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Finning Reports Best-Ever First Quarter Results Setting Stage for Strong Year

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 11, 2011) - Finning International Inc. (TSX:FTT) -

Q1 2011 HIGHLIGHTS

  • Basic EPS of $0.42 was up over 160% from Q1 2010 setting a Q1 record.

  • Revenue climbed by 32% to $1.3 billion driven by strong new equipment sales in all operations and record product support revenue.

  • EBIT increased by over 140% to $107 million as earnings continued to outpace revenue growth. EBIT margin of 8.4% was significantly stronger than 4.6% in Q1 2010.

  • Backlog grew by 20% from December 31, 2010, topping $1.5 billion, the sixth consecutive increase in quarterly backlog.

  • The Company raised its quarterly dividend by 8% to $0.13 per share, reflecting its expectation for strong growth and increased confidence in the outlook.

Finning International Inc. (TSX:FTT) reported record Q1 2011 results. Finning achieved Q1 2011 revenues of $1.3 billion, a 32% increase from Q1 2010. Earnings before interest and income taxes (EBIT) of $107 million were up 141% from Q1 2010 and EBIT margin of 8.4% was significantly higher than 4.6% in Q1 2010. Strong EBIT margin performance was driven by higher gross profit margins in all lines of business combined with substantially improved profitability in Canada. Basic earnings per share (EPS) grew by 163% to $0.42.

"Finning has made a tremendous start to the year with each of our operations firing on all cylinders. The market activity in the quarter increased faster than anticipated and the quarter exceeded our expectations all around," said Mike Waites, Finning International Inc. president and CEO. "We continued to build on our product support momentum following a record year in 2010 with pent-up service requirements and increasing machine utilization driving demand."

"This quarter, once again, underscores the focused execution of our strategic priorities, including our ability to generate operating leverage. We have been diligent in improving our efficiencies and preparing to meet growing demand. As a result, we are well-positioned to meet our customers' needs and capture our substantial growth opportunities," continued Waites. "I am also pleased to announce that we are raising our quarterly dividend based on our strong financial results and our confidence in a bright future ahead. Fueled by our strategy, our partnership with Caterpillar, and our people, we are delivering on our commitment to sustainable and profitable growth."

The Company expects revenues to grow, on average, at 10% per annum over the next three years. Consolidated earnings growth is forecast to outpace revenue growth as the Company is making solid progress towards achieving a 10% EBIT margin in the medium term.

Q1 2011 FINANCIAL SUMMARY (from continuing operations)

Beginning with Q1 2011, the Company's financial results are reported under IFRS (International Financial Reporting Standards)(1).

C$ millions, except per share amounts (unaudited)Three months ended Mar 31
20112010% change
Revenue1,27596732
Earnings before interest and income taxes (EBIT)(2)10744141
Net income7227170
Basic EPS0.420.16163
Earnings before interest, income taxes, depreciation
and amortization (EBITDA)(2)

148

86

71
Free cash flow (2)(3)(156)102(253)
  • Revenues of $1.3 billion were up 32% from Q1 2010, reflecting higher revenues in all operations. New equipment sales increased by 60% and showed very solid growth across all regions. Product support revenues grew by 21% on a consolidated basis and were particularly strong in Canada. Used equipment sales were lower in all operations, down by 18% on a consolidated basis. Rental revenues were 18% higher. Foreign exchange had a negative impact on quarterly revenues of approximately $40 million, as the Canadian dollar was 5.2% stronger relative to the U.S. dollar and 2.5% stronger relative to the U.K. pound sterling for Q1 2011 compared to Q1 2010.

  • Gross profit increased by 36% from Q1 2010, and gross profit margin improved to 31.2% from 30.1% reflecting higher margins in all lines of business. New equipment sales contributed 43% to the total revenue in Q1 2011 compared to 36% in Q1 2010, while product support comprised 47% of the total revenue compared to 51% in Q1 2010.

  • Selling, general and administrative (SG&A) expenses as a percentage of revenue decreased to 22.5% from 24.7% in Q1 2010 as a result of a lower cost structure, on-going cost containment and continued productivity improvements. The Company remains committed to driving SG&A expenses as a percentage of revenue down to approximately 20% in the medium term.

  • The Company achieved significant improvement in its operating leverage, which resulted in EBIT margin expansion in the quarter. EBIT increased by 141% to $107 million. Driven by continued improvement in profitability in Canada and the UK, consolidated EBIT margin rose to 8.4% from 4.6% in Q1 2010 and 6.2% in Q4 2010. Generating sustainable improvement in EBIT margin performance in all operations remains at the top of the Company's priorities as it progresses towards achieving a 10% consolidated EBIT margin in the medium term.

