Finning Delivers Record Product Support Revenues in Q1 2012 and Confirms Strong Outlook

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 8, 2012) - Finning International Inc. (TSX:FTT) -

Q1 2012 HIGHLIGHTS

• Revenue increased by 16% to $1.5 billion as market conditions remained robust in all regions and product support revenues reached a new record.
  
  
• EBIT margin was 6.7% compared to 8.4% in Q1 2011 and 5.9% in Q4 2011. Significantly stronger results from South America and UK & Ireland were offset by a lower EBIT margin in Canada compared to Q1 2011.
  
  
• Basic EPS was $0.39 compared to $0.42 in Q1 2011 and included ERP related costs in Canada of approximately $0.09 per share.
  
  
• Order intake was strong, and the backlog grew by 11% from the end of December to $1.6 billion.
  
  
• The Company raised its quarterly dividend by 8% to $0.14 per share, reflecting its confidence in the outlook and expectation for strong earnings growth over 2011.
  

Finning International Inc. (TSX:FTT) reported a 16% increase in quarterly revenues to $1.5 billion over Q1 2011, driven by strong new equipment sales in Canada and record product support revenues in South America and UK and Ireland in local currency. Earnings before finance costs and income taxes (EBIT) declined by 7% to $99 million, and EBIT margin was 6.7% compared to 8.4% in Q1 and 5.9% in Q4 2011. Basic earnings per share (EPS) was $0.39 compared to $0.42 in Q1 2011.

"Strong prevailing market conditions across our regions are reflected in our excellent start to the year and provide a solid platform for growth throughout 2012. We posted another quarter of record product support revenues as robust customer activity and the large installed equipment base in our territories drove demand for parts, service and rebuilds," said Mike Waites, President and CEO of Finning International. "With the acquisition of the former Bucyrus distribution business just completed in Finning South America and the UK and Ireland, we are already seizing sales and service opportunities related to our expanded product portfolio."

"Based on our confidence in our growth prospects, we are pleased to increase our quarterly dividend. We will continue to drive long-term shareholder value and meet our mid-term EBIT margin targets through disciplined execution of our strategy and achievement of our priorities," continued Mr. Waites. "This year we are relentlessly focused on realizing improved profitability in Canada, successfully integrating the former Bucyrus business and strengthening the balance sheet. I am excited about a bright future ahead as Finning stands poised to capitalize on our company's vast growth opportunities in 2012 and beyond."

Q1 2012 FINANCIAL SUMMARY

C$ millions, except per share amounts (unaudited)	Three months ended Mar 31
	2012	2011	% change
Revenue	1,472	1,275	16
Earnings before finance costs and income taxes (EBIT)	99	107	(7)
Net income	67	72	(6)
Basic EPS	0.39	0.42	(7)
Earnings before finance costs, income taxes, depreciationand amortization (EBITDA)(1)	147	148	(1)
Free cash flow(1)(2)	(223)	(156)	(42)

• Revenues grew by 16% to $1.5 billion as market activity in most sectors remained very robust. New equipment sales were up 15%, driven by Canada. Product support was strong in all operations, and was up 14% from Q1 2011 to set a new quarterly record. Used equipment sales and rental revenues increased by 42% and 16% respectively from Q1 2011.
  
  
• Gross profit was 12% higher compared to Q1 2011. Gross profit margin declined to 30.2% from 31.2%. Overall, the Company realized slightly lower margins in new equipment and product support.
  
  
• Selling, general and administrative (SG&A) expenses as a percentage of revenue were 23.5% compared to 22.5% in Q1 2011, reflecting higher ERP system support and improvement costs. The Company is implementing a series of steps to reduce the ERP related support and improvement costs throughout 2012.
  
