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 Ben Cherniavsky – Raymond James Cherilyn Radbourne – TD Securities Devin Dodge – BMO Capital Markets Ross Gilardi – Bank of America Merrill Lynch Maxim Sytchev – National Bank Financial

Thank you, Steve, 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. I’ll share my thoughts on the quarter and provide some commentary on what is happening in each of our regions.

I’m pleased with the impressive quarter delivered by our team. Our results once again, reflects sustainable improvements in our operating performance.

We are seeing the continued positive impact of operating efficiencies and cost reductions on profitability and working capital metrics. While consolidated revenues are up 6% year-to-date earnings are up over 60%, demonstrating strong operating leverage.

A few other key highlights of the quarter were an increase in new equipment and product support revenues across each of our regions and end markets. Continuous improvement in return on invested capital in each of our regions.

A significant increase in order backlogs for the second consecutive quarter and a continuing trend in lowering our working capital to sales ratio. In terms of the macro environment, demand for equipment is improving across our regions.

This is demonstrated by higher new equipment sales and the second consecutive quarter of a meaningful increase in our equipment backlog. The momentum we gained in products support in Q1 was maintained in Q2.

Demand continued to be particularly strong for parts and components in the oil sands. We continue to demonstrate strong capital discipline, while balancing customer needs.

Even though our equipment and parts inventories are up significantly, we're seeing an increase in our inventory turn and a reduction in our working capital to sales ratio, through the concerted efforts to improve our supply chain performance. In Canada, we continue to closely monitor the buyers in British Columbia.

The city of Williams Lake was evacuated on July 15, as fires threatened the community and our branch there was closed for two weeks until July 30. Finning has approximately 50 employees in the region impacted by the wildfires.

Our priority remains on ensuring their safety. I'm very proud of how our employees in that region and other parts of British Columbia are handling the situation.

They are demonstrating great resilience, as they continue to serve our customers and look out for one another and their communities. Overall, our view on the Canadian market is in line with the Bank of Canada's recent outlook, which points to an increase in machinery and equipment investment over the next 12 months.

We are encouraged to see that the growth in demand is broad-based, positively impacting our business across all market segments. In Q2, mining activity in Western Canada was well above last year, resulting in strong product support as many customers are repairing and maintaining their fleets.

Excluding the impact of last year's fires in Northern Alberta, product support revenue in Canada would have been up 11% from Q2 2016. Longer term, while we expect the oil sands to be a lower growth business, we continue to see more emphasis on product support.

Recognizing the importance of remaining competitive, we are relentlessly focused on delivering for our customers in a cost effective manner. Power systems is also having a solid year relative to 2016.

Engine sales are strong in gas compression and product support activity is being driven by increased demand from well servicing. In core, we are capitalizing on continued robust demand for new equipment and parts, mostly driven by construction projects in British Columbia.

We're seeing a stable activity in Alberta and Saskatchewan is showing signs of recovery. Longer term, we remain constructive on the increased infrastructure spending by the federal government and the western provinces.

We expect to see some of this activity move forward in 2018. Over the near term, we continue to monitor what impact the new B.C.

government may have on infrastructure activity, which is creating some uncertainty. Similar to last year, we’re also seeing some softness and product support volumes in the oil sands in July.

Finally, we don't know yet what the impact the B.C. wildfires may have on our third quarter results.

In Chile, we’re encouraged by improved fleet utilization in mining. Parts and machines are down from 20% in 2016 to around 14% today, as more equipment is being put back to work.

Ongoing stability of copper prices should support investment decisions by producers. We remain positive on the long-term outlook for copper and have kept our network intact to capitalize on increased activity when it comes.

Construction activity in Chile remains soft. We believe the outlook for construction and power systems in Chile is dependent on the outcome of the presidential election in November.

In Argentina, new equipment sales and construction are growing rapidly, as we continue to build market share. In fact, nearly 50% of our new equipment sales in South America in quarter two were generated in Argentina.

