Canadian National Railway Company · TSX:CNR
Canadian National Railway — Investor Presentation (July 2021)
67 slides from Canadian National Railway's investor presentation, July 2021
Slide 1: A Leading North American Transportation and Logistics Company
A Leading North American Transportation and Logistics Company INVESTOR PRESENTATION July 2021 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, including statements based on management’s assessment and a
Slide 3: Additional information
Additional information No Offer or Solicitation This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or s
Slide 4: 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$24.4 trillion • Current trends favoring rails • Trucking regulations and driver shor
Slide 5: CN at a glance
CN at a glance TSX: CNR NYSE: CNI 2020 HIGHLIGHTS (1) • CN is a world-class transportation leader and trade- enabler. Essential to the economy, to the customers, and 24,000+ $96B to the communities it serves, CN safely transports more employees market capitalization (2) than 300 million tons of natu
Slide 6: CN's foundation of excellence and core strengths
CN’s foundation of excellence and core strengths ✓ Unique franchise with 3 coast-access; network fluidity advantage around Chicago ✓ Pioneer of Precision Scheduled Railroading; first to champion and integrate PSR across our full network ✓ High-quality, experienced management team; proven track recor
Slide 7: Our strategic game plan
Our strategic game plan Aiming to deliver long-term sustainable profitable growth and create shareholder value Pages Driving shareholder value creation 51-58 $ Consistent capital allocation strategy with financial discipline and flexibility to drive strong and sustainable ROIC Implementing advanced
Slide 8: 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 Precision Scheduled Railroading (PSR) over 15 years ago • Optimizing network to move customer goods qu
Slide 9: Unparalleled North American rail network built through acquisitions
Unparalleled North American rail network built through acquisitions 2021 CREATING THE PREMIER RAILWAY FOR THE 21ST CENTURY (1) Kansas City Southern Railway (pending regulatory review) 2019-2020 Prince Rupert FURTHER EXPANDING OUR REACH Massena rail line (pending closing) TransX Prince George H&R Edm
Slide 10: Unique three-coast network
Unique three-coast network Unparalleled reach coupled with profound geographic and product diversity Over 85% of traffic originates on CN’s network and over 65% Global West 29% originates and terminates Domestic Canada 18% on CN’s network Well-diversified portfolio Domestic Other Coal Intermodal Aut
Slide 11: Precision Scheduled Railroading as our foundation
Precision Scheduled Railroading as our foundation • CN pioneered PSR 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 at yards
Slide 12: Q2 key operating metrics - fluid network
Q2 key operating metrics - fluid network to meet the demand of the North American economy Fuel Efficiency Train Length Through Dwell US gallons of locomotive fuel per 1,000 GTMs In feet Entire railroad, hours 0.88 2% 8,886 2% 8.4 8% 0.86 8,749 vs Q2-20 vs Q2-20 7.7 vs Q2-20 Q2-20 Q2-21 Q2-20 Q
Slide 13: CN has led the sector in growth over the past two decades
CN has led the sector in growth over the past two decades while continuing to improve OR Share Price Performance Since 2000 Tech. Investments PSR Implementation (2001-2010) Intermodal growth (2010-2019) 220 (2019-Today) • First railway to implement PSR successfully • Partnerships with ports on the P
Slide 14: Delivering Responsibly: CN's approach to a more sustainable future
Delivering Responsibly: CN’s approach to a more sustainable future Delivering Responsibly is an integral part of our business strategy, touching all aspects of our operations. CN supports the United Nations Sustainable Development Goals (SDGs), which align with our vision for a sustainable world. Ou
Slide 15: Leading the industry in ESG
Leading the industry in ESG Delivering Responsibly is at the heart of how CN is building for a sustainable future. It means moving our customer’s goods safely and efficiently, in an environmentally responsible manner, attracting, developing and retaining diverse talent, and helping to build safer, s
Slide 16: Commitment to advancing ESG initiatives
Commitment to advancing ESG initiatives Longer-term goal is to continue to lead industry best practices in ESG 2021 major ESG initiatives undertaken Commitment to climate action and transparency • On February 11, 2021, CN announced an annual advisory vote on the • For over a decade, through our CDP
Slide 17: Strong track record of fuel and carbon efficiency
Strong track record of fuel and carbon efficiency With approximately 85% of CN’s direct GHG emissions generated from rail operations, our focus is to continuously improve our locomotive fuel efficiency and reduce our carbon emissions. Capitalizing on the company’s DNA of efficiency, we are working c
Slide 18: Awards and recognition
