Investor Presentation - March 2010 - Canadian Tire Corporation

corp.canadiantire.ca

Investor Presentation - March 2010 - Canadian Tire Corporation

Canadian Tire Corporation

March 2010


Forward-looking Information

This disclosure contains statements that are forward-looking looking. These forward-looking statements

relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs,

expectations and estimates, and can generally be identified by the use of words such as “may”,

“will”, “could”, “should”, “would”, “suspect”, “outlook”, “expect”, “intend”, “estimate”, “anticipate”,

“believe”, “plan”, “forecast”, “objective” and “continue” (or the negative thereof) and words and

expressions of similar import, and include statements concerning possible or assumed future

results. Certain material factors or assumptions are applied in making forward-looking

statements, and actual results may differ materially from those expressed or implied in such

statements. Information about material factors that could cause actual results to differ materially

from expectations and about material factors or assumptions applied in making forward-looking

statements may be found in the body of this document, as well as in the 2009 Management’s

Discussion and Analysis (“MD&A”).

The forward-looking information contained in this document is presented for the purpose of

assisting the Company's security holders and financial analysts in understanding its financial

position and results of operations as at and for the periods ended on the dates presented and

the Company’s strategic priorities and objectives, and may not be appropriate for other

purposes. When relying on the forward-looking statements to make decisions with respect to

the Company, investors and others should carefully consider the foregoing factors and other

uncertainties and potential events. Although the Company believes that the expectations

reflected in such forward-looking statements are reasonable, such statements involve risks and

uncertainties, and undue reliance should not be placed on such statements. The Company

does not undertake to update any forward-looking statements, including those statements that

are incorporated by reference herein, whether written or oral, that may be made from time to

time by or on its behalf, except in accordance with applicable securities laws.

2


Focus on Core CTR Business

Canadian Tire Corporation, Limited

offers goods and services that meet life’s

everyday needs. We are a proud Canadian

company employing 58,000 people under one of the

nation’s most-trusted brands, the iconic red triangle.

Canadian Tire is now channeling efforts behind the core

business – Canadian Tire Retail – as the main engine of growth.

Armed with one of Canada’s largest and newest store networks

and near-universal brand awareness, we are focused on delivering

excellence in value, customer service and innovation.

Canadian Tire Retail is

Canadian Tire’s core business

and one of Canada’s mostshopped

general merchandise

retailers. CTR is the market

leader in each of its 3 core

businesses: Automotive,

Home and Leisure.

479 stores

3


Canadian Tire Financial Services offers Canadian Tire branded credit cards, personal loans, lines of

credit, insurance and warranty products, as well as guaranteed investment certificates (GICs) and

high-interest interest and tax-free savings accounts. $92 million of Canadian Tire ‘Money’® is distributed

annually, redeemable only in CTR stores.

5+ million MasterCard accounts

AUTOMOTIVE

Our automotive business combines the strengths and resources of our CTR automotive, Petroleum,

and PartSource businesses.

Canadian Tire Petroleum is one of Canada’s largest independent gasoline retailers with 272

agent-operated gas bars, 267 convenience stores and 73 car washes. Petroleum builds customer

loyalty by distributing Canadain Tire ‘Money’® to use in CTR stores and supports the growth of

Financial Services credit cards.

272 gas bars

PartSource is a chain of specialty automotive stores staffed by experts catering to serious do-ityourselfers

and professional installers. By enhancing our breadth of capabilities and reaching a broader

spectrum of automotive customers, PartSource plays a critical role in re-invigorating our focus on the

automotive sector.

87 stores

Mark’s Work Wearhouse is one of Canada’s leading apparel retailers. Under the Clothes that Work®

banner, Mark’s sells work, work-related, casual and active-wear clothing and footwear as well as

health-care and business-to-business apparel. Mark’s is the largest industrial apparel and footwear

retailer in Canada.

378 stores

4


Core Assets


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 stores


Supply Chain

– New Canadian Tire Retail DC in Eastern Quebec

All Financial Services credit cards relaunched with PayPass technology in 2008;

Beginning rollout of chip cards in 2010

5


Strategic and Operational Strengths






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 best run credit card businesses in the country – very

capable risk management team

Financially strong company, fully funded and able to adapt and respond to the

changing Canadian economy

We are well-positioned

for days like today and tomorrow

6


2010 Strategic Priorities

i i



Optimize the significant investments made in store and supply

chain infrastructure and drive sustainable, long-term earnings

growth

Build the strength of the core Canadian Tire Retail business and

brand

– Improve overall customer service

– Leverage industry-leading core assets in automotive business

– Position each business unit to actively support and drive

consumers to the core Canadian Tire Retail and Automotive

business

A balanced approach to

maximize earnings potential

7


2010 Initiatives

i i

Key areas of focus in 2010 will build on the momentum of programs and initiatives begun

in 2009:










Continue roll-out of capital-light CTR Smart and Small Market stores

Refocus and align core automotive assets with single focus for growing market share