The mid-term elections in October posed some uncertainty to activity levels, but we do see upside. The oil and gas sector is getting ready for the next round of investment in Vaca Muerta and current and future infrastructure projects offer further growth opportunities.

In the U.K. and Ireland, the impact of cost reductions and facilities optimization is demonstrating results.

Lowering our cost to serve is particularly important, given the smaller product support opportunities and competitive equipment market in this region. In British pounds, the region's revenue was up 21%, SG&A was down 3% and return on capital is up from low single digits to 14%.

The pending departure from the EU has not had a noticeable impact on our business, as consumer confidence has remained high. In addition, the outcome of the recent election may lead the U.K.

towards the softer exit from the EU, which would also be helpful. Residential and infrastructure spending is strong and government plans to invest in large rail and power projects remain intact.

Overall, we remain on track with our operational priorities including initiatives to optimize our supply chain and develop and deploy our digital capabilities. As we head into the second half of the year, we now expect our 2017 revenues will exceed last year's revenues by modestly above 5%.

This is driven by stronger new equipment sales than we previously anticipated. Given the uncertainty we’re currently seeing in Canada, we expect revenue growth in the second half of the year to be weighted slightly more towards fourth quarter.

As a result of higher than expected revenue growth, we have lowered our annual free cash flow projections to a range of $150 million to $200 million. Our new estimate also reflects two large equipment purchases for early 2018 deliveries in Canada, which are reflected in our backlog.

Our expectation for positive free cash flow and sustainable earnings growth is reflected in the dividend increase, which we announced this morning. I will now turn it over to Steve.

Thank you, Scott. Good morning everyone.

Our 2Q results demonstrated strong operating leverage from sustainable improvements and cost reductions in all regions. If we exclude the impact of wildfires in the second quarter of last year, our consolidated revenues increased by 18%.

SG&A as a percentage of revenue was down by 140 basis points, as our fixed cost were held in check. EBIT increased by 54% from adjusted EBIT in the second quarter of last year.

2Q EPS was $0.34 cents. Canada achieve EBIT margin of 7.2% in the second quarter.

Product support revenues were robust, particularly in the oil sands and demand for new equipment improved across most sectors. The revenue mix shift in new equipment sales and large engine deliveries reduced our overall gross profit margin in the quarter.

Despite straightening market conditions in Western Canada, pricing has remained competitive. However, we are encouraged by positive signs in used and rental markets, which points to a modestly improving pricing environment.

Due to stronger than expected revenue growth, we saw higher than usual increase in our variable SG&A cost, including service supplies, freight, overtime and variable compensation. In addition, we recorded a foreign exchange loss, resulting from a strong appreciation of the Canadian dollar relative to the U.S.

dollar towards the end of June. Our fixed costs, however, were held flat relative to the second quarter of last year.

As you may recall, last year we adjusted our SG&A for unavoidable fixed costs related to the wildfires. If we look at our Canadian results excluding the wildfires and foreign exchange, our SG&A costs would have been 7% higher compared to Q2 2016 on 18% growth in revenues.

Generating strong operating leverage continues to be a key focus for our Canadian operations, as market conditions begin to recover. As you may recall, we previously communicated that we have the capabilities and changed the strategy for our rental business in Canada.

We are now managing our used and rental fleets together to provide customers with a broader range of options and are using data analytics to optimize fleet mix. The team has also made a number of operational improvements.

Q2 results show that our new approach to rental is working as we capitalize on strengthening activity levels. Canada's rental revenues increased by 9% from the second quarter of last year.

Fleet utilization is up, rental rates have improved and SG&A is down due to tight cost control. Importantly, our customer loyalty scores are also trending up.

In South America, strengthening market activity in Argentina's construction energy sectors was a key driver of higher revenues in the second quarter. The order intake in Argentina remains strong.

We have purchased inventory to meet the growing demand. Profitability in South America was solid 8.4%, particularly considering a significant shift in revenues to lower margin new equipment sales and continued competitive pressures in all market segments.

In the U.K. and Ireland, we are pleased with our results.

