Investor Presentation - April 2015
Canadian Tire Corporation Investor Presentation April 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 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 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. Table of Contents Investor Day Highlights………………………………………………………………….4 Creating Value for Shareholders………………………………………………….....5-6 Corporate Overview……………………………………………………………………..7 Financial Aspirations 2010 – 2014…………………………………………………….8 2015 Strategic Objectives….……………………………………………………….9-10 Our Retail Network Across Canada………………………………………………….11 Our Core Business is Retail…………………………………………………………..12 Canadian Tire.………………………………………………………………………..13 FGL Sports….………………………………………………………………………...14 Mark’s……….………………………………………………………………………...15 CT REIT……………………………………………………………………………….16 Canadian Tire Financial Services.………………………………..….….…………17 Delivering Solid Results.……………………………………..………..………………18 Returning Value to Shareholders.………………………………………………..19-20 Canadian Tire - A Strong Investment Proposition…………………………...……..21 2014 Results.…………………………………………………………………………...22 2014 Year-to-Date Highlights…..…………………………………………………..23 2015 Outlook……………………………………………………………………………24 2015 Outlook………………………………………………………….………………25 Three Year Financial Aspirations 2015 – 2017 .……………………………………26 3 Investor Day Highlights – October 9, 2014 Announced new three-year financial aspirations for 2015 to 2017 (refer to slide 24) Outlined strategic priorities across enterprise Provided key growth drivers in core business divisions including: Successfully making a generational shift to reaching younger families at Canadian Tire Growing Sport Chek network footprint and building an unassailable connection with target customers Refreshing interior of stores, investing in targeted marketing to new customer demographic and increasing presence in higher-traffic locations at Mark’s Focusing on new initiatives such as instant credit, offering enhanced value through new loyalty program and co-marketing opportunities with partners Reiterated balanced approach to capital allocation and use of cash Focus on talent, digital and analytics and brand Announced intention to repurchase additional $400 million (in excess of shares purchased for anti-dilutive purposes) of Company’s Class A Non-Voting Shares to end of fiscal 2015 Highlighted financial strengths Focus on productivity initiatives to make CTC more efficient and profitable Outlined sources of financial flexibility Insights into recent transactions - CT REIT and Financial Services For more information on CTC’s 2014 Investor Day http://investors.canadiantire.ca 4 Creating Value for Shareholders 2014 Initiatives: Closed strategic partnership transaction with Scotiabank on October 1, 2014 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 5 Creating Value for Shareholders CT REIT Initial Public Offering: May 2013 - 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 2013 - 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 6 Corporate Overview Family of companies No one prepares you better for the jobs & joys of everyday living Our strengths Family of the most recognized retail brands in Canada Market leadership and credibility in heritage categories Financial flexibility / REIT / Scotiabank transaction Strong balance sheet / credit rating Nearly 1,700 retail and gasoline outlets and community presence Shared real estate, marketing, supply chain, services Our growth plan Strengthen and grow core businesses Retailer first with strong financial services Record earnings in competitive environment New flagship stores and concept renewal Expanded assortments and endless aisle National rollout of e-commerce Personalized offers using information gathered from ‘My Canadian Tire Money’ loyalty program Financial highlights (2014) Revenue Net Income (before NCI) Diluted Earnings Per Share Growth (YoY) $12.5B +5.7% $639.3M +13.3% $7.59 +9.8% How we win Family of CTC companies – strong coalition Investing in digital and customer experience Building our brands and exclusivity Loyalty and the power of customer data Activating on sports and community partnerships The store for ‘Life in Canada’ 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 7 Financial Aspirations – 2010 – 2014 Aspirations over 5-year period to 2014 2014 Results Achieved in 2014 2010 to 2014 CAGR1 Achieved from 2010 to 2014 Canadian Tire retail sales (POS) annual growth2 3 to 5% 4.4% 2.4% Consolidated EPS annual growth 8 to 10% 10.0% 13.3% Retail return on invested capital2 10% + 8.1% 8.1%3 Financial Services return on receivables2 4.5 to 5.0% 7.4% 7.4%3 Total return to shareholders including dividends 10 to 12% 24.3% 17.5% Financial Aspirations 1 Cumulative average growth rate. Key operating performance measures. Refer to section 9.3 in the Q4 2014 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. 