Finning International's (FINGF) CEO Scott Thomson on Q4 2015 Results - Earnings Call Transcript

| About: Finning International (FINGF)

Finning International Inc. (OTCPK:FINGF) Q4 2015 Earnings Conference Call February 18, 2016 11:00 AM ET

Executives

Mauk Breukels - Director Investor Relations

Scott Thomson - President and CEO

Steve Nielsen - CFO

Anna Marks - Senior Vice President, Corporate Controller and Treasurer

Analysts

Cherilyn Radbourne - TD Securities

Michael Finnegan - Bank of America Merrill Lynch

Jacob Bout - CIBC

Michael Dube - Scotia Bank

Benoît Poirier - Desjardins Capital Markets

Maxim Sytchev - Dundee Capital Markets

Operator

Good morning and welcome to the Finning International Q4 Results Conference Call for Thursday, February 18, 2016. Your host for today will be Mauk Breukels.

Mr. Breukels, please go ahead.

Mauk Breukels

Thank you, operator and thanks to everyone for joining us. On the call with me today are Scott Thomson, President and CEO; Steve Nielsen, CFO; and Anna Marks, Senior Vice President, Corporate Controller and Treasurer. Following the remarks by Scott and Steve, we will open up the line to questions. An audio file of this conference call will be archived at finning.com.

Before I turn the call over to Scott, I want to remind everyone that some of the statements provided during this call and in the press release are forward-looking. This forward-looking information is subject to risks and uncertainties as discussed in the company’s annual information form, under Key Business Risks. Please treat this information with caution as Finning’s actual results could differ materially from current expectations. Our forward-looking disclaimer statement is part of our quarterly releases and filings. Finning does not accept any obligation to update this information.

Scott, over to you.

Scott Thomson

Thank you, Mauk. For the past two years we’ve been advancing our operational excellence agenda, as a result we came into 2015 with a solid financial position and clear priorities underscored by cost and capital discipline. This has served us especially well, given the downturn in the markets over the course of the year.

Times like these highlight the paramount importance of our resilient business model, particularly as it allows to us to generate relatively consistent EBITDA. Despite the significant drop in commodity prices and industry activity, it is notable that our EBITDA in 2015 was only 19% lower than in 2014. As we expect the current environment to persist, we’ll continue our capital discipline focus in order to maximize free cash flow conversion.

In the fourth quarter, we generated close to 350 million in free cash flow and since 2013, we’ve generated over 1.3 billion in free cash flow. This track record will continue in 2016. Our solid financial position, enable us to make a strategic acquisition, increase our dividend and repurchase over $90 million of shares in 2015. We remain fully committed to the dividend going forward.

Our progress towards operational excellence throughout the year was highlighted by the transformation of our Canadian business. In particular, we made sustainable structural improvements to our supply chain and service models and we began reshaping our facility network, which will effectively translate to 20% reduction of our footprint, while leveraging field service delivery to get closer to our customers.

I’m also pleased with the significant improvements to our safety performance and customer loyalty scores in each of our regions. In addition to embedding longer term operating improvements to deliver greater customer value, we position the company to withstand persistently lower market activity.

Part of our commitment to operational excellence is having the right cost structure across our company. In response to the downturn in activity, we accelerated these cost reduction efforts. This included making the difficult but necessary decision to reduce our global workforce by approximately 15% in 2015. While we made significant progress in implementing sustainable cost reductions, we’re yet to fully realize the benefit, given many of the reductions occurred in the fourth quarter.

Unfortunately, in the last three months, we witnessed another step down in commodity prices and consequently a significant drop in activity levels. Given the market environment and our outlook, we’re in the process of taking further actions to adjust our business. Notably, we’ll be reducing our global workforce by another 400 to 500 people by mid 2016.

I’m keenly aware these are difficult positions for our people who are the foundation of this company. However, given the environment and our view that markets will remain depressed for a significant period of time, they’re unavoidable. Furthermore, I assure you that our response is thoughtful and it’s been done in a manner that maintains our ability to capitalize on stronger demand when we come out of this cyclical trot.