Awards and recognition CN has been recognized for our sustainability performance and ESG disclosure. We strive to be a leader and among the world’s best in sustainability Member of the World Index Sustainability Yearbook Member of the 30% Club Climate Change Action Leader Ranked 10th on the Corporat
Slide 19: 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 • Leveraging existing employee base with talent to value methodology • Onboarding experienced, external talent to drive next wave of innovation • Committed to developing t
Slide 20: CN leadership
CN leadership Backed by a dedicated team of over 24,000 railroaders Jean-Jacques Ruest Rob Reilly Ghislain Houle Sean Finn Helen Quirke President & Chief Executive Officer Executive Vice-President & Executive Vice-President & Executive Vice-President Senior Vice-President & Chief Operating Officer C
Slide 21: 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 20 years of experience internal Canadiantalent unionized workforce Embracing • Challenging the art of what is pos
Slide 22: Developing the best railroaders
Developing the best railroaders Continuous learning and development 555,000 Hours in 2020, covering skills, re-certification, and various leadership development programs as well as entry-level training Ensuring continuous learning for our employees is critical to having a skilled, safe and engaged l
Slide 23: Creating an inclusive and diverse work environment
Creating an inclusive and diverse work environment Strengthening our • Focused on diversity, including gender, Indigenous peoples, members of visible minorities and persons with disabilities diversity • Looking to increase diversity at more senior levels within our Company, as our workforce continue
Slide 24: Targeting long-term profitable growth
Targeting long-term profitable growth • Strategic pipeline of growth opportunities • Growing with our customers and partners across the network • Focused on consumer product and rail centric supply chain organic opportunities • Aiming to deliver compounded pricing above rail inflation 24
Slide 25: Strategic pipeline of long-term growth opportunities
Strategic pipeline of long-term growth opportunities Growing with our customers and partners across the network Prince Rupert container terminal expansion New wood Coalspur New petrochemical Propane export terminals pellet exports exports production (AltaGas, Pembina) Prince Rupert New country grain
Slide 26: 2021 market outlook – more balanced growth as North American economy rebounds
2021 market outlook – more balanced growth as North American economy rebounds Rail Centric Supply Chain Consumer Product Supply Chain Merchandise International intermodal • Strong renovation sector and housing market promoting continued • U.S. West Coast congestion driving incremental volumes throug
Slide 27: Canadian West Coast port strategy
Canadian West Coast port strategy Vancouver – Investing to accommodate future growth Customer investments – Over $2B in private sector investments 2 1 Centerm – Planned increase in capacity from 900k to 1.5M TEU (early 2022) Vanterm – Planned increase in capacity from 850k to 1.065M TEU (Q3 2021) 1
Slide 28: 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 to 1.6M TEU (2022) and 1.6M to 1.8M TEU (2023) 2 Vopak Pa
Slide 29: Canadian East Coast port strategy
Canadian East Coast port strategy Emulating the success of our Prince Rupert model Leveraging our Eastern network capacity • East Coast port developments aim to capture growth from ultra large container vessels Sydney Moncton • Canadian East Coast ports offer competitive gateways for Melford Southea
Slide 30: Leveraging our unique network
Leveraging our unique network Key capacity expansions across our network • Expansion of terminals Prince Rupert • 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 Moncton • Invest
Slide 31: International Intermodal Prince Rupert
International Intermodal Prince Rupert Long-term opportunity from capacity expansion • Best West Coast gateway to North America • 1-2 days closer sailing time from Asia • Favorable roundtrip economics supported by export balance • Close partnership between terminal and rail operations driving effici
Slide 32: International Intermodal Vancouver
International Intermodal Vancouver Joint investments by all supply chain stakeholders • Significant terminal investments increasing available capacity North Vancouver • Rail-related investments in Vancouver, funded by CN, Port of Lynn Creek Yard Vancouver and Canadian Federal Government, aligned to
Slide 33: International Intermodal Halifax
International Intermodal Halifax Feeding the eastern network • PSA International, a leading global port terminal operator, acquired the container terminal at the port of Halifax in 2019, and is positioning the port for continued growth by expanding the berth and investing in new equipment including
Slide 34: Domestic Intermodal
Domestic Intermodal Well-positioned to capitalize on the future of e-commerce TransX and H&R acquisitions Member of EMP Interline partnership • Service-sensitive refrigerated segment • Providing nationwide supply • Extending reach and developing chain flexibility new markets • Among the leaders in o
