“In 2006, Finning began to show its true earning power as the growing population of Caterpillar equipment in our service areas generated increasing amounts of parts and service business. Revenue from this important and profitable customer support category was up over 17% compared to 2005. We expect this growth to continue into the future.”

Doug Whitehead
President and Chief Executive Officer

To our shareholders:

2006 was a superb year for Finning, for our employees and our shareholders. I am very proud of how our employees consistently rise to the challenges in this period of extraordinary growth. And the growth is set to continue, as our new equipment order book exceeds $1.5 billion, a record level.

With a bright outlook for the future, strong operating and financial performance and an increased dividend, we provided our shareholders with a total return of 30% in 2006.

Record Results
In 2006, Finning’s revenues crossed the $5 billion mark as our business continued to prosper, driven by strong market conditions in all our territories. Our basic earnings per share from both continuing and discontinued operations increased 23% over the prior year. If we look at just continuing operations, earnings per share, after adjusting for non-operating items increased 36% over 2005 levels ($2.59 vs. $1.91) and delivered a 15.3% return on shareholders’ equity. In 2006 we also increased our quarterly dividend by 23% to $0.16 per share.

What made 2006 especially gratifying is the improved level of profitability achieved by most of our operations. EBIT margins increased at all operations but Hewden, where the margin held steady. We are particularly proud of this improvement in profitability given the expense headwinds that we faced over the past two to three years.

Record business growth continued on all fronts in western Canada and South America. Commodity prices remained strong throughout 2006 and underpinned very good demand for heavy equipment in these regions. Overall economic expansion supported construction spending, which also continued to grow at attractive rates. Operations in Canada and South America delivered excellent operating results. Our UK operations also made solid progress in improving financial performance. Profitability at our UK dealership increased considerably as cost savings were implemented and strategic initiatives began to pay off.

In 2006, Finning began to show its true earning power as the growing population of Caterpillar equipment in our service areas generated increasing amounts of parts and service business. Revenue from this important and profitable customer support category was up over 17% compared to 2005. We expect this growth to continue into the future.

Progress in the U.K.
A key focus for Finning in 2006 was to improve the performance of our UK operations. I am pleased to report that we have made significant progress in repositioning this business to earn better returns, provide better service to our customers and meet Caterpillar’s goal of higher market share going forward.

In September, we announced the divestiture of our UK Materials Handling business. In November, we announced the restructuring of the remaining operations into four lines of business and appointed a new leadership team. The new structure, which is described in greater detail on page 25 of this report, will allow our UK businesses to focus more closely on their Caterpillar related strengths. Financial results of our UK operations showed improvement in the second half of 2006, and we believe we are on track to making meaningful and sustainable headway in this territory.

Customer Solutions - the Heart of our New Strategic Plan
During 2006, our senior executive team met bi-monthly to review our strategic direction and develop a new 5-year plan to position Finning for growth. The updated strategic plan focuses on delivering customer solutions, developing our people and leveraging information technology to support our growing business.

Our primary business is providing customer solutions that maximize equipment uptime while minimizing costs. Finning excels at delivering complete solutions that include supplying the appropriate equipment, adding a comprehensive servicing plan, arranging financing, and in some cases, purchasing the equipment at the end of the job. Finning adds customer value at each step.

Our goal is to increase our share of the servicing business in all our markets. We have been very successful at linking an on-going parts and service revenue stream with our equipment sales to the mining business. We have an excellent opportunity to lever our customer service expertise into other industries, and provide complete solutions to general construction and smaller equipment customers. Our updated strategy calls for doubling customer support services revenue by 2010 to $2.7 billion from 2005 levels, and achieving a 15% compound annual growth rate in revenue from this line of business.

Winning a larger share of the customer support market will involve developing an even greater service mentality and becoming a service company that sells equipment. “We service what we sell” was Earl B. Finning’s early philosophy when he founded the Company, and we will foster this approach even further by focusing on “total customer solutions” that will earn customer loyalty to Finning and our service offering.

The key to building a service-focused organization is highly engaged employees who are committed to customer service excellence – a tough challenge in today’s supply-constrained labour market. A focused investment in information technology will support this evolution in our service culture and help us deliver solutions to satisfy increasingly sophisticated customer needs.

Further Growth
Over the years, we have built one of the largest and most comprehensive customer support capabilities in the heavy equipment business. In addition to our extensive branch network throughout western Canada, the southern cone of South America and the United Kingdom, we have invested substantially in component remanufacturing as well as improved parts warehousing and distribution systems. Our OEM remanufacturing facility in Edmonton and component and truck rebuilding centres in Antofagasta, Chile play key roles in servicing our large equipment customers and have the capacity to support the growing demand for component remanufacturing and entire truck rebuilds. To fulfill increased demand for customer service, we hired over 1,800 new employees company-wide in 2006. Finning has also developed comprehensive training programs for new mechanics to ensure we give our people the right knowledge and tools to provide superior service and complete solutions to our customers. Engaged employees are the foundation for delivering on our strategic goals as outlined in our new mission statement: Great People, Great Solutions, Great Results.

Looking Ahead
Our large current order backlog, up 60% from December 2005, reflects growing demand for new equipment and provides good visibility for revenue levels in 2007 and early 2008. We have also announced significant orders for new fleets of large mining trucks for delivery in 2009 and 2010, which gives us further confidence in the outlook for the next several years.

Commodity prices, while down from peak levels, remain strong. The outlook for those industries with exposure to commodities in our service territories continues to be attractive. The mining operations in our western Canadian and South American territories will continue to earn very good returns given current commodity prices. The level of capital investment in new mining projects and expansion of existing mines remains high sustaining demand for new and replacement equipment. Finning mining customers operate one of the largest populations of Caterpillar equipment in the world. These sizable fleets generate considerable on-going opportunities for parts, services, maintenance and rebuilds.

In addition, robust economic growth in western Canada and South America continues to drive infrastructure and general construction spending. Finally, the construction market in the U.K. is expected to grow at a reasonable rate supporting modest growth in our operations in this region.

An Outstanding Team
Finning owes its success to over 12,800 employees. Our strong results are a testament to their hard work and ability to meet the needs of our customers. Despite so many new employees joining Finning, we are pleased to report that we were able to maintain our overall safety performance. Safety is a key element of our service culture, and we work hard to provide the safest possible workplace for everyone at Finning.

I’d also like to acknowledge the strong relationship and support from Caterpillar, our key strategic partner. The combination of Caterpillar equipment and Finning service is a partnership for success that we continue to build upon.

In addition, I’d like to welcome three new individuals to the Finning Board of Directors: John Reid, Bruce Turner and Kathleen O’Neill. I also thank Mike Waites for his service on the Board, and at the same time, formally welcome him as Executive Vice President and Chief Financial Officer of Finning. Mike resigned from the Board in early 2006 when he accepted the role of CFO.

To summarize, 2006 was an extremely rewarding year. We are optimistic looking forward to 2007 as we continue to build upon our past achievements and capitalize on opportunities that will drive our results in the only direction that counts: UP.

Sincerely,

Douglas W. G. Whitehead
President and Chief Executive Officer