Canadian Tire Corporation, Limited · TSX:CTC
Canadian Tire — Scotia Capital Back to School Conference 2010
43 slides from Canadian Tire's conference presentation, Sep 21, 2010
Slide 1: Canadian Tire Corporation
C Canadian di Tire Ti Corporation C ti September 2010
Slide 2: Forward-looking Information
F Forward-looking d l ki IInformation f ti 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 prov
Slide 3: One company, serving one customer
One company, serving one customer Our overriding objective is to strengthen our core retail business and put the customer at the centre of everything we do 3
Slide 4: Five independent but interrelated businesses
Remember our starting point: Five independent but interrelated businesses Customer Customer Customer Customer Customer Core / Core / Core / Core / Core / Support Support Support Support Support Functions Functions Functions Functions Functions 4
Slide 5: Moving to 'One Company-One Customer' approach
Moving to ‘One Company-One Customer’ approach Customer Filter to Our Customer-Centric Retailing Customers & Brand CTR Categories of Financial Business Auto Apparel Services Living Playing Fixing Mike Arnett Glenn Butt Paul Wilson Dean McCann Marketing The Customer Marketing Experience Merchandising
Slide 6: Increasing share of wallet across key businesses and brands
Increasing share of wallet will require command of key y businesses and brands Customer Financial Living Playing Fixing Automotive Apparel Services Industrial Financial Kitchen Gardening Tools Auto Parts Apparel Services Capturing Increasing Share of Home Camping Hardware Accessories Industrial Othe
Slide 7: Track Record of Delivering Strong Financial Performance
Track Record of Delivering Strong Financial Performance Consolidated Gross Operating p g Revenue Consolidated Earnings Before Tax $ Billions $ Millions 611 9.1 8.6 8.7 558 541 8.3 528 5 8 7.7 479 7.1 461 6.5 5.9 366 5.2 5.3 311 272 236 ' '00 ' '01 ' '02 ' '03 ' '04 ' '05 ' '06 ' '07 ' '08 ' '09 '00
Slide 8: Return on Invested Capital
Return on Invested Capital We have shifted our focus from growing ...and we are committed to improving our network to increasing productivity... the performance of our core business CTR Cumulative Capital Expenditure Consolidated Earnings Before Tax $2.5 B 70% Non- CTR 30% CTR 2000 EBT EBT Growth 20
Slide 9: Financial Aspirations
Financial Aspirations Financial Aspirations POS – CTR 3 – 5% Consolidated operating p g EPS 8 – 10% Retail ROIC 10%+ Financial Services ROR 4.5 – 5.0% Leading to TRS (includes dividends) 10 – 12% 9
Slide 10: Our Aspirations are Achievable
Our Aspirations are Achievable 1. We are in a strong financial position (balance sheet, cash flow and liquidity) 2. Financial Services has stabilized and is well on its wayy to historical levels of return 3. Mark’s is stable and growth agenda is clear 4 We have the capacity to grow without large inv
Slide 11: Facts You May Not Know About Canadian Tire
Facts You May Not Know About Canadian Tire Our Connection with Canadians The Scale of Canadian Tire 98% unaided recognition of the red We sell more hockey sticks and pucks triangle brand than any other retailer in the world Our Jumpstart programs support 65,000 We sell over 5 million wiper b
Slide 12: Core Assets
C Core A Assets t 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 store
Slide 13: Strategic and Operational Strengths
St t i and Strategic dO Operational ti l Strengths St th 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
Slide 14: 2010 Initiatives
2010 Initiatives Keyy areas of focus in 2010 will build on the momentum of p programs g and initiatives begun g in 2009: Key business categories – high growth and traffic driving Continue roll-out of capital-light p g CTR Smart and Small Market stores Refocus and align core automotive assets w
Slide 15: 2010 Initiatives Continued
2010 Initiatives I iti ti C Continued ti d Centralize key support functions to improve operating efficiencies “Clothes That Work” at Mark’s Enhance supply chain and operations capabilities at Mark’s Ongoing focus on credit risk management at Financial Services Development at Financial Serv
Slide 16: Initiatives and Focus Area
