WELCOME TO THE NEW
INVESTOR FACT BOOK 2014 WELCOME TO THE NEW CP
A leaner fleet, infrastructure and workforce working harder to deliver more. This is the key concept behind the new CP. We’ve driven continuous rapid improvement across all platforms. We’re operating more efficiently with less; we’re more agile; we’re faster; and, we’re creating more service offerings in areas we’re now competitive in. Our growth is coming to life with increasing speed and it’s opening a whole new world of opportunity.
FORWARD LOOKING INFORMATION
This Investor Fact Book contains changes in business strategies; governmental response to them, certain forward-looking general North American and and technological changes. information within the meaning global economic, credit and Undue reliance should not be of the United States Private business conditions; risks in placed on forward-looking Securities Litigation Reform Act agricultural production such as information as actual results of 1995 and under Canadian weather conditions and insect may differ materially from the Securities laws. This forward populations; the availability and forward-looking information. looking information relates, price of energy commodities; Forward-looking information but not limited, to Canadian the effects of competition is not a guarantee of future Pacifi c’s operations, priorities and pricing pressures; industry performance. and plans, anticipated fi nancial capacity; shifts in market performance, business prospects, demand; changes in commodity The foregoing list of factors planned capital expenditures, prices; uncertainty surrounding is not exhaustive. These and programs, strategies and timing and volumes of other factors are detailed from fi nancial guidance. This commodities being shipped time to time in reports fi led by forward-looking information by CP; infl ation; changes in CP with securities regulators in also includes, but is not limited laws and regulations, including Canada and the United States. to, statements concerning regulation of rates; changes in Reference should be made expectations, beliefs, plans, taxes and tax rates; potential to “Management’s Discussion goals, objectives, assumptions increases in maintenance and and Analysis” in CP’s annual and statements about possible operating costs; uncertainties and interim reports, Annual future events, conditions, of investigations, proceedings Information Form and Form 40-F. and results of operations or or other types of claims and Readers are cautioned not performance. litigation; labour disputes; to place undue reliance on risks and liabilities arising from Forward-looking information forward-looking information. derailments; transportation may contain statements with Forward-looking information is of dangerous goods; timing words such as “anticipate”, based on current expectations, of completion of capital and “believe”, “expect”, “plan” or estimates and projections and maintenance projects; currency similar words suggesting future it is possible that predictions, and interest rate fl uctuations; outcomes. forecasts, projections, and effects of changes in market other forms of forward-looking By its nature, CP’s forward- conditions and discount rates on information will not be achieved looking information involves the fi nancial position of pension by CP. Except as required by law, numerous assumptions, inherent plans and investments, including CP undertakes no obligation to risks and uncertainties that long-term fl oating rate notes; update publicly or otherwise could cause actual results to and various events that could revise any forward-looking differ materially from the disrupt operations, including information, whether as a result forward-looking information, severe weather, droughts, fl oods, of new information, future including but not limited avalanches and earthquakes events or otherwise. to the following factors: as well as security threats and TABLE OF CONTENTS
LETTER FROM THE CEO 4 COMPANY PROFILE 6 PERFORMANCE 18 NETWORK 20 LINES OF BUSINESS 34 Bulk 36 Merchandise 58 Intermodal 84
INVESTOR FOCUS 92 Capital Expenditures 92 Information Technology 96 Regulatory 98 Labour Relations 100 Driving Shareholder Value 102
APPENDIX 104
3 LETTER FROM THE CEO
SETTING THE PACE
At CP, we’ve strengthened our operations and attitude company wide. We’re no longer catching up, but setting the pace. And being in the front means having the best vantage point for seizing opportunities fi rst.
I see no end to our runway. the operating performance of margin improvement, Because we’re the ones the company; our operating we’ll drive further earnings building it. There is no resting ratio is approaching industry growth and free cash fl ow on our laurels and past success. best; and, we’ve generated generation which will We want to continually signifi cant value for enable us to continue change the expectations of shareholders. But the journey to reward shareholders. what it means to be great is far from over. We have railroaders. We’re not just been investing in our future – Our hope is that this book looking to be the best; we rebuilding the network from will serve as a valuable want to redefi ne what that the ground up – to operate resource in understanding word means each year. This safer, more effi ciently and the markets we serve, the Investor Fact Book allows us to add valuable capacity. We strengths of our franchise, tell you how our new attitude continue to build and develop our operating philosophy and applies to all areas of our a strong team of leaders with the tremendous opportunity business, from top to bottom. a railroader mindset and a ahead of us. And, importantly, this book culture of clear accountability. Sincerely, shows how we’re building a stronger more successful Combined with an improved company for the long-term. cost structure and service offering, we are poised Our transformation over for the next phase of our the last two years has been journey: accelerated growth. E. Hunter Harrison nothing short of remarkable. By leveraging the top line Chief Executive Offi cer We’ve dramatically improved opportunities with further
4| INVESTOR FACT BOOK 2014 We are poised for the next phase of our journey: accelerated growth.”
E. Hunter Harrison
5 COMPANY PROFILE
A SERVICE-DRIVEN RAILROAD
Headquartered in Calgary, Alberta, CP is a transcontinental railroad in Canada and the United States providing logistics and supply chain expertise. Our 15,000 employees provide rail and intermodal transportation services across a network of approximately 13,700 miles, serving the principal business centres of Canada, the U.S. Midwest and U.S. Northeast.
We are able to extend our We are driving change reducing costs while remaining network reach through as we move through our a leader in rail safety. alliances and connections transformational journey to We fi nished 2013 with a full with other major Class 1 become North America’s best year operating ratio of 69.9%, railroads in North America. performing rail carrier, while an improvement of 710 basis This allows us to provide creating long-term value for points. For 2014, we expect competitive services and shareholders. We are focused to have a mid-60s operating access to markets across on providing customers with ratio – two years ahead of our North America beyond our industry leading rail service, original schedule. own rail network. We are optimizing our assets, and able to provide service to markets in Europe and the Pacifi c Rim through direct access to Port of Montreal and Port Metro Vancouver, We are driving change as we move respectively. Our network in the U.S. Northeast also allows through our transformational us to access the ports of Philadelphia and New York. journey to become North America’s best performing rail carrier.
6| INVESTOR FACT BOOK 2014 Our strategy PROVIDE SERVICE CONTROL COSTS OPTIMIZE ASSETS is based Delivering effi cient and Controlling and removing Through longer sidings, consistent service is unnecessary costs improved asset utilization, on fi ve essential. We promise from the organization, and increased train foundations only what we can do, eliminating bureaucracy lengths, we are moving and we always do what and continuing to identify increased volumes with we have promised. productivity enhancements fewer locomotives and are the keys to success. railcars while unlocking capacity for future growth potential.
OPERATE SAFELY DEVELOP PEOPLE Each year, we safely We recognize none of the move millions of carloads other foundations can of freight across North be achieved without our America while ensuring the people. Every employee safety of our people and is a railroader and we are the communities through shaping a new culture which we operate. Safety is focused on a passion never to be compromised. for service with integrity in everything we do.
7 COMPANY PROFILE
We can offer a superior product to a range of shippers who have previously turned to trucking or other carriers.
8| INVESTOR FACT BOOK 2014 PROVIDE SERVICE
Delivering good service is the fi rst key. Doing what we say we’ll do is essential to making CP the most reliable rail service in the market.
DOMESTIC INTERMODAL COAL SUPPLY CHAIN STRATEGY Time is critical when your Existing customers benefi t, With more reliable and business is on the line. To too. Improvements effi cient service, we can succeed, our customers need in asset velocity and offer a superior product their goods on shelves, not effi ciency are creating to a range of shippers who en route – and they need to win-win opportunities have previously turned to get it there fi rst. We’ve cut for both our company trucking or other carriers. 20 hours off of our regular and existing customers to We are working to leverage Toronto-Calgary intermodal move more product with our network strengths and service, making it the fastest fewer cars, reduce down service performance to service available. The result: time and increase loading replicate our intermodal volumes in this corridor are capacity. We’re converting offering in other key markets up 27% year-over-year as performance into margin and expand our approach to more Canadian businesses expansion and market share the merchandise segments are taking advantage of our gains for all parties in the such as steel, aggregates, industry-leading service to supply chain. chemicals, and automotive. become more competitive and grow their bottom lines. We’ve reduced coal transit times by 12.5 hours – enabling our long-time customer, Teck Resources, to get their products to market faster and have greater capacity to grow their business.
At CP, my job is all about moving customers’ products from one place to another and making sure the work is done safely and quickly.“
Suresh Kumar Harish – Conductor, Winnipeg Yard
9 COMPANY PROFILE
CONTROL COSTS
Being a low-cost provider combined with great service is an unbeatable combination. We look at every cost, even small items, to improve.
HEAD OFFICE RELOCATION INSOURCING I.T. STRATEGY We are continuing to drive For the past decade, our There is no shortage an operating focus through information systems have of opportunities across the organization. A key step been largely developed and the network to improve in that culture change has supported by outsourced operational effi ciency and been the relocation of the resources. We’re looking drive out costs. A strategic company’s headquarters to simplify, modernize and emphasis on continuous from a downtown Calgary insource key IT functions; improvement and an corporate offi ce building to build in-house expertise; aggressive, ongoing focus our Ogden Rail Yard. The and, remove dependencies on productivity in every result: $20 million in annual on third-parties. This corner of the business will lease cost savings and a will allow our IT team to bear fruit for years to come. renewed focus on what respond faster and at a matters most – the railroad. signifi cantly lower cost.
My team and I provide the paperwork the train crews are required to have in order to move trains. Controlling costs is a regular part of our day-to-day activities, right down to our customer contact, inventory and job performance.“
Heather Hanna – Director, Network Services Operations
10 | INVESTOR FACT BOOK 2014 There is no shortage of opportunities to improve operational effi ciency.
11 COMPANY PROFILE
We will move increased volumes with fewer locomotives and railcars.
12 | INVESTOR FACT BOOK 2014 OPTIMIZE ASSETS
Highly productive assets drive better service at a reduced cost. Doing more with less drives profi table growth.
OPTIMIZING OUR FLEET optimize our balance sheet miles on the west end of our We continue to streamline and further reduce expense Dakota, Minnesota & Eastern our asset base, resulting savings as we buy out leases line for US$210 million. in signifi cantly fewer on core assets. A comprehensive process locomotives and more is currently underway to than 10,000 fewer railcars. TAKING A HARD LOOK inventory and monetize up These surplus assets have AT THE NETWORK to an additional $2 billion in generated more than $17 We are developing a network other non-core real estate million in scrap metal, saved that provides customers with over the next several years. $30 million in annual lease the best possible service at charges, and enabled our the lowest possible cost. That STRATEGY company to earn rental means carefully assessing Through longer sidings, income through the sublease the entire network for other improved asset utilization and of 75 high-horsepower opportunities to optimize increased train lengths, we locomotives to another rail our track infrastructure for will move more traffi c with carrier. The opportunities velocity, cost effi ciency and fewer locomotives and railcars don’t stop there. Dramatic alignment with growth while unlocking capacity for improvements to cash fl ow initiatives. In 2014, we future growth potential. generation also enable us to announced the sale of 660
We are always watching for opportunities to be more effi cient. If a locomotive is going to sit for any reason, break it off and do something with it. Look for opportunities to capture every moment. The goal is to utilize our locomotives 24 hours a day, every day.”
Lisa Bryson – Assistant Superintendent, Brandon, Manitoba
13 COMPANY PROFILE
OPERATE SAFELY
The safety of our people and surrounding communities can never be compromised. We always think before we act and we follow every rule to the letter, every time.
INVESTING IN THE CORE A CULTURE OF STRATEGY INFRASTRUCTURE ACCOUNTABILITY Continuous research and We will invest approximately Safety starts with knowing development in state-of-the- $1.3 billion of capital in and following the rules. In art safety technology and 2014. Of that, approximately addition to increased safety highly focused employees $700 million will be focused inspections and internal ensure our trains are built on maintaining the safety awareness campaigns, for safe, effi cient operations and integrity of our base our general managers across the network. rail infrastructure. More are required to pass specifi cally, this means examinations on rules and buying and installing 530 regulations. The message: miles of rail, one million ties, we are all accountable. 400,000 tons of crushed-rock ballast, 200 turnouts and $80 million worth of bridges.
