Finning International Inc.

Mauk Breukels – Vice President, Investor Relations and Corporate Affairs Scott Thomson – President and Chief Executive Officer Steve Nielsen – Chief Financial Officer

Michael Doumet – Scotiabank Jacob Bout – CIBC Yuri Lynk – Canaccord Genuity Ben Cherniavsky – Raymond James Cherilyn Radbourne – TD Securities Sara O'Brien – RBC Ross Gilardi – Bank of America Merrill Lynch 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 and thank you for joining us today. I will start with some comments about the quarter as well as provide my perspective on what we are seeing in terms of market activity in each of our regions.

Overall, I'm pleased with our performance to start the year. The Q1 results we released this morning demonstrate strong execution across our operations and the benefit of lower operating cost.

Canada's solid performance was underlined by a market improvement in profitability. EBIT margin was the highest we've recorded in the last six quarter despite 19% lower revenues relative to last year.

Our revenue were down, we posted a considerable increase in product support. In South America, we generated solid profitability.

This is a particular notable achievement considering there was a seven week labor disruption at Escondida. Product support increased modestly as demand for parts and service improved and we executed well on a mitigation plan we developed with Escondida.

During the quarter we also benefited from considerable new equipment sales to construction customers in Argentina. And in the U.K.

and Ireland, we are demonstrating the impact of successfully repositioning the business for greater competitiveness against an uncertain macro backdrop. The business is capitalizing on new and used equipment opportunities in a challenging market while benefiting from a lower cost structure.

On the whole, we're off to a solid start and our focus is advancing our strategic priorities. On the operational excellence front we have increased our focus on optimizing our equipment supply chain.

Last year, we had already implemented a number of process improvements and equipment forecasting quoting. These rolled out in specific areas of the business and we are beginning to see the benefits.

Since Q1 2016, our total inventory turns and new equipment inventory turns are up, despite new equipment sales being down almost 20% over last year. I'm encouraged by an improvement in our working capital sales ratio, which is the lowest we've seen in the last six quarters.

Our invested capital turns increased by about 5% from Q1 2016, even though our revenues decreased by 11% over the last four quarters. We will continue to work towards reducing our equipment forecast to cash cycle times and making sustainable improvements that will support an improvement in return on invested capital as demand recovers.

Another area of focus is our rental business. We have new leadership in place in Canada and the U.K.

to drive improved performance in rental. One of the changes we are making in Canada is managing our used and rental fleets together to provide customers with a broader range of product options.

We've also made changes to our fleet composition and are now focused more on Caterpillar products. While we are in early days, customers are responding well to the changes as loyalty scores are up, even while the market remains challenging.

Importantly, we're seeing improvement in profitability. I've spoken about our commitment to expanding our digital capabilities on previous calls and we're making progress in this regard, a good example of customer adoption of our new parts e-commerce platform which went live last year in the U.K.

and very recently in Canada and South America. We've seen some really good results in terms of the number of customers engaging with the site and the new channel is already making a positive contribution to our overall part sales.

The U.K. now ranks amongst the top Cat dealers in the world for registered customers and users.

In this region, our e-commerce channel is complemented by Parts Direct our centralized parts order processing team. Going forward, we will continue to enhance our online and Direct presence to complement our physical locations, allowing us to serve customers when, where and how they want to be served.

Our omni-channel approach provides us with a low-cost way to reach new customers and strengthen relationships with existing customers. Overall our progress on our key priorities provides me with confidence in the year ahead.

I will now turn to our market conditions region by region. In Canada, equipment utilization is up from mining producers and contractors.

They're spending more on maintenance and repairs of their fleet. Both our OEM and Fort McKay facilities are busy as customers are catching up on previously deferred maintenance.

We have seen some optimism from our construction customers. In general, activity in Saskatchewan continues to be soft, B.C.

remains steady and Alberta is improving. We continue to expect a positive impact from infrastructure projects over the longer-term.

In Chile, we are seeing a modest improvement in product support activity across the various market segments. We do not anticipate an improvement in end markets until there is clarity on the outcome of the November election.

However, we are encouraged by increased quoting for mining equipment. In Argentina, we are regaining share in construction.

We remain positive on the future development of Vaca Muerta and will be watching the mid-term elections with interest as the outcome will be indicative of future market opportunities. The U.K.

and Ireland market remains uncertain in the wake of Brexit and the upcoming general election. This is mitigated somewhat by the opportunity to participate in significant infrastructure projects.

