Record backlog entering 2023 along with demand for rental equipment, product support and CIMCO’s thermal solutions provided the basis for positive financial performance. Basic earnings per share on a continuing operations basis of $6.43 (or $6.38 diluted EPS) increased 18% from 2022 on revenue growth of 12%.

Supply-chain shortages that were pronounced in 2022 continued to ease gradually in most but not all product lines, allowing us to respond better to customer schedules across our markets and territories.

The rate of inflation, which drove selling prices and operating costs higher through 2022 and early 2023, also began to moderate. Our focus on traditional operating disciplines, including tight control of expense-to-sales ratios and rigorous performance tracking at the branch level, remained fundamental to our continuous improvement mindset.

Once again, demand for rental equipment was strong with rental revenues up 8% over 2022. Toromont responded by increasing the size of our heavy and light machine fleets. Our heavy rental fleet, now numbering close to 600 units, achieved one of the highest levels of financial utilization on record. Financial utilization measures rental rates and time utilization against original acquisition cost.

Used machine sales were 4% below the record set in 2022, in part a function of greater availability of new equipment supply. Toromont Equip, our online marketplace for used equipment, attachments, and restored parts added to our market presence. In 2023, we used the site to expand our reach to customers, including those not previously served. Improving product selection and digital functionality will continue to receive strong focus going forward. Our machine consignment service also proved to be a popular connection point for customers who leverage our sales channels to market their used equipment.

Product support revenues increased 11% year over year (10% in the Equipment Group and 18% at CIMCO) and represented 43% of total revenue. Our shops, parts counters, remanufacturing operations and field-service teams responded well to demand across our larger installed base of equipment. Monitoring hours of machine usage allows us to pinpoint the need for maintenance and respond to customers proactively. Insight gained also makes us more attuned to customer demand signals in planning our resources.

Shareholder value creation

On the strength of disciplined capital deployment, Toromont’s return on opening shareholders’ equity was 23.1%, exceeding our goal of 18% over a business cycle.
Pre-tax return on capital employed (ROCE) was 30.1% compared to 32.1% in 2022. Each of our businesses operates with its own ROCE target based on capital intensity. Strong execution produced good returns, reflecting higher investments in working capital to support growth.

Shareholder value creation also came in other tangible forms. At its meeting in February 2024, Toromont’s Board announced a quarterly dividend of $0.48 per share, representing an 11.6% increase in the quarterly dividend rate. With this latest move, Toromont has now increased its dividend 35 years in a row and consistently paid dividends quarterly since listing on the TSX in 1968.

Toromont’s total 5- and 10-year shareholder returns, including reinvested dividends, outpaced the S&P/TSX Composite Index. Market capitalization at year end
was $9.6 billion while total enterprise value (market capitalization plus debt, net of cash) was $9.2 billion.

Under Toromont’s Normal Course Issuer Bid, 353,000 common shares were repurchased for $37.5 million (an average cost of $106.35 per share) during 2023, offsetting the dilutive effect of shares issued under the Executive Option Plan.

Management lessons learned

Like other businesses, Toromont experienced a volatile operating environment over the past four years. From COVID-19 lockdowns in 2020, 2021 and 2022 through the unprecedented fall and rise in interest rates to stimulate and then curb inflation, the nature and pace of change has been remarkable.

During this period, we learned valuable lessons about how to operate safely, effectively and efficiently to deliver on our commitments and gained an elevated appreciation for the importance of the technology networks that connect us with customers and each other.

The pandemic also allowed us to validate Toromont’s business model and stress test the five foundational strategies that accompany it. Of those strategies, Maintain a Strong Financial Position served us particularly well through the lockdown years and was once again on display in 2023. Year-end leverage, represented by net debt to total capitalization was -17% as cash and equivalents of $1.0 billion once again exceeded debt. A year ago, this ratio was -14%. This change reflected strong cash flow from operations that exceeded significant working capital and capital asset investments made to support current and future activity levels. Even with these deployments, Toromont has the financial capacity and flexibility to support ongoing growth.

What was most evident during the pandemic is the value of having great customers; business activities that are essential to society; employees whose passion for excellence never wavered; high-quality products; and business partners with the strength and wherewithal to continue investing, innovating and producing.

Reinvesting with purpose

Invest in Resources is a core Toromont strategy. In 2023, net reinvestment in rental fleets, branches, plants and other capital assets amounted to $275.4 million. Approximately 60% of this sizeable sum was used to grow our fleets of heavy, light and power systems rental equipment, a move enabled by improved product supply. Service vehicle replacements also accelerated as supply chain pressures eased. This replacement strategy sees us sell older models and replace them with new, more fuel-efficient units. Since use of service vehicles accounts for approximately 60% of Toromont’s carbon footprint, fleet optimization is important.

