Driving Efficiency. November Toronto Ontario

Transcription

1 Driving Efficiency November Toronto Ontario 2008 CP April Investor 22, 2008 Day

2 Forward looking statements The following investor presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (United States) and relevant Canadian legislation relating but not limited to CP s operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as anticipate, believe, expect, plan or similar words suggesting future outcomes. Readers are cautioned not to place undue reliance on forward-looking information because it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise. By its nature, CP s forward-looking information involves numerous assumptions, inherent risks and uncertainties, including but not limited to the following factors: changes in business strategies; general global economic and business conditions; risks in agricultural production such as weather conditions and insect populations; fluctuations in the value of the Canadian dollar relative to the U.S. dollar; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demands; changes in laws and regulations including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of litigation; labour disputes; risks and liabilities arising from derailments; timing of completion of capital and maintenance projects; interest rate fluctuations; effects of changes in market conditions on the financial position of pension plans and investments; and various events that could disrupt operations, including severe weather conditions, security threats and governmental response to them, technological changes, and other risks detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference is made more specifically to the Management s Discussion and Analysis in CP s annual and quarterly reports filed with Canadian and United States securities regulators. Except where noted, all figures are in millions of Canadian dollars. T denotes Target, E denotes Estimate. Financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles, unless otherwise noted. 1

3 Note on earnings measures CP presents non-gaap earnings in this presentation to provide a basis for evaluating underlying earnings trends that can be compared with the prior period's results. These non-gaap earnings exclude foreign currency translation effects on long-term debt, which can be volatile and short term, and/or other specified items, which are not among CP's normal ongoing revenues and operating expenses. The impact of volatile short-term rate fluctuations on foreign-denominated debt is only realized when long-term debt matures or is settled. A reconciliation of income, excluding foreign exchange (gains) losses on long-term debt and other specified items, to net income as presented in the financial statements is detailed in the Summary of Rail Data. It should be noted that CP s earnings that exclude foreign exchange currency translation effects on long-term debt and/or other specified items, as described in this presentation, have no standardized meanings and are not defined by Canadian Generally Accepted Accounting Principles and, therefore, are unlikely to be comparable to similar measures presented by other companies. 2

4 Participants November Delivering to our financial commitments Fred Green Kathryn McQuade Brock Winter Marcella Szel Bob Milloy President and Chief Executive Officer Executive Vice President and Chief Financial Officer Senior Vice President, Operations Senior Vice President, Marketing and Sales Vice President, Marketing and Yield Jane O Hagan Don Campbell Brian Grassby Tracy Robinson John McBoyle Steve Whitney Phil Ireland Senior Vice President, Strategy and Yield Vice President, Corporate Planning Vice President and Comptroller Vice President and Treasurer Vice President, Marketing and Sales Intermodal Assistant Vice President, Marketing and Yield Assistant Vice President, Product Design 3

5 Agenda 1235 Corporate Open 1250 Marketing and Sales 1325 Price and Fuel 1345 Break 1400 Operations 1430 DM&E 1440 Finance 1500 Corporate Close 1505 Question and Answer 4

6 Overview FRED GREEN President and Chief Executive Officer There has never been a better time for greater efficiency April 22, 2008

7 Building shareholder value Our vision is to be the safest, most fluid railway in North America 6

8 Track record of improvement Targeting sustained EPS performance Adjusted earnings per share $3.27 $3.95 $4.32 $4.00-$ E Out years 7

9 Priorities 2009 Deliver enhanced productivity Execution Excellence for Efficiency Pricing and yield Financial conservatism 8

10 Achieving greater efficiency Past investments facilitating new opportunities Leveraging network investments Sufficient capacity New train designs 9

11 Growth options DM&E Book of business and physical footprint create potential for operational efficiency Priority, seamless transition On track to realize EBITDA growth 10

12 Growth options Powder River Basin PRB option remains an avenue for long-term growth DM&E priorities Safety framework System integration Revenue synergies 11

13 Growth options Diverse set of initiatives 12

14 Regulatory environment Prospects for rail industry are positive Fuel efficiency rail vs. truck 3 4x More efficient Rail accounts for less than 1% National GHG 1 emissions 1 GHG stands for Green House Gas 13

15 Regulatory environment Canadian Canadian commercial environment stable Canada Transportation Act Modest expansion of shipper remedies Railway Safety Act Review complete CP supports panel recommendations 14

16 Regulatory environment US US environment more uncertain Pressure to increase commercial regulation New safety regulation Introduction of positive train control by end of

