Finning International Inc. · TSX:FTT

Finning International — Investor Day (December 2012)

66 slides from Finning International's investor day presentation, Dec 13, 2012

1. Slide 1: Investor Day: Strategic Overview

   Investor Day Strategic Overview Mike Waites, President and CEO December 13, 2012

2. Slide 2: Executive Team

   Executive Team Juan Carlos Villegas Neil Dickinson Andy Fraser Marcello Marchese EVP and COO Managing Director President President Finning International Finning UK & Ireland Finning Canada Finning South America Dave Smith Rebecca Schalm EVP and CFO SVP, Human Resources Finning International Finning

3. Slide 3: Unique Value Proposition

   Unique Value Proposition  Geographic and industry Product Support Revenue diversification 10 year CAGR ~11% $ Billions  Strong market positions 3.0 2.7  Copper mining in Chile 2.4  Oil sands in Canada 2.5 2.1  Large installed equipment 2.0 1.9 1.9 base drives resilient product 1.6 1.7 support 1

4. Slide 4: Strategy Map

   Strategy Map Mining Solutions Power Systems Ultimate Vision Providing unrivalled services that earn customer loyalty, we will be CAT’s best Global global business partner. Solutions S Provider T R Core/BCP Leadership Acquisition(s) A T Safety Intermediate E Sales & Solutions G Operational Operationa

5. Slide 5: Meeting our Commitments: Achievements

   Meeting our Commitments Targets Progress Bucyrus  Acquisition and transition Successful; accretive to EPS Achievements Canada business recovery  EBIT margin improvement From (0.3%) in Q3 2011 to 7.8% in Q3 2012 Revenue growth  12-15% including Bucyrus Up 19% YTD ending Sep 30, 2012 Return on Equi

6. Slide 6: Outlook

   Outlook  Expect constructive business conditions in key markets  Mining to remain active supported by relatively strong oil and copper prices  Uncertain outlook for equipment sales  Customers becoming more cautious, delaying some purchasing decisions  Expect continued strong demand for product

7. Slide 7: Revenue Drivers

   Revenue Drivers  Product support growth  New products and services  Bucyrus - full suite of mining products  CAT 795 electric drive truck  UK & Ireland Power Systems - Damar, Komptech  Chile - truck dump bodies  New technologies  Remote condition monitoring  C175 engine  Gas fuel substitut

8. Slide 8: Driving Value

   Driving Value  Operational excellence focus  Supply chain management  Service productivity and profitability  SG&A improvements  Priorities  Operating leverage  Sequential EBIT margin expansion  Committed to 9-10%  Sustain strong ROE  Drive return on investments made  Strengthen balance s

9. Slide 9: Summary

   Summary  Sustainable competitive advantage  Continued focus on operational excellence  Operating with caution  Driving value in slow growth environment 9

10. Slide 10: Investor Day: Financial Outlook

    Investor Day Financial Outlook Dave Smith, EVP and CFO December 13, 2012

11. Slide 11: Financial Targets

    Financial Targets Earnings Growth Strengthen balance sheet  Sequential EBIT margin  Significant free cash flow expansion  Net debt to total capital  Committed to 9-10% target: 35-45% Drive return on invested Grow dividends capital  Consistent with  ROE target: >18% sustainable growth 2

12. Slide 12: EBIT Margin Journey

    EBIT Margin Journey  Continue to improve operating leverage  Fundamental shift to 20-30% higher profitability  Reduction in volatility EBIT margin target 10 year EBIT margin range 5-8% 3

13. Slide 13: Balance Sheet

    Balance Sheet  Strong EBITDA to drive significant free cash flow  Lower capex  Improve working capital metrics  Deleverage balance sheet – within target range in 2013 % Net Debt to Total Capital Ratio 60 50 Target 40 Range Bucyrus acquisition Investment in COE 30 20 10 0 2002 2003 2004 2005 2006

14. Slide 14: Return on Invested Capital

    Return on Invested Capital  Improve return on assets Return on Equity  Significant investments % 24 over past few years  Bucyrus 21  ERP 18  Branch network, CRCs, PDCs 15  Digesting and making 12 these assets work 9  Improving working capital 6  Focus on asset performance by market segment a

15. Slide 15: Dividends

    Dividends  Important component of total Annual Dividends shareholder return 0.60 $ 0.55  Committed to grow 0.51 0.50 dividends, consistent with 0.47 0.43 0.44 sustainable growth 0.40 0.36  10 year average payout ratio 0.30 0.28 ~30% 0.22  Current quarterly dividend 0.20 0.15 0.18 0.20 = $0.14 0.