Continued robust demand and equipment markets and improved performance in our power systems group contributed to a strong quarter. We have lowered our cost to serve and transformed our business model to generate a solid return on invested capital and the U.K.

is highly competitive and fragmented market. As Scott mentioned growing revenues and backlogs in all regions require higher than anticipated investment in inventory.

Our inventories were up about $200 million from the end of the year. Our second quarter free cash flow with the use of cash of about $130 million.

This was mostly driven by higher parts inventories in Canada and South America. An increase in equipment inventories in Argentina and the U.K.

in line with higher order intake and higher service work in progress in Canada. The latter reflects record activity levels at our OEM facility in Edmonton.

We expect the service work in progress to begin to monetize later this year. Despite higher inventory levels, our working capital metrics are trending positively as we continue to improve efficiencies in our supply chain.

Working capital to sales ratio of 28.9%, improved by 3.5 points from the second quarter of last year. Our inventory terms were impacted by a 43% increase in internal service work in progress inventory from last year, mostly due to a faster than expected ramp up in component rebuild activity in Canada.

Except for internal service work in progress, our inventory turns were up 10% from the second quarter of last year. We expect to start generating positive free cash flow in the third quarter.

As Scott mentioned, given our growing backlog, including large orders for early 2018 delivery, we have lowered our free cash flow projections to between $150 million and $200 million. This reflects working capital requirements for higher than expected revenue growth.

We have over $400 million of cash on our balance sheet and we’ll retire about half of the $350 million debt in the second half of this year. We’ve raised our dividend by 4%, which provides shareholders with a 3% yield at current levels.

I will now turn it back to Mauk for the Q&A.

Yeah, operator that concludes our remarks. Before we go to 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 the end of the queue, if you have more questions. Operator, if you could please open up the line for questions?

Yeah, hi guys good morning. Nice quarter.

Hey Michael.

Yeah, my first question is on Western Canada. So, despite the large increase in new equipment sales, margins increased nicely in the quarter.

I think it's above your target range as well. So, I could appreciate the cautious outlook, but could you provide some color and margins expectations there, particularly with the region still lagging in the other two geography in terms of ROIC?

Yeah, thanks Michael. So, as I think about Canada.

We did benefit from some revenue tailwind this quarter, which was nice. Looking forward, we feel like there is momentum in the market, probably a little bit back weighted to the fourth quarter versus the third quarter because of the reasons that I talked about in my opening comments.

Nevertheless, it’s a good environment. From a SG&A perspective, we feel good that the costs have stayed out of the equation.

Frankly, if we're honest with ourselves and we look at that cost number, I think we can continue to improve. There were a couple self-inflicted cost issues that won't continue in the quarter and that gives me some comfort that we'll see some increase in operating leverage subject to revenue and mix and all those sorts of things, which are less certain.

So, I feel really good about the progress in Canada, when I look at cost structure keeping the costs out and some of the things that we can improve going forward.

Okay. But not to put you on the spot, Scott, but just in terms of that 6% to 7%, EBIT range does that sort of still to apply for 2017 or could we expect some upside there?

Yeah, I mean, I think with the revenue that we saw, we came through the 7% range and so that's a good thing and you would expect that with that kind of revenue growth. Again, when I look at cost, I feel really good about when I looked at the third quarter, fourth quarter into 2018, the cost base that we have.

I think we can improve a little bit in the third quarter relative to the second quarter. So, it's harder for me to project the top line, so I’m staying away from that.

But on the costs side, I think you can feel pretty comfortable with the type of cost shifting.

Okay. Perfect thanks.

And I guess, just flipping over to South America. So, we’ve got copper outperforming WTI here and I’m a little surprise to see mining in Western Canada, both in terms of new equipment and product support pick up nicely while mining sales in Chile remain relatively muted.

So, is there a dynamic there beyond just the recovery lag or the election that would help better explain the trend there?

I think so, I mean, we’ve been pretty consistent with Chile, it’s a complicated market right now because of the presidential election, which is going to be in November. The product support year-over-year has improved, so that’s a good thing.