17 Efficiencies 2008 Actions taken position us well for the future Challenges Actions Volume Unexpected drop-off Execution Excellence for Efficiency (E 3 ) Fuel Price and volatility Improved quality and responsiveness 16

18 Driving efficiency Focused on sustained EPS improvement Deliver additional ways to reduce cost Protect our long-term growth Simplify our product and improve pricing 17

19 Marketing and Sales MARCELLA SZEL Senior Vice President Marketing and Sales CP has a great franchise to create value based on underlying market pillars and proven strategies April 22, 2008

20 Agenda Part 1 Underlying market pillars Proven market strategies Part overview 2009 price and fuel (Bob Milloy) 19

21 Market pillars Positioned to create value based on market pillars Agribusiness Energy Trade 20

22 Agribusiness Grain Grain is 73% of Agribusiness with a five-year CAGR of 10% Edmonton Calgary Volumes originating from high throughput facilities Regina Winnipeg 80% Minneapolis Rapid City Canadian Grain 56 car spot Canadian Grain 112 car spot US high throughput elevator DM&E grain elevator 21

23 Agribusiness Grain Excellent outlets Edmonton Vancouver Calgary Winnipeg Thunder Bay Montreal Minneapolis Toronto Rapid City Chicago 22

24 Agribusiness Grain Capturing opportunities through grain business developments Edmonton Calgary Regina Winnipeg Investments supporting growth Efficiency through customer consolidations DM&E Extended hauls Expanded market Minneapolis Rapid City Canola crush and elevator expansions:

25 Agribusiness Grain World class grain handling transportation system 24

26 Agribusiness Fertilizer Fertilizer is 27% of Agribusiness with a five-year CAGR of 3% Pacific export potash 100% Market share Potash mine 25

27 Agribusiness Potash Mine production capacity expanded by 2.6 million metric tonnes since 2005 Further planned potash production capacity 53% Increase by

28 Energy 18% of business with a three-year CAGR of 5% World energy consumption 50% Increase by 2030 Source: World Energy Demand and Economic Outlook, June 2008, US Energy Information Administration 27

29 Energy Coal Coal to be solid over the long run Teck Coal is the second largest supplier of seaborne metallurgical coal Expanding role in existing thermal coal movements 28

30 Energy Oil and Gas Western Canada energy economy to sustain growth Direct outputs and downstream products Regional feedstock 29

31 Energy Opportunities Opportunities for growth connected to development, extraction, distribution and bi-products 30

32 Energy Opportunities Four areas of growth Development Steel, pipe, vessels and aggregates Significant volume growth Extraction Drill pipe, frac sand and clays Bentonite clay (DM&E) Distribution Large diameter pipe and condensates Serving all major pipe producers Bi-products Sulphur and future petcoke Long-term sulphur contracts 31

33 Energy Opportunities Well positioned to serve the Bakken Formation Edmonton Bakken Formation Calgary Bakken Formation Regina Winnipeg Billions of barrels Minneapolis Rapid City 32

34 Energy Alternative energy Alternative energy is a source of new value Ethanol production capacity served by CP 1 Billion Gallons 33

35 Trade North American and Global Trade touches three quarters of CP s business Multiple Canadian and US gateways New advantages with DM&E Leading ports 34

36 Trade Port Metro Vancouver PMV has ample capacity to grow PMV intermodal capacity 170% Increase by

37 Trade Pacific Northwest ports Potash and grain growing in partnership with Union Pacific PNW exports 58% Increase over last five years 36

38 Trade Port of Montreal CP has grown container traffic at 5% CAGR over the past four years Excellent port access Leading US terminals Daily destination trains 37

39 Market pillars Positioned to create value based on market pillars Agribusiness Energy Trade 38

40 Proven strategies The foundation to deliver value Quality book of business Market development Disciplined yield 39

41 Proven strategies Quality book of business Diverse portfolio and market-leading customers deliver consistent value Diverse portfolio Aligned with winners Wide range of commodities Participation in global and North American markets 40

42 Proven strategies Market development Making our market through opportunity pipeline process Realized opportunities $100 Million and more in the pipeline 41

43 Proven strategies Disciplined yield Drives revenue growth and reduces cost to serve $ 42

44 Market pillars and proven strategies A great franchise to create value Pillars Agribusiness Strategies Quality book of business Energy Market development Trade Disciplined yield 43

45 2009 Will deliver added value in a weak economy Stability from Agribusiness, Energy and Trade Disciplined yield through price, efficiency and improving fuel recovery Slightly lower volumes Revenue growth through yield Economic uncertainty 44

