Canadian Tire Corporation February 2010 F Forward-looking - - PowerPoint PPT Presentation

Canadian Tire Corporation

February 2010

F d l ki I f i Forward-looking Information

This disclosure contains statements that are forward-looking These forward-looking statements This disclosure contains statements that are forward looking. These forward looking statements relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “forecast”, “objective” and “continue” (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results Certain material factors or assumptions are applied in making forward looking

• results. Certain material factors or assumptions are applied in making forward-looking

statements, and actual results may differ materially from those expressed or implied in such

• statements. Information about material factors that could cause actual results to differ materially

from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the body of this document, as well as in the Q3 2009 Management’s Discussion and Analysis (“MD&A”). The forward-looking information contained in this document is presented for the purpose of assisting the Company's security holders and financial analysts in understanding its financial position and results of operations as at and for the periods ended on the dates presented and the Company’s strategic priorities and objectives, and may not be appropriate for other

• purposes. When relying on the forward-looking statements to make decisions with respect to

the Compan in estors and others sho ld caref ll consider the foregoing factors and other the Company, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. The Company does not undertake to update any forward-looking statements, including those statements that are incorporated by reference herein, whether written or oral, that may be made from time to 2 p y y time by or on its behalf, except in accordance with applicable securities laws.

C CTR B i d F S i B i Core CTR Business and Four Supporting Businesses

CTR 479 stores Canadian Tire Retail is one of Canada’s Petroleum 272 gas bars Canadian Tire Petroleum is one of Financial Services >5 million MasterCard accounts Canadian Tire Financial Services PartSource 87 stores PartSource is a chain of specialty Mark’s 378 stores Mark’s Work Wearhouse is one of is one of Canada s most shopped general merchandise retailers and a leader in each of its three core product categories – Petroleum is one of Canada’s largest independent gasoline retailers with 272 gas bars including 267 convenience stores Financial Services

• ffers Canadian Tire-

branded credit cards, personal loans, lines

• f credit, insurance

and warranty products as well as chain of specialty automotive hard parts stores, as well as a supplier for Canadian Tire Retail’s cornerstone automotive Wearhouse is one of Canada’s leading apparel retailers. Mark’s sells work, work-related, casual and active-wear clothing and categories – Automotive, Leisure, and Home. convenience stores and kiosks and 73 car washes, creating customer loyalty to drive growth for Canadian Tire Retail d C di Ti products, as well as high-interest and tax- free savings accounts. automotive

• business. Its expert

staff sells competitively priced auto parts, catering to professional t ti i t ll clothing and footwear as well as health-care and business-to- business apparel.

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and Canadian Tire Financial Services. automotive installers and serious do-it- yourselfers.

Canadian Tire’s products and services provide

the essentials of everyday living for people of all ages

C A Core Assets

 Store Networks – Canadian Tire Retail: approximately 400 new or rebuilt stores since 1994 – Mark’s: approximately 280 stores built, upgraded or acquired since 2002 – Petroleum: 2/3 of sites now upgraded or rebranded – PartSource: now has close to 100 sites, including 10 Hub stores  Supply Chain – New Canadian Tire Retail DC in Eastern Quebec  All Financial Services credit cards relaunched with PayPass technology in 2008; Beginning rollout of chip cards in 2010

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S i d O i l S h Strategic and Operational Strengths

 One of Canada’s most trusted brands  Loyal customer base across all of our businesses  Products and service offering targeted at the needs (not just wants) of everyday Canadian families at competitive prices  Financial Services one of the best run credit card businesses in the country – very capable risk management team  Financially strong company, fully funded and able to adapt and respond to the changing Canadian economy

We are well-positioned

for days like today and tomorrow

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2010 S i P i i i 2010 Strategic Priorities

 Optimize the significant investments made in store and supply chain infrastructure and drive sustainable, long-term earnings growth  Build the strength of the core Canadian Tire Retail business and  Build the strength of the core Canadian Tire Retail business and brand – Improve overall customer service Leverage industry-leading core assets in automotive business – Leverage industry-leading core assets in automotive business – Position each business unit to actively support and drive consumers to the core Canadian Tire Retail business