But when you look at 2016 copper production relative to 2015 copper production, it was down in Chile, which obviously has an impact on our business. When you look at the forecast for 2017 over 2016, it’s up.

So, it's turning around and you're starting to see that in our product support numbers. So, product support is up modestly year-over-year in Chile and that’s despite the Escondida strikes.

But we feel pretty good about that. 20% of the fleet used to the parked, now it's 14%.

So, I think we will see gradual improvements in Chile, but until you get through the uncertainty of the November election. I wouldn't expect too much top line momentum in that business and was driving the top line in South America right now as the Argentina results that you can see a significant increase in new equipment, which is going through those top lines.

I think the team has done a great job managing the profitability in that 8.5% range despite the shift in mix that we saw from new equipment to some parts some products support the new equipment.

All right. That’s really helpful.

Thank you.

Thanks, Michael.

Thanks very much good morning and congratulations on the quarter. I wanted to ask if you could elaborate a little bit more on you’re maintaining the delicate balance between needing to acquire inventory to capture increased demand.

Particularly in the context of increasing lead times for some items versus holding onto the improvements you made in capital discipline. I guess that's another way of asking, how much can you give up on the metrics to just make sure that you capture the demand?

Let me take a shot and then Steve maybe you can add. What we were pleased about in the quarter was working capital sales ratio down and inventory turns up.

And the inventory turns are up, I think around 10%, if you exclude the internal service work in progress and I think the internal service work in progress is up over 43%. So, it's a pretty significant build in work, which is good because that will monetize in the fourth quarter and into next year.

But it is being impacted by lead times and it is resulting in some inventories sitting on our books. I'd say, so that’s point one.

Point two, and I'm not worried about that because that will monetize. Point two, as you look at the other areas of inventories build, it's primarily in parts in Canada, it’s not new equipment.

We've worked through that new equipment bubble that we've had and now we're capturing market share, but with equipment from the factory, so, that’s good. And where we are building inventory in Canada is in the part side.

That typically monetizes pretty quickly and with the robust demand, we see we feel comfortable with that. But it's something that is in the management team we’re talking about every day, I mean, to be honest is this balance between capturing the markets, but not to put ourselves in a situation where we have too much and we get back from a capital disciplined benefits we built over the last four years.

Sharon, this is Steve. We can continue our capital discipline and manage our metrics in the phase of balancing inventory to the demand up.

So, your question is spot on and that is the trick. So as we measure our working capital as a percent of sales, we had a significant improvement year-over-year 3.5 points.

We think we’ll continue improve through this year. So, a lot of great work has been done in this continuous improvement and we’d expect to see further improvement in working capital sales ratio through the year.

And I also wanted to ask you about Argentina, which clearly continues to be a real bright spot for the business. As you think about your resource levels in terms of headcount and the facility footprint, do you think that you’re appropriately positioned as you mentioned in your remarks, approach the next wave of investment in the shale in Argentina?

Yes, I do and two of the things that should give you comfort. One is; some organizational changes we made now about six months to nine months ago.

Putting one of our top senior leaders from this end of the business into Buenos Aires and so, he's relocated his family. He's running that business now in Buenos Aires.

And then the second thing is on the facilities, as you recall going through the downturn, we were having trouble getting money out of Argentina. So, one, we’ve shrunk the business because we wanted to mitigate risk, but we also invested in both converting leases to ownership in some of our facilities and invested in a significant facility in [indiscernible] and so, we feel like we're pretty well positioned.

And then lastly, I think that one of our experience there's, it's a big branch and it’s got a lot of capacity. So, we feel like we're in a pretty good place from a facilities and people perspective.

The growth has been, frankly a little bit quicker than we thought. It hasn't been Vaca Muerta yet, I mean, that is coming, it’s mostly been construction.

The challenge for us is to manage pace and profitability and while still mitigating risk because there's mid-term elections coming in October. So, that area is a continual challenge for us and the management team right now despite the great results that you're seeing on the top line.