46 Business group breakout 1 A well-balanced portfolio Truck-like product Intermodal 27% Bulk 44% Low-cost bulk carrier Manufacturers pipeline Merchandise 29% 1 Estimated 2008 freight revenue breakout, including DM&E 45

47 2009 Bulk Bulk delivers some growth from grain and short-haul thermal coal 46

48 2009 Grain Healthy crop size, pipeline performance and new business delivering growth Canadian grain crop 16% Increase over last crop year 47

49 2009 Coal Metallurgical coal lower on account of global steel market uncertainty Teck Coal Contract expires March 31, 2009 Currently in negotiations New short-haul thermal coal Five million short tons 48

50 2009 Sulphur and fertilizer Reduced volumes overall Potash Strong fundamentals Canpotex expects record sales in 2008 Protecting same level for 2009 Some uncertainty due to credit markets 49

51 2009 Bulk Bulk to deliver single-digit volume growth on healthy grain crop and new short-haul thermal coal Bulk volume Grain Coal Sulphur and fertilizer

52 2009 Merchandise Focused on maximizing value from every car 51

53 2009 Forest products Reduced volume on size and duration of housing downturn US housing starts 850 Thousand 52

54 2009 Automotive New plant volume more than offset by overall weaker auto sales Toyota Woodstock plant Vehicle sales down Aligned with New Domestic producers 53

55 2009 Industrial and consumer products Diverse portfolio to deliver modest volume growth Chemicals and energy stable Softer segments offset by emerging markets Large diameter pipelines progressing 54

56 2009 Merchandise Slightly reduced volumes focus on value from pricing and emerging markets Merchandise volume Forest products Automotive Industrial products

57 2009 Intermodal Economic weakness partially offset by port-related gains Domestic Increased transloading Softer volumes overall International Key account stability Lower Canadian dollar supports exports 56

58 2009 Intermodal Slightly lower volumes as domestic weakness only partially offset by offshore sourcing and exports Intermodal volume Domestic International

59 2009 CP will deliver value in a weak economy Stability Agribusiness Energy Trade Disciplined yield Price Efficiency Improved fuel recovery 58

60 2009 With weaker volumes, revenues will be a yield story Bulk 2008/2009 crop New thermal coal Merchandise Emerging markets offset by economy Intermodal Port gains do not offset economic weakness 59

61 Price and Fuel BOB MILLOY Vice President Marketing and Yield The pricing environment is different than what we faced two years ago but, not as much as one might think April 22,

62 Yield program Generating returns through price, margin improvement and effective fuel recovery Price for value Receiving full value for the product we sell Achieving goals around productivity Motivating velocity 61

63 Price performance Delivering solid price results Renewals 5-6% 62

64 Price performance Renewals are the best indicator as core price results are masked by factors impacting average revenue per car Fuel revenue Canadian dollar Traffic mix Renewal price 63

65 Price environment A different but still sound pricing environment Current realities Softer volumes Regulation Positive Fundamentals Strength versus truck Capacity management Commodity prices Service reliability 64

66 Price environment Pricing fundamentals remain solid Truck competitiveness Low volume exposure Narrowing cost differentials Capacity management Size IOP to demand Drive efficiency Market s ability to pay Commodity prices Moderating fuel surcharges Reliable service Price for value 65

67 2009 price portfolio 50% to be re-negotiated, plus Teck Coal Tariffs Multi-year contracts One-year contracts 66

68 2009 pricing formula Locked-in value supports core price expectation in mid-single digit range Embedded price + Pre-set price + Renewals Fuel Core price Less fuel 67

69 Enhancing yield Yield management is more than basic freight rates Supplemental services Product reach Improved margins Balancing 68

70 Enhancing yield Reducing cost-to-serve to improve margins Velocity initiatives Pipeline management 24x7 customer alignment Train design Fleet productivity Technology 69

71 Enhancing yield Testing additional tactics to increase value Market pricing and shorter terms for flexibility Menu-based pricing Segmentation Web functionality Supply chain opportunities 70

72 Fuel Improved quality of coverage will result in a much more responsive and effective 2009 program Effective margin coverage Addressing indices and legacy contracts More timely fuel surcharge updates 71

73 Summary Deliver mid-single digit pricing to support sustained EPS growth Disciplined pricing Effective fuel recovery Margin initiatives Pipeline of opportunities 72

74 Driving Efficiency November Toronto Ontario 2008 CP Investor Day 73