Our commitment to safety never changes. We will always strive to operate our railway safer than the day before. We have to.”
Trevor O’Donoghue – Terminal Locomotive Engineer, Calgary
14 | INVESTOR FACT BOOK 2014 We ensure our trains are built for safe, effi cient operations across the network.
15 COMPANY PROFILE
We’re working to develop a culture of railroaders.
16 | INVESTOR FACT BOOK 2014 DEVELOP PEOPLE
The passion, skills and dedication of our people fuel the engine of our growth and success. We teach them, nurture them and reward them.
BUILDING THE performance – a culture of engineer is a requirement. BENCH STRENGTH execution – to the marketing It is also the single best Through internal promotions and sales team. Earlier this way for a management and the recruitment of year, we introduced a new employee to learn what the experienced executives Sales Incentive Program business is truly about and is from outside the company, designed to motivate and a fundamental cornerstone we have assembled a reward those who are to the development of our management team that profi tably selling our new railroad culture. brings renewed passion and service into the marketplace. fresh perspectives to create a STRATEGY new industry leader. People MANAGEMENT We’re working to develop drive performance and we CONDUCTOR TRAINING the kind of people we are putting the right people We are building a culture want: passionate about in place to get it done. of railroaders. Whether railroading, hungry for you crunch numbers, sell success, driven to achieve. A NEW SALES FOCUS service, develop software or We’ve taken the principles manage projects, becoming of accountability and a qualifi ed conductor or
Good leaders set a positive example. They’re disciplined. They communicate well. They make sure their team understands the value in the new direction and they always look for ways to take results to another level.”
Ben Serena – Superintendent Operations, Calgary & Alberta South
17 PERFORMANCE
FINANCIAL & STATISTICAL HIGHLIGHTS
1ST HALF $ in millions, except per share data or unless otherwise indicated 2011 2012 2013220 201301133 220201 2014014144
FINANCIAL HIGHLIGHTS Total revenues 5,177 5,695 6,133 2,99222,92,99992922 3,1903,13,193 190900 Operating income 967 949 1,420 787827822 1,011,1,010,01010100 Adjusted operating income, excluding signifi cant items(1)(2) 967 1,309 1,844 777773733 1,011,010,01010100 Net income 570 484 875 464694699 626226222
Income, excluding signifi cant items(1)(2) 538 753 1,132 463464633 622662222 Diluted earnings per share 3.34 2.79 4.96 2.6622.2.6666 $$3$3.5 $3.543.54544 Adjusted diluted earnings per share (1)(2) 3.15 4.34 6.42 2.6322.6.63633 $3.52$$3$3.3.5.52522 Free cash (1)(2) (724) 93 530 17117171 534535344
Financial Ratios Operating ratio 81.3% 83.3% 76.8%773 73.9%3.9.9%9%% 66868. 68.3%8.3.3%3%% Adjusted operating ratio (1)(2) 81.3% 77.0% 69.9% 73.9%77373.3.99%% 68.3%66868.8.33%% Debt-to-total capitalization 50.7% 47.9% 40.7% 45.9%44545.95.9%9%% 39.8%3399.8.8%8%%
STATISTICAL HIGHLIGHTS Revenue ton miles (millions) 129,059 135,032 144,249 72,15472,7722,1,15154544 72,8047272,72,880804044 Carloads (thousands) 2,597 2,669 2,688 1,311,32732277 1,3071,31,3030077 Train weight (tons) 6,593 6,709 7,573 7,37,337,7,337337377 7,97,7,924,92924244 Train length (feet) 5,860 5,981 6,530 6,6,366,369,36369699 6,666,63463634344 Fuel effi ciency (Gallons per 1000 GTMs) 1.18 1.15 1.06 1.1.01 091.099 1.01 .0 051.055
(1) These earnings measures have no standardized meanings prescribed by U.S. GAAP and, therefore, are unlikely to be comparable to similar measures of other companies. (2) See Page 110 for a reconciliation of non-GAAP measures.
18 | INVESTOR FACT BOOK 2014 ADJUSTED DILUTED TOTAL (1)(2) Key Metrics REVENUES EARNINGS PER SHARE & Compound Annual Growth Rate 8.8% 42.8% (2011–2013) ADJUSTED OPERATING RATIO(1)(2) 1,140 BP REDUCTION
FUEL EFFICIENCY REVENUE TON (GALLONS PER 1000 GTMS) MILES (MILLIONS) 5.2% 5.7%
TRAIN WEIGHT (TONS) TRAIN LENGTH (FEET) 7.2% 5.6%
19 BULKNETWORK –
OUR REACH
CP’s 13,700-mile network extends from Port Metro Vancouver in Canada’s west to the EDMONTON Port of Montreal in Canada’s east; and includes WETASKIWIN the U.S. industrial centres of Chicago, Detroit, Buffalo, Kansas City and Minneapolis. CALGARY
Our network is comprised for portions of our of four primary corridors: U.S. network. VVANCOUVERANCOUVER Western, Eastern, Central and the Northeast U.S. Where rail traffi c is typically lighter, train movements KINGSGATE We use different train control are directed by written COUTTS systems on different portions instructions transmitted of our owned track, depending electronically and by radio on the volume of traffi c. from rail traffi c controllers to Where traffi c is heaviest, we train crews. In some specifi c use centralized traffi c control areas of intermediate traffi c (CTC) signals to authorize density or double track, we the movement of trains. use an automatic block signal Approximately 4,050 miles of system (ABS) in conjunction the network are controlled by with written instructions CTC signals. We are currently from rail traffi c controllers. in the development stage of a Approximately 680 miles of Positive Train Control strategy the network have ABS in place.
AVERAGE DENSITY TYPICAL TRAIN TRACK (THOUSAND SIDING TYPICAL SIDING CORRIDOR CONTROL MILES GTMS PER MILE) LENGTH (FEET) SPACING (MILES)
Vancouver - Calgary CTC 642 73.5 7,650 7 - 10 Edmonton - Calgary OCS/ABS/CTC 189 29.3 8,400 15 - 20 North Line OCS 750 12.0 7,400 30 - 35 (Wetaskiwin - Portage La Prairie) Calgary - Winnipeg CTC 832 53.0 7,650 9 - 12 Winnipeg - Toronto CTC/ABS 1226 32.5 7,700 11 - 15 Moose Jaw - Glenwood OCS/TWC/CTC 595 33.4 8,000 20 - 25 Winnipeg - Glenwood OCS/TWC 331 19.6 5,900 50 - 60 Glenwood - Chicago CTC 532 54.4 10,000 11 - 25 Windsor - Montreal CTC/ABS 555 33.0 7,000 10 - 12 Other Methods of Control: OCS – Occupancy Control System; TWC – Track Warrant Control. These are two similar methods of control that utilize written clearances to govern the movement of trains on the network.
20 | INVESTOR FACT BOOK 2014 LLOYDMINSTER
SASKATOON
REGINA PORTAGE LA PRAIRIE
WINNIPEG
THUNDER BAY SUDBURY MONTREAL
DULUTH
AVERAGE DENSITY MINNEAPOLIS/ (GTMs per route mile) ST. PAUL TORTORONTOONTO OVER 45 MILLION TRACY ALBANY
30-45 MILLION MILWAUKEE 15-30 MILLION DETROIT BUFFALO
UP TO 15 MILLION NEW YORYORKK CHICAGO PHILADELPHIA
KANSAS CITY
21 NETWORK
THE WESTERN CORRIDOR: VANCOUVER-THUNDER BAY
The Western Corridor links Vancouver with Thunder Bay in Canada. With service through Calgary, the Western Corridor is an important part of our routes between Vancouver and the U.S. Midwest, and between Vancouver and Eastern Canada. The Western Corridor provides access to the Port of Thunder Bay, Canada’s primary Great Lakes bulk terminal.
PRODUCTS via the Crowsnest Pass. The Alberta, and at New The Western Corridor is our “North Line Route” provides Westminster and Huntingdon primary route for bulk and rail service to customers in B.C. This corridor also resource products traffi c from Winnipeg to Calgary connects with Canadian from Western Canada to through Portage la Prairie National (CN) at many VANCOUVERR the Port Metro Vancouver Manitoba; Yorkton and locations including Thunder BNSF for export. We also handle Saskatoon, Saskatchewan; Bay, Winnipeg, Regina, HUNTINGDONNGDON signifi cant volumes of and Wetaskiwin, Alberta. Saskatoon, Red Deer, Calgary, intermodal containers and This line is an important Edmonton and several domestic merchandise traffi c. collector of Canadian grain locations in the Greater and fertilizer, serving the Vancouver area. FEEDER LINES potash mines located east We support our Western and west of Saskatoon and YARDS AND REPAIR FACILITIES Corridor with four signifi cant many high-throughput grain feeder lines. The “Coal elevator and processing We support rail operations Route” links southeastern facilities. In addition, this on the Western Corridor with B.C. coal deposits to the line provides direct access main rail yards at Vancouver, Western Corridor and to to refi ning and upgrading Calgary, Edmonton, coal terminals at Port Metro facilities at Lloydminster, Moose Jaw, Winnipeg Vancouver. The “Edmonton- Alberta and Western and Thunder Bay. We also Calgary Route” provides Canada’s largest pipeline have major intermodal rail access to Alberta’s terminal at Hardisty, Alberta. terminals at Vancouver, Industrial Heartland in Calgary, Edmonton, Regina addition to petrochemical CONNECTIONS and Winnipeg. We have facilities in central Alberta. Our Western Corridor locomotive and rail car The “Pacifi c CanAm Route” connects with the Union repair facilities at Golden, connects Calgary and Pacifi c Railroad (UP) at Vancouver, Calgary, Moose Medicine Hat, Alberta, Kingsgate; and with Jaw and Winnipeg. with Pacifi c Northwest rail Burlington Northern Santa routes at Kingsgate, B.C. Fe, LLC (BNSF) at Coutts,
22 | INVESTOR FACT BOOK 2014 EDMONTON
WETASKIWIN LLOYDMINSTER
GOLDEN HARDISTY SASKATOON CALGARY YORKTON
FORT MOOSE JAW STEELE REGINA MEDMEDICINE HAT PORTAGE LA PRAIRIE UP KIKINGSGATENGSGATE BNSF WINNIPEG COCOUTTSUTTTS
THUNDER BAY SUDBURY DULUTH
MINNEAPOLIS/ST. PAUL TORONTO TRACY MILWAUKEE CONNECTIONS BUFFALO
DETROIT CHICAGO
KANSAS CITY
23 NETWORK
THE CENTRAL CORRIDOR: MOOSE JAW-CHICAGO-KANSAS CITY
WETASKIWIN Our Central Corridor connects with the Western Corridor at Moose Jaw. By running south to Chicago and Kansas City through the Twin Cities of Minneapolis and St. Paul, and Milwaukee, we provide a direct, single- CALGARY carrier route between Western Canada and the U.S. Midwest, with access to Great Lakes and Mississippi River ports.