Given our operational improvements, I firmly believe that Finning enters 2016 a stronger company. Our ability to drive efficiencies has put us on the path to a linear, more agile organization that will more responsive to all of our customer’s needs. Our customer focus is reflected in part by our ability to continue to capture significant opportunities in today’s competitive marketplace.

Most recently we were selected to supply equipment and services for the safety project in BC. This is a considerable win that includes 50 articulated trucks and 35 off-highway trucks scheduled for delivery beginning in the first half of this year. In Q4, we were rewarded a sizable contract by CNRL and we also won the only tender for large trucks in Chile since 2014, four 797 trucks for Codelco.

As we move into the New Year, I’m confident that the step change in how we run this business will result in us coming out of this downturn stronger than when it started and we’re in the path to driving longer term value for our shareholders. We’ll continue to advance our operational excellence agenda and control what we can, with the objective of transforming our business to make Finning a linear, more agile organization focused on partnering with our customers for mutual success.

I’ll now turn the call over to Steve, to discuss our financial results in greater detail.

Steve Nielsen

Thank you, Scott and good morning everyone. Our fourth quarter results reflect the [indiscernible] economic environment in our largest regions. The reported results included a number of significant items, which we don’t consider indicative operational and financial trends.

I’ll be excluding these items when discussing our performance.

First, we record the impairment of a distribution network and goodwill totaling $338 million. Most of this impairment is related to the shovels and drills or form of Bucyrus distribution business in South America. As you may recall, roughly two thirds of the purchase price for Bucyrus in 2012 was allocated to our Chilean mining cash generating unit, with a significant portion of this recorded as an intangible asset.

Considering the fairly significant size of this asset within our Chilean mining business, current market conditions and our expectations going forward, the impairment test we conducted in the fourth quarter does not support the carrying value of this distribution network in Chile. We also assess the value of the form of Bucyrus business in the Canadian mining unit and the future discounted cash flow well exceeds the value we have on our books.

Second, we incurred $45 million of facility closure and restructuring cost, mostly in Canada. This is more than we expected due to the lower market values in the closed facilities. In particular, our consolidation of activities from multiple facilities into one of the two COE buildings will free up the other building, which we intend to exit.

Third, the impact from the currency devaluation in Argentina in response to the new government’s changing currency policy reduced our EBITDA by $12 million in the fourth quarter. We are however pleased with how well management team managed through this policy change, by carefully balancing cost and benefit to successfully mitigate 65% of the fourth currency exposure risk.

And finally, our results include the impairment of other assets totaling $42 million, of which $36 million were related to inventories and rental assets. Of the 36 million, 50% is associated with use in rental equipment. This is reflective of prolonged market weakness in all our regions, particularly in the mining and oil and gas sectors. The impairment of inventories was limited to used, aged or highly customized industry specific product.

Excluding these significant items, lower EBIT and EPS reflect a continued decline of market activity in territories, including an unexpected sharp drop in Canada in December. The market activity dropped faster than the formulization of benefits from the very responsive actions which were taken to transform our business and reduce cost.

In South America, reduced mining activity impacted our product support revenues in the fourth quarter. While new equipment sales picked sequentially from the third quarter, the overall demand for equipment remained low in all sectors. Despite continued market weakness however, EBIT margin would have been 9%, excluding the significant items. This was the result of targeted SG&A cost savings and sustained profitability of the product support business. Our team in South America has been managing through this downturn exceptionally well and we expect they will continue to do so.

In the UK and Ireland, our focus on reducing used equipment inventory had a negative impact on margins in the fourth quarter. Power systems profitability was also lower due to competitive pressures, as a result EBIT margin declined 2.8%, excluding inventory write offs and other significant items. As Scott mentioned, we expect the UK and Ireland operations to return to historic profitability levels going forward.

