Q2 2016-presentation
- 2. FORWARD LOOKING STATEMENTS The following investor presentation contains certain forward-looking information within the meaning of applicable securities laws relating, but not limited, to Canadian Pacific’s operations, priorities and plans, anticipated financial performance, business prospects, planned capital expenditures, programs and strategies. This forward-looking information also includes, but is not limited to, statements concerning expectations, beliefs, plans, goals, objectives, assumptions and statements about possible future events, conditions, and results of operations or performance. Forward-looking information may contain statements with words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes. Undue reliance should not be placed on forward-looking information as actual results may differ materially from the forward-looking information. Forward-looking information is not a guarantee of future performance. By its nature, CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking information, including but not limited to the following factors: changes in business strategies; general North American and global economic, credit and business conditions; risks in agricultural production such as weather conditions and insect populations; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demand; inflation; changes in laws and regulations, including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of investigations, proceedings or other types of claims and litigation; labour disputes; risks and liabilities arising from derailments; transportation of dangerous goods; timing of completion of capital and maintenance projects; currency and interest rate fluctuations; effects of changes in market conditions and discount rates on the financial position of pension plans and including long-term floating rate notes; and investments, various events that could disrupt operations, including severe weather, droughts, floods, avalanches and earthquakes as well as security threats and governmental response to them, and technological changes. The foregoing list of factors is not exhaustive. These and other factors are detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference should be made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in CP’s annual and quarterly reports filed on Form 10-K and 10-Q, respectively. Forward-looking information is based on current expectations, estimates and projections and it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. Except as required by law, CP undertakes no obligation to update publicly or otherwise revise any forward-looking information, whether as a result of new information, future events or otherwise.
- 3. NOTE ON NON-GAAP MEASURES Except where noted, all figures are in millions of Canadian dollars. Financial information is prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), unless otherwise noted. CP presents non-GAAP earnings information in this presentation to provide a basis for evaluating underlying earnings trends that can be compared with the prior period's results. It should be noted that CP’s non-GAAP earnings as described in this presentation, have no standardized meanings and are not defined by U.S. GAAP and, therefore, are unlikely to be comparable to similar measures presented by other companies. For further information regarding non-GAAP measures see the Non-GAAP Measures supplement to the press release on our website at www.cpr.ca.
- 5. Q2 HIGHLIGHTS 110 BP INCREASE 62.0% DOWN 16% $2.05 (1) For a full description and reconciliation of Non-GAAP Measures see CP’s Q2 2016 Earnings Release on www.cpr.ca Challenging quarter; the worst is behind us Solid bulk fundamentals in second half No one said it would be easy ADJUSTED DILUTED EPS(1)OPERATING RATIO
