THE PATH TO GROWTH Finning Annual Review 2016
Table of Contents
Finning at a Glance
Letter to Shareholders
Chairman’s Letter
Finning’s Path to Growth
Financial Highlights
Responsibility
Board of Directors
Corporate Officers
Five Year Financial Summary
27
30
31
32
3
9
12
14
22
On the cover: Amy Kirkham, apprentice, Cannock, UK
Forward-Looking Statements: This annual report
contains forward-looking information. Please refer to the
“Forward-Looking Statement” on page 36.
All monetary amounts expressed throughout this report
are in Canadian dollars unless otherwise noted.
Finning Annual Review 2016 | The Path to Growth “ Finning’s track record of success was established on the strength of its
customer service. Today, customers remain at the heart of all we do as
we relentlessly pursue our strategy to meet, and surpass their evolving
expectations. By continuing to develop our people, perform at the
highest operational levels, and innovate in all that we do, I’m confident
that we will build on our past success, deliver greater customer value
and continue to lead in an ever-changing marketplace.”
L. SCOTT THOMSON
President and Chief Executive Officer
Finning International Inc.
2
Finning Annual Review 2016 | The Path to Growth Finning at a Glance
Mining
Construction
Forestry
Petroleum
Power
Systems
Since 1933, when Finning was first established
in Canada by Earl B. Finning, our name has
conveyed integrity, reliability and resourcefulness.
Over the years, the company has grown as
a result of a genuine commitment to earning
customer loyalty.
Today, Finning is the world’s largest
Caterpillar dealer.
Through the combination of quality Caterpillar
products and unmatched service capabilities,
we deliver solutions that enable customers
to achieve the lowest equipment owning and
operating costs while maximizing uptime.
We sell, rent and provide parts and service
for equipment and engines to customers
in various industries, including mining,
construction, petroleum, forestry and
a wide range of power systems applications.
Finning employs nearly 12,000 people
world-wide and operates in three
geographies, with the head office
in Vancouver, Canada.
3
Finning Annual Review 2016 | The Path to Growth Finning Canada
Finning Canada
Headquartered in
Edmonton, Alberta
“ The significant steps we have taken in our Canadian business over the last
few years to improve operational performance and reduce our cost structure
supported us in effectively navigating another challenging year in 2016 and puts
us in an excellent position for long-term success. In 2017, we look forward
to building on our operational improvements, including our equipment supply
chain, and capitalizing on the opportunities we are seeing in product support
while building even closer ties with our customers.”
JUAN CARLOS VILLEGAS
President, Finning Canada and Chief Operating Officer, Finning International
World-class network of product support
services across British Columbia, Yukon, Alberta,
Saskatchewan, the Northwest Territories, and
a portion of Nunavut.
Provide unrivalled service to a diverse
range of industrial markets, including mining (including
oil sands), construction, pipeline/oil field, construction,
forestry, agriculture, government sector, marine,
transportation, and fisheries.
4
Finning Annual Review 2016 | The Path to Growth Finning South America
“ The South American team continued to demonstrate strong engagement
in 2016 despite a prolonged period of challenging business conditions.
Thanks to their tremendous efforts, we continued to take steps to proactively
manage costs and improve operating efficiencies. Looking ahead, market
opportunities in Argentina and higher equipment quoting activity in Chile
should have a positive impact on our business in 2017.”
MARCELLO MARCHESE
President, Finning South America
Finning South America
Headquartered in Santiago, Chile
Committed to delivering service
excellence across Chile since 1993 and
in Argentina and Bolivia since 2003.
Provide unrivalled service to a diverse
range of industrial markets, including mining (primarily
copper), construction and power systems.
5
Finning Annual Review 2016 | The Path to Growth Finning UK & Ireland
Finning UK and Ireland
Headquartered in Cannock, UK
“ We made substantial, sustainable changes
in how we operate the Finning UK &
Ireland business in 2016. We enter 2017
having successfully lowered our cost
structure, reshaped our distribution
footprint and restructured our supply
chain to drive higher returns on capital.
These changes were necessary to
increase our competitiveness and will
enable us to adeptly manage through
an uncertain business environment.”
KEVIN PARKES
Managing Director, Finning UK and Ireland
Committed to delivering service
excellence across the UK and Ireland.
Provide unrivalled service to a diverse
range of industrial markets, such as oil & gas, electric
power, marine, industrial applications, earthmoving
& construction, industrial & waste, extraction &
paving and agriculture.
6
Finning Annual Review 2016 | The Path to Growth Creating Shareholder Value
Successful
execution of
operational
priorities
Resilient
Business
Model
Stable
product
support
business
Strong free
cash flow
7
Finning Annual Review 2016 | The Path to Growth Creating Shareholder Value
Profitable Growth Drivers
Reduced cost
structure
Working capital
improvements
Innovative
customer
solutions
Product
support
opportunities
8
Finning Annual Review 2016 | The Path to Growth Letter to Shareholders
L. SCOTT THOMSON
President and Chief Executive Officer
Finning International Inc.
For well over 80 years, Finning has achieved success by partnering with our
customers to deliver service that supports them in achieving their goals.
We remain guided by that focus, and in 2016 we continued to take steps
to ensure that our business evolves to meet their changing needs.
What we’ve achieved
Implementing sustainable operational improvements
that enable us to deliver products and services
effectively and efficiently has been an ongoing focus
at Finning over the past three years. This approach
has served us particularly well in a challenging
business environment during which we have also
taken decisive actions to align to lessened demand.
Over the past few years, we have moved quickly
to adjust to the market conditions we faced.