We've made good progress to operate in this challenging environment and remain committed to driving higher return on invested capital in the region. In closing, I am pleased with the steps we've taken over the past few years to improve the operating performance of our business and reduce fixed costs.

I'm also encouraged by the increase in order intake and backlog in the first quarter. However, market conditions remain uncertain across our territories and we maintain our expectations for essentially flat revenue this year relative to 2016.

Going forward, we remain focused on building our operational improvements, enhancing customer value and maintaining cost and capital discipline in order to generate sustainable profitability improvement. I will now turn it over to Steve.

Thank you Scott and good morning, everyone. We are pleased with the strong execution and the improved EBIT performance in all our regions in the first quarter.

In an environment marked by continued uncertainty and intense competition, we are starting to see the benefits of our reduced cost structure and improved operating efficiencies. Canada posted solid results as product support increased by 12% from the first quarter of 2016.

This was mostly driven by higher part sales in oil sands as customers resumed maintenance following a long period of deferrals. We also saw an increase in mining rebuilds.

Higher activity in the pipeline in oil and gas sector drove healthy demand for products support in core equipment and power systems. While, we continue to project a modest improvement in our product support revenues from last year, the overall market environment in Western Canada remains uncertain.

We do not expect elevated products support revenues of the first quarter to continue in the coming quarters. Despite stronger than expected product support activity, Canadian revenues were down from the first quarter of last year which included large fleet deliveries to mining and construction customers.

The favorable shift in revenue mix this quarter benefited our overall margin. We also achieved improved margins on new and used equipment, as well as our rental operations.

SG&A declined due to fixed cost reductions in operating efficiencies resulting from our business transformation of the last two years. Canada achieved and EBIT margin of 6.8% in the first quarter driven by higher product support revenues and strong execution in a highly competitive market.

In South America, higher construction sales in Argentina drove most of the increase in new equipment sales from the first quarter of 2016. We also delivered a number of large mining machines in the quarter.

This resulted in the revenue mix shift into new equipment sales. Product support revenues grew modestly in U.S.

dollars despite the seven week labor disruption at the Escondida mine. We capitalized on higher demand for products support from other customers and our team has done a commendable job implementing a mitigation plan with Escondida.

Although the strike ended in March, we expect the adverse impact on our product support business to continue in the second quarter as the mine returns the full capacity. South America reported its highest EBIT since the fourth quarter of 2015, on both reported and adjusted basis.

EBIT margin of 8.4% was below adjusted EBIT margin in the first quarter of 2016, primarily due to the shift in revenue mix to new equipment sales. We estimate that the Escondida strike reduced our EBIT margin by about 30 basis points in the quarter, and we expect a similar impact in the second quarter.

We expect to maintain EBIT margins in South America in the mid-8% range in 2017. The U.K.

and Ireland operation was a positive contributor in the first quarter delivering higher revenues in functional currency and leveraging a reduced fixed cost base from their transformation initiative. This resulted in a significantly improved EBIT performance.

As Scott mentioned, we are pleased with the progress we are making in the U.K. and Ireland.

First quarter free cash flow as negative as expected due to the acceleration of free cash flow in the fourth quarter of last year as well as an increase in internal service work in progress inventories. This service work includes component rebuild and new equipment preparation.

As Scott mentioned, the work is well under way to improve our equipment supply chain efficiencies with a focus on increasing their equipment turns. We expect improvements in our working capital metrics to drive another year of strong free cash flow in 2017.

Our capital expenditures are expected to be about $40 million higher than in 2016 due to targeted investments in technology, systemically our new ERP system in South America and our global digital capabilities. Assuming total revenues remained flat year-over-year, we anticipated to generate approximately $300 million of free cash flow.

We are maintaining our dividend and have just renewed our share repurchase program to provide flexibility depending on market conditions and valuations. As we indicated earlier, we intend to retire about half of the $350 million of debt later this year to further strengthen our balance sheet.

I'll now turn the time back to Mauk for questions.

Operator that concludes our remarks. Before we go to 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 the end of the queue, if you have more questions. Operator, can you please open up the lines?

Hi good morning guys.

Hey Michael.

I know you don't breakout the sales between mining and construction, but could you give us an idea of what you saw in FINSA this quarter, I mean particularly in the context of the election later this year in Chile? And are you seeing higher confidence level such that your customers are stepping up?

