Linda Hasenfratz - CEO Roger Fulton - General Counsel Dale Schneider - CFO

Mark Neville - Scotiabank Matthew Paige - Gabelli & Company Peter Sklar - BMO Capital Markets David Tyerman - Cormark Securities Todd Coupland - CIBC Michael Glen - Macquarie Brian Morrison - TD Securities

Thank you. Good afternoon, everyone, and welcome to our third quarter conference call.

Joining me this afternoon are members of my executive team; Jim Jarrell, Mark Stoddart Roger Fulton, and Dale Schneider, and some members of our corporate finance and legal team. Before I begin, our General Counsel, Roger Fulton, will make a brief statement regarding forward-looking statements provided on this call.

Thank you, Linda. Certain information regarding Linamar discussed in this teleconference including management’s assessment of the company’s future plans and operations may constitute forward-looking statements.

This information is based on current expectations that are subject to significant risks and uncertainties that are difficult to predict. Actual results may differ materially from those anticipated in the forward-looking statements due to factors such as customer demand and timing of buying decisions, product mix, competitive products, and pricing pressure.

In addition, uncertainties and difficulties in domestic and foreign financial markets and economies could adversely affect demand from customers. These factors as well as general economic and political conditions, may in turn, have a material adverse effect on the company’s financial results.

The company assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those reflected in the forward-looking statements. Linda?

Thanks, Roger. So, I'm going to start-off with sales, earnings, and content as usual.

Sales for the quarter were C$1.46 billion, up 14% from last year, another quarter of double-digit sales growth as has been fairly consistently our pattern over the last six years. Once again, the sales increase well exceeds growth in our market, where global vehicle markets were up 5.3% and access markets were up 6%, demonstrating the Linamar’s growth continues to drive from excellent market share expansion.

I think this is a critical point in this timeframe of market concern around flattening demand. Our growth at Linamar does not come from market growth alone, of course, that impacts our mature business, if market volumes were to contract.

But we're strongly growing market share in every region, which is the primary driver of our growth. It would absolutely be our intent even in a scenario of flat or down volume to still grow at Linamar.

Earnings saw another strong level of growth in the quarter with net earnings up 14% over last year as well to C$122.2 million or C$1.86 per share. This represents our 21st consecutive quarter of registering double-digit operating earnings growth.

We're proud of our consistent, strong performance at Linamar quarter-after-quarter and year-after-year. Net earnings as a percent of sales in Q3 were 8.4%.

We continue to run at a strong margin level, thanks to good control of the launch costs, great results from Lean initiatives and a favorable mix of business. We continue to expect to see an overall strong margin performance for the full year of 2016 and 2017 in the range of 8% to 8.5%.

Earnings growth continues to drive solid performance in return on equity still tracking at our 20% goal. Investing in our future continues to be a priority for us at Linamar.

CapEx in the quarter was C$85 million or 5.9% of sale. CapEx spending will pick up a little in the last quarter of the year to support launch activity, but will be a little less than expected last quarter meaning we will be under the 8% to 10% range we normally guide to by the end of the year.

The strong earnings and light CapEx in Q3 produced solid gains, again, in terms of leverage, with net debt to EBITDA now sitting at 1.16, down nicely from the 1.52 at close of the Montupet deal in the first quarter. We expect to be able to bring leverage back down under 1% six months to 12 months.

In North America, content per vehicle for the quarter was C$146.87, down slightly compared to last year as a result of production level with some key customers declining at a steeper rate than the overall market in this quarter. Our Q3 automotive sales in North America were down slightly over a last year as well at C$670 million compared to C$677 million last year in a market that was up 1.3% in production volume.

It’s noteworthy that these same customers are also planning production path in the fourth quarter, which contrast with the expected slight growth in overall production levels for the quarter and will continue therefore, to impact sales in content per vehicle temporarily. Be sure to consider this when you’re estimating North American automotive sales for Q4, which would normally pick up a little from Q3, but are in fact, more likely to pull down at past this year because of this.

In Europe, content per vehicle for the quarter was C$66.54, up 54% over last year, thanks to Montupet and other business launches in the region. Our Q2 automotive sales in Europe were up 52% last year -- compared to last year reaching C$315 million compared to C$208 million last year in a market that was down 1.5% in production volume.

