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Paul Gagné - Chairman

Mark Thompson - Relationship Manager, Computershare

Adrian Trotman - SVP, Industrial Components

Mark Foote - President & CEO


Wajax Corporation (OTC:WJXFF) Annual General Meeting Conference Call May 10, 2013 11:00 AM ET

Paul Gagné

So, first of all good morning ladies and gentlemen and I would like to call the meeting to order. I want to first of all welcome you to the Annual Meeting of Shareholders of Wajax Corporation. My name is Paul Gagne; I am Chairman of the Board and will act as Chairman of today’s meeting.

Seated at the head table is first, Mark Foote; Mark is our President and Chief Executive Officer. He is also one of the nominees for election as a director today. Next is, John Hamilton, Senior Vice President and Chief Financial Officer and beside John is Andrew Tam and Andrew is General Counsel and Secretary. Andrew will like to as Secretary of today’s meeting.

I will begin the proceeding by appointing Mark Thompson and Daniela Munoz from Computershare our trust company to act as scrutineers. I would ask Mark and Daniela to please raise their hand to identify themselves. Thanks.

Notice of this meeting was mailed on April 4, 2013, to all shareholders of record on March 18, 2013. Now I have been advised by the scrutineers that a quorum is present and I therefore declare the meeting properly constituted for the transaction of business.

In order to make the best use of our time today, certain shareholders or proxy holders have been asked to move or second the matters identified in the notice of meeting. I will call on these individuals at the appropriate time. If shareholders have comments relating to any motion, they may raise them at the time the motion has been considered. Otherwise, I would request that comments be held until the question period following the meeting.

There is a one item of business on which a ballot vote will be conducted today and this is the election of directors and to allow time for the distribution and collection of ballots and the preparation of the report of voting results, I would will propose to deal with the election of directors at the outset and then return to it once the scrutineers report is available.

Voting on all the business will be conducted by show of hands unless a poll is demanded. At the end of the meeting, I will call upon Mark to review the corporation’s performance in 2012 and management initiatives and growth opportunities for our business unit, and Mark will also comment on the corporation’s 2013 first quarter results and finally there will be time for questions following Mark’s presentation.

We will now proceed with the election of directors. As described in the management proxy circular, nine people are proposed for the election as director’s for the ensuring year. Biographies of the nominees are included in the proxy circular that’s been sent to shareholders. In addition to Mark and I, the other director nominees are here present today and I would like to introduce the nominees and ask each of them to stand as I call their name.

First, Ed Barrett from Woodstcok New Brunswick; Ed is the Chairman and Co-Chief Executive Officer of Barrett Corporation, a private holding and management company. Ian Bourne from Calgary Alberta; Ian is a Corporate Director and the Chairman of (inaudible) and he chairs the Corporation’s Audit Committee. Doug Carty from Glen Helen Illinois; Doug is a Corporate Director and has Extensive Operational and Finance experienced in the transportation industry. Rob Dexter from Halifax Nova Scotia; Rob is the chairman of Empire Company Limited and the Chair of our Human Resources and Compensation Committee.

John Eby from Toronto, Ontario; John is a Corporate Director and the Chair of our Governance Committee. J.D. Hole from Edmonton, Alberta; J.D. is a Corporate Director and past Chairman of Lockerbie & Hole a construction contracting firm; and Sandy Taylor from Montreal, Quebec. Sandy is Senior Group Vice President of the oil, gas and petrochemical business of ABB, Inc. ABB is a leading company in power and automation technologies for the industrial and utilities sector.

I will now ask Mr. Trotman to nominate the director. Mr. Trotman?

Adrian Trotman

Mr. Chairman, I nominate the following individuals for election as directors; Edward Barrett, Ian Bourne, Douglas Carty, Robert Dexter, John Eby, Mark Foote, Paul Gagné, J.D. Hole and Alexander Taylor.

Paul Gagné

Thank you, Adrian. Could I ask [Mr. Blair] to second the nomination?

Unidentified Company Representative

I second the nominations.

Paul Gagné

Thank you Mr. Blair. Are there any further nominations? So I declare the nominations closed.

Before we proceed with the vote, I wish to remind you that the Board of Directors has adopted a majority voting policy whereby any director nominee who receives a greater number of votes withheld than votes for his election will be expected to tender his resignation to the Chair and I now direct that a vote by ballot be taken on the election of directors.

