Q1 2009 Earning Report of Canadian Pacific Railway Ltd.

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Q1 2009 Earning Report of Canadian Pacific Railway Ltd.

  1. 1. First Quarter 2009 Earnings Review April 22, 2008 April 23, 2009
  2. 2. Forward Looking Statements The following investor presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (United States) and relevant Canadian legislation relating but not limited to CP’s operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as “anticipate”, “believe”, “expect”, “plan” or similar words suggesting future outcomes. Readers are cautioned not to place undue reliance on forward-looking information because it is possible that predictions, forecasts, projections, and other forms of forward-looking information will not be achieved by CP. CP undertakes no obligation to update publicly or otherwise revise any forward-looking information (other than as required by law), whether as a result of new information, future events or otherwise. By its nature, CP’s forward-looking information involves numerous assumptions, inherent risks and uncertainties, including but not limited to the following factors: changes in business strategies; general global economic and business conditions; risks in agricultural production such as weather conditions and insect populations; fluctuations in the value of the Canadian dollar relative to the U.S. dollar; the availability and price of energy commodities; the effects of competition and pricing pressures; industry capacity; shifts in market demands; changes in laws and regulations including regulation of rates; changes in taxes and tax rates; potential increases in maintenance and operating costs; uncertainties of litigation; labour disputes; risks and liabilities arising from derailments; timing of completion of capital and maintenance projects; interest rate fluctuations; effects of changes in market conditions on the financial position of pension plans and investments; and various events that could disrupt operations, including severe weather conditions, security threats and governmental response to them, technological changes, and other risks detailed from time to time in reports filed by CP with securities regulators in Canada and the United States. Reference is made more specifically to the “Management’s Discussion and Analysis” in CP’s annual and quarterly reports filed with Canadian and United States securities regulators. Except where noted, all figures are in millions of Canadian dollars. T denotes Target, E denotes Estimate. Financial statements prepared in accordance with Canadian Generally Accepted Accounting Principles, unless otherwise noted. TSX/NYSE: CP 1
  3. 3. Note on Non-GAAP Earnings Measures CP presents non-GAAP earnings in this presentation to provide a basis for evaluating underlying earnings trends that can be compared with the prior period's results. These non-GAAP earnings exclude foreign currency translation effects on long-term debt, which can be volatile and short term, and/or other specified items, which are not among CP's normal ongoing revenues and operating expenses. The impact of volatile short-term rate fluctuations on foreign-denominated debt is only realized when long-term debt matures or is settled. A reconciliation of income, excluding foreign exchange (gains) losses on long-term debt and other specified items, to net income as presented in the financial statements is detailed in the Summary of Rail Data issued with the quarterly earnings news release. During the first quarter 2009, there were foreign exchange losses on long-term debt. It should be noted that CP’s earnings that exclude foreign exchange currency translation effects on long-term debt and/or other specified items, as described in this presentation, have no standardized meanings and are not defined by Canadian Generally Accepted Accounting Principles and, therefore, are unlikely to be comparable to similar measures presented by other companies. TSX/NYSE: CP 2
  4. 4. Fred Green President and Chief Executive Officer TSX/NYSE: CP 3
  5. 5. Overview Q1 2009 Redefining key processes to lower structural costs Q1 traffic mix Good operational cost control offset by large volume decline and negative mix -18.6% Carloads Price improvements continue 4% Difference Accelerating efficiency opportunities -22.4% RTMs Preserving cash and strengthening balance sheet TSX/NYSE: CP 4
  6. 6. Financial overview Kathryn McQuade Executive Vice President and Chief Financial Officer TSX/NYSE: CP 5
