Paul Jewer - EVP and CFO Scott Medhurst - President and CEO

Cherilyn Radbourne - TD Securities Yuri Lynk - Canaccord Genuity Michael Doumet - Scotiabank Sara O'Brien - RBC Capital Markets Bert Powell - BMO Nesbitt Burns

Thank you, Wayne, and good morning, everyone. Thank you for joining us to today to discuss the results of Toromont Industries Ltd.

for the fourth quarter and full year of 2016. Also on the call with me is Scott Medhurst, President and Chief Executive Officer.

Before we continue, I would like to advise listeners that this presentation may contain forward-looking statements and information that are subject to certain risks, uncertainties and assumptions. For a complete discussion on the factors, risks and uncertainties that may lead to actual results or events differing materially from those expected, refer to Toromont's press release from yesterday which is available on our website.

We assume you’ve had an opportunity to review our press release from yesterday and as such we’ll focus on key highlights. Scott will begin with a few remarks and some comments on our outlook, after which I'll review the operating group results and financial position.

Then we'll be more than happy to answer any questions you might have. Scott.

Thank you Paul and good morning everyone. We're pleased with our overall 2016 results which reflect the realization of opportunities in generally challenging markets and the team's focus and commitment to operating disciplines.

CIMCO delivered outstanding results while performance in the equipment group reflects softness in certain areas of the business. Across both groups however, product support continues to wide a strong foundation for growth.

Consolidated revenues increased 2% in the quarter and 4% year-to-date with CIMCO contributing significantly to the overall growth. Operating income again exceeded 10% of revenues in the quarter and year-to-date on higher revenues and slightly improved gross margins partially offset our higher expense ratio.

Net earnings were up 3% in the quarter rounding out the year at 155.7 million, a 7% increase over last year. In the equipment group, we're encouraged by the long-term outlook for infrastructure spending and expect to have better visibility into future spending initiatives following the 2017 budget announcements.

The parts and service business continues to be active and provides a measure of stability and opportunity for further growth. There was also a shift to used equipment and rebuild activity during the past year.

Our shops remain busy and we continue to hire technicians in anticipation of increased demand including the opportunity for increased equipment rebuilds and readying used iron. The mining sector remains challenged by tight economic conditions, capital spending constraints and cost reduction initiatives.

Production continues however which is good for product support business. Opportunities also exist for sales in support of new mine development, mine expansion and equipment replacement.

In the agricultural sector, end markets are currently very weak but we're encouraged with the integration of broader product lines and improved market coverage. Focus will remain on sales participation rates and operational processes to generate longer-term financial returns.

At CIMCO performance was exceptional with strong package sales and product support growth. The growth experienced in recent years represents the nascent realization, focused strategies and we are especially pleased with the results seen in the U.S.

Recent booking activity and current backlogs bode well for future prospects. Across all of our businesses, diversity, expanding product offering, and services are solid financial position and a disciplined operating culture remain our strengths and position us well entering 2017.

Our recognizing the company's solid financial position and positive long-term outlook, I'm pleased to announce that the Board of Directors yesterday approved a 6% increase in the quarterly dividend to $0.19 per share per quarter. This marks the 28 consecutive year in which the company has increased dividends.

I will now turn the call over to Paul to take you through highlights of the financial results. Paul?

Thanks Scott. Let's dive right into the group results starting with the equipment group.

Revenues in the quarter were relatively in line with last year but up 1% for the year with continued product support growth offsetting lower total equipment sales and rentals. Challenges on the equipment side of the business continued throughout 2016 with higher new equipment pricing and federal infrastructure rollout delays contributing to weaker customer demand.

We also note an influx of inventory and contractors into a more active Ontario market which resulted in heightened competitive conditions. In total, equipment sales were down 3% in the quarter and 4% for the year with record used equipment sales partially offsetting lower new equipment sales.

As Scott pointed out, addressing this used equipment opportunity remains a focus and our team is actively monitoring and securing the inventory to keep up with demand. Rental revenues were up 5% in the quarter but down 1% for the year.

