Finning Reports Solid Q2 2012 Results and Raises Revenue Guidance for 2012

Marketwired

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 8, 2012) - Finning International Inc. (FTT.TO) -

Q2 2012 HIGHLIGHTS

-- Revenue increased by 19% to $1.8 billion, as healthy market conditions

in the second quarter drove growth in new equipment sales and record

product support revenues.

-- Strong results from South America and UK & Ireland contributed to record

quarterly EBIT of $122 million.

-- EBIT margin of 6.9% showed sequential improvement over the last three

quarters, as the ERP related support and improvement costs in Canada

were further reduced.

-- Basic EPS of $0.47 was on par with a record setting $0.48 in Q2 2011,

and included ERP related costs of approximately $0.07 per share.

-- The order backlog increased to $1.7 billion from $1.6 billion at the end

of March, supported by solid order intake in the second quarter.

-- Reflecting stronger than expected revenue growth year to date and solid

order backlog, the Company now expects its 2012 revenues, including the

acquired former Bucyrus distribution business, to grow by 12% to 15%

over 2011 (up from the previous guidance of 8% to 10%).

Finning International Inc. (FTT.TO) reported second quarter revenues of $1.8 billion, a 19% increase over Q2 2011. Quarterly revenues grew in all regions and across all business lines compared to the second quarter of 2011. New equipment sales were particularly strong in Canada, while growth in product support was driven by South America. Quarterly EBIT (earnings before finance costs and income taxes) increased to $122 million. Quarterly EBIT margin of 6.9%, below 8.1% achieved in Q2 2011, showed sequential improvement over the last three quarters. Basic EPS (earnings per share) was $0.47 compared to $0.48 in Q2 2011.

"I am pleased with our strong quarterly revenues fuelled by a third consecutive quarter of record product support as well as solid new equipment sales. We reported sequential improvement in EBIT margin, and we continue to see healthy order intake levels and robust demand for product support, particularly in our resource-rich territories," said Mike Waites, president and CEO of Finning International Inc. "In light of uncertain global economic conditions, we are monitoring our end markets closely and are simply taking prudent steps to manage our inventory levels, in order to maintain a strong financial position."

"A highlight in the quarter was the successful closing of the former Bucyrus distribution businesses in the U.K. and South America, and integration is advancing ahead of plan and expectations," continued Mr. Waites. "We continue to make good progress against our priorities: driving improved EBIT margin performance, integrating the former Bucyrus business and strengthening our balance sheet. We have a strong strategy in place to drive shareholder value, and our recent appointment of Juan Carlos Villegas to chief operating officer underscores our commitment to disciplined execution."

Q2 2012 FINANCIAL SUMMARY

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C$ millions, except per share amounts (unaudited) Three months ended Jun 30

2012 2011 % change

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Revenue 1,765 1,481 19

Earnings before finance costs and income taxes

(EBIT) 122 120 2

Net income 81 82 (1)

Basic EPS 0.47 0.48 (2)

Earnings before finance costs, income taxes,

depreciationand amortization (EBITDA)(1) 177 160 11

Free cash flow(1)(2) (31) (227) 86

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-- Revenues increased by 19% from Q2 2011 to $1.8 billion, with higher

revenues achieved in all regions and lines of business. New equipment

sales were up 27%, driven by Canada. Product support set a new record as

it grew by 13%, and was particularly strong in South America. Used

equipment sales and rental revenues increased by 9% and 12%

respectively.

-- Gross profit was 16% higher compared to Q2 2011, however, gross profit

margin declined to 28.9% from 29.7% primarily reflecting a shift in

revenue mix to lower margin new equipment sales.

-- Selling, general and administrative (SG&A) expenses as a percentage of

revenue were 22.0% compared to 21.3% in Q2 2011. The Company continued

to incur additional operating costs to support and improve the ERP

system in Canada, although at a lower rate than in the prior three

quarters.

-- EBIT increased by 2% to a record $122 million. Strong EBIT performance

in South America and UK and Ireland was partly offset by lower EBIT in

Canada compared to Q2 2011. Additional operating expenses associated

with the ERP support and improvement initiative negatively impacted the

Company's EBIT by approximately $17 million in Q2 2012. The Company

expects continued reduction in ERP related support and improvement costs

for the balance of 2012. Consolidated EBIT margin was 6.9% compared to

8.1% in Q2 2011. Over the last three quarters, EBIT margin has improved

sequentially, reflecting gradual progress with the ERP recovery plan.