Slide 35: Forest products
Forest products Strong demand from housing starts and increased repair and renovation Lumber and Panels • Strong pent-up pre-pandemic new housing demand and reallocation of spending priorities supporting repair and renovation • Prices pushed to historic highs over the past year Prince Rupert Wood pu
Slide 36: Metals and minerals
Metals and minerals Recovering North American economy driving solid demand Aluminum and Steel • Sustainably sourced aluminum supporting shift towards lighter weight electric vehicles • Manufacturing remains strong with a focus on domestic steel production to support solid demand Minerals • Longer te
Slide 37: NGLs and frac sand
NGLs and frac sand Leveraging new propane terminals in Prince Rupert NGLs • Providing Western Canadian propane access to Asian markets • AltaGas propane export facility at Prince Rupert (opened May 2019) exceeding target of 50,000 barrels per day • Second facility (Pembina) opened in Q1 2021 with ca
Slide 38: Crude oil
Crude oil Continuing to build the heavy barrel franchise Leveraging our unique franchise to move heavy crude • Over 50% of CN’s crude oil traffic consists of undiluted heavy crude, which is less sensitive to pipeline capacity and differentials • Working with customers to create longer-term crude-by-
Slide 39: Coal and petroleum coke
Coal and petroleum coke Export supply chains solely served by CN • Unique single access to Ridley and Convent Terminals, offering Prince Rupert opportunities for growth in Canadian and U.S. export coal Fort McMurray • Coalspur (Vista) coal mine (started in May 2019) run rate of 6M tonnes annualized;
Slide 40: Refined petroleum products and sulfur
Refined petroleum products and sulfur Uniquely serving an ever-growing supply • Refined petroleum products – well positioned to capture growth in Greater Toronto Area (GTA) with terminal assets located on CN’s network • 5 active terminals on CN’s network in the GTA • Strong origination franchise in
Slide 41: CN serving the majority of new grain elevators built in Canada
CN serving the majority of new grain elevators built in Canada CN grain revenues 2,500 new CN high-capacity Increased customer participation originating from Canada (1) grain hopper cars in service in CN’s Western Canada fleet 70% in early 2021 integration program 27 new grain elevators built on CN
Slide 42: Automotive
Automotive New storefronts and capacity expansions • Auto compound in Vancouver providing ability to drive growth in the area (operational 2019) • New auto compound in New Richmond, WI, (operational March 2021) to access Minnesota market with direct, single-line CN service • AutoMobile International
Slide 43: Implementing advanced technologies
Implementing advanced technologies Our next strategic driver of value • Improving safety, creating capacity, reducing costs and driving service reliability • Increasing development and deployment speed • Focused on key projects – from pilot to implementation • Autonomous track inspection program • A
Slide 44: Autonomous Track Inspection Program
Autonomous Track Inspection Program Industry leading - improving network capacity and safety Largest ATIP fleet in North America Regulatory approvals 10 fully automated rail cars using the latest sensor and AI technology, FRA Test Program (1) : inspecting track in regular train service, in real-time
Slide 45: Automated inspection portals
Automated inspection portals Leading-edge high-resolution imaging hardware coupled with powerful continuous machine learning software is changing how we inspect our car fleet • Immediate benefits include improved safety with continuous surveillance (24/7/365) of rolling stock through automated inspe
Slide 46: Handheld technology
Handheld technology Digitization of manual processes driving standardization, improved productivity, reduced costs and better revenue capture Mobile Device for Train Crews (10,000+ devices deployed) • Speed up information flow to customers and increase accuracy and completeness in reporting work per
Slide 47: Process automation
Process automation Using technology to automate and eliminate labor-intensive and low-value repetitive tasks • Leveraging a variety of tools, such as Robotic Process Automation (RPA), smart data capture, conversational interfaces (chatbots), cognitive automation and agile orchestration technologies
Slide 48: 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 • Stress testing scenario analys
Slide 49: Building the Intermodal of the future
Building the Intermodal of the future • CN has embarked on a journey to build our capacity and further improve customer service through the launch of the Smart Terminal Project • Brampton and Malport Intermodal Terminals (in Toronto) nearing completion New yard design Smart Map Improving capacity, p
Slide 50: Enabling the future of positive train control
Enabling the future of positive train control The combination of train protection and a modernized infrastructure enables powerful new automated train operations in the future Leading-edge technologies Benefits Creation of reusable technology frameworks including: Safety Benefits • New locomotive on
