Canadian Tire Corporation. Investor Presentation September 2014

Transcription

1 Canadian Tire Corporation Investor Presentation September 2014

2 Forward looking information This document contains forward-looking information that reflects management s current expectations related to matters such as future financial performance and operating results of the Company. Forward-looking statements are provided for the purposes of providing information about Management s current expectations and plans and allowing investors and others to get a better understanding of the Company s financial position, results of operations and operating environment. Readers are cautioned that such information may not be appropriate for other circumstances. All statements other than statements of historical facts included in this document may constitute forward-looking statements, including but not limited to, statements concerning Management's expectations relating to possible or assumed future prospects and results, the Company s strategic goals and priorities, its actions and the results of those actions and the economic and business outlook for the Company. Often but not always, forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology. Forward-looking statements are based on the reasonable assumptions, estimates, analyses, beliefs and opinions of Management, made in light of its experience and perception of trends, current conditions and expected developments, as well as other factors that Management believes to be relevant and reasonable at the date that such statements are made. By their very nature, forward-looking statements require Management to make assumptions and are subject to inherent risks and uncertainties, which give rise to the possibility that the Company's assumptions, estimates, analyses, beliefs and opinions may not be correct and that the Company's expectations and plans will not be achieved. Examples of Management s beliefs, which may prove to be incorrect include, but are not limited to, beliefs about the effectiveness of certain performance measures, beliefs about current and future competitive conditions and the Company s position in the competitive environment, beliefs about the Company s core capabilities and beliefs regarding the availability of sufficient liquidity to meet the Company s contractual obligations. Although the Company believes that the forward-looking statements in this document are based on information, and assumptions and beliefs that are current, reasonable and complete, these statements are necessarily subject to a number of factors that could cause actual results to differ materially from Management s expectations and plans as set forth in such forward-looking statements for a variety of reasons. Some of the factors many of which are beyond the Company s control and the effects of which can be difficult to predict include: (a) credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, interest rates or tax rates; (b) the ability of the Company to attract and retain high quality employees for all of its businesses, Dealers, Canadian Tire Petroleum agents and Mark's Work Wearhouse and FGL Sports franchisees, as well as the Company s financial arrangements with such parties; (c) the growth of certain business categories and market segments and the willingness of customers to shop at its stores or acquire its financial products and services; (d) the Company s margins and sales and those of its competitors; (e) the changing consumer preferences toward e-commerce, online retailing and the introduction of new technologies; (f) risks and uncertainties relating to information management, technology, property management and development, supply chain, product safety, changes in law, regulation, competition, seasonality, weather patterns, commodity price and business disruption, the Company s relationships with suppliers manufacturers, partners and other third parties, changes to existing accounting pronouncements, the risk of damage to the reputation of brands promoted by the Company and the cost of store network expansion and retrofits; and (g) the Company s capital structure, funding strategy, cost management programs and share price. Management cautions that the foregoing list of important factors and assumptions is not exhaustive and other factors could also adversely affect the Company s results. Investors and other readers are urged to consider the foregoing risks, uncertainties, factors and assumptions carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. For more information on the risks, uncertainties and assumptions that could cause the Company's actual results to differ from current expectations, please refer to the "Risk Factors" section of our Annual Information Form for fiscal 2013 and our 2013 Management's Discussion and Analysis, as well as Canadian Tire's other public filings, available at and at Forward-looking statements do not take into account the effect that transactions or non-recurring or other special items announced or occurring after the statements are made, have on the Company s business. For example, they do not include the effect of any dispositions, acquisitions, asset write downs or other charges announced or occurring after such statements are made. The forward-looking statements and information contained herein are based on certain factors and assumptions as of the date hereof. The Company does not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, unless required by applicable securities laws. 1 1

3 Banner snapshot 2 2

4 Our core business is retail Six key business categories Customer Preparing Canadians for the Jobs & Joys of Life in Canada Retail banners 2013 revenue = C$11.8B C$8.0B C$1.7B C$1.1B C$1.0B Reporting segments Business categories Retail Automotive Living Fixing Playing / Sporting Goods Apparel Financial Services Products and services 3 Gas Auto Parts Tires & Power Sports Auto Service Car Care & Accessories Roadside Assistance Home Cleaning Home Decor Home Org Kitchen Backyard Living & Fun Gardening Outdoor Tools Seasonal Home Services Home Repair Paint Tools Hockey Golf Cycling Fitness Camping Hunting Fishing Industrial Wear Men s Wear Women s Wear Athletic Apparel Footwear Accessories Credit Cards Retail Deposits In-store Warranties Insurance Deferred & Instalment Payments 3

