Canadian Pacific Kansas City Limited · TSX:CP
Canadian Pacific Kansas City — Canadian Pacific Railway — Debt Investor Presentation (November 2021)
39 slides from Canadian Pacific Kansas City's debt investor presentation, Nov 15, 2021
Slide 1: CP Fixed Income Investor Presentation November 2021
CP Fixed Income Investor Presentation November 2021 CONFIDENTIAL A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the securities regulatory authorities in each of the provinces of Canada. A copy of the final base
Slide 2: Disclaimer
Disclaimer Canadian Pacific Railway Limited (“CPRL” or the “Company”) and Canadian Pacific Railway Company (“CPRC” and together with their subsidiaries, “CP”, “CP Rail” or “Canadian Pacific” as the context may so require) have filed a registration statement (containing the base prospectus) and a pro
Slide 3: Basis of Presentation
Basis of Presentation Basis of presentation Except where noted, all figures are in millions of U.S. dollars. Financial information is prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), unless otherwise noted. As a result of the five-for-
Slide 4: Key GAAP and Non-GAAP Measures
Key GAAP and Non-GAAP Measures $ in millions of Canadian dollars, except per share data, ratios or unless otherwise indicated 2016 2017 2018 2019 2020 Total revenues $ 6,232 $ 6,554 $7,316 $7,792 $7,710 Operating income 2,411 2,519 2,831 3,124 3,311 Adjusted operating income* 2,411 2,468 2,831 3,124
Slide 5: Meeting Participants
Meeting Participants Managing Director, Investor Relations & Treasury Chris De Bruyn Executive Vice President & Chief Financial Officer Nadeem Velani
Slide 6: Overview of CPKC Transaction
Overview of CPKC Transaction
Slide 7: Creating the First US-Mexico-Canada Rail Network
New third single-line connection between the US Midwest and Texas/Mexico Creating the First US-Mexico-Canada Rail Network Diversifies current business and geographic mix with the addition of new routes Driving USMCA growth and investment opportunities Enhances competition by creating new single-line
Slide 8: Financial Terms and Governance
FINANCIAL TERMS KCS shareholders will receive 2.884 CP common shares and $90 in cash for each KCS common share held Cash consideration ($90 per share) Based on closing price of August 9th, CP’s proposal is valued at $300 / share(1) Represents 34% premium to KCS’ unaffected price(2) CP and KCS shareh
Slide 9: Introduction of Interim Trust Structure
Introduction of Interim Trust Structure CP is intending to close the transaction into a Voting Trust The two entities will remain separate during this time and there will be no premature control of Kansas City Southern by CP CP will appoint an independent Trustee (David Starling) to exercise voting
Slide 10: Expected Transaction Timing
Approval confirmed September 30, 2021 APPROVAL OF CP VOTING TRUST December 8 and 10 for CP and KCS, respectively SHAREHOLDER VOTES IFT APPROVAL RECEIVED; COFECE Expected by Q1 2022 RECEIVE MEXICAN IFT AND COFECE APPROVALS1 EXPECTED By Q1 2022 KCS SHAREHOLDERS RECEIVE CONSIDERATION AND TRANSACTION CL
Slide 11: Key Credit Highlights
Key Credit Highlights cP
Slide 12: Key Pro Forma Credit Highlights
Key Pro Forma Credit Highlights 1 3 Unrivaled Transcontinental Rail Network 4 5 Combination Unlocks Substantial Synergy Opportunities Through Service Offerings and Efficiencies Larger, More Diversified Business Track Record of Financial Discipline 2 Track Record of Stable and Resilient Operating Per
Slide 13: Financial Principles Focused on Maintaining Strong Investment Grade Profile
Financial Principles Focused on Maintaining Strong Investment Grade Profile ~$1.5B Target Capital Expenditures ($CAD) 2.0 – 2.5x Adj. Net Debt / Adj. EBITDA(1) Prudent Shareholder Returns Strong Investment Grade Target Credit Rating Proactive, Disciplined Approach to Investment Proactive reinvestmen
Slide 14: Track Record of Financial Discipline
Track Record of Financial Discipline 1 Financial Principles Focused on Maintaining Strong Investment Grade Profile Proven commitment to target leverage and credit rating (Strong Investment Grade) Track record of strong free cash generation and measured approach to shareholder returns Committed to de