-- Net income of $81 million and basic EPS of $0.47 were marginally lower

compared to the record setting results in Q2 2011. Q2 2012 results

included approximately $0.03 per share of incremental profit from the

former Bucyrus distribution business and approximately $0.07 per share

of ERP support and improvement costs. Foreign exchange had a positive

impact of $0.06 per share compared to Q2 2011.

-- EBITDA was 11% higher compared to Q2 2011 and reached a new record of

$177 million. Quarterly free cash flow was $31 million use of cash,

compared to $227 million use of cash in Q2 2011. The Company is

continuing to experience increased requirements for working capital, in

particular higher inventory and accounts receivable. Given the higher

than expected sales year to date and continued strong market activity,

the Company now expects more working capital will be required than

previously anticipated. While the Company expects to generate positive

free cash flow in the last two quarters of 2012, free cash flow for the

full year is expected to be essentially break-even.

-- The Company's net debt to total capital ratio(5) was 52.7% compared to

47.2% at the end March and 42.0% at December 2011, reflecting higher

debt levels to fund increased working capital requirements and the

purchase of the former Bucyrus distribution business from Caterpillar.

Going forward, net debt to total capital ratio is expected to decline

from the June peak levels, but remain above the 35-45% target range in

2012. Net debt to total capital ratio is expected to return to within

the target range by the end of 2013.

-- Order backlog increased to $1.7 billion at June 30 from $1.6 billion at

the end of March 2012. New order intake was solid in Q2 2012, and was

particularly good in South America. There were no unusual order

cancellations in any of the Company's operations in the second quarter.

Q2 2012 HIGHLIGHTS BY OPERATIONS

Canada

-- In western Canada, machine deliveries and equipment utilization remained

robust across most sectors in the second quarter, translating into

higher revenues in all lines of business compared to Q2 2011. New

equipment sales rose by 64% and were particularly strong in mining and

heavy construction. Product support revenues grew by 5% and reached a

new record. Canada's total revenue increased by 29% over Q2 2011, with a

significant shift in revenue mix to new equipment sales. As a result,

Canada posted a lower gross profit margin compared to Q2 2011.

-- In the second quarter, the Company continued to make good progress in

executing on its ERP recovery plan. ERP related support and improvement

costs were reduced further as user proficiency and operating efficiency

continued to improve. The Company is implementing additional system

enhancements to advance the ERP system's functionality and reduce costs

and working capital. The Company remains on track to gradually reduce

additional ERP related support and improvement costs throughout the

remainder of 2012, and expects that the remaining costs will not be

material to the Company's consolidated results in the second half of

2012.

-- EBIT declined by 6% to $62 million, reflecting a lower gross profit

margin and higher costs related to ERP system improvement. EBIT margin

of 6.6% was below 9.0% achieved in Q2 2011. The margin continued to show

sequential increase from 5.2% in Q1 2012, 4.4% in Q4 2011 and a negative

0.3% in Q3 2011. Finning Canada expects gradual improvement in its EBIT

margin performance in the second half of 2012, and remains committed to

achieving the 9% to 10% EBIT margin target in 2013.

South America

-- Second quarter revenues increased by 8% from Q2 2011, driven by record

product support revenues which more than offset lower new equipment

sales. In functional currency (USD), revenues grew by 3% over Q2 2011

levels. New equipment sales declined by 10% in functional currency,

reflecting fewer mining deliveries in Chile and reduced construction

sales in Argentina, compared to very strong volumes in Q2 2011. Product

support grew by 23% in functional currency, driven by continued strength

in the Chilean mining industry and high utilization of the large

population of mining equipment.

-- SG&A costs as a percentage of revenue were higher compared to Q2 2011,

primarily reflecting a 17% increase in the work force, including the

former Bucyrus employees, and expenses associated with the newly

acquired Bucyrus distribution business. The Company remains focused on

improving operating efficiencies and managing the cost pressures

associated with the strong demand for skilled workers in a highly

competitive labour market.

-- EBIT rose by 16% to $56 million. In functional currency, EBIT increased

by 11% to record levels. EBIT margin improved to 9.8% from 9.1% in Q2

2011, primarily reflecting a shift in revenue mix to product support and

higher margins on new equipment sales. Finning South America is expected

to continue operating close to its 2013 EBIT margin target of 10% to

11%.

-- In Argentina, the government continues to control imports and closely

manage access to foreign exchange. The Company has taken steps to ensure

customer demand for parts can be met to the greatest extent possible.

The reduction in business volumes in Argentina compared to 2011 is

partly offset by continued strong demand in Chile, and is not expected

to have a material impact on the Company's consolidated revenues and

earnings in 2012.

