March 2017 investor deck (final)

  • Published on

  • View

  • Download


Canadian Tire Corporation Investor Presentation March 2017 Forward looking information 2 This document contains forward-looking statements that reflect managements 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 Managements current expectations and plans and allowing investors and others to get a better understanding of the Companys 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 Managements current expectations relating to possible or assumed future prospects and results, the Companys 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, intend, believe, estimate, plan, can, could, should, would, outlook, forecast, anticipate, aspire, foresee, continue, ongoing 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 Companys assumptions, estimates, analyses, beliefs and opinions may not be correct and that the Companys expectations and plans will not be achieved. Examples of Managements 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 Companys position in the competitive environment, beliefs about the Companys core capabilities and beliefs regarding the availability of sufficient liquidity to meet the Companys contractual obligations. Although the Company believes that the forward-looking statements in this document are based on information, 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 Managements expectations and plans as set forth in such forward-looking statements. Some of the factors, many of which are beyond the Companys 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 retailers and Marks and FGL Sports franchisees, as well as the Companys 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 Companys margins and sales and those of its competitors; (e) the changing consumer preferences toward eCommerce, online retailing and the introduction of new technologies; (f) risks and uncertainties relating to information management, technology, cyber threats, property management and development, environmental liabilities, supply chain management, product safety, changes in law, regulation, competition, seasonality, weather patterns, commodity prices and business disruption, the Companys 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; (g) the Companys capital structure, funding strategy, cost management programs and share price; and (h) the Companys ability to obtain all necessary regulatory approvals. Management cautions that the foregoing list of important factors and assumptions is not exhaustive and other factors could also adversely affect the Companys 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 sections 7.2.4 (Retail segment business risks), 7.3.2 (CT REIT segment business risks), 7.4.3 (Financial Services segment business risks) and 12.0 (Enterprise risk management) and all subsections thereunder of the MD&A contained in the Companys 2016 Report to Shareholders. Please also refer to section 2.10 (Risk Factors) of the Companys Annual Information Form for fiscal 2016, as well as the Companys other public filings, available on the SEDAR (System for Electronic Document Analysis and Retrieval) website at and at 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 Companys 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. 10.6% 5.1% 8.1% $2,199.7 $1,634.7 $1,154.4 $6,653.1 $11,453.4 +3.4% Retail Revenue by Banner3 6.1% 6.0% 4.2% SAME-STORE SALES CANADIAN TIRE Annual Results 2016 RETAIL SALES GROWTH CANADIAN TIRE 5.6% FGL SPORTS 6.9% MARKS 6.0% 2016 DILUTED EPS $9.22 +7.1% 2016 RETAIL ROIC2,3 8.34% 2016 FINANCIAL SERVICES RETURN ON RECEIVABLES2,3 7.40% 1,2 1 Figures are calculated on a rolling 12-month basis. 2 Refer to Section 11.3.1 of the Q4 and full-year 2016 MD&A for additional information on the Companys key operating performance measures. 3 Inter-segment revenue within the retail banners of $188.5 million in 2016 ( 2015 - $133.1 million) has been eliminated at the Retail segment level. Revenue reported for Canadian Tire, FGL Sports, Marks and Petroleum includes inter-segment revenue. FGL SPORTS MARKS Q4 2016 Q4 Operational Highlights Data analytics to optimize pricing and promo and products, drove near record Q4 same store sales growth at Canadian Tire banner. I am very pleased with our results as they demonstrate the strength of our company and our unique ability to provide our customers with the products for life in Canada. That strength, coupled with our expertise, and the power of our brand provides the foundation for our future growth -Stephen Wetmore, President & CEO, CTC Continued roll-out of Financial Services in-store financing at Canadian Tire stores was very well received and advantageous to GAAR growth. Corporate Overview Family of businesses Bringing our customers the products they need for the jobs and joys of life in Canada. 