Slide 15: Stable and Resilient Operating Performance
Stable and Resilient Operating Performance 2 5-year change: -6% 5-year change: -3% 5-year change: +13% 5-year change: +10% The cornerstone of our industry leading performance is our precision railroading operating model and disciplined focus on planning and execution. Faster train speeds and reduced
Slide 16: Unrivaled Transcontinental Rail Network
Unrivaled Transcontinental Rail Network 3 Powerhouse franchise that connects key supply chain regions in the U.S., Mexico, and Canada 19,200 Route Miles 20,000 Employees Pro-competitive and pro-service for the shippers creating the only USMCA RR with connections to all 3 Coasts Enhances competition
Slide 17: Larger, More Diversified Business
Larger, More Diversified Business 4 Figures Expressed as a Percent of 2020A Freight Revenue Business Mix Geography Canadian Pacific CPKC1 Kansas City Southern Acquisition further diversifies mix of business and end market exposure, creating a strong base to drive sustainable growth Source: Public Di
Slide 18: Substantial Synergy Opportunities
Substantial Synergy Opportunities Unique combination enables significant growth for our customers throughout North America Efficient new single-line routes and dramatically expanded market reach for customers Planned capital investments to support growth synergies, such as additional network sidings
Slide 19: Financing Plan and Wrap-up
Financing Plan and Wrap-up cP
Slide 20: Key Financing Principles of De-leveraging Strategy
Key Financing Principles of De-leveraging Strategy CP acquisition debt structured to optimize prepayment flexibility and available de-leveraging to target leverage / ratings profile Pro forma maturity profile designed to accelerate debt reduction during Trust period with available free cash Special
Slide 21: Balanced Maturity Profile and Solid Liquidity
Acquisition financing to be split with the following goals in mind: Contemplating a mix of USD and CAD maturities, with majority of funding expected in USD market Sufficient short-tenor/callable maturities to facilitate maximum de-leveraging between 2022-2024 Long-term maturities to target benchmark
Slide 22: Summary Terms
Summary Terms Terms Issuer: Canadian Pacific Railway Company Guarantor: Canadian Pacific Railway Limited Security: Senior Unsecured Notes; USD / CAD Expected Ratings(1): BBB+ (stable) / Baa2 (stable) Use of Proceeds: To fund cash portion of Merger Consideration and to pay fees and expenses related t
Slide 23: CPKC Delivers Significant Benefits To All Stakeholders
COMMITMENT TO MAINTAINING STRONG CREDIT PROFILE AND SOLID INVESTMENT GRADE RATING STRONG CONSOLIDATED CASH FLOW PROFILE AND COMMITMENT TO RAPID DE-LEVERAGING, WITH LONG-TERM 2.0-2.5x ADJ. NET DEBT / ADJ. EBITDA(1) TARGET ENHANCED SCALE AND DIVERSITY POSITIONS CPKC FOR STABLE GROWTH, BRINGING TOGETHE
Slide 24: Canadian Pacific
Canadian Pacific 7550 Ogden Dale Road Calgary, AB T2C 4X9
Slide 25: Appendix A Operating Responsibly
Appendix A Operating Responsibly
Slide 26: Rail transportation and GHG emissions
The transportation sector is responsible for 28% of Canada’s annual GHG emissions, with the rail industry contributing only 1% to the country’s total annual GHG emissions(1). Trains are 4 times more fuel efficient than trucks and produce 75% fewer GHG emissions(2). The transportation of freight by r
Slide 27: Climate Change Statement and Fuel Efficiency
In July 2020 CP released a Climate Change Statement acknowledging the impacts of rising global temperatures and reiterating our commitment to address climate change through innovation and industry leading best practices. CP has committed to setting science-based targets to reduce emissions in line w
Slide 28: Operating Responsibly: Safety
CP has been North America’s safest railway for 15 consecutive years. Over the last decade, our train accident frequency has decreased more than 40%. Each year CP allocates over 50% of its capital investments toward safety and replacement initiatives to ensure our network remains safe and efficient.