During 2016, we continued to respond to
a market landscape impacted by a prolonged
period of lower commodity prices. Across our
operations, we took measures to maintain
our financial strength while positioning ourselves
for future growth. This included reshaping our
facility network which unfortunately entailed
closing locations, as well as difficult decisions
to further reduce our global workforce levels.
2016 was also marked by continued efforts towards
our goal to achieve a new level of operational
excellence. Our employees have rallied around
these efforts and the opportunity to work
collectively to build a stronger company that truly
capitalizes on its tremendous advantages. Since
setting this journey in motion some three years
ago, we have made significant progress.
Finning
advantages
Passionate
and committed
employees
Aligned
with Caterpillar,
world’s best
heavy equipment
company
Resource-rich
territories with
significant
organic growth
opportunities
Compelling
business model
• Machine population
provides embedded
product support growth
• Opportunity to
generate positive free
cash flow throughout
the cycle
9
Finning Annual Review 2016 | The Path to Growth
Letter to Shareholders
Parts Supply Chain
Improvement
From 2013 to 2016
Parts Turns
0.7 times
Customer Loyalty
13 points
Underpinning all of these changes remains
a steadfast commitment to our customers.
And, I am pleased to report that our customers
took notice. Despite competitive market
conditions, we gained market share in parts and
core equipment. We also ended 2016 with our
highest customer loyalty scores on record –
a significant achievement and a strong indication
that we are on the right path.
By delivering on factors that are within our
control, we entered 2017 with a strong balance
sheet. Our solid financial position and robust
free cash flow provide us the flexibility to
prudently allocate capital in ways that support
the growth of our business and provide value
to our shareholders.
Importantly, we continued to build on our efforts
to improve safety performance. Over the course
of three years, we achieved a 33% reduction in
total recordable injury frequency (TRIF) because
of the sustained commitment of our people to
continually improve the safety of our operations.
We will continue to remain vigilant and work
towards our goal of everyone going home safe
and healthy every day.
To support us in delivering great service
consistently and ensure customers have access
to parts and equipment when they need them,
we have embedded meaningful changes across
our operations. Our facility network is simplified
and improved. We have strengthened processes
and profitability in our service business. In addition,
our parts supply chain is transformed. Parts turns
are up by 0.7 times since 2013 and we are now
building on this progress with initiatives underway
to substantially improve the performance of
our global equipment supply chain.
33%
TRIF improvement
2013 vs 2016
10
Finning Annual Review 2016 | The Path to Growth
Letter to Shareholders
“ We believe in partnering and innovating to build and power
a better world. That is our purpose.”
Where we’re going
To continue along the path of success that we’ve
forged, we came together across the organization
in 2016 to renew the purpose, vision and strategy
that will guide us as we position our business
for long-term growth. Complementing these
discussions was a collaborative undertaking to
establish the values that reflect who we are and
what we aspire to be. To ensure that all who
contribute to the success of the company had
a voice in our evolution, all of our people were
invited to participate. In this way, Finning’s people
will define change for our company, rather than
having change define us.
Looking ahead, we will build on the efforts
of the past three years to foster a safe, talented
and inclusive team. We will advance operational
initiatives to perform efficiently, consistently
and with agility for our customers. Innovation
will drive all aspects of our business, as we turn
to new ways of operating that increase our
competitiveness while delivering ever-increasing
customer value.
With our focus on innovating across all areas
of our business comes an increasing emphasis
on leveraging technology to support our goals.
We are developing online channels to reach
new customers and deepen relationships with
existing customers by providing greater choice
for when, where and how they do business with
us. We are connecting more of our customers’
assets as well as applying digital technology and
the insights they provide to identify new ways
to improve customer performance. We are also
continuing to work closely with Caterpillar in
this area to help our customers get the most
out of their equipment.
Our business strategy puts a clear emphasis
on keeping customers at the heart of all we
do – and, I firmly believe that supporting the
success of our customers will support the
success of our stakeholders as well. We will
provide employees with a safe, fulfilling workplace;
be Caterpillar’s best business partner; deliver
superior shareholder value; and, benefit the
communities where we operate.
Through the efforts and input of our talented
employees, Finning is evolving to continue
serving the important role we have played
throughout our history—supporting customers
to build infrastructure and deliver energy that
shapes our communities and brings about
a higher standard of living. Said another way:
We believe in partnering and innovating to build
and power a better world. That is our purpose.
In closing, I offer a heartfelt thank you to our
employees – the men and women whose
unwavering commitment to safety and customer
service defines Finning today and will shape its
evolution tomorrow. I also want to recognize
and thank Caterpillar for being a strong strategic
partner through a challenging yet rewarding 2016.
I believe the future holds enormous promise
for Finning, and that we are in a great position
to create value for you, our shareholders, over
the long term.
Sincerely,
L. SCOTT THOMSON
President and Chief Executive Officer
Finning International Inc.
11
Finning Annual Review 2016 | The Path to Growth
Chairman’s Letter
DOUGLAS W. G. WHITEHEAD
Chairman of the Board
“ Finning’s ongoing success is a testament to a strong culture built around
commitment to customer.”
Despite a challenging market environment,
Finning delivered results in 2016 that underscore
its commitment to taking decisive action to
strengthen its financial position, while continuing
to take strides to substantially improve
operational performance.
Finning’s ongoing success is a testament to
a strong culture built around commitment
to customer. This commitment sits at the
forefront of the company’s renewed vision
and strategy, ensuring that the foundation
of customer service upon which the company
built its reputation will remain strong – even
as the company evolves in order to maintain
its leadership position in an ever-changing
marketplace. Going forward, Finning is
focused on further enhancing its operational
performance and capturing opportunities
that a focus on innovation and technological
advancements can unlock.
