finning canada investor tour presentations
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TRANSCRIPT
June 25-26, 2013
Finning Canada Investor Tour
Forward Looking Information
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This report contains statements about the Company’s business outlook, objectives, plans, strategic priorities and other statements that are not historical facts. A statement Finning makes is forward-looking when it uses what the Company knows and expects today to make a statement about the future. Forward-looking statements may include words such as aim, anticipate, assumption, believe, could, expect, goal, guidance, intend, may, objective, outlook, plan, project, seek, should, strategy, strive, target, and will. Forward-looking statements in this report include, but are not limited to, statements with respect to: expectations with respect to the economy and associated impact on the Company’s financial results; expected revenue and SG&A levels and EBIT growth; anticipated generation of free cash flow (including projected net capital and rental expenditures), and its expected use; anticipated defined benefit plan contributions; the expected target range of the Company’s Debt Ratio; the impact of new and revised IFRS that have been issued but are not yet effective. All such forward-looking statements are made pursuant to the ‘safe harbour’ provisions of applicable Canadian securities laws.
Unless otherwise indicated by us, forward-looking statements in this report describe Finning’s expectations at June 25, 2013. Except as may be required by Canadian securities laws, Finning does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
Forward-looking statements, by their very nature, are subject to numerous risks and uncertainties and are based on several assumptions which give rise to the possibility that actual results could differ materially from the expectations expressed in or implied by such forward-looking statements and that Finning’s business outlook, objectives, plans, strategic priorities and other statements that are not historical facts may not be achieved. As a result, Finning cannot guarantee that any forward-looking statement will materialize. Factors that could cause actual results or events to differ materially from those expressed in or implied by these forward-looking statements include: general economic and market conditions; risks associated with the conduct of business in foreign jurisdictions; foreign exchange rates; commodity prices; the level of customer confidence and spending, and the demand for, and prices of, Finning’s products and services; Finning’s dependence on the continued market acceptance of Caterpillar’s products and Caterpillar’s timely supply of parts and equipment; Finning’s ability to continue to improve productivity and operational efficiencies while continuing to maintain customer service; Finning’s ability to manage cost pressures as growth in revenues occur; Finning’s ability to reduce costs in response to slowing activity levels; Finning’s ability to attract sufficient skilled labour resources to meet growing product support demand; Finning’s ability to negotiate and renew collective bargaining agreements with satisfactory terms for Finning’s employees and the Company; the intensity of competitive activity; Finning’s ability to realize expected benefits of acquisitions; Finning’s ability to raise the capital needed to implement its business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock market volatility; changes in political and economic environments for operations; the integrity, reliability, and availability of information technology and the data processed by that technology; expected operational benefits from the new ERP system. Forward-looking statements are provided in this report for the purpose of giving information about management’s current expectations and plans and allowing investors and others to get a better understanding of Finning’s operating environment. However, readers are cautioned that it may not be appropriate to use such forward-looking statements for any other purpose.
Forward-looking statements made in this report are based on a number of assumptions that Finning believed were reasonable on the day the Company made the forward-looking statements. Refer in particular to the Outlook section of the MD&A. Some of the assumptions, risks, and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this report are discussed in the Company’s current Annual Information Form (AIF) in Section 4.
Finning cautions readers that the risks described in the AIF are not the only ones that could impact the Company. Additional risks and uncertainties not currently known to the Company or that are currently deemed to be immaterial may also have a material adverse effect on Finning’s business, financial condition, or results of operations.
Except as otherwise indicated, forward-looking statements do not reflect the potential impact of any non-recurring or other unusual items or of any dispositions, mergers, acquisitions, other business combinations or other transactions that may be announced or that may occur after the date hereof. The financial impact of these transactions and non-recurring and other unusual items can be complex and depends on the facts particular to each of them. Finning therefore cannot describe the expected impact in a meaningful way or in the same way Finning presents known risks affecting its business.
