Canadian National Railway Company · TSX:CNR
Canadian National Railway — Investor Presentation (May 2020)
64 slides from Canadian National Railway's investor presentation, May 2020
Slide 1: A Leading North American Transportation and Logistics Company
A Leading North American Transportation and Logistics Company INVESTOR PRESENTATION MAY 2020 TSX: CNR NYSE: CNI
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain statements included in this presentation constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. By their nature, forward-looking statements involve risks,
Slide 3: Non-GAAP Measures
Non-GAAP Measures CN reports its financial results in accordance with United States generally accepted accounting principles (GAAP). CN also uses non-GAAP measures in this presentation that do not have any standardized meaning prescribed by GAAP, including adjusted performance measures, constant cur
Slide 4: Covid-19 Pandemic
Covid-19 Pandemic • The COVID-19 pandemic is having an unprecedented and extraordinary impact on the economy. • The economic outlook, and therefore overall demand for transportation services, are highly correlated with the duration of containment measures and the impacts on businesses and consumers,
Slide 5: North American Rail Industry Landscape
North American Rail Industry Landscape Seven Class 1 railways in North America • A backbone of the North American economy and an enabler of trade • U.S., Canada and Mexico represent ~500M in population and GDP of US$24.3 trillion • High barriers to entry • Significant capital cost to replicate rail
Slide 6: CN at a Glance
CN at a Glance Note: As at or for the year ending December 31, 2019 TSX: CNR NYSE: CNI • Backbone of the economy and enabler of trade $15B $78B transporting goods for a wide range of business sectors, ranging from resource Total revenues Latest market cap (1) products to manufactured products to con
Slide 7: CN's Strengths and Competitive Advantages
CN’s Strengths and Competitive Advantages • Unique franchise with 3-coast access • West Coast trade benefitting from Canada Transpacific partnership, East Coast trade from • Strategic and accretive acquisition track record Comprehensive Economic and Trade Agreement • Network fluidity advantage aroun
Slide 8: Our Strategic Game Plan
Our Strategic Game Plan To deliver long-term profitable growth and create shareholder value Pages Driving shareholder value creation 52-58 $ Consistent capital allocation strategy with financial discipline and flexibility to drive strong and sustainable ROIC Implementing advanced technologies 45-51
Slide 9: Our Foundation
Our Foundation Building blocks of our success • Unparalleled three-coast network built through accretive acquisitions • Well-diversified portfolio, customer base and geographic exposure • Pioneered Scheduled Railroading over 15 years ago • Optimizing network to move customer goods quicker – balancin
Slide 10: Unparalleled Network Built Through Acquisitions
Unparalleled Network Built Through Acquisitions Solid track record of accretive inorganic growth 2019 FURTHER EXPANDING OUR REACH TransX H&R Massena rail line Prince Rupert 2009 Prince George STRUCTURAL ADVANTAGE IN CHICAGO Edmonton Elgin, Joliet and Eastern Railway Saskatoon 2006–2008 Vancouver Win
Slide 11: Unique Three Coast Network
Unique Three Coast Network Well-Diversified Portfolio Supported by Solid Base of Customers and Partners Global West 26% Domestic Canada 16% Well-diversified portfolio Other International Coal 3% Intermodal Automotive 4% 13% 6% Transborder 36% Metals and Southbound 25% Minerals Domestic Northbound 11
Slide 12: Scheduled Railroading is Our Foundation
Scheduled Railroading is Our Foundation • CN pioneered Scheduled Railroading over 15 years ago • Optimizing the rail network to transport more freight with the same amount of railcars and locomotives • Moving customer goods more efficiently by increasing train lengths, speed and reducing dwell time
Slide 13: A Fluid and Efficient Network
A Fluid and Efficient Network Car velocity Train speed Through dwell Car velocity (car miles per day) Network train speed (miles per hour) Through dwell (hours) 250 22 13 Blockades Blockades Blockades 225 20 11 200 18 9 175 150 16 7 125 14 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 2020 2018 20
