.K.

and I guess consistent with what we’ve heard from other industrial companies that Brexit really not having an impact on the U.K. results.

Could you talk a little bit about what type of plans, preparations how you’re thinking about that? When does it start impact it and I'm assuming that infrastructure spend is, you know still a ways out.

Yeah so I mean I was a little bit surprised by the revenue growth in the U.K. I must say, it was relatively strong and I think the actions that Kevin and the team have taken on on the cost structure and the inventory are really starting to show through.

I mean, we’re nine months into this journey. But back to Ben’s comment on inventory management.

I mean you have to think about sales to invested capital, not just invested capital and you look at the difference in the U.K. year-over-year on what they’ve generated in free cash its GBP25 million to GBP30 million and that’s all through inventory management.

So, I'm really pleased with the focus that Kevin and Greg are bringing on that managed balance sheet. So then the real issue becomes the P&L in terms of revenue and its uncertain there right now.

I mean, I was pleased with the revenue, I think the risk is the FX on devaluation and how do we compete versus local manufacturers in that environment. The offset to that is the government is spending a ton of money on stimulating economy through fiscal stimulus.

And so you look at the announcement that’s coming out of the U.K. right now on some of this infrastructure spend and that is really positive for us.

So uncertain environment that as we look forward we’re hopeful, but also you know pretty cognizant that getting this cost structure in line and continuing to focus on asset velocities.

But from a product offering footprint perspective how are you thinking about that?

Well I mean I think part of the plan is through the reduced cost structure is reexamining the footprint. And so year-to-date I think we've consolidated about 30% to 40% of the footprint and focused much more attention on direct shipments from the warehouse that we invested in three years ago.

It was out of big warehouse that we invested in three years ago, we can get to every customer within one day and so reducing the touches and that business is extremely important. Starting to think about how you deliver product to customers via online channels is extremely important.

In terms of product offerings, not much change, I mean, we're trying to make this business successful for the whole scope of product offerings from Cats, I wouldn't say any change in that area, Jacob.

Then my second question is just on the center of excellence and operationally how does that change your product offering through Western Canada?

I mean, it doesn’t. What we had done in, I guess, two quarters ago or three quarters ago is we’ve moved most of the mining operations to the oil sands and so when you look at Fort McKay right now it's high utilization with labor realization and actually sustainable from a profitability perspective for first time in three years, so that’s good news.

So that’s created space in COE. We had moved new equipment prep to COE and that was what primarily what was being done there right now.

We're going to take that out to two or three different branches. So we want to make sure all of the progress we've made on consistency on NEP is maintained, but we will revert that to two or three different branches and then that will allow us to free up capacity to be able to make the difficult decision but the necessary decision to close COE.

Does this handcuff you in any way if we see an increase in activity levels?

No, I mean this is back to the – you know the high level comment I made to your earlier [ph] question I think, which is we were a $3.5 billion business growing to $5 billion. We’re a $2.8 billion business growing based on infrastructure now.

So all of this capital that we had in the business, we’ve had to address them and this was a decision that was made a long time ago for the right reasons. We didn't have Fort McKay and so we needed a place to address our [indiscernible] customers we now have Fort McKay it's running at one shift at the low facility.

There’s lots of opportunities to expand the capacity there. So facility like COE is just not needed in this environment.

That's awful. Thanks, Scott.

So Scott listening to the OEMs report this quarter, it seemed to me at least as if increased competitive pressure in North America was a bit of a steam. Can you just give us a feel for how you would characterize the competitive environment year-over-year in sequentially versus Q2?

Sorry Cherilyn I missed, given the comment by OEMs?

Some of the OEMs, it just seems that increased competitive pressure in North America was referring.

Yeah, no, I agree with that. I mean I think the equipment and this is mostly an equipment comment and the competition is fierce, I mean it really is and I think through the year, you’re seeing compression on gross margins, on equipment.

You’ve seen that as Steve said, you’ve reduced our equipment inventory by about $125 million in Canada, so I actually feel really good about how we're addressing the excess inventory we have in Canada. Then I guess the other thing that I think is a little bit encouraging this quarter is we saw weakness on product support, but we actually saw an improvement in gross margins on the equipment.

And I think that is the normal cycle of working through some of this excess inventory, so I was pleased about that. But no doubt it's a very extremely competitive environment in equipment still.

Okay. The other thing that I thought was good in the quarter was just the gross margin was steady on a similar sales mix and the MD&A notes improved service profitability.

So I was just curious if there are some metrics you can share that would give us more insight into how the service operations are performing?

That just might be difficult, but I’ll tell you is this is the first quarter since I've been CEO of this company that our Fort McMurray business, oil sands business is financially - service business sorry is financially sustainable. And so we've worked for three years trying to get our service operations to a point where we were delivering great service to customers, but also in a sustainable fashion.

We made great progress over the last two years in our branch network. The one area that was causing us a lot of consternation was our oil sands business and through the combination of consolidating into Fort McKay and having some constructive partnership with our labor force, we've been able to increase labor utilization, lower the cost structure and make this a more sustainable business this is in for last three years.