2 8 2015 Strategic Objectives 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 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 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 9 2015 Strategic Objectives 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 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 10 Our Retail Network Across Canada DISTRIBUTION FACILITIES 4 CTR distribution centres 2 Mark’s distribution centres YUKON 3 trans load facilities NORTHWEST TERRITORIES 3 auto parts distribution centres 1 1 1 0 1 1 0 0 0 0 BRITISH COLUMBIA ALBERTA 3 FGL sports distribution centres SASKATCHEWAN MANITOBA 52 55 14 14 43 53 11 10 58 63 16 13 5 19 6 6 0 15 6 6 ONTARIO QUEBEC NEWFOUNDLAND AND LABRADOR NEW BRUNSWICK NOVA SCOTIA PRINCE EDWARD ISLAND 202 99 13 19 21 2 124 167 6 8 11 2 146 45 8 13 17 2 167 59 12 15 8 0 61 0 0 0 3 0 11 Our Core Business is Retail Customer Six key business categories Preparing Canadians for the Jobs & Joys of Life in Canada Retail banners 2014 revenue = C$12.5B zz C$8.4B Reporting segments Business categories Products and services C$1.9B C$1.1B Retail Automotive Living Fixing Playing / Apparel Sporting Goods 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 C$1.1B Financial Services Credit Cards Retail Deposits In-store Warranties Insurance Deferred & Instalment Payments 12 Canadian Tire 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 Act less like a general merchant and more like a specialty retailer Revitalize and localize assortments, expand key categories (specialty pro shops, endless isle) and grow new product pipeline Testing innovative store concepts (Showroom and Showcase stores) and refreshed network Analyze customer shopping data from new Canadian Tire Money loyalty program Expand e-commerce and digital capability How we win Newly strengthened Dealer relationship Tailored customer connections throughout the shopping experience Store concept, redesign and omni-channel investment Sports partnerships and community engagement Financial highlights (2014) Banners Revenue * $6.3B Sales growth 4.4% Same store sales growth ** 2.4% Canadian Tire store count PartSource store count Gas+ gas bar count 493 91 297 *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 13 FGL Sports Our game plan Our strengths Canada’s largest sporting goods retailer Close relationships with elite vendor brands Wholesale division – direct sourcing Merchandizing and store operations World-class digital concept and flagship stores Our growth plan Network expansion: 2M square feet of net new retail space from 2012 - 2017 Launch Hero stores & expand number of flagship stores Super-branding for three lead retail banners Build unparalleled emotional connection with customers Digital and e-commerce integration Use innovation and digital technology to bring brands and products closer to customers How we win Conduit to the best sports brands in the world Premier real estate locations Innovative in-store experience Community engagement and sports partnerships activation Financial highlights (2014) Key banners Revenue $1.9B Sales growth 11.5% Same store sales growth* Store count 6.9% 436 *Reported on a 52 week vs. 52 week period How we fit in the CTC Family Growth driver Engages younger customer throughout lifecycle Digital testing ground 14 Mark’s Our game plan Our strengths Industrial apparel, footwear and accessories Product development, innovation and quality Strong private label program National store network Our growth plan Interior store refresh Increase presence in higher traffic areas Invest in targeted marketing to new customer demographic Turbo-charging men’s casual apparel & footwear End-to-end retail infrastructure fortification Win with 35-50 year old Canadians How we win Building brand awareness and affinity Utilize industrial credibility to grow in adjacent categories Enhance style in private label brands Grow assortment with national brands like Columbia, Helly Hanson, Merrell, Buffalo and Silver Improve in-store merchandising and presentation 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 vs. 