Many shareholders present have already have already returned their proxies and if you have already sent in your proxy you should not request ballots since your shares will be voted in accordance with the instructions provided to your proxy holder. Registered shareholders who have not sent in their proxies and proxy holders who are present will have already been provided with ballots at the registration desk. However if you have not voted by proxy and have not received the ballot for the election of directors I would ask that you raise your hands so that the scrutineers may provide you with a form, so any request for a ballot? Seeing none, I declare the polls closed and I would ask the scrutineers to count the vote and report back to me in due course during the meeting.

The next item of business is to receive the financial statements for the year ended December 31, 2012 together with the auditor’s report thereon. The statement and the auditor’s report were in the annual report which was mailed to shareholders who requested a copy. They have also been filed on SEDAR and I have directed the Secretary to keep a copy of the financial statement and auditor’s report with the records of the meeting.

Our next agenda item is the appointment of KPMG as auditors of the corporation for the ensuing year and may I have a motion for this appointment.

Unidentified Company Representative

Mr. Chairman I move that KPMG LLP be appointed as auditors of the corporation to hold office for the ensuing year and that the directors of the corporation be authorized to fix their remuneration.

Paul Gagné

Thank you Linda, Mr. Blair?

Unidentified Company Representative

I second the motion.

Paul Gagné

Thank you. You have heard the motion which has been duly made and seconded. Well, those in favor please indicate their approval by raising your hand? And against? I declare the motion carried.

The next item of business is ratification of the advance notice bylaws opted by the Board of Directors of the corporation; description of the bylaw as well as the full text of the bylaws are set out in the management proxy circular. The text of the proposed resolution is set out as Schedule A of the circular and I would ask that may I please have a motion on this matter. [Mr. Dick]?

Unidentified Company Representative

I move that the resolution set out as Schedule A for the management of proxy circular ratifying the advanced notice bylaw be adapted.

Paul Gagné

Mr. Blair.

Unidentified Company Representative

I second the motion.

Paul Gagné

Thank you. You have heard the motion which has been duly made and seconded. Well, those in favor please indicate their approval by raising your hand. Against? I declare the motion carried.

The next item of business is an advisory vote to accept the corporation’s approach to executive compensation. Corporation’s approach to executive compensation is described in the statement of executive compensation section of the management proxy circular. The text of the proposed resolution is set out as Schedule B to the circular.

As the voted advisory on the results will be non-binding on the board, however, the outcome of the vote will be considered by board and the human resources and compensation committee when reviewing compensation policies and decisions. May I have a please a resolution on this matter Mr. Trotman?

Adrian Trotman

Mr. Chairman, I move that the resolution set out as Schedule B to the management proxy circular, accepting the corporate’s approach to executive compensation be adopted.

Paul Gagné

Thank you, Adriane. Linda?

Unidentified Company Representative

I second the motion.

Paul Gagné

Thank you, Linda. You have heard the motion which has been duly made and seconded. Well those in favor, please indicate their approval by raising your hand. Against? I declare the motion carried. I believe, yes, Mr. Thompson is now ready to provide their report on ballots for the election of Directors. Mr. Thompson?

Mark Thompson

Mr. Chairman, the (inaudible) directors offers nominated for election the directors, CEOs, (inaudible) minimum percentage of vote for was 96.8%.

Paul Gagné

Thank you, Mr. Thompson. I declare the individuals nominated for election as directors in the management proxy circular have been elected as directors for the coming year and full details of the voting will be posted on following the meeting.

That concludes the formal business of the meeting and I would entertain a motion to terminate following which we will move on to the CEO presentation and questions.

Unidentified Company Representative

Mr. Chairman I moved that the formal meeting be concluded.

Paul Gagné


Adrian Trotman

I second the motion.

Paul Gagné

Thank you, all those in favor please indicate by raising your hand. Against? Now I am going to call upon Mark, who will review the corporation’s performance in 2012, the initiatives adopted by management to drive performance in 2013 and as indicated previously Mark will also discuss results for the first quarter. Mark?