Q3 is seasonally a low point for our new marketing business, given the extended shutdowns normally seen in Europe; expect Q4 sales to pick up a little from Q3 levels based on a shorter December shutdown as compared to the level normally experienced in the summer. In Asia-Pacific, content per vehicle for the quarter was C$8.72, up 30% from last year.

Vehicle production levels were 11.2 million units in the quarter, up 10.3% from last year. This resulted in Q3 automotive sales in Asia being up 44% compared to last year’s total of C$97 million.

Q4 is also normally expected to be a little better than Q3 in Asia. Linamar continues to target to more than double our current footprint in Asia by 2020.

Other automotive sales not captured in these content calculations were C$68 million in the quarter, up C$24 million from last year. Non-automotive sales were up 2.5% in the quarter at C$305 million compared to C$298 million last year, thanks to growth of Skyjack, offset by lower off-highway vehicle sales.

Of course, Q4 is normally seasonally low quarter for Skyjack, which should continue to be expected. Turning to market outlook, we’re seeing an outlook of moderate growth in most of our markets globally with a couple of exceptions.

For the global light vehicle business, the forecast is for 3% production growth globally this year. Predictions are for moderate growth in light vehicle volumes globally this year to 17.9 million, 47 million, and 21.5 million vehicles in North America, Asia and Europe, respectively.

That represents growth of 2.2%, 3.8% and 2.6% over last year. Next year, we expect all vehicles to see a little lighter growth with 0.6%, 2% and 1.4% forecast for North America, Asia, and Europe respectively.

Industry experts are predicting on-highway medium/heavy truck volumes to grow this year in Asia, up 7.9%, but contracts 8% and 3% respectively in North America and Europe. 2017 was to be a better picture in North America where the market is expected to be up to 7.5% and see a little lower growth at 2.6% in Asia and be flat in Europe.

Off-highway, medium duty and heavy duty volumes continue to be soft with no indication of a pickup just yet. Turning to the access market, we saw a little improvement in the market in the quarter, which is great.

Outlook in the industry is an expectation for a slight decline in the global area were platform market is up to 5% this year, driven mainly by declines in the North American access market and the global telehandler market, almost offset by growth in Europe. From a product perspective, the scissor and boom markets are down in North America, but up quite a bit in Europe, but the telehandler market is down globally.

In 2017 the market is currently forecasting to be up as much as 5%, driven mainly out of Europe. We continue to see positive industry metrics, which [Indiscernible] close to 70%, construction charges in U.S.

forecast to be up 7.5% this year and in air, a forecast of 5.6% growth to rental business. Skyjack backdrop is actually a little higher than it was last year at the time, which is a good sign as well.

It's our goal to continue to outperform in markets to market share growth in our boom and telehandlers lines in particular and as we have seen spread out over the last 12 months. Turning to new business, we continue to see several levels of new business wins and a strong book of business being reported as well.

Q3 was another very strong quarter for us, in fact, new business wins year-to-date are up more than 50% over last year at this time. We now have 191 programs in launch at Linamar, representing nearly C$3.9 billion of annual sales at peak.

We shifted about C$39 of launch business production in this quarter. Look for ramping volumes on launching transmission, engine, and driveline platforms to reach 20% to 25% of mature levels this year and grow another 70% to 80% next year.

Sales last year on these programs were just over $480 million. This means depending on industry volumes that programs currently in launch will add a total of another C$300 million to C$350 million to our topline this year, plus about C$80 million in incremental sales from the programs that shifted to production already this year for a total of C$400 million to C$450 million in launches this year.

2017 will see launches at C$600 million to C$700 million. In addition, of course, we have growth this year from Montupet acquisition and as noted, Skyjack, is still targeting to drive some growth this year, although continue through -- continues market share penetration despite soft market, which should see better growth next year.

[Indiscernible] of that growth was the loss of business that naturally ends this year, noting to expect somewhere near the low end of our normal range up 5% to 10% this year and the middle of the range in 2017, as well as, normal productivity givebacks to get an estimate for sales this year and next. Clearly given the level of launches, acquisitions, and market conditions, we're expecting to again see double-digits growth at Linamar this year.

With markets are little flatter in 2017, we still expect growth of more or less in the high single-digit range with similar margin range as the same pattern as we expect on the earnings growth side. New business wins are, of course, also filling in growth for us in the mid-term as well.