Canada saw a rapid decline in activity levels in all sectors, most significantly in oil and gas. In addition, a highly competitive and weak short-term rental market was particularly challenging and had a significant negative impact on Canada's EBIT in the fourth quarter. The benefits of permanent SG&A cost savings, which we announced last quarter had not yet been fully realized. As expected, we realized about half of the quarterly run rate savings from workforce reductions, facilities optimization, and operational improvements.

In addition, service credits and bad debt were higher than expected due to the harsh economic situation. That said, however, our exposure to hedged accounts is relatively low. Canada remains on track to generate over $150 dollars in non-volume related annual SG&A cost savings in 2016 over 2014 levels. As Scott mentioned, we made the difficult decision to fully reduce our workforce in response to the recent sharp downturn market activity. This will impact about 200 people in Canada.

Our goal is to climb back to 6% to 7% EBIT margin as we continue to manage through weak and uncertain market conditions and transform the Canadian business for sustainable profitability in the long-term. Our invested capital decreased by about $600 million during the third quarter. This was driven by lower intangible assets from the impairment of the distribution and network and goodwill, reduced inventories, lower fixed assets due to facility closures and impairment of properties and a decrease in our rental assets.

We reduced our inventories by almost $170 million in the fourth quarter, excluding the impairments discussed earlier. We still have some excess equipment inventory predominantly in Canada. These inventories mostly comprised of construction equipment, which includes some oil and gas products. The majority of our surplus inventory can be sold into other markets. Only a relatively small number of the units are highly customized and are difficult to sell in the current environment.

We believe EBITDA as the best indicator of operational and financial performance particularly in a declining market through the fixed cost nature of depreciation and amortization. 2015 was a good example of our ability to generate relatively stable EBITDA and converted to strong free cash flow during turbulent market conditions. As Scott mentioned, our track record of generating relatively consistent EBITDA throughout the economic cycles speaks to the resiliency of our business model. It is supported by the relative stability of our parts and service business and reinforced our cost discipline and continued operational improvements.

Our EBITDA to free cash conversion was 54% in 2015 producing $325 million of free cash flow. This was driven by our capital discipline and focus on working capital management. Our inventory purchases and investments and rental assets are flexible and tightly managed to market demand. In addition, we expect our inventory terms to continue to benefit from further supply chain improvements. For 2016, we expect free cash flow to be modestly about $300 million.

Maintaining a strong balance sheet and dividends, remains at the top of our priorities. In 2015, dividends comprised 21% of our EBITDA and 38% of our annual free cash flow. Our net debt to EBITDA ratio was two times at year end. We will continue to focus on things we can control. Operational excellence, costs, and capital efficiencies, and we are confident in the resiliency of our business model, which will support our EBITDA and strong free cash flow conversion going forward.

I will now turn it back to Mauk.

Mauk Breukels

Operator, this concludes our remarks. Before we go to the Q&A, we request everyone on the line that as a courtesy to your colleagues, you ask no more than two questions when it is your turn. Please go to the end of the queue if you have more questions. Operator, could you please open up the line?

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. [Operator Instructions] Our first question is from Cherilyn Radbourne from TD Securities. Please go ahead.

Cherilyn Radbourne

Thanks very much and good morning. So, I think product support has been an investor area of focus given that it’s normally resilient through the cycle. Your product support was down 7% as reported against the somewhat difficult prior year comparable, so I'm just curious how you interpret the performance of that business in the quarter?

Scott Thomson

Yeah, hey, Cherilyn, it's Scott. So a couple of things, I mean it was a weaker quarter than we were expecting and I think worldwide, which we're not immune from. So there's a lot of hard equipment and I think on the mining industry in general probably about 20% of mining [Indiscernible] product and we're not immune to that given our exposure in copper and oil That being said, you have to dig a little bit lower in the numbers to understand the real dynamics. If you look at Canada, Canada is down. I think Q4 to Q4 by about 10%, but the parts side is down about 3 and so we've actually seen some stability in that little sands business despite [Indiscernible]. And frankly what we saw and what was a little surprising is in the first week of December, people usually have a rush to the year-end and we didn't see that this year either in Chile or in Canada. People seemed to stop spending in the first week of December.