United Kingdom and Ireland

-- Second quarter revenues grew by 15% from Q2 2011. Revenues increased

across all lines of business and set a new record in functional

currency. New equipment sales were up 20% (up 19% in functional

currency, the U.K. pound sterling) driven by higher volumes in heavy

construction, power systems and mining, including sales of former

Bucyrus products. Product support revenues rose by 6% (up 5% in

functional currency) and continued to benefit from solid demand for

large equipment rebuilds.

-- EBIT increased by 15% from Q2 2011 to $15 million and quarterly EBIT

margin of 6.0% was equal to Q2 of last year. Finning UK & Ireland is

committed to sustaining its improved operating performance and driving

towards 7% to 8% EBIT margin target in 2013 by pursuing opportunities in

higher margin equipment solutions and power systems segments and by

maintaining discipline on costs.

CORPORATE AND BUSINESS DEVELOPMENTS

Dividend

The Board of Directors has approved a quarterly dividend of $0.14 per share, payable on September 7, 2012 to shareholders of record on August 24, 2012. This dividend will be considered an eligible dividend for Canadian income tax purposes.

Finning issues $150 Million of Medium Term Notes

On June 13, 2012, Finning announced the issuance of medium term notes for aggregate gross proceeds of $150 million. The offering consists of $150 million 5.077% Medium Term Note Debentures due June 13, 2042, and will rank pari passu with existing senior unsecured obligations of Finning. Proceeds are expected to be used to fund the anticipated purchase from Caterpillar of the distribution and support business formerly carried on by Bucyrus International Inc. in Finning's territories in Canada. The acquisition is expected to close on or around October 1, 2012.

Executive Management Changes

On May 22, 2012, the Company announced the appointment of Juan Carlos Villegas, formerly president of Finning South America, to the newly created position of executive vice president and chief operating officer for Finning International Inc. Reporting to the CEO, Mr. Villegas will oversee and drive operational excellence across the Company's three operating units: Canada, South America, and the U.K. and Ireland; and will have a key role in increasing efficiencies and profitability. Mr. Villegas is succeeded by Marcello Marchese, who was appointed president, Finning South America on June 4, 2012.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(C$millions, except per share amounts)

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Three months ended Jun 30 Six months ended Jun 30

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Revenue 2012 2011 % change 2012 2011 % change

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New equipment 875.2 689.2 27 1,506.6 1,238.0 22

Used equipment 77.1 71.0 9 150.5 122.6 23

Equipment rental 91.3 81.8 12 182.5 160.1 14

Product support 718.8 635.7 13 1,393.8 1,228.2 13

Other 2.1 2.9 (27) 2.9 6.3 (54)

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Total revenue 1,764.5 1,480.6 19 3,236.3 2,755.2 17

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Gross profit 509.2 440.0 16 953.7 837.3 14

Gross profit

margin(3) 28.9% 29.7% 29.5% 30.4%

SG&A (388.7) (315.8) (23) (733.9) (602.1) (22)

SG&A as a

percentage of

revenue (22.0)% (21.3)% (22.7)% (21.9)%

Equity earnings 3.4 1.0 5.3 1.8

Other expenses (1.7) (5.6) (4.1) (10.8)

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EBIT 122.2 119.6 2 221.0 226.2 (2)

EBIT margin(4) 6.9% 8.1% 6.8% 8.2%

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Net income 81.3 81.9 (1) 148.3 153.4 (3)

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Basic earnings per

share (EPS) 0.47 0.48 (2) 0.86 0.89 (3)

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EBITDA(1) 177.4 160.1 11 324.2 307.6 5

Free Cash

Flow(1)(2) (30.7) (226.8) 86 (253.4) (383.2) 34

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Jun 30, 12 Dec 31, 11

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Total assets 5,110.5 4,085.4

Total shareholders' equity 1,433.1 1,345.0

Net debt to total capital(5) 52.7% 42.0%

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To download Finning's complete Q2 2012 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ212results.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

Q2 2012 RESULTS INVESTOR CALL

Management will hold an investor conference call on Wednesday, August 8 at 10:30 am Eastern Time. Dial-in numbers: 1-800-769-8320 (anywhere within Canada and the U.S.) or (416) 340-8061 (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 12:00 pm Eastern Time on August 8 until August 15. The pass code to access the playback recording is 4463383 followed by the number sign.

ABOUT FINNING

Finning International Inc. (FTT.TO) 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 2nd quarter

consolidated financial statements.

2. Free cash flow is defined as cash flow provided by (used in) operating

activities less net additions to property, plant and equipment and

intangible assets.

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 acquired or 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; 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 August 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.

Contact:
Mauk Breukels
Finning International Inc.
Vice President, Investor Relations and Corporate Affairs
(604) 331-4934
mauk.breukels@finning.com
www.finning.com

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