Canadian Tire Corporation, Limited. Canadian Tire Investor Presentation

Transcription

1 Canadian Tire Corporation, Limited Canadian Tire Investor Presentation

2 Forward-looking statements This disclosure contains statements that are forward-looking. Actual results or events may differ materially from those forecasted in this disclosure because of the risks and uncertainties associated with Canadian Tire s business and the general economic environment. Risks and uncertainties outlined here are disclosed in other public filings by the Company, such as Management s Discussion and Analysis in the 2005 Annual Report and include, but are not limited to: changes in interest, currency exchange and tax rates, the ability of Canadian Tire to attract and retain quality employees, Associate Dealers, Petroleum agents and PartSource and Mark s Work Wearhouse store operators and franchisees; and the willingness of customers to shop at the Company s stores or access financial products and services. 2

3 Our role in the Canadian retail space Estimated Market Size $45.0 Billion $20 Billion $52 Billion $3.8 Billion $19.0 Billion (receivables) Retail Sales Revenues Receivables Comp Sales Retail Sales $6.8 Billion $1.3 Billion $3.2 Billion (1) >4-5% $790.7 Million Canadian Tire participates directly in a commercial marketplace valued at close to $140 Billion. With leadership positions in our businesses, we have considerable space ahead of us to grow. (1) Gross average receivables. 3

4 Canadian Tire: More than just tires Canadian Tire today is: More than $9 billion in retail sales An inter-related network of businesses engaged in retail, retail-related and financial services businesses 1,100 stores and gas stations We operate Canada s most-shopped general merchandise retailer We are the 2 nd largest MasterCard issuer in Canada based on the number of active accounts We operate Canada s largest independent gasoline retailer, outpumping integrated retailers on average more than 2:1 per site. 4

5 Canadian Tire is a growth company Top-quartile TRS among North American retailers TRS % * Annual TRS 40.3% 30.4% 26.5% 43.0% 24.7% Ranking Second quartile Top quartile Second quartile Top quartile Top quartile * December 31, 2000 to December 31,

6 Performance compared to aspirational targets Aspirational Targets Performance 2005 Performance Comparable store 3-4% 2.6% sales increase 2, % Gross Operating Revenue 3 >10% 8.3% 8.7% EBITDA and minority interest increase % 11.7% 12.2% Basic Earnings per share increase % 16.9% 12.2% 4 After-Tax ROIC >10% 8.7% 1 9.7% 1 Averages of 2001 to 2005 performance, not calculated on a compound annual growth rate (CAGR) basis. 2 Represents sales growth at CTR only. 3 These metrics are expressed in terms of (CAGR). 4 Average of percentages 6

7 Consolidated Financial Performance Gross Operating Revenue ($ billions) Canadian Tire has delivered consistent financial performance 0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 YTD 3/ Basic EPS from continuing operations ($) Cash Flow from Operations ($ millions) '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 YTD 3/06 0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 YTD 3/06 7

8 Financial Snapshot: A position of strength Q Q /- Retail Sales $1.71 billion $1.60 billion 6.9% Revenues $1.57 billion $1.51 billion 4.2% Net Earnings $47.6 million $35.3 million 34.9% Cash (1) $160.7 million $139.6 million 15.1% Assets $5.3 billion $5.0 billion 5.5% (1) Cash generated from operations 8

9 Distribution of Q Revenues and Earnings Gross Operating Revenue Financial Services 10% Earnings Before Taxes Financial Services 38% Petroleum 21% CTR 61% CTR 49% Mark's 8% Petroleum 2% Mark's 11% 9

10 Strategic Plan charts our course for growth Grow sales and revenue Improve earnings performance Embed a Customers for Life Culture Extend growth and performance beyond 2009 Enhance value creation through financial flexibility and maximization of real estate Detailed underlying strategies are in place to execute Canadian Tire s Strategic Plan imperatives 10

11 CTC s competitive advantage exists through its brand, loyalty and product mix Platform of inter-related businesses Brand recognition & trust Canadian Tire Money Reach & scale Innovative formats, products & services Real estate 11

12 Significant value exists in inter-relatedness Indexed Share of Spending at CTR Customers who shop at CTP and use OMC spend significantly more at CTR than the average customer CTR shopping frequency drastically increases when customers begin using CTP OMC customers who shop at CTR and fill-up at CTP are Canadian Tire s best customers Indexed Share of wallet at CTR * (Average of all CTR Customers = 100) Average Annual OMC Spend at CTR and CTP 83 0 CTR Only Average Cardholder Total Spend on OMC $4,000 $3,000 $2,000 $1,000 $0 115 CTR/CTP $414 No CTP $3.1M CTR/OMC CTR/OMC/CTP $638 CTP Average OMC Spend at CTP OMC Spend at CTR $2,701 $667 $1,003 $6.7M Octile 1 $11.8M * Universe of all CTR customers (based on customer survey data). 12