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, support services Our growth plan 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 Increased focus on private brands Culture of productivity with a performance management focus How we win Exceeding customer expectations with best omni-channel retail platforms Conduit between customers and the best consumer brands in the world Building our brands and exclusivity Family of CTC businesses strong coalition Sports and community partnerships Financial highlights (2016) Growth (YoY) Revenue $12.7B +3.3% Net Income (attributable to shareholders of CTC) $669.1M +1.5% Diluted Earnings Per Share $9.22 +7.1% Market Leadership Leadership position across heritage/core business categories: Automotive, Living, Fixing & Playing #1 in Mens Industrial & Casual Apparel 1 in 5 Canadians hold a Canadian Tire credit card 5 Our Retail Network Across Canada 13 6 8 12 0 2 2 2 0 0 100 160 45 59 0 19 9 13 15 0 22 11 17 9 3 15 11 13 6 6 202 120 143 166 61 56 54 65 19 15 16 13 15 6 6 53 46 59 4 0 1 0 1 0 0 500 433 382 296 91 NEW BRUNSWICK NOVA SCOTIA MANITOBA ONTARIO SASKATCHEWAN BRITISH COLUMBIA ALBERTA NEWFOUNDLAND AND LABRADOR PRINCE EDWARD ISLAND QUEBEC STORE TOTAL NORTHWEST TERRITORIES 1 1 1 0 0 YUKON 4 CTR distribution centres 1 Marks distribution centres 1 Joint Marks and FGL Sports DC 4 Transload facilities 3 Auto parts distribution centres 3 FGL sports distribution centres DISTRIBUTION FACILITIES *Reflects store network as of the end of Q4 2016 6 Our Core Business is Retail Six key business categories 2016 REVENUE = C$12.7B1 C$8.3B C$2.2B C$1.2B C$1.1B Gas Auto Parts Tires & Power Sports Auto Service Car Care & Accessories Roadside Assistance Home Cleaning Home Dcor 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 Mens Wear Womens Wear Athletic Apparel Footwear Accessories Credit Cards Retail Deposits In-store Warranties Insurance Deferred & Installment Payments 7 1 -Inter-segment revenue within the retail banners of $188.5 million in 2016 (2015 - $133.1 million) has been eliminated at the Retail segment level. Revenue reported for Canadian Tire, FGL Sports, Marks, and Petroleum includes inter-segment revenue. Financial highlights (2016) Banners Revenue $6.7B Sales growth +5.6% Same store sales growth +4.2% Canadian Tire store count 500 Canadian Tire Retail Our game plan Our strengths One of Canadas most trusted and iconic brands Most knowledgeable retailer about Life in Canada Market leader across core categories Canadas 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 Build out private label and exclusive brands Test innovative store concepts (Showroom and Showcase stores) and refresh 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 How we fit in the CTC Family Mature, healthy core business, cash generator Flagship business, central to Corporate brand Credibility in core categories 8 FGL Sports Our game plan Our strengths Canadas largest sporting goods retailer Close relationships with elite vendor brands Merchandising 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 2016 Enhancing productivity of store network 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 Financial highlights (2016) Banners Revenue $2.2B Sales growth +6.9% Same store sales growth +6.0% Sport Chek same store sales growth +7.6% Store Count 433 ) How we fit in the CTC Family Growth driver Engages younger customer throughout lifecycle Leader in digital innovation 9 Marks 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 mens 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 Financial highlights (2016) Banners Revenue $1.2B Sales growth +6.0% Same store sales growth +6.1% Store count 380 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 10 CT REIT Our game plan Our strengths Irreplaceable Canadian real estate portfolio of 302 properties totaling approximately 24.7 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 (2016) Growth (YoY) Property revenue $407.2M +7.7% Funds from operations $214.9M +10.4% Adjusted funds from operations $172.8M +13.9% AFFO payout ratio 79% 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 11 Canadian Tire Bank Our game plan Our strengths $4.9B in receivables, 1.8M active accounts including over 500K of Canadian Tires 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 gross average accounts receivable (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 (2016) Revenue $1.1B +0.6% GAAR $4.9B +1.5% Average number of accounts with a balance (thousands) 1,832 -0.5% Return on receivables 7.40% How we fit in the CTC Family Earnings generator Supports core retail business 12 11,786 12,463 12,280 12,681 9,50010,50011,50012,5002013 2014 2015 2016Consolidated Revenue (C$ in millions)1 Delivering Solid Results 1,236 1,376 1,519 1,562 01,0002,0002013 2014 2015 2016Consolidated EBITDA (C$ in millions)1 7.02 7.94 8.61 $5$7$92013 2014 2015 2016Adjusted Diluted EPS attributable to owners of CTC ($)1,2 9.22 28.2% 28.9% 30.0% 31.1% 26.0%27.0%28.0%29.0%30.0%31.0%32.0%2013 2014 2015 2016Retail gross margin (% of revenue) 6.76% 7.32% 7.36% 7.40% 6.4%6.6%6.8%7.0%7.2%7.4%7.6%2013 2014 2015 2016Financial Services Return on Receivables (%) 13 1 Results for the full-year 2014 included 53 weeks while all other years were 52 weeks 2 Refer to Section 11.3.2 and 10.3 of the Companys Q4 and full-year 2016, 2015 and 2014 MD&A , respectively, for additional information on adjusted diluted EPS. 2017 Strategic Imperatives 14 Achieve