Thank you. That's my two.

Great. Thanks, Cherilyn.

Good morning. Wanted to go back into the new equipment revenue being up in Canada, 50% year-on-year.

If you look at the end market bucket, so oil and gas, traditional mining construction and infra. Maybe give us just some, a little bit more detail from an end market perspective.

What really drove that higher new equipment sales? Then the sustainability of that to growth?

Right. So, a couple of comments.

One, remember quarter-by-quarter, it’s been monthly, right. So, I think a better way to look at it is year-to-date versus year-to-date and on that basis we’re up, but it's much more modest than the 50%.

Point one. Point two, when you look across the different market segments all markets in reality, I mean, it’s probably less oil sands and equipments, but power systems has done really well on gas compression and well servicing.

That's pretty consistent with what you've heard from Cat on their conference call, so this shouldn't be a surprise. I think you've seen a pretty significant increase in the industry for general construction year-over-year, the 30% type improvements across product lines, which is good.

Then when you look at the three geographies that we’re in, they're all at different stages, but I would say it’s positive, right. So, B.C.

has maintained its strength over the last couple of years, despite the government transition. I think there's a little bit of uncertainty with our customers, with the government transition, but hopefully we're able to work through that.

Alberta has improved significantly year-over-year as our customers get a little bit more confidence. And as Saskatchewan, which was the third geography into the downturn is starting to recover this past quarter.

I think this was the first quarter we’ve started to see some strength in Saskatchewan. So, hopefully that gives you a better sense of the geography.

I think we do think it's sustainable, but again, it's going to be lump, right. I mean, I wouldn't expect it quarter-by-quarter and we have updated the guidance for the year, modestly over 5%.

When we gave the guidance of 5% we were saying, we‘ve strengthened product support, offset a little bit by weakness in new equipment and now we’re giving you modestly over 5%. I would say it strengthened both new equipment and product support.

Hopefully, that gives you a little better sense.

So, if you think about the equipment cycle then, if you're view basically through the bottom here, market has turned?

I think so. That's a difficult thing to call, but when you look at some of the indicators like machine utilization, that’s up significantly.

When you look at Ritchie auctions, which is [indiscernible] is down and you can see some of the comments they’re making around lack of supply. I do think from an activity level, you're going to see strength from here.

I guess the one thing I would say is pricing is still competitive. It’s still a very competitive market and I think until you get to a situation where the factories get more full, that's going to be a continued headwind.

We’re going to challenge and you’ve got a lot of OEMs here with a lot of excess capacity. I think they're just going to obviously all try to fill up the factories and that's going to continue to put price pressure in the business until we can get through that part of cycle.

Thank you.

Good morning guys. Can you talk about your pipeline of rebuild opportunities in your Canadian business?

I think there was a comment in the MD&A that it was at record levels. It was a more upside from here and given the backdrop of the strong demand.

Are there opportunities to add more capacity? I’m just trying to get a sense for what your thoughts are in terms of increasing labor utilization versus managing over time costs?

Okay. So, we’re actually taking this call from OEM today and we're doing that, we’ve got our board on our annual strategy trip and one of the tours we’re doing is our OEM facility.

I can tell you that we are at record levels here, the shop this full. We have just added a third shift and so we do have the capacity, but we are adding labor.

We’re being pretty thoughtful about that. Our labor realization is up probably 7 point or 8 points year-over-year and we're running higher over time than I think is ideal, to tell you the truth.

But we're doing that on purpose because of the uncertainty looking forward and we're very sensitive to giving back some of these costs benefits that we've worked so hard to get. So, you get a little sense of we’re being cautious by running a little bit higher over time.

We've got the capacity and in some cases we are adding some labor back to the situation and OEM is the perfect example. I think we just added 60 people back to our OEM facility for a weekend shift.

So, hopefully that gives you a sense on rebuilds. And yes, rebuilds are strong.