Your mining customers are stepping up spending.

Thank you, Michael. So, a big part, actually the major part of the growth in new equipment sales in FINSA in the quarter was Argentina.

So, we're seeing a lot of public tenders, a lot of infrastructure work in Argentina and some asset classes in terms of industry activity are up materially. And I think as we said to you, we're trying to get back our historical share and that's going well.

And so that was the big drivers of new equipment revenues. I think we are seeing – if we convert to Chile or transition to Chile, I think we were pleased with the product support improvement and we even saw growth despite the Escondida slowdown, so you can see some trucks going back to work and I think we previously said 20% of the trucks were parked and I think we're now down to 15 or 16, and so there's a real trucks going back to work, consuming parts and service which is good for us.

I'll say the new equipment market I still very slow and there is a little bit of quoting, but I suspect that is going to stay slow for a considerable time until we see a little bit more certainty.

Okay. Thanks and maybe just switching gears to U.S.

and Canada, we've seen some consolidation in the oil sands domestic companies increase their stakes. Any potential impact if any, do you expect from the near term or sorry in the near term or long term as a result?

Well, you've gone from five big players to three big players, and fortunately for us, good relationships with all of the players in oil sands. But I do think it continues the focus on efficiency productivity improvement and it makes us continue to try and be agile and deliver great value for customers in a cost effective way and fortunately we've been on this path now for 2.5 years.

We think its solid in our activities around Fort McKay, we've been improving our supply chain efficiencies. We've been driving value for customers.

So, I feel good about our position. I also think about where that business is heading over the next five to 10 years and we've talked a lot about whether it becomes you know the type of growth it was historically for us or a more modest growth with more focus on product support.

I still think that is the case and as I think longer term about things like economy, those are pretty important in the oil sands. And for us getting a joint development agreement, which we've just signed with Imperial in the oil sands to get autonomous trucks up and running is an important milestone, and we will get that in progress and launched here within the year.

So that's an important milestone for us if any.

Thanks Scott. That's it for me.

Good morning.

Hey Jacob.

So, seeing some nice margin improvement in Canada, can you just talk a little bit about or put that margin improvement in the two buckets, the mix versus the reduced cost structure. And really what I'm driving at here is this sustainability of this margin improvement, especially given, I think I heard you say that you know don't expect that the parts and service revenue growth we saw in the first quarter to be extended into the rest of the year?

So, again I think a couple of things going on in the quarter in Canada that allowed the margins to improve, one was mix. So, relative to Q1 last year where we had big mining deliveries, we had Site C we had Dominion Diamonds, so the revenue was much higher.

I think our new equipment revenues are down 50% quarter-over-quarter and 18% year-over-year for the Company on the equipment side. Now that is going to get better as we go through the year.

I think we said, at the start of the year, we saw modest receptions in new equipment sales year-over-year. I think that's probably still a good forecast for us.

As we look at Canada specifically, a couple things; one you had the mix shift which was helpful, you had the cost reductions which was helpful. I mean that cost are down year-over-year despite the activity, so we've kept cost out of the system and we will continue to do that.

And then third and more importantly, and you see it in the growth profit margins that are new equipment margins, rental margins, used margins are all improving and that is pretty important because as you look to the last three or four years, that has what has been a pretty significant drag for us. So, if feel really good about the sustainability.

I mean we said 6% to 7%. We're sticking with that type of guidance, but I do feel good about the solid execution on the outlook in Canada.

Okay, that' helpful and then maybe second question here just on your footprint. You know there has been quite of reduction in Canada and in the U.K.

Can you just talk a little bit about push back and getting some customers, I think you alluded in your comments that customer scores are actually up. Can you just elaborate a little more on that?

So, where we've seen the reduction has been in Canada and the U.K. as you said and South America.

We haven't taken the same type of approach because we have a longer-term view on copper and shale that is a little bit different than oil sands and growth that we've talked about. So, we have consolidated activity pretty significantly and I think for – in large part, I would say very comfortable with what we've done now kind of a year look back.

Our customer loyalty scores are at all-time highs. Our market share is improving.

Our e-commerce capabilities are improving. Our supply chain in terms of reduced touch points and getting directly to customers is improving.

So, I look back on the last year and recognize it was required, but also feel like it set us up well looking forward. So, I have no regrets of what we've done and I think it's made up a stronger, more agile business going forward.