As Finning evolves, so does the company’s
Board of Directors. The Board’s duty is to
provide strategic oversight as Finning implements
its strategies. We are entrusted with protecting
and enhancing shareholder value and, like any
effective board, we must consider renewal to
inject new thinking and experience to support
the strategic priorities of the business effectively,
while reflecting the diversity of our stakeholders.
To this end, we continued the process of board
rejuvenation by welcoming a new director,
Vicki Avril, to the Finning Board in 2016. A highly
respected businesswoman, she brings a unique
and extensive set of skills and industry-relevant
experience along with particular expertise
in the areas of strategic growth, business
transformation and corporate governance.
12
Finning Annual Review 2016 | The Path to Growth Chairman’s Letter
In February, we announced that Mike Wilson
elected to resign as Chair to focus on new
obligations commensurate with his appointment
to Chairman of the Board of Directors’
of Suncor Energy, one of Finning’s largest
customers. As such, I have taken on the role of
Chair of Finning’s Board of Directors and offer
my support to management as they continue to
drive shareholder value creation. I am honoured
to once again serve as Chairman of the Finning
Board, and I want to recognize and thank Mike
for his guidance and considerable contributions
to Finning.
The progress we continue to make as a company
is due to the efforts of our people and I
would like to thank all Finning people for their
commitment and dedication over the course
of the year. I would also like to thank my fellow
Board members and the Finning executive team
for their ongoing leadership.
For more information about our corporate
governance policies, please review the Finning
management proxy circular and visit the corporate
governance section at www.finning.com.
On behalf of the Board of Directors,
DOUGLAS W. G. WHITEHEAD
Chairman of the Board
13
Finning Annual Review 2016 | The Path to Growth
Finning’s Path to Growth
To address the evolving environment and
achieve our growth aspirations, earlier this year
all of Finning came together to align around the
purpose, vision, strategy and values that will guide
us as we position Finning for greater growth and
success with a focus on elevating the customer
experience and customer outcomes.
Put simply, Finning’s purpose answers ‘why’ our
company exists. In just a few words, our purpose
statement conveys the important role we play
in shaping our communities by supporting our
customers to build infrastructure and deliver
energy that raises the standard of living.
Our vision answers ‘what’ success looks like
in the future. 2016 was the right time to examine
where we are headed as a company and how
we will continue to transform our operations,
given the quickly changing environment in which
Finning operates.
Finning’s values are the essence of our identity
and set us apart by telling everyone what we
hold most important. Our values are the fabric
of our culture by acting as a clear guideline
for conduct and serve as a powerful rallying point
for employees.
Purpose
We believe in partnering and innovating to
build and power a better world.
Vision
Leveraging our global expertise and insight,
we are a trusted partner in transforming
our customers’ performance.
14
Finning Annual Review 2016 | The Path to Growth Strategic Priorities
Develop
Build a safe, talented
and inclusive team
Customer
Perform
Operate efficiently,
consistently &
with agility
Innovate
Lead with new ideas,
processes & solutions
FINNING Annual Review 2016 | The Road to Growth
1515
Finning Annual Review 2016 | The Path to Growth Strategic Priorities
In 2016, we reached the three-year mark
of our operational excellence journey. Thanks
to the dedication of employees across Finning,
we have made tremendous strides to improve
our operational performance.
Over this period, we have also taken measures
to respond to the economic downturn by
significantly reducing our fixed cost structure
and invested capital levels.
Throughout this period of significant change,
we have always kept our customers’ needs
and expectations front and centre. Given this
focus, we are pleased to report our customer
loyalty scores hit record highs at the end
of 2016. We believe this is a direct result of
the operational improvements implemented
throughout our organization:
• We have successfully transformed our
parts supply chain and improved parts turns.
We now have initiatives underway to improve
the performance of our global equipment
supply chain.
• In our service business, we implemented
a number of actions across our operations
to improve service levels and profitability.
• We are also pleased with our market share
gains for parts and core equipment, especially
considering the challenging market conditions
in all our territories.
• Importantly, we raised the bar on our safety
performance, with total recordable injury
frequency declining by 33%.
The operational improvements made over
the past three years, along with the reduction
of our fixed cost base, position us well for
improved profitability when demand normalizes.
With this strong foundation in place, we are
now executing on the strategic imperatives that
will take us further on the path to our long-term
goal of profitable, capital efficient growth.
Perform: 3-Year Committments Scorecard
Operational
Priorities
2013 Committments
Assuming no industry change
Supply Chain
Inventory turns
0.5 - 0.9 times
Service
Excellence
EBIT
$40 - 60 M
Asset
Utilization
• Footprint optimization
• Facility utilization
Equipment
sales 37%(1)
2016 Outcome
Part turns
Equipment turns
Service EBIT
Canada labour recovery
Canada footprint
UK footprint
0.7 times
0.6 times
$60 M
4 points
~25%
~40%
Market
Leadership
• Core market share
• Parts market share
• Canada PS(2) revenue
2 - 4 points
2 - 4 points
10 - 15%
Core market share
Parts market share
Canada PS revenue
5 points
above target
31%
Market share
5 points
despite industry
decline
(1) New equipment sales: 2016 vs 2013. (2) Power systems.
16
Finning Annual Review 2016 | The Path to Growth
Develop, Perform and Innovate
Our operational priorities over the last three
years were driven by our aim to strengthen
customer loyalty, and customers remain at the
heart of our strategy today. Our strategic pillars
– develop, perform, innovate – provide clear
direction company-wide on how we operate
our business and deliver value.