Slide 14: Protection of Our Employees during COVID-19 Pandemic
Protection of Our Employees during COVID-19 Pandemic Protecting our Social distancing Cleaning dispatchers • We are: • We have reinforced cleaning • Split dispatchers in different - Conducting job briefings over activities in all work areas: locations radio or phone - Main locations, including • Ass
Slide 15: Measuring Service as Defined by Customers
Measuring Service as Defined by Customers • Service metrics that are relevant for our customers, defined with them • Through the years, evolved beyond only trip plan • Working closely with our customers during disruptions and volume uncertainty • Delivering on our commitments • Collaborating closely
Slide 16: Track Record of Profitable Growth Over the Years
Track Record of Profitable Growth Over the Years Industry Revenue Ton Miles (RTMs) (Index – 2013 =100) RTM OR (2) 120 CAGR (1) 2.4% 58.4% 110 1.6% 59.9% 1.1% 60.6% 100 0.0% 61.7% 90 63.2% -2.4% -3.2% 64.7% 80 2013 2014 2015 2016 2017 2018 2019 NSC KSU UP CP CSX CN Industry leading in volume growth (
Slide 17: Delivering Responsibly for a Sustainable Future
Delivering Responsibly for a Sustainable Future CN supports the United Nations Sustainable Development Goals (SDGs), which align with our vision for a sustainable world. Our five sustainability pillars are aligned with the SDGs where we have the potential to make the greatest contribution. We are co
Slide 18: ESG Priorities
ESG Priorities Delivering responsibly is at the heart of how CN is building for a sustainable future. It means moving customers’ goods safely, being environmentally responsible, attracting and developing the best railroaders, helping build stronger communities and adhering to the highest governance
Slide 19: A Strong Track Record of Fuel and Carbon Efficiency
A Strong Track Record of Fuel and Carbon Efficiency CN is approximately 15% more fuel efficient than the industry average Areas of focus – Opportunities Areas of Focus – Opportunities Rail locomotive carbon emissions intensity vs Gross Ton Miles (GTMs) Achieved 39% Locomotive emissions 19.0 600 inte
Slide 20: Industry-Leading in Fuel Efficiency
Industry-Leading in Fuel Efficiency Fuel Efficiency (1) (Fuel consumed per 1,000 GTMs) 2019 Fuel Efficiency (1) 1.40 1.30 1.30 1.22 1.20 1.13 1.10 1.01 0.96 1.00 0.94 0.90 Best 2013 2014 2015 2016 2017 2018 2019 KSU NSC UP CSX CP CN (1) Based on the companies’ financial statements. Foundation 20
Slide 21: Right Talent to Win
Right Talent to Win Action-oriented, deep bench with strong track record • Seasoned leadership team with an average of 20+ years • Onboarding experienced, external talent to drive next wave of innovation • Leveraging existing employee base with new talent to value methodology • Commited to diversity
Slide 22: Highly Experienced Leadership Team
Highly Experienced Leadership Team JJ Ruest Rob Reilly Ghislain Houle President & Executive VP, Chief Executive VP & Chief Executive Operating Officer & Chief Financial Officer interim Chief Officer Information and Technology Officer • 24 years with CN • 30 years of experience in the rail industry •
Slide 23: Leveraging Strong Talent Pool
Leveraging Strong Talent Pool First railroad to implement talent to value methodology Labour stability Empowering • Seasoned scheduled railroaders and proven market makers each with over internal Canadiantalent 20 years of experience unionized workforce Embracing • Challenging the art of what is pos
Slide 24: Developing the Best Railroaders
Developing the Best Railroaders Continuous learning and 1.9 million hours in 2018, covering skills, re-certification, and various leadership development programs as well as entry-level training development Ensuring continuous learning for our employees is critical to having a skilled, safe and engag
Slide 25: Creating a Diverse and Inclusive Work Environment
Creating a Diverse and Inclusive Work Environment Strengthening our diversity Partnerships driving our Promoting cultural commitment diversity objectives awareness • Focus on minorities, women, • Partnered with PGNAETA (1) • Created a Diversity Task Force persons with disabilities as and BCIT (2) to
Slide 26: Targeting Long-Term Profitable Growth