I mean, one of the great parts of this business in metal as you know is the parts and service. And with the amount of equipment we have in market and the need to rebuild these piece of pieces of equipment.

I think this is going to be with us for awhile to strengthen the rebuild.

Okay. That's helpful.

Then just on SG&A costs in Canada, I believe they’re up 7% on adjusted basis this quarter. Just do you expect all the factors behind the rise in the variable SG&A costs to persist a kind of a similar level as we saw in Q2 into the back half?

Or are there things that you can do to manage this expense downward?

Devin, this is Steve. We would expect the SG&A cost to continue to trend downward on an absolute basis and improve our revenue torque.

Okay. That's helpful.

Thanks and congrats on the strong quarter guys.

Thanks Devin.

Good morning guys.

Hey, Ross.

Just with respect to the inventory situation taken down the free cash flow guide a little bit, which just seems tied to strong demand. Just wondering is Cat doing anything differently with inventory management with its dealers to prevent these periodic glut in dealer inventory that we have experienced over the last couple of years?

So, we're working hard with Cat on – I mean, overall, I mean, it’s a great situation, but it's also a tough situation, where across the world you’ve seen product support increase pretty significantly. And in some areas, it's actually stronger than what you've seen in Canada.

So, I think, the family is reacting to a pretty quick surge in demand in a situation where customers had reduced inventory, dealers had reduced inventories, Cat had reduced inventories and the supplier base had shrunk. So, I think it's a complicated reaction and we are working hand-in-hand with Cat to respond to it.

I am very comfortable with the actions that Cat is taking to help us gets through an acceleration of demand. This is a great problem to have.

We have to be thoughtful about how we add it. It does result in a little bit of increase, service work in progress.

But I’ve spent a lot of time with cat on this over the last couple of months and I feel very comfortable with Cat. Understands how to address the lead times and we're going to see significant improvements in the back half of the year.

Okay. Thanks, Scott.

Then as you mentioned, Ritchie yesterday, talking about acute shortages of used equipment, leading to dry dip auction volumes. Are you seeing that on your lot and is the tightness.

In the used market giving you pricing, any increased pricing power for new equipment. I also believe you mentioned rental rates are improving, where are we on a year-on-year basis for rental rates in Q2 versus Q1 and when do we term positive.

There's a couple of questions, one was rent fall and one was new. So, just give me a second.

On rental, I think that Steve referenced this in his opening comments. I'm really pleased with what we're seeing there and it seems to be, I mean, if you think about it, revenue up, rate up, you’d up [ph] both financial and physical and the SG&A down and customer loyalty up.

This is around, yeah, it’s a little bit of a improved market, but I think this is a lot of self-help that the team has been doing in reorganizing that business, so I couldn't be more pleased in running that rental and used business as one, I think it’s pretty helpful. I think your exact question was on rental and the rate is up about 2% year-over-year, so not material, but a little bit.

In terms of your second question on pricing, it's still a very competitive market. There's a lot of competition for particularly big deals.

I think we are across all of our business seen a little bit of an improvement in the environment. But I’d stress the word little, and I think as I said, I think until you get to a situation where the factory is still up.

There's a little bit more rationality in terms of among all competitors. I think it's going to be hard to see a significant uptick and as you know these recoveries are typically led by product support first and then new equipment second and we're just in the early innings of this recovery.

Thanks Scott.

Yeah.

Hi, guys. Most of my questions have been answered.

But I guess, Scott, I would just maybe I know it's difficult for you to get into demand forecasts and I'm not asking for any guidance. But just how are you guys thinking about this recovery as you just mentioned in your last comment that parts leads and then the equipment follows.

On the equipment side, I mean, clearly there has been a lot of deferred CapEx and to some degree that would be reflected in what, I guess, a catch up demand that we're seeing today. But how do you see the next few years evolving for new machine sales without any major new oil sands mines, if we're in lower for longer environment in Western Canada and a new administration in B.C.

I mean, just say generally, a lower growth environment than what you saw, the last couple of cycles. What can we expect over the next few years for equipment sales, do you think?