When you look at Chile, I think the year-over-year comparison is a tough one and the fourth quarter of last year was a very strong product support year. If you look at the product support business almost throughout the whole year has been pretty consistent with Q4 levels and the main change this year relative to last year, a couple of parts fleet, so we've got two mines in particular, El Abra and Candelaria m where we have trucks now running and that's the big driver. In addition to that, lack of usual yearend rush to the finish line in December, which we didn't see this year.

Cherilyn Radbourne

Okay, that’s helpful. I'm going to bounce to share repurchases. You repurchased about 4.5 million in 2015, so I just wonder if you can give us help as to how you are thinking about that in 2016, thinking about very weak market conditions, but also a healthy balance sheet and free cash flow?

Scott Thomson

Yeah, I mean the great thing about this business model is the free cash flow conversion. And when you look at’15 results, it's at a high level with a $600 million of EBIDTA, rental expenditure, what’s below EBITDA to free cash flow is rental capital and inventory. And when you think about those numbers, they are pretty minor. Rental 25 million, CapEx was about 50 million and inventories, you can imagine in this scenario we're not buying a lot of inventory. So, the great thing about this business model that generates a lot of free cash flow and that $350 million of free cash flow, $325 million for the year covers the dividends of $100 million substantially and keep the debt to EBITDA two times, so great resiliency.

As I look forward, as Steve mentioned, we're stepping modestly above $300 million of free cash flow next year. So, that means the dividend is absolutely rock solid and we’ll have excess cash and that excess cash, what we do with it, will be dependent on share price and when that cash comes in. I mean I'd like to see given the environment the free cash come in the door before we’re too aggressive in the use of that cash, but obviously there will be some excess cash that we’ll have to deploy in some manner.

Cherilyn Radbourne

Thank you, that’s my two.

Scott Thomson

Thanks, Cherilyn.

Operator

Thank you. Our next question is from Michael Finnegan from Bank of America Merrill Lynch. Please go ahead.

Michael Finnegan

Hey, guys, thanks for taking my questions. First, how about trend in the Kramer acquisition, are we still expecting $0.07 and $0.10 of accretion and how should we make out the lower potash prices, what’s the kind of impact we should be expecting for Kramer?

Scott Thomson

Sorry, Michael, what’s the second part of your question?

Michael Finnegan

The impact from lower potash prices, I'm just curious -

Scott Thomson

Oh, thank you.

Michael Finnegan

Yeah.

Scott Thomson

Thank you. First, I’ll answer your first question. The business continues to perform well and close to our original business case. So we still believe it will be accretive 7% to 9% in 2016. And because we are able to immediately integrate and coordinate supply chain management, it exceeded its business case on cash flow generation. Relative to the second part of your question, we expect that they will continue to face some market pressure as all of our provinces but not significantly more than what we have seen in the fourth quarter.

Steve Nielsen

Yeah, I mean I think all of three provinces are under different level of stress. Saskatchewan is facing some other same issue that Alberta is facing, different commodities but same weakness. So a little bit weaker than we thought entering the year, but pretty pleased with where we are.

Michael Finnegan

Great, thanks guys

Operator

Thank you. Our next question is from Jacob Bout from CIBC. Please go ahead.

Jacob Bout

Good morning. My question is on your footprint and you announced some layoffs today. Really the question is do you think your property rate sized for the current say, $30 to $40 oil price environment for 2016 and can we expect to see any changes in the footprint or is there anything that makes sense right now for changes in that footprint either from the dealership or perspective.

Scott Thomson

Hey, Jacob, so as you know we announced 20% reduction of footprint last quarter and we are in the process of executing our math, so I think that full execution will happen by mid 2016, but it’s well in hand and in fact the Bucyrus business is been moved to COE. We’ve consolidated that COE business, one of the reasons we’ve had impairment to the back of [ph] consolidation and we’ve moved a lot of those to rebuild activity [indiscernible], so that’s all in process, what we announced. Is there more which is you’re asking, I mean I think there is some optimization primarily around collocation and in some areas we have multiple branches that are relatively close to each other and I think there is an opportunity for us to collocate a little bit further. So the team is in process in doing that and I think we’ll have a little bit more in 2016, but it will be more around the optimization than any big footprint announcements that we had like last quarter.