From Winona, Minnesota, point for large dimensional at Minot, North Dakota and with the Central Corridor continues shipments that can be routed UP at St. Paul. We connect with south towards Kansas City via our network to locations CN at Minneapolis, Milwaukee via the Quad Cities, providing such as Alberta’s Industrial and Chicago. At Kansas City an effi cient route for traffi c Heartland to serve the oil we connect with Kansas City destined for southern U.S. sands and energy industry. Southern (KCS), BNSF, Norfolk COUTTS and Mexican markets. Our The “DM&E Route” from Southern Corporation (NS), and Kansas City line also has Winona, Minnesota to Tracy, UP. Our Central Corridor also links a direct connection into Minnesota provides access to to several shortline and regional Chicago and, by extension, key agricultural and industrial railroads that primarily serve to points east on our network, commodities. In North Dakota, grain and coal producing areas in including Toronto and the our feeder line between the U.S., and extend our market Port of Montreal. Drake and Newtown, North reach in the rich agricultural areas Dakota is situated in a highly- of the U.S. Midwest. PRODUCTS strategic region for Bakken Traffi c transported on the oil production. We also own YARDS AND REPAIR FACILITIES Central Corridor include two signifi cant feeder lines We support rail operations on intermodal containers, in North Dakota and western the Central Corridor with main fertilizers, chemicals, crude, Minnesota operated by the rail yards in Chicago, Milwaukee, grain, coal, automotive and Dakota Missouri Valley and St. Paul and Glenwood in other agricultural products. Western Railroad, and the Minnesota, and Mason City Northern Plains Railroad and Nahant in Iowa. We own FEEDER LINES (NPR), respectively. Both of 49% of the Indiana Harbor Belt We have operating rights these short lines are also Railroad, a switching railroad over the BNSF line between active in providing service to serving Greater Chicago and Minneapolis and the twin agricultural and Bakken-oil northwest Indiana. We have a ports of Duluth, Minnesota related customers. major intermodal terminal in and Superior, Wisconsin. Chicago and one in Minneapolis. We maintain our own yard CONNECTIONS In addition, we have a major facilities at the Twin Ports, Our Central Corridor connects locomotive repair facility at St. providing an outlet for grain with all major railroads at Paul and car repair facilities at from the U.S. Midwest to the Chicago. Outside of Chicago, St. Paul and Chicago. We share a grain terminals at these ports. we have major connections yard with KCS in Kansas City. This is also a strategic entry with BNSF at Minneapolis and
24 | INVESTOR FACT BOOK 2014 EDMONTON
LLOYDMINSTER
SASKATOON
MEDICINE HAT REGINA MOOSE JAW WINNIPEG
BNSF MINOTOT THUNDER BAY DRAKE
NEWTOWN
DULUTH SUPERIOR
GLENWOOD
BNSF, MINNEAPOLIS/ST. PAUL UP,CN CONNECTIONS LACROSSE TRACY WINONA CN
MILWAUKEEMILW
BNSF,UP, NS,CSX,CN CHICAGO
KANSAS CITYY
KCS, NS, UP
25 NETWORK
THE EASTERN CORRIDOR: THUNDER BAY-MONTREAL AND DETROIT
The Eastern Corridor extends from Thunder Bay through to our eastern terminus at Montreal, and from Toronto to Chicago via Detroit/Windsor. Our Eastern Corridor provides shippers direct rail service from Toronto and Montreal to Calgary and Vancouver via our Western Corridor and to the U.S. via our Central Corridor.
WINNIPEG This is a key element of our CONNECTIONS YARDS AND transcontinental service, The Eastern Corridor REPAIR FACILITIES including intermodal and connects with a number of We support our rail truck trailers moving in drive- shortline railroads including operations in the Eastern on/drive-off Expressway routes from Montreal to Corridor with major rail service between Montreal Quebec City; and, Montreal yards at Toronto, London, and Toronto. to St. John, New Brunswick and Montreal. Our largest and Searsport, Maine. We intermodal facility is located PRODUCTS own a route to Temiscaming, in the northern Toronto Major traffi c categories Quebec via North Bay, suburb of Vaughan and serves transported in the Ontario operated by short the Greater Toronto and Eastern Corridor include line Ottawa Valley Railway – southwestern Ontario areas. forest and industrial where connections are made We also operate intermodal and consumer products, with the Ontario Northland terminals at Montreal and GLENWOOD intermodal containers, Railway. Connections are Detroit. Terminals for our automotive products and made with CN at a number Expressway service are general merchandise. located in Montreal and of locations, including TRACY Sudbury, North Bay, Windsor, Milton, Ontario in the Greater FEEDER LINES London, Hamilton, Toronto Toronto area. We have A major feeder line that and Montreal. Connections locomotive repair facilities serves the steel industry are also made at Detroit and at Montreal and Toronto and at Hamilton provides Buffalo with NS and CSX car repair facilities at Thunder connections to both our Corporation (CSX). Bay, Toronto and Montreal. Northeast U.S. corridor and other U.S. carriers at Buffalo.
26 | INVESTOR FACT BOOK 2014 QUEBEC CITY
THUNDER BAY TEMISCAMING MONTREAL
SUDBURY NORTH BAY DULUTH
MINNEAPOLIS/ST. PAUL TORONTO
GUELPH JTN HAMILTON ALBANY WINONA
MILWAUKEE BUFFALOO DETROIT/ WINDSOR LONDON NS,CSX
BNSF,UP,NS, CSX,CN NS,CSX CHICAGO NEW YORK CLEVELAND PHILADELPHIA
KANSAS CITY
CONNECTIONS
27 NETWORK
THE NORTHEAST U.S. CORRIDOR: BUFFALO AND MONTREAL TO NEW YORK
The Northeast U.S. Corridor provides an important link between the major population centres of Eastern Canada, the U.S. Midwest and the U.S. Northeast. The corridor extends from Montreal to Harrisburg, Pennsylvania via Plattsburgh, New York and Albany in New York’s Capital District Region.
PRODUCTS York. Agreements with NS CONNECTIONS Major traffi c categories provide us with access to We have major connections transported in the shippers and receivers in with NS at Harrisburg, Northeast U.S. Corridor the Conrail “shared asset” Binghamton and Allentown, include ethanol, lumber, regions of New Jersey via and with CSX at Buffalo. crude, metals, minerals Harrisburg. The “Southern Shortline connections and consumer products. Tier Route” between Guelph exist with multiple players Junction, Ontario, Buffalo throughout the corridor. FEEDER LINES and Binghamton in New The Northeast U.S. Corridor York includes haulage rights YARDS AND REPAIR connects with important over NS lines. This route links FACILITIES feeder lines. Our route industrial southern Ontario We support our Northeast between Montreal and with key U.S. connecting U.S. Corridor with a major Harrisburg, in combination rail carriers at Buffalo and rail yard in Binghamton. with trackage rights over provides access to short line We have locomotive and other railroads, provides us carriers along the Buffalo to car repair facilities in with direct access to New Binghamton route. Montreal and Binghamton.
28 | INVESTOR FACT BOOK 2014 SUDBURY MONTREAL
PLATTSBURGH
TORONTO ALBANY GUELPH JTN NS,CSX HAMILTON BINGHAMTONTONN NS BUFFALO
NEW YORK DETROIT/ NS WINDSOR NS ALAALLENTOWNLLLEN
HARRISBURGARRISBURG PHILADELPHIA
CONNECTIONS
29 NETWORK
NORTH VANCOUVER NEPTUNE TERMINALS Burrard Inlet PACIFIC COAST TERMINALS COQUITLAM YARD BNSF COQUITLAM VANCOUVER VANCOUVER INTERMODAL FACILITY
FRASER RIVER JCT. THORNTON MISSION YARD NORTH C FRASER SURREY DOCKS N BEND S R BNSF Y SURREY B N SR S Y FRASER WHARVES F BCR BOSTON Roberts BAR Bank DELTA PORT CANADA TSAWWASSEN FERRY TERMINAL U.SA. WESTSHORE TERMINAL
VANCOUVERVA PORT METRO VANCOUVER OPERATIONS CP NETWORK CN
EXTENDING OUR REACH
Agreements and commercial arrangements with other rail carriers – short line, regional and Class 1 railroads – extend our market reach to virtually all of North America.
Continuously improving been carried by trucks. NETWORK AGREEMENTS operating effi ciencies Approximately 40% of our We have entered into between rail carriers fosters business is either received several co-production the development of new from or handed off to agreements with other business by extending rail other railroads. Class 1 railroads as part of services into markets that our ongoing strategy to Through these agreements previously were beyond increase capacity and extend and commercial arrangements, the reach of individual our reach by sharing routes we are providing our railroads. As a result, rail and track while maintaining customers with more services carriers are shipping goods vigorous competition. to new markets and moving and improved access across goods that had traditionally Canada, the U.S. and Mexico.
30 | INVESTOR FACT BOOK 2014 CN HAULAGE ON CP LINE FRANZ
THUNDER BAY
SUDBURY WATERFALL
SAULT-SAINTE-MARIE
PARRY SOUND EDMONTON ONTARIO OPERATIONS LLOYDMINSTER WESTBOUND TRAINS ON CP LINES EASTBOUND TRAINS ON CN LINES SASKATOON CALGARY CP NETWORK CN OTHER REGINA WINNIPEGG
KINGSGATE COUTTS
THUNDER BAY SUDBURY MONTREAL DULUTH
MINNEAPOLIS/ ST. PAUL TRACY TORONTO ALBANY BUFFALO MILWAUKEE DETROIT NEW YORK
CHICAGO PHILADELPHIA
KANSASKANSA CITY
TORONTO
BUFFALO
MILWAUKEE DETROIT
BENSENVILLE YARD CHICAGO CLEVELAND
CHICAGO TO BUFFALO HAULAGE AGREEMENT CP NETWORK CP HAULAGE ON CSX LINE CP TRACKAGE ON NS LINE
31 NETWORK
PORT METRO
VANCOUVER OPERATIONS NORTH VANCOUVER NEPTUNE TERMINALS Burrard In 2008, our company • the option to Inlet PACIFIC COAST TERMINALS COQUITLAM YARD and CN renegotiated the operate longer, BNSF COQUITLAM Fraser Canyon directional heavier trains; VANCOUVER VANCOUVER INTERMODAL FACILITY running zone agreement. and FRASER RIVER JCT. THORNTON MISSION YARD NORTH This agreement allows both C FRASER SURREY DOCKS • a reciprocal N BEND S R companies to mitigate the BNSF Y SURREY B interchange at N SR S Y FRASER WHARVES F effects of steep and diffi cult CN’s Thornton BCR operating terrain and BOSTON Yard and our Roberts BAR improve fl uidity for import Bank Coquitlam Yard DELTA PORT and export goods. CANADA that replaces TSAWWASSEN FERRY TERMINAL U.SA. a less effi cient WESTSHORE TERMINAL Our company, CN, and interchange shippers benefi t from a arrangement. series of agreements to PORT METRO VANCOUVER OPERATIONS realize effi ciencies and These reciprocal CP NETWORK CN improve rail service to and arrangements have beenn from Canada’s largest, enhanced to optimize busiest and most diversifi ed railroad infrastructure in port: Port Metro Vancouver. the Lower Mainland of B.C. 140 miles from Boston Bar Under these arrangements, to the terminals on the north THESE AGREEMENTS we operate the trains shore of Burrard Inlet and PROVIDE: of both railroads using return to North Bend. We • reciprocal access to our crews a distance provide all switching on the Vancouver’s north and of approximately 127 south shore of Burrard Inlet south shores, with our miles from Boston Bar and CN provides all switching potash and coal trains to the terminals on the on the north shore of Burrard having direct access to south shore of Burrard Inlet. In addition, we operate Neptune Terminals and Inlet in Vancouver and some CN trains a distance CN sulphur trains having return to North Bend. CN of approximately 135 miles direct access to Pacifi c operates the trains of both to or from the Roberts Bank Coast Terminals; railroads using CN crews a at Delta Port. distance of approximately