Rental rates have been under pressure throughout the year which also saw a slow start due to warmer conditions. Investment in the rental fleet continued in 2016 with our net investment up 11% to 272 million at the end of the year.

Product support revenues increased 3% in the quarter and 9% year-to-date surpassing previous record set last year. Both parts and service were up benefiting from the larger installed base of equipment in our territory, good equipment utilization levels and higher mining rebuild activity.

Margins were up 150 basis points in the quarter and 60 basis points year-to-date. Margins benefited for the most part from a favorable sales mix of product support to total revenues in both the quarter and year-to-date.

Equipment margins increased for the first time this year in the fourth quarter but pressures across most other lines of business continued. Selling and administrative expenses increased 13% in the quarter and 6% year-to-date and were also higher as a percentage of revenues.

Higher compensation costs and increased customer support cost accounted for the majority of the increase in both the quarter and the year. Operating income was up 1% in the quarter on the higher margins partially offset by the higher expense ratio.

On a year-to-date basis, operating income increased 3%, bookings were up 36% in the quarter and 4% year-to-date. Bookings were up 36% in the quarter and 4% year-to-date, backlogs of 147 million or 60% higher than last year with increases across most market segments.

Now turning to CIMCO, CIMCO reported record results for the quarter and full-year. Package revenues were up 30% in the quarter with strong Canadian activity levels offsetting lower sales in the U.S.

On a year-to-date basis, package revenues increased 35% on higher sales in both Canada and the U.S. with the exception of Western Canada where we continue to see weak market conditions all other regions reported growth.

We are encouraged by the results in U.S. markets where we believe there is significant growth potential.

Product support revenues decreased 8% in the quarter with lower revenues reported in both Canada and the U.S. mainly attributable to the timing of job completions.

For the year however, product support revenues were up 5%. Margins were lower in both the quarter and year-to-date.

Tight pricing environments in both Canada and the U.S. led to lower package margins and this is exacerbated by the increased proportion of package sales versus higher margin, product support sales in both the quarter and year-to-date.

Product support margins improved slightly despite the competitive conditions. Selling and administrative expenses were lower as a percentage of revenues in both the quarter and year-to-date.

Operating income margin increased to 8.5% in the quarter and 7.3% for the year reflecting the lower expense ratios partially offset by the lower margins. Bookings increased 14% in the quarter and 28% year-to-date with increases in both Canada and the U.S.

Backlogs of 99 million were up 13% with increases in Canada and the U.S. and represented the second highest level for this time of year.

On a consolidated basis net earnings for the quarter were 45.5 million or $0.58 per share. Full-year net earnings increased 7% to 155.7 million or a 1.99 per share.

At December 31, our overall financial position is strong evidenced by a strong balance sheet and cash which exceeded long-term debt. Managing inventory levels is always a balancing act and we're pleased with the reductions seen in the equipment group versus this time last year.

Additionally, we continue to produce superior shareholder returns evidenced by a 20% return on opening shareholders equity and a 24.5% pretax return on capital employed. That concludes our prepared remarks and we'll be pleased to take any questions.

Brian.

Thanks very much, and good morning. So wanted to kind of start by asking about the so-called used equipment overhang.

I guess for about two years the industry had too much equipment chasing to [build work] [ph] and Central Canada hasn't been immune to that. Where do you think we stand today on that versus this time last year?

Obviously the demand for used equipment what we saw continued in the quarter with increased demand and we're pleased that our teams are able to adapt and create supply for this - with demand and I think it's all relative to the new equipment pricing what we’re seeing. So I don’t think there has really been any change compared to what we saw last year this time.

We're not seeing a significant overhang at this point. We continue to source iron for our customer demand.

For us the equations mostly on the demand side not a supply amount. Our purchased iron sales were up again in the quarter.

And do you think there has been enough improvement in end markets elsewhere to maybe drain some of the equipment that - and contractors that have moved into Ontario or just not enough improvement yet?

We are just monitoring that closely, I think it's really fluid right now on that front.