Initiatives and Focus Area OBJECTIVE #1: Drive sustainable growth Understand and serve the Canadian 17% of our customers that Tire Retail drive 76% of our sales Improve customer experience Strengthen g the core retail Canadian Authority for all things Tire business Retail automotive 16
Slide 17: Driving Sustainable Growth
Driving Sustainable Growth 1. Key business categories – High growth categories – Traffic-driving categories and programs 2. Strategic initiatives – Concept renewal – Marketing change program – Customer-centric retailing and loyalty 3. Store performance and customer experience improvement – Integrati
Slide 18: Our Category Leadership Across CTR
Our Category Leadership Across CTR #1 in Living: #1 in Playing: #1 in Fixing: #1 in Automotive: Small Kitchen Fitness Portable Power Wiper Blades Appliances Equipment Tools Tires Cookware Camping Socket & Motor Oil Wrenches Bakeware Fishing Batteries Air Tools & Vacuum
Slide 19: CTR High Growth Categories
CTR Hi High hGGrowth th C Categories t i Market growth Our expected rate growth rate Backyard 3% 6-8% 6 8% Fitness equipment 2% 12-15% Kitchen 3% 7-8% St Storage & organization i ti 3% 5 6% 5-6% Mechanics & air tools 6% 9-11% Paint & accessories 3% 5-7% These high growth categories will be an import
Slide 20: CTR Traffic-Driving Categories
CTR Traffic-Driving Categories High purchase frequency Influence price image Include household consumables: 8 8.5% 5% growth over the past 2 years Include pet care: potential to expand by more than 30% per year Test of food in 10 stores (decision on rollout in 2011) 20
Slide 21: CTR Smart Store
CTR Smart Store Drive growth and improve sales productivity by reallocating space to high growth and ‘cornerstone’ cornerstone categories (eg. storage & organization, sports & recreation) Added traffic-driving businesses (eg. pet foods, food test) Improved customer experience – navigation, bet
Slide 22: CTR Small Market Store
CTR Small Market Store Before Identified up to 100 underserved markets Opportunity to generate $5-$9 million in retail sales per store, mostly incremental Low-cost building – great use of outdoor space; intense merchandising Mark’s Work Wearhouse within each store and Petroleum Gas Bar (wher
Slide 23: Improving the Customer Experience at CTR
Improving the Customer C Experience at C 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 sat
Slide 24: Improving Customer Experience
Improving Customer Experience While some of our stores are great performers today, we need to improve the quality and consistency of the customer experience across the network Empty Stock Positions per shelf Approach to Improving Customer Experience 3x EEngage Dealers D l and Staff Improvement First
Slide 25: CTR Focused on Being Priced Right
CTR F Focused d on B Being i P Priced i d Ri Right ht Key benefits of CTR change program include products 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’ rule
Slide 26: Driving Customer Loyalty and Customer Centric Retailing
Driving Customer Loyalty and Customer Centric Retailing Loyalty Canadian Tire ‘Money’ is one of Canada’s most popular loyalty programs, offering 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 appl
Slide 27: Canada's Automotive Industry
C Canada’s d ’ AAutomotive t ti IIndustry d t Market Leader DIY parts $2.7B DIY “Do-it-yourself” $5 5B $5.5B Accessories $2.8B Retail aftermarket $21.3B Service labour $7.8B Annual sales DIFM “Do-it-for-me” Installed tires $15.8B $2.6B Installed parts $5.4B 27
Slide 28: Automotive Business
Automotive Business G i forward: Going f d a muchh Overview improved customer experience • Growing market • Stronger in accessories and tires • National reach N t result Net lt • The parts customers need Canada’s • No. 1 brand in the automotive aftermarket • Tools and training employees authority ne
Slide 29: Five Year POS Goals
Five Year POS Goals Expected Market Growth Rate Expected Growth Rate (2010-2014 CAGR) (CAGR) Accessories 2.4%1 3.0% - 4.0% Tires 1.9%2 4.0% - 5.0% 4% - 6% DIY and installed parts 4.7%3 6.0% - 7.0% Service labour 5.7%3 6.0% - 7.0% 1) Company estimates 2) Rubber Association of Canada 3) DesRosiers Aut
Slide 30: Initiatives and Focus Area