  • Net income increased by 170% to $72 million. Basic EPS of $0.42 was up 163% compared to $0.16 in Q1 2010, setting a new earnings record for the first quarter and matching our all-time record for reported EPS. Foreign exchange had a negative impact of $0.04 per share compared to Q1 2010.

  • EBITDA, which is an indicator of a company's cash operating performance, was up by 71% to $148 million. Quarterly free cash flow was $156 million use of cash, compared to $102 million cash generation in Q1 2010. Significant increase in sales and product support demand resulted in higher working capital requirements, primarily in South America. The increase in working capital requirements is expected to continue through the second quarter. The Company remains focused on effectively managing working capital and expects to generate a modest but positive free cash flow in 2011.

  • The net debt to total capital ratio was 40.3% compared to 35.3% at the end of December 2010 reflecting a decrease in cash levels due to growth in working capital, particularly inventories.

  • Consolidated backlog of $1.5 billion was 20% higher than at December 2010, representing the sixth consecutive quarter of growth in backlog.

Q1 2011 HIGHLIGHTS BY OPERATIONS

Canada

  • First quarter revenues rose by 28% from Q1 2010 due to strong growth in new equipment sales and product support, which were up by 46% and 25% respectively. Product support revenues broke a new record in Q1 2011. In mining, including the oils sands, parts and service revenue growth is driven by the maintenance cycle for large mining equipment and growing demand for rebuilds. In other sectors, particularly heavy construction, product support revenues grew substantially as customers increased fleet utilization.

  • SG&A costs as a percentage of revenue declined from Q1 2010 reflecting continued focus on expense management and solid progress in improving productivity and operational efficiencies.

  • EBIT was $62 million in the quarter compared to $10 million in Q1 2010 due to higher new equipment and product support revenues, increased gross profit margins and lower SG&A as a percentage of revenue. EBIT margin of 10.2% was significantly above 2.1% in Q1 2010 and 7.3% in Q4 2010, resulting from improved operating leverage noted above. Finning Canada expects to see fluctuations in quarterly EBIT margin while making solid progress to achieving sustainable improvement in EBIT margin performance by driving operational excellence.

  • Canada saw significant growth in new order intake in Q1 2011 from all sectors, particularly mining and heavy construction. This contributed to a higher backlog, compared to December 2010.

South America

  • First quarter revenues increased by 34% from Q1 2010, driven by continued strength in new equipment sales and growing product support revenues. In functional currency (USD), quarterly revenues were up 42% from Q1 2010. New equipment sales rose by 78% due to deliveries of large mining equipment and continued strong demand from the construction and power systems sectors in Chile and Argentina. Product support revenues also showed solid growth across all sectors and were up by 20% in functional currency.

  • SG&A costs as a percentage of revenue were slightly lower compared to Q1 2010; however, costs continue to be a key area of concern. The Company is focused on managing the cost pressures associated with higher business volumes, foreign exchange and employee recruitment and training.

  • EBIT of $39 million was 13% higher than in Q1 2010, up 19% in functional currency. EBIT margin was 8.3% compared to 9.9% in Q1 2010, primarily due to a significant shift in revenue mix to lower margin new equipment sales, which accounted for 49% of the total revenue compared to 39% in Q1 2010. EBIT margin improved from 7.9% in Q4 2010 and is expected to gradually return to normal levels in 2011.

  • Order intake remained strong in Q1 2011, driving higher backlog compared to the end of December 2010. Large investments in mining projects, infrastructure and energy point to a strong outlook for South American operations.

United Kingdom and Ireland (continuing operations)

  • Quarterly revenues were up 38% from Q1 2010. In functional currency (GBP), quarterly revenues increased by 41%, with a 72% increase in new equipment sales and a 25% increase in product support revenues. Higher revenues in the quarter were driven by continued strong demand from coal mining and plant hire, improved activity in the heavy construction and power systems sectors, and additional revenues from the Irish operations.

  • EBIT grew by 137% to $11 million and EBIT margin improved to 5.7% from 3.3% in Q1 2010 as a result of higher revenues and lower SG&A as a percentage of revenue. Higher profitability in the quarter was achieved while the revenue mix shifted to lower margin new equipment sales. New equipment contributed 59% of total revenue compared to 49% in Q1 2010. The Company expects to continue to make solid progress towards achieving a 7% to 8% EBIT margin in the UK and Ireland in the medium term.

  • Order intake was solid in the first quarter, supporting a positive outlook for the coal mining, quarrying, waste management and plant hire sectors. The impact of the Government proposed spending cuts on other sectors remains uncertain.