And so that is in the quarter what you're seeing, I mean, you’re seeing reduction in product support, which I wasn't expecting. But you're seeing increased service performance and you're seeing a little bit higher gross margin and you’re seeing better rental utilization, I mean, that’s kind of the summary of the quarter in Canada.

Oil sands are showing, this is Steve, oil sands is our best example, but service profitability is also increasing in South America with the operational excellence agenda. So we're very pleased with the track on service profitability.

Great. That's my two.

Thank you.

Yeah, thanks guys. Just to be clear, was Canada product support overall, did you say it was flat in September and October on a year-over-year basis?

No, so I was – so if you look at the last that six quarters prior to the fire, just average the product support in Canada, it's been relatively flat. I mean, there’s been some ups and downs as you always have in product support business.

And what I’ve said is in July and August we're about 15% to 20% below, overseen in September and October. And September and October is back to that run rate.

So when you adjust for and I’m talking about mining by the way, when you adjust for the fires into 2Q, our product support in Canada was down on the mining side by about 8%. And you've seen that rebound in September and October to get back to the run rate we’ve seen in the six quarters prior.

Can we expect in 2017 another $3 million to $400 million of free cash flow or at least give us some puts and takes? I know there has been a lot of questions on that inventory, it seems like you guys have been reducing a lot of the excess inventory in Canada.

But with the backdrop, I mean is there any need to go out and purchase more equipment with the current demand level we’re seeing or is there another source of positive free cash flow next year based on where the inventory levels are?

Yeah I think 2017 is going to be a free cash flow positive year, no doubt, I mean I'm focused on 2016 right now and 2016 I think we said modestly over 300, I think it's going to be slightly higher than what we are initially thinking, but sells modestly over 300. And I look at next year you’re going to continue to see the same dynamics.

I mean there's not a lot of reason - there's not a lot of impetus or catalyst behind new equipment sales when you look at our consolidated level. But then you got to go region-by-region.

So look at Argentina, we’ve invested in inventory in Argentina and that’s been really helpful. In the U.K.

actually inventory management has improved significantly, but sales are up 14%. So you have a little bit of investment in inventory.

So when you look at the free cash flow performance of the business over the last three years and we’re talking about $1.6 billion, $1.8 billion in free cash flow. I'd say about one-third of that has come from inventory and two-thirds of that has come from EBITDA and that will continue through 2017, in all likelihood.

Great. If I can just sneak in one more.

On the rebuild activity, I mean how much is rebuild activity up in 2016 versus 2015 and based on the visibility of what you're seeing versus 2017 what can we expect there? I’m just wondering why such a Canada story and not more of a story it’s been, when do you expect that to be?

Well, Canada versus [indiscernible] I think there's a little bit different dynamics there. You’ve got actually oil production growth in Western Canada and when you look at 2016 versus 2015 in Chile copper production is down.

So there’s a little bit of I would say higher part fleets in Chile relative to Canada. Now going forward, I think in the forecast I was saying you see copper production rebound a little.

So the dynamics may change in Chile. When you look at Canada what I said was rebuild activity - engine rebuild activity around large piece of the equipment were expected in OEM to be out by about 10% in 2017 versus 2016.

But that's offset by some weaknesses in some of our other segments. And so all in, I feel pretty comfortable about modest product support growth in 2017 versus 2016 and it's driven by that mining rebuild sector.

Got it. Thanks guys.

Yeah, thanks. Scott, I just want to pick up there.

In the non-mining parts and service in Canada, the decline there has – the rate of change decelerated, is that's starting to flatten out or is that still, you’re trending downwards at the same rate?

I think it’s down modestly relative to earlier in the year. I mean not to the 8% type level but it is a contributor to the decline.

And so I think you have to break out the construction in the power systems areas, I think construction is going to continue to be weak. And on the power systems area I think as someone said to me the other day slightly better than awful.

And it’s been really weak and I think it's going to get moderately better as you see more rigs go back to work and more engines being used. So I'm I guess get a little bit optimistic on the power system side, I think on the construction side it’s going to be continue to be really weak.

So have you seen the inflection point already on power systems or is that something that that you're anticipating?

Yeah, I haven't seen it yet in terms of in our order book, but you are seen it in terms of activity levels of actually machines going back to work for sure.

Then we have heard that the rebuild activity it sound like it's picking up anyways. What’s utilization, I mean, you talked a lot, you talked about it being quite heavy at OEM?

Is there an upside to rebuild potential in 2017? What's your capacity to actually to do that?

Yeah I don't know worry capacity side, so I think that facility is a great facility and there's opportunity to grow into it you know outside, I'm not sure, 10% feels like a pretty good number for me. So is there a upside to that, I think the upside Bert is going to be on the oil and gas.

If you think that there's rigs going back to work and you think that fracing equipment starts to go back to work in some of these engines on frac here have to be serviced and rebuilt and we get that business, I think that’s your level of upside.

Okay. And just lastly, just on the new equipment this quarter, I thought last quarter Scott, you had indicated that deliveries would be better than Q3 and it sounds like there was some deferral anyways and that might be part of the inventory.