Targeting Long-Term Profitable Growth Strategic pipeline of growth opportunities • Focused on consumer product and rail centric supply chain organic opportunities • Disciplined acquisitions and strategic partnerships • Aiming to deliver compounded pricing above rail inflation 26
Slide 27: Strategic Pipeline of Growth Opportunities
Strategic Pipeline of Growth Opportunities New wood pellets plant Prince Rupert Ramp-up of container expansion Coal Spur Prince Rupert New plastic Propane terminals plants (Altagas, Pembina) New country Quebec City Collaboration with Kitimat LNG grain elevators container port Ridley Coal Terminal te
Slide 28: Canadian West Coast Port Strategy
Canadian West Coast Port Strategy Vancouver – Investing to accommodate future growth Customer investments – Over $1B in private sector investments 1 Centerm – Planned increase in capacity from 600k TEU to 2 1.5M TEU (early 2022) Vanterm – Planned increase in capacity from 850k TEU to 1.065M TEU (202
Slide 29: Canadian West Coast Port Strategy
Canadian West Coast Port Strategy Prince Rupert – Served exclusively by CN Customer terminal and logistics – Over $1B in private and Canadian Federal Government investments 1 1 Fairview Terminal (DPW) – Planned increase in capacity from 1.35M TEU to 1.8M TEU (2022) 2 Vopak Pacific Canada – Planned b
Slide 30: Canadian East Coast Port Strategy
Canadian East Coast Port Strategy Emulating the success of our Prince Rupert model Leveraging our underutilized Eastern network Sydney • East Coast port developments aim to capture growth from ultra large container Melford vessels Quebec Saint John Halifax • Canadian East Coast ports offer competiti
Slide 31: Leveraging our Unique Network
Leveraging our Unique Network Key capacity expansions across our network Prince Rupert • Expansion of terminals • Success of the supply chain and collaboration with our partners to compete in a global environment • Consistent service provides customers ability to grow their business Vancouver Regina
Slide 32: International Intermodal – Prince Rupert
International Intermodal – Prince Rupert Long term opportunity from ongoing capacity expansion • Best West Coast gateway to North America • 1-2 days closer sailing time • Favorable roundtrip economics supported by export balance • Close partnership between terminal and rail operations driving effici
Slide 33: International Intermodal – Vancouver
International Intermodal – Vancouver Joint investments by all supply chain stakeholders • Significant terminal investments increasing available capacity North • Rail-related investments in Vancouver, Vancouver funded by CN, Port of Vancouver and Lynn Creek Yard Federal Government, aligned to ensure
Slide 34: International Intermodal – Port of Halifax
International Intermodal – Port of Halifax Feeding the eastern network • Halterm Terminal now operated by PSA – a leading global port terminal operator • $250M of investments in the past 10 years: • Longer and deeper piers • Upgraded gates and marshalling areas • 2019 investments – Super Post-Panama
Slide 35: Recent Capacity Investments Enabling Service Improvements in Domestic Intermodal
Recent Capacity Investments Enabling Service Improvements in Domestic Intermodal Wholesale • Strengthening position through strong partnerships with industry leaders • Full membership in Equipment Management Pool (EMP) program reducing empty container movements and extending our reach • Integration
Slide 36: Automotive
Automotive New storefronts and capacity expansions • New auto compound in Vancouver providing ability to drive growth in the area • New auto compound in New Richmond, WI to access Minnesota market with direct, single-line CN service • New plant expansion plans/future product investments from Ford an
Slide 37: Crude Oil
Crude Oil Best-in-class network from Western Canada to U.S. Gulf Coast • Working to create long term crude-by-rail demand by promoting diluent recovery capacity (DRUs), bringing rail transportation costs in line with new pipelines ESG Spotlight: Advancing partnerships for CanaPuxTM pilot and eventua
Slide 38: Frac Sand and NGLs
Frac Sand and NGLs Solid origination franchise in Wisconsin • Great origination and termination frac sand franchise • Single-line efficient hook-and-haul operation with long length of haul from Wisconsin to Western Canada • Mindful of risk related to local sourcing of frac sand and demand volatility