32 | INVESTOR FACT BOOK 2014 ONTARIO OPERATIONS CN HAULAGE ON CP LINE FRANZ Our company and CN also over the CN line and have additional network westbound trains over initiatives that improve our line, improving THUNDER BAY transit times and asset network fl uidity in utilization in Ontario. this corridor; and, SUDBURY WATERFALL • a haulage THESE INITIATIVES SAULT-SAINTE-MARIE arrangement, with PROVIDE FOR: CN freight moving • directional running over PARRY SOUND over approximately ONTARIO OPERATIONS approximately 100 miles of 300 miles of our track parallel CP and CN track in WESTBOUND TRAINS ON CP LINES in Ontario between EASTBOUND TRAINS ON CN LINES Ontario between Waterfall, Thunder Bay and Franz CP NETWORK near Sudbury, and Parry using our route north CN Sound. The two railroads of Lake Superior. OTHER operate eastbound trains
CHICAGO TO BUFFALO HAULAGE AGREEMENT
TORONTO We negotiated a haulage • creates 10% to 12% of agreement with the CSX additional train capacity BUFFALO to move intermodal traffi c by moving intermodal from NS trackage rights traffi c from multiple trains MILWAUKEE DETROIT between Chicago and onto one train service; Detroit onto a Chicago to BENSENVILLE • creates train density and YARD Buffalo route via Cleveland. CHICAGO CLEVELAND improves the contribution The Buffalo route is over CSX’s margin of the traffi c high speed, second generation by removing the single CHICAGO TO BUFFALO HAULAGE AGREEMENT double-stack cleared Chicago stack requirement due to CP NETWORK Line that connects Bensenville Detroit River Tunnel height CP HAULAGE ON CSX LINE YardY and the Buffalo Terminal restrictions; and CP TRACKAGE ON NS LINE viav Cleveland. • provides a fi xed Interline cost for an 8,000-foot BENEFITS TO CP ARE: double-stacked intermodal • creation of synergies and train. Except for additional train design opportunities fuel costs, the agreement by operating all intermodal will allow us to grow our traffi c on one train brace; intermodal business in the corridor by 90% for the • frees 20% train start same initial cost. capacity over the NS Elkhart route for the movement of other traffi c;
33 LINES OF BUSINESS
DOMESTIC 11% BUSINESS MIX
CP’s product and geographic diversity INTERNATIONAL 11% creates a powerful base from which to drive sustainable, profi table growth. TRAFFIC MIX (% OF 2013 Our freight revenues are typically move in trains FOREST PRODUCTS 3% FREIGHT REVENUE) derived from 12 lines of of mixed freight and in business representing a a variety of car types BULK 42% diversifi ed and balanced containing a range of MERCHANDISE 36% portfolio of goods transported products such as fi nished INTERMODAL 22% between a wide range of vehicles and automotive AUTOMOTIVE 7% origins and destinations. parts, chemicals and plastics, crude oil, forest We organize our freight traffi c products, as well as metals, into three business groups minerals, and consumer based on the service and products. Intermodal traffi c CRUDE 6% equipment requirements of our consists largely of high-value, customers – bulk, merchandise time-sensitive retail goods in and intermodal. Bulk overseas containers that can commodities, which typically be transported by train, ship CHEMICALS & move in large volumes across and truck, and in domestic PLASTICS 10% long distances, include grain, containers and trailers that can METALS, MINERALS coal, potash, fertilizers and & CONSUMER be moved by train and truck. PRODUCTS 10% sulphur. Merchandise products
LINES OF BUSINESS
INTERMODAL GRAIN COAL FERTILIZERS & SULPHUR (BASED ON 2013 REVENUES (BASED ON 2013 (BASED ON 2013 (BASED ON 2013 OF $1,328M) BULK REVENUES OF $1,300M) REVENUES OF $627M) REVENUES OF $570M) INTERMODAL
DOMESTIC 51% CANADIAN GRAIN 67% CANADIAN COAL 89% POTASH 55% INTERNATIONAL 49% REGULATED 42% EXPORT 85% EXPORT 30% NON-REGULATED 25% DOMESTIC 4% DOMESTIC 25% US GRAIN 33% US COAL 11% FERTILIZER 31% DOMESTIC 25% DOMESTIC 8% CROSS-BORDER 22% EXPORT 8% EXPORT 3% CANADA 6% U.S. 3% SULPHUR 14% 34 | INVESTOR FACT BOOK 2014 CANADIAN GRAIN 15% GEOGRAPHIC DISTRIBUTION (% OF 2013 FREIGHT REVENUE)
GLOBAL 36% ASIA 31% EUROPE 5% CROSS-BORDER 30% DOMESTIC 34%
U.S. GRAIN 7%
CROSS-BORDER 30% CANADA 16%
US 18% COAL 10%
2013 AVERAGE LENGTH OF HAUL (MILES)
POTASH 5% 1,678 CRUDE 1,666 DOMESTIC INTERMODAL 1,611 INTERNATIONAL INTERMODAL 1,068 POTASH FERTILIZERS & 898 CANADIAN GRAIN SULPHUR 5% 787 FOREST PRODUCTS 786 CHEMICALS & PLASTICS 729 AUTOMOTIVE 706 FERTILIZER & SULPHUR 629 U.S. GRAIN 600 COAL 499 METALS MINERALS & CONSUMER PRODUCTS 844 = CORPORATE AVERAGE
METALS, MINERALS & CP CHEMICALS & PLASTICS CRUDE AUTOMOTIVE FOREST PRODUCTS (BASED ON 2013 (BASED ON 2013 (BASED ON 2013 (BASED ON 2013 (BASED ON 2013 REVENUES OF $608M) REVENUES OF $565M) REVENUES OF $375M) REVENUES OF $403M) REVENUES OF $206M) MERCHANDISE
AGGREGATES 48% PETROLEUM BAKKEN 54% FINISHED VEHICLES PULP 43% STEEL 34% PRODUCTS 57% WESTERN CANADIAN 46% & PARTS 92% LUMBER 29% ORIGIN CANADA 65% CONSUMER PRODUCTS 12% CHEMICALS 31% PAPER 19% ORIGIN US 20% PLASTICS 12% MINES & METALS 6% ORIGIN MEXICO 7% PANEL 7% MACHINERY 6% OTHER 2% USED VEHICLES 2%
35 BULK
GRAIN
Grain is CP’s single largest commodity, accounting for 22% of our freight revenues. Grain transported by CP consists of both whole grains – such as wheat, corn, soybeans and canola – and processed products such as meals, oils and fl our.
Our grain portfolio is In addition to moving In 2013, we moved segmented geographically product for domestic use in approximately 438,000 into Canadian and U.S. grain both Canada and the U.S., carloads of grain and markets that include the our network reach utilizes grain products, resulting movement of agricultural multiple export terminals in $1.3 billion of revenue. products from key producing for shipments overseas, with Through the fi rst half of regions in North America major outlets on the West 2014, we have increased to both domestic and and East coasts, as well these volumes by nearly international markets. as rail partners to service 6%, driven predominantly Mexico and the southern by a large crop in the U.S. The domestic movement ports in the U.S. and a record crop in Canada. of grain is made up of the movement of whole grains, such as wheat, canola, corn, soybeans and specialty crops to grain processors via origins in Western Canada and Our network reach utilizes the Midwest U.S. We then move the resulting fi nished multiple export terminals products and by-products from these processors. for shipments overseas.
36 | INVESTOR FACT BOOK 2014 REVENUE 1,400 1,200 1,000 800 600 GRAIN 400 (BASED ON 2013 200 REVENUES OF $1,300M) 0 Canadian Grain 67% 2011 2012 2013 H1 2013 H1 2014 Regulated 42% Revenue ($ millions) Non-regulated 25% 2011 | 1,100 US Grain 33% 2012 | 1,172 Domestic 25% 2013 | 1,300 Export 8% H1 2013 | 596 H1 2014 | 694
RTMS 35,000 30,000 25,000 20,000 15,000 10,000 5,000
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 32,481 2012 | 33,082 2013 | 33,983
H1 2013 | 16,113 H1 2014 | 18,138
CARLOADS 450 Our focus is to drive 400 350 increased throughput 300 250 200 capacity within the 150 100 50 entire North American 0 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands) grain handling system. 2011 | 450 2012 | 433 2013 | 438
H1 2013 | 211 H1 2014 | 223
37 BULK – GRAIN
CANADIAN GRAIN introduction of 2.4 million U.S. GRAIN Canada is a major producer metric tonnes (MMT) of The U.S. is, by far, the largest of wheat, durum, canola additional canola processing producer of corn in the and barley. Wheat is capacity in Western world, producing over 25% Western Canada’s main crop, Canada. The oil is used in of the world’s corn supply. accounting for approximately the restaurant industry, Approximately 20% of this 55% of total grain production. consumer households and corn is for export and a Nearly two-thirds of all biodiesel production, while large portion of crop goes Canadian wheat production the by-product meal is used towards the production of is exported annually, mostly as an animal feed product. ethanol. The U.S. is also the to Asia, North America and world’s largest producer Canadian grain includes the Middle East. The vast and exporter of soybeans, a segment of business majority of these exports accounting for more than that is regulated by the utilize rail to deliver inland 33% of the world’s soybean Canadian government. This grain production to overseas production. Soybeans are regulated business is subject export locations in Vancouver, used to create a variety of VANCOUVER to a maximum revenue Thunder Bay, Quebec and products, such as soybean oil entitlement (MRE). Under the U.S. Pacifi c Northwest. (used in food manufacturing this regulation railroads can Canada also ships a large and frying) and meal. set their own freight rates amount of its grain production for individual movements. to the U.S. and Mexico for In the U.S., our origination However, the MRE governs domestic processing. network spans key producing aggregate revenue earned states across the Midwest, We have a strong origination by the railroad based on a accessing 145 elevators in network that includes formula that factors in the North Dakota, Minnesota, 183 elevators across the length of haul, total volumes, Iowa, South Dakota and Canadian prairies, of which average revenue per tonne Montana. 70 are high-throughput, and infl ationary adjustments. high-effi ciency elevators The regulation applies to We utilize multiple gateways capable of loading unit trains Western Canadian grain within the U.S. for delivery exceeding 100 cars in less shipments to the ports of to both domestic and export than 24 hours. Vancouver and Thunder Bay. markets, primarily Kingsgate, B.C., St. Paul, Chicago and The canola processing In 2013, grain traffi c subject to Kansas City. This reach industry represents a the MRE accounted for 63% expands to the U.S. Pacifi c growing segment in our of Canadian grain revenues, Northwest, the Northeast Canadian grain portfolio. with the balance moving in U.S. and south to markets This industry has seen commercial (non-regulated) in the Gulf and Mexico. Our increased demand in recent corridors. Canadian grain U.S. grain shipments in 2013 years and a majority of its shipments totaled 256,000 totaled 182,000 carloads and production and by-products carloads and almost $869 $431 million in revenue. are destined for export. million in revenue. More than 80% of canola seed, oil and meal produced in Canada is exported to the U.S., Mexico, China and Japan. The industry continues to invest in canola processing capacity with the planned
38 | INVESTOR FACT BOOK 2014 EEDMONTOEDMONTONN LLLOYDMINSTERLOOYDMINSTER CALCALGARYLGARY SSASKATOONASKATOOON
WINNIPEGWINNNIPEG VVANCOUVERANNCOUVER REGINAA KINKINGSGATEGSGATE THUNDERTHUN BAY COUTTCOUTTSS SUDBURY MONTREAL
POLIS/POP TORONTO ALBANY TRACYTRAACY MILWAUKEEM BUFFALO NEW YORK EDMONTON HICAGOHICIC DETROIT PHILADELPHIA LLOYDMINSTER KANSASKANSAS CITY
CALGARY SASKATOON
REGINA
KINGSGATE WINNIPEG
COUTTS
THUNDER BAY CP MAIN LINE
CP BRANCH LINE DULUTH CP LEASED LINE
CP TRACKAGE LINE
CP SHORTLINE MINNEAPOLIS/ CONNECTION ST. PAUL
HIGH THROUGHPUT TRACY ELEVATORS (100+ car loaders)
HIGH THROUGHPUT ALL ELEVATORS STATE/PROVINCE (HTP) ELEVATORS (INCLUDING HTP)
Alberta 21 45
Saskatchewan 34 89
Manitoba 15 49 CANADA TOTAL 70 183 North Dakota 28 72 KANSAS CITY Minnesota 11 50
OTHER 5 23 US TOTAL 44 145
39 BULK – GRAIN
OUTLOOK
Global population and economic growth are the major drivers in projected grain demand. Countries like China and India, with population and economic growth rates above the global average, are seeing changes in dietary behaviour as their populations desire more proteins and fats due to higher disposable incomes. These changes in diet require new and expanded inputs for food and feed.