Slide 29: Appendix B Description and Reconciliation of Non-GAAP Measures
Appendix B Description and Reconciliation of Non-GAAP Measures
Slide 30: Reconciliation of GAAP Performance Measures to Non-GAAP Performance Measures
Reconciliation of GAAP Performance Measures to Non-GAAP Performance Measures The Company presents Non-GAAP measures to provide a basis for evaluating underlying earnings and liquidity trends in the Company’s business that can be compared with the results of operations in prior periods. In addition,
Slide 31: Adjusted Operating Income
Adjusted Operating Income Reconciliation of GAAP to Non-GAAP Performance Measures Adjusted operating income is calculated as Operating income reported on a GAAP basis less significant items (in millions of Canadian dollars) 2016 2017 2018 2019 2020 Operating Income as reported $2,411 $2,519 $2,831 $
Slide 32: Adjusted Operating Ratio
Adjusted Operating Ratio Reconciliation of GAAP to Non-GAAP Performance Measures Operating ratio is defined as operating expenses divided by revenues Adjusted operating ratio excludes those significant items that are reported within Operating income. (%) 2016 2017 2018 2019 2020 Operating Ratio as r
Slide 33: Adjusted Income
Adjusted Income Reconciliation of GAAP to Non-GAAP Performance Measures The tax effect of adjustment was calculated as the pre-tax effect of the adjustment multiplied by the applicable tax rate for the above items of 7.17%, 15.27%, 10.64%, 8.55%, and 13.58% for the years presented, respectively. The
Slide 34: Adjusted Diluted Earnings Per Share
Adjusted Diluted Earnings Per Share (“EPS”) Reconciliation of GAAP to Non-GAAP Performance Measures As a result of the five-for-one share split of the Company's issued and outstanding Common Shares, which began trading on a post-split basis on May 14, 2021, per share amounts for periods prior to Q2
Slide 35: Free Cash
Free Cash Reconciliation of GAAP to Non-GAAP Performance Measures Free cash is calculated as Cash provided by operating activities, less Cash used in investing activities, adjusted for changes in cash and cash equivalents balances resulting from FX fluctuations, and the acquisitions of the Central M
Slide 36: EBIT, Adjusted EBIT and Adjusted EBITDA
EBIT, Adjusted EBIT and Adjusted EBITDA Reconciliation of GAAP to Non-GAAP Performance Measures Earnings before interest and tax (“EBIT”) is calculated as Net income before Net interest expense and Income tax expense. Adjusted EBIT excludes items reported in both Operating income and Other (income)
Slide 37: Adjusted Net Debt
Adjusted Net Debt Reconciliation of GAAP to Non-GAAP Performance Measures Adjusted Net Debt is defined is defined as Long-term debt, Long-term debt maturing within one year and Short-term borrowing as reported on the Company’s Consolidated Balance Sheets adjusted for pension plans deficit, operating
Slide 38: Adjusted Net Debt to Adjusted EBITDA Ratio
Adjusted Net Debt to Adjusted EBITDA Ratio Reconciliation of GAAP to Non-GAAP Performance Measures Adjusted Net Debt is defined in this presentation Adjusted EBITDA is defined in this presentation Adjusted Net Debt to Adjusted EBITDA is defined as Adjusted Net Debt divided by Adjusted EBITDA. The Ad
Slide 39: cP
cP
Canadian Pacific Railway — Debt Investor Presentation (November 2021) on 6ix