Initiatives and Focus Area OBJECTIVE #2: Reinforce the Core e.g. CTR’s apparel brand (from $100M to $1B in sales) Expand customer base e.g. men’s and women’s casual Strengthen Even more innovation e.g. Anti-Slip, other divisions di isions H t Tech Heat T h anddCCurve T Techh and reinforce Ex
Slide 31: Mark's Supply Chain and Operations Capabilities
Mark’s Supply S Chain C and O Operations Capabilities Work underway on R-6, a major IT infrastructure project to enhance Mark’s supply chain and operations capabilities R-6 R 6 stands for the 6Rs of retailing (Right product; Right price; Right quantities; Right channel; Right location; Right tim
Slide 32: Initiatives and Focus Area
Initiatives and Focus Area OBJECTIVE #2: Back to targeted Return on Receivables Pricing/revenue enhancements Financial Fi i l Continued risk management Services Strengthen Ramp up acquisition of new credit card accounts other divisions di isions and reinforce Increasing average balances th
Slide 33: Financial Services - Risk Management Competencies
Financial Services - Risk Management Competencies We have been on a journey over the last three years: – New technologies – Conservative credit limits – Reduced near prime exposure Action to manage future credit risk exposure: – Third party review of the entire risk management function – Reduced
Slide 34: Getting Back to Targeted ROR
Getting Back to Targeted ROR 2009 Target Regulations 65 bps Revenues 25.1% Pricing/revenue enhancements 115bps 25.6% Provision 75 bps Variable expenses 14.6% Interest: 2009 excess carry 35bps 13.9% Interest rate 40bps Chip & regulatory 60bps Operating expenses (OPEX) 6.9% Mortgage operations 20bps 6
Slide 35: Financial Services Year Key Metrics
Fi Financial i lSServices i 10 Y Year K Key M Metrics ti Operating leverage has driven consistent performance during a period of significant growth 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A Credit Card(1) Sales ($B) 2.6 3.3 4.7 6.0 7.2 8.1 9.1 10.4 11.1 11.4 GAAR(2) ($B) 1.1 1.2 1.
Slide 36: Growth at Financial Services
G Growth th att Financial Fi i lSServices i Increasing average credit card balances by: – Marketing new products – Promoting existing products eg. deferred sales – Targeting offers to high-value high value customers Increasing active accounts - incremental cardholders will be generated by: – Bet
Slide 37: Financial Highlights
FINANCIAL HIGHLIGHTS 37
Slide 38: Q2 2010 Consolidated Highlights
Q2 2010 Consolidated Highlights ($ in millions except per share amounts) Q2 2010 Q2 2009 Change FY 2010 FY 2009 Change Retail sales1 2,860.1 2,789.1 2.5% 4,752.1 4,578.9 3.8% Gross operating revenue 2,414.1 2,324.8 3.8% 4,244.2 4,082.9 3.9% EBITDA2, 3 264.1 250.1 5.6% 427.5 406.2 5.2% Retail EBITDA2
Slide 39: Initiatives Will Drive Medium-Term Aspirations
Initiatives Will Drive Medium-Term Aspirations Summary of Drivers 3-5 Year Financial Aspirations Automotive strategy New loyalty/CCR y y p program g Retail Sales Growth 3-5% Key category growth Productivity improvement Centralized managed services Consolidated Operating EPS 8-10% Supply
Slide 40: Cash Flow Usage
C h Fl Cash Flow U Usage Expectations are that CTC will generate INCREASING free cash flow from: EBITDA Interest expense CAPEX Working g capital p In the future, we will consider additional options for the use of free cash PAST FUTURE Increase asset base Drive profitable shareholder h h ld growth th
Slide 41: Debt Maturity and Debt Markets
D bt Maturity Debt M t it and d Debt D bt Markets M k t Reduced Debt $300 million in maturing corporate debt will not be refinanced We will not 300 refinance Lower interest expense will help drive increasing free cash flows 635 and earnings 365 317 253 Both DBRS and S&P recently reconfirmed ratings:
Slide 42: Centralizing Key Support Functions
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 b
Slide 43: Outlook 2010
O tl k 2010 Outlook Roll Roll-out out of 2 new capital capital-light light CTR store formats Continued network expansion at Mark’s and PartSource 2010 capex in the range of $280 million to $300 million B By end d off 2010, 2010 key k productivity d ti it expenditures dit will ill h have made
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