Develop
We recognize that delivering for our customers
is dependent on our people. We are proud of
the strong culture of integrity and accountability
we have at Finning, yet we strive for continuous
improvement through our focus on developing
a safe, talented and inclusive team. We will do
this by advancing our safety journey, engaging
and developing our people and fostering an
inclusive and diverse workplace.
Perform
Through a dedicated effort across the business
we have made substantial improvements to our
operating performance. At the same time, we
believe we have the capacity to further enhance
our performance. To that end, we are building
on the progress we have made to operate
consistently, efficiently and with agility. To support
us in that aim, a particular area of focus in
2017 will be improving our global equipment
supply chain.
Innovate
To lead today and in the future, we need to
adapt, innovate and do some things differently
than we have in the past. Finning’s innovation
mindset is built around leading with new ideas,
processes and solutions across all areas of
our business. One important aspect of this is
leveraging technology to improve productivity
and efficiency as well as deliver greater customer
value. This includes implementing an ERP in
Finning South America as well as developing
our digital capabilities company-wide.
17
Finning Annual Review 2016 | The Path to Growth Developing Digital
“ While any digital business relies on technology, talent and innovation, we
believe that our differentiator is in driving customer performance through the
unparalleled combination of our employees’ insights and digital technologies.
In other words, it is our depth of knowledge about how our customers
operate and utilize their equipment that makes Finning uniquely positioned
to use digital in ways that provide truly effective insights and deliver greater
customer value.”
DAVE CUMMINGS
Chief Information Officer
Finning International Inc.
“
We service what we sell.” This has been our
motto since Earl B. Finning founded Finning
Tractor & Equipment in Vancouver in 1933.
Inherent in this motto is the knowledge that
our customers aren’t simply buying a machine;
they’re purchasing a solution to make their
business more efficient and successful. Today,
that knowledge along with current technology
is driving Finning to fundamentally change
how equipment is maintained to transform
its customers’ performance.
Machine connectivity is a particular area
of focus. Advances in sensors and wireless
communications allow today’s machines to
transmit valuable data on the performance
of each piece of equipment. It is now standard
for Cat equipment to come equipped with
this technology. To provide customers with older
machines with this same advantage, Finning
is regularly retro-fitting both Cat and non-Cat
equipment across our territories.
Once connected, the data from these
machines can be monitored and analyzed to
tell us everything from how much fuel is being
consumed, whether a machine is working
or idling, how much material is being moved
and even when a part should be replaced.
This valuable information can be interpreted
by Finning and developed into performance
solutions to support our customers in keeping
18
Finning Annual Review 2016 | The Path to Growth
Developing Digital
Finning Opportunities
Deeper customer and
market insights
Lower cost
to serve
Deeper customer
relationship and loyalty
Additional revenue
growth opportunities
Competitive
advantage
Customer Benefits
Valuable insights
and visibility
Increased
fleet uptime
Lower owning and
operating costs
Improved
equipment
performance
Omni-channel choice
their machine fleets running longer and more
efficiently – by lowering fuel costs, optimizing
equipment operation, and ensuring proactive
maintenance and repair to minimize downtime.
Meeting different preferences for how customers
want to do business with Finning is another
focus area as we develop digital solutions. One
way we are meeting evolving needs is through
e-commerce to complement our branch
network. As part of our omni-channel approach,
e-commerce provides a low-cost, high-quality
way to reach existing partners while attracting
new customers. An example is the launch of
Parts.cat.com which gives customers the ability
to search and find the exact part they need
quickly and easily anytime on mobile, tablet or
desktop. Parts.cat.com is fully integrated with
VisionLink™, which customers use to monitor
equipment utilization and performance, meaning
that customers can quickly go from identifying
a need to ordering a part.
This gives customers who prefer quick, simple,
on-the-go self-service the tools they’re looking
for — while continuing to place importance on
our existing branch network to meet customers’
expectations of being served through different
channels. In addition to supporting Finning to
be easy to do business with, this online channel
provides valuable data about our customers’
interests enabling us to tailor our sales and
marketing to meet their needs.
While the customer benefits are clear, Finning
also benefits. Together with Caterpillar, leveraging
digital technologies will continue to be a focus
area for us to open up new revenue streams,
further enhance our customer service and
transform our customers’ performance.
19
Finning Annual Review 2016 | The Path to Growth Values
We are trusted
We act ethically and honour our commitments.
We are collaborative
We build diverse and respectful partnerships.
We are innovative
We look for new and better ways to serve our customers.
We are passionate
We are driven to safely deliver results.
20
Finning Annual Review 2016 | The Path to Growth Successful Outcomes
Employees
We are a safe, engaging and
inclusive place to work
Caterpillar
We are Caterpillar’s best
business partner
Customer
We are a trusted partner
in transforming our
customers’ performance
Shareholders
We are a superior
long-term investment
Communities
We are a positive contributor
to the communities where
we operate
FINNING Annual Review 2016 | The Road to Growth
2121
Finning Annual Review 2016 | The Path to Growth Financial Highlights
STEVEN M. NIELSEN
Executive Vice President and
Chief Financial Officer
Finning International
“ Looking ahead, we remain focused on building on the progress we have made
to drive profitable and capital efficient growth.”
In 2016, Finning continued to deliver on what
was within our control. We have successfully
reshaped the organization to become more
agile and responsive to market dynamics, and
markedly reduced our cost structure and
invested capital levels. The steps we have taken
over the last three years ensure our financial
resilience without compromising our focus
on long-term growth.