16. Slide 16: 2013 Financial Outlook

    2013 Financial Outlook  Revenue 8.0 $ Billions Revenue 6.7  Flat to 10% growth 6.0 4.9 5.7 5.6 5.9 4.6 over 2012 3.6 3.8 4.3 4.5 4.0 3.2  10 year CAGR ~ 8% 2.0  Earnings per share 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 LTM*  Earnings to grow at $ Basic EPS Recession 2.0 higher ra

17. Slide 17: Key Financial Focus Areas

    Key Financial Focus Areas  Improve earnings growth and quality  Drive return on invested capital  Deleverage balance sheet  Grow dividends 8

18. Slide 18: Investor Day: Operational Excellence

    Investor Day Operational Excellence Juan Carlos Villegas, EVP and COO December 13, 2012

19. Slide 19: Strategy Map

    Strategy Map Mining Solutions Power Systems Ultimate Vision Providing unrivalled services that earn customer loyalty, we will be CAT’s best Global global business partner. Solutions S Provider T R Core/BCP Leadership Acquisition(s) A T Safety Intermediate E Sales & Solutions G Operational Operationa

20. Slide 20: Operational Excellence

    Operational Excellence Customer Centric Operational Discipline Culture and Efficiency  Maintain local customer focus  Align organizational structure to strategy  Consistently apply leading practices which add value  Leverage expertise of Finning’s regions  Share learning across organization  F

21. Slide 21: Strategy Map - Operational Excellence 5 x S

    Strategy Map - Operational Excellence Intermediate step in our strategy Safety Sales & Solutions Operational Operational Excellence Service & Parts Operating Excellence Leverage 5xS Supply Chain Systems 4

22. Slide 22: Safety

    Safety  Strong safety performance = solid culture and competitive advantage  Employee opinion on safety scores – top 10% of global organizations  Good example of cultural change and best practices sharing  Embedded process and standardization Lost Time Injuries (LTI) per 200,000 work hours 2.5 2

23. Slide 23: Sales and Solutions

    Sales and Solutions  Enhanced focus on market segmentation and analysis  Leveraging power systems leadership globally  New businesses and solutions  Bucyrus  Truck dump bodies  Damar  Komptech  Technology services  Fintech  Finsight  Remote condition monitoring 6

24. Slide 24: Sales and Solutions – Bucyrus Update

    Sales and Solutions – Bucyrus Update  Transition plans well executed in all regions  Retained knowledge, capabilities and talent  Successful transfer to ERP platform  Finning used by CAT as best practice  Making solid integration progress  Bundling equipment: recent deals in Chile and UK  Ser

25. Slide 25: Service and Parts

    Service and Parts  Service productivity  Customer centric culture to be balanced with operating discipline  Leverage asset investments from past five years: La Negra, COE and Fort MacKay  Lean manufacturing applied to our business - Caterpillar Production System (CPS)  Capacity planning and equ

26. Slide 26: Supply Chain

    Supply Chain  Building sustainable, efficient and consistent supply chain  Standardized, rigorous processes with common metrics  Sharing leading practices across the regions  Regional leads are Global Supply Chain Council members  End-to-end processes include Caterpillar  Improving inventory p

27. Slide 27: Systems

    Systems  Continuous improvement of systems and processes  Leverage technology – applications and geography  Drive ERP business case benefits  Working capital and inventory management  Improved productivity  Integrate technologies  Condition monitoring  Safety  E-commerce business  Phased i