  
• EBIT declined by 7% to $99 million, and consolidated EBIT margin was 6.7% compared to 8.4% in Q1 2011 and 5.9% in Q4, 2011. The South American and UK and Ireland operations delivered strong EBIT performance, which was offset by a lower EBIT in Canada compared to Q1 2011. As expected, higher operating expenses associated with the ERP support and improvement initiatives negatively impacted the Company's EBIT in Q1 2012 by approximately $22 million.
  
  
• Net income of $67 million was 6% lower and basic EPS was $0.39 compared to $0.42 in Q1 2011. The ERP support and improvement costs reduced EPS by approximately $0.09. Foreign exchange lad a positive impact of $0.03 per share compared to Q1 2011.
  
  
• EBITDA, which is an indicator of a company's cash operating performance, was comparable to Q1 2011 at $147 million. Quarterly free cash flow was $223 million use of cash, compared to $156 million use of cash in Q1 2011. The Company experienced an increase in working capital requirements which were mostly driven by higher inventory and receivables. The Company continues to closely manage its working capital levels and expects to generate approximately $100 million in free cash flow in 2012.
  
  
• The Company's net debt to total capital ratio⁽⁵⁾ was 47.2% compared to 42.0% at the end of December 2011, reflecting higher debt levels used to fund increased working capital requirements.
  
  
• In Q1 2012, new order intake remained very strong, up 8% compared to Q4 2011, and there were no unusual order cancellations in any of the Company's operations. Backlog grew in each region and was up 11% from the end of December to $1.6 billion at March 31, 2012. The current backlog is approximately $100 million higher compared to March 31 of last year.
  
  
• Following the closing of the acquisition of the former Bucyrus distribution business in all of its territories, the Company expects 2012 revenue to grow by 8 to 10% over 2011, which is an increase over the previous guidance of 5% growth this year. In 2012, the Company expects new equipment sales to be comparable to 2011 levels and the large installed equipment base to drive strong growth in product support revenues over 2011. The former Bucyrus business is projected to contribute about $270 million to 2012 revenue, be accretive to 2012 earnings, and generate an EBIT margin of 7 to 8% in the next two years. The Company expects 2013 revenue to be 10 to 15% higher than 2012 (an increase over the previous guidance of 10% growth) and remains on track to achieve its 9 to 10 percent EBIT margin target in 2013.
  

Q1 2012 HIGHLIGHTS BY OPERATIONS

Canada

• First quarter revenues were up 27% driven by new equipment sales, which rose by 55% over Q1 2011 and were strong across most sectors. Product support revenues were up 10% over Q1 2011, reflecting strong market activity and high utilization rates of the large installed equipment base. Canada experienced a significant shift in revenue mix to new equipment sales, which led to a lower gross profit margin in the quarter compared to Q1 2011. New equipment sales rose to 41% of total revenue compared to 33% in Q1 2011; at the same time, product support accounted for 45% of the total revenue compared to 52% in the first quarter of last year.
  
  
• Following the ERP system implementation issues, the Company continued to execute against its recovery plan. In the first quarter, ERP related support and improvement costs were reduced as user proficiency and operating efficiency continued to improve. The Company is implementing additional system enhancements to reduce manual workarounds and speed up transaction processing. Going forward, the key focus will remain on advancing the ERP system's efficiency and functionality and reducing working capital while improving customer service levels. The Company expects a gradual decline in ERP related support and improvement costs throughout 2012.
  
  
• EBIT declined by 36% to $40 million, reflecting a shift in revenue mix to lower-margin new equipment sales and higher expenses associated with the ERP support and improvement. As expected, Canada continued to incur higher than usual costs in the first quarter, including freight, consulting and labour expenses to ensure parts flow to customers and to improve the functionality of the new ERP system. As a result, EBIT margin was 5.2% compared to 10.2% in Q1 2011. However, the EBIT margin improved from 4.4% in Q4 2011 and a negative 0.3% in Q3 2011. Finning Canada expects continued improvement in its EBIT margin performance in 2012 and remains committed to achieve the 9% to 10% EBIT margin target in 2013.
  