Mark Foote

Well, thanks for tuning this morning. And thank you to the shareholders that are listening to our webcast. Some of these charts lend themselves a little bit more to printing and receiving on a computer so apologize for that in advance, but regardless of the nature of the chart, we’ll make sure that you’ll see the key points that we’re or hear the key points we are trying to make from the material as we go. Okay. I will give you a chance to look at the forward-looking statements.

And we will go through these topics with you this morning, we will provide a bit of an overview of our business, if you unfamiliar with it, talk about our 2012 results. We have chosen to bring our 2013 Q1 results essentially inline right after 2012 results, because some of the issues effecting the back half of 2012 are important context for how 2013 is starting. And we will spend most of our time on growth priorities, which is something that we were very excited about and wanted to spend some time making sure you understood what those initiatives are.

As far as an overview of our business is concerned if you are unfamiliar with it, we have three operating divisions, equipment power systems and industrial components and you can see the proportions of revenue and even decide each of those divisions with equipment representing roughly speaking half of our revenue and profit; power systems 23% and 25% respectively and industrial components at 24% and 21% we will talk of both the nature of these businesses and their strategies as we move along.

Revenue distribution you can see on the chart for 2012, very strong concentration of business in Western Canada; our second largest region in Quebec and the lot of room for growth in the Ontario market. We service our 40,000 customers from the 129 branches across the country and you can see the relative number of branches by division in the bottom left side of the page.

Our revenue distribution is balanced across the goods producing sector of the Canadian economy and important for us in particular as it relates to our first quarter results is the amount of business we do with resource markets in Canada. Over 43% of our revenue comes from the resource markets of mining, oil sands, oil and gas and forestry which to some extent under-states the sensitivity we have to those markets because indirectly we will service those customers through some of the other businesses particularly industrial or transportation.

As far as the 2012 results are concerned, we are very proud to report that we had a record year in 2012; our revenue grew just over 6% to $1.47 billion and pretax earnings grew $89.7 million, or growth of 2.5%. The story for us in 2012 we would like to break that down for you though by business segment and show you the difference in the first and second halves of the year.

First of all, by segment, very proud to congratulate Brian and his team for a record year in equipment with $56.1 million in segment earnings; our equipment team achieved their market share results for construction materials handling. Did a great job expanding their market presence and Eastern Canada had a wonderful year from an aftermarket service perspective driving the aftermarket business 8% excluding the affect of LeTourneau.

We had less successful years in power systems and industrial components. In fact we put five years of history up on the page, the reason for that is because when you look at the performance of the power systems and IC in the context of five years its actually fairly reasonable performance when you look at it from a historical basis, but its admittedly down from the performance of 2011. The primary reason for that was weakening market conditions as the year progressed which had a particular effect on power systems and began to effect industrial components as the year drew to a close.

When you look at the first versus second half of the year, the left hand side of the page shows the earnings per share and the first half versus the second half and then full year so you can see a very healthy first half of the year that was driven by a 34% growth in EPS in Q1 of 2012 and how the year progressed as we went through in some of those market conditions weakened.

On the right side of the page is the segment earnings by division and we put this up to demonstrate how radically different the year was depending on the effect of those market conditions, you can see that equipment was up 25% and segment earnings in the first half of the year and end of the year of ’12 power systems was flat in the first half of the year. It took a fairly significant hit in the second half and ended up down 21% and industrial components started the year quite strong and then felt the effect of the oil and gas business in particular and to some extent mining as the year progressed and ended up the year to only 4%.

So we are very proud of the 2012 from a record year standpoint, but we recognize how the year is progressing as we went along and how that's affected our 2013 first quarter results which are roughly a 6% reduction in revenue and almost a 40% reduction in earnings to a $0.62 a share. The effect here is easiest to explain by simply saying that we took a revenue hit of roughly about $20 million year-over-year and a slight margin compression against essentially the fixed cost base, so greater than 80% of the decline in earnings is related to the effect of those sales and the margin compression that we felt. These results were only moderately less than what we were expecting, they are admittedly lower than the prior year, but only moderately less than we were expecting and when we say that margin came in roughly where we had expected, our SG&A was a bit better than we had expected but our revenue came in roughly about 3% worse than we had originally been budgeting.

