TO OUR SHAREHOLDERS

Doug Whitehead,
President and C.E.O.

Finning International achieved record net income in 2002. This excellent performance was accomplished by employees throughout the Company successfully implementing our strategic plan. The Company's revenues of $3.21 billion in 2002 compare with $3.25 billion in 2001. Revenues were essentially flat as commodity prices and general economic activity were fair to poor in our markets — Western Canada, the United Kingdom and Chile.However, our net earnings were $132.3 million ($1.72 per share), compared with 2001 net earnings of $103.9 million ($1.37 per share). This dramatic increase reflects the success of a number of initiatives undertaken before and during 2002.

Geographic Diversification

The 2002 achievement likely to have the biggest impact on the Company going forward is our agreement to acquire Caterpillar dealerships in Argentina, Uruguay and Bolivia.These acquisitions add to our geographic diversification, which reduces our exposure to economic cycles that inevitably occur in specific countries and industries. The significance of the South America acquisitions becomes obvious with one glance at the map. After successfully increasing revenue and earnings performance in Chile since Finning acquired the CAT dealership there a decade ago, we can now apply the same strategies to almost the entire Southern Cone of the continent.

Revenue Stream Diversification

In 2002, we continued our strategy of reducing our revenue dependence on sales of new and used equipment and increasing the proportion of revenue from rental, parts and service. The result was a gross margin on revenues of 29.9% compared with 27.9% earned in 2001. Our transition toward a customer service culture throughout the entire Company is continuing, and we believe the major share of the financial gains from this strategy is still to be realized.

The increase in rental revenue has come primarily from our growing Hewden Stuart subsidiary in the U.K., acquired in 2001, and from the successful expansion of our CAT rental stores in Western Canada and Chile. Economic conditions have also prompted some customers to rent heavy equipment until their business improves enough to make purchase viable.

Improved Return on Assets

We undertook several initiatives in 2002 to continue to improve the returns we generate with our assets. In January, the Company concluded a $79 million sale and leaseback transaction in which we sold a number of our Canadian properties and entered into long-term leases with the purchaser. In October, our Hewden Stuart subsidiary sold its Tower Cranes business because it did not fit the strategic growth plan. In addition, in December we sold substantially all our Canadian conditional sales contract portfolio to Caterpillar Financial Services Limited and securitized a portion of our trade receivables for combined proceeds of $120 million. These and other initiatives taken during the year improve our return on existing assets and strengthen our balance sheet to enable us to pursue new acquisitions and seize other growth opportunities in core businesses. We welcome our new colleagues in Argentina, Uruguay and Bolivia. After some tough economic times, we believe these countries are now poised for years of growth and prosperity. Finning appreciates having the opportunity to contribute to this exciting future. The year's excellent performance could not have been attained without the hard work and talent of our employees throughout the Company. I also want to add my personal thanks and gratitude to our Board of Directors.

Everything we do, of course, is based on our relationship with Caterpillar Inc. Caterpillar is the worldwide leader in designing and manufacturing high quality, dependable heavy-duty equipment. We are today the world's largest Caterpillar equipment dealer. Our corporate vision is to be Caterpillar's best global business partner, providing unrivalled services that earn customer loyalty.

Tomorrow

We expect to deliver another strong bottom-line performance in 2003, despite anticipating another year of challenging economic conditions. Over the longer term, additional strategic initiatives combined with economic growth and stable commodity prices will position the Company to benefit accordingly. We have set a number of challenging objectives for 2003 and the years that follow, including:

• A long-term revenue growth rate of 15% a year. We did not meet this goal in 2002 and we will be hard-pressed to meet it in 2003. However, we did perform at this level throughout the 1990s, and we are confident we will return to this growth rate when business cycles improve over the medium term.
• A long-term return on equity rate of 20% a year. In 2002, our return on equity was 15.7%, compared with 14.1% in 2001. We anticipate increasing ROE 1% each year through 2006.
• A market share of 30% in all our markets. We exceed this objective now in most markets, but we intend to reach this target in all our sectors.

We are determined to continue to build value for our shareholders by enhancing our reputation as a Company that sets goals and achieves them.