28. Slide 28: Summary

    Summary  Operational excellence across all regions - key driver of sustainable improvement in operating profitability and customer loyalty  Consistent processes transferable and scalable  Focus on largest margin impacts  Supply chain  Service productivity  SG&A improvements  Sharing best prac

29. Slide 29: Investor Day: Finning Canada

    Investor Day Andy Fraser, President, Finning Canada December 13, 2012

30. Slide 30: Finning Canada

    Finning Canada  Revenue:  2011: $2.9 billion  YTD Sep 2012: $2.5 billion Northwest Territories  EBIT:  2011: $170 million Yukon Western Canada  YTD Sep 2012: $162 million  Industries:  Mining (including oil sands) Alberta  Construction Fort McMurray (4 branches + Fort McKay)  Power systems

31. Slide 31: Finning Canada Revenue Profile

    Finning Canada Revenue Profile Revenue Product Support New Equipment by Line of Business Revenue by Industry Sales by Industry Rental Power Systems Other Used Forestry 8% 5% Equipment 8% 4% 5% Petroleum 11% Mining New 32% Equipment Construction Power Mining Systems 44% 27% Product 65% 12% Support 43

32. Slide 32: Operational Excellence

    Operational Excellence  Entering the phase of continuous improvement of systems and processes  Focus on ERP system optimization and ease of use  Enabling working capital efficiencies and improving asset performance  Driving supply chain initiatives  Improving forecasting capability for equipmen

33. Slide 33: Oil Sands Product Support

    Oil Sands Product Support  Five oil sands branches  New oil sands service facility (Fort McKay)  16 bays; 160,000 sq. ft.  $110M investment: 2011 and 2012  Operational in Q4 2012  Regional training centre New Fort McKay oil sands service facility  Two parts warehouses (Mildred Lake and Fort M

34. Slide 34: Oil Sands Mining Fleet Growth

    Oil Sands Mining Fleet Growth Additional CAT Caterpillar Units Total Units Finning’s Equipment Type Units Projected at Jun 30, 2012 at Jun 30, 2012 Market Share Jun 2012 to 2017 400 Ton Trucks (797) 250 278 90% 104 320 – 340 Ton Trucks (795/MT5300) 131 10 240 Ton Trucks (793) 158 182 87% 64 100 – 20

35. Slide 35: Construction and Power Systems

    Construction and Power Systems  Heavy construction  Continued investment in infrastructure  Alberta – ring roads, airports, LRT in Calgary and Edmonton  British Columbia – Evergreen Line Rapid Transit, Coquitlam to Vancouver; Interior to Lower Mainland (ILM) Transmission Project, Nicola to Coqui

36. Slide 36: Opportunities

    Opportunities  Sustainable product support growth  Large and aging equipment population  Strong demand for component remanufacturing and machine rebuilds  Fort McKay oil sands facility to support producers and contractors  Oil sands remain active  Mining equipment population for existing proje

37. Slide 37: 2013 Priorities – Consistent Execution

    2013 Priorities – Consistent Execution  Continue to improve operating profitability  Drive operational excellence  Improve working capital performance  Increase service productivity  Integrate and grow new Drills, Shovels & Mining Systems business  Execute on Fort McKay – game changer  Gain m

38. Slide 38: Market Outlook

    Market Outlook  Expect stable oil sands activity  Robust product support business, including component remanufacturing and machine overhaul  Producers taking more balanced view on capital projects and expansions  Other mining  Solid demand from copper and thermal coal  Metallurgical coal custo

39. Slide 39: Summary

    Summary  Key markets remain constructive  Capturing revenue opportunities in slow growth environment  Monitoring customer activity closely  Managing business with more conservatism  Leveraging investments to deliver customer value  Growing parts and service business for Drills, Shovels & Minin

40. Slide 40: Investor Day: Finning South America

    Investor Day Marcello Marchese, President, Finning South America December 13, 2012