At this point, we’re looking at nearly C$7.8 billion in booked business for 2020 based on current industry volume forecasts layered with new business wins and acquisitions and adjusting for business leaving. I’d like to highlight a couple of our more interesting business wins this quarter.

First, we saw some significant driveline product wins deepening our concentration in this important area the vehicle of worth more than C$80 million in annual sales in aggregate. These programs we’re launching well planned late next year.

We had another solid quarter and gear business wins, this time hybrid vehicle platform worth in aggregate more than C$45 million in annual sales. We continue to build on our leadership position on machine gear on global basis.

We saw another strong win from machines sold ahead for another plan as well. This takes our total wins [Indiscernible] more than C$131 million in annual sales this year.

Finally, we saw another key program win in France for our newly renovated facility there. This takes wins in France this year to more than C$20 million in annual sales, which is great.

Turning to the strategic update, we continue to proceed extremely well with our Montupet acquisition integration. The business is meeting expectations and continue to be a strong culture with our team.

Performance is strong and there are big contributor to this year sales and earnings growth. Turning to our technology update, we have a lot of exciting initiatives underway in terms of new product designs, material developments, and manufacturing process and innovation, all keys to continue to drive our growth.

Our customers are working closely with us particularly on our driveline products with a particular interest in E-Axle opportunities globally. Of course, we’re targeting to increase our content in both electric and hybrid vehicles to take advantage of these trends as they evolve.

Electric vehicles are a tiny slice of the overall market today, but we already have content in these cars in place with great potential for growth in a variety of areas from driveline products to structural aluminum cast components, to other chassis and gearbox components. Hybrid vehicles in our opinion will be an important bridging technology that's electric over the next decade, meaning it’s a key to increase our content in these vehicles.

We’ve already made great progress in that regard. In fact, our content per vehicle on hybrids in North America is already forecast to be more than half at the level of our content per vehicle on internal combustion engine within the next five year.

And as noted, we just pick up a significant win for hybrid this quarter. In other areas of operations, our plans continue to perform well, both on mature business metrics and in terms of launch.

We’ve broken ground on our new high pressure die cast foundry in North Carolina as planning continues to go well there. We will also break ground on our fourth Chinese plant in Chongqing within the next couple of weeks.

We continue to see exciting business win opportunities in China broadly. Our launching plans in India, China, North Carolina, and Guam are all also performing as planned.

With that, I’m going to turn it over to our CFO, Dale Schneider, who’ll lead us through a more in depth financial review. Dale?

Thank you, Linda, and good afternoon, everyone. As Linda noted, Q3 was another solid quarter for sales and earnings growth, as sales grew by 4.3% and net earnings growing by 13.6%, which resulted in net margins reaching 8.4%.

For the quarter, sales were C$1.46 billion, up C$181.6 million or 14.2% from C$1.37 billion in Q3 2015. Operating earnings for the quarter were C$163.9 million, this compares to C$144.2 million in Q3 2015, an increase of C$19 million or 13.7%.

Net earnings increased by 13.6% from Q3 last year to reach C$122.2 million. As a result, net earnings per share on a fully diluted basis increased C$0.02 or 13.4% to reach C$1.4.

Included in net earnings for the quarter was a foreign exchange gain of C$5.1 million, which was comprised of a C$3.1 million gain due to the reevaluation of operating balances and a C$2 million gain due to reevaluation of financing balances. The FX impacted the quarter’s EPS by C$0.06.

From a business segment perspective, Q3 FX gain due to reevaluation of operating balances of C$3.1 million was a result of C$300,000 gain in Powertrain/Driveline, C$2.8 million gain in Industrial. Further looking at the segments; sales in our Powertrain/Driveline increased by C$163.7 million or 15.4% over Q3 last year to reach C$1.23 billion.

The sales increase in the third quarter was impacted by the acquisition of Montupet, the significant levels of newly launched programs in Europe and Asia, and the higher sales resulting from the favorable changes in foreign exchange rates being partially offset by the lower sales our vehicle programs in North America and Europe. Q3 operating earnings for the Powertrain/Driveline were higher by C$16.9 million or 15.8% over last year.

In the quarter, Powertrain/Driveline experienced earnings improvements as a result of better margins from productivity and efficiency improvements, earnings related to the acquisition of Montupet. The net recovery related to premature ending such as customer contract primarily related to commercial vehicle, higher earnings resulted in favorable changes and foreign exchange rate and improved earnings of production volumes increased from launching program, partially begin offset by lower earnings and production volumes decreased on the commercial vehicle side.