13 Five major inter-related strategic priorities Loyalty Co-marketing Exploit CTFS Share Co-location petroleum of Tender of Mark s at CTR advantages sites 13

14 Business Unit Strategic Focus 14

15 Canadian Tire Retail (CTR): Strategic Highlights 2006 Concept 20/20 Store Renewal Program - up to 80 projects Exciting, New and Exclusive products Global sourcing store projects, including 100 new or replacement stores and 200 retrofits 50% global sourcing target Inventory systems 15

16 Canadian Tire Retail (CTR): Differentiation Strategy Discount Stores Home Improvement Warehouses CTR Strategy Department/ Specialty Stores 3 Differentiators Exciting, new & exclusive products Impactful merchandising Inspiring events & promotions 4 Imperatives Right selection & quality Price assurance Friendly, quick & helpful assistance Products in-stock 16

17 Three primary CTR product divisions Automotive Parts Auto Custom Car Care & Accessories Tires and Batteries Auto Service $1.8 billion Leisure Outdoor Recreation Sports Backyard Living Lawn & Garden Outdoor Tools Seasonal Footwear & Apparel $1.9 billion Retail Sales by Product Divisions 27% 30% 43% Home Home Décor Home Repair & Maintenance Tools Consumables Electronics & Home Office Kitchen & Small Household Appliances Storage & Organization $2.8 billion As of December 31,

18 Canadian Tire Retail s market position is very strong Merchandise Group Categories with Highest Market Share Among Mass Merchants Strengths Growth Areas Automotive 22/35 (63%) Light to medium DIYer Car Care, Accessories, Power Sports, Auto Electronics Home 18/43 (42%) Kitchen & Home Appliances, Storage & Organization, Tools Home Repair & Maintenance, Home Décor and Organization, Renewable Energy Leisure 36/58 (62%) Hunting, Fishing, Camping, Outdoor Tools, Backyard Living, Pool Equipment & Accessories We are the market leader in 56% of our categories Footwear & Apparel, Backyard Living, Seasonal 18

19 CTR s story is one of transformation Planned investment in CTR stores is ~$ million F 2007F 2008F 2009F Traditional stores New Format stores Concept 20/20 19

20 Concept 20 / 20 Performance Year 1 Sales Growth (53 stores) New On Plan Replacement 67% Retrofit 10% Retrofit Expansion 20% Comparable Sales Growth Stores Stores Year 2 4.9% 6.8% Year 3 5.8% N/A Performance of the Concept 20 / 20 store format led to the decision to accelerate CTR s national roll-out 20

21 Concept 20/20 performance driven by combination of increased basket size and customer count Average Transaction Average Customer Count Change $45 $30 $ % $ , , % $15 200,000 $- Year 0 (Pre-20/20) Year 1 (Post- 20/20) Year 0 (Pre-20/20) Year 1 (Post 20/20) 21

22 CTR marketing a differentiator Strong Marketing Platforms ucanadian Tire catalogue uflyer program uexciting, New and Exclusive products Exclusive Brands Innovative Items 30% of CTR products are private-label 22

23 CTR is investing in the infrastructure to take the ENE concept to the next level World search capabilities Advanced consumer feedback methods Global sourcing infrastructure New Innovation and Style and Design management teams Trend and category innovation focus (versus item focus) 23

24 Global sourcing is critical to CTR s success 2005 Percentage of Products Sourced Offshore 2009F Provides margin protection 65% 35% 50% Provide stronger retail sales results Breakthrough price points Access to innovative products Promotional program Domestic Offshore Supply chain evolution to handle offshore growth 24

25 China: Some Context 1998 China had 1 port in the world s top 4 ports for container throughput China represented 24% of the throughput for the world s top 10 ports 2005 China had 3 ports in the world s top 4 ports for container throughput China represented 57% of the throughput for the world s top 10 ports Source: Century Logistics 25

26 Canadian Tire: Growth through Global Sourcing Canadian Tire Retail has been sourcing products globally since 1970s, and developed strong working relationships with suppliers throughout Asia 1970 s 1980 s 1990 s 2000 s 26

27 Supply Chain Capacity for Offshore Growth To enhance our capabilities and prepare for continuing offshore growth, we have expanded our Supply Chain presence to Asia In March 2005, the Supply Chain Operations - Asia team began working out of our Cantire (China) Ltd. office in Hong Kong. Direct Supply Chain execution in Asia Provide forecasting support and education to suppliers Deal with Supply Chain issues at origin and improve vendor relations Provide analysis to category managers in Canada and Asia Work with suppliers on factory consolidation and establishing Export Licensed Consolidation facilities Act as a resource to support packaging quality, quantity and sizing decisions 27

28 Canadian Tire uses 29 PacRim ports in 10 countries Xingan g Dalian Qingda o Xiamen Fuzhou Keelun g Nava Sheva Hai Pong Cochi n Penang Port Kelang Pasir Gudantg/ Tanjung Pelepa Yantia n Suraba ya Gongyi 28

29 Canadian Tire Financial Services: Strategic Highlights 2006 Growing average balances Improving productivity Testing new card products and services Retail banking pilot New cards and loan products Insurance and warranty products 29

30 Financial Services has significant competitive advantages Low cost acquisition channels World class call centres Sophisticated credit risk management systems Brand trust & loyalty Technology Partnerships & Platforms / Scale 30

31 Personal (Term) Loan Portfolio # Accounts Gross Receivables Q ~38,625 $294MM Target (end of 2007) 80,000 $350MM Target pretax return on receivables of ~4.0% 31

32 Evaluating longer-term opportunities Canadian Tire is actively pursuing the development of potential new financial services for testing, such as: Mortgages High Rate Savings Accounts GICs As with all new products or services, we will take a measured and balanced approach to testing of any new services. 32

33 Canadian Tire Petroleum: Strategic Highlights 2006 Q pilot concept Expanding network Minimum of 3 new gas bars, approximately 10 rebrands Growing non-gasoline sales Q pilot concept Expand network by adding 25 to 35 gas bars and through re-branding Grow non-gasoline sales 33

34 CTP s market position brings value to other business units CTP contributes materially to the profitability of CTFS and CTR, especially in terms of customers shopping one or more branded divisions The shopping frequency of CTR customers increases by 28% just one year after starting to use CTP 40% of CTR customers state their shopping at CTR increased since buying gas at CTP 34

35 Petroleum initiatives to grow sales and revenue Q - redefines the convenience offer and leaps over the competition Re-branding strategy Grow the non-gas business Capitalize on CTP s high fuel volume 35

36 PartSource: Strategic Highlights 2006 Network expansion up to eight new stores in Ontario Grow comparable store sales Network expansion to more than 100 stores through new stores and small-scale acquisitions Operations review 36

37 PartSource Key Initiatives to Grow Sales and Revenues More than 100 stores planned by the end of 2009 New store build Small-scale acquisitions Focused growth in Ontario and Prairies GTA expansion PartSource adds incremental sales and expands Canadian Tire s total market penetration 37

38 Mark s Work Wearhouse: Strategic Highlights 2006 Increase comparable store sales growth Network expansion by 15 to 21 stores. 24 additional store retrofit / renovation projects Network expansion to 395 to 400 stores Expansion of category offerings and product lines 38

39 Mark s growing contributions to Canadian Tire Mark s Earnings Contributions (Before Tax) $65.0 The earnings contribution of Mark s has climbed close to 200% since the acquisition by CTC in Market-leading rates of growth in apparel and footwear retailing $ Significant increases in all categories and in all regions Expansion into relatively new segments such as business-tobusiness, healthwear and ladieswear 39

40 Strategic Plan Imperative: Customers for Life Culture Embedding a Customers for Life philosophy is a Strategic Plan Imperative Canadian Tire has unrivalled customer relationships and more than 225 million interactions every year Each business has targeted business activities to embed Customers for Life into the organization: Customer-centric product design and development Store auditing and customer measurement Customer database relationship management 40

41 Strategic Plan: New Business Development Develop opportunities that materially contribute to CTC s growth in 2009 and beyond Pursue opportunities to leverage our core capabilities Focus on retail, retail-related and financial services opportunities in Canada Acquisitions Joint ventures, strategic alliances New store concepts 41

42 Strategic Plan: Financial Flexibility Cost Productivity Capital Management Funding Optimization Steady cash flow from operations $721MM in 05 $640 million in committed but unused credit lines* No short term debt Long-term debt to total capitalization is 31.7%* Rigorous capital allocation program based on risk / return of each project * as at December 31,

43 Canadian Tire Real Estate 43

44 Canadian Tire s Real Estate Portfolio Real estate development and management is a core competency that enables effective expansion of the company s store network $2 billion book value of unencumbered real estate active store properties (own over 70%) surplus store properties for disposition special projects in large urban centres Realized approximately $50 million of gains and $250 million of proceeds on the disposal of surplus property in the last 10 years and we expect this to continue Sale-lease back of two distribution centres in early 2006, realized $46M- $50M gain, amortized over 21-year lease 44

45 Corporate Governance MD&A recognized by Canadian Institute of Chartered Accountants as "model of disclosure" Full disclosure of compliance with Canadian Securities Administrators guidelines Independent Chairman, separate from CEO Majority of Directors are independent Rigorous training and evaluation of directors Independent Audit Committee and disclosure of all auditor fees paid Independent Management Resources Committee and disclosure of compensation advisors and fees paid Share ownership guidelines for Directors and Officers Executive compensation closely tied to shareholder returns Minimal earnings dilution from prior stock options Limited stock appreciation rights granted to Senior Management in

46 Summary Effective execution of imperatives will: Enhance our competitive position Support life-long relationships with our customers Result in higher revenue and earnings Entire organization focused on achieving financial aspirations We believe achievement of financial aspirations will lead to top-quartile TRS 46