  7. 7. Income statement Q1 2009 Strong cost control gains offset by negative mix Variance Favourable / (Unfavourable) 2008 (1)(2) 2009 $ % FX adj. % Dollars in millions except where noted Total revenues $ 1,070.7 $ 1,225.2 $ (154.5) (13%) (24%) Operating expenses 931.3 1,009.3 78.0 8% 18% Operating income $ 139.4 $ 215.9 $ (76.5) (35%) (50%) Interest expense and other 79.9 66.0 (13.9) (21%) (2%) Income tax expense 5.4 33.6 28.2 84% 96% Adjusted income(3) $ 54.1 $ 116.3 $ (62.2) (53%) (66%) Adjusted diluted EPS (dollars)(3) $ 0.34 $ 0.75 $ (0.41) (55%) (1) Pro forma data including the DM&E as if it was consolidated for the full year in 2008. (2) Certain 2008 figures have been restated for the adoption of CICA accounting standard 3064. (3) Adjusted amounts exclude foreign exchange (gains) losses on long-term debt and other specified items. See slide 2 for a note on Non-GAAP earnings measures. TSX/NYSE: CP 6
  8. 8. Compensation & benefits Q1 2009 Employee layoffs help offset inflation and foreign exchange Monthly expense head count 2009 v. 2008 pro forma (Average) ($ Millions) Fav/(Unfav) Volume & efficiency gains 24 16,000 Incentive compensation 10 15,000 Total Return Swap (TRS) (5) 14,000 9 Pension expense Inflation & other (10) 13,000 Foreign exchange (21) 12,000 Jul Jun Aug Dec Jan Mar Feb Sep Apr Oct May Nov Total 7 2009 2008 (incl. DM&E) April estimate TSX/NYSE: CP 7
  9. 9. Fuel Q1 2009 Price per gallon impacted by winter planning and hedges Average fuel price 2009 v. 2008 pro forma (1) (U.S.$ / U.S. gallon) ($ Millions) Fav/(Unfav) 104 Price $3.02 49 Consumption $2.04 $2.02 Hedge (9) $1.94 $1.86 Winter fuel program (11) Other (7) Foreign exchange (53) Total 73 Q1 2006 Q1 2007 Q1 2008* Q1 2009 Hedge & Winter fuel program (1) Pro forma data including the DM&E as if it was consolidated for the full year in 2008. TSX/NYSE: CP 8
  10. 10. Equipment rents Q1 2009 Quick removal of assets supporting fluidity Active cars on-line 2009 v. 2008 pro forma (1) ($ Millions) Fav/(Unfav) 12 Fleet size adjustments Car hire receipts (6) Other 0 Foreign exchange (10) Total (4) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Week (1) CP only. Data does not include the DM&E TSX/NYSE: CP 9
  11. 11. Other operating expenses Q1 2009 Foreign exchange offsetting strong expense control 2009 v. 2008 pro forma Fav/(Unfav) ($ Millions) Materials Depreciation Purchased services Usage / volumes 3 – 7 Casualty – – 7 Other (net) 5 4 0 Foreign exchange (7) (6) (11) Total 1 3 (2) TSX/NYSE: CP 10
  12. 12. Expense control Q1 2009 Cost management activities creating savings Expense review Fav/(Unfav) ($ Millions) 2008 pro forma expenses 1,009 Non-fuel inflation (16M) Fuel price (net of hedges) 84M Winter operating conditions (v. 2008) 22M Cost Variable cost management & other 96M management Subtotal 823 Foreign exchange (108M) 2009 reported expenses 931 TSX/NYSE: CP 11
  13. 13. Balance sheet strength 2009 Cash from operations stable with strong cash position Capital program (1)(2)(3) Cash from operations flat with ($ Millions) 2008 Equity issue raised $489 million 1,001 893 884 794 Reduced capital program further 720 - 740 Monetized a portion of our ownership interest in Detroit River Tunnel Partnership Will change from consolidated to equity interest 2005 2006 2007 2008 2009T Core CP Full year DM&E (1) See slide 2 for a note on Non-GAAP earnings measures. (2) Capital program refers to “Additions to properties”. (3) 2009 capital program based on foreign exchange of C$1.25 / U.S.$. TSX/NYSE: CP 12
  14. 14. Dakota, Minnesota & Eastern Integration plans on track Business process integration on target IT system conversions on target for Q4 completion Safety improvement results exceed targets FRA personal injury frequency improved by 43% FRA train accident frequency improved by 7% Business opportunities progressing TSX/NYSE: CP 13
  15. 15. Summary CP is becoming a more efficient company Successfully managing short-term variable costs Focused on removing structural costs through sustained process improvements Strategies in place to drive sustainable improvements TSX/NYSE: CP 14
  16. 16. Marketing overview Marcella Szel Senior Vice President Sales and Marketing TSX/NYSE: CP 15
  17. 17. Volumes and revenue Q1 2009 Volumes down 19% with steady pricing improvement Canadian coal carloads down 30% Automotive carloads down 43% Potash carloads down 70% Volume reductions occurred unevenly Revenue ton miles down 22% Disciplined price delivers steady result TSX/NYSE: CP 16
  18. 18. Market review Grain Excellent Canadian crops moved well in Q1 Canadian grain revenues up 17% U.S. grain shipments down RTMs 2% Expect remaining volumes to move well Carloads -3% Fx adj. -5% revenues TSX/NYSE: CP 17
  19. 19. Market review Coal Lower volumes impacting results Lower steel demand slowing met coal shipments RTMs Full year volume expected to -26% be significantly lower than 2008 Carloads -6% U.S. thermal coal moving well Variance between RTMs and Fx adj. carloads driven by reductions in -23% revenues export shipments and growth in U.S. shorthaul business TSX/NYSE: CP 18