All amounts in this presentation are in Canadian dollars unless otherwise noted
June 25, 2013
Finning Canada Investor Tour
Andy Fraser, President, Finning Canada
Strategic Overview
Finning Canada
� 2012 revenue = $3.3 billion
� 2012 EBIT = $231 million
� Employees: ~6,000
� Industries:
� Mining (including oil sands)
� Construction
� Power systems
� Petroleum / Oil & Gas
� Forestry
� Pipelines
� 80th anniversary in 2013
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Vancouver
Edmonton(OEM, PDC)
Fort McMurray(4 branches + Fort McKay)
Western Canada
Red Deer(COE)
British Columbia
Alberta
Yukon
NorthwestTerritories
2012 Canada Revenue Profile
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Mining(incl. oil sands)
32%Power
Systems12%
Construction35%
Mining(including oil sands)
66%
Power Systems8%
Construction26%
Product SupportRevenue by Industry
New Equipment Sales by Industry
Forestry4%
Other6%
Petroleum11%
Revenueby Line of Business
NewEquipment
44%Product Support
43%
UsedEquipment
5%
Rental8%
Other includes government and industrialProduct support for petroleum and forestry is allocated among above key industries
Strategic Priorities
� Advance operational excellence
� Leverage investments
� Fort McKay oil sands service facility
� Expanded mining product line (formerly Bucyrus)
� ERP system
� Grow market share in construction, forestry and power systems
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Improve EBIT Margin
Operational Excellence
� Key focus areas
� Supply chain
� Service efficiency
� SG&A cost management
� Focus on disciplined execution
� Organizational alignment
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Culture of Accountability
� Safety
� Lost time injury frequency (LTIF) = 0.14 in Q1/13
� Employee engagement
� Record participation in 2012
� Technical training
� Focus on compliance and discipline
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Market Outlook
� Mining
� Customers under pressure to reduce costs
� Soft market conditions for new equipment sales
� Product support expected to remain active
� Large installed machine population� Good equipment utilization rates� Full-year’s contribution from expanded mining product line
� Heavy construction and forestry
� Expect solid activity levels in new equipment and product support
� Power Systems
� Continued softness in conventional oil & gas
� EPG and marine expected to remain strong9
Summary
� Providing superior customer service
� Driving operational excellence
� Focus on disciplined execution
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June 26, 2013
Finning Canada Investor Tour
Dave Primrose, EVP, Mining, Construction and Forest ry
Mining, Construction and Forestry
Construction and Forestry
� Heavy Construction
� Continued investment in infrastructure
� Alberta: ring roads, airports, LRT’s� British Columbia: Evergreen Line
Rapid Transit - Coquitlam to Vancouver; Interior to Lower Mainland (ILM) Transmission Project - Nicola to Coquitlam
� Numerous pipeline projects in Western Canada through 2020
� Forestry
� US housing starts improving
� Diversified markets
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Power Systems
� Petroleum / Oil & Gas
� Many idled drilling rigs
� Exploration, well servicing and production companies leveraging existing assets, driving demand for product support
� Natural Gas
� Low prices expected to curtail exploration
� Increased focus on producing more power using NG
� Desire to switch from diesel to NG (or dual fuel) growing in all markets
� Electric Power Generation - new mines off-grid, requiring powerhouses
� BC Hydro upgrading off-grid communities
� Alberta market remains buoyant
� Solid demand, particularly in mining
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Coal and Metals Mining
� Two copper mines, Mt. Milligan and Red Chris, going into production in 2013 - 2014
� Diamond mining activity continues strong as Dominion Diamond expands in NWT by purchasing Ekati
� Teck Coal proceeds with site development of Quintette Coal in north eastern BC
� Underground mining opportunities expand as product line and market grow
� Numerous new mines at various stages throughout our territory
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Mining Support Capabilities
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AlbertaBritish Columbia
Kamloops
Sparwood
Calgary
Fort McMurray
Red DeerCentre of Excellence
EdmontonOEM Component Remanufacturing
Tracker Parts Distribution Centre
Tumbler Ridge
Prince George
Fort McKay Service Facility
Caterpillar, Illinoisnew
equipment to assemble
OEM Remanufacturing
� 325,000 square foot purpose built “5 Star” facility� Meets Caterpillar’s highest contamination control standards
� 530 employees, two shift operation � Fully integrated facility
� Investments in inspection, salvage and testing technologies
� Reman components reduce equipment owning and operating costs� Typically 50% to 75% of cost of new components
� Finning Canada mining and heavy construction product support focus
� Critical customer requirements� Availability
� Quality and reliability
� Cost efficiency, continuous improvement
� Supporting services
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Center of Excellence (COE)
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1. Machine Overhauls / Rebuilds� Overhauling equipment for its second life under various options –
45% to 75% of new price