Slide 39: Coal & Petroleum Coke
Coal & Petroleum Coke Export supply chains solely served by CN • Unique single access to Ridley and Convent Prince Rupert Terminals, offering opportunities for strong growth in export coal Fort McMurray • Ramp-up of new Coal Spur (Vista) coal mine (started in May 2019) at 3M tonnes annualized; poten
Slide 40: Refined Petroleum Products & Sulphur
Refined Petroleum Products & Sulphur • Refined petroleum products – Creating opportunities to source refined petroleum products from Alberta to Southern Ontario • Sulphur – Unique CN reach from origin to export facilities in Vancouver and the St. Lawrence Seaway Petroleum Products Sulphur Please see
Slide 41: CN Serving the Majority of New Grain Elevators Built in Canada since 2015
CN Serving the Majority of New Grain Elevators Built in Canada since 2015 CN grain revenues Increased car spotting per week Increased customer participation originating from Canada (1) for the 2019/2020 crop year in CN’s Western Canada fleet 70% 150 integration program 24 new grain elevators built o
Slide 42: Strategic Acquisitions and Partnerships
Strategic Acquisitions and Partnerships Building on our acquisition track record Rail Centric Intermodal and Logistics Port Partnerships Pursuing targets that help our customers get their products to market more efficiently, extend our reach, and increase volume on our network Please see Forward-Loo
Slide 43: Disciplined Target Selection
Disciplined Target Selection Right Target to Financially Compelling Proven Track Record of ONE Feed the Network and Executable Integration Goal Creates incremental rail volume Determine standalone Deliver on expected ROIC standalone return Onboards talent Identify revenue Driving shareholder Realize
Slide 44: TransX – Recent Intermodal Transaction
TransX – Recent Intermodal Transaction Creating Incremental Onboarding Talent Enabling Extending Physical Rail Volume Strong entrepreneurial Complementary and Commercial management team with deep Shifting over-the-road moves Services Reach to rail and leveraging expertise in logistics, Enhancing CN’
Slide 45: Implementing Advanced Technologies
Implementing Advanced Technologies Our next strategic driver of value • Increasing speed to market, repeatable and reusable • Focused on key projects – from pilot to implementation • Autonomous track inspection program • Automated inspection portals • Handheld devices for mechanics and crew • Enterp
Slide 46: Information & Technology
Information & Technology Deploying advanced technologies to drive value Autonomous Track Automated Inspection Handheld Technology Inspection Program Portals for Conductors Handheld Technology Enterprise Automation for Car Mechanics Smart Network Advanced Technologies 46
Slide 47: Autonomous Track Inspection Program (ATIP)
Autonomous Track Inspection Program (ATIP) 8 ATIP cars deployed across the network Approval of FRA(1) Test Program • XXX ~70% • CN’s ATIP Test Program approved by the FRA • Multi-phased approach will ultimately lead to of core mainline protected - Less on-track inspection time for track infrastructu
Slide 48: Automated Inspection Portals
Automated Inspection Portals High resolution imaging hardware coupled with powerful machine learning software is changing how we inspect our fleet • Immediate benefits include improved rolling departure inspections as trains depart the yard • Future benefits include better network fluidity through t
Slide 49: Handheld Technology
Handheld Technology A mobile foundation starting with 3 applications Mobile Device for Mechanics (550 devices deployed) • Increase data accuracy and scope of work billed • Improve supervisors’ visibility of work progression and efficiency with remote communication of instructions Mobile Device for T
Slide 50: Enterprise Automation
Enterprise Automation Using technology to automate and eliminate manual and time consuming tasks • Leveraging a variety of tools, such as Robotic Process Automation (RPA), smart data capture, conversational interfaces (chatbots), cognitive automation and agile orchestration technologies • Scalabilit
Slide 51: Smart Network (Digital Twin)