5 Our retail network across Canada At least one Canadian Tire store is within 15 minutes of 90% of Canadians 4 Canadian Tire distribution centres 2 Mark s distribution centres 3 trans load facilities 3 auto parts distribution centres 3 FGL sports distribution centres West Ontario Quebec East Store count as at June 28,

6 Reasons to invest in CTC We have a strong competitive advantage We have extensive reach and scale We are investing in retail leadership We are committed to consistent financial performance National presence with nearly 1,700 outlets Diverse and innovative products Unique strength in Automotive Leading Sporting Goods retailer Leading market share in many key business lines Complementary financial products 90% of Canadians located 15 minutes from a Canadian Tire store Global sourcing capabilities Tailored store formats: urban, small market and rural 30 million ft 2 retail square footage Canada s most-read flyer One of the most visited retail websites in Canada Leadership in key heritage categories Enhanced Loyalty program Enhancing digital footprint Customer-friendly store layouts Modern supply chain and continued productivity enhancements Attracting strong talent Sustainable earnings growth Healthy free cash flow Strong balance sheet Prudent credit risk management Good liquidity with multiple sources of funding Balanced approach to capital allocation Evolving e-commerce offering We are a leading Canadian retailer Canadian Tire stores refer to stores operated under the Canadian Tire name and trademark 5 5

7 A balanced approach to capital allocation 1. Invest in our businesses 2. Maintain investment-grade debt and credit ratings 3. Return capital to shareholders Dividends* Share repurchases 4. Identify organic and inorganic opportunities Expand assortments and products in key categories Acquisitions that enhance the brand and build on key/heritage categories (i.e. Sports, Automotive, Outdoor Living) * IIn Q3 2013, annual dividend increased by 25%. In Q2, 2014, annual dividend increased by approximately 14% 6 6

8 Creating value for shareholders CT REIT Initial Public Offering: May Announced intention to form CT REIT to: Surface the value of CTC s real estate Create a stand-alone vehicle for CTC s real estate which will support continued real estate investment Provide CTC with increased financial flexibility to pursue new opportunities to invest in and grow the business October Completed CT REIT IPO CTC retained 83.1% majority interest in CT REIT allowing CTC to retain control over its real estate properties Surfaced value of owned real estate portfolio and led to new approach to valuation (sum-of-the-parts) Provides future access to capital through investment in CT REIT 7 7

9 Returning value to shareholders 2014 Initiatives: Increased annual dividend to $2.00/share or approx 14.3% in Q Increased dividend 25.0% to $1.75/share in Q Announced $200 million Class A non-voting share repurchase Increase of $100 million vs Announced early retirement of $200 million in corporate debt 8 8

10 Returning value to shareholders Increase of 33% Policy to maintain dividend payments equal to 25% to 30% of the prior year s normalized basic net earnings $1.88 Member of S&P/TSX Canadian Dividend Aristocrats index $1.40 Annual Dividends Paid $1.10 $1.20 $0.40 $0.48 $0.56 $0.64 $0.72 $0.82 $0.84 $ * 2014F** * In Q3 2013, CTC announced an annual dividend increase of 25% to $1.75 per share ** In Q2 2014, CTC announced an annual dividend increase of 14.3% to $2.00 per share 9 9

11 Strengthening financial flexibility 2014 Initiatives: Announced strategic partnership with Scotiabank Scotiabank to purchase 20% interest in Financial Services business for $500 million Scotiabank to provide $2.25 million funding commitment for Financial Services credit card portfolio Opportunity to identify new opportunities to improve customer loyalty and generate incremental sales through sponsorships and new products and services Alignment on community-based initiatives and sports partnerships Transaction expected to close in Q

12 Financial flexibility Q Financing source Amount Description Short-term borrowing $1,675.0 million Committed bank lines of credit provided by Canadian financial institutions. $1,475.0 million are available for general corporate purposes and to support the commercial paper programs of both Canadian Tire and Glacier Credit Card Trust ( Glacier ). Included in the lines is $200.0 million for general purposes of CT REIT. Bank lines were undrawn as at June 28, 2014 $200.9 million commercial paper was outstanding as at June 28, 2014 including $121.0 million for Glacier and $80 million for CTC CT REIT had no borrowing under its credit facility as at June 28, Corporate Medium Term Notes (MTN) program $750.0 million $750 million base Shelf Prospectus renewed and filed in March 2013, providing the Company with access to up to $750.0 million for 25 months from that date. No issuance under this Shelf Prospectus as at June 28, CTC redeemed a $200 million MTN on June 25, 2014 ahead of initial maturity of June 1, Securitization of receivables Transaction specific Handled through Glacier in form of commercial paper and medium term notes No new credit card receivables securitization was completed in 2014 so far Financial Services paid down $252.5 million of credit card receivables backed medium term Notes upon maturity on May 20, 2014 (2006 series). Broker GIC deposits No specified limit Funds are readily available through broker networks. Retail deposits No specified limit Consists of high interest savings accounts, tax-free savings accounts and retail GIC deposits. Real estate Transaction specific Strategic transactions involving properties not owned by CT REIT. CT REIT Various Additional sources of funding are available to CT REIT including access to debt & equity markets