I guess, yeah, it’s a tough one. I think we have to get through this – listen longer term, I think you had a GDP plus type environment for our Western Canadian business.

I feel a little bit different in South America given copper and some of the dynamics. But in Western Canada, you're probably infrastructure led on the new equipment sales, GDP plus with on a much more constructive backdrop for a competition and that should help us from a profitability perspective.

It's going to take some time to get there because you've got all of these dynamics around competition that I talked about it. Frankly, right now coming off a really low base of activities.

But longer term I see it as GDP cost type environment with more rationality on the competition side.

Yeah, I guess, what I'm trying to get at is just more strategically and philosophically spending [ph] I mean, it's hard to argue that the last couple of cycles you saw in Canada, weren’t, won’t call them aberrations. But we probably aren't going to see that again.

It's fairly intoxicating for the organization through the 2000s and really up until the oil price collapse a few years ago, chasing all that growth. How are you thinking differently about the next - the way you would approach growth in the next cycle if it was more normalized.

Shall we say, I mean, I think with the challenges you face or the environment you face in the past was both a blessing and a curse at the same time. So, maybe growth is more manageable next time around, but it's more of a philosophical questions about lessons learned and how the organization is changing its mindset to growth.

Yeah, I mean, this is - and let me split up oil sands and a couple of comments on oil sands and then the rest of the Canadian organization and then broadly the overall organization. So, it's clear to me that the oil sands is going to be a lower growth business going forward, primarily led by product support and very competitive.

So, the key for us there is to continue to run a very lean and agile organization. And have a low cost base, so we can deliver a competitive service to our customers.

We've been on this journey for two years or three years and we’re going to have to continue it. But if you step further enough to act, the agenda we put in place four years ago is exactly a line where we need to be focused for the next five years around ROIC and return on invested capital.

And if you don't see the revenue growth that we have had historically, which I disagree with you in Western Canada, I think that type of revenue growth is behind us. Then you really have to be vigilant on the cost structure, but also really focus on supply chain velocity.

If you can get that supply chain velocity to the level that I think we can get it and you can deliver great return on invested capital for our shareholders. So, that would be in Western Canada, in South America I think you do have a little bit more top line help, when you think about copper and you think about how Chile is positioned.

But nevertheless, we're going to continue to focus on IC turn that’s the capital turn. And that will drive ROIC as well.

What you're seeing in the U.K. is how I think about the business, right.

You see the U.K. this past quarter, revenue up 15%, SG&A down 3%, ROIC from 6% to 14%, so, very competitive business.

A little bit lower margin, drive the supply chain velocity really hard. See return on invested capital that is attractive and I think we’re going to have to see that going forward for our whole business.

Great. That’s hopeful.

Just one housekeeping item on the FX, can you guys just remind me how we should be thinking about the rapid increase in the Canadian dollar recently and how that might impact, you purchased equipment at a certain FX rate and your customers now might expect an adjustment in the pricing, so just the impact on the inventory between those two big moves?

Ben, this is Steve. So, to clarify, didn’t understand your questions.

But just to clarify, so the FX I called out was a miss, frankly in our hedging program based on the rapid appreciation of the Canadian dollar and more of our customers selecting or electing to pay in U.S. dollars and that caught us frankly.

So, we’d fix that, we don't expect it to be repeated. So, I think if we looked forward then the trend in the FX is a element in our cost and price.

So, it becomes a matter of managing the price lists. Holding the price on the cost of - relative to the cost repurchase that and maintaining market base price relative to the market going forward.

So, if we're doing our job correctly on managing FX and FX becomes a factor in wisely managing the prices.

Okay. Thanks very much.

Good quarter guys.

Thanks Ben.

Hi, good morning gentlemen.

Hey, Max.

Just a couple of quick questions and Scott, I’m not sure if you can quantify this really, but the 5% revenue increase that you’re guiding right now. I mean, is it possible to think about, like it's half of that is just catch up to the clients actually spending right now on product support and starting to buy some equipment.