  20. 20. Market review Sulphur & fertilizers Potash volumes down significantly Reduced sales lowering demand RTMs Long-term industry fundamentals -60% remain strong Carloads -53% Fx adj. -55% revenues TSX/NYSE: CP 19
  21. 21. Market review Merchandise North American economy decline impacting volumes and revenues Recession continuing to pressure all Merchandise sectors RTMs -22% U.S. auto sales now expected to be below 10 million Carloads -25% Positive trends in emerging markets Fx adj. Government stimulus packages -32% revenues could drive volumes TSX/NYSE: CP 20
  22. 22. Market review Intermodal Weak import / export demand impacting volumes High retail inventories and declining consumer demand RTMs lowering traffic volumes -20% Long-haul import / export down Carloads -18% Retail outlook and recovery unclear Fx adj. -19% revenues TSX/NYSE: CP 21
  23. 23. Summary Capturing new opportunities Disciplined price TSX/NYSE: CP 22
  24. 24. Operations overview Brock Winter Senior Vice President Operations TSX/NYSE: CP 23
  25. 25. Safety 2009 Committed to being the safest railway in North America Train incident frequency Personal injury frequency (1)(2)(3) (1)(2)(3) 28% 20% 2.37 Improvement Decline 1.71 1.65 1.38 Q1 2008 Q1 2009 Q1 2008 Q1 2009 (1) FRA reportable incidents only. (2) Prior period figures have been updated to reflect new information. (3) CP only. Does not include DM&E. TSX/NYSE: CP 24
  26. 26. Fluidity & productivity Q1 2009 Fluidity driving cost reductions Train speed Yard dwell Active cars on-line Improvement Improvement Improvement 16% 23% 10% 15% 6% 7% Q1 Apr MTD Q1 Apr MTD Q1 Apr MTD Train starts Train weights Crew utilization Improvement Holding Improvement 29% 20% 5% 19% 4% 4% Q1 Apr MTD Q1 Apr MTD Q1 Apr MTD TSX/NYSE: CP 25
  27. 27. Productivity Q1 2009 Variable cost management remains a top priority Active road locomotives Locomotives ~350 Stored Freight cars ~16,000 Stored 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 Week Employees ~2,400 Laid off TSX/NYSE: CP 26
  28. 28. Fixed cost review Early action will add to $100 Million E3 expense savings Evaluating opportunities to consolidate locomotive shops and yards Restructuring mechanical operations in Southern Ontario and Vancouver Have closed several satellite yard operations Reducing cycle times in key pipelines TSX/NYSE: CP 27
  29. 29. Fred Green President and Chief Executive Officer TSX/NYSE: CP 28
  30. 30. Questions and Answers April 22, 2008
  31. 31. Appendix Income statement – Q1 GAAP earnings Variance (1) 2009 Dollars in millions except where noted 2008 Favourable / (Unfavourable) Freight revenue $ 1,050.2 $ 1,124.4 $ (74) (7%) Other revenue 20.5 22.5 (2) (9%) Total revenues 1,070.7 1,146.9 (76) (7%) Operating expenses 931.3 948.9 18 2% Operating income $ 139.4 $ 198.0 $ (59) (30%) Equity income in DM&E - 11.0 (11) (100%) Interest expense and other charges 79.9 66.6 (13) (20%) Loss in fair value of ABCP - 21.3 21 100% Foreign exchange losses on LTD 0.2 16.3 16 99% Income before income tax expense 59.3 104.8 (46) (43%) Income tax (recovery) expense (3.2) 14.1 17 123% Net income $ 62.5 $ 90.7 $ (28) (31%) Diluted EPS (dollars) $ 0.39 $ 0.59 $ (0.20) (34%) (1) Certain 2008 figures have been restated for the adoption of CICA accounting standard 3064. TSX/NYSE: CP 30
  32. 32. Appendix Revenue - expense breakdown Q1 2009 Operating expenses Q1 2009 Freight revenues $931 Million $1,050 Million Purchased Intermodal Comp. and services and $278 benefits other $165 Grain $286 26% $341 18% 27% 37% Automotive $52 Depn and 5% amort. $132 Coal $116 14% Industrial 11% and Sulphur and consumer Equipment Fuel $171 fertilizers products rents $54 $75 18% Forest Materials $200 6% 7% products $45 $69 19% 4% 7% Note: Numbers may not add due to rounding. TSX/NYSE: CP 31
  33. 33. Appendix Foreign exchange Foreign exchange rates (US$ per CAD$) $1.10 $1.05 $1.00 $0.95 $0.90 $0.85 $0.80 $0.75 $0.70 $0.65 $0.60 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2003 2004 2005 2006 2007 2008 2009 TSX/NYSE: CP 32
  34. 34. Appendix Fuel price - WTI Quarterly average WTI price (US$ per barrel) $140 $120 $100 $80 $60 $40 $20 $0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 2003 2004 2005 2006 2007 2008 2009 TSX/NYSE: CP 33
  35. 35. Appendix Fuel hedging Planned quarterly ULSD hedges (Illustrative) (1) 10% 9% 6% 3% Q2 2009 Q3 2009 Q4 2009 2010 (1) ULSD: Ultra Low Sulphur Diesel TSX/NYSE: CP 34
  36. 36. Merchandise Fx impacts Fx adjusted revenues Forest products -45% Industrial products -23% Automotive -43% TSX/NYSE: CP 35
  37. 37. Contacts Canadian Pacific Investor Relations: Suite 500, 401 – 9th Avenue SW Janet Weiss, Assistant Vice President Calgary Alberta Jeff Edwards, Manager Canada T2P 4Z4 April 22, 2008 investor@cpr.ca www.cpr.ca 403-319-3591

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