South America

• First quarter revenues increased by 3% from Q1 2011 as strong growth in product support more than offset lower new equipment sales. In functional currency (USD), revenues were comparable to Q1 2011 levels. New equipment sales declined by 17%, reflecting fewer mining deliveries in Chile and reduced construction sales in Argentina compared to a very strong Q1 2011. Product support grew by 18% to record levels driven by continued strong demand from mining.
  
  
• SG&A costs as a percentage of revenue were higher compared to Q1 2011 to support strong growth in product support revenues. The Company remains focused on improving operating efficiencies and managing cost pressures associated with growing demand and a highly competitive environment for skilled labour.
  
  
• EBIT rose by 24% to $48 million (in functional currency, EBIT increased by 22%) and EBIT margin improved to 10.0% from 8.3% in Q1 2011, reflecting a shift in revenue mix to higher-margin product support. Finning South America is expected to continue operating near its 2013 EBIT margin target of 10% to 11%.
  
  
• In Argentina, over the last year, the government has introduced controls on importation and continues to closely manage access to foreign exchange. As a result, the Company expects there will be some impact on its ability to source and deliver parts and equipment to customers. However, the amount is not expected to be material to the Company's consolidated revenues and earnings in 2012.
  

United Kingdom and Ireland

• Quarterly revenues increased by 9% from Q1 2011 with higher revenues in all lines of business. New equipment sales were up 6% driven by heavy construction and power system sectors. Product support revenues rose by 13% and reached a new record, benefiting from growing demand for parts, service and large equipment rebuilds. In functional currency, the quarterly revenue growth did not differ materially from Canadian dollars.
  
  
• EBIT increased by 23% from Q1 2011 to $14 million and quarterly EBIT margin rose to 6.4% from 5.7% a year ago, reflecting leverage to higher revenues. While uncertainty in the broader economic environment continues, Finning UK & Ireland is committed to sustaining its financial performance and driving towards 7-8% EBIT margin target in 2013.
  

CORPORATE AND BUSINESS DEVELOPMENTS

Dividend

The Board of Directors has approved an increase in the quarterly dividend to $0.14 per share from $0.13 per share, payable on June 8, 2012 to shareholders of record on May 25, 2012. The increase in dividend reflects the Company's confidence in the outlook and expectation for revenue and earnings growth. The Company remains committed to increasing the dividend component of the total shareholder return commensurate with sustainable earnings growth. This dividend will be considered an eligible dividend for Canadian income tax purposes.

Finning completes acquisition of Bucyrus distribution business in South America and the U.K.

On May 2, 2012 the Company announced that it completed the previously announced acquisition from Caterpillar of the former Bucyrus distribution and support business in portions of South America and in the U.K. The transaction is valued at US$306 million for Finning in South America and the U.K. An estimated US$159 million will be paid upon completion of the transaction for Finning Canada. The acquisition will be financed with debt and is expected to be accretive to earnings in 2012. As part of the Company's sequenced integration approach, the acquisition of the Canadian portion is now tracking to close at the end of the third quarter of 2012 to ensure a smooth transition of the business. The acquired distribution and support business expands Finning's mining product offerings, provides additional product support opportunities and adds complementary customer service capabilities.

Finning employees in South America reach labour agreement

On April 5, 2012, the Company announced that its South American division and the three unions representing approximately 90 percent of its unionized workforce in Chile reached a new four-year collective agreement. The agreement replaces the previous four-year agreement, and is set to expire April 1, 2016.