We did want to make sure that people understood how to break, how to relate the earnings reduction to the markets that we've been pointing to as major drivers in the performance of our business and so we build this chart that if you start from the left and work your way to the right, the left is first quarter earnings from 2012 and we will ask you to recall that that's about 34% improvement over the prior year. You can see the mining effect took about $2.9 million in EBIT off of the first quarter last year and the box that points to mining shows the relative contribution of what was driving that particular number.

The loss of LeTourneau distribution rates was a fairly big factor for us in Q1 with a $4 million EBIT hit. Brian and his team were actually successful in mitigating some of that through growth in other aspects of our mining business in the first quarter. And power systems and industrial components took hits themselves with respect to that but less significant than we experienced in the equipment. Oil and gas continues to be a fairly significant effect on our business with a $6 million hit to the earnings in the first quarter, the lion share of that being from our power systems business while production in Western Canada from oil standpoint remains reasonably strong. It's important to recognize that when it comes to our business and the provisioning of equipment in aftermarket services, things like frac drillers, drill rigs etcetera, those are businesses that are fairly tough markets for us right now and that’s certainly had an effect on our equipment sales and to some extent on our aftermarket services.

Outside of those two markets, we actually had positive effect in a couple of other areas be it other revenue programs or SG&A related but essentially that gives you a bridge between 2012 first quarter and 2013. At an individual segment level, you can see the effect of it. It is essentially explained by the prior chart, but the significance here is the effect of LeTourneau on equipment and the significant effect of oil and gas on our other two businesses.

That’s brought us to our outlook for 2013, where our current outlook is based on an expectation that our earnings for 2013 will be less than they were in 2012 and that really specifically with continued challenges in oil and gas, mining and the effect of the loss of LeTourneau distribution rates. We've adjusted our dividend down $0.07 to $0.20 per share per month and based on our current outlook, that adjusted dividend for the year is consistent with our objective of paying a minimum 75% of our expected net earnings to our shareholders and dividends and also important part about this chart I think is to say that we're very, very confident about our growth initiatives; we see the things affecting our performance right now is temporary. We do expect our results to improve as the year progress and as market conditions improve.

Let me turn to what we are very excited about and that’s our growth priorities and I am going to go through each business and talk about couple of different kinds of growth initiatives and we are going to start with our equipment business. Each of our business as you will see a very similar chart here, it shows the distribution of revenue by product type on the left hand side of the page and then it talks about growth priorities for each business down the rate. I won’t spend, I won’t read the numbers out here in the distribution but what you can see from the pie chart are the relative portion by product type but also the primary vendors that we represent. The growth priorities are broken into two basic categories, we call base business initiatives, and base business initiatives can be more seasonally considered organic growth opportunities within each business that are part of the kind of basic operation of those businesses on a day-today basis.

What we have also listed for each business, new opportunity and that is the business those are opportunities that we require a bit more planning and bit more resource, and bit more investment, but they also represents some fairly significant opportunities for us and I am going to unpack each of these points on the right quickly as we move through here. When it comes to market share and after market we want to actually talk about those two things together, the largest driver of EBIT in our growth, and EBIT in our equipment business is the continued positive movements with respect to market share in the various segments that we sell into. And that in the relationship between being able to do that and continuing to drive our earnings out of the aftermarket side of our business, which is what really our market share growth opportunities our Board is driving revenue but more importantly longer term annuities that come from the aftermarket side of those businesses as shares improve. This chart shows you a five year history of the total growth in the equipment business the top line is the total sales and you can see the proportion of the equipment that’s in there with a 5 year CAGR and equipment sales of roughly 2.7% in dollars but very importantly you can see the growth and the after market with a five year CAGR of 8.4%.

There’s really a couple of points from this chart, one is market share drives after market and after markets where we make our money, and the second thing is after market is we are not entirely can our cyclical is a lot less sensitive to cycle changes then the equipment sales business is. Two really good examples would be 2009, you can see growth in the after market business in 2009 despite the reduction and equipment sales and very importantly if you think about the first quarter of 2013, well we had a relatively week revenue performance from equipment sales standpoint our after market performance excluding the (inaudible) was up 23%, so very, very important part of our business.