North America is well expansion in the production within the entire North positioned to supply this of canola, corn and soybeans American grain handling growing demand for in North America. system, engaging customers food and feed. Continued and industry stakeholders advancements in technology, With the continued evolution in initiatives to maximize fertilizers and plant genetics of the North American capabilities. These initiatives have increased yields in all of marketplace, we have include development of new the major grains. Within both seen the opportunity for and more effi cient loading Canada and the U.S., integration of both the facilities, increasing and the acreages farmed are U.S. and Canadian grain improving the capabilities growing, driven by better transportation programs, of existing terminals, and overall economic returns allowing us to broaden maximizing rail capacity for farmers. These long- our destination reach and with increased asset term demand trends have increase market share. utilization, longer trains promoted continued strong We will continue to drive and improved velocity. production of wheat and effi ciency improvements
40 | INVESTOR FACT BOOK 2014 CANADIAN GRAIN DESTINATIONS (CARLOADS %) 26 19 CROSSBORDER THUNDER BAY
6 EASTERN CANADA
OUR PORTS AND TERMINALS VANCOUVER
FACILITIES ON THE 49 12 WEST COAST (IN VANCOUVER) FACILITIES EAST COAST VIA U.S. GRAIN DESTINATIONS (CARLOADS %) THUNDER BAY AND THROUGH OUR 8 EASTERN EXPORT PROGRAM ACCESS TO FACILITIES VIA 10 PARTNERSHIP AGREEMENTS WITH OTHER CLASS 1 RAILROADS IN THE 20 PACIFIC NORTHWEST SOUTH/ + 9 SOUTHWEST OTHER
THESE FACILITIES ENABLE EXPORT VOLUMES NORTHEAST >39 MMT OF GRAIN ANNUALLY
PACIFIC NORTHWEST TWIN CITIES & MIDWEST 23 38
41 BULK – GRAIN
4242 | INVESTOR FACT BOOK 2014 STRATEGY
Our operating plan, industrial development initiatives, changes to our grain services and car request system, along with a collaborative approach to industry, will continue to improve our whole grain order fulfi llment and shipment performance levels.
Our focus is on driving on placement, loading train contains 112 railcars. increased throughput the longest possible train, We are driving towards a capacity within the entire demand-pull management model capable of loading system. We are creating at the ports, 24/7 railcar and unloading 134 car sustainable capacity capable unloading, as well as capital trains at both origin and of moving increasing investments in infrastructure. destination. The net result amounts of grain across would be more product our network. In addition, This enables longer, faster moving more effi ciently through an industry trains which reduces cycle from elevator to port. approach in addressing times and increases the improvement opportunities utilization of assets and across the supply chain, we creates additional capacity. are targeting effi ciencies at From 400-plus origination both port and elevators, in points across North America, addition to rail. This includes we currently have 114 high- improved rail velocity and throughput elevators across asset utilization, loading our network. A typical grain
43 BULK – POTASH, FERTILIZERS & SULPHUR
POTASH, FERTILIZERS & SULPHUR
Potash, fertilizers and sulphur benefi t from the solid global fundamentals of agribusiness and Canada’s position as the leading global producer of potash. Our portfolio includes potash, chemical fertilizers and sulphur shipped mainly from Western Canada to the ports of Vancouver and Portland, as well as other Canadian and U.S. destinations.
POTASH FERTILIZERS plant where it is extracted, Potash, which makes up 55% Fertilizers – which include we also have local access to of this portfolio, originates urea, nitrogen solutions, several sulphur handling and in Saskatchewan where we phosphate rock, phosphate forming locations (we are the currently serve 10 mines. We fertilizers and ammonium leading transporter of formed move potash both domestically nitrate and sulphate – are sulphur shipped from gas and for export. All potash transported throughout plants in southern Alberta shipments for export are North America. Traffi c to Port Metro Vancouver). handled by Canpotex, the originates at CP-served Despite depleting gas fi elds world’s largest exporter of production facilities, and low gas prices, we are potash. In 2012, we began distribution points along the well positioned to handle a 10-year transportation Mississippi River and various increased volumes of sulphur agreement with Canpotex for interchange points across out of the Alberta oilsands tonnes moving to the West the system. Traffi c is then by way of truck to transload Coast via Neptune Terminals moved to our local customers, facilities strategically located in Vancouver and Portland primarily in the Dakotas in the Edmonton area, home Bulk Terminals in Portland. This and Corn Belt regions. We also to greenfi eld sites being traffi c is shipped to more than also have access to Canada’s developed by key industry 30 countries, primarily in Asia, largest nitrogen production participants. In 2013, we Latin America and Oceania. facility in Medicine Hat moved 25,000 carloads of In 2013, we handled 68,000 and several other fertilizer sulphur, approximately two- carloads of export potash – production facilities in thirds moved as a formed approximately 70% went to Alberta. Alberta originations product to Pacifi c Coast Vancouver; 30% to Portland. accounted for roughly half of Terminals in Vancouver for Domestic potash is moved fertilizer revenues in 2013. export and the remainder primarily to the U.S. Midwest moved in liquid form domestically to points in for local application, via SULPHUR trainload and manifest service Idaho or the Southeast U.S. Sulphur is a by-product from under long-term contracts for use in fertilizer production. the southern Alberta gas with Mosaic, PotashCorp fi elds and oil refi ning process. and Agrium. In 2013, we While a large majority of moved 38,000 carloads of sulphur is moved from the potash domestically.
44 | INVESTOR FACT BOOK 2014 REVENUE 600 500 400 300 200 FERTILIZER & SULPHUR 100 (BASED ON 2013 0 REVENUES OF $570M) 2011 2012 2013 H1 2013 H1 2014 Potash 55% Revenue ($ millions) Export 30% Domestic 25% Fertilizer 31% 2011 | 549 Cross-border 22% 2012 | 520 Canada 6% U.S. 3% 2013 | 570
Sulphur 14% H1 2013 | 315 H1 2014 | 299
RTMS 20,000 17,500 15,000 12,500 10,000 7,500 5,000 2,500 0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 20,468 2012 | 17,058 2013 | 18,170
H1 2013 | 10,558 H1 2014 | 9,611
CARLOADS 200 175 150 Our strategic network and 125 100 75 operational effi ciencies 50 25 0 can serve the rising 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands) demand for food sources. 2011 | 199 2012 | 177 2013 | 185
H1 2013 | 103 H1 2014 | 92
45 BULK – POTASH, FERTILIZERS & SULPHUR
NEPTUNE TERMINALS Annual Throughput Capacity: 11.5 MMT Storage Capacity: 0.21 MMT EDMONTON
CALGARY
PORTLAND BULK TERMINALS VANCOUVER Estimated Annual Capacity: 4.0 MMT Storage Capacity: 0.135 MMT KINGSGATE COUTTS
OUTLOOK
Potash has become one of the most expensive and important crop inputs. With much of North America and Europe already established in stable fertilizer usage patterns, the leaders in fertilizer growth are currently India, China and Brazil.
These markets are driven in the form of direct farm or persist in the agricultural considerably by rising demand input subsidies, to: increase commodity markets because for food sources due to productivity; ensure domestic of the need to supply the population growth, changes food security; and, reduce fast-rising food, feed, fi bre in monetary levels and exposure to price signals. and bioenergy markets. This increasing diversity in diets. is anticipated to drive strong The outlook for the fertilizer fertilizer demand, although High agricultural commodity industry remains positive high crop-price volatility prices provide incentives for with populations continuing could result in signifi cant farmers in market-oriented to grow and the demand year-over-year variations. economies to invest in for effi cient land use and fertilizers and other inputs for healthy sustainable crops While this sector is subject higher productivity. Countries remaining steady. In the to short-term demand such as China and India have next fi ve years, tight fl uctuations, the long-term strong government support, inventories and strong prospects remain promising. crop prices are expected to
46 | INVESTOR FACT BOOK 2014 COMMODITY FLOWS: Export potash volumes move in unit trains from mines in Saskatchewan to port facilities in Vancouver and Portland. Some volumes move eastward through Thunder Bay to the St. Lawrence Seaway. Domestic potash moves by both unit train and manifest service to the U.S. Midwest.
LLOYDMINSTER
SASKATOON THUNDER BAY TERMINALS Estimated Annual Capacity: 11 MMT REGINA Storage Capacity: 2 MMT WINNIPEG
THUNDER BAY
SUDBURY MONTREAL DULUTH
MINNEAPOLIS/ ST. PAUL TORONTO TRACY ALBANY MILWAUKEE
1 POTASH MINE BUFFALO DETROIT NEW YORK EXPORT TERMINAL CHICAGO PHILADELPHIA
KANSAS CITY
ESTIMATED POTASH NAMEPLATE MINE MINE TYPE OPERATOR CAPACITY SASKATOON 3 1. Vanscoy Conventional Agrium 2.1 MMT 2 mine 1 4 LANIGAN 2. Cory Conventional Potash Corp 3.0 MMT 5 6 mine JANSEN 3. Patience Lake Solution mine Potash Corp 0.3 MMT YORKTON 4. Allan Conventional Potash Corp 4.0 MMT mine 5. Colonsay Conventional Mosaic 2.3 MMT 11 9 mine 8 7 6. Lanigan Conventional Potash Corp 3.8 MMT 10 mine MOOSE JAW REGINA 7. Belle Plaine Solution mine Mosaic 2.8 MMT 8/9. Esterhazy Conventional Mosaic 5.3 MMT (K1 & K2) mine 10. Rocanville Conventional Potash Corp 3.0 MMT WEYBURN mine 11. Legacy Solution mine K+S 2.86 MMT (production estimated to start in mid 2016) ESTEVAN
47 BULK – POTASH, FERTILIZERS & SULPHUR
STRATEGY
We are focused on collaborating with potash supply chain participants to drive further improvements and operational effi ciencies. Recent examples include a drop-and-lift program that: reduces switching; allows assets to cycle more quickly and move to market faster; and, reduces resource costs for both our company and customers.
Potash destined for Our primary strategy With sulphur, we are Vancouver now moves in surrounding the fertilizer expanding our footprint 170-car-unit trains compared portfolio over the next fi ve beyond originating facilities to the previous model of years is to concentrate on in southern Alberta. While 142 cars, maximizing capacity regional supply and demand we maintain our traditional and effi ciency and moving models that project a growing markets, we are growing our more product with fewer demand for urea. This could northern Alberta capabilities train starts. The investments result in a reliance on urea by creating truck-to-rail and upgrades that we have imports possibly beginning transload capacity, allowing been making on our North to compete in our natural us to handle oilsands sulphur, Line track have strengthened footprint. We are working and investigating further operating effi ciencies, to understand how to push opportunities to partner with including reducing total down the “tidal line” of key industry participants route miles by more than imports and gain market share at greenfi eld sites in the 200 miles. from the trucking industry. Edmonton area.