Finning announces issuance of US $300 Million of Notes in the US Private Placement Market

On April 3, 2012, Finning announced that it completed a US private placement of US $300 million aggregate principal amount of senior unsecured notes, which will rank pari passu with Finning's existing senior unsecured obligations. Proceeds were used to fund the May 2, 2012 purchase from Caterpillar of the distribution and support business formerly carried on by Bucyrus in Finning's territories in South America.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(C$millions, except per share amounts)

		Three months ended Mar 31
Revenue		2012		2011		% change
	New equipment	631.4		548.8		15
	Used equipment	73.4		51.6		42
	Equipment rental	91.2		78.3		16
	Product support	675.0		592.5		14
	Other	0.8		3.4		(78	)
Total revenue		1,471.8		1,274.6		16
Gross profit		444.5		397.3		12
Gross profit margin(3)		30.2	%	31.2	%
SG&A		(345.2	)	(286.3	)	(21	)
SG&A as a percentage of revenue		(23.5	)%	(22.5	)%
Equity earnings		1.9		0.8
Other expenses		(2.4	)	(5.2	)
EBIT		98.8		106.6		(7	)
EBIT margin(4)		6.7	%	8.4	%
Net income		67.0		71.5		(6	)
Basic earnings per share (EPS)		0.39		0.42		(7	)
EBITDA		146.8		147.5		(1	)
Free Cash Flow(2)		(222.7	)	(156.4	)	(42	)
		Mar 31, 12				Dec 31, 11
Total assets		4,530.0				4,085.4
Total shareholders' equity		1,372.6				1,345.0
Net debt to total capital(6)		47.2			%	42.0	%

To download Finning's complete Q1 2012 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ112results.pdf

To download the CEO and CFO certification letters once they have been filed on SEDAR, please open the following link: http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00001068

Q1 2012 RESULTS INVESTOR CALL

Management will hold an investor conference call on Wednesday, May 9 at 11:00 am Eastern Time. Dial-in numbers: 1-866-223-7781 (anywhere within Canada and the U.S.) or (416) 340-8018 (for participants dialing from Toronto and overseas).

The call will be webcast live and subsequently archived at www.finning.com. Playback recording will be available at 1-800-408-3053 from 1:00 pm Eastern Time on May 9 until May 16. The pass code to access the playback recording is 4463383 followed by the number sign.

ABOUT FINNING

Finning International Inc. (TSX:FTT) is the world's largest Caterpillar equipment dealer delivering unrivalled service to customers since 1933. Finning sells, rents and services equipment and engines to help customers maximize productivity. Headquartered in Vancouver, B.C., the Company operates in western Canada, Chile, Argentina, Bolivia, Uruguay, as well as in the United Kingdom and Ireland.

Footnotes

1. These amounts do not have a standardized meaning under generally accepted accounting principles. For a reconciliation of these amounts to net income and cash flow from operating activities, see the heading "Description of Non-GAAP and additional GAAP Measures" in the Company's management discussion and analysis that accompanies the 1^st quarter consolidated financial statements.
   
   
2. Free cash flow is defined as cash flow provided by (used in) operating activities less net property, plant and equipment expenditures.
   
   
3. Gross profit margin is defined as gross profit as a percentage of total revenue.
   
   
4. EBIT margin is defined as earnings before finance costs and income taxes as a percentage of total revenue.
   
   
5. Net debt to total capital ratio is calculated as short-term debt and long-term debt, net of cash and cash equivalents (net debt) divided by total capitalization. Total capitalization is defined as the sum of net debt and all components of equity (share capital, contributed surplus, accumulated other comprehensive loss, and retained earnings).
   

Forward-Looking Disclaimer

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 Debt Ratio; the impact of new and revised IFRS that have been issued but are not yet effective; the expected timetable for completion of the proposed transaction between the Company and Caterpillar to acquire the distribution and support business formerly operated by Bucyrus in Finning's Canadian dealership territory; growth prospects for the former Bucyrus business being acquired by the Company in Finning's dealership territories (Bucyrus) and the competitive advantages of the business being acquired; expected future financial and operating results generated from Bucyrus; anticipated benefits and synergies of Bucyrus; the expected financing structure for the Bucyrus transaction in Finning (Canada); and the expected impact of Bucyrus on Finning's earnings. 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 May 8, 2012. 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 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 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 successfully integrate the distribution and support business formerly operated by Bucyrus after that transaction closes; 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; 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.