Very helpful, thank you.

Hey good morning. Just a clarification on the comment about product support in Canada, was it – are you kind of pointing to the fact that the absolute dollars that we saw in the first quarter will likely moderate a little bit in the coming quarters, or is it the percent growth that will change?

Yeah. I mean when we started the year, we said modest reduction in new equipment and modest growth in product support across the company, and I think we're sticking with that.

And actually, if you look at the U.K., in functional currencies to take away the Canadian translation effect, you actually saw product support growth in the U.K. which is the first time we've seen that in a while.

You saw it in South America and you saw Canada with a 12% growth, and I think there was a little bit of catch up in Canada frankly in the quarter. So, I'm not sure, I would expect 12% type of growth going forward.

I think that was the point of Steve's comment in the speech.

Alright, but the absolute dollar numbers will probably come off a little bit in the coming quarters, but since you are confirming there was some catch up there, right?

There was a little bit of catch up. And what you're seeing, I think that's catch-up worldwide.

Right, this isn't a Canada phenomenon and you've seen commodity prices driving from balance sheets get a little bit better. Commodity price is a little bit higher and people who'd run their trucks really hard now trying to increase the availability which is i think the normal cycle and we see a little bit of catch-up in that first quarter.

Then just taking a step back Scott, I mean – I think this is the first set of results in sometime where there has been some tangible green shoots. How would you characterize how you are feeling?

I know you are leaving your – you know your guidance for the year unchanged, but just anecdotally, how do you feel about the year versus three or four months ago?

I mean I'm obviously pleased with the quarter. I mean it was solid performance, but I'm not sure I'd feel much different than I did three months ago.

I mean I think this is a pretty uncertain world around and you look at the oil price volatility and discussions around OPEC, you look at Chile and the elections, and Escondida ramping up over time and you look at Brexit and we've had pretty significant growth in the U.K. which is surprising us little bit.

You know that's why we're not coming off our guidance, because I think that's the right – I think that's the right outlook for this company for the rest of the year.

Okay. I think that's two.

I will turn it over.

Good morning guys.

Hey Ben.

Nice to see the SG&A come true, so well done on that. My first question is just, Scott, if I could ask you to elaborate a little bit on the rental strategy that's been sort of evolving for – well, longer than I'd like to remember.

So, what the latest iteration of your approach to market there sort of bringing that together with you used channel a little differently and bringing someone new in? And also just related to that, I noticed that there is little more CapEx on rental, but I think net of disposals, rental CapEx was still at or slightly below depreciation, so I know we've talked about that before, but what does that rental fleet look like in time, what is the capital requirements for it?

So the – I think the difference year-over-year on the rental CapEx is mostly related to disposals. There's not a lot of capital going into the rental business right now and you'd expect that, because the market is really challenged.

I mean it is still a very challenging market and you see that through all of the results, all the rental companies. So, that's kind of the backdrop and there hasn't been a lot of capital going into it.

I mean I think the – where we're thinking about rental, which is a little bit different, but is bringing the used and rental business together, and to me that makes a lot of sense. Kevin has been dealing out in the U.K., Juan Carlos and Jordan are doing that now in Canada.

And it makes a lot of sense when you think about the rental business being you know an asset intensive, high-velocity business that we should have coordinated with our used business to maximize residuals. And that's as the competitive advantage of Cat product, and if you can maximize those residuals, that's a great market for renewal equipment as well.

So, that's – at a high level, that's what we're thinking. That being said, because of the market and how challenging it is, I wouldn't expect a lot of investment into the rental fleet until we see a more constructive macro backdrop.

I think that would be my one comment. The second change a little bit is rent for sale and I think it's pretty apparent to all of us here that everything in your rental fleet should be for sale all-time.

And that's – you know it's a little bit of a different approach, previously we'd take a more silent approach where we have a rental business and new business and a used business. And if you can combine all of those, everything in your inventory is for sale, sale at all times, it's better for the customer definitely and it's also a lot better for us and how we manage our inventory.

And so, I would say those are the two big changes then to the rental charity.

Okay thanks and just a second question within your comments, living in an uncertain world, we had a very uncertain outcome in the provincial elections last night. Any thoughts on how the environment if it changes here, while it's going to change clearly, if that has any impact on your business and just on a related note there was some talk about not proceeding with Site C, but the incumbent government was obviously not – wanted to go forward on that, but if the greens hold the balance of power, does that – is there any risk of that?