� Finning - customer program
� CAT certified powertrain program
� CAT complete machine certification
� Support capabilities
� Component repairs
� Ready-to-go ‘modules’ (e.g., cabs, grader circles, track frames, radiators)
� Engineered products (e.g., handrails, platforms)
2. New Equipment Preparation� New equipment delivered from CAT to COE where it is assembled and
modified to meet customer specifications
Center of Excellence (COE)
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D11 dozer with >82,000hrs
Expanded Mining Product Line
� Bucyrus acquisition meeting business case expectations� Service on plan; parts ahead of plan� Equipment sales slower, as expected
� Ongoing transition to genuine Caterpillar parts and components
� Expanded electric drive truck options with Unit Rig in addition to 795
� Existing models updated and new models introduced
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Operational Excellence
� Supply Chain
� Global Supply Chain Council
� Improving forecasting and planning for equipment
� Leveraging Spokane Parts Distribution Center
� Service Excellence� Customer-centric business balanced with
operating discipline
� Leveraging scale and repeatable processes
� Caterpillar Production System (CPS)
� SG&A initiatives
� Third party benchmark and assessment of SG&A costs
� Developing and implementing sustainable process improvements in product support areas
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Strong Competitive Advantage
� Leading market position – broadest product line
� Product support capabilities
� Service culture
� Focus on operational excellence
� Enhancing customer service and loyalty
� Driving sustainable improvement in operating profitability
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June 26, 2013
Finning Canada Investor Tour
Brent Davis, VP, Oil Sands
Oil Sands
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Finning Oil Sands Locations
CNRL
Total E&P
Syncrude
Syncrude
Suncor
Suncor
Shell
Syncrude
Fort Hills Energy
Imperial OilShell
Exxon Mobil
Syncrude
Fort McMurray
Fort McKay
Athabasca River
Mildred Lake Branch
Fort McMurray Town Shop Branch
Power Systems Branch
Shell/Albian2 warehouses
Fort McKay Service Facility
The Cat Rental Store
$
2005 2006 2007 2008 2009 2010 2011 2012
Oil Sands Revenue Growth
� Total revenue
� 2012: ~$1 billion
� 7-year CAGR (2005 to 2012) ~17%24
Oil Sands RevenueNew EquipmentProduct Support
797 Population Growth
797 Population in Oil Sands at Year-End
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10
250
0
50
100
150
200
250
300
1999 2003 2004 2005 2006 2007 2008 2009 2010 2011 20122000 2001 2002
1st 797 – 100,000 Hours
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Oil Sands Product Support
� ~1,100 regional employees, including ~550 mechanics and apprentices
� 5 branches, including new Fort McKay service facility
� 4 parts warehouses (Mildred Lake, Fort McMurray, 2 at Shell/Albian)
� Parts distribution center (Edmonton)
� OEM - component remanufacturing facility (Edmonton)
� COE - equipment assembly and rebuild facility (Red Deer)
� Dedicated business units at mine sites
� Over 200 fully equipped field service trucks
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Fort McKay – Game Changer
� Key stats
� 16 bays; 160,000 sq. ft.
� $110M investment: 2011 and 2012
� Operational in Q4 2012; 24 x 7 in January 2013
� ~120 employees
� Repair and maintenance facility
� Supports contractors and producers
� Regional training centre
� Capacity to rebuild 797 trucks
� Ramping up on plan28
Operational Excellence
� Driving velocity, process, technology
� Velocity - capacity planning and equipment scheduling� Bay scheduler – efficient planning
� Warehouse – staging, not stocking – parts as required
� Process - Caterpillar Production System (CPS) – make it visual� Lean and operational efficiency
� In bay monitors – real time updates on job progress
� Technology – enabler � Electronic pen
� Toolhound
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Customer-centric business balancedwith operating discipline
Challenges
� Level of commodity prices for new mines and expansions
� Customers focused on cost containment
� Pricing differential - pipeline capacity
� Environmental concerns
� Attracting and retaining technical labour
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Building for the Future
Keyano FinnTech Program� Customized Heavy Equipment Technician apprenticeship
program (CAT, Finning, Keyano)
� $3.5M investment from CAT and Finning
� Launched in Feb 2012
� Will graduate up to 48 2nd year apprentices per year
� First graduate class - end of 2013
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Opportunities
� Significant product support opportunity
� Large and well-utilized equipment population
� Aging fleets drive demand for component remanufacturing and rebuild
� Expanded mining product line
� Equipment opportunity
� Future fleet replacement – 797’s 100,000 hours
� Future mine expansions and new projects
� Expanded mining product line (e.g. electric drive truck, large hydraulic mining shovel)
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Reducing customer operating costs by improving equipment productivity
Priorities
� Deliver superior customer service
� Drive efficiency and productivity
� Attract and retain technicians
� Capture product support opportunities
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