Jacob Bout

Second question is just on inventory levels and maybe just give us a little bit more granularity here? Looks like they were up slightly year-on-year, but how much of that would be Kramer and then maybe talk about the new [indiscernible] dynamic?

Scott Thomson

Sure, so let me start and Steve if you want to add if I don’t get all the details. So we actually - $350 million free cash flow, so we got rid of significant inventory in the quarter, I think it was $170 million and we entered the back half of the year with pretty significant excess inventory. And the two drivers behind that one was Kramer, which came with a lot of inventory and then second was the oil price decline as we’ve talked about last year. If you go back on a quarterly basis, you saw a big dip in the first quarter, $250 million of inventory orders that came through in that first quarter and then we had the reduction in activity. I think in South America and the UK, we’re pretty good now. From an inventory perspective, I think in Canada we probably have another $150 million to $200 million of inventory that we’re going to have to move this year and on the one hand that’s not a great place to be, on the other hand it provides a lot of comfort around our free cash flow generation. And then the second thing is that it was bought with a high Canadian dollar and so that provides benefit for us as we think about the reminder of the year.

Jacob Bout

Thank you.

Scott Thomson

Thanks, Jacob.

Operator

Thank you. Our next question is from Michael Dube from Scotia Bank. Please go ahead.

Michael Dube

Yeah, good morning, so we saw a decline in this quarter, cumulatively revenues were down substantially in the two and a half years, so at this point how should we think of equipment demand, elasticity or in elasticity as it relates to changes in corporate prices and economic activity?

Scott Thomson

I guess in around that why I’m asking whether we’re closing off to quote unquote bottom, so that declining corporate price or economic activity should have a smaller effect to sales than an increase would.

Steve Nielsen

Yeah, hey, Michael, I mean I think you’re right. The decline has been pretty significant and right now I think our product support business is probably 75% to 80% of the overall revenue base. And the fact that we’re celebrating the four truck order from Codelco, which is a really material order, but it’s the only truck order that happened in Chile in 2015. I mean, so it just gives you the extent of the lack of equipment orders in that country right now. So as we look forward, I think we’ve had a pretty consistent last four quarters on product support. We feel like, if you look at the next couple of years, copper has the potential to strengthen somewhat, I feel more comfortable on copper than I do on the oil frankly. So I suspect all of the efforts that the team has done there around cost reductions and they are substantial, which has allowed us to keep that 9% tight margin which has been a pretty good accomplishment I mean very steady profitability performance. I feel like we are pretty well-positioned for when it comes back. When it comes back, your guess is as good as mine. But I do think there will be a lot of leverage here when we do because we have taken such a great actions on the prospect.

Michael Dube

Okay, thanks. How would you compare your sales to what you deem to be replacement levels in FINSA and maybe if you can take that answer to Canada as well?

Scott Thomson

I mean one of the things that I think is, this might may not be an exact answer to your question, but one of the think that has surprised us and Cat and we have talked a lot about this, but the maintenance cycle has been pushed out. And one of the impacts of that has been on the product support basis. So as miners have been under pressure, we’ve seen them focus on sweet spots mine that allow them to part-fully and their production has improved, but the utilization has gone down. And they pushed out maintenance and deferred maintenance that’s not sustainable. And so when is that going to recover, I don’t know but it is not a sustainable situation right now. As we look forward, I think it is going to result in a lot of rebuild opportunities for us. I’m not sure given the situation of our customers there’s going to be a lot of capital for new equipment, but I do think given the number of trucks and equipments we have infield there will be a pretty significantly rebuild opportunity for us over the next couple of years.

Michael Dube

All right that’s helpful Scott, thanks a lot.

Scott Thomson

Thanks.

Operator

Thank you. Our next question is from Julian [indiscernible] from RBC Capital Markets, please go ahead.