So, obviously an uncertain result and I'm not sure. I think it's going to take a little bit of time to figure out exactly how the minority government is formed.

So, too early to tell, but I think as we thought about the different platforms, I think the key areas weren't frankly around infrastructure spend. I mean I think all parties are committed to the infrastructure spend.

That's good for us. I think the two areas of differences, probably between the NDP and the Liberals was Trans Mountain and then Site C.

On the Site C, I just find it hard to believe that we're going to reverse course on that given the amount of capital and the progress that's been made on Site C, but time will tell. On Trans Mountain I think that to be determined and I'm hopeful of the Canadian that we are able to get the tidewater.

I think it will be helpful for fretting as well. But obviously it's a very contentious debate and I think time will tell how that shapes out.

I guess in other regions we have sort of take wait and see to the market right now?

Yeah. Again, another source of uncertainty for sure.

B.C. has been a very strong market for us.

Even through the downturn, where Alberta was really uncertain, Saskatchewan is really uncertain, B.C. kind of kept – held its own and the team here in BC has done a great job improving market share, improving customer royalty.

So, again another source of uncertainty for us for sure.

And just in that B.C. environment, the softwood lumber and I mean lumber has been pretty good for you guys if not as big as it used to be, but that's just another uncertainty there, or you guys feeling okay about that?

I think the softwood lumber, I guess it doesn't worry me as much, probably because you've kind of seen this coming long time. We've got great relationships with all of the lumber producers.

You know I think the tax that's talked about is maybe a little less than the lumber producers were expecting. That doesn't mean this isn't a big deal.

It is, but I also think there is an opportunity here for resolution and I know at high levels from what I hear at least, high level the government are trying to work through a resolution, so hopefully that's helpful for us. The forestry does have a meaningful impact.

Forestry customers are certainly important for us and I think we've made great strides again over the last three of four years increasing our market share with them. So, again, I guess another source of uncertainty.

It doesn't come to the same level as I think about the uncertainty in Chile, but again another source of uncertainty.

Great. But thanks for the good answer.

Thanks very much and good morning. On the parts business, we've come to a very prolonged period of deferred maintenance.

It does sound like some catch-up contributed to Q1 for you and frankly for most Caterpillar dealers worldwide. Is there anywhere to measure how much catch-up might still be left to do?

You know we're looking at equipment utilization. We're engaged with our customers.

I think we saw this starting to come last year. Our shops started to get little bit more full and we talked about the rebuild opportunity.

I think at a real high level, I think our customers are moving from an absolute focus on parts discounts and service discounts to much more focus on availability and keeping those trucks up and running. And that make sense in this cycle, right.

You go from a period where you are trying to survive. Commodity prices are low, now commodity prices get a little strong and if you don't have those trucks up and running, you are going take away all the benefits that you received really quickly from the parts discounts you received.

And so, this is a normal cycle. I think it lasts for a while frankly.

I mean I do think a lot of these mine equipment have been on for longer than probably in previous cycles. I think this maybe with us for a while.

I just don't think it's to the level that we maybe saw in the first quarter. I think that's the point.

And I guess along a similar line, do you think about optimizing your supply chain and increasing ROIC. How do you balance those objectives against the potential for part supplier, equipment supply constrains from catalyst demand recovers again worldwide?

John, hi, this is Steve. You know that's a very good question and as we focused on this tough macro environment for the last couple of years we take the same lesson we can control what we can control.

We have a lot of room for improvement within our wall so to speak. We do think there could be some even while we gain efficiency overall, there is some pressure – put pressure on inventories potentially to help mitigate.

We balance that in a longer supply chain with Caterpillar, but we think, net, net, we'll still have an overall improvement in our working capital metrics. We see a little pressure as I mentioned right now on our internal service work in process that's complementing an overhaul rate for some parts, but we think net, net we'll still continue to infer.

Thank you. That's my two.

Great. Thanks Cherilyn.

Hi good morning. Can you comment on just like the appetite in Canada for new equipment relative to used and rental?

I mean just trying to get a sense of with a little bit of optimism for infrastructure pick-up, is there an appetite to re-fleet in anyway or is it really just putting fleet back to work that you see happening?

Yeah, so a few comments. I think we're through the excess or we're getting through the excess inventory issues we've seen over the last couple of years and you see it in our inventory which we cleaned up.