Construction of a 143,000 sq.ft. component remanufacturing plant in Bradford was one of the year’s key investments. This $70 million facility will open in the second quarter of 2024. It will enhance our capacity and efficiency as a circular-economy contributor by enabling Toromont to remanufacture more end-of-life machine components.

The site will be well equipped with new closed-loop engine dynamometers cooled with recycled water, a specialized hydraulic and powertrain test bench for transmissions and torque converters and the market’s first robotic soda cleaning station, all in a CIMCO conditioned-air environment. Soda blasting is an environmentally friendly alternative to caustic cleaning prior to disassembly. This system can use a variety of cleaning agents including walnuts, glass beads and sand as the need arises. A CIMCO thermal system, using a natural refrigerant, will control humidity and prevent flash rust from forming on components.

At start-up, the plant will employ 160 people, with the majority transferring from nearby facilities. Among many advantages, the new plant will allow us to test high-horsepower engines, which were previously shipped out of province, and increase specialization in our other remanufacturing locations. Notably, Québec City will become the centre of excellence for Caterpillar Expanded Mining Products. We will also retain one remanufacturing site in Concord to focus exclusively on hydraulic cylinders.

Turning strategies into action

Toromont Cat’s branches, parts warehouses, remanufacturing facilities and field service operations were busy in 2023. Mining was particularly active. In northern Ontario, we delivered and commissioned additional Cat® Command 793F autonomous haul trucks to serve alongside Cat® 994K loaders and Cat® 6060 electric drive hydraulic mining shovels at IAMGOLD’s Côté Gold project. Tethered to the electrical grid, Cat® 6060 front shovels can load autonomous haul trucks in just four passes, increasing efficiency and reducing loading time. Another mining customer purchased Cat 798 AC electric drive trucks, each with a payload of up to 372 tonnes (410 tons). These massive units use hybrid A/C electric powertrain technology rather than traditional diesel/mechanical drives to haul more with greater efficiency. To enhance product support, we equipped three more parts warehouses on customer sites.

Mine planning, permitting, and construction often stretches across years, meaning Toromont must build long-term industry connections. We are, with dedicated effort. Looking ahead, the federal government’s Critical Minerals Strategy, which sets a course for Canada to become the global supplier of choice for minerals that are essential to the production of battery electric vehicles, is a welcome policy initiative.

In our construction division, road building, the supporting aggregate industry, and sewer/water infrastructure repairs, provided an off-set to a late-year decline in new residential housing developments. In forestry and steel, Toromont’s Broaden Product Offerings strategy was assisted by Caterpillar’s introduction of a family of Cat MH3000 material handlers. With a wide range of industry-specific boom and stick combinations, these machines proved to be popular with customers.

In power systems, the team worked hard to meet the needs of industrial, mining, marine and data centre customers in a supply-constrained environment. Growth in product support, including engine and propulsion system overhauls, added to the year’s results. Distributed generation (or power created by customers outside the grid) is a growing trend that is incentivized in Ontario by the Industrial Conservation Initiative. Customers that generate their own power during the province’s top five peak demand hours save money. To take advantage of this opportunity, a leading Ontario utility in partnership with one of our industrial customers recently acquired Cat generators and technology to provide power on demand at 11 different locations. Caterpillar’s predictive software will switch the generators on at precise times to replace electricity from the grid. Toromont is there to support all parties.

Growth in our workforce of technicians was a key accomplishment and consistent with Toromont’s Strengthen Product Support strategy. Toromont Cat ended 2023 with over 2,000 technicians, our largest team ever, and spent heavily on equipping our people with the right tools and training. As our installed base grows and ages, and we serve more machines proactively through Customer Value Agreements, the need to recruit remains strong as does our potential to provide product support. With continuous demand for rebuilt machines, we dedicated four bays in our Candiac, Québec branch for this purpose in early 2024.

Battlefield Equipment Rentals – The Cat Rental Store benefitted from customer demand for specialized rental equipment in core markets: civil infrastructure (bridge repairs, road construction, transit projects and water treatment) and mining. As machine supply constraints eased, higher investment levels enabled an increase in rental fleet uploads, which in turn acted as the flywheel for a financial model that depends on appropriate equipment aging, depreciation and divestiture. A Québec market-driven shift in product mix that began shortly after we acquired Québec and Maritimes (QM) dealership operations paid dividends. We look to make further gains, with focus on machine and service offerings for road construction.

Consistent with Toromont’s Invest in Resources strategy, Battlefield opened a 17,000 sq.ft. store in Sherbrooke, Québec in January 2024 as a replacement for another location in the city that did not meet our customer experience standards or support efficient workflow. The new store includes an on-site workshop and water recycling system for equipment cleaning; both capabilities that were missing in the previous location.