Our business model combined with capital
discipline and improved working capital
management contributed to strong free cash
flow of $370 million in 2016. This marks our
fourth consecutive year of significant cash
flow – a notable accomplishment in difficult
market conditions. The work underway to
transform our global equipment supply chain
will support us in sustaining solid free cash
flow through the cycle.
Our strong financial positon allows us to
prudently invest in key areas important to our
future, such as technology to support new
ways of operating and delivering customer
value. In addition, we intend to allocate capital
to a combination of debt repayment, share
repurchases, and complementary growth
opportunities.
Looking ahead, we remain focused on building
on the progress we have made to drive
profitable and capital efficient growth.
STEVEN M. NIELSEN
Executive Vice President and Chief Financial Officer
Finning International
22
Finning Annual Review 2016 | The Path to Growth Financial Highlights
2016 Revenue Profile
UK & Ireland
17%
Canada
50%
Revenue by
region
Revenue by
line of business
South
America
33%
New
equipment
33%
Used equipment
6%
Rental
4%
Product support
57%
Other
7%
Forestry
4%
Construction
42%
Government
4%
Power
Systems
20%
New equipment
sales by industry(1)
Mining
23%
(1) Other includes industrial and agriculture markets.
23
Finning Annual Review 2016 | The Path to Growth Financial Highlights
Financial Statistics ($)
Revenue
EBITDA(1)
Adjusted EBITDA(1)(2)
EBIT
Adjusted EBIT(1)(2)
Basic EPS
Adjusted EPS(1)(2)
Free cash flow(1)
Invested capital(1)
2016
5.6B
357M
465M
165M
273M
0.38
0.88
370M
2.8B
Market Statistics
at December 31, 2016 – FTT (TSX)
Share price
Market capitalization
Annual dividend per share
Dividend yield
S&P/DBRS ratings
$
$
$
26.29
4.4B
0.73
2.8%
BBB+/
BBB (high)
(1) See description of non-GAAP financial measures in 2016 MD&A.
(2) See description of significant items in 2016 MD&A.
24
Finning Annual Review 2016 | The Path to Growth Financial Highlights
Strong Free Cash Flow and Balance Sheet
Strong Free Cash Flow and Balance Sheet
Free Cash Flow by Quarter ($ millions)
Net Debt to Adjusted EBITDA(1)
Dividend as % of FCF
2013
$441
2014
$483
2015
$325
2016
$370
2.0
1.9
1.7
1.3
2.5
2.0
1.5
1.0
0.5
0.0
38%
33%
23%
24%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2013
2014
2015
2016
2013
2014
2015
2016
400
300
200
100
0
-100
-200
-300
3
1
/
1
Q
3
1
/
2
Q
3
1
/
3
Q
3
1
/
4
Q
4
1
/
1
Q
4
1
/
2
Q
4
1
/
3
Q
4
1
/
4
Q
5
1
/
1
Q
5
1
/
2
Q
5
1
/
3
Q
5
1
/
4
Q
6
1
/
1
Q
6
1
/
2
Q
6
1
/
3
Q
6
1
/
4
Q
Options
Considered
Long-Term Debt Profile
Maturity within 5 years, $C millions
Working capital efficiencies: smoothing inventory
6.02% due Jun 2018
investment and monetization
Targeted investment in maintenance capex and
innovation agenda
Rental investment flexible to market demand
(1) See description of non-GAAP financial measures in 2016 MD&A.
25
3.232% due Jul 2020
3.98% due Jan 2022
4.18% due Apr 2022
0
50
100
150
200
250
300
350
Page 8
(1) See description of non-GAAP financial measures in 2016 MD&A
Finning Annual Review 2016 | The Path to Growth Upcycle Value Proposition
Resilient Business Model
Upcycle Growth Drivers
Financial Highlights
Stable product support business
Reduced cost structure
Successful execution of operational priorities
Working capital improvements
Strong free cash flow generation
Product support opportunities
Resilient Product Support Supports Strong Free Cash Flow
Profitable service business
Innovative customer solutions
Stable Product Support(1)
3,144
2,908
3,182
~$1.6 Billion Free Cash Flow
2013 - 2016
1,838
~35%
Inventory
reduction
~65%
Driven by
EBITDA
$m
3,500
3,000
2,500
2,000
1,500
1,000
2013
2016
New Equipment Sales
Product Support Revenue
Reduced Cost Structure
Canada (2014 – 2016)
Workforce(2)
SG&A(3)
25%
22%
(1) In functional currency, product support revenue was up 2% in Canada, down 22% in South America, and down 10% in the UK & Ireland (2016 vs 2013)
(2) Excluding Saskatchewan operations acquired in 2015
(3) Fixed SG&A costs, adjusted for significant items, excluding Saskatchewan operations
Page 9
(1) In functional currency, product support revenue was up 2% in
Canada, down 22% in South America, and down 10% in the UK & Ireland
(2016 vs 2013).
26
Finning Annual Review 2016 | The Path to Growth Responsibility
“ As we seek to fulfill our vision, we carry the responsibility and make
the commitment to do so in a way that protects the safety and wellbeing
of our employees, strengthens the fabric and prosperity of the communities
in which we operate, and advances our goal of achieving long term
environmental sustainability.”
CHAD HILEY
Chief Human Resources Officer, Finning International,
and Senior Vice President of Human Resources, Finning Canada
Safety and Health
Our commitment to safety starts at the top
of our organization with active oversight from
our Board of Directors and leadership from our
executive management team. This commitment
is backed by the accountability of all Finning
team members to uphold the highest safety
standards and ensure safety remains an integral
part of our corporate culture.
We believe that all workplace injuries can be
prevented, and that nothing is more important
than ensuring that our people go home safe and
healthy to their families at the end of every shift.