Removing any foreign exchange gains or losses related to the revaluation of our operating -- when the adjusted operating earnings for Powertrain/Driveline were C$123.9 million compared to C$102.2 million in the prior year's quarter for a 20.1% improvement. Turning to Industrial, sales increased by 8.5% or C$17.9 million to reach C$228.1 million in the quarter.

The sales increase was due to the strong sales growth, due to both market share and market growth in Asia and North America. Strong telehandler sales growth due to market share growth despite the softer market in North America, being partially offset by decreased volumes sales in a various top market in America, which all around market share growth that we saw in North America and lower sales resulting from the unfavorable changes in foreign exchanges.

Industrial operating earnings in Q3 increased by C$2.8 million or 7.6% in the last year. The increase industrial operating was predominantly driven by better margin as a result of change in the product mix and improvement, improved margin as a result of increased volumes being partially offset by lower margins for the [indiscernible] FX.

Removing any foreign exchange gains and losses related to the recent operating balances, the operating and earnings for the Industrial would have been C$36.9 million for the quarter compared to C$29.8 million in the third quarter last year or a 23.8% earnings. Returning to the overall Linamar results, the company’s gross margin percentage increased to 16.1% from 15.4% in Q3 last year.

Gross margin increased about C$36.3 million due to better margins as a results of productivity and productive improvements, the acquisition of Montupet, the net recovery related to the possible contract with [indiscernible], a net increase in net debt volumes, the favorable changes in foreign exchange rates, improved margins as production sales increase on materially launching programs, partially offset by our lower earnings from the production vehicle volumes. Cost of goods sold amortization expense for the third quarter was up C$14.9 million.

Product amortization as a percentage of sales increased to 5.8% compared to 5.4% in Q3 2015 and was due to the additional amortization from the acquisition of Montupet. Selling, general, and administration costs increased to C$73.7 million from C$64.8 million in Q3 2015 and remained flat as a percentage of sales at 5.1% compared to last year.

The increase on a dollar basis is mainly as a result of acquisition of Montupet. Financing expenses increased C$600,000 during the quarter Q3 last year to reach C$5.2 million and this was due to the increased borrowings related to the acquisition of Montupet, the increased financing fees as a result of the renewal of credit facility in Q1, part of this been offset by the higher interest earned on long-term receivables investment factors cash balance.

As a result, the consolidated effective interest rate for Q3 decreased to 2.1% compared to 4.3% in the same quarter last year. This decrease in effective interest rate was a result of a financing related to the acquisition of Montupet since the total debt now is heavily weighted towards the euro-denominated debt, which has lower borrowing rates than our other U.S.

dollar and the Canadian dollar. The effective tax rate for the third quarter was 22.4% compared to 22.9% in the same quarter of last year.

The effective tax rate was reduced due to a more favorable mix of foreign tax rates compared to last year, partially offset by net adjustments we made prior to the -- in Q3 2015. We are expecting the effective tax rate for 2016 to be in the range of 22% to 24%.

Linamar’s cash position was C$462.1 million as of October 30th, an increase of C$257.9 million compared to June 2015 -- sorry September 2015. The third quarter generated C$280.6 million in cash from operating activities, C$189.1 million in free cash flow, which resulted in net debt reduction of C$123 million in the second quarter.

Debt to capitalization decreased 41.3% from the Q1 [Indiscernible]; it is above our target of contribution of expected backlog of six to 12 months. Net debt to EBITDA decreased to 1.2 times in Q3, down from [indiscernible] Q1, when expected it be factored in [Indiscernible] times in the next 12 months.

The amount of available credit on our credit facilities was [indiscernible]. To recap, Linamar had a solid quarter that saw strong sales and earnings growth in Q3.

Sales were up 14% for the quarter, with strong sales led to solid earnings performance, which resulted in net earnings improving by 14% and return on equity reaching 20% in the quarter. That concludes my commentary and now we would [Indiscernible].

Hi, good evening every one.

Good evening.

Can you hear me okay?

Yes we can.

Okay. I guess just a question for Dale, just want to get through clean operating numbers, C$30 million asset impairment charge in the quarter, I mean is that in the C$1.86 of earnings?

Yes it is.

Okay.