Unidentified Analyst

Good morning, Julian dialing in for Sara. So my first question is on Finning’s ability to offset product support decline mostly in FINSA and how that impact is on gross margins for 2016?

Scott Thomson

Thanks Julian. As you look at the history here in FINSA over the last two years we have been in this for a long time in FINSA and the ability of that team to react and maintain the profitability has been, as I said impressive. So, I am not concerned about the profitability in FINSA, I think the issue is volume and when does activity come back, when do miners start spending money. As I mentioned to Michael I think the business is in a good place when that recovery happen.

Unidentified Analyst

Okay, thank you. And then my second question is the impact of head count reduction on operational efficiency program.

Scott Thomson

I mean when you think of the announcement that we have today which was globally 400 to 500. By the end of the year that will be a reduction of approximately 3000, since the peak. And so that is a pretty significant head count reduction. They are very difficult decisions, but given the activity levels they are absolutely necessary, unfortunately. But what we are doing is we are being very thoughtful about how we do it and so we are not impacting to the extent possible to sales or the customer facing areas of it. We are focusing it on, centralizing facilities and frankly a lot of head office type activity. And so we do believe we can continue to make the progress and back some of the offset that we have seen here to the lower activity has been because of the operational excellence agenda that we have been on and given the free cash flow nature, I do think we are going to take this opportunity to continue to invest in some aspect like technology etc. that make us linear, more agile and better able to serve our customers.

Unidentified Analyst

Thank you, that’s it from me.

Operator

Thank you. Our next question is from Benoît Poirier from Desjardins Capital Markets. Please go ahead.

Benoît Poirier

Yes. Good morning gentlemen. Just related to your 300 million plus free cash flow guidance in 2016, I was wondering if you could walk us through the key items, I understand you are cautious in terms of guidance, but should we assume kind of 25 million net rental additions in the year, 50 million in CapEx and close to 100 million to 200 million in terms of inventory reduction, gentleman?

Scott Thomson

Ben, well let me take a crack at it and we are very hesitant to make forecast. But Cat felt there was a 10% reduction in revenue expectation for next year. And I do believe that sales are going to be down next year and I do believe in Canada sales are going to be down. I don’t think it’s as much as 10%. We benefit ascending from the translation on pounds and US dollars to Canadian, but nevertheless it is going to be a down year in 2016 and primarily I think impacting our Canadian business.

Given our cost reduction initiative, I believe we can maintain our EBITDA margin in the 10% range. Q1 probably a bit softer, but then have been strengthening through the year as we get the pull benefit, run rate benefit of these cost reduction initiatives and that is around historical level, which gives me comfort. And then on the cash flow price, as Steve mentioned, we expect to be modestly higher than 300 and that is in line with the type of historical free cash flow conversion that we had both in 2015 and looking back a few years. And I have great comfort in that number because when I think about the EBITDA and what’s below that, asset, capital rental and inventory, we control all three of those levers. And so we can stress up or down to get them at free cash flow level. So, I feel very comfortable in that type of free cash flow conversion and that type of free cash flow generation.

Benoît Poirier

Okay very good and for the second question just in terms of EBIT margin in Canada you mentioned that the workforce reduction, I was just wondering whether it will allow to hit you the 6% , 7% goal this year and also if there is a further room for workforce reduction if things get worse?

Scott Thomson

Yes, so when you think about, when we were in Fort McMurray with all of you in December, we had announced, we just come off back of announcing the cost reduction initiative in Canada. We had set those cost reductions for $40 to $50 of oil price, commodity price weakened significantly in the fourth quarter of the year. Our margin of 5.7 in Canada disappointing given the third quarter performance and it was primarily related to the reduction activity in December from rental and not getting the full run rate of those SG&A savings. The actions we announced today in Canada prepare us for the $30 oil-price environment that we are in today. And the objective here is to acquire way back into that 6% to 7% type EBIT margin range in Canada. And we feel comfortable, we can do it, you’re going to have to exclude some of the severance that is associated today with that but we feel comfortable doing an actions today responded to that $30 pricing environment that we are in.