CORPORATE AND BUSINESS DEVELOPMENTS

Dividend
The Board of Directors raised the quarterly dividend to $0.13 per share from $0.12 per share, payable on June 10, 2011, to shareholders of record on May 27, 2011. The increase in dividend reflects the Company's confidence in the outlook and expectation for strong revenue and earnings growth. The Company remains committed to enhancing the dividend component of the total shareholder return going forward. This dividend will be considered an eligible dividend for Canadian income tax purposes.

SELECTED CONSOLIDATED FINANCIAL INFORMATION: Q1 2011
(from continuing operations unless otherwise stated, C$ millions, except per share amounts)

Three months ended Mar 31
Revenue20112010% change
New equipment548.8343.960
Used equipment51.662.6(18)
Equipment rental78.366.418
Product support592.5491.621
Other3.42.443
Total revenue1,274.6966.932
Gross profit397.3291.536
Gross profit margin(4)31.2%30.1%
SG&A(286.3)(239.2)(20)
SG&A as a percentage of revenue(22.5)%(24.7)%
Equity earnings (loss)0.8(0.1)
Other expenses(5.2)(8.0)35
EBIT(2)106.644.2141
EBIT margin(5)8.4%4.6%
Income from continuing operations71.526.5170
Loss from discontinued operations, net of tax-(1.8)
Net income71.524.7
Basic earnings (loss) per share (EPS)
from continuing operations0.420.16163
from discontinued operations-(0.01)
Total basic earnings per share0.420.15
EBITDA(2)147.586.471
Free Cash Flow*(2)(3)(156.4)101.9(253)
Mar 31, 11Dec 31, 10
Total assets*3,511.03,429.7
Total shareholders' equity*1,244.41,203.0
Net debt to total capital(6)*40.3%35.3%

* Free cash flow and assets from Hewden have been included in the figures for periods prior to the sale.

To download Finning's complete Q1 2011 results in PDF, please open the following link: http://media3.marketwire.com/docs/FinningQ111results.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 2011 RESULTS INVESTOR CALL

Management will hold an investor conference call on Thursday, May 12 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 12 until May 19. 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. Our results are now being prepared in accordance with International Financial Reporting Standards ("IFRS"). Our accounting policies have changed and the presentation, financial statement captions and terminology used in this news release and the accompanying unaudited financial statements differ from that used in all previously issued financial statements and quarterly and annual reports. The new policies have been consistently applied to all of the years presented in this news release and all prior period information has been restated or reclassified for comparative purposes unless otherwise noted. Further details on the conversion to IFRS are provided in Management's Discussion and Analysis section of this news release and in the notes to our unaudited consolidated financial statements as at and for the quarter ended March 31, 2011.

  2. 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 Measures" in the Company's management discussion and analysis that accompanies the first quarter consolidated financial statements.

  3. Free cash flow is defined as cash flow provided by (used in) operating activities less net capital expenditures.

  4. Gross profit margin is defined as gross profit as a percentage of total revenue.

  5. EBIT margin is defined as earnings before interest and income taxes as a percentage of total revenue.

  6. 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 we make is forward-looking when it uses what we know and expect 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; and expected target range of Debt Ratio; and the expected quantitative impact on the consolidated statement of financial position of the Company's transition to IFRS at January 1, 2010 and December 31, 2010. 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 our expectations at May 11, 2011. Except as may be required by Canadian securities laws, we do 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 our expectations expressed in or implied by such forward-looking statements and that our business outlook, objectives, plans, strategic priorities and other statements that are not historical facts may not be achieved. As a result, we 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 our 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, our products and services; our dependence on the continued market acceptance of Caterpillar's products and Caterpillar's timely supply of parts and equipment; our ability to continue to improve productivity and operational efficiencies while continuing to maintain customer service; our ability to manage cost pressures as growth in revenues occur; our ability to attract sufficient skilled labour resources to meet growing product support demand; the intensity of competitive activity; our ability to raise the capital we need to implement our business plan; regulatory initiatives or proceedings, litigation and changes in laws or regulations; stock market volatility; changes in political and economic environments for operations; new or amended IFRS or interpretations that become effective prior to the inclusion of the Company's financial statement of position in its first annual audited IFRS financial statements. 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 our 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 we believed were reasonable on the day we 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.

We caution readers that the risks described in the AIF are not the only ones that could impact us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our business, financial condition, or results of operations.

Except as otherwise indicated by us, 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. We therefore cannot describe the expected impact in a meaningful way or in the same way we present known risks affecting our business.

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