We did Mark have an offsetting input from customer around that.

Yes, so when you did that net recovery, it’s not really a very material number,

Okay. So, the net recovery, can you maybe give us a number for positive contribution for that number?

We are not disclosing that because it doesn’t -- its below our level of mature realities, so--

Okay. That’s fine.

And just looking at Montupet, it looks like net income for the quarter is about C$6.5 million, if the math is right, sort of C$8.5 million EBIT roughly 4% to 5.5% margin. So, I'm just curious what's going to happen there or is that in line with expectations or if there is maybe something to point out in those numbers?

As I was saying in my formal comments, the third quarter is always a very soft quarter for Montupet, so that is that you expect on an ongoing basis. They have an extended shutdown in many of their plants in the summer being European base.

So, we certainly expect Q4 to be a significant improvement over Q3 and so that is the pattern that you should expect for future years as well.

Okay. So it wasn’t surprised to you I guess?

Pardon me.

You -- that was sort of [Indiscernible] your expectation?

That's right.

Okay. I'll hop back in queue.

Good afternoon. I wondered if you could speak to the mix of the difference that you lost due to lower production at some of your customers, if these vehicles added higher average level comps.

I'm sorry the business that we lost, I don't understand.

You mentioned some of your customers had lower -- took down production during the quarter, so what was the mix like on that kind of business that they had?

Yes. So, some of our customers cut their production quite a bit in the third quarter that was out of line with what the overall quarter was looking like in terms of light vehicles volumes.

So, I mean, if you look at light vehicle production in Q3 compared to Q3 last year, it was up 1.6%. We have some customers who cut production as much as 12.5%.

And as I was mentioning in my formal comments, the same customers are anticipating -- cutting production in the fourth quarter as well at a level that is much higher than what the overall production change is expected to be. So, the production change for Q4 is expected to be pretty flat to 2015, up 0.5% and this particular customer is cutting production 17%.

So, that gives you said about the flavor. That’s overall not every platform obviously.

Right. Now, the number of your customers noted that it is not necessary to bring their inventory to line with the level of retail demand they are seeing.

As you look around the market, do you see similar needs to cut production from other customers?

We're not seeing those content actions across the Board, it’s only with a couple of customers that are cutting at high levels, obviously as you’ve correctly, as you pointed out in relation to their level of inventory. So, we don’t see it across the Board.

I think another point to our releases that basically maintained what we predicted for Q4, as Linda mentioned, the one customer or a couple of customers have to change up really releases are staying pretty constant. And one thing I’d say that some of the over time that we have seen in the past maybe down a little bit from some other customers.

Okay. Thank you for your time and good luck for next quarter.

Thanks.

Okay. I know you talked a little bit [indiscernible] but could you please explain the net recovery, was that related to and what’s the [indiscernible] are?

With relation to the program cancellation?

Yes.

So, I mean there was some compensation related to the early determination of program and we then wrote down related assets.

And so you think the net effect is material?

The net effect is indeed below our level of what we would consider material.

Okay. Thank you.

And then, the next, Dale you talked two kinds of [indiscernible]. There was C$3.1 million gain, which I believe FX impact on non-cash capital items.

But what was -- the results was C$2 million gains, can you explain what that was and where it was minus [ph] in the financial statement?

It’s during the revaluation of our debt that shows up in finance expenses below operating earnings.

Okay. My next question is -- and my last question is the margin in the Europe, our trends [indiscernible] the percentage margin was down from Q2, was that typically normal seasonal effect or were there any pluses in Q2 or minuses in Q3 above the normal seasonal effects?

I mean that’s a normal sort of seasonal thing to see margins come down in the third quarter. I mean normally sales are down.

Thanks to shutdowns and not of course had an impact on margins. Remember margins last quarter were toughed up a little bit by the balance sheet we had on FX, so the adjusted level of margin was around 11.5%, so a little less than 11.8% reported.

Okay. I’ll hop back in the queue.

Yes. [indiscernible].

My question is, can you help us understand what the CPB level would be if we excess the impacts of commercial vehicle, weak production, the FX effect, I'm trying to get an idea what sounds like we're at a very good level than what it should be normal, I'm trying to understand what that should be?

Yes, I mean the biggest driver of content change in the quarter was the already discussed issue around production cut from certain customers. So, as I was mentioning, we have effects when you cut production 12.5% when the market overall was up 1.5% in production.