We see it in the Ritchie auctions. You can see it in cap price realization that they were public about on their operating cost.

So, that's the good news. I think we're through that.

That being said, there is a lot of fleet still parked and the first fleets that go back to work are the ones that are on the fence and we're starting to see that. So, that's good news and that was what was the driver of Chile product support, this year.

I think we have little bit more time of that before new equipment sales starts to any large degree. That being said, you know some people who've been through this cycle before would say, lead times expand a little bit on the part supply chain.

It's really important for customers to keep their trucks up and running or their equipment up and running and therefore they need a little bit more equipment. And we haven't seen that yet, but that may be a little bit of a tail to new equipment coming back sooner than I'm expecting.

I think that's the positive there. I think to be conservative or the way we're planning the business is that, that takes a little bit time because of all the fleet that's parked.

And just the differential in Canada in particular on new equipment relative to recent used equipment. Does that still favor demand for used equipment or do you feel like, basically a lot of the users move through, so not it's time for the new to step in?

I mean I think looking at Ritchie auction is also a probably good leading indicator of that kind of used demand switch and I think that highlights that we're getting through that used equipment. I think for us, I think about this rental used strategy, you might actually feel a little bit more emphasis on used.

Because I think it's a great way to support through the real value, it's a great way to act as an exit for our rental business in terms of Cat equipment, but in general, your comments around maybe coming to end of the cycle on used versus new is probably pretty fair.

Okay, and wondered just on the infrastructure opportunity, how big is that for Finning in terms of the dirt moving projects that are in the pipeline, are you really excited about that opportunity, or is it kind of just going to help incrementally?

No, I'm excited. No, I mean I think this is moving to – you know I mean if you look at the infrastructure projects around the globe right now, and the world is moving to fiscal stimulus versus monetary stimulus and you – I think we just reviewed yesterday HS2, which is the high-speed rail project in the U.K.

I mean this is a massive project to putting rail going from London to Birmingham. I think they are talking about 500 trucks needed I mean to move that kind of dirt over a relatively short period of time.

We also said Argentina going on right now. I think the public tenders have improved by 240% in Argentina over the last year.

Now mid-term elections are coming up in November. Those are pretty important, but you look at what Mack – President of Mack [indiscernible] and those made from a consumption led growth to a capital led growth, that's pretty significant.

I think Chile with the GDP coming from 6% to 1% is going to have to do something on infrastructure and the new government potentially well is in place in November. And then Canada, you know even though the election results, I think the liberal government federally and the provincial governments in all three regions have highlighted their willingness to spend significant money.

So, when you look at some of these infrastructure projects that our customers are bidding on, they are material. So, I am excited about it.

I just don't want you to expect to come through the numbers in 2017, because I think it's a 2018, 2019 type opportunity for us.

That's fair. And just a follow-on for that.

The margin expectation as we move into construction, I think traditionally it's been a little bit more completive in some respect. How would you feel about that mix shift from mining maybe into more growth in construction?

That's a fallacy in my mind. I think the appeal of the construction market is as appealing as the mining market for Finning and I don't know how that fallacy started.

I think the one difference is when you get up of the oil sands and you see these projects running 24/7 that's pretty important for our product support business. But when you get into these infrastructure projects like Site C and Trans Mountain, and I mean this equipment is running hard.

And so, I expect a good piece of business for us.

Okay. Great.

Thank you.

Hey thanks. Good morning guys.

Hey Ross.

Hey Scott, I hear you guys are saying on Q2 for product support in Canada, but can you talk about some visibility on like what the rebuild book looks like and if I'm a reasonably size customer, and I've got five large mining trucks that I need to have rebuilt, how long do I have wait these days?

So, it's a good point and we do have pretty good visibility and what I would tell you is we're running at labor utilization that is around 80% and that is you know when we started this journey three or four years ago, I think we're at 65% and so there is a significant impact in labor utilization that's partly because of activity and that's partly because of what we've done in terms of facility consolidation and just being leaner organization. So, that's good, but the reality is, our shops are full, alright.

I mean Fort McKay and OEM which are our two big shops serving the mining business are full.

And we've got lots of opportunity to add shifts and do all that sorts of things. So, it's good.

But I feel good about product support. I guess the point in what everyone is pushing on is, I felt good about it three months ago.

Right, I mean when I was on the call three months ago, we were talking about modest growth and product support and modest decline in new equipment. And I think that's what we're going to see.