Growth and mining also very important part of our business. We like mining for lots of reasons but not the least of which is it’s very significant after market potential and mining for us really boils down to using the credibility base we have got with hydraulic shovels in the mining business that we market with Hitachi and using though the strength we’ve gotten. That shovel business really do two things, one is expand the infrastructure we have on Ontario and Eastern Canada. Our mining business and equipment is 80% in western Canada so bringing a lot of that market strength to the markets in eastern Canada which virtually the same size as they are in the west, and secondly looking at new products and services in mining that allows to expand beyond our significant position we have in our shovel business, and the most important aspect of our growth and mining is our entry into the rigid frame truck market and that is with the Hitachi rigid frame trucks. We estimate the market for trucks that are greater than 190 tons up to 320 tons at $600 million a year. We are very proud of the product that we are representing; it’s an AC drive truck design to improve reliability and very exciting for us is that it replaces itself a couple of times in its lifetime and after market parts and services opportunities. So very successful shovels, planning to move that success to the truck market and cautiously optimistic we will see some trucks in operation in 2013.

An example of our product line extensions was another piece of our equipment growth strategy and the best example certainly of recent times is the 2012 award at the Bell Truck Business to Wajax nationally. It’s an articulated dump truck, a much smaller piece of equipment designed more around light duty resource work, construction and quarries. We were appointed the national distributor of this product in November 2012. We estimate the market for trucks in the wheel house of the sizes that we are going to participate in at roughly about 500 units a year and exciting for us in this particular business is that the truck that we have been awarded the distribution rights has an estimated install base of over 300 units which gives us an immediate parts and service opportunity. Moving on to the new opportunity in the equipment business we wanted to talk briefly about the development of rotating products division within equipment. And rotating products you can see the way in which we thought about the market for this business shown on the pie chart. The oil sands market for rotating products is about $1.8 billion and you can see the breakdown at both 71% of it is plant and field services and about 29% is products parts and related service. So it’s a very large and geographically contained market which our infrastructure in Northern Alberta allows us to participate in.

Our strategy is quite simple, is to grow our revenue in an expanding oil sands products and services, our primary focus is on parts and products and services related to slurry systems. Like the other businesses that we are in we like this particular type of pump because it brings with it a fairly significant after market parts and service opportunity and our secondary focus in this business is selective provisioning of field and plant maintenance services. While we are starting our focus in this business in the oil sands because of the size of the market that's there and because of the infrastructure we have in the oil sands, we acknowledge and are excited by the size of the market as its elsewhere in Canada but we are going to focus here first to make sure that we've got our products and services lined up and we are serving our customers properly before we move too far beyond that market.

These are some examples of what we mean by rotating products. You can see a slurry pump after the side there. That's a pump that we market from a company called [Talni] Engineering. That pump is more energy efficient, it has technological advantages with respect to how long it will go before it requires rebuilds and we think represents a pretty positive move forward with respect to changing some of the install base over from our competitors to the pump that we are marketing out at rotating. Secondly we provide engineering support that's a jig that was made specifically around the slurry pump in the oil sands that allows it to be removed, repaired and replaced in less time that it would have taken previously. And as I said earlier almost three quarters of the rotating products market in the oil sands is field services, turn around shut down services, etcetera. And while we do not plan to provide the broadest array of labor services in the oil sands there are specific jobs around ore towers, gear box repair and a number of other things where we think we represent an advantage to our customers and it's a very fast growing piece of our rotating products revenue.

On power system which is the second division. We will speak about this morning, similar to equipment, we’ve got a chart that shows you the relative mix of revenue. Like equipment, where we have exclusive distributors of premium brand such as Hitachi, Dell, JCB etcetera. We have exclusive distribution rights in our power system business with premium brands such as MTU, Detroit, Detroit Diesel-Allison. [NCR] distribution revenue between off-highway, on-highway, and electronic power generation. Those priorities and power system are pretty straight forward. First is to expand on our success in the off-highway business. While it's not a particularly good business today because of the effect of oil and gas. It's a business that we believe in long-term, and we think we can grow quite nicely. It's to maintain our position in the on-highway business. We're not going to talk too much about the on-highway business this morning but that’s our service and repair of highway vehicles using Detroit Diesel-Allison etcetera power system. We see that as an excellent business for us to be in but not a business strategic that kind of grow significantly within the company’s revenue base and the new opportunity we're going to speak on briefly in power system is our intention to become one of Canada’s leaders in commercial power generation and we will explain why that’s positive for us.