So, clearly that points our content per vehicle. So that was really the primary driver and then the commercial vehicle as I mentioned is down this year.

So, that’s taking a slight there as well.

Okay. Do you think this would be much as C$10 to C$20 between new factors, Linda?

Yes, I mean I don’t have a figure and I’d rather not guess. I mean if something we can try and get a little more clarity on and talk to you later about.

That would be helpful. Thank you.

Second question just on the CapEx, I'm running around 5.5% of sales year to-date. You said you are going to be below the lower end of utility, I believe it.

What should we be thinking about for next year? Are you going to see back in 8% to 10%?

We should be at the low end of the 8% to 10%. We will see CapEx ramp-up a little bit next year because we do have quite a bit of business that is launching.

So, you should expect this to come up, but it will be definitely at the low end.

Okay. Thank you.

And then question on the industrial project specifically [indiscernible] today said they see the marketing lease in North America in particular. This has a cycle for many of the products that were eight years into -- from the downturn therefore there is not a lot of replacement business.

Just wondering your thoughts on that and they seem to feel that next year would be a weaker year because of that?

Yes, I will agree the market is weak in North America this year, I mean the forecast are correct to be down, which is a big driver of the global decline. So they are down quite a bit now.

Europe is up quite a bit so it's offsetting, but not enough given North America is a much bigger market and not enough to offset. When we look at next year, we do expect continued growth in Europe.

North America I think is still -- something we are trying to -- trying to understand given some of the fluctuations in the market. Our current outlook is that we'll see a little bit of growth, but I appreciate that others it may not see it that way given some of the volatility that we've seen.

Yes, I think also -- and what Linda said earlier, David, has some -- important to mention is the backlog is in a better position this year and actually drives a little bit for next year some of that backlog. And I think our discussions directly with customer sort of reiterate what Linda is saying in North America that is still seems positive but cautionary cases is sort of up when we're looking at this.

I think the utilization rate is at 70% and I think the rental rates are up to about 8% now those are good signs for a little bit of growth as well. So, we are very cautionary about what we are looking at and we just look at daily take rates of new business and certainly we look at the order that take overall.

Okay. That's helpful.

Thank you very much.

Okay. Good evening, everyone.

Good evening.

Is everything perfect. Actually I apologize a few questions have been answered.

Just on EPS, so the C$1.86 gain on FX that you talked about?

Sorry, you were cutting out there Todd, would you just mind repeating your question I know you are asking about the C$1.86 EPS?

Yes. Just the C$1.86 includes the C$0.06 exchange?

Yes, it does, Todd. So, if you back out the FX gains or losses, then we would be $1.80.

Question on the production changes, it looks like Ford and GM [Indiscernible] you see that and or do you expect production to remain low as we go forward?

So, if I look at ford the production and our third quarter compared to third quarter a year ago was down 12.5% and HIS forecast so then to be down 17% in the fourth quarter over prior year. So, that weakness is expected to continue, I mean obviously that’s going to be dependent on levels of sales and inventory, but that’s the current HIS forecast.

If I look at GM, their production levels were up 15% in the third quarter over prior year and therefore -- and the IHS forecast for the fourth quarter -- for them to up 11.5%. So, they continue to perform as well at a similar level that obviously has more positive level than what was forecast.

And what do you make to sort of dueling market forecast of Ford and GM, calling for down in 2017 and one you calling for modest growth, how do you look for those two outlooks?

Yes, Todd, we find it interesting. The whole F-series pickup truck and Ford is starting to the super duty, but they are definitely indicated that they want to lower inventories and cutting some production whereas GM continues to build, seems a little strange, and I think it will be interesting to see how things play out.

Obviously for Ford, it’s a big issue to truck sales. They are the number one leader and I think they would want to keep that up, but not sure if everyone else keeps going on sales and incentives that Ford would want to participate.

But again -- I mean if we just look at some of the inventory levels that GM even though they are holding production so far some of the pretty high number?

Yes its -- we’ve seen in regards. Overall, I think you need to dive into some of the inventory that’s being held and I think in the case of Ford, a lot of that inventory ends up being V8 powered versus the V6.

Hey, that’s great. Thanks for the color.

Thanks very much.

Hi thanks for taking the question. Can you clarify in term of -- as we start working into your backlog, can you just clarify how we should think about things progressing in terms of the percentage margins in the Powertrain/Driveline segment?