We are proud of the progress we are making
as we continue to advance our safety journey.
Since 2013, our total recordable injury frequency
(TRIF) – a key indicator of safety performance –
has improved by 33%.
While we are making good progress, we recognize
the need to remain diligent and continuously
work to improve the safety of our operations.
Tracking, analyzing, and learning from incidents
has long been a part of our safety practices and
this will be optimized through the implementation
of a company-wide environment, health and
safety management system. We are also taking
steps to build on our strong safety culture by
expanding our focus from lagging to leading
indicators to reduce potential risks, as well as
promoting greater global consistency in our
safety standards.
27
Finning Annual Review 2016 | The Path to Growth Inclusion and Diversity
increase and champion the representation
of women in industry. Our focus on increasing
the representation of women at all levels
of the company extends to our Board of
Directors which is comprised of three
women, representing 25 percent of the total
board members.
In 2017, Finning will continue to foster an
inclusive culture and broaden diversity within
the organization. To guide our efforts, a global
strategy for inclusion and diversity is under
development that will act as a catalyst to
further align Finning’s efforts and resources
across all regions.
Finning employs nearly 12,000 employees
who we believe are amongst the best in the
business, providing a distinct competitive
advantage. To strengthen this advantage, we
are developing a safe, talented and inclusive
team as part of our strategic priorities. This
entails providing development opportunities
and fostering an engaging work environment
to support employees reach their full potential.
Finning also recognizes the opportunity and the
importance of drawing on different viewpoints
to improve our ability to generate new insights,
respond to changing markets, and meet evolving
customer demands. Our belief in this innovation
mindset is now embedded in our business
strategy and enabled through our focus on
building an inclusive and diverse workplace.
In 2016, we continued to focus on embracing
diversity through the work of our regional
and global inclusion and diversity councils.
Globally, Finning deployed hiring, recruitment
and retention measures designed to attract
and maintain a diversity of talent.
While our focus is on diversity in its broadest
sense, gender diversity and the under-representation
of women in our sector continues to provide
opportunities to harness that talent from a
large pool of high-quality employees to enhance
our business performance. We partner with
government and industry organizations to
28
Finning Annual Review 2016 | The Path to Growth Community
As we build inclusivity and diversity within our
organization, Finning is also working to support
a future diverse workforce through our community
investment strategy. In 2016, Finning deepened
our investment in an important initiative –
STEM education towards diverse populations
– to have a powerful, positive impact in the
communities where we operate.
STEM is the acronym for science, technology,
engineering and mathematics. For today’s youth,
STEM training is widely considered the best path
to viable, challenging, and rewarding careers.
Our global community investment strategy entails
working with leading non-profit organizations
in each of our regions to engage and support
those typically underrepresented in STEM by
exposing them to the significant opportunities
STEM education provides.
In Canada, Finning has entered a strategic
partnership with Actua, Canada’s leading STEM
education outreach organization. Working with
university and college-based network members
and its own outreach team of graduate student
instructors, Actua engages youth to gain STEM
skills and pursue careers in related fields. As its
western Canadian sponsor, Finning is working
with Actua to support and amplify its efforts
to reach girls and young women, Indigenous
youth, and youth living in remote communities
with customized programs.
In South America we are working with
ComunidadMujer, an independent, non-
government organization that works to
promote greater participation of women
in public and the workforce.
Beyond a global focus on STEM, Finning’s support
of the communities where we live and work
is part of who we are. The support varies from
region to region but our commitment is
consistent, one example was our response
to support the community of Fort McMurray,
Alberta following the devastating wild fires
in the area last May. With 850 employees in
the oil sands area, Finning Canada was quick
to respond and ensure that all employees
and their families were safe and well. To support
the larger community and aid with immediate
relief, Finning donated $25,000 to the Red Cross.
To support the community recovery, Finning,
along with generous support from its employees,
donated $125,000 towards the Wood Buffalo
Food Bank to help ensure every family has food
to put on their table.
Our commitment to our communities also
extends to managing the impact of our activities
on the environment. We believe that climate
change is a serious global challenge and we
are committed to monitoring, reporting and
managing the greenhouse gas emissions intensity
of our operations.
Additionally, we recognize that we have an
important role to play in supporting our
customers to maximize their energy conservation.
We train customers to operate machines more
efficiently and conserve fuel. Our mechanics
evaluate opportunities to extend the life of the
equipment we sell and our remanufacturing
facilities help rebuild equipment components,
greatly reducing resource inputs and minimizing
waste. Our power systems teams design,
engineer and deploy renewable or alternative
energy solutions that reduce greenhouse
gas emissions.
In partnership with Caterpillar, Finning provides
products and services that impart sustainable
environmental benefits. We were at the forefront
of the rollout of Caterpillar’s Tier 4 line of
equipment, which significantly improves fuel
efficiency and reduces emissions. As we build
our digital capabilities, we look forward to
continuing to leverage technology and innovation
to support sustainability.
29
Finning Annual Review 2016 | The Path to Growth Board of Directors
Douglas W.G. Whitehead
Nicholas Hartery
John M. Reid
West Vancouver, BC, Canada
Director since 1999
Board Chair
Limerick, Republic of Ireland
Director since 2014
Vancouver, BC, Canada
Director since 2006
Vicki L. Avril
Stuart L. Levenick
L. Scott Thomson
Hinsdale, Illinois, United States
Director since 2016
Peoria, Illinois, United States
Director since 2016
West Vancouver, BC, Canada
Director since 2013
Marcelo A. Awad
Kevin A. Neveu
Michael M. Wilson
Santiago, Chile
Director since 2014
Houston, Texas, United States
Director since 2013
Calgary, Alberta, Canada
Director since 2013
James E.C. Carter
Kathleen M. O’Neill
Edmonton, Alberta, Canada
Director since 2007
Toronto, Ontario, Canada
Director since 2007
Jacynthe Côté
Candiac, Quebec, Canada
Director since 2014
Christopher W.