Benoît Poirier

Okay, thank you very much for the time.

Scott Thomson

Thanks, Benoît.

Operator

Thank you. Our next question is from Maxim Sytchev of Dundee Capital Markets. Please go ahead.

Maxim Sytchev

Hi, good morning gentleman.

Scott Thomson

Hey, Maxim.

Maxim Sytchev

Scott, I was just wondering if you don’t mind sharing this information in terms of actually, when you talk about the trucks lease that are populated across your geographies where that number stands right now on year-on-year basis, if you don’t mind disclosing this, just directionally.

Scott Thomson

I think, this is probably - I think we have said around 350 big trucks, the 797s in both of our locations, 350 in Canada, 350 in FINSA and I think it is fair to say, probably 15% to 20% of those are not utilized to their full extent and that is in-line I think with the world. I mean I think globally right now, if you talk to some of the OEMs it’s that 15% to 20% type underutilization of the fleet.

Maxim Sytchev

Right, okay that’s helpful. And then actually, I was wondering maybe if you don’t mind commenting on the competitive landscape obviously lots of moving parts in relation to ForEx something like that, but are you seeing any new potentially - irrational pricing from the key OEMs?

Scott Thomson

Right, I mean I think Maxim, I mean it is a very competitive environment and I think there is a lot of inventory in the world. So people are being extremely competitive. I think the benefit we have here is the alignment with Cat and Finning and we are fighting tooth and nail to make sure we win the appropriate contracts at the appropriate price. I was very pleased to see the Site C ORM which is a big deal 160 trucks and if I look forward this may not impact in ‘16, but I look forward to 2017 and you have been on this for a while. The infrastructure spend that we see in Alberta is $6 billion, the infrastructure we spend we see in BC is $7 billion, the infrastructure spend we see Federally, I think that will benefit us in the ‘17 and ‘18. I am hesitant to say in ‘16 because it takes a long time to get a shovel in the ground, but I do think that will benefit us in the ‘17 and ‘18. But coming back to your question it is a very competitive world and we are fighting tooth and nail to win the appropriate type of market share.

Maxim Sytchev

Right, okay makes sense. Thanks a lot.

Operator

Thank you. Our next question is from Cherilyn Radbourne from TD Securities. Please go ahead.

Cherilyn Radbourne

Thanks, just one follow-up from me, one of the things we have been hearing about anecdotally is just the potential for extended maintenance shutdowns in the oil sands in 2016. So just curious whether that is consistent with what you’re hearing from customers and what you expect that might and how that might impact your product support business in 2016?

Scott Thomson

Yeah, thanks Cherilyn. If you look at ‘15 we did see a little bit of that, I mean in reality the mining business held out pretty well through ‘15 on the part side, where we saw some weakness was on the construction side and when I talked about people not running to the yearend and there was is some impact about oil sands, but there is also some contractors that shut down first week of December and came back in the second week of January. So we saw a little bit of that. It wouldn’t surprise me if this maintenance deferral continues for another year and that’s why we are being as aggressive as we are on the cost reduction front, but again I don’t think it is a sustainable proposition. I mean the more people I talked to the more I’m convinced that this will come back at some point. It’s just a matter of when. But we are prepared for some continued maintenance deferral throughout our system in 2016 and that is why again we are taking the actions we are today.

Cherilyn Radbourne

Thanks, that’s all from me.

Operator

Thank you. Our next question is from Benoît Poirier from Desjardins Securitties. Please go ahead.

Benoît Poirier

Yeah, just coming back to the Canadian dollar, could you maybe provide some color on how the Canadian dollar impacts your margins and whether you can pass through little bit the price increase?