More rental equipment at our stores carries a Green Leaf insignia, a symbol denoting products powered by alternative energy. Among many choices, customers can now rent equipment such as Cat 300.9D VPS with HPU300 mini excavators capable of running on electric and diesel power, Terex Genie Z45FE and Z60FE hybrid lifts and ANA Energy Boss hybrid generators. With sustainability a growing customer priority, we are working with fleet partners to expand Green Leaf products.

Jobsite Industrial Rental Services added to its new presence in Western Canada, an example of Toromont’s Expand Markets strategy. Anchored by a 16,000 sq.ft. hub facility in Edmonton, branches now operate in Fort McMurray and Burnaby, as well as Winnipeg. Early progress is promising, but more work is needed to elevate our business profile in these key markets and improve performance. System wide, revenue exceeded that of 2022 despite a quieter year for turnaround work in the petrochemical industry.

SITECH Eastern Canada Ltd. responded well to demand for advanced grade control, site positioning and machine monitoring systems and related consulting and data management services. To aid management decision making, we put SITECH’s Québec and Maritimes operations on
the same rental management system as our other light rental operations.

Toromont Material Handling continued to show good progress as a standalone business unit, a status realized six years ago. Investments in market coverage included a new branch in Woodstock as part of an effort to raise its profile in Ontario to match the brand recognition it enjoys in Québec. Driving financial utilization of its rental fleet through the application of traditional operating disciplines – supported by the Toromont Dealer Management System – remains a key focus. Applying Toromont’s Strengthen Product Support strategy also brought greater attention to growth opportunities in parts.

CIMCO Refrigeration leveraged its leadership position as a thermal management solutions provider to grow throughout North America. Results were best-ever, including U.S. operations. Highlights included installations of a CO2 package for the Columbus Blue Jackets of the National Hockey League and a natural refrigerant system for a major food processing operation in Texas. In Canada, Blatchford, Alberta purchased a CIMCO Thermal Force One thermal system that provides zero combustion heating and cooling for the entire community to meet their decarbonization goals. Environmental stewardship demonstrated by these leaders is spreading. Of all CIMCO capital project order bookings in 2023, 89% will feature natural, zero emission refrigerants including a CO2 package for the Washington Capitals as a replacement for Freon. CIMCO’s Net Zero Naturally “Green Series” product offerings align with current environmental objectives by providing unique, economically viable solutions that reduce carbon emissions.

Operationally, market coverage and project efficiency improved with the opening of a 40,000 sq.ft. prefabrication facility in Duncan, South Carolina. The order-to-cash cycle, which extended during the early years of COVID-19, is returning to more normal levels. New software was introduced to enhance project management capabilities. Additional rigour was brought to bidding processes.

As an example of Toromont’s Broaden Product Offerings strategy, CIMCO co-developed the “iQ” control system for ice rinks and installed systems at several facilities including that of the Los Angeles Kings. It uses an advanced thermal camera to measure surface ice temperatures across 91,000 data points. With better information fed to a smart phone app, ice rink operators can now easily pinpoint variations in ice quality, adjust building conditions and meet in-game reporting requirements. This development has broad application not only for professional leagues, but also community rinks throughout North America.

Connect26, our roadmap for continuous improvement

In 2024, Toromont embarks on its next three-year business plan journey. Entitled Connect26, our plan identifies numerous opportunities to improve performance and commits us to achieve organic growth by connecting people, ideas and solutions together as we deliver specialized equipment and services to support our customers. The plan’s success factors include:

• recruiting and retaining service technicians
• investing in safety, employee development and products/capabilities that contribute to a sustainable future
• leveraging our digital infrastructure to make it easier and more rewarding for customers to connect with us
• expanding the use of data and analytics to improve decision making, productivity and efficiency
• encouraging collaborations that will allow us to reach new customers and expand Toromont’s leadership positions in existing markets

We are particularly excited to be part of collaborations with Caterpillar, which is using its formidable engineering and product development capabilities to help customers meet their climate-related goals. Caterpillar is also working closely with its dealers to align and grow the rental opportunity. We look forward to contributing to this objective through meaningful rental fleet investments.

Toromont will also do its part for environmental sustainability: our own, through careful stewardship of our assets; and our customers, through ongoing development of energy efficient and climate-friendly thermal management solutions. Please see our Sustainability Report for details.

Connecting Together

Toromont started 2024 with order backlog of $1.2 billion, which provides a solid base of business in an uncertain economic environment. Backlog is a function of both demand and supply, with both being disrupted by the pandemic over the past few years.

We also started the new year with a renewed sense of purpose and dedication to our core values, business model, strategies and the continuous improvement mindset that invigorates our culture and produces consistent results for our customers and shareholders.

As we prepare for an exciting future in the context of short-term economic headwinds and market tailwinds, we recognize that it is not the gale but the set of the sail that counts. We thank all employees and business partners for Connecting Together in the ongoing pursuit of excellence.

On behalf of our management team and the Board of Directors, our utmost thanks goes to our customers and shareholders for your ongoing support.