- 7. 1.44 1.30 Q2'15 Q2'16 FRA personal injury rate (per 200,000 employee-hours) 1.35 0.50 Q2'15 Q2'16 FRA train accident frequency (per million train miles) 188 203 Q2'15 Q2'16 Locomotive productivity (GTMs per Available HP) 149.6 162.7 Q2'15 Q2'16 Car miles per car day (miles) 8,253 8,540 Q2'15 Q2'16 Average train weight (tons) 6,989 7,275 Q2'15 Q2'16 Average train length (feet) 6.7 6.5 Q2'15 Q2'16 Average terminal dwell (hours) OPERATING PERFORMANCE 21.7 24.1 Q2'15 Q2'16 Average network speed (mph) 9% better 8% better 10% better 63% better 11% better 3% better 4% better 3% better
- 8. REVENUE PERFORMANCE -22% -9% -12% -27% 6% 11% -9% -72% -16% -2% -8% -12% Canadian grain U.S. grain Coal Potash Fertilizers & sulphur Forest products Chemicals & plastics Crude Metals, minerals, consumer Automotive Domestic intermodal International intermodal FX-adjusted revenue variance(2) favourable/(unfavourable) TOTAL REVENUE -12%VS Q2 2015 (1) ’Other’ reflects the impact of lower haulage revenues due to the sale of the D&H South as well as lower demurrage and storage revenues (2) For a full reconciliation of FX-adjusted revenue variances, please see the appendix to this presentation RTMs -12% Freight Revenue per RTM • FX +2% • Fuel -3% • Price/mix +2% • Other(1) -2%
- 10. Second Quarter (In millions, except percentages and per share data) 2016 2015 Total revenues $ 1,450 $ 1,651 Total operating expenses 899 1,005 Compensation and benefits 284 308 Fuel 131 185 Materials 38 45 Equipment rents 44 46 Depreciation and amortization 161 145 Purchased services and other 241 276 Operating income 551 646 Other income and charges (9) (5) Net interest expense 115 84 Income tax expense 117 177 Net income 328 390 Adjusted income(1) 312 404 Diluted earnings per share 2.15 2.36 Adjusted diluted earnings per share(1) 2.05 2.45 Operating ratio 62.0% 60.9% (1) For a full description and reconciliation of Non-GAAP Measures see CP’s Q2 2016 Earnings Release on www.cpr.ca FINANCIAL PERFORMANCE
- 13. Second Quarter 2016 2015 Reported Variance Fav/(Unfav) FX Impact FX Adj(1) Variance Fav/(Unfav) Canadian Grain $ 201 $ 255 (21%) $ 3 (22%) U.S. Grain 101 106 (5%) 5 (9%) Coal 149 167 (11%) 2 (12%) Potash 79 106 (25%) 2 (27%) Fertilizers and sulphur 73 67 9% 2 6% Forest products 70 61 15% 2 11% Chemicals and plastics 162 171 (5%) 7 (9%) Crude 24 81 (70%) 4 (72%) Metals, minerals and consumer products 140 160 (13%) 6 (16%) Automotive 93 91 2% 4 (2%) Domestic intermodal 177 192 (8%) 1 (8%) International intermodal 137 153 (10%) 2 (12%) Freight revenues $ 1,406 $ 1,610 (13%) $ 40 (15%) Compensation and benefits $ 284 $ 308 8% $ 6 10% Fuel 131 185 29% 8 32% Materials 38 45 16% - 16% Equipment rents 44 46 4% 2 8% Depreciation and amortization 161 145 (11%) 1 (10%) Purchased services and other 241 276 13% 6 15% Operating expenses $ 899 $ 1,005 11% $ 23 13% (1) For a full description of Non-GAAP Measures see CP’s Q2 2016 Earnings Release on www.cpr.ca FX-ADJUSTED REVENUES & EXPENSES
- 14. Second Quarter (In millions, except percentages and per share data) 2016 2015 Variance Fav/(Unfav) Operating income 551 646 (15%) Other (income) & charges (9) (5) 80% includes: Impact of FX translation on USD-denominated debt(1) 18 10 Net interest expense 115 84 (37%) Income tax expense 117 177 34% includes: Tax expense on significant items(1) (2) (1) Income tax rate change - (23) Adjusted income(1) 312 404 (23%) Adjusted diluted EPS(1) $2.05 $2.45 (16%) ADJUSTED RESULTS (1) For a full description and reconciliation of Non-GAAP Measures see CP’s Q2 2016 Earnings Release on www.cpr.ca
- 15. KEY MODELING SENSITIVITIES Key sensitivities Exchange rate* For every $0.01 decline in the Canadian dollar: • Revenues increase by approximately $26 million • Expenses increase by approximately $13 million • Interest expense increases by approximately $3 million *Sensitivities are quoted on a full year basis. Large shifts in exchange rates, fuel costs or revenue mix may cause the sensitivities listed above to change. Stock-based compensation For every $1 appreciation in share price, compensation & benefits increases by approximately $0.5 million to $0.7 million. For additional disclosures related to the impact of changes in exchange rates or share price, see Item 3 in CP’s Form 10-Q, which is available on www.cpr.ca