41. Slide 41: Finning South America

    Finning South America US$ Millions Revenue  Revenue: 2,400 2,245 2,141  2011: US$2.1 billion 2,000 1,622  YTD Sep 2012: US$1.7 billion 1,600 1,240 1,398 1,305 1,200  Chile – 76%, Argentina – 18%, 832 890 Bolivia – 4%, Uruguay – 2% 800 671 407 400 282  EBIT: 0 2002 2003 2004 2005 2006 2007 2008

42. Slide 42: FINSA Revenue Profile

    FINSA Revenue Profile Revenue Product Support New Equipment by Line of Business Revenue by Industry Sales by Industry Used Equipment Rental Power Systems Power Other 2% 3% 6% Systems 3% Construction 13% 13% New Mining Equipment 39% 44% Product Support Mining Construction 51% 81% 45% Other incudes fo

43. Slide 43: Operational Excellence

    Operational Excellence  Strategic approach to supply chain management  Working capital initiatives – focus on inventory  End-to-end planning processes  Leveraging investment in product support infrastructure  Lean manufacturing approach (Caterpillar Production System)  Improved shop utilizatio

44. Slide 44: Chilean Mining

    Chilean Mining  Chilean mining investment projected at ~US$ 70 billion over next 5 years*  Strong mining outlook balanced by industry growth challenges:  Shortages of skilled people  Environmental considerations (e.g. fresh water consumption)  Energy requirements  Strong and growing product su

45. Slide 45: FINSA Mining Fleet Growth

    FINSA Mining Fleet Growth Additional CAT Caterpillar Units Total Units Finning’s Equipment Type Units Projected at Dec 31, 2012 at Dec 31, 2012 Market Share 2013 to 2017 Ultraclass Trucks Size (797-795) 232 571 41% 211 Large Mining Trucks (793 – 777) 879 1,390 63% 383 Large Wheel Loaders (994 – 992)

46. Slide 46: Construction and Power Systems

    Construction and Power Systems  Growing demand from mining contractors in Chile  Substantial private and government investment in infrastructure in Chile  Significant opportunity to grow product support in construction and power systems as population of equipment and engines increasing  Construc

47. Slide 47: Opportunities

    Opportunities  Mining growth supported by healthy copper prices  Mining equipment population expected to increase significantly over next 5 years  Continued strong demand for product support  Bucyrus  Unique opportunity to offer complete mining solution  Significant product support opportunity

48. Slide 48: 2013 Priorities – Consistent Execution

    2013 Priorities – Consistent Execution  Drive operational excellence  Supply chain end-to-end integration  Grow Bucyrus business  Balance product support growth with efficiencies  Manage the business with caution in light of macro- economic uncertainty 9

49. Slide 49: Market Outlook

    Market Outlook  Positive long-term fundamentals as copper prices remain high by historical standards  Expect Chilean mining to continue to be very active  Solid activity in existing operations  Continued strong demand for product support  Caution on new projects and expansions  Positive outloo

50. Slide 50: Summary

    Summary  Strong outlook for Chile  Mining investment presents big opportunities  Solid order intake and strong demand for product support  Infrastructure spend to support construction and power systems business  Capturing growth opportunities with Bucyrus and 795 electric drive truck  Driving

51. Slide 51: Investor Day: Finning UK & Ireland

    Investor Day Neil Dickinson, Managing Director, Finning UK & Ireland December 13, 2012

52. Slide 52: Finning UK & Ireland

    Finning UK & Ireland  Revenue: Finning Cat Cat Compact Dealers  2011: $831 million Ag Dealers  YTD Sep 2012: $684 million  EBIT:  2011: $52 million  YTD Sep 2012: $40 million  Segmented approach  Equipment Solutions  Power Systems  Employees: ~1,800 2

53. Slide 53: Finning UK & Ireland Revenue Profile

    Finning UK & Ireland Revenue Profile Revenue Product Support New Equipment by Line of Business Revenue by Industry Sales by Industry Waste, Industrial, Power Used Demolition Systems Rental Mining 7% Equipment 3% Industrial 7% Quarrying 7% 11% 3% New Power Systems Mining Power & Product Equipment 19%