Okay. Can you give us a bit of perspective on how the rental business performed in 2016 relative to your expectations and what you're anticipating there in terms of net rental odds for 2017?

Yes, on the light equipment we are pleased. Our utilization improved over the year and in the quarter which we're pleased of light and the heavy utilization went up in the quarter but what is causing some drag is the rental rates continue to be very competitive.

So as we increased our fleets that put some pressure on the financial utilization in both the light and heavy but overall I think we're pleased with the strategy. We continue to make progress on penetrating the market and it's also what you're seeing now as those fleets mature is actually helping our used equipment sales and providing customers with a different value proposition, good iron, the right price and we saw some increases in the disposition in our used sales in the quarter as well.

So from an investment standpoint Cherilyn, we - the rental business is extremely important part of our business. We're very proud of the work that we do throughout battlefield and are growing heavy rents business.

And we expect to continue to invest at healthy levels. So last year we invested around $62 million on a net basis on rental fleets and I would expect that we will continue to invest at that level in the coming years, somewhere between $55 million and $60 million.

Okay. And last one from me, on the product support business.

Can you just talk about what percentage of your installed base would be connected today for telematics and how that contributes to the activity levels you see in parts and service?

Yes, that's a key strategic area for us in terms of what we're targeting to connect this asset. This is some way builds a bit of early stage in how we are capturing the data.

In terms of the number, we're going through all those calculations now because there's is a strong legacy in there which we're pleased about because that creates the foundation to drive your product support. I don’t have the actual number off top of my head relative to the total legacy of the products.

What we're tracking now going forward is the percentage we connect relative to the new sales.

And what do you typically see in terms of parts market share for instance when you got a connected machine versus non-connected machine?

Well I think you can provide customers with better solutions when you get the data processed to data on the predictive analytics and that's what the future is all about. And we'll able to give customers good solutions going forward before you have sort of predict - before those failures occur.

And we were pleased with our part sales in our performance relative to usage last year.

Great. That's it from me.

Thank you.

Good morning, guys. Scott you mentioned the equipment margins improved a little bit versus last year, just wondering if that's due to stabilization that we've seen in the C-dollar allowing you to catch up on pricing or does that also reflects the mix of used versus new in the next.

Yes, that's still very competitive out there basically in the new margin pressure. So it's more to do with the mix and the shift to the used demand.

Okay. And how is the competition for that used iron is it - has it intensified at all given the good demand that you mentioned.

Yes, it's very competitive and I think our performance reflects the strong work the team did and also what we've done strategically on the rental fleets to - as those fleets age you have good iron to dispose of which is attractive in this environment right now.

Yes, for sure. Last one from me, just I thought the equipment group bookings and resulting year-end backlog were pretty impressive.

Two questions on that, I guess, what end markets is there in particular drove the good bookings activity and any color you can provide on that and does that imply that we could see some growth in new equipment sales in 2017 given 60% increase in the backlog?

Well the - it was up 60% and we're pleased with that in the quarter obviously in the booking activity. It was mainly driven by the mining and our power systems group, I was really pleased to see the parts system group booking and backlog improve in the quarters or so.

I wouldn't want to speculate going forward but that was encouraging to see that in the fourth quarter.

Okay. That's it for me guys.

I will turn it over.

Hi Scott, hi Paul. So could you comment on the overall industry volumes and whether the installed base is still expanding?

I mean, I guess, couple of people trying to get this question but are we seeing used equipment substitute new equipment sales but as a whole the market still growing?

What we saw gives you color on the new because it is - we saw some fairly - we saw declines in the overall industry and it was - there was heavier declines in the segments related to the infrastructure. So we continue to wait to see what's going to develop that infrastructure.

We hear - keep hearing things, we’ll see what happens in these budgets but that was off - those heavy construction industries relating to road and site development things, they were down in a larger percentage than the smaller iron. And that is what's impacting your revenue streams on new.

The shift to used it shows there is demand there particularly in the mining. We continue to see strength on that - those demand signals.

In terms of the overall comparison, we don't really track in, when you look at used units, we don’t track that, we stay focused on the new and then again you shift into this used demand which is continues acceleration it appears based on what we saw throughout the year.