MAXIMIZING CAPACITY AND EFFICIENCY AND MOVING MORE PRODUCT WITH FEWER TRAIN STARTS
CAR CAR 170UNITS VS. 142 UNITS
UPGRADES ON OUR NORTH LINE TRACK HAVE REDUCED TOTAL ROUTE MILES BY MORE THAN 200MILES
48 | INVESTOR FACT BOOK 2014 SPOTLIGHT Serving new potash customers
CP will be the exclusive K+S will be putting more capacities, extend the than 100 years of mining average remaining life of rail carrier for potash experience and world- their mines; and, strengthen class expertise to work on K+S’s competitiveness in shipments from the the Legacy Project potash Europe and abroad. Our mine near Moose Jaw, expertise in the effi cient K+S Legacy mine . Saskatchewan. The Legacy movement of bulk products Project will be the fi rst new and our ability to offer the greenfi eld potash mine built shortest route from the mine in Saskatchewan in nearly 40 to K+S’s domestic and export years and will be exclusively markets made us a natural served by CP. transportation partner. K+S has also signed an agreement Mine production is expected with port service provider to begin in the fall of 2016 Pacifi c Coast Terminals that and is anticipated to ramp will allow K+S to build and up to two million tonnes operate a new warehouse of production capacity by and handling facility in the end of 2017. The mine’s Vancouver. capacity is expected to gradually increase to 2.86 With a unit train loop track million tonnes thereafter. and high speed loading capabilities, the Legacy mine The Legacy Project is will have the most modern considered key to K+S’s rail infrastructure of all of the growth strategy. It allows Saskatchewan potash mines. K+S to expand their potash
PORT CAPACITY AND INVESTMENT
NEPTUNE TERMINALS conveyor improvements. tonnes. The layout includes THUNDER BAY TERMINALS Neptune boasts modern, Plans are also in place for an three loop tracks and can Thunder Bay Terminals is state-of-the-art equipment $89-million investment to hold three Canpotex trains. a bulk handling facility and handling processes. create one million tonnes The dumper is gravity fed and in Ontario with access to Potash throughput capacity per year of phosphate rock can hold four cars at one time. the St. Lawrence Seaway. at Neptune Terminals capacity at the terminal. The storage shed can hold Specializing in bulk handling was increased in 2011 to 135,000 tonnes of potash. A the terminal has an annual 11.5 million tonnes annually PORTLAND BULK TERMINALS plan to double the storage throughput capacity of from 8.5 million tonnes. Our Portland Bulk Terminals is capacity at the terminal was 11 million tonnes. port partners have invested owned by Canpotex and identifi ed in 2010 as part of $50 million including a dumper currently has throughput its long-term plan. upgrade, a surge bin and capacity of four million
49 BULK – COAL
COAL
CP serves both the metallurgical and thermal coal markets. Our Canadian coal business primarily consists of metallurgical coal transported from southeastern B.C. to the ports of Vancouver and Thunder Bay, and to the U.S. Midwest. Our U.S. coal business is mainly the transportation of thermal coal and petroleum coke within the U.S. Midwest or for export through West Coast ports.
METALLURGICAL COAL PETROLEUM COKE Metallurgical coal is a Petroleum coke (or petcoke) primary feedstock in the is a carbonaceous material steel manufacturing process. that results from the coking Metallurgical coal has lower process during upgrading. ash and sulphur contents Petroleum coke is used with the volatile constituents in power generation and driven off – attractive aluminum production. qualities for steel production. Southeast B.C. coal is considered of high quality and one of the more sought % OF REVENUE after coals on the market.
THERMAL COAL Thermal coal is used for domestic and export power generation. Thermal coal is made attractive by middle to high British Thermal Unit (BTU) values and low 4 PETROLEUM COKE amounts of sulphur, mercury and other impurities. THERMAL COAL Thermal coal is used as a fuel to produce electricity through combustion. 8 METALLURGICAL COAL 88
50 | INVESTOR FACT BOOK 2014 REVENUE 700 600 500 400 300 200 COAL 100 (BASED ON 2013 0 REVENUES OF $627M) 2011 2012 2013 H1 2013 H1 2014 Canadian Coal 89% Revenue ($ millions) Export 85% Domestic 4% 2011 | 556 2012 | 602 US Coal 11% 2013 | 627 Domestic 8% Export 3% H1 2013 | 293 H1 2014 | 313
RTMS 25,000
20,000
15,000
10,000
5,000
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 21,041 2012 | 22,375 2013 | 23,172
H1 2013 | 10,956 H1 2014 | 11,382
CARLOADS 350
Our service allows 300
250 the supply chain to 200
150 maximize capacity, improve 100 50
0 mine-to-port service and 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands) decrease cycle times. 2011 | 313 2012 | 337 2013 | 330
H1 2013 | 156 H1 2014 | 160
51 BULK – COAL
RIDLEY TERMINALS Estimated Annual Capacity: 12 MMT Expansion Capacity: 24 MMT by end of 2014 EDMONTON
NEPTUNE TERMINALS CALGARY Estimated Annual Capacity: 12.5 MMT Expansion Capacity: 18.5 MMT in 2015
VANCOUVER
WESTSHORE TERMINALS KINGSGATE Estimated Annual Capacity: 33 MMT Expansion Capacity: 36 MMT in 2018 COUTTS
CANADIAN COAL U.S. COAL COMMODITY FLOWS: Our Canadian coal portfolio We moved 85,000 carloads of Canadian coal traffi c consists is comprised almost entirely U.S. coal in 2013, generating primarily of metallurgical coal of metallurgical coal $67 million of revenue. transported from southeastern shipments, with more than We receive U.S. coal from B.C. to the ports of Vancouver 28 million metric tonnes connecting railroads serving and Thunder Bay, and to the (MMT) transported in 2013 – the thermal coal fi elds in the U.S. Midwest. equating to approximately Powder River Basin (PRB) in U.S. coal traffi c consists primarily 245,000 carloads and Montana and Wyoming. It of thermal coal which originates $560 million of revenue. is then delivered to power with other carriers in Montana generating facilities in the or Wyoming and is interchanged The coal is produced at Teck Midwest states of Minnesota, with us for delivery to the U.S. Resources’ fi ve southeast B.C. Illinois and Iowa. mines, which are considered Midwest or for export through to be among the most We also move PRB coal West Coast ports. productive in the world. destined for export from This coal is exported through Sweetgrass, Montana Westshore and Neptune through Edmonton to Ridley terminals in Vancouver Terminals in Prince Rupert and is destined to steel for delivery into Asia for makers located in the Pacifi c power generation. Driven by Rim, Europe and South increases in Asian demand, America. We have a 10-year this market continues to be transportation agreement opportunistic with export with Teck which expires volumes tied closely to world in 2021. pricing levels of other key producing regions. In 2013, more than 93% of our Canadian coal shipments were exported from the West Coast. The remaining 7% went to Thunder Bay terminals or rail direct to receivers in the Great Lakes area.
52 | INVESTOR FACT BOOK 2014 LLOYDMINSTER THUNDER BAY TERMINALS SASKATOON Estimated Annual Capacity: 11 MMT
REGINA WINNIPEG
SUDBURY MONTREAL THUNDER BAY DULUTH
MINNEAPOLIS/ ST. PAUL TORONTO TRACY ALBANY MILWAUKEE
BUFFALO DETROIT NEW YORK CHICAGO PHILADELPHIA
CANADIAN PACIFIC KANSAS CITY PRINCIPAL HAULAGE OR GOLDEN TRACKAGE RIGHTS CALGARY COAL SOURCE OKE
1 COAL MINE
PRIMARY TRAFFIC FLOWS 1 FORDING (9 MMT) 2 GREENHILLS (5.2 MMT) 3 LINE CREEK (3.5 MMT)
4 ELKVIEW (6.5 MMT)
FORT STEELE LETHBRIDGE 5 COAL MOUNTAIN (2.7 MMT)
KINGSGATE COUTTS
MMT = ANNUAL PRODUCTION CAPACITY IN MILLION METRIC TONNES
53 BULK – COAL
OUTLOOK
The demand for steel production is driven by population growth and corresponding increases in GDP, urbanization and industrial development. China, India, Indonesia and Brazil are expected to account for the majority of the incremental demand for metallurgical coal.
Population growth and our traditional markets in the coal industry. Our primary climate are the main catalysts Japan, Europe and Korea; movements originate on for thermal coal demand. as well as growth markets Class 1 rail partners out of An estimated 40% of the in China, India and Brazil. the PRB, destined to utility world’s electricity comes from The corresponding increase providers for electrical coal. In the U.S., the fi gure in demand for Canadian- generation in the U.S. is roughly one-third, down based metallurgical coal Midwest. Our volumes from nearly 50% just four will be met by announced have not been impacted to years ago. The combination Teck expansion plans and the extent seen across the of regulatory changes calling greenfi eld development marketplace, largely due for stricter controls on in both northeast and to the fact that the power emissions and abundant gas southeast B.C. generation facilities we supplies at near historic lows serve have less ability to in recent years have resulted We have been in discussions switch to gas with their in some short- and long-term with a number of parties current infrastructure. conversion to gas in the U.S. regarding mine development As well, these facilities are However, U.S. demand could plans near our mainline newer and have been able slowly begin to rebound with in southeast B.C. With a to meet regulatory standards any increases in gas prices. reserve of high-quality with relatively less investment. Although coal-produced coal at these locations, electricity may be moderating our current and potential Growth in Asian demand in North America, China partners are expected to will continue to present is building coal generated maintain a strong position opportunities for incremental facilities every year and is in the metallurgical coal movements of PRB-originating extremely dependent on this marketplace. Our supply coal. We participate in the energy source. chain is an effi cient and most effi cient route to Prince reliable way to get coal from Rupert’s Ridley Terminal and Economic growth in these mines to the ports and are well positioned to capitalize developing countries is loaded onto vessels. on future opportunities to driving global steel demand supply the market. with long-term growth In the U.S., proposed expected to continue. domestic power-plant Accordingly, global seaborne emission regulations and metallurgical coal demand competitiveness of natural is expected to increase to gas as a viable alternative meet the needs of both will continue to challenge
54 | INVESTOR FACT BOOK 2014 SPOTLIGHT Moving more, and on time
There was a time when PTD focuses on serving people said bulk trains demand. In the past, couldn’t be scheduled. coal would pile up at the Today, coal trains However, our trains carrying terminals – more coal Teck coal to two Port Metro than the terminals could run at evenly spaced Vancouver terminals are now load on incoming ocean running close to clockwork. vessels. Meanwhile, full intervals, with a trains were plugging up the We move fi ve trains a day tracks, sometimes waiting consistent fl ow to ports. – one every four hours – for days before terminals shipping more coal than we had capacity to empty the did a year ago at this time. incoming freight. And with fewer trains. This situation damaged our With customer collaboration, system: crews got out of successful implementation balance; cars jammed up and execution, ongoing waiting to get unloaded; process improvement and and, we kept adding cars clear communication, we are at the loading zones. The providing better service to fl eet size became bloated, our largest customer than network speed was impacted ever before. and service was sub-optimal.
The most signifi cant shift Today, coal trains run at was fl ipping the entire evenly spaced intervals, shipping philosophy on its with a consistent fl ow to ports. head. Instead of pushing the largest amount of coal With this new improved possible to be stock piled at service, our partners can the distribution terminals, a better schedule production, new operating philosophy inventory, and vessels. called “pull-to-demand” (PTD) was launched.
55 BULK – COAL
STRATEGY
We continue to invest in building a world-class coal and transportation model. Our service is based on highly effi cient unit trains that travel in continuous motion from the mine to port and back.
In 2012, we transitioned the teams, the ports and mines. Our collaborative approach export supply network to Additional investments in with customers is an ongoing 152-car unit trains (previously technology include remote commitment resulting in a 129 cars), allowing the supply load-out systems being continuous improvement chain to maximize capacity, introduced for the fi rst time to the supply chain and improve mine-to-port service at one mine (with potential supporting technologies. and decrease cycle times. for rollout at additional This includes communication locations). This enables Teck’s and data-sharing initiatives, In conjunction with our load-out operators to control a pull-to-demand strategy partners, we are continually the train remotely while and ongoing review and developing and introducing loading the train at the same revision to ensure programs a suite of supply chain time. The technology also are working as anticipated. tools to provide all parties reduces the number of our These strategies, along with visibility to performance, crews required to complete expansion plans in both new metrics and train movements. the load-out process and and existing mine production This provides for aligned optimizes resource planning and West Coast port capacity, planning and execution and asset utilization for both will ensure we can meet between our operations Teck and our company. current and expected growth in future demand.