Patterson
Estero, Florida, United States
Director since 2010
30
Finning Annual Review 2016 | The Path to Growth Corporate Officers
L. Scott Thomson
Marcello Marchese
Steven M. Nielsen
President and Chief
Executive Officer,
Finning International Inc.
President,
Finning South America
David W. Cummings
Anna P. Marks
Chief Information Officer,
Finning International Inc.
Senior Vice President, Corporate
Controller and Treasurer,
Finning International Inc.
Executive Vice President
and Chief Financial Officer,
Finning International Inc.
Kevin Parkes
Managing Director,
Finning UK & Ireland
Chad Hiley
Jane Murdoch
Juan Carlos Villegas
Chief Human Resources Officer,
Finning International Inc. and
Senior Vice President of Human
Resources, Finning Canada
General Counsel &
Corporate Secretary,
Finning International Inc
President, Finning Canada
and Chief Operating Officer,
Finning International Inc.
31
Finning Annual Review 2016 | The Path to Growth Five Year Financial Summary
For years ended December 31
2016
2015
2014
2013
2012
Operating Results
($ millions)
Revenue(1)
Canadian operations(2)
South American operations
UK & Ireland operations
Total consolidated
Earnings Before Finance Costs and Income Taxes (EBIT)(2)
As a percent of revenue (EBIT margin)
Adjusted EBIT(2)(3)(4)
As a percent of revenue (Adjusted EBIT margin)(3)(4)
Earnings Before Finance Costs, Income Taxes,
Depreciation and Amortization (EBITDA)(2)(4)
As a percent of revenue (EBITDA margin)(4)
Adjusted EBITDA(2)(3)(4)
As a percent of revenue (Adjusted EBITDA margin)(3)(4)
Invested capital(2)(4)
Inventory(2)
Free cash flow(2)(4)
$
2,821
$
3,126 $
3,634
$
3,358
$
3,278
1,857
950
2,067
1,082
2,227
1,057
5,628
$
6,275 $
6,918
165
$
(105) $
$504
2.9%
(1.7)%
7.3%
$
$
2,514
884
6,756
521
7.7%
$
$
273
$
383 $
$533
$
521
$
4.9%
6.1%
7.6%
7.7%
2,397
901
6,576
489
7.4%
489
7.4%
357
$
126 $
$720
$
737
$
701
6.3%
2.0%
10.4%
10.9%
10.7%
465
$
604 $
$749
$
737
$
701
8.3%
9.6%
10.7%
2,797
1,601
$
$
3,240 $
3,106
1,800 $
1,661
370
$
325 $
483
$
$
$
10.9%
3,138
1,756
441
$
$
$
10.7%
3,131
1,930
(37)
Continued on next page.
$
$
$
$
$
$
$
$
32
Finning Annual Review 2016 | The Path to Growth
Five Year Financial Summary
For years ended December 31
2016
2015
2014
2013
2012
Ratios(4)
Return on invested capital
Adjusted return on invested capital(3)
Invested capital turnover(1)
Inventory turns(1)
Working capital to sales(1)
Net debt to invested capital
Net debt to EBITDA
Net debt to Adjusted EBITDA(3)
5.6%
9.3%
1.90x
2.49x
30.4%
32.0%
2.5
1.9
(3.0)%
10.9%
1.78x
2.38x
32.2%
36.7%
9.5
2.0
15.3%
16.2%
2.10x
2.81x
26.1%
31.4%
1.4
1.3
15.7%
15.7%
2.04x
2.74x
26.5%
40.8%
1.7
1.7
16.5%
16.5%
2.22x
2.43x
24.5%
50.0%
2.2
2.2
Continued on next page.
33
Finning Annual Review 2016 | The Path to Growth Five Year Financial Summary
For years ended December 31
2016
2015
2014
2013
2012
Share and Per Share Data
Basic earnings per common share(2)
Adjusted earnings per common share(2)(3)(4)
Dividends per common share
$
$
$
0.38
0.88
0.7300
$
$
$
(0.94)
$
1.85
$
1.95
$
1.29
$
1.98
$
1.95
$
1.90
1.90
0.7250
$
0.6850
$
0.5975
$
0.5500
Common shares outstanding (thousands)
168,167
168,031
172,370
172,014
171,910
For years ended December 31
2016
2015
2014
2013
2012
Number of Employees
Canada
South America
UK and Ireland
Head Office
Total
4,557
5,821
1,399
100
5,017
6,253
1,660
73
5,703
6,937
1,790
65
5,698
7,463
1,677
86
6,061
7,422
1,814
85
11,877
13,003
14,495
14,924
15,382
These results have been prepared in accordance with International Financial
Reporting Standards (IFRS).
(1) Management voluntarily changed its presentation of certain expenses
to provide reliable and more relevant information to users of the financial
statements and better align with industry comparable companies. In addition,
management has concluded that certain cost recoveries are better reflected as
revenues. Certain line items and key performance metrics have therefore been
restated in the comparative 2015 period but the impact of restatement is not
significant. Further disclosure relating to these changes can be found in note 2
of the Company’s 2016 audited annual consolidated financial statements.
(2) In July 2015, the Company’s Canadian operations acquired the assets of
the Saskatchewan dealership and became the approved Caterpillar dealer in
Saskatchewan. The results of operations and financial position of this acquired
business have been included in the figures above since the date of acquisition.
