investor presentation september 2015
TRANSCRIPT
Canadian Tire Corporation Investor Presentation
September 2015
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 businesse s, 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 cu stomers 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 retail ing 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 2014 and our 2014 Management's Discussion and Analysis, as well as Canadian Tire's other public filings, available at www.sedar.com and at
www.corp.canadiantire.ca.
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.
Corporate Overview
Family of companies
Our strengths
Strong iconic brands that Canadians love
Market leadership and credibility in heritage categories
Financial flexibility / REIT / Scotiabank transaction
Strong balance sheet / credit rating
1,700 bricks and mortar locations across Canada
Shared real estate, marketing, supply chain, services
Our growth plan
Establish Canadian Tire as a world class leader in innovative uses
of digital for retailing
Growth and integration of in-store digital and e-commerce
Leading customer loyalty and reward programs
Engaging digital marketing, use of sponsorships and powerful content
Continue to invest to strengthen our core businesses
Culture of productivity with a performance management focus
How we win
Exceeding customer expectations with best omni-channel retail
platforms
Conduit between the between customers and the best consumer brands in the world
Building our brands and exclusivity
Family of CTC companies – strong coalition
Sports and community partnerships
Financial highlights (2014) Growth (YoY)
Revenue $12.5B +5.7%
Net Income (before NCI)
$639.3M +13.3%
Diluted Earnings Per Share $7.59 +9.8%
Market Leadership
Leadership position across heritage/core business
categories – Automotive, Living, Fixing & Playing
#1 in Men’s Industrial & Casual Apparel
1 in 5 Canadians hold a Canadian Tire credit card
No one prepares you better for the
jobs & joys of everyday living
3
Our Retail Network Across Canada*
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NEW BRUNSWICK
NOVA SCOTIA
MANITOBA
ONTARIO
SASKATCHEWAN BRITISH COLUMBIA
ALBERTA
NEWFOUNDLAND AND LABRADOR
PRINCE EDWARD ISLAND
QUEBEC
YUKON NORTHWEST TERRITORIES
4 CTR distribution centres
2 Mark’s distribution centres
1 Joint Mark’s and FGL Sports DC
3 Transload facilities
3 Auto parts distribution centres
3 FGL sports distribution centres
DISTRIBUTION FACILITIES
*Reflects store network as of the end of Q2 2015
Our Core Business is Retail
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No one
prepares you better for the
jobs & joys of everyday living
Automotive Living Fixing Playing / Sporting Goods
Apparel
Retail
banners
Business
categories
Products
and
services
Home Cleaning
Home Decor
Home Org
Kitchen
Backyard Liv ing
& Fun
Gardening
Outdoor
Tools
Seasonal
Gas
Auto Parts
Tires & Power
Sports
Auto Serv ice
Car Care &
Accessories
Roadside
Assistance
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
2014 rev enue = C$12.5B C$8.4B C$1.9B C$1.1B C$1.1B
Reporting segments
Financial
Services
Retail
Customer
Six key business
categories
Financial highlights (2014) Banners
Revenue * $6.3B
Sales growth 4.4%
Same store sales growth ** 2.4%
Canadian Tire store count 493
PartSource store count 91
Gas+ gas bar count 297
*Excludes Gas+ Revenue
**Reported on a 52 week vs. 52 wk. period
How we fit in the CTC Family
Mature, healthy core business, cash generator
Flagship business, central to Corporate brand
Credibility in core categories
Canadian Tire Retail
Our game plan Our strengths
One of Canada’s most trusted and iconic brands
Most knowledgeable retailer about Life in Canada
Market leader across core categories
Canada’s most read flyer – 12M / week
Local Dealer community presence and trust
Superior real estate locations and national store network
Our growth plan
Strengthen Canadian Tire brand and execute generational shift in
target customer
Revitalize and localize assortments, develop extended assortments and grow new product pipeline
Test innovative store concepts (Showroom and Showcase stores)
and refreshed network
Analyze customer shopping data from new Canadian Tire Money loyalty program
Create personalized customer connections and experiences
Expand e-commerce, supply chain and digital capabilities
How we win
Entrepreneurial Associate Dealer model
Offer the best, most relevant assortment and exclusive products for
Life in Canada
Tailored customer connections in-store, online and mobile
Sports partnerships and community engagement
6
Financial highlights (2014) Key banners