56 | INVESTOR FACT BOOK 2014 RELATIONSHIP WITH Westshore Terminals Neptune Terminals Thunder Bay Terminals PORTS AND TERMINALS Westshore Terminals, located Neptune Terminals, located Located at the head of West Coast ports have been in Delta near Vancouver, has in North Vancouver, Lake Superior, Thunder Bay investing steadily in capacity invested signifi cant capital recently completed the Terminals has the ability to meet future demand. over the last several years installation of a new stacker to handle coal to vessel for Throughput is expected to on expansion projects. Over reclaimer in June of 2013. transport up the St. Lawrence increase signifi cantly over the that time, facility capacity The $60-million investment Seaway. Thunder Bay has an next few years. Additionally, has increased to 33 MMT increased throughput from annual throughput capacity Thunder Bay Terminal from 24 MMT. Further nine MMT to approximately of 11 MMT, handling multiple provides an additional outlet planning and investments 12.5 MMT per year. Additional bulk commodities. for eastbound exports via are underway to expand approvals are in place that the Great Lakes and St. throughput capacity to 36 would increase capacity to Lawrence Seaway. MMT by 2018. Westshore 18.5 MMT. Neptune solely handles both metallurgical handles metallurgical coal. coal and thermal coal. Ridley Terminals Ridley Terminals, located in Prince Rupert, B.C., currently has a capacity of 12 MMT per year. They have announced plans to add a second dumper and new stacker reclaimer by the end of 2014 that will increase throughput capacity to 24 MMT per year once complete.
57 MERCHANDISE
CRUDE
CP’s crude-by-rail services have been growing at a rapid pace. Carloads have grown from 11,000 in 2011 to 90,000 in 2013, making crude our fastest growing line of business.
The crude-by-rail model supplement to pipelines VALUE was developed in 2010 in that do not provide either Although rail is not always response to inadequate suffi cient capacity or access equal to existing pipelines pipeline takeaway capacity to markets. With rail, the in terms of price, the model in the quickly growing industry has the ability to provides more compelling Bakken shale region. supply consistent refi ning value through its service We proved in the Bakken requirements or to quickly features. In the case of heavy that rail could provide move between markets oil, rail economics become reliable takeaway capacity to capture the benefi t of more compelling. Where and ratable delivery to changing conditions. bitumen is required to be refi neries. Since this time, diluted up to 30% to travel in the model has successfully FLEXIBILITY pipelines, rail can transport moved north into the light-, Rail provides solutions it in general purpose tank mid- and heavy-grades for both small- and large- cars at dilution levels of of Saskatchewan and scale operations, and 15% to 20% or in insulated Alberta crude. accommodates terms ranging tank cars with little to no from a few months to dilution. Thus, rail reduces There are several elements of several years. the requirement to both the crude-by-rail model that purchase and move diluent. make it sustainable. SPEED TO MARKET Rail can reliably provide Importantly, we are the only CAPACITY faster transit times than railroad with access to all Rail capacity is immediately pipelines. This time of the Bakken light-sweet available, easy to access and difference translates into crude, the medium-grade has lower upfront capital costs lower inventory costs, faster oil producing regions in relative to pipeline projects. working capital turns and Alberta, and the heavier lower cost of carry. oil production in northern OPTIONALITY Alberta and Saskatchewan. Rail provides industry with access to all refi ning markets from all producing regions. Rail serves as a
58 | INVESTOR FACT BOOK 2014 REVENUE 400
300
200
100
CRUDE 0 2011 2012 2013 H1 2013 H1 2014 (BASED ON 2013 REVENUES OF $375M) Revenue ($ millions)
Bakken 54% 2011 | 29 Western Canada 46% 2012 | 206 2013 | 375
H1 2013 | 189 H1 2014 | 218
RTMS 15,000
12,500
10,000
7,500
5,000
2,500
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 1,096 2012 | 7,303 2013 | 13,898
H1 2013 | 7,131 H1 2014 | 7,174
CARLOADS Our optionality not only 100 75 provides the industry with 50 fl exibility, but ensures 25
0 we can capture volumes 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands) as markets change. 2011 | 11 2012 | 54 2013 | 90
H1 2013 | 46 H1 2014 | 49
59 MERCHANDISE – CRUDE
OUTLOOK
We have a strong origination franchise for crude oil throughout Alberta, Saskatchewan and North Dakota. Crude-by-rail has evolved from smaller truck-to-rail manifest facilities into the development of larger scale unit train terminals.
We are connected at these origin facilities with direct production as well as pipeline access. Additional We expect to move crude-by-rail projects are currently being contemplated 115,000-120,000 carloads and progressed, and we are well positioned to take on of crude in 2014 and anticipate additional capacity. it will grow to nearly 200,000 We move crude oil to refi ning markets in Eastern Canada, carloads in 2015. the Northeast U.S., the Midwest, the Gulf Coast and the West Coast. The majority of these volumes markets, our most signifi cant We expect to move travel to destination through growth in the near term will 115,000-120,000 carloads connections with our continue to be in the Gulf of crude in 2014 and interline railroad partners. Coast and Northeast anticipate it will grow to While potential exists in all U.S. markets. nearly 200,000 carloads in 2015.
FPO
60 | INVESTOR FACT BOOK 2014 SPOTLIGHT
Investing in crude-by-rail
Phase 2 development Our capital program and capacity of the overall continues to be focused on network, these investments of the Hardisty Rail investments that improve are also supporting our the productivity, fl uidity growth in crude-by-rail. Terminal will enable and safety of our railroad. Investments along our North Specifi cally, we have been Line, between Edmonton and the movement of focused on siding extensions, Calgary, and between Portal, new sidings and the North Dakota and Chicago, four trains per day. installation of Centralized are improving capacity and Train Control. In addition to safety along some of our key improving the productivity crude corridors.
Hardisty rail terminal
In June 2014, U.S. Hardisty Rail Terminal Development Group and currently has the ability to Gibson Energy successfully launch up to two trains per commissioned their highly day of multiple grades of anticipated Hardisty Rail crude to various end markets. Terminal. The state-of-the- Work is currently underway art facility is located on our to complete a Phase 2 North Line and is connected expansion which would to Gibson’s 4.3-million-barrel enable the terminal to handle storage terminal, with access up to four trains per day. to all major inbound and outbound pipelines.
61 MERCHANDISE – CRUDE
STRATEGY VANCOUVER
Given our access and the benefi ts of crude-by-rail, our approach is to develop with partners a matrix of originations and destinations across North America for various grades of crude. This optionality not only provides the industry with fl exibility, but ensures we can capture volumes as markets change.
CRUDE ORIGIN POINTS to ensure appropriate rail North Dakota Alberta infrastructure is in place North Dakota is a The oil sands are made up to handle the growing continuously evolving of the Athabasca, Cold Lake, demand for crude unit hub with direct access and Peace River deposits in trains. A number of future to the Bakken oil play. Northern Alberta. We are projects are also being We are well established able to access product from considered, including the in the North Dakota these deposits by leveraging Kinder Morgan/Imperial Oil Bakken with two manifest existing pipeline systems Edmonton rail terminal. facilities and three large, that carry crude to pipeline Saskatchewan recently expanded unit hubs in Edmonton, Hardisty train terminals. While the Our network provides access and the Alberta Industrial Bakken represents the to a number of strategic Heartland. Rail terminals majority of our origin oil plays in Saskatchewan, at these hubs allow crude volumes and continues including the Shaunavon, moving down from the north to expand, the pace of Viking and Bakken plays. the option of continuing growth from Canadian We also serve Lloydminster in the pipeline system or origins will potentially see and Kerrobert, two areas of moving onto rail. Substantial Canadian crude volumes potential future growth for investments have been surpass those from North crude-by-rail. made in these locations Dakota by the end of 2014.
62 | INVESTOR FACT BOOK 2014 EDMONTON
LLOYDMINSTER
SASKATOON
CALGARY
REGINA WINNIPEG
KINGSGATE COUTTS
THUNDER BAY
DULUTH MANIFEST TRAINLOAD 1. Scotford, AB 14. Bruderheim, AB 2. Calmar/Texaco Spur, AB 15. Hardisty, AB MINNEAPOLIS/ 3. Tilley, AB 16. Stampede, ND ST. PAUL 4. Bowden, AB 17. Van Hook, ND TRACY 5. Rimbey, AB 18. New Town, ND 6. Lethbridge, AB 19. Stoughton, SK 7. Lloydminster, SK 20. Kerrobert, SK 8. Instow, SK 21. Edmonton, AB MILWAUKEE 9. Dollard, SK 22. Plaza, ND 10. Southhall, SK 11. Estevan, SK 12. Unity, SK (1) CHICAGO 13. Unity, SK (2)
1 CURRENTLY MOVING CRUDE
1 UNDER DEVELOPMENT
LIGHT CRUDE OIL DEPOSITS
MEDIUM CRUDE OIL DEPOSITS KANSAS CITY
HEAVY CRUDE OIL DEPOSITS
63 MERCHANDISE – CRUDE
MAJOR EXISTING CRUDE TERMINALS AND TRANSLOADS
TERMINAL SITE FORMATION(S) TYPE OF OIL LOCATION CAPABILITIES OWNER OPERATOR CAPACITY
Multiple Alberta Various Bruderheim, AB Pipe or Truck to Canexus Manifest Crude Streams (Light to Heavy) Rail Unit Train Multiple Alberta Various Hardisty Pipe to Rail US Development and Unit Train Crude Streams (Light to Heavy) Gibson Energy Bakken, Light Sweet New Town, ND Direct Truck or Dakota Plains Unit Train Three Forks Pipe to Rail Bakken, Light Sweet New Town Truck or Pipe to Plains All American Unit Train Three Forks (Van Hook), ND Tank to Rail Bakken, Light Sweet Stampede, ND Truck or Pipe to Basin Transload Unit Train Three Forks Tank to Rail Bow River, Pekisko, Medium to Heavy Tilley, AB Direct Truck CP Torq Manifest Fosterton Sour to Rail Multiple Alberta Various Lethbridge, AB Direct Truck Transmark Manifest Crude Streams (Light to Heavy) to Rail Cold Lake, Heavy Sour Lloydminster, SK Direct Truck CP Torq Manifest Lloydminster to Rail Viking, Viking – Light Sweet Unity, SK Direct Truck CP Savage Manifest Lloydminster Lloyd – Heavy Sour to Rail Shaunavon Medium Sour Dollard, SK Direct Truck Crescent Point Energy Manifest to Rail Bakken, Torquay, Light Sweet Stoughton, ND Direct Truck to Crescent Point Energy Manifest Spearfi sh Rail, No Storage Unit Train (Mobile & Fixed Pumps)
MAJOR PROPOSED AND ANNOUNCED CRUDE TERMINALS AND TRANSLOADS
TERMINAL SITE FORMATION(S) TYPE OF OIL LOCATION CAPABILITIES OWNER CAPACITY
Multiple Alberta Various Edmonton, AB Pipe to Rail Kinder Morgan/ Unit Train Crude Streams (Light to Heavy) Imperial Oil Viking, Viking – Light Sweet Unity, SK Direct Truck Torq Transloading Manifest Lloydminster Lloyd – Heavy Sour to Rail Viking, Viking – Light Sweet Kerrobert, SK Truck and Pipe Torq Transloading Unit Train Lloydminster Lloyd – Heavy Sour to Rail Bakken, Light Sweet Plaza, ND Pipe to Rail Dakota Gold Transfer Unit Train Three folks
64 | INVESTOR FACT BOOK 2014 CRUDE DESTINATION ACCESS from the oil sands. This Corridors and deliver crude production Our main crude unloading was the primary market fl exibility to high-growth refi ning destination is the Global for Canadian crude-by-rail We continue to explore destinations. Access to Partners terminal located volumes in 2013. ways to extract end-to-end numerous interchange points provides our customers with in Albany, NY. This terminal • PADD 5 (West Coast): supply chain effi ciencies by the fl exibility of accessing is a rail-to-vessel operation There are a number of rail interchanging traffi c with their markets through various where the vessels serve projects being pursued foreign line partners to routes. It also provides refi neries along the Canadian in this district that, once deliver faster transit times contingency options to make and U.S. East Coast, and U.S. complete, could source and alleviate congestion improvements to service Gulf Coast. We also access product from Western in key pinch points. It is as needed. other refi neries and terminals Canada. We can provide our goal to continue to through established foreign- the shortest route miles line partnerships. PADDs 1, 3 from Western Canada CLASS 1 RAIL INTERCHANGE CRUDE MARKET and 5 are particular points of into California. PARTNERS LOCATIONS ACCESS interest for our crude-by-rail As the markets evolve, the BNSF New Westminster, PADDs 2, 3, 4, 5 destination reach. Coutts, Noyes necessity for tidewater access UP Kansas City, Kingsgate PADDs 2, 3, 5 • PADD 1 (U.S. East Coast): continues to grow. Foreign predominantly processes crude demand in Asia and CSX Chicago PADD 1 light sweet crude that Europe is increasing and we NS Chicago PADD 1 can be sourced from our are investigating ways in which KCS Kansas City PADDs 2,3 Bakken terminals. these markets can be reached. We are looking to leverage • PADD 3 (U.S. Gulf Coast): our position on the West contains a large proportion Coast, St. Lawrence Seaway, of the refi neries capable Great Lakes and the Mississippi of processing heavy crude, River to access both foreign making it a preferred and domestic markets. outlet for product coming
EDMONTON LLOYDMINSTER
CALGARY SASKATOON
REGINA WINNIPEG VANCOUVER KINGSGATE THUNDER BAY COUTTS SUDBURY MONTREAL DULUTH
MINNEAPOLIS/ ST. PAUL TORONTO PADD 4 TRACY ALBANY MILWAUKEE Rocky Mountain PADD 5 PADD 2 BUFFALO West Coast DETROIT NEW YORK Midwest CHICAGO PHILADELPHIA
KANSAS CITY PADD 1 East Coast
PADD 3 Gulf Coast 65 MERCHANDISE
AUTOMOTIVE
CP is a key player in the North American automotive supply chain. Our automotive portfolio consists of four fi nished vehicle traffi c segments: import vehicles that move through Port Metro Vancouver to Eastern Canadian markets; Canadian-produced vehicles that ship to the U.S. from Ontario production facilities; U.S.-produced vehicles that ship within the U.S. as well as cross-border into Canadian markets; and, Mexican-produced vehicles that ship to the U.S. and Canada.