I think modest growth. I think the 12% was a little bit of catch-up.

I think modest is what is in turn for us for the rest of the year.

What about Chile. I mean the fact that you are up 1% for FINSA for products support with these strikes in all these labor issues.

I mean kind of suggest that there has got to be some pent up demand there and you are talking about you know a continuing you know impact in Q2. But once and assuming it – that the minor do get through these issues, are you looking at second half like outlook in Chile where you've just got a lot of pent-up demand for rebuilds?

I think Ross it's a good point. I think there is pent-up demand.

We were positively surprised I would say by the ability, the commendable job as Steve mentioned of our team to mitigate the Escondida strike and we actually saw little bit higher products support than we were forecasting. Because these trucks came back to work and so with the higher copper price, 260, some of this truck on a sense go back to work.

That being said, I don't think you are going to see customers dedicate a lot of capital to Chile until we get a little bit more clarity on the product environment. And so, that's point one.

Point two, I think Escondida is going to take a little bit of time to ramp up and so that's why I'm being a little bit cautious on for the rest of 2017 in Chile.

In terms of your procurement effort and ability to just source parts from Cat, I mean there's clearly been a lot of rebuild activity going on for the last three to six months. Are you seeing lead times extended, are you able to get what you need because you just had a pretty big – quick ramp for everybody?

Yeah. I think there has been a quick ramp for everybody.

I think unexpectedly, you know we're working with Cat to try to mitigate that big kind of bubble of activity. To-date, I think we've done a pretty good job of cat mitigating that.

I mean is it concern? Obviously, it's a concern for everyone.

It's a concern for our customers, it's a concern for Cat and for us, but it's also a good problem to have, and we've got to – Cat recognizes the challenge as do the dealers and I think we'll do a good job together mitigating that impact.

Thanks Scott.

Thanks Ross.

Hi good morning gentlemen.

Hey Max.

I was just wondering if you don't mind providing bit more color on the backlog and the intake in terms of the buckets what drove that as the first question.

Maxim, hi, this is Steve. So, we had two principal drivers.

One was new equipment in Argentina and the U.K. for now.

And second is, as I mentioned in my dialog in our rebuilds and overhauls and slight pressure as we talk about part available. You can see, as I mentioned there is slight pressure on [indiscernible].

And that hasn't had a customer impact as you've looked at, a lot of that is internal work and so our customer satisfaction or demand is being met, but the backlog did improve on both of those and we feel good what the means for meeting our objectives for the second quarter.

Okay, that's helpful. And I guess, Scott, as we're thinking about everything get digitized, is having systems in place to smooth out any potential hiccups even with Cat for parts availability and so forth.

Is that sort of how we should be thinking about your digital initiative and what that can drive for you over the next foreseeable future?

Great question. I mean as you think about digital, the way I talked about was straight as potentially a customer facing proposition.

So, when you think about increasing revenue and sticking in some royalty with customers through the e-commerce channel, when you think about connectivity and productivity that improvements that can provide to customers by helping with predictive maintenance and that increases our parts market share. That's how I've described it externally, but your point on the internal benefit is really, really important point.

And as we point this team toward some of our challenges, the results, you know you peel back the onion and the results are pretty impressive. And so some of our improvements that we're going to see on our equipment supply chain are going to be directly related to what you are talking about.

The ability to take data, look at historical trends, look at machine utilization and come better judgment on forecasting and delivery is going to be a real important similarly on pricing. I mean there is great opportunities in this data analytics and I'm – I could talk for hour because I'm really excited about it as you can tell.

But it's going to allow us to make better decisions and it's going to be beneficial to shareholders, because we're going to see an increase in profit because of it.

Right, and then, I guess how quickly could we see those benefits once the ERP is up and running in FINSA?

Those are two different things that we're talking about. In terms of the ERP, we're just at the front-end of that, and so we are going to move forward with it.

The benefit there is more on the inventory management, SG&A, COGS management. Steve you want to add anything on that?

Maxim, real practical example is part of our improvement in supply chain has been in focus on a very disciplined sales and operational planning in our forecast and ordering. Now to use both our data collected through our customer's machines for predictive forecasting as well as bringing in broader data sources to bring external and internal data elements to improve the algorithms for that supply planning is, will be an immediate benefit for the coming 12 or 18 months.

It's very helpful. That's it for me.

Thank you very much.

Thanks Max.

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