Revenue $1.9B
Sales growth 11.5%
Same store sales growth* 6.9%
Store count 436
*Reported on a 52 week v s. 52 week
period
How we fit in the CTC Family
Growth driver
Engages younger customer throughout lifecycle
Leader in digital innovation
FGL Sports
Our game plan Our strengths
Canada’s largest sporting goods retailer
Close relationships with elite vendor brands
Merchandizing and store operations
Leader in digital marketing and concept/flagship stores
Best sports partnerships
Our growth plan
Network expansion: 2 million square feet of new retail space
from 2012 - 2017
Increase flagship stores and launch hero stores
Build unparalleled emotional connection with customers
Digitization of retail including stores, retail assortment, promotions and brand
Hyper personalized customer experiences across digital and
physical channels
How we win
Conduit for all things sport and activity in Canadian
communities
Premier real estate locations
Innovative and exciting in-store experience
Community engagement and sports partnerships activation
Seamless omni experience online, in-store and mobile
7
Financial highlights (2014) Banners
Revenue $1.1B
Sales growth 4.5%
Same store sales growth* 3.1%
Store count 383
*Reported on a 52 week v s. 52 week
period
How we fit in the CTC Family
Reactivated growth driver
Strong customer alignment with Canadian Tire
Synergies with FGL Sports in sourcing, merchandising,
supply chain and real estate
Mark’s
Our game plan
Our strengths
Industrial apparel, footwear and accessories
Product development, innovation and quality
Wholesale division – direct sourcing
Business to business (B2B)
Strong exclusive brands
National store network / ship from store to customer model
Our growth plan
Turbo-charging men’s casual apparel & footwear
Win with 30-50 year old Canadians
Re-invigorate Quebec network
Invest in targeted marketing to new customer demographic
Expanded and bi-lingual e-commerce capabilities – retail and B2B
How we win
Building brand awareness and affinity
Utilize industrial credibility to grow in adjacent categories
Complement exclusive brands with select national brands
In-store digital improvement and e-commerce expansion
Leverage enhanced sourcing capabilities
8
Shareholder Value Creation
CT REIT Initial Public Offering:
CTC retained 83.1% majority interest in CT REIT allowing CTC to retain control over its real
estate properties
Surfaced the value of CTC’s real estate
Created 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
Scotiabank Partnership Transaction:
Scotiabank purchased 20% minority interest in Canadian Tire’s Financial Services business for $500 million
Scotiabank provided committed funding facility of $2.25 billion to backstop funding of Financial Services’ credit card receivables
Partners identifying co-marketing opportunities to improve customer loyalty and generate incremental sales through sponsorships and new products and services
Canadian Tire and Scotiabank aligned on community-based initiatives and sports partnerships
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Financial highlights (2014)
Property revenue $344.8M
Funds from operations $176.9M
Adjusted funds from
operations $132.9M
AFFO payout ratio 88%
How we fit in the CTC Family
CTC is a major retail tenant with strong brand
recognition
Right of first offer on all CTC properties provides
preferred access to captive pipeline
CT REIT
Our game plan
Our strengths
Irreplaceable Canadian real estate portfolio of more than 270
properties totaling approximately 20 million square feet of GLA
Durable portfolio features
Investment grade anchor tenant - CTC
Exceptional cash flow predictability and reliable monthly distributions
Well-planned solid long-term growth
Our growth plan
Acquisition and intensification opportunities
Canadian Tire Corporation property pipeline
Contractual annual rent escalations
How we win
Highly diversified retail portfolio
Flexible design, configuration and dimension provides capability of supporting a multitude of retail platforms
Actively pursuing third-party retail acquisition opportunities
CT REIT is structured for stability even in potentially volatile markets
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Canadian Tire Bank
Our game plan
Our strengths
$4.7B in receivables, 1.8M active accounts including over 500K of
Canadian Tire’s most loyal customers
Successful management of higher credit risk through the economic
cycle
Extensive customer data and strong analytics capability
Award winning customer service
Highly effective customer acquisition through retail channels
Our growth plan
Growing GAAR