And just to add to that, one of things that I'd say I characterize the current perspective in terms of looking at current industry, the demand in activity is internal perspective it's more of a pause than a trend at this point in time. So, I think you’ll see that pause continue someone until we get some clarity with respect to infrastructure investments and as Scott pointed out, that will improve with budgets in the spring but I wouldn't read too much in terms of extrapolation at this point.

Okay. That's very good color.

Appreciate it. And just as an extension to that question, can you comment on pricing of new versus used?

Still very competitive. There's a lot of pressure on the margins with new and that reflects the, tight industry numbers.

Okay, thanks. And then lastly on - a question on capital allocation.

So free cash flow was strong in the quarter you also - Q4 was in a cash position you have a buyback, I mean you also increased your dividend. But my guess is that cash is likely to continue to build so if the expectations that we get maybe some M&A here, what would you qualify as some reasons we've not seen it yet and maybe just as an extension to that, in the absence of M&A could we see a special dividend?

We continue to evaluate all strategies with respect to capital deployment and as we talked about the past, mid-focus on our dividend growth, we saw tick-up today - or yesterday terms of our announcements expense growth and dividends. We continue to invest in the business.

I already talked about our continued investments in rental, we’ll see a little bit of an uptick in PP&E this year and will look at opportunities for enhancing that organic growth model with our rental expansion. We do look at selectively at related M&A at a smaller level.

We certainly had indicated that CIMCO might be something that would be interested in expanding, find the right mix, someone asked that question on the Q3, quote unquote, we have to be disciplined and patient on the front in order to find the right thing as opposed to just doing anything. And beyond that we continue to look at other investment opportunities.

There are where that fit into our core scope of investment strategy and have taken each of you on the phone today through that strategy in the past. And we continue to keep our powder dry and in line with caterpillar.

So that continues to be a focus for us and we continue to focus on being the best caterpillar that we can be.

Perfect, thanks a lot. Good quarter.

Appreciate it.

Hi, good morning. Through some of the channel checks have been doing or hearing about sort of a bigger pickup in RPO activity, your expectation for more of that.

Can you just walk us through the dynamics how that works? Do you have the inventory on hand for that type of rent work purchase option and what's the guarantee that you take on that in case if it's not converted to a sale?

So we are - at the end of the year our new RPO was up reluctant to prior year and I think that's a bit of reflection of the continued cautious environment that we're seeing. Overall, on annualized basis our conversions were up, but going in the 2017 I think customers are being cautious.

We have been able to the meet the demand and so we're pleased about that. Now in regards to field RPOs, we monitor that, we usually - conversion rates are usually pretty good and we'll see how that plays out in 2017.

Okay. So at this point, are you expecting with your current inventory, you can meet that demand because that's how you turned up one nicely in Q4.

Quoting about sustainable or do you have invest in more inventory to be able to meet the demand?

Well, we wait for those signals particularly on the large projects and that's where we'll - we have the ability to pull from different areas. And so far we've been able to - I think meet the demand fairly well.

Okay. So, inventory turns you'd expect to be similar in that three plus range?

I never speculate, but we work hard and we're very attentive to those turns.

And we have to be very focused, I mean that's a key focus area in terms of ensuring a balance between not having too much capital for it and ensuring that we have inventory on hand to meet the balance. So as you know Sara, we've been writing relatively high end inventory for quite some time now.

So we are not concerned at this point in time with our current inventory holdings. We're just satisfied with the moves that we've made and bringing talent of it.

Okay. And is the RPO market is for the heavy equipment primary at this point?

Yes.

Okay. And just wondering if you could comment on the CIMCO market, the U.S.

opportunity obviously a small base to start from, but based on what we are seeing in terms of the new president opportunities there, maybe tax opportunities anything that you are seeing on the positive front there?

Well, we were pleased with how the team executed particularly on the industrial side that was a key area for us. We're monitoring our win ratios very closely.