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 15 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 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 16 Canadian Tire Financial Services 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 Growing innovative services and offerings to customers Strengthening digital 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) $4.7B 7.1% 1,837 3.7% Average number of accounts with a balance (thousands) Return on receivables 7.36% How we fit in the CTC Family Earnings generator Supports core retail business 17 Delivering Solid Results Financial Services Return on Receivables (%) Consolidated Revenue (C$ in millions) 12,463 11,500 11,427 11,786 7.6% 7.4% 5.7% 7.32% 7.36% 2013 2014 7.2% 7.0% 9,500 2012 2013 2014 Consolidated EBITDA (C$ in millions) 1,500 1,138 1,236 1,000 6.8% 6.76% 6.6% 6.4% 2012 1,376 11.4% Retail gross margin (% of revenue) 500 0 2012 2013 2014 Basic EPS attributable to owners of the Company ($) $7 7.65 6.96 6.13 29.5% 28.9% 29.0% 28.5% 28.2% 28.0% 27.5% 27.3% 27.0% 10.0% $5 26.5% 2012 2013 2014 2012 2013 2014 18 Returning Value to Shareholders Dividends: Q3 2014 – increased annual dividend to $2.10 per share, up 5.0% Q2 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 $2.5M of Class A Non-Voting shares (beyond antidilutive purchases) 19 Returning Value to Shareholders 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 $0.56 2005 $0.64 2006 $0.82 $0.84 $0.84 2008 2009 2010 $1.20 $1.10 $0.72 2007 2011 2012 2013 2014* * 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 20 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 $12.5 billion in revenue 31.5 million retail square feet 21 2014 Results 22 2014 Highlights Business results Capital allocation priorities: Investing in the businesses – network growth, IT systems and in-store digital capabilities Maintaining investment-grade debt and credit ratings – retired $200M in corporate debt Returning capital to shareholders Increased annual dividend to $2.10 per share Completed $200M share repurchase commitment Announced new $400M share repurchase intention through to December 2015 Identifying organic and inorganic growth opportunities that will strengthen the brand Expanding assortments and products in key categories Seeking acquisitions that enhance the brand and build on heritage categories (i.e. sports, automotive, outdoor living) Canadian Tire – Shifting focus to operating key category businesses as a specialty retailer Investing for the future: Adding strong retail talent to the businesses Building on momentum in Automotive business FGL Sports - changing the face of Canadian retail through in-store customer experience Creating innovative in-store digital and mobile experiences to engage younger customer demographic Second generation Sport Chek flagship store opened in Burnaby, British Columbia in Q4 2014 Mark’s – building on re-branding and new marketing focused on men’s casual and industrial wear Identified new markets and non-seasonal areas for growth such as in denim Capital allocation Growth Record performance across all businesses Maintained a disciplined balance between sales and margins Innovative product and promotional programs helping to drive sales across all banners CT REIT executed on growth plan and investment strategy through acquisitions Olympic merchandise and marketing increased customer affinity for Canadian Tire and Sport Chek retail brands Completed strategic business partnership with Scotiabank that will grow Financial Services and Retail Introduced digital loyalty program "Canadian Tire Money” to complement existing Loyalty program 23 2015 Outlook 24 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 25 Three Year Financial Aspirations 2015 – 20171,2 Financial Aspirations Details Canadian Tire retail – 3%+ Retail sales (POS) growth (annual aspirations) Mark’s – 5%+ FGL Sports - 9%+ Diluted earnings per share (EPS) (average over three year period) 8% to 10% 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 Consolidated diluted EPS attributable to owners of Canadian Tire Corporation Long-term aspiration remains 10%+ Return on invested capital (aspiration by end of 2017) Return on receivables (ROR) (annual aspiration) 1 Established on October 9, 2014 at Canadian Tire Investor Day 2 Forward looking information – refer to slide 2 for additional information 9% 6% + Aspiration of 9% is more achievable by end of three year period Based on assumptions for rate of receivables growth and operating expenses management 26 For more information http://investors.canadiantire.ca lisa.greatrix@cantire.com or (416) 480-8725 Follow us on twitter @CTCShares
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