In addition to fi nished vehicles, and the U.S. These facilities In 2013, we handled 145,000 we handle shipments of operate seven days a week carloads of automotive automotive parts, machinery and provide customers product equating to and Canadian personal and with vehicle loading and $403 million in revenue. pre-owned vehicles. unloading services. Through Approximately 51% of these our coast-to-coast Canadian revenues originated in Right from the production rail network – that stems into Ontario; 20% originated in plant, we provide direct the U.S. Midwest – and well- the U.S.; 14% were imports rail service to fi ve of the positioned compounds, we originating at Port Metro eight southern Ontario auto are ideally situated to access Vancouver; and, 7% were producers, and service two key markets and port facilities. imports originating in Mexico. others through transload facilities in the region. We also handle a signifi cant number of shipments via gateway interchange with our foreign line counterparts. We continue to lead the industry
We operate a number of with the lowest damage frequencies automotive compounds in key markets across Canada for fi nished vehicles.
66 | INVESTOR FACT BOOK 2014 REVENUE 500
400
300
200
100 AUTOMOTIVE (BASED ON 2013 0 2011 2012 2013 H1 2013 H1 2014 REVENUES OF $403M) Finished Revenue ($ millions) Vehicles& Parts 92% 2011 | 338 Origin Canada 65% Origin US 20% 2012 | 425 Origin Mexico 7% 2013 | 403 Machinery 6% H1 2013 | 203 Used Vehicles 2% H1 2014 | 192
RTMS 2,500
2,000
1,500
1,000
500
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 2,080 2012 | 2,482 2013 | 2,329
H1 2013 | 1,233 H1 2014 | 1,111
CARLOADS 175
150
125
100
75 We are perfectly poised 50 25 to handle the upward 0 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands) trend in the market. 2011 | 145 2012 | 162 2013 | 146
H1 2013 | 73 H1 2014 | 67
67 MERCHANDISE – AUTOMOTIVE
VANCOUVER
OUTLOOK 14%
VANCOUVER
Volumes in the second few years. We are perfectly to fulfi ll the North American half of 2014 and fi rst half poised to handle the upward trend in market demand for of 2015 will be challenged trend in the market. We trucks and SUVs. due to the loss of a major are aligned with industry KINGSGATE customer. However, North leaders in the marketplace American lightweight vehicle and strategically equipped to production and vehicle sales handle shifting production. remain strong over the next We are also well-equipped
STRATEGY
We will work with our automotive partners and stakeholders to execute our operating plan and strategy. Our anticipated growth will come from focusing on key metrics and providing fl uid on-time service to all of our customers.
ALIGNMENT WITH PRODUCTION LOW COST GROWTH INDUSTRY LEADERS SHIFT TO MEXICO Strategically developed Our automotive franchise As more import models shift cost-reduction initiatives and is built around alignment production to North America shifting production to Mexico with strong industry (Mexico), we stand to benefi t are both crucial to improving performers, such as Toyota from adjusted traffi c fl ows the overall profi tability of and Honda. Through that will change from “west our automotive franchise. strategic partnerships, the to east” across Canada to a By replacing high empty-car lowest damage frequency more “south to north” axis repositioning with an increase in the industry, and our as we leverage our Kansas in in-bound loads, we will solid product offerings, we City Gateway to interchange signifi cantly reduce our cost are ideally positioned for traffi c bound for the U.S. structure while increasing retention and growth with Midwest and Canada. This effectiveness and effi ciency. our core customer base. shift will allow us to optimize This strong base lays the overall car supply as more Further, the operational foundation for growth with loads will originate offl ine changes we’ve made over the other industry participants and terminate in Canada, and last two years have created as we look to foster and eliminates the need to source the capacity in our fl eet and build a fully integrated empty equipment from facilities to accommodate automotive network. elsewhere on the network. the growth prospects ahead of us without the need for signifi cant capital investment.
68 | INVESTOR FACT BOOK 2014 EDMONTON ONTARIO LLOYDMINSTER
SASKATOON CALGARY 51% WINNIPEG REGINA
SAINT JOHN QUEBEC THUNDER BAY COUTTS ST. LUC
AGINCOURT DULUTH SUDBURY MONTREAL UNITED STATES
MINNEAPOLIS/ST. PAUL TORONTO TRACY ALBANY 20% EC ROW COTTAGE GROVE MILWAUKEE BUFFALO
NEW YORK CHICAGO WINDSOR COMMODITY FLOWS: PHILADELPHIA We access a network of automotive compounds KANSAS CITYCITY facilitating fi nal delivery of vehicles to dealers throughout Canada, Minnesota and the Northeast U.S. SUDBURY
HONDA GM ALLISTON OSHAWA
CHRYSLER BRAMPTON TORONTO CANADIAN PACIFIC
PRINCIPAL HAULAGE OR TOYOTA TOYOTA TRACKAGE RIGHTS WOODSTOCK CAMBRIDGE
AUTOMOTIVE COMPOUNDS BUFFALO LONDON GM INGERSOLL % FINISHED VEHICLE ORIGINATIONS (based on revenues) CHRYSLER WINDSOR
WINDSOR MEXICO 7%
69 MERCHANDISE
METALS, MINERALS & CONSUMER PRODUCTS
Metals, minerals and consumer products continue to be one of CP’s highest growth portfolios. The portfolio is involved in the transportation of a diverse mix of input materials which includes aggregates, steel, consumer products and non-ferrous metals.
In 2013, we handled 232,000 located along our network projects in North Dakota, carloads of metals, minerals in Iowa and Wisconsin and Alberta, Manitoba and the and consumer products moves to a diverse set of U.S. Midwest. equating to $608 million, or shale plays across North 10% of total freight revenues. America. The majority of Demand for the remainder of our cement traffi c is direct- aggregate products is primarily AGGREGATES line haul traffi c produced driven by construction-sector growth and ships both to and Aggregates are comprised in Alberta, Iowa, Ontario from a variety of locations of coarse particulate and or Montana and shipped across our network. composite materials such to construction and energy as frac sand, cement, clay, gravel, salt, and gypsum. Aggregates are used in a variety of functions: from base materials under foundations and roadways to use in the hydraulic Frac sand and cement make fracturing process. up approximately 75% of Frac sand and cement make up approximately 75% of all all aggregate shipments. aggregate shipments. Frac sand originates at mines
70 | INVESTOR FACT BOOK 2014 REVENUE 600 500 400 300 200 METALS, MINERALS & 100 0 CONSUMER PRODUCTS 2011 2012 2013 H1 2013 H1 2014 (BASED ON 2013 REVENUES OF $608M) Revenue ($ millions)
Aggregates 48% 2011 | 499 Steel 34% 2012 | 550 Consumer Products 12% 2013 | 608 Mines & Metals 6% H1 2013 | 285 H1 2014 | 331
RTMS 10,000
7,500
5,000
2,500
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 9,504 2012 | 9,933 2013 | 10,404
H1 2013 | 4,850 H1 2014 | 5,411
CARLOADS 250
200
We expect this upward 150 trajectory to continue, 100 50
0 targeting $1 billion in 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands)
annual revenues by 2020. 2011 | 218 2012 | 222 2013 | 232
H1 2013 | 112 H1 2014 | 116
71 MERCHANDISE – METALS, MINERALS & CONSUMER PRODUCTS
STEEL of coil, pipe and cast-iron industry and makers of We transport steel in a products. Shipments of scrap consumer products such as variety of forms, including metal originate from centres appliances and batteries. pipe, coil, plate and scrap. across North America and The Ontario, Saskatchewan primarily funnel toward CONSUMER PRODUCTS and Iowa steel mills we key steelmaking facilities in Consumer products consist of serve are major suppliers Regina, Saskatchewan and a diverse mix of goods such to industries spanning oil Montpelier, Iowa. as food products, building and gas, transportation, materials, packaging products, packaging and construction. MINES & METALS waste products, private End products include steel We carry mined non- railroad equipment, and pipe, automobiles, railcars ferrous base metals such as other miscellaneous goods. and appliances. copper, ores, lead, zinc and Approximately half of the aluminum. Unrefi ned ores portfolio is represented by Approximately one-third of are transported from mines food products such as frozen steel revenues are derived to smelters and refi neries French fries, meats, vegetables, from the movement of for processing. We then ship sugar, and beverages. scrap steel, used as an input the processed metal to end material for the production customers in the automobile
OUTLOOK
With an extensive rail network and signifi cant improvements in service reliability and cycle times, our portfolio is well positioned to continue to outpace GDP for the next several years.
In particular, frac sand, steel will increase production There is potential growth pipe and cement will lead by approximately 60%. for copper and we anticipate future growth, driven by the growth in aluminum as a strength in the energy sector Increased steel production result of new government and further development will also result in steady regulations seeking to of North American shale growth of input materials, improve fuel effi ciency. plays. We currently have fi ve such as scrap steel. We expect This has spurred some steel- frac sand mines on our lines, improvements in asset velocity for-aluminum substitution as with plans to develop two and subsequent empty order car manufacturers look for new facilities and two plant fulfi llment will enable us to ways to cut vehicle weight. expansions in 2015. Meanwhile, capture a large portion of our largest cement customer, that growth. As the economy continues Lafarge, has begun expansion its recovery in North America, Although mines and metals on its Exshaw plant to support and construction programs are expected to remain growing North American shale pick up, we expect the somewhat fl at in the near development. The Exshaw remainder of the portfolio term, we will continue to expansion, expected to be to grow with, or slightly work closely with customers complete in 2015, above, GDP. on new opportunities.
72 | INVESTOR FACT BOOK 2014 SPOTLIGHT Frac sand fuelling growth
We expect frac sand The innovative technique concert with one of our of multi-stage horizontal many interchange partners. shipments will continue fracturing has signifi cantly increased the economics In 2013, we moved to grow at a rapid pace. of shale projects and the approximately 31,000 number of wells being carloads of frac sand, a drilled in North America on 54% increase from the year an annual basis. Frac sand previous. We expect frac sand is used as a proppant in the shipments will continue to hydraulic fracturing process grow at a rapid pace – 60,000 annual carloads estimated by FRAC SAND DESTINATIONS to keep fractures and pores (SHALE PLAYS / % CARLOADS) open so that oil and gas can 2016. This growth will come fl ow