Improving the customer experience at CTR

Staffing and process changes within CTR Marketing, Merchandising and Store

Operations to improve core processes

Development of redesigned and enhanced loyalty program

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


Enhance financial i performance across the organization and improve operating and

strategic planning process

8


Growth Initiatives

Initiative

Future Impact / Rationale

Real estate projects

Focused growth and upgrade of network to strengthen brand and generate returns,

including CTR capital-light formats

Canadian Tire Retail stores (Smart and Small Market stores)

•Petroleum sites

•Mark’s stores

•PartSource stores

Financial Services

Drive managed growth of receivables with benefits of relaunched cards with

PayPass capability, testing of further new credit cards, including new Options Visa

card, and select investments in balance transfer offers

Reduction in gross capital expenses to $273 million in 2009

(2010 Capex in the range of $280 million to $300 million)

Focused on managing g working capital and investing in initiatives that will

deliver positive cash flow

9


CTR Small Market Store







Identified 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 (where appropriate)

Early results and customer research very positive

9 opened to-date

Before

After

10


CTR Smart Store

Drive growth and improve sales productivity by reallocating space to high growth

and ‘cornerstone’ categories (eg. storage & organization, sports & recreation)

Added traffic-driving businesses (eg. pet foods, food test)

Improved customer experience – navigation, better signage, logical adjacencies,

enhanced service features (call buttons, service desks, customer pick-up, etc.)

Leveraging investments made in square footage – most projects retrofits

Capital-light projects; cost is approximately $0.3 million/store


Expect approximately 6-8% same store sales growth in year one


10 new or replacement stores and 25 retrofit projects opened to-date

59-60 retrofits planned in 2010

Timing Stores Opened Sales Results

2008 2 replacement stores Up 42% and 23% in first year

2009 4 expansion stores Up an average of 14% and 30%

5 replacement stores

since opening

Nov. 2009 25 retrofits stores Tracking in-line with expectations

11


Building our Cornerstone Automotive Business




Key competitive advantage, central to our brand image and our single most

promising business opportunity

Aligned all our automotive resources under one common strategy and

leadership: PartSource, Petroleum, automotive hard parts, accessories, service

centres, tires and all other aspects of automotive

Drive a single strategy to deliver growth and great performance


Significant investments in new technology to

support parts sales at CTR automotive and

PartSource, and enhance CTR’s service

business


Supply chain expanding to bring more parts

closer to the consumer

12


Improving the Customer Experience at 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 satisfaction index (CSI) – 50,000 surveys a month

– Performance improvement program for under-performing stores

Smart Store design focused on the customer

– Help buttons

– Price look-up stations

– More customer service desks

– Better signage and navigation

13


CTR Focused on Being Priced Right

Key benefits of CTR change program include 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’ embedded into system


100% of key value SKUs are shopped weekly

at key competitors


New flyer features to improve price perception, drive traffic

– eg. Everyday Essentials back cover

14


Di Driving i Customer 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 apply customer insights across each

part of our business to drive sales and margins

Develop an in-depth understanding of our customers’ wants and needs to

extend business and improve profitability

Pilot program in place by end of 2010/early in 2011 for target roll-out in 2011


Initially leverage Financial Services data

15


Centralizing i 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

business units

Ability to move faster, respond more quickly and make better decisions


More flexible and effective use of resources (people, technology, budget, etc.)


Will ensure increased clarity and focus in our company-wide strategies while still

maintaining flexibility to make the right decisions for each of our respective

businesses

16


Mark’s Clothes That Work






New “Clothes That Work” testing gground concept store in Edmonton

– Includes product-testing areas for customers to try out apparel and footwear

before purchasing

Growing number of innovations engineered that make “Clothes That Work”

Continued focus on growing share in women’s apparel, including more

fashionable assortments with a focus on premium fabrics

Continued improved merchandise margins due to assortment planning and

inventory flow focus

Continued increased market share in men’s and women’s categories, in a

declining market

17


Mark’s Supply Chain and Operations Capabilities

i





Work underway on R-6, a major IT infrastructure project to enhance Mark’s

supply chain and operations capabilities

R-6 stands for the 6Rs of retailing (Right product; Right price; Right quantities;

Right channel; Right location; Right time)

Product provides forecast, replenishment, purchase order and product flow

software

Over time, expected to improve sales by reducing stock outs, improve inventory

turns by improving product flow, and improve margins by reducing markdowns

caused by stranded stock

Rolled out over 2 years 2009 and 2010


Facilitate enhanced web and mobile presence over time

18


Financial i 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 d credit limits it for cardholders

– Enhanced predictive scorecards to identify high risk customer behaviour

– Enhanced collection strategies

– Newly developed bankruptcy model scorecards

Led to bankruptcies being consistently only 2/3 rds of the national average in 2009

Focused on mitigating future credit risk exposure to ensure

we perform as well as we can in an economic downturn

19


Managing Portfolio Profitability

The Financial Services Business Model:

2009 1 Steady State

Gross yield including insurance 25.1% 25%

Provision cost -8.3% 6%

Funding cost -4.1% 5%

Loyalty and other -2.2% 2% 2%

Operating expenses -6.9% 7%

=3.6% ROR =5% ROR

(1) Approximate percentages of 2009 average receivables

During normal operating conditions, we manage the business to drive a

consistent 4.5% to 5% return on receivables

20


Financial i Services 10 Year Key Metrics


Operating leverage has driven consistent performance during a period of significant growth