Slide 51: Driving Shareholder value creation
Driving Shareholder value creation • CN creates value for its shareholders by striving for sustainable financial performance through profitable top-line growth, strong free cash flow and adequate return on invested capital • Strong balance sheet and disciplined approach to capital allocation • Abili
Slide 52: Financial performance
Financial performance Total Revenues Diluted EPS Net Income $M $ per share $M 14,321 14,917 13,819 6% 7.24 29% 5,484 29% 13,041 12,037 vs H1-20 5.87 5.83 vs H1-20 vs H1-20 4,328 4,216 4.67 5.00 3,640 3,562 6,754 7,133 2.82 2,008 2.18 1,556 CAGR 4% CAGR 2% CAGR -1% 2016 2017 2018 2019 2020 H1-2
Slide 53: Maintaining a strong balance sheet
Maintaining a strong balance sheet Prudent financial management Adjusted debt-to-adjusted EBITDA multiple (1) 2.15 2.07 1.94 2.02 1.98 1.77 1.85 1.75 1.74 1.63 2013 2014 2015 2016 2017 2018 2019 2020 LTM LTM Jun 20 Jun 21 Investment Grade Credit Ratings Rating agency Credit rating Rating action (2)
Slide 54: Disciplined approach to capital investments
Disciplined approach to capital investments Investing to support our business and committed to investing for the long-term • Annually, CN invests ~20% of revenues (1) in capital investments to support the safety of our network, improve Capital Investments and Adjusted ROIC (2) efficiency and resilie
Slide 55: Capacity infrastructure investments and fleet additions supporting long-term growth
Capacity infrastructure investments and fleet additions supporting long-term growth • Five siding projects in 2021 enhancing Prince Rupert corridor capacity Prince Rupert Taverna - Prince Rupert • Multi-year capacity enhancements in four 12,000' sidings Vancouver and Prince Rupert siding extension •
Slide 56: Massive investments in Canadian grain supply chain
Massive investments in Canadian grain supply chain • Attracted major grain customer expansion investment in Vancouver and ~70% of new efficient high- throughput grain elevators, providing CN with exclusive access to 27 new facilities Positive trends for Canadian grain production Achieving synergies
Slide 57: Rewarding shareholders
Rewarding shareholders Consistent dividend growth and opportunistic approach to share repurchases 25 consecutive years of dividend growth Opportunistic share repurchases • Dividend has increased every year since 1995 IPO • Over $23B of share repurchases since 2000 • 16% annual growth rate in dividen
Slide 58: Reaffirming 2021 financial outlook
Reaffirming 2021 financial outlook (1) • Targeting double-digit adjusted diluted EPS growth versus 2020 adjusted diluted EPS of $5.31(2) based on: • High single-digit volume growth in terms of RTMs • Overall pricing above rail inflation at a minimum • Canadian to U.S. dollar exchange rate of approxi
Slide 59: Appendix
Appendix 59
Slide 60: CN-KCS
CN-KCS Agreed-to combination with Kansas City Southern Railway creates the Premier Railway for the 21st Century 60
Slide 61: CN-KCS: Safer. Faster. Cleaner. Stronger.
CN-KCS: Safer. Faster. Cleaner. Stronger. A fully end-to-end merger ✓ Preserve all existing gateways & create new East Coast access Enabling international single-line routes supply chains ✓ Specific supply chain benefits Kansas City Speedway: New competitive route between KC, Detroit & Chicago ✓ Sig
Slide 62: Path to completion ‒ expected second-half of 2022
Path to completion ‒ expected second-half of 2022 2021 2022 CN-KCS CN-KCS Response to Public CN-KCS File Jointly for Comments, including 1750+ KCS Definitive KCS Special Obtain common control approval Enter into Definitive Voting Trust Letters of Support Filed with Proxy Statement Shareholder from S
Slide 63: CN-KCS clearly and significantly enhances competition
CN-KCS clearly and significantly enhances competition ✓ The CN-KCS combination is pro-competitive and will yield significant public benefits − We will increase customer options and keep all existing major gateways (existing options) available − We will enhance rail-to-rail competition with larger Cl
Slide 64: Financial highlights
Financial highlights Change Favorable 2014 2015 2016 2017 2018 2019 2020 CAGR H1 2021 (Unfavorable) (1) Total revenues ($M) 12,134 12,611 12,037 13,041 14,321 14,917 13,819 2% 7,133 6% Total revenue ton miles (RTMs) (B) 232.1 224.7 214.3 237.1 248.4 242.0 230.4 Flat 120.7 9% Operating income ($M) 4,
Slide 65: Non-GAAP measures
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 companies. The
Slide 66: Non-GAAP Measures
Non-GAAP Measures 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 expense after-tax, calc
Slide 67: Investor relations contacts
Investor relations contacts Paul Butcher Vice President, Investor Relations Paul.Butcher@cn.ca 514-399-0052 Greg Hamilton Senior Manager, Investor Relations Greg.Hamilton@cn.ca 514-399-4654 Follow us For more information, please visit www.cn.ca/en/investors/investor-contacts. TSX: CNR NYSE: CNI 67
Canadian National Railway Company — Investor Presentation (July 2021) on 6ix