Off-highway system. As I said earlier, a very big piece of our revenue mix. Almost half of our revenue in Power Systems comes from our fiber mechanical dry system. You see three examples on the chart. Oil and gas, that’s frac trailer equipped with MTU power where we will supply component parts to the trailer manufacturer or a rig manufacturer and after market services associated with that. In Marine, we do a number of different pieces of work in marine that’s one of our better recent examples with respect to the repower program for the coast guard mid-shore petrol vessels, and land based military work and that’s Leopard 2 tank and the power pack maintenance we have with the MTU power systems that are sitting aide of that vehicle.

In growth strategy, the oil and gas and again despite current challenges we are big believers in the continued ability of Wajax to expand it's presence in the oil and gas business. We’ve got a couple of very exciting product enhancements coming from both MTU and Allison with MTU tier 4 final frac engines which are now in inventory for us and waiting and Allison 2500 Horse-power transmissions which are unique to the Canadian frac market and importantly for us is the expansion of our aftermarket capabilities. We have been very successful in component parts provisioning to integrators in the oil and gas business and we have got a lot of growth opportunities with respect to expanding our aftermarket and refurbishment businesses in oil and gas. In marine and military we continue to focus on a very successful relationship we have with Canadian Coast guard and the Canadian Navy be it for repower programs, on vessel power generation propulsion systems etcetera and feel that over the long term that’s going to be a very good business for us as some of the Canadian Navy programs get built.

The new opportunity inside our power systems is electronic power generation and we’ll spend a few charts talking about this because it's quite a solid market potential for Wajax to growing in. You can see that we have estimated Canadian market size at roughly $880 million and you can see the distribution of types of power generation based on fuel across their and based on application. So diesel standby and prime still represents the largest portion of this business and gas continuous and being 7% but we recognize that natural gas based electronic partner is the very important to market need that’s growing very quickly. Our strategy we are currently number three in the market and we intend to be much higher than that as we go forward, we have got the number of advantages that we feel like deliver different from many of our competitors we have a national footprint that we can take advantage of here, so when we have customers that have operational and move across the country, we are very good service provider for them with respect to the fact we are represented essentially from coast to coast.

We get a diverse product portfolio which we will speak about in just a moment and we are building a very affective team of both with our internal resources and the folks that are choosing to joint us to help this business from some of our competitors. Our focus is quite simple is continued success and our standby prime diesel rental and gas businesses, we have got a couple of focus areas obviously there, it will be commercial healthcare data centers etcetera and also important for us is something we haven't been as aggressive as before what we intend to in the future is that our large projects capability that will focused on businesses such as mine and water treatment and we define large projects to sustained that are greater than 7 megawatts of projects that are greater than $5 million.

We are building an infrastructure and power generation that we are very pleased with. You see a picture on the left hand side which is our [Genera 3] (inaudible) facility just outside the Drummondville, Quebec facility opened last years 68,000 square feet. It’s used for two reason that supports a very strong business we have in a standby power market in eastern Canada and it can act as national integration center to help us with our power gen applications and projects elsewhere in the country. On the right you can see the range of power that our product line allows us to spend now. Our primary partner being MTU onsite energy. With MTU specifically we have engines that will run up to about 3.4 megawatts and powered with both diesel and gas and with an emerging relationship with the sister company of MTU Rolls-Royce/Bergen. We have access to interactively quoting medium speed diesel and gas engines that can run up as high as 9 megawatts. The roll into those megawatts will be a bit more clear as we talk about some of the size of the mining projects that we are tracking. As I said we are a development activity and power generation spans a couple of different areas, data center, healthcare commercial, Gensets and UPS. So those would be more of traditional systems that are shown across the top of the page and then the larger projects be it wastewater treatment or mining development that are shown across the bottom.