1999A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A

Credit Card (1)

Sales ($B) 2.1 2.6 3.3 4.7 6.0 7.2 8.1 9.1 10.4 11.1 11.4

GAAR (2) ($B) 0.9 1.1 1.2 1.6 2.1 2.5 2.8 3.1 3.5 3.7 3.9

Average Balance ($) 681 758 729 930 1,164 1,436 1,614 1,736 1,899 2,031 2,179

Yield 21.94% 20.68% 19.58% 17.28% 17.19% 16.84% 16.47% 16.08% 15.64% 15.74% 16.36%

Net Write-off Rate 5.87% 5.46% 5.43% 5.03% 5.90% 5.86% 6.15% 5.98% 5.67% 6.44% 7.83%

Total Portfolio

ROR (3) 6.10% 4.42% 5.37% 5.17% 4.81% 4.89% 4.75% 5.10% 5.15% 5.00% 3.57%

OPEX as a % of GAAR (4) 18.32% 17.10% 15.05% 11.45% 10.28% 9.27% 8.37% 7.97% 7.84% 7.36% 6.92%

(1) Includes Retail Card, CT MasterCards & CT Visas

(2) Gross Average Accounts Receivable

(3) Excludes Securitization Gain/(Loss), LTIP, Gain on disposal of shares, gain/(loss) on disposal of assets and costs associated with the sale of the mortgage portfolio

(4) OPEX excludes LTIP and gain/(loss) on disposal of assets

21


Q4 2009 Consolidated d Highlights

h

($ in millions except per share

amounts)

Q4 2009 Q4 2008 1 Change FY 2009 FY 2008 1 Change

Retail sales 2 2,993.0 3,219.6 (7.0)% 10,020.9 10,614.4 (5.6)%

Gross operating revenue 2,437.7 2,587.8 (5.8)% 8,686.5 9,121.3 (4.8)%

EBITDA 3, 4 248.7 276.8 (10.1)% 873.7 891.8 (2.0)%

EBITDA 3, 4

(excluding Financial Services)

191.7 218.9 (12.4)% 668.4 673.7 (0.8)%

Adjusted net earnings 4

(excludes non-operating gains

and losses)

104.4 130.1 (19.8)% 348.0 396.4 (12.2)%

Basic earnings per share 1.18 1.24 (5.4)% 4.10 4.60 (10.9)%

Adjusted basic earnings 1.28 1.60 (20.0)% 4.26 4.86 (12.4)%

per share 4

(1) 2008 figures have been restated for the implementation, on a retrospective basis, of CICA HB 3064 – Goodwill and Intangible Assets and the

amendments to CICA HB 1000 – Financial Statement Concepts.

(2) Represents retail sales at CTR (which includes PartSource corporate and franchise stores), Mark’s corporate and franchise stores and Petroleum’s sites.

(3) We consider EBITDA to be an effective measure of the contribution of our businesses to our profitability on an operational basis before allocating the cost

of interest, income taxes, depreciation and amortization.

(4) Non-GAAP measure.

22


Financial i Flexibility as at Q4 2009

Financing Source Amount Available Description

Committed bank lines of credit $1.17 17 billion • Provided by 10 domestic and international financial institutions

• Supports the $800 million commercial paper program

• No amounts were drawn on the bank lines as at January 2, 2010

Commercial paper program $800 million • Canadian Tire had no commercial paper outstanding as at January 2, 2010

Medium Term Notes (MTN)

program

$750 million • New Shelf Prospectus completed as of April 8, 2009, providing for access up

to $750 million

• $200 million was drawn upon as an MTN issuance in June 2009

Securitization of receivables Transaction specific • Handled through Glacier Credit Card Trust

• Financial Services securitized $100 million of credit card receivables in 2009

Broker GIC deposits No specified limit • Funds are available through broker networks

• $1.5 billion in broker GIC deposits as at January 2, 2010

Retail deposits No specified limit • Retail deposits consist of High Interest Savings Accounts, Tax-Free Savings

Accounts and retail GIC deposits

• Financial Services held $545 million in retail deposits at the end of January

2, 2010

Sale/leaseback transactions Transaction specific • Strategic transactions involving Company owned properties

Securitization is an important funding program, in the past and future, but we have alternatives

23


Outlook 2010




Roll-out out of 2 new capital-lightlight CTR store formats

Continued network expansion at Mark’s and PartSource

2010 Capex in the range of $280 million to $300 million


By end of 2010, key productivity it expenditures will have made major progress:

CTR change program, Automotive Infrastructure, IT renewal, Loyalty, etc.




Continued sale/leaseback activities for urban store properties and Montreal DC

will be reviewed

Tax rates continue to decline

Lower capex and balanced working capital will lead to free cash flow growth in

2010 and beyond

A balanced plan for growth with a focus on

driving efficiency and productivity,

expense management and financial flexibility

24

More magazines by this user
Similar magazines