Yes. We feel that margin level is going to stay pretty consistent.

I mean we’ve been sitting at the high end of the range that we normally suggest as 7% to 10%. We do think that we’re going to stay at the high end just basically based on business mix.

So, what can affect us is obviously market conditions, so it’s something both way of guiding the level and that affect us as levels of launch can -- if the launch cost cut is [indiscernible] little than that can bring that down a little bit as well. But in general, we’re expecting a fairly consistent requirement at or near the high end of that range.

Okay, so there's no reason to think that, the margin profit embedded in the backlog than is lower margin that your current business?

Not in terms of the business mix, no, the things that were impacted are as such described, lot of launches or anything that might go on with the underlying market that could affect it.

Okay. And then just in terms of the CapEx spending, can you just explain or describe is that CapEx getting differed or push out or what's driving that lower CapEx?

You mean in terms of our estimates for this year being now on to 8% to 10% range?

Yes.

Yes. I mean basically it's CapEx flowing over into next year to support launches that in fact we may have been anticipating to spend this year or so.

We've got a lot of business launching next year and the timing of CapEx whether its Q4 or Q1 can obviously shift around a little bit. So, we've think that we're going to see more of it next year than this year, which is why going back up into the 8% to 10% range next year.

Okay. And then just in terms of the capital allocation policy, when you look at the share prices level, is there any potential or have you thought about what maybe have a share repurchase program in place?

Yes. Of course, we do consider our share repurchase or dividend of other ways that we can try to return money to shareholders.

Our primary priority right now is debt reduction I mean we've increased the debt quite a bit with the acquisition of Montupet at the beginning of the year and we've been saying along that our number one role is to get our leverage down under one, we're sitting at 1.16 now. So, we're not far from that goal.

Once we reached that goal then we can assess other uses of capital including share buyback or dividends.

Okay. Thank you.

That's it for me.

Thanks.

Hi. I just wanted to go back to Montupet, I think we underestimate the seasonality, let me give different indication on the step down in Q4 versus Q3?

Yes. It's definitely less of a shutdown.

So, that's why we've indicating that you should expect Q4 performance to be up in terms of Europe overall and end market basis, which of course is a big driver for Europe overall.

Okay. So, it sort of looks Q4 somewhere between first half and Q3, is that sort of reasonable expectation?

Sorry, between first and second quarter, that’s what you’re saying?

No, no, Q3 and first half?

Yes, I mean it will be somewhere in between.

Yes.

Yes, but a lot closer to our Q2 or Q1 run rate levels than that it would be to Q3.

But you also factor is the Skyjack seasonality in the Q4.

Yes.

Yes. I don’t think we are talking about [indiscernible] we’re just talking about Montupet right now.

Okay. And just talking about backlog for Skyjack, you said up year-over-year, just maybe an order of magnitude?

Yes, somewhere around 10% or 15%, better.

Okay. [Indiscernible] I guess big picture, some of the new trade agreements with the Europe, maybe give us an idea what products you shipped from Canada and Europe, whether it’s within automotive or within the Skyjack?

We shipped from Canada to Europe, yes. It would be primarily Skyjack, because most of what we do on the Powertrain side would be produced in Europe.

So, Skyjack has been growing their business in Europe -- Europe overall but, quite a bit further U.K., in fact. So, overall North America is down to sort of between 65% and 70% of our overall sales and the majority of the balance being into Europe and U.K., but a bigger proportion would be in the U.K.

So, firstly, I think it’s a huge help for Skyjack to have the constraint agreement in site with Europe. It gives us a big advantage over our categories who are U.S.

based companies and don’t have free trade with Europe for any products as they are making in the U.S. and shipping over to Europe.

What are rate that you pay now on the Skyjack products?

Sorry, I didn’t hear the question?

[Indiscernible] how large was it?

I don’t know off the top of my head, Mark and I have a take the gap, so we can check that and get back to you.

Sure. And I guess, sorry, just along through, when you said Q4 look sort of much closer to Q2 and Q3.

Is that what you said?

Yes. That's right.

Okay. All right.

Thank you very much.

Good evening. I have a question on the Industrial type margin.

So, when you back out the FX change, it looks like you’re up about 200 basis points, I just want to understand a bit with your competitor call, is this because you've got volume growth [Indiscernible] that's leading to a better mix which is to offset to a certain extent by lower pricing?