13 Our 2014 strategic objectives 1. Invest in and grow existing retail networks 2. Invest in technology, digital and loyalty platforms 3. Build a high-performing organization Our strategic objectives serve as the foundation for achieving our five-year financial aspirations 12 12

14 Invest in and grow existing retail networks Achieve growth in Canadian Tire through a customer-centric approach Retail segment network expansion and development Complete 40 Smart store projects Complete 50 ProShop concepts Complete 20 new Sport Chek stores including two flagship stores Rebrand all remaining Mark s Work Wearhouse stores Build on growth across the Company s network of retail banners to support CT REIT s growth agenda Continue to assess relevant organic and inorganic opportunities to generate sustainable, long-term growth from heritage categories 13 13

15 Invest in technology, digital and loyalty platforms Digital/e-commerce expansion and rollout Roll-out Canadian Tire e-commerce functionality nationally Continue to invest in infrastructure to support future enhancements to Mark s and FGL Sports e-commerce channels Install additional product locator technology in 300 stores Expand use of digital technologies both instore and on mobile devices at Sport Chek Evolve the collection, use and dissemination of customer data and insights to effect marketing and purchasing decisions across all banners and explore additional customer-centric opportunities 14 14

16 Build a high-performing organization Establish a corporate culture of continuous improvement Optimize organizational performance and execution Continue to evolve CTC into a brand-led organization Identify financial partner and complete transaction for Financial Services credit card business Implement terms of new Dealer contract Identify opportunities to improve productivity to generate additional earnings growth 15 15

17 Progressing towards our financial aspirations Financial Measure Canadian Tire retail sales annual growth Results Achieved in to 2013 CAGR 1 Achieved from 2010 to to 5% 2.5% 1.9% Consolidated EPS annual growth 8 to 10% 13.5% 14.1% Return on invested capital 2 10% + 7.4% 7.4% 3 Financial Services return on receivables to 5% 7.3% 7.3% 3 Total return to shareholders including dividends 10 to 12% 46.5% 16.1% 1 Cumulative average growth rate. 2 Key operating performance measures. Refer to section 10.3 in the Q and full-year MD&A for additional information. 3 ROIC and ROR are targets intended to be achieved at the end of the outlook period, therefore, have been calculated as at the year-end date

18 Consolidated highlights Q ($ in millions except per share amount) Q Q % Change Retail sales 1 $3,721.6 $3, % Revenue $3,166.1 $3, % EBITDA $374.6 $ % Net income attributable to: Owners of the Company $169.9 $ % Non-controlling interests $ Basic earnings per share attributable to owners of the Company Diluted earnings per share attributable to owners of the Company $2.14 $ % $2.12 $ % 1 Retail sales for the prior year have been restated. Refer to section 8.3 in the Q MD&A for additional information on the restatement and on retail sales

19 Retail segment highlights Q ($ in millions) Q Q % Change Retail Sales 1 Canadian Tire retail sales growth 3.4% 2.9% - FGL retail sales growth 13.7% 1.5% - Mark s retail sales growth 2.6% 6.5% - Petroleum retail sales growth 5.3% (2.3)% - Revenue $2,879.5 $2, % Gross margin (% of revenue) 28.2% 27.6% 60 bps Selling, general and administrative expenses (excluding depreciation & amortization) $622.5 $ % EBITDA 2 $231.5 $ % Net finance costs $10.1 $18.0 (43.1)% Income before income taxes $149.6 $ % 1 Retail sales for the current year have been restated. Refer to section 8.3 in the Q MD&A for additional information. 2 Non GAAP measure. Refer to non-gaap measures in section 8.3 of the Q MD&A for additional information

20 CT REIT segment highlights Q ($ in millions) Q Financial Forecast Variance Property revenue $83.4 $83.3 $0.1 Property expense $(17.7) $(18.7) $1.0 General and administrative expense $(2.5) $(2.0) $(0.5) Net income $45.7 $42.2 $3.5 Net operating income 1 $58.7 $57.6 $1.1 Funds from operations 1 $42.9 $42.2 $0.7 Adjusted funds from operations 1 $32.2 $31.6 $0.6 1 Non GAAP measures. Refer to non-gaap measures in section 8.3 of the Q MD&A for additional information