Increasing acquisition of loyal Canadian Tire customers and generating higher profitability from these accounts
Increasing share of tender across all CTC banners
Strengthening digital/mobile capabilities
How we win
Reinvigorating the value proposition of credit cards
Tighter integration with retail banners and Dealers
Scotiabank partnership creating growth through co-marketing opportunities
Financial highlights (2014) Change
Revenue $1.1B 4.8%
Gross average accounts
receivable (GAAR) $4.7B 7.1%
Average number of
accounts with a balance (thousands)
1,837 3.7%
Return on receivables 7.36%
How we fit in the CTC Family
Earnings generator
Supports core retail business
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1. Achieve
financial
aspirations
2. Make balanced
capital allocation
decisions
3. Drive growth in
core businesses
Execute strategy for Retail business growth including innovative marketing campaigns,
banner network expansion, focus on core customer segments at Canadian Tire, FGL
Sports and Mark’s and continuing with Canadian Tire product category focus on specialty
retail operations
Improve supply chain efficiencies and capabilities with new Calgary and Bolton DC
Continue to grow Financial Services through offering new and innovative products and
services, integrating with Retail businesses, enhancing loyalty proposition and through new
account acquisition
Focus on margin management across Retail businesses
Continue to rollout and evolve current Canadian Tire store concepts
Continue to test and develop a new Canadian Tire store concept
Identify new and innovative ways to remain relevant to target customers, including active
families and reinforce Canadian Tire’s place as “Canada’s store”
Continue to rebrand Mark’s Work Wearhouse stores to Mark’s format and begin to rejuvenate
L’Equipeur stores in Quebec
Continue to expand FGL Sports’ retail footprint with the addition of flagship stores
Launch the Sport Chek Hero store concept
Further integrate Financial Services with Retail businesses through additional services offering
2015 Strategic Imperatives
Complete $400M share repurchase of Class A Non-Voting Shares in excess of amount
required for anti-dilutive purposes through December 2015
Maintain operating capital expenditures within $600M to $625M and capital expenditures for
additional distribution capacity within $175M to $200M
CT REIT to gain access to capital markets and demonstrate its ability to raise equity and debt
independently
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4.Transition from
old-world
retailing to the
new world
5. Strengthen the
brands
Continue to grow and enhance the My Canadian Tire ‘Money’ loyalty program
Improve the digital experience across each of the Company’s major retail banners,
including e-commerce channels
Commence deployment of a new POS system at Mark’s and FGL Sports
Launch the first phase of a mobile wallet pilot
2015 Strategic Imperatives
Continue to focus on being a brand-led organization, with continued investment in key brand
building assets, including: Olympic and Sports partnerships; community involvement
programs; and Canadian Tire JumpStart Charities
Continue to build high-quality private-label and exclusive brands
Continue to grow assortment of top national brands at FGL Sports and Mark’s
Develop cross-banner co-marketing initiatives internally and within the scope of the
Company’s strategic partnership with Scotiabank
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Delivering Solid Results
11,427 11,786
12,463
9,500
11,500
2012 2013 2014
Consolidated Revenue (C$ in millions)
5.7%
1,138 1,236 1,376
0
500
1,000
1,500
2012 2013 2014
Consolidated EBITDA (C$ in millions)
6.13 6.96
7.65
$5
$7
2012 2013 2014
Basic EPS attributable to owners of the Company
($)
27.3%
28.2%
28.9%
26.5%
27.0%
27.5%
28.0%
28.5%
29.0%
29.5%
2012 2013 2014
Retail gross margin (% of revenue)
11.4%
10.0%
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6.76%
7.32% 7.36%
6.4%
6.6%
6.8%
7.0%
7.2%
7.4%
7.6%
2012 2013 2014
Financial Services Return on Receivables (%)
Returning Value to Shareholders
Dividends:
Q3 2014 – increased annual dividend to $2.10 per share, up 5.0%
Q1 2014 – increased annual dividend to $2.00 per share, up 14.3%
Q3 2013 – increased annual dividend to $1.75 per share, up 25%. Raised dividend payout ratio to 25% to 30% of prior year’s normalized earnings
Q3 2012 – increased annual dividend to $1.40 per share, up 16.7%
Share repurchases:
Announced $400M share repurchase from October 9, 2014 to December 31, 2015 (beyond anti-dilutive purchases). Approx $316M remains to be repurchased in 2015.