54. Slide 54: Clear Strategic Roadmap, Trusted by Experts

    Clear Strategic Roadmap Trusted by Experts Expand Into Growing Markets Product Support Growth Beyond Core Solutions Specialised Provider C Engineering & Technology A Dominate Mining, Power & Core T Panorama & Operational S Grow & Develop All Makes Managed Excellence Operational Power Systems Service

55. Slide 55: Execution on Strategy in 2012

    Execution on Strategy in 2012  Acquired Damar - specialised engineering business; completed £7m anaerobic digestion plant  Acquired Bucyrus – 6 shovels sold in year 1  Acquired distribution rights to Komptech products – total solution for recycling sector  Established “Managed Services “ capabil

56. Slide 56: Operational Excellence Strategic Focus

    Operational Excellence Strategic Focus  Driving supply chain initiatives  Outsourced national distribution centre  Revised ordering processes - Lane 1  Focused on EBIT margin improvement  Focus on SG&A  Review procurement contracts  Defined benefit pension plan closed  Headcount rationalisat

57. Slide 57: Operational Excellence Strategic Focus

    Operational Excellence Strategic Focus  People and high-performance culture  Safety – national award winners  Employee engagement - 82% in 2012  Training  “Developing Great Leaders” course  Finning Academy in top 100 UK schemes  Market segmentation  Customer loyalty / service productivity 

58. Slide 58: Market Outlook 2013

    Market Outlook 2013  Equipment Solutions – market size down 10%  Mining impacted by weak coal prices  Limited investment in quarry and aggregates  Government investment – rail and energy, possibly housing  Industrials slowing  Small machines – niche markets  Power Systems – mixed growth  Oil

59. Slide 59: UK & Ireland Opportunities: Equipment Solutions

    UK & Ireland Opportunities Equipment Solutions  Mining and energy  Underground via Bucyrus  Legacy products  Tungsten mine  Quarrying and industrial  Managed Services  Market share gains  Machine age increasing  Waste and recycling  Komptech complementary products  Growth in Materials Rec

60. Slide 60: UK & Ireland Opportunities: Power Systems

    UK & Ireland Opportunities Power Systems  Power and energy  Mission critical diesel – hospitals, data centres  Water treatment industry  Expanded capability and products  Oil & Gas  North Sea resurgence  Flameproof technology  Managed services contracts - BP  Marine  International opportun

61. Slide 61: Global Power Systems

    Global Power Systems  2012 ~ $1 billion revenue  Global megatrends offer growth opportunities  Population growth and urbanisation  Electronic revolution / connectivity  Climate change  Renewables  Energy from waste  Fracking  Caterpillar growth and focus  Expanded product line  Finning sk

62. Slide 62: 2013 Priorities – Consistent Execution

    2013 Priorities – Consistent Execution  Drive operational excellence  Focus on working capital improvements  Drive efficiencies through Caterpillar Production System (CPS)  High-performance culture and people  Maintain outstanding customer loyalty  Manage through periods of weak demand  Drive

63. Slide 63: Summary

    Summary  Drive maximum value from the strategic acquisitions  Total focus on operational excellence  Deliver financial performance  Build talent and high performance culture  Stick to the strategy - Trusted by Experts  Focus on added value growth  Power Systems and product support growth  Di

64. Slide 64: Investor Day: Summary

    Investor Day Summary Mike Waites, President and CEO December 13, 2012

65. Slide 65: Business Conditions

    Business Conditions  Market conditions and customer confidence vary by region  Canada – stable activity levels; uncertain outlook  South America – positive long-term fundamentals; solid outlook  UK & Ireland – challenging economic landscape; some pockets of strength  Operating with caution  Mo

66. Slide 66: 2013 Priorities – Consistent Execution

    2013 Priorities – Consistent Execution  Drive revenue in slow growth environment  Focus on operational excellence  Supply chain management  Service productivity  SG&A improvements  Improve operating profitability and return on invested capital  EBIT margin - sequential expansion  Leverage la

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