“Our business is underpinned by two fundamental goals: to provide unrivalled customer service and, in the context of prudent financial management, to generate superior returns for our shareholders.”

Douglas W. G. Whitehead
President and Chief Executive Officer

To our shareholders:

2005 proved another milestone year for Finning in terms of new equipment orders and revenue growth, while at the same time testing our ability to operate efficiently given such high customer demand and the challenges we had to overcome to meet that demand.

Overall, we met those challenges successfully, resulting in another very strong year - an achievement that directly reflects the efforts of Finning employees and their dedication and inventiveness in every aspect of our business. I am proud of our “can do” culture and ability to respond to challenging conditions and changing customer needs. This resolve to never become complacent is key to the success to which we are driven.

Tracking progress
Highlights of 2005 include an outstanding performance by our Canadian operations, followed closely by the very strong results from our South American group. Both regions generated returns on capital that exceeded our risk-adjusted target returns and set absolute profit records. Performance from our UK operations generated mixed results in 2005. Hewden continued its steady recovery, working diligently to build a customer-focused rental business, which will be supported by new information technology. This will enable first-class customer service as well as management access to timely information to increase our efficiency in directing a large-scale business in a very competitive marketplace.

In the UK Caterpillar dealership, 2005 was an improved year for our Power Systems and Construction Equipment divisions, which rebounded from 2004 with record deliveries of new machinery. Unfortunately, the Materials Handling (fork lift) business in the U.K. did not perform well, due to very competitive market conditions and internal systems challenges that resulted in reduced business volumes, higher costs and lower profitability.

To address this under-performance, we have revised our business plan, made senior management changes and are working with our key supplier. In addition, we are considering a new information technology system that will make our Materials Handling division more cost-efficient and improve customer service. Addressing the overall performance of our Materials Handling business in the U.K. is our primary objective for 2006.

Meeting demand
Strong demand for equipment and parts in our markets, as well as globally, not only increased our order book volume, it also led to tight supply. In response, while Caterpillar worked hard to ramp up production, each Finning operating unit exerted considerable effort and expense to meet customer needs.

We utilized rental fleets extensively to help customers avoid downtime. We sourced used equipment to satisfy short-term demand. We also stepped up Finning’s capabilities for remanufacturing in Canada and South America. Our OEM Remanufacturing facility in Edmonton is now complete and fully operational.

Our relationship with Caterpillar is stronger than ever. As our key business partner, and with Finning as the world’s largest Cat dealer, mutual support and cooperation remain vital. This proved clearly evident in our joint development of a new strategic plan for our UK Caterpillar dealership, which is discussed in further detail in the UK section of this report.

Equally important, the commitment of Finning employees to all customers in every sector ensures that outstanding service continues to be the hallmark of our corporate culture.

Driving opportunity
Finning continues to benefit from an unprecedented commodity up-cycle that shows no indication of slowing. As our customers in mining and oil and gas respond to rising global demand, we are winning a growing share of contracts for equipment, maintenance and support services. As these industries prosper, their success spreads to related businesses and drives construction in both the private and public sectors. As a result, our order book remains extremely strong at $968 million, up 16% over year-end 2004 levels, a clear signal that 2006 is shaping up to be a very good year.

For several years, we have experienced a surge in new equipment sales, considerably adding to the size of the Cat fleets in our markets. This translates into future opportunity: as warranties expire and equipment comes due for maintenance, we expect these fleets to drive a growing stream of higher margin parts and service revenue for Finning. This will ensure that Canada and South America will continue to contribute significantly to our corporate-wide growth as we go forward.

Fuelling growth
Canada is expected to once again report record results bolstered by high commodity prices, thriving resource and construction based businesses, and improved results from our newer ventures. Western Canadian economic forecasts remain robust, creating strong demand for new and used equipment, rentals, parts and customer support services. The oil sands sector in particular presents tremendous future opportunities for Finning.

In South America, record copper and gold prices continue to drive new mine openings and higher demand for new equipment. Tax and royalty revenues are bolstering local economies resulting in increased spending on infrastructure and private sector construction. Finning operations will continue to capitalize on this growth, together with increasing profitability in parts and service.

While economic activity in the U.K. is expected to remain at reasonable levels in 2006, competition will continue to be challenging in all our lines of business.

Hewden will continue to advance its key projects, including the installation of a new management information system and the implementation of a lower capital-cost, customer-facing structure.

In the UK Caterpillar dealership, the Construction Equipment division will benefit from growing demand from new coal mines in Scotland and Wales, however general and infrastructure construction will remain the primary markets.

Overall, revenue growth in Finning (UK) and Hewden is expected to be modest in 2006, yet focus on expense control should see profitability improve in each operation. To support the main elements of our UK business in the future, we are now implementing a joint strategic plan with Caterpillar designed to enable the dealership to double market share in key product lines and reach median levels of profitability for Cat dealers.

Finning’s global Power Systems revenues continue to grow with significant market gains in marine and electric power generation applications, as well as unprecedented demand from the gas compression industry in Canada. “Green energy” initiatives globally are also expected to fuel Power Systems opportunities in the future.

Worldwide, despite challenging supply conditions, our market share in mining, general construction and power systems has grown considerably, with record machine deliveries in all geographic regions.

Our keen focus on employee safety remains a key element of Finning culture, and in 2005 we set another safety record and continued as a recognized leader in workplace safety performance. Sadly, despite our high standards and emphasis on safety, a tragedy occured on July 9, 2005 at one of our Hewden branches in the U.K. Daniel Littler lost his life on July12, 2005 from the injuries he suffered at work. Daniel will be sadly missed by all his family, friends and colleagues. His death serves as a reminder to each of us that workplace safety must be the first and foremost consideration everyday. We must continually exercise caution.

Looking ahead, we have laid the groundwork to accrue larger future gains as our many initiatives mature. We have the people and financial resources to seize the numerous opportunities in all our markets. Caterpillar is committed to expediting supply. And we remain focused on providing unparalleled customer service, generating operational efficiencies and containing costs.

In summary, our business is about people and service excellence. Without the hard work and dedication of thousands of Finning employees, our company would not have grown to become the successful organization it is. I thank all of our personnel for their commitment to both Finning and our customers. I also thank our Board of Directors and Caterpillar for their ongoing support.

Early in 2005, John Cleghorn decided not to stand for re-election to the Board due to heavy demands on his time from other commitments. I’d like to take this opportunity to thank John for his service to Finning’s shareholders and to wish him well in his future endeavors.

Though 2005 was challenging, it was unquestionably rewarding. As we go forward, we remain passionate about improving results year-over-year, achieving our financial and operating targets, and delivering stronger returns to our shareholders.

This is the goal to which we are dedicated and driven.

Sincerely,

Douglas W. G. Whitehead
President and Chief Executive Officer