Just wondering if there was, just get pushed into Q4 and if so --?

That’s exactly what happened, Bert. I mean we saw a slight uptick in Canada, I was expecting more and it was you know one shovel they got delivered early Q4 and not late Q3 and that was a little bit of impact on inventory and a little bit of impact on the sales that I was expecting.

I think the other thing is that you know I think the other thing that was really good though is the South America uptick in the equipment and that's the first time since 2015 we’ve seen that uptick, so that was actually an encouraging thing in South America.

Scott, can you comment a little on product support, just want to get into it a little deeper. How much of product support actually is rebuild activity, like as a percentage?

Yeah, I don't think we break that out, Sarah, I mean I think OEM right now and rebuilds are a big percentage of our mining product support, but we don't break out the actual percentages.

Okay. And then maybe – but how do you think about the machine population that's in kind of the sweet spot for repair and maintenance, both you know parts and service?

Just if we look at your sales of new equipment down let’s call it, 40% over the past two years. Is there a window in which you can do the parts and servicing and then it moves into more, do-it-yourself and.

you know third party parts. I’m just wondering how that window of opportunity – how you see that trending in the next few years.

You know we're watching this very closely from a market share perspective, we are not losing market share on product support and in fact, they were gaining market share product support, team feels really good about that and that's really important in this environment. I mean we've spent a lot of time talking about market share on new equipment.

In reality that is important, but market share on product support is more important. And so we're spending a lot of time making sure we're getting the right proposition to customers who were involved in their planning.

We're thinking about their needs for 2017 because we want to make sure we captured much product support market share as we can.

Okay I guess, my question is more like the externally performed product support versus in-housing. Just when you talk market share that's relatives to competitive services or in-sourcing?

Yeah, no I was talking about parts. Sorry, and on servicing you’re right, there had been a trend around in-sourcing for sure.

And so we've seen our service business over the last couple of years in both South America and Canada decline someone. And you know as we make these decisions on facilities we need to be very thoughtful about that.

My view is that service business will come back and so we don't want to take actions today that will impact our ability to do that service business in the future, but there had been some weakness year-over-year, pretty stable over the last couple of quarters. But there has been a weakness over the last couple of years for sure.

Okay. And you believe that’s more on cost control versus each of the fleets that’s out there?

Yes.

Okay. And then my second question is on since the ERP system.

Just wondering what magnitude of investment we should expect, what timeline? And is there any recovering any of the old work that was done in you know pre-2014?

Yeah, so on that, no, on that second question on recovery of that. I mean, we are starting with the blueprinting process that actually is starting or maybe started last week.

And we won't make any decisions until we've done that blueprinting and process change. And so this is not just, I mean, this is going to be a thoughtful deliberate process and its going to be phased, will start in one of the smaller geographies of both of the – it’s a big geographies.

And so I suspect it will be a 2017, 2018 type opportunity and I don't have the full capital spend bucketed yet. But thought I'd ask you to think about free cash flow for the business.

Not technology spend and free cash flow for the business as we talked about, I mean, another strong year in 2017, kind of in line I mean, I don't yet, because we're still going through the budgeting process, but in line with what we're seeing in 2016.

Okay. So it sounds it’s not material in terms of --?

No, it’s material for sure. It is material, I mean it’s a big project, but it's not going to swing the free cash flow relative to what you've seen over the last couple of years.

Okay. Thanks.

Hi, good morning, gentlemen.

Hey, Max.

Good morning, Maxim.

Scott, just very quick question for you, in terms of I think we're reading some stuff on Codelco, where they’re trying to retain a bit more capital for themselves versus disturbing it back to the government. Is there an update from that perspective?

What are your kind of initial thoughts it they can achieve that?

Yeah I mean I think Codelco, has been, it's been a tough situation for Codelco over the last year or two and you know their investment plans were I think a little bit more aggressive than what we're actually seeing in the market. And I suspect given you know the state or grade or sector that's going to have to change over time.

So as we look forward to 2017 to 2018. But I don't have an update, I mean we're very engaged with the customer.

The customer is extremely happy with the performance of our fleet. We’re working with them and thinking about the future from an underground perspective, so their relationship is great.

But I don't have any insight into future capitals pending on behalf of the customer.

Okay. Fair enough and actually do you mind, maybe just building a little bit on that comment that you make in relation to going underground and in terms of what that could represent as an incremental opportunity for you guys and maybe when?

Yeah, early days and let’s separate it from Codelco, but just in general in Chile, there's an underground opportunity in Chile, as the oil grade decline and the pits get longer, you know a lot of our customers are thinking about underground. So Cat is spending a lot of time on making sure we have the correct product line capabilities to compete in that business.

So let me leave that - let's leave it at that.

Okay but on timing wise is it more of a sort of 2018/ 2019 opportunity?

Yes.

Okay, so that’s for me. Thank you very much.

Okay, Max.

Well, thank you very much operator and thank you everyone for listening. We look forward to speaking with you again next quarter.

Bye now.