21 Financial Services segment highlights Q ($ in millions) Q Q % Change Revenue $267.7 $ % Selling, general and administrative expenses $81.8 $ % Net finance income $2.2 $ % Income before income taxes $92.3 $ % Gross average accounts receivables $4,629.9 $4, % Net credit card write-off rate 6.02% 5.86% - Return on receivables 7.21% 7.19% - 1 Key operating performance measures. Refer to section 8.3 in the Q MD&A for additional information

22 Interconnected retail Any device, anywhere, anytime commerce We will be there for our customers whether they are in our stores, at home or on the home mobile store 21 21

23 Digital experience Delivering the ultimate digitized shopping experience More than 500 functional enhancements and user experience improvements made to Canadian Tire websites, kiosks and mobile apps in Q2 35 digital screens, including seven interactive screens, installed at CTC s Showroom store In-store Wi-Fi and 7,000+ tablet devices Innovative suite of mobile apps Inspirational digital catalogue Cloud Nine Digital Innovation Centre in Winnipeg Partnership with Communitech 22 22

24 Customer experience Canadian Tire Showroom store a living lab that incorporates digital advancements that engage customers Canadian Tire - Hunting/Fishing Pro Shops roll out FGL Sport Chek retail lab serves as testing ground for interactive displays and digital enhancements West Edmonton mall 80,000 square foot Sport Chek/Atmosphere flagship store opened in Q includes enhanced store design and key brands Continue Mark s expansion with store rebranding and network enhancements Canadian Tire - sales staff armed with tablets with access to information to answer customer's questions effectively Focused on assortment of innovative products across banners 23 23

25 Outlook Operating expense growth in line with revenue growth Effective tax rate estimate: 27.0% for 2014 Reflects estimated impact of CT REIT based on its forecasted 2014 operations In 2014, CAPEX estimated between $500 million and $525 million due primarily to Retail store network expansion, and investment in IT and digital initiatives In addition, costs of approximately $75 million to $100 million associated with future distribution capacity in 2014, and property investments by CT REIT acquired from third parties will be incurred in Costs from both of these activities will increase the overall capital expenditures for CTC

26 Canadian Tire Corporation Additional information

27 Automotive strategy Canada s authority in Automotive Improve Auto Service Remain a leader in Tires Strengthen Auto Parts Completed AI program rollout in 2011 Auto Service performance improvement program continues to educate technicians on system and benefits Continue to make improvements to auto service experience Tires and wheels e-commerce site launched in 2011 Canadian Tire is Canada s leading online tires and wheels retailer Improve in-store parts assortment Fully leverage AI program to take advantage of customerspecific part lookup and preventative maintenance part purchasing opportunities PartSource supports Canadian Tire stores through network expansion of Hubs, Mini Hubs and Micro Sites in select areas 26 26

28 Sports strategy Embracing the Power of Sport A heritage category at Canadian Tire Where Sport Begins Recreational sporting goods destination for Canadian families seeking value and safety Canadian Tire will be the destination for key categories such as cycling, exercise, hockey and soccer Assortment caters primarily to families and recreational players 27 Growth strategy at FGL Sports Your Better Starts Here Focused on three core banners: Sport Chek, Sports Experts and Atmosphere Plan to add net 1.4MM sq. ft. of retail space over 5 years net of planned closures and conversions Acquired in August 2013, PHL adds 23 high-end hockey equipment stores to the FGL retail network Partnering with Sports Federations and Networks Canadian Tire Corporation and TSN partnership focused on strategic digital advertising Canadian Tire, Sport Chek and Sports Experts are Premier National Partners of the Canadian Olympic Team Additional partnerships with the Canadian Paralympic Committee, the Canadian Soccer Association, Skate Canada, Hockey Canada, Alpine Canada Alpin and Canada Snowboard 27

29 Business sustainability Business sustainability is integrated into our operations and business plans Optimize Productivity Drive product and operations value chain improvements Drive Company Engagement Engage employees through integration of sustainability practices into everyday business operations Enhance the Brand Protect and enhance banner brands and corporate reputation Develop Innovation Create and reinvent better processes, products and services The Company aims to serve its customers, communities, employees and shareholders both now, and in the future Business Sustainability Initiatives completed in 2013 are forecasted to annually avoid: $5.3 million in costs which could then be available to be invested back into the business The equivalent to the energy consumption of more than 1,700 Canadian homes, 1,700 tonnes of waste and 2,291 cubic meters of water The Company s extended value-chain 2012 energy and carbon footprint results reflect an increased focus on productivity: Greenhouse gas emissions decreased by 1.3% while revenue increased by 2.0%. Energy use was reduced in all areas of our value chain Product, Product Transport, Business and Retail operations where energy use decreased by 1.8%, 2.7% and 1.0% respectively. To read more about CTC s commitment to business sustainability, and to access our business sustainability performance reports, please visit:

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