2014 – repurchased $284M of Class A Non-Voting shares (beyond anti-dilutive purchases)
2013 – repurchased $100M of Class A Non-Voting shares (beyond anti-dilutive purchases)
Q4 2012 – repurchased $21M of Class A Non-Voting shares (beyond anti-dilutive purchases)
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$0.56 $0.64
$0.72 $0.82 $0.84 $0.84
$1.10 $1.20
$1.40
$1.88
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Returning Value to Shareholders
Policy to maintain dividend payments equal to 25% to
30% of the prior year’s normalized basic net earnings
Member of S&P/TSX Canadian Dividend Aristocrats index
Annual Dividends Paid
* In Q3 2014, CTC announced an annual dividend increase of 5% to $2.10 per share
* In Q2 2014, CTC announced an annual dividend increase of 14.3% to $2.00 per share
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Canadian Tire – a Strong Investment
Proposition
Extensive reach and scale of business
90% of Canadians located 15 minutes from a Canadian Tire store
National presence with 1,700 retail and gasoline outlets
One in five Canadians hold a Canadian Tire Options MasterCard
Differentiators
~490 Associate Dealers in local communities across Canada
Attracting and retaining world-class talent to grow businesses
Experienced leadership in key functions across the Company
Continued focus on brand-led organization
Delivering strong financial results
Clearly defined growth plan with underlying financial aspirations
Strong balance sheet and multiple funding sources
Committed to balanced approach for returning capital to shareholders
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$12.5 billion in revenue
31.5 million retail square feet
2015 Outlook
18
2015 Outlook
Operating expense growth aligned with revenue growth
Effective tax rate estimate: 27.5% for 2015
Reflects estimated full year impact of Scotiabank NCI and assumes a lower
anticipated stock-based compensation expense
In 2015, operating CAPEX estimated between $600 million and $625 million due
primarily to Retail store network investment and investment in IT and digital initiatives
Additional CAPEX:
Approximately $175 million to $200 million associated with future distribution
capacity in 2015
Third-party property acquisitions by CT REIT
Expected three year (2015-2017) average annual CAPEX between $600 million and $625 million to support continued investment in IT and digital initiatives and
Retail store network growth
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Three Year Financial Aspirations
2015 – 20171,2
Financial Aspirations Details
Retail sales (POS) growth (annual aspirations)
Canadian Tire retail – 3%+
Mark’s – 5%+
FGL Sports - 9%+
Aspirations separated by banner to better reflect
different stages of maturity/growth of individual
retail banners
Based on annual square footage growth
estimates and same store sales assumptions
Diluted earnings per share (EPS) (average over three year period)
8% to 10%
Consolidated diluted EPS attributable to owners
of Canadian Tire Corporation
Return on invested capital (aspiration by end of 2017)
9%
Long-term aspiration remains 10%+
Aspiration of 9% is more achievable by end of
three year period
Return on receivables (ROR) (annual aspiration)
6% + Based on assumptions for rate of receivables
growth and operating expenses management
1 Established on October 9, 2014 at Canadian Tire Investor Day
2 Forw ard looking information – refer to slide 2 for additional information 20
For more information
http://investors.canadiantire.ca
[email protected] or (416) 480-8725
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