Scott Thomson

Yeah, I mean it is a difficult question, so let me take a crack at it. Given the competitive environment and Maxim mentioned that you have to be sensitive in terms of how you are pricing. It’s not a relationship where you just pass through Canadian dollar, you’re dealing with the market environment and you have to be sensitive for that market environment. So that has been a challenge on the new equipment side. So that is the downside, I think the benefit is we have excess inventory in Canada and no one likes to have excess inventory, but we do and it was bought at a higher Canadian dollar and the Canadian dollars weakened. So that is the benefit and so there is kind of two conflicting forces there. When you look at other currency movements that I am thinking now the Peso which has a very similar dynamics to the Canadian dollar I mean tie to copper and Peso has weakened significantly. That is a pretty big benefit to us in South America because of labor cost and we get labor cost benefit of having a weaker Peso and that offset some of the downside from an activity prospective. So these are the key FX implications I think that you should think about Benoît.

Benoît Poirier

Okay and just in terms of product support based on the latest question and the fact that it was down 7% in Q4. how would you see your product support evolving going through 2016?

Scott Thomson

Yeah I mean, if you look at the numbers for Canada and FINSA, they were down 7% year-over-year, but when you’re looking on sequential basis quarter two, quarter three, quarter four, the down isn’t as significant and so I think it comes back to this maintenance deferral question that Cherilyn asked, how long can people defer maintenance and I don’t know the answer to that. I think we are feeling that it can’t last obviously too much longer, but I think we need to be prepared for a couple quarters more weakness on the maintenance deferral.

Benoît Poirier

Okay and last question related to the infrastructure spending in Argentina and Alberta you mentioned great color, just wondering about what are kind of the bidding opportunities you might be looking for in 2016 understanding that those two opportunities might more kick in 2017, 2018?

Scott Thomson

Yeah, we don’t have lot of clarity to tell you the truth. I mean the three areas that I talked about were Alberta with a $7 billion infrastructure, then last night or the night before BC announced their infrastructure program and it was, I think it was the highest since the financial crisis similar to $7 billion type opportunity and there was a lot of horizontal opportunities in that, when I say horizontal I mean roads and bridges which is good for Finning. I mean we are second derivative beneficiary of that type of activity and then you know that the Liberals with the new Federal Government are pretty committed to infrastructure spend. We just haven’t had a lot of details on where they going to spend it, so that is why I’m little hesitant to say we are going to benefit in ‘16. I mean we have with Site C, which is one aspect of that there is some ring road going on in Alberta and Saskatchewan in which we will be involved in, but I do think this is probably a ‘17, ‘18 benefit for us as opposed to ‘16 benefit.

Benoît Poirier

Okay, this is great color, thanks again for the time.

Scott Thomson

Thanks Benoît.

Operator

Thank you. [Operator Instruction] Our next question is from Michael Finnegan from Bank of America Merrill Lynch. Please go ahead.

Michael Finnegan

Hi guys. Just to a follow-up just one, do you see any trends in used equipment values in Western Canada in the quarter and just last question on the 150 million to 200 million excess inventory that you’re trying to move from Canada, is this more of a quarter phenomenon or do you think Scott this might take a few quarters to really work down due to the competitive dynamics in the market.

Scott Thomson

Yeah, so let me take that last one first and I think it can take some time, to be honest and when I was sitting here last year I knew we had some excess inventory leaving Q1. And I was pretty comfortable we would get through it in the year. But industry activities slowed so much in some key product lines. In some key product lines you saw 50%, 60%, 70% type reduction in industry activity and so although this inventory is not specialized, if you don’t have sale it is hard to reduce. So it is going to - we are going to get through it at some point, but I’m not sure I commit to a quarter or two, so that is what I would say there. On the used equipment side like time will tell, I know Ritchie is having a big auction coming out and IronPlanet is going to have a big auction, CAT auction services in March and when I’m hearing that used prices are holding up which is good for us but I think we all learn more here in the next month or so.

Michael Finnegan

Thanks Scott.

Scott Thomson

Yeah.

Operator

Thank you. There are no further questions listed to at this time. I would like to turn back over to you, Mr. Breukels.

Mauk Breukels

Well, thank you very much operator and thank you everyone for listening. We look forward to speaking with you again next quarter.

Operator

Thank you. The conference call has now ended. Please disconnect your lines. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!