(3) Certain 2016, 2015, and 2014 reported financial metrics were impacted by
significant items management does not consider indicative of operational and
financial trends either by nature or amount; these significant items are described
on pages 3, 4, 36, 37 and 38 in the 2016 Annual Management Discussion &
Analysis (MD&A) and the financial metrics which have been adjusted to take
into account these items are referred to as “Adjusted” metrics. There were no
significant items adjusted in 2013 or 2012, therefore the adjusted metrics above
for 2013 and 2012 are the same as the reported metrics.
(4) These financial metrics, referred to as “non-GAAP financial measures”
do not have a standardized meaning under IFRS, which are also referred to
as Generally Accepted Accounting Principles (GAAP), and therefore may
not be comparable to similar measures presented by other issuers. For
additional information regarding these financial metrics, including definitions and
reconciliations from each of these non-GAAP financial measures to their most
directly comparable measure under GAAP, where available, see the heading
“Description of Non-GAAP Financial Measures and Reconciliations” in the
Company’s 2016 Annual MD&A. Management believes that providing certain
non-GAAP financial measures provides users of the Company’s consolidated
financial statements with important information regarding the operational
performance and related trends of the Company’s business. By considering
these measures in combination with the comparable IFRS measures set out in
the 2016 Annual MD&A, management believes that users are provided a better
overall understanding of the Company’s business and its financial performance
during the relevant period than if they simply considered the IFRS measures
alone.
34
Finning Annual Review 2016 | The Path to Growth
Shareholder information
Corporate Information
Finning prepares an Annual Information Form
which is filed with the securities commission.
The Annual Information Form and quarterly and
annually reports are available in the Investors
section of www.finning.com/en_ca/company.html.
Corporate Governance Information
Please refer to Finning’s management proxy
circular in connection with the 2017 Annual
and Special Meeting of Shareholders and the
Governance section of Finning’s website at
www.finning.com/en.ca/company.html for a full
discussion of Finning’s corporate governance
and corporate policies and practices.
Code of Conduct
One important way that Finning promotes our
values and communicates the behaviours and
actions expected from our employees is through
our Code of Conduct. The Code provides a
common set of principles and key policies to help
guide day-to-day behaviour in support of our
values. All employees are required to review the
Code and affirm that they understand their role
in upholding Finning’s ethical standards. The Code
of Conduct is available in the Governance section
of www.finning.com/en.ca/company.html.
Company Name
Finning International Inc.
Exchange/Symbol
Toronto Stock Exchange (TSX: FTT)
Fillings
SEDAR
Head Office
Suite 1000, 666 Burrard Street
Vancouver, British Columbia
Canada V6C 2X8
604-691-6444
www.finning.com
Auditors
Deloitte LP
Solicitors
Annual and Special Meeting
of Shareholders
May 10, 2017
2:00 pm Pacific Time
Terminal City Club
837 West Hastings Street
Vancouver, British Columbia
Investor Contact Information
For inquiries related to Finning’s operating
activities and financial performance:
Mauk Breukels
Vice President, Investor Relations and
Corporate Affairs
604-331-4934
investor_relations@finning.ca
For inquiries related to shares or dividends:
Computershare Limited
Borden Ladner Gervais LLP
1-800-564-6253
www.computershare.com
35
Finning Annual Review 2016 | The Path to Growth Forward Looking Statement
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 terminology such as
aim, anticipate, assumption, believe, could, expect,
goal, guidance, intend, may, objective, outlook,
plan, project, seek, should, strategy, strive, target,
and will, and variations of such terminology.
Forward-looking statements in this report include,
but are not limited to, statements with respect
to: expectations with respect to the economy,
markets and activities and the associated impact
on the Company’s financial results; expected
impact of foreign exchange markets, expected
revenue; expected free cash flow and liquidity;
expected profitability levels; expected range
of the effective tax rate; plans to improve ROIC;
market share growth; customer loyalty growth;
expected engagement related to the development
of the Vaca Muerta shale gas fields; expected
results from cost reductions and transformation
initiatives; inventory turns; the expected target
range of the Company’s net debt to invested
capital ratio; estimated loss on disputes regarding
power system projects in the UK; the expected
financial impact from the Alberta wildfires and
possible insurance recoveries; timing and delivery
of innovative customer solutions; planned activities
and anticipated results of Finning Digital; plans
to implement a modern ERP system for the
South America business; the belief that the claims
by the Argentina Customs Authority have no
merit and the likelihood of material impact of any
contingencies and guarantees on the Company’s
financial position; expected sale of investments;
the Company’s ability to manage exposure to
currency translation adjustments; and expectations
for defined benefit pension funding. 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 reflect Finning’s expectations
at the date in the 2016 MD&A. 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; 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 ability to maintain its relationship with
Caterpillar; Finning’s dependence on the continued
market acceptance of its products, including
Caterpillar products, and the 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 revenue occurs; Finning’s ability to reduce
costs in response to slowing activity levels; Finning’s
ability to attract sufficient skilled labour resources as
market conditions, business strategy or technologies
change; 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 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, and benefits from information
technology and the data processed by that
technology; and Finning’s ability to protect itself
from cybersecurity threats or incidents.
36
Finning Annual Review 2016 | The Path to Growth Forward Looking Statement
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 of this report.
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.
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 in the 2016
MD&A for forward-looking statements. 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 Section
4 of the Company’s current AIF and in the annual
MD&A for the financial risks.
Finning cautions readers that the risks described
in the MD&A and 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
37
Finning Annual Review 2016 | The Path to Growth