So we like to think about our power gen strategy as having good granular activity in the basic projects and basic standby markets and lots of growth opportunities when it comes to larger resource markets. We recognize that mining is a bit of a tough business right now but let me just show you a chart that explains to you why essentially over the medium to long term we are as excited about the mining market as we are. This chart shows you, the map shows you 26 projects that are currently being tracked by our power gen development team. They are obviously in various stages of development. Interestingly enough and related back to the discussion about 9 megawatt engines etcetera; we are actively quoting on nine of the projects that are shown on this page in the average size of those projects is 18 megawatts or roughly $34 million. So when you think about power gen business that sits with a revenue base of roughly 90 being successful in the basic core businesses that we are in power gen and cracking into the larger resource based development projects we are quite excited about what it can do for both the revenue base and the long run after market potential of our power generation business.

Industrial components very similar story with some very exciting growth opportunities in the base business and in the new opportunities. It’s different from the businesses we have and equivalent and power systems where we have generally exclusive distribution rights on premium brands. Our industrial components business is essentially the non-exclusive distribution business where we are selling bearings and power transmissions hydraulics and process equipment to industrial companies and competing with companies such as Motion or AIT. As such we've got some base business initiatives which really are based in a simple premis of driving scale through the branch network, be it through organic growth and acquisitions or improving efficiencies in supply chain inventory management or ecommerce. So we will talk a little bit about our expansion from a brand standpoint in just a second. Our new opportunity in this business is strategically quite important for us in this business and that's our engineering and repair services. I will explain that you in just a second about why that is as important as it is.

Branch as I said earlier scale in this business and efficiency in this business are very important for us so we continue to look at ways in which we can expand our branch network. The map you see in front of you shows two acquisitions made last year. The first on the left pointing primarily to the west coast is the acquisition of the Canadian branches of Command Industrial Technologies and their six branches in western Canada, one in Ontario and then the purchase of branch called Ace Hydraulic in eastern Canada. While small from a revenue standpoint these things are quite important to us strategically as we look forward with command and British Columbia given the growth in resource businesses in British Columbia we didn't have the branch network to be successful there in the acquisition of those branches has helped us particularly with the bearing and power transmission and also, our relationship with Command, which operates in a very extensive branch network and a very similar business to us in the United States, a relationship with them called Source Point has allowed Wajax industrial components in Canada to work with Command Industrial Technologies in the United States, that jointly bid on North American base contracts which in our business, a lot more of the decision making where purchasing in Canada has been made on a North American basis and an alliance with a large American player who operates on their side of the border, us operating on ours. We think over the course of the time, we will prove to be quite helpful to us in building our contract base business.

In ACE Hydraulic while a small branch in eastern Canada may not seem not suitable for annual meeting presentation; the reason we put it here is because it's an excellent example of hydraulic service center that fits very nicely with our engineering and repair services strategy which is a big part of our improved profitability and growth in industrial components. And speaking specifically about that, the new opportunity we have in our industrial components is ERS, the engineering repair services. You can see the distribution of the market size, the $1.4 million market size on the chart. The reason ERS is important to us is because in a non-exclusive distribution business where you are selling process pumps, hydraulic system, bearings etcetera in a fashion that’s very similar to the people that you compete with. Engineering and repair services allows us to assemble and add value to the things that we sell in a pieces and parts basis so that the customers have a better attachment to us as a service provider and so that the margins in this business increase.

Currently have a share of about 4% of that $1.4 billion market. That’s driven primarily by the success we've enjoyed in hydraulics business in western Canada. We're in the midst of planning for how we will build our services capability and how we build out that service on our network. I thought it might be helpful to you to see is specific example of the difference between selling individual pieces and parts and selling engineered solutions for customers. This is a copper sulphate transfer pump, it's for customer that runs gold mine in west Africa and you can see that what we do in this business from an engineering and fabrication standpoint as we will start with getting the customers buying to specific system design on the left hand side of the page, which turns into a finish skid on the right. That particular skid was put together and delivered to the customer in 90 days, just from a dollar and cents standpoint, the skid you see finish there is worth of both $60,000 and had we sold just the parts associated with that skid it would have been about 31,000. So the ability to assemble this get aftermarket service revenue, add some value to the customer and earn a much higher margin and a much higher revenue basis, is I think why we are so excited about our growth in this particular market.

You can see our services range list at the bottom, we have performed feasibility assessments for customers who will build pilot systems, will do the industrial, electrical and mechanical engineering, will assemble and test the products and will provide the ongoing support. Our final (inaudible) for our company which we historically haven’t talk about is the fact that we run three businesses that in some way it have some pretty common markets and some common customer. So we begun the process with the management team of looking at various things, where synergies can be created across our company either to improve market access for businesses through the facilities of other businesses or improves the cost efficiency of our business and we’ve got four specific areas that we are excited about.