So, I mean, we’re growing our sales in our Industrial division so that's obviously helping to absorb overhead and therefore lining up to continue to perform a strong level of margin. It's also partially to deal with product mix.

Okay. And then one other follow-up question, sorry, there's just been a tremendous amount of static on this call.

I know I apologize, I think you’re [indiscernible].

I just wanted to repeat your 2017 guidance, I think if I got it correctly you said, high single-digits topline, constant margin performance, I just wanted to know the input [indiscernible] just from your previous, is this simply production volume?

Exactly.

Thank you very much.

Yes. A couple of other question, when I think you got the Powertrain/Driveline margins for Q4 [indiscernible] counteract in there is improving, I presume Ford would be drag and maybe some other customers and offer pretty much everything would be a problem I would think.

So, when I thinking about those factors what is the biggest factor that would go down or up? Normally, I would expect margins to go up in Q4 and Q3, but I’m wondering with all those factors whether they actually would say the same or maybe you can go down?

Yes. I don’t think I would normally expect them to go up.

I mean, if I look at last year, it was pretty flat our Q3 to Q4 margin were around 10.1% both quarters prior year maybe a small uptick. So, obviously, the drag from production cuts as described is going to have -- is going to be a drag on the quarter.

So, I would [Indiscernible] not expect it to be up.

Okay. Why would be [Indiscernible] shut down longer in Q3 than in Q4, you gained more volume especially in Q4 than Q3.

So, I don't understand why normally it won’t go up in Q4?

No. It's not normally that different in terms of sales, just because you've got -- your summer shut down in Q3, but in Q4 you've got Christmas shutdown Thanks Giving.

So, it really depends on how much of a shutdown we saw in the third quarter as to whether it would increase or not. So, last year, for instance, there was a much lighter shutdown in Q3 that ended up being pretty similar.

So, you didn't see much change in terms of the performance on sales earnings or margin for the Powertrain/Driveline segment. So, the quarters can be quite similar and it really depends on the comparative level of shutdowns.

Right. Okay.

And then just on the [Indiscernible] margins from Powertrain/Drivetrain, I think last quarter you said that you thought you could do somewhat like 10% to 11% EBIT for 2015, 2017. Is that still your view or are you thinking maybe a bit lower I though you said high end of 11%?

Sorry, can you just repeat that for the Powertrain/Driveline?

So, last quarter I think you said 10% to 11% EBIT margin potential for 2016, 2017, would that still be your view?

I mean yes, obviously, the impact that we're seeing are bringing us maybe a little lower in that range than we may have been there still within that range would be my expectation.

Okay. And similarly on Skyjack I think you're suggesting you could be above the 12% to 16%, it looks like you are heading in that direction and you could be there both in 2016 and 2017 is that -- seem like a reasonable expectation?

Yes.

Okay, great. And then my last question on the commentary the review in the MD&A, it looks like foreign exchange helps profitability in Powertrain/Drivetrain and Industrial, is that translation or is there anything else going on?

Translation and transactional FX, but it depends on the currency--.

Okay. Thank you.

Hello?

Dale I have question on financing, there is an offset of C$5.2 million that you described as others? I assume C$2 million obviously translates in [Indiscernible] you told us about and I was wondering if that's true.

What's the remainder there?

To share FX gain and loss on debt closely outlined. Other things would be hedging in that type of transition that would sell through financing cost as well.

Okay. Thank you.

Dale has your -- I think you mentioned this on the call, but has your average financing rates declined since last year?

Yes. Last year we were heavily U.S.

and Canadian debt and this year, we are predominately euro debt since all the acquisition debts for Montupet in euro. So, the effective interest rate is pretty much cut down from last year.

Okay. Thanks.

Okay. Thank you.

So, to conclude this evening, I'd like to leave you with three key messages. First is great to deliver another strong quarter of double-digit top or bottom-line growth of 14%, it's fantastic.

Secondly, we're very pleased with the level of cash flow we are generating, which is allowing us to reduce our debt load and bring leverage back down quite close to that one-time EBITDA level that we're targeting. And finally, we are very excited about these opportunities we have already secured and our continuing to pursue a level of winds and activity quite high, meaning, we should continue to see great opportunities to [Indiscernible] our business going forward.

Thanks very much and have a great evening.