sustainable growth by strengthening the Companys brands, product offerings and enhancing customer experiences (connections) Drive profitability, operational excellence, and increased efficiencies in core businesses Transform the business by developing a high-performing, talented, and results oriented company 1 2 3 Balanced Capital Allocation 1 2 3 4 Invest in the business Repurchase shares/ grow dividend (Target payout ratio 25%-30%) Maintain investment grade credit rating Inorganic growth opportunities Since 2012, Canadian Tire Corporation has returned in excess of $1.9B to shareholders1 while investing $2.7B in its store network2, IT and distribution capacity3 Announced intention in November 2016 to repurchase $550M Class A Non-Voting shares in excess of anti-dilutive repurchases beginning in 20173 Canadian Tire Corporation maintains a BBB (high) and BBB+ rating and a stable outlook from DBRS and S&P, respectively. * Excluding REIT capital. ** Buybacks in excess of anti-dilutive buybacks 1 Dividends and share buybacks in excess of anti-dilutive buybacks 2 Excludes REIT capital 3 See slide 18 for Q3 2016 dividend and share buyback announcements and slides 22 and 23 for updated 2016 and 2017 guidance 15 0.3 0.5 0.5 0.7 0.6 0.1 0.1 0.1 0.2 0.2 0.0 0.1 0.3 0.4 0.4 2013 2014 2015 2016CAPEX* Dividends Share Repurchase**$0.5B $0.7B $1.0B $1.3B $1.2B For 2017, forecast operating CAPEX of $400M to $425M (additional DC capacity CAPEX in the range of $25M to $50M) 2017 includes Retail store network investment, and investment in IT and in digital technology. Forecast operating CAPEX for 2017 does not include third-party REIT acquisitions nor does it include funding that would be earmarked to address opportunities to invest in operational efficiency initiatives that may be identified throughout the course of the year. Capital Investments CAPITAL INVESTMENTS (2012 2016)1 1 Excludes REIT capital % of Revenue 16 40% 31% $0.3B $0.5B $0.5B 21% $0.7B 7% $0.6B 3% 5% 4% 5% 5% -10%-8%-6%-4%-2%0%2%4%6%8%01002003004005006007008009001,0002012 2013 2014 2015 2016Store Network IT Supply Chain/DC OtherShareholder 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 CTCs real estate Created a stand-alone vehicle for CTCs 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 Tires 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 17 Returning Value to Shareholders 2016 repurchased $440M of Class A Non-Voting shares (beyond anti-dilutive) 2015 repurchased $426M of Class A Non-Voting shares (beyond anti-dilutive) 2014 repurchased $284M of Class A Non-Voting shares (beyond anti-dilutive) 2012 2013 repurchased $121M of Class A Non-Voting shares (beyond anti-dilutive) All annouced share repurchase intentions for the above years were fulfilled Q3 2016 announced the intention to repurchase $550M of Class A Non-Voting shares (beyond anti-dilutive) during Fiscal 2017 Share Repurchases Dividends 18 Q3 2016 increased annual dividend to $2.60 per share, up 13.0% Q3 2015 increased annual dividend to $2.30 per share, up 9.5% 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% $0.56 $0.64 $0.72 $0.82 $0.84 $0.84 $1.10 $1.20 $1.40 $1.88 $2.10 $2.30 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*Returning Value to Shareholders Policy to maintain dividend payments equal to 25% to 30% of the prior years normalized basic net earnings Member of S&P/TSX Canadian Dividend Aristocrats index Annual Dividends Paid In Q3 2016, CTC announced an annual dividend increase of 13.0% to $2.60 per share to be paid during 2017 19 13.7% CAGR Canadian Tire a Strong Investment Proposition ~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 $12.7 billion in revenue 33.2 million retail square feet Financial Services GAAR of $4.9B 20 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 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 Delivering strong financial results 2017 Outlook 21 2017 Outlook 22 Operating expense growth aligned with revenue growth Effective tax rate estimate: 27.0% for 2017 In 2017, operating CAPEX estimated between $400 million and $425 million due primarily to Retail store network investment, and investment in IT and in digital technology. Additional CAPEX: Approximately $25 million to $50 million associated with future distribution capacity in 2017 Third-party property acquisitions by CT REIT Operational efficiency initiatives Expected three year (2015-2017) average annual CAPEX between $450 million and $500 million to support investments in digital technology and Retail store network growth Three Year Financial Aspirations 2015 20171,2 Financial Aspirations3 Details Retail sales (POS) growth (annual aspirations) Canadian Tire retail 3%+ Marks 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 expense management 1 Established on October 9, 2014 at Canadian Tire Investor Day 2 Forward looking information refer to slide 2 for additional information 3. Refer to Section 5.0 of the Q4 and full-year 2016 MD&A for additional information of the Companys three year financial aspirations 23 24 For more information or (416) 480-8725 Download our Investor Relations App Follow us on twitter @CanTireCorp