And first the sales management, we have a very large industrial sales force and roughly 350 outside sales people. We feel we got a lot of room from improvement with respect to building better measurement training and development programs for the sales force and in fact having a higher degree of knowledge across business is about which customers are growing and which businesses they were in so we can lever those and the other business that we operate. Secondly in our branch network as I said earlier we have a 129 branches that service 40,000 customers across the country and a lot of those branches have opportunities with respect to either cost synergies as improved market access etcetera. So we are reviewing our facilities network and deciding what opportunities does that represent for accelerating our growth in particularly in key resource markets in the country.

We are doing a lot of work in the information systems. We run a fairly diverse information systems platform which does not necessarily suite the needs of the business as well as it should and so there is fair amount of work going on right now to look at what kinds of information system strategy will support the growth that we are capable and achieving and finally being done at a total company level is looking at some of the product market and services trends are there in the market, particularly around our oil and gas mine and oil sands customers and how might changes and oils markets are changes in the products and services that affect our customers and those businesses, how they may affected the thoughts we have and the types of enters we are doing business with and when we are going over the course of next couple of years.

Although summarize the presentation this morning by saying three things on the chart and one thing from myself. First of all we are very proud to say that 2012 was a record year and that the team worked very, very hard with market conditions occurring and the year to make sure that they polled in with an increase for the year, so we are very proud of the achievements that they have there. 2013 certainly does present some challenges to us, as I said earlier we see those short term and we are confident that growth of our business will be where it needs to be as those market conditions improve and we are very excited about the growth opportunities that we have. We've got a series of base business growth opportunities that live within each of our businesses that drive some pretty healthy future potential for us. We've got a series of new opportunities in rotating products, power gen and engineering repair services and we've got some cross divisional thinking that we are going through to determine the extent to which there are synergies or opportunities that the businesses can take advantage of each others positions in various markets to help us all collectively grow just a little bit faster. I did want to close and hand the meeting back over to questions but I simply thanking the team very much for the help they provided me in 2012 and so thus far in 2013 and to the Board. It’s been a really great experience I think to spend the fiscal year with Wajax, they are very, very strong management team. People are very committed to their customers and I'm very proud to be a part of it. So thank you very much.

Paul Gagné

Well thanks Mark for an excellent overview of Wajax and its growth prospect and I would like to now open the floor to questions and I would ask that if there are questions and individuals wishing to speak at this point in time state their name and indicate whether they are shareholders or proxy holders. So open for questions, yes.

Question-and-Answer Session

Unidentified Analyst

(Question Inaudible)

Mark Foote

Very small business we have in Buffalo. Buffalo Adrian, Buffalo yeah. We used to have business in the United States I think they have been, they were divested over the course of last number of years. We have one small business in Buffalo which came as a result of the small acquisition which continues to be there. It’s not a material effect on us.

Unidentified Analyst

(Question Inaudible)

Mark Foote

Yeah the I think the capital answer is we have no current plans to expand our international that we have no current plans to expand it out of Canada. We've got lots of growth on hands for delivery here. Never say never, there maybe changes to that in the future but at this point in time we have no current plans to expand it.

Unidentified Analyst

(Question Inaudible)

Mark Foote

There are, each one of our businesses would have a couple of issues to deal with if you went across the border, oil and gas is an example, there's weight differences in frac trailers that can't operate there, that can operate here, there are other differences in equipment businesses I think having to do with emission standards, whether or not you can sell as much the stuff here that you can sell less of it there. There's a number of different I would say though that despite all of that that's not a factor in us deciding to do business there, not because there are market opportunities in the United States, that could potentially be there for Wajax down the road but the cross border differences of product would not be one of the things that would stop us from doing it. It’s really the growth opportunities in Canada that have us focused here.

Unidentified Analyst

(Question Inaudible)

Mark Foote

Thanks for the question.

Paul Gagné

Okay, any other questions? Great, well, thank you very much for your attendance this morning and we invite you to stay and meet with the Directors and the management team. So again, thank you.

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