Just trying to see what's new, what's catch up? I don't if you have any data points that you can provide to us?

Yeah, so, as you think about the first half of the year, we were around 6% revenue growth, I think year-to-date and so we’re up modestly over 5%, we're just projecting a continuation of what we saw in the first half into the second half, modestly weighted to the fourth quarter relative to the third quarter. So, that’s just clear in the guidance.

On your question on what’s catch up? I think that’s primarily a product support question, not a new equipment question.

On the product support side, I think Canada probably has benefited a little bit from some catch up. I mean, the product support is up about 12%, 11% to 12%, year-over-year and that’s the same in the first quarter.

That feels a little, there's a component of that sort of catch up. But a component of that is some other customers that are going back to work as well.

So, I'm not sure if half and half or I don't know, the split Maxim, but there's definitely some catch up in there and I'm not sure I would expect our product support revenue to be growing to 12% quarter-after-quarter and that's about the historical rate that we've grown in Canada. In South America, product support is up 2% or 3% and I don't see that as catch up.

I mean, I think it's linked to the copper production. You see copper production down 16 to 15 modestly, and you see copper production up 17 to 16 modestly, so, I’m not sure we’re seeing catch up in South America.

I think it’s mostly a Canadian phenomena.

Right. Is it – I think in your press release you talk about 14% of truck in South America being parked?

Is it attainable we're going to get back to sort of full utilization by the end of this year or you think it still a 2018 event?

Yeah, I think its 2018, I think it's still - there are some uncertainty with the election. You'll never get down to zero, there always be some trucks parked, but 14% still is too high.

We've had actually even this quarter, so now I'm in the third quarter. We've actually had some encouraging equipment sales in Chile on the mining side.

So, I think things are getting better, I think people are cautiously waiting in. But I don't think you're going to see significant growth in Chile until we get past that election and until we worked through some of this truck utilization, excess trucks parked issue.

Can you quantify if it's possible that you've had from the lingering, I guess, strike impact from Q2 in LatAm in Chile specifically?

Yeah, so in the first quarter, I think it had a 30 basis point impact and we were guiding to that sort of impact as well in the second quarter. It had less of an impact.

It still had a small impact probably 10 basis points or $1 million or so dollars, so not material enough to call out in the press release, but it did have a little bit of an impact. It’s mostly behind us now.

We looked at the third quarter and fourth quarter, but it has impacted the first half of the year.

Okay. And just one last question, in terms of the lead times, right now getting the equipment from Cat.

Everybody is sort of talking about sort of lengthening cycle. Any data points you can provide there in terms of how got to be managing this?

If the lead times have actually lengthened? Thanks.

Yeah, I mean, I think we all have to keep in mind this is a good problem to have. So, increased activity, of course lead times are going to extend a little bit.

I feel really good about what Cat is doing to shorten those lead times and I feel really comfortable with my team. We centralize the supply chain, which you may or may not know we did that six months ago.

So, we’ve got direct the interface between Cat and our supply chain team. It's going to take some time to shorten those lead times, but I feel really good about the communication between us and Cat and the efforts the Cat are undertaking to shorten those lead times.

When you look at the impact on our business, it's about service work in process, right. I mean the service work in process is up by 43%.

And so that's a good thing in terms of the looking forward for the next couple of quarters in terms of revenue support because that’s ultimately going to monetize. But it has had the impact in the quarter of elevating our inventories somewhat.

All right. Okay, that's very helpful.

Thank you very much.

Okay. Thanks.

Yeah, I’m good guys; my residual questions were just asked. Thanks.

Okay, thanks Ross.

Yeah, just one quick follow-up for me. Given the improvement in market conditions, just curious whether you're thinking differently about your 2018 debt maturity, which I think you had intended to pay down some of?

Yeah, Cherilyn, this is Steve. Yeah I think I mentioned it in my remarks that yes, we still plan to retire roughly half of that, probably in the third quarter.

Okay. Thank you.

Sorry, that I missed that.

No worries.

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