Smart Network (Digital Twin) An integrated digital scenario analysis and simulation tool to improve insight and enhance capacity planning relative to changing demand • Simulates train movements on the network to gain insight on capacity, cost and operational fluidity • Anchored on simulation and a h
Slide 52: Shareholder Value Creation
Shareholder Value Creation • Ability to adjust resources through economic cycles • Strong balance sheet and disciplined capital allocation • Solid historical Total Shareholder Return (TSR) 52
Slide 53: Track Record of Delivering Solid Results
Track Record of Delivering Solid Results Revenues Flat Net Income ▲29% Free Cash Flow (1) ▲100% Q1 2020 vs Q1 2019 Q1 2020 vs Q1 2019 Q1 2020 vs Q1 2019 $M $M $M 14,321 14,917 5,484 2,778 13,041 2,520 2,514 12,037 4,328 4,216 1,992 3,640 CAGR 7% 3,544 3,545 CAGR -8% 573 CAGR 5% 786 1,011 286 2016 20
Slide 54: Track Record in Previous Downturns
Track Record in Previous Downturns Great Recession (2008-2009) Freight Recession (2015-2016) • RTMs declined 10% in 2009 • RTMs declined 5% in 2016 • Undertook cost takeout efforts including ~900 net • Aggressive cost reduction including tight labor cost reduction in average headcount (approximately
Slide 55: Disciplined Approach to Capital Investments
Disciplined Approach to Capital Investments Investing to support our business and committed to investing for the long-term Capital Investments and Adjusted ROIC (1) 4,500 in $M & % respectively 35.0% 4,000 3,865 3,531 PTC (2) 30.0% 3,500 2,900 3,000 2,706 2,752 2,673 2,297 PTC (2) 25.0% Adjusted ROI
Slide 56: Rewarding Shareholders
Rewarding Shareholders Over $3.2B or ~77% of adjusted net income (1) returned to shareholders in 2019 Consistently increasing dividends Opportunistic share repurchases • Over $23B of share repurchases since 2000 • Dividend increased every year since • Normal Course Issuer Bid (NCIB) of up to 16 mill
Slide 57: Maintaining a Strong Balance Sheet
Maintaining a Strong Balance Sheet Prudent financial management Adjusted debt-to-adjusted EBITDA multiple (1) 2.20 1.94 2.02 2.01 1.77 1.85 1.74 1.75 1.63 2013 2014 2015 2016 2017 2018 2019 LTM (2) LTM (2) ended ended Mar 19 Mar 20 Investment Grade Credit Ratings Moody’s A2 Dominion Bond Rating Serv
Slide 58: Prudent Financial Management in Unprecedented Economic Uncertainty
Prudent Financial Management in Unprecedented Economic Uncertainty • Withdrawing 2020 financial guidance and 3- year targets provided at the 2019 Investor Day due to uncertainty caused by COVID-19 pandemic • Strong balance sheet to weather the storm • Best credit rating in the industry, with ability
Slide 59: Our Strategic Game Plan
Our Strategic Game Plan To deliver long-term profitable growth and create shareholder value Driving shareholder value creation $ Consistent capital allocation strategy with financial discipline and flexibility to drive strong and sustainable ROIC Implementing advanced technologies to modernize Sched
Slide 60: Appendix
Appendix 60
Slide 61: Appendix: Financial Highlights
Appendix: Financial Highlights Consistently delivered 15%+ ROIC since 2013 Change Q1 Favorable (Unfavorable) 2013 2014 2015 2016 2017 2018 2019 CAGR 2020 (1) Total revenues ($M) 10,575 12,134 12,611 12,037 13,041 14,321 14,917 6% 3,545 Flat Total revenue ton miles (RTMs) (B) 210.1 232.1 224.7 214.3
Slide 62: Appendix: Non-GAAP Measures
Appendix: Non-GAAP Measures This presentation makes reference to non-GAAP measures that do not have any standardized meaning prescribed by GAAP, including adjusted dividend payout ratio, ROIC and adjusted ROIC. These non-GAAP measures may not be comparable to similar measures presented by other comp
Slide 63: Appendix: Non-GAAP Measures (Continued)
Appendix: Non-GAAP Measures (Continued) ROIC and Adjusted ROIC Management believes that ROIC and adjusted ROIC are useful measures of the efficiency in the use of capital funds. The Company calculates ROIC as return divided by average invested capital. Return is defined as net income plus interest e
Slide 64: Investor Relations Contacts
Investor Relations Contacts Paul Butcher Vice President, Investor Relations Paul.Butcher@cn.ca 514-399-0052 Lauren Benoit Senior Manager, Investor Relations Lauren.Benoit@cn.ca 514-399-4654 For more information, please visit www.cn.ca/en/investors/investor-contacts. TSX: CNR NYSE: CNI 64
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