They did improve so quite pleased with that. Getting close to our coding targets, so we'll continue to push hard on map we're pleased with the industrial bookings in the U.S.

in the fourth quarter. So, it continues to be an area of strategic focus and you know we're very focused on the industrial side.

The recreational performances has been solid, but the big upside for us is in the industrial side.

And we still have more work to do on that in terms of penetrating in industrial market.

Yes, lots of work remains.

We're pleased that as identified The Globe and Mail and I think it was Boxing Day that CIMCO was identified in the art of the deal.

Right.

Fixing involvement ring, so.

It is increased investment, if it comes will be good broadly for CIMCO's opportunity.

Okay. And what about the infrastructure investment in Canada, would you expect some recreational triple down from that as well?

I wouldn't want to speculate on that, we will see. We keep waiting to hear on the release of these budgets that we will wait and see.

Okay. Thank you.

Good morning, Scott and Paul. Paul, that was a quickest read I ever heard on the Safe Harbor by the way.

Thank you. I have done it now for 34 times here probably.

Yes, I think you get faster every time. Just in terms of the mining, can you - the orders in the quarter how much of that would have been replacement versus for expansion or new mines?

I don’t have these actual numbers, but majority would be for replacement.

Okay. So we're getting into the point.

That's right, and some expansion. There was some expansion in these mines both in underground and surface, so there was some mix in there as well.

But the age of the fleet in your installed base is such now that you're starting to get into the first stages of a replacement cycle that actually you can start to see some continued momentum in that side or is this kind of episodic, is it that it happens?

No, actually it was to do with some expansions and again underground surface, but also we're seeing increase in rebuilds as well, which is encouraging. And overall construction and mining, our rebuilds were up over 300% on a unit basis last year's.

So we're really pleased with that and again our teams were able to react to that. So, I wouldn’t read anything other than the mines here continue to produce.

They are operating at tight operating parameters and capital constraints so there's the shift to use. I wouldn't say it's - majority is replacement, there is a good mix in there from what's going on.

Okay. And just with the parts and service, I know it’s been pretty strong for the last couple of years, your double digits and now kind of trending down is that just really a normalization now, if I think back to when battlefield went in, and [indiscernible] went in, those years are starting to put on the equipment.

Are we now at the point where, that stuff is kind of into, into its replacement - into its parts and service mode and we would expect the parts and service business to start to normalize. I would hear just trying to figure out what is going on in the parts and service side of the business.

Well - overall for the year we're pleased with that parts and service business in all the segments, I think it reflects our strong legacy and machine populations that the teams have put in and as well as CIMCO. It’s tough to predict right now, I am just pleased with the rebuilds and I think that reflects that the production continues and I wouldn't want to speculate but we're pleased with the installed base and we think we can compete very effectively with our value propositions to capitalize on the opportunities that will present themselves on the product support.

Okay. And last question was there anything in the quarter in terms of your RPO returns versus conversions.

I know it's usually enough equity build since its people are disincentive to not exercise that by option but was there anything in terms of returns that would have put that back to you.

No, there is nothing that stood out there.

Okay, perfect. Thank you, guys.

Hi, good morning gentlemen. I just want a quick question in relation to the competitive environment.

The fact that some of overseas OEMs combined with - with other bigger pieces if you're trying to - if you are seeing any impact on from a competitive positioning perspective or you feel that, because those players have been around for a long time the combination doesn't really impact you guys.

There has been no change there again this is - its competitive but no real change there, these players have been around for a while.

Right. And then on the infrastructure side, I mean obviously everybody has been waiting for a while to see some flow of incremental projects.

Are you guys in discussions right now with maybe some of the bigger construction entities in terms of trying to see what if there is a lighter den of a tunnel in terms of timing or is it the timing is still predicated on the new budgets that are still coming up, so just trying to gauge your visibility on infrastructure side if it's possible.

Yes. Actually we're seeing close to our customers in infrastructure space.

I was at an event few weeks ago and it’s still very much wait-and-see, that's basically what it is.

Okay, that's it from me. Thank you very much.

Thank you. Again thanks everyone for your participation today.

Have a great day.