A balanced approach to

maximize earnings potential

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maximize earnings potential

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2010 I i i i 2010 Initiatives

Key areas of focus in 2010 will build on the momentum of programs and initiatives begun i 2009 in 2009:  Continue roll-out of capital-light CTR Smart and Small Market stores  Refocus and align core automotive assets with single focus for growing market share  Improving the customer experience at CTR  Staffing and process changes within CTR Marketing, Merchandising and Store Operations to improve core processes  Development of redesigned and enhanced loyalty program  Centralize key support functions to improve operating efficiencies  “Clothes That Work” at Mark’s Clothes That Work at Mark s  Enhance supply chain and operations capabilities at Mark’s  Ongoing focus on credit risk management at Financial Services  E h fi i l f th i ti d i ti d  Enhance financial performance across the organization and improve operating and strategic planning process

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Growth Initiatives Growth Initiatives

Initiative Future Impact / Rationale

Real estate projects Focused growth and upgrade of network to strengthen brand and generate returns, including CTR capital-light formats

• Canadian Tire Retail stores (Smart and Small Market stores)

P t l it

• Petroleum sites
• Mark’s stores
• PartSource stores

Financial Services Drive managed growth of receivables with benefits of relaunched cards with PayPass capability, testing of further new credit cards, including new Options Visa card, and select investments in balance transfer offers

Focused on managing working capital and investing in initiatives that will Reduction in gross capital expenses to $273 million in 2009

(2010 Capex in the range of $280 million to $300 million) 8

g g g p g deliver positive cash flow

CTR S ll M k S CTR Small Market Store

Before

 Identified 100+ underserved markets  Opportunity to generate $5-$9 million in retail sales per store, mostly incremental

Before

 Low-cost building – great use of outdoor space; intense merchandising  Mark’s Work Wearhouse within each store and Petroleum Gas Bar (where appropriate) Petroleum Gas Bar (where appropriate)  Early results and customer research very positive  9 opened to-date

After 9

CTR S S CTR Smart Store

 Drive growth and improve sales productivity by reallocating space to high growth  Drive growth and improve sales productivity by reallocating space to high growth and ‘cornerstone’ categories (eg. storage & organization, sports & recreation)  Added traffic-driving businesses (eg. pet foods, food test)  Improved customer experience – navigation better signage logical adjacencies  Improved customer experience navigation, better signage, logical adjacencies, enhanced service features (call buttons, service desks, customer pick-up, etc.)  Leveraging investments made in square footage – most projects retrofits  Capital-light projects; cost is approximately $0 3 million/store  Capital light projects; cost is approximately $0.3 million/store  Expect approximately 6-8% same store sales growth in year one  10 new or replacement stores and 26 retrofit projects opened to-date  59-60 retrofits planned in 2010

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B ildi C A i B i Building our Cornerstone Automotive Business

 Key competitive advantage, central to our brand image and our single most promising business

• pportunity

 Aligned all our automotive resources under one  Aligned all our automotive resources under one common strategy and leadership: PartSource, Petroleum, automotive hard parts, accessories, service centres, tires and all other aspects of automotive automotive  Drive a single strategy to deliver growth and great performance

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I i h C E i CTR Improving the Customer Experience at CTR

 Clear definition of desired in-store customer experience  Infrastructure and processes – strengthened corporate support team – operational excellence program – focus on in-stock  Measurement tools, programs and practices – New core audit, customer satisfaction index (CSI) – Performance improvement program for under-performing stores  Smart Store design focused on the customer

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CTR F d B i P i d Ri h CTR Focused on Being Priced Right

Key benefits of CTR change program include being priced right and flyer optimization  New pricing tools and processes allow for easier and more effective price management – integration of competitive shopping data – pricing ‘rules’ embedded into system  100% of key value SKUs are shopped weekly, priced right vs. competition  New flyer features to improve price perception, drive traffic – eg. Everyday Essentials back cover

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D i i C L l Driving Customer Loyalty

 Canadian Tire ‘Money’ is one of Canada’s most popular loyalty programs,

• ffering greater value to our customers who shop at our stores, fill up at our gas

bars and use our credit cards  Build capabilities to capture analyze and apply customer insights across each  Build capabilities to capture, analyze and apply customer insights across each part of our business to drive sales and margins  Develop an in-depth understanding of our customers’ wants and needs to extend business and improve profitability  Pilot program in place by end of 2010 for target roll-out in 2011

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C li i K S F i Centralizing Key Support Functions

 Aligned key corporate functions across the Company under single points of leadership, including communications, legal, real estate, human resources, information technology and finance  Designed to decrease operating costs and improve operating efficiencies for  Designed to decrease operating costs and improve operating efficiencies for business units  Ability to move faster, respond more quickly and make better decisions  More flexible and effective use of resources (people technology budget etc )  More flexible and effective use of resources (people, technology, budget, etc.)  Will ensure increased clarity and focus in our company-wide strategies while still maintaining flexibility to make the right decisions for each of our respective businesses

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M k’ Cl h Th W k Mark’s Clothes That Work

 New “Clothes That Work” testing ground concept store in Edmonton  Growing number of innovations engineered that make “Clothes That Work”  Continued focus on growing share in women’s apparel, including more fashionable assortments with a focus on premium fabrics  Continued improved merchandise margins due to assortment planning and inventory flow focus  Continued increased market share in men’s and women’s categories, in a declining market

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M k’ S l Ch i d O i C bili i Mark’s Supply Chain and Operations Capabilities

 Work underway on R-6, a major IT infrastructure project to enhance Mark’s supply chain and operations capabilities  R-6 stands for the 6Rs of retailing (Right product; Right price; Right quantities; Right channel; Right location; Right time) Right channel; Right location; Right time)  Product provides forecast, replenishment, purchase order and product flow software  Over time expected to improve sales by reducing stock outs improve inventory  Over time, expected to improve sales by reducing stock outs, improve inventory turns by improving product flow, and improve margins by reducing markdowns caused by stranded stock  Rolled out over 2 years 2009 and 2010

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Fi i l S i Ri k M C i Financial Services - Risk Management Competencies

 We have been on a journey over the last three years: – New technologies – Conservative credit limits – Reduced near prime exposure Reduced near prime exposure  Action to manage future credit risk exposure: – Third party review of the entire risk management function R d d dit li it f dh ld – Reduced credit limits for cardholders – Enhanced predictive scorecards to identify high risk customer behaviour – Enhanced collection strategies – Newly developed bankruptcy model scorecards  Led to bankruptcies being consistently only 2/3rds of the national average

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Focused on mitigating future credit risk exposure to ensure

we perform as well as we can in an economic downturn

M i P f li P fi bili Managing Portfolio Profitability

The Financial Services Business Model: The Financial Services Business Model:

(Approximate Percentages of 2009 Average Receivables)

Gross yield including insurance 25.1% Provision cost

• 8.3%

Funding cost

• 4.1%

Loyalty and other

• 2.2%

y y Operating expenses

• 6.9%

= 3.6% ROR

During normal operating conditions, we manage the business to drive a consistent 4 5% to 5% return on receivables

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consistent 4.5% to 5% return on receivables

Fi i l S i 10 Y K M i Financial Services 10 Year Key Metrics

 Operating leverage has driven consistent performance during a period of significant growth

1999A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A Credit Card(1) Sales ($B) 2.1 2.6 3.3 4.7 6.0 7.2 8.1 9.1 10.4 11.1 11.4 GAAR(2) ($B) 0.9 1.1 1.2 1.6 2.1 2.5 2.8 3.1 3.5 3.7 3.9 Average Balance ($) 681 758 729 930 1,164 1,436 1,614 1,736 1,899 2,031 2,179 Yield 21.94% 20.68% 19.58% 17.28% 17.19% 16.84% 16.47% 16.08% 15.64% 15.74% 16.36% Net Write-off Rate 5.87% 5.46% 5.43% 5.03% 5.90% 5.86% 6.15% 5.98% 5.67% 6.44% 7.83% Total Portfolio ROR(3) 6.10% 4.42% 5.37% 5.17% 4.81% 4.89% 4.75% 5.10% 5.15% 5.00% 3.57% OPEX as a % of GAAR(4) 18.32% 17.10% 15.05% 11.45% 10.28% 9.27% 8.37% 7.97% 7.84% 7.36% 6.92% (1) Includes Retail Card, CT MasterCards & CT Visas

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( ) , (2) Gross Average Accounts Receivable (3) Excludes Securitization Gain/(Loss), LTIP, Gain on disposal of shares, gain/(loss) on disposal of assets and costs associated with the sale of the mortgage portfolio (4) OPEX excludes LTIP and gain/(loss) on disposal of assets

Q4 2009 C lid d Hi hli h Q4 2009 Consolidated Highlights

($ in millions except per share amounts)

Q4 2009 Q4 20081 Change FY 2009 FY 20081 Change Retail sales2 2,993.0 3,219.6 (7.0)% 10,020.9 10,614.4 (5.6)% Gross operating revenue 2,437.7 2,587.8 (5.8)% 8,686.5 9,121.3 (4.8)% EBITDA3, 4 248.7 276.8 (10.1)% 873.7 891.8 (2.0)% EBITDA3, 4

(excluding Financial Services)

191.7 218.9 (12.4)% 668.4 673.7 (0.8)% Adjusted net earnings4

(excludes non-operating gains and losses)

104.4 130.1 (19.8)% 348.0 396.4 (12.2)% Basic earnings per share 1.18 1.24 (5.4)% 4.10 4.60 (10.9)%

(1) 2008 figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 – Goodwill and Intangible Assets and the

Adjusted basic earnings per share4 1.28 1.60 (20.0)% 4.26 4.86 (12.4)%

( ) g p , p , g amendments to CICA HB 1000 – Financial Statement Concepts. (2) Represents retail sales at CTR (which includes PartSource corporate and franchise stores), Mark’s corporate and franchise stores and Petroleum’s sites. (3) We consider EBITDA to be an effective measure of the contribution of our businesses to our profitability on an operational basis before allocating the cost

• f interest, income taxes, depreciation and amortization.

(4) Non-GAAP measure.

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Fi i l Fl ibili Q4 2009 Financial Flexibility as at Q4 2009

Financing Source Amount Available Description Committed bank lines of credit $1 17 billion

• Provided by 10 domestic and international financial institutions

Committed bank lines of credit $1.17 billion

• Provided by 10 domestic and international financial institutions
• Supports the $800 million commercial paper program
• No amounts were drawn on the bank lines as at January 2, 2010

Commercial paper program $800 million

• Canadian Tire had no commercial paper outstanding as at January 2, 2010

Medium Term Notes (MTN) program $750 million

• New Shelf Prospectus completed as of April 8, 2009, providing for access up

to $750 million

• $200 million was drawn upon as an MTN issuance in June 2009

Securitization of receivables Transaction specific

• Handled through Glacier Credit Card Trust

Securitization of receivables Transaction specific

• Handled through Glacier Credit Card Trust
• Financial Services securitized $100 million of credit card receivables in 2009

Broker GIC deposits No specified limit

• Funds are available through broker networks
• $1.5 billion in broker GIC deposits as at January 2, 2010

Retail deposits No specified limit

• Retail deposits consist of High Interest Savings Accounts, Tax-Free Savings

Accounts and retail GIC deposits

• Financial Services held $545 million in retail deposits at the end of January

2, 2010 Sale/leaseback transactions Transaction specific

• Strategic transactions involving Company owned properties

22 Securitization is an important funding program, in the past and future, but we have alternatives

O l k 2010 Outlook 2010

 Roll-out of 2 new capital-light CTR store formats Roll out of 2 new capital light CTR store formats  Continued network expansion at Mark’s and PartSource  2010 Capex in the range of $280 million to $300 million  B d f 2010 k d ti it dit ill h d j  By end of 2010, key productivity expenditures will have made major progress: CTR change program, Automotive Infrastructure, IT renewal etc.  Continued sale/leaseback activities for urban store properties and Montreal DC will be reviewed  Tax rates continue to decline  Lower capex, balanced working capital will lead to free cash flow growth in 2010 and beyond y A balanced plan for growth with a focus on

driving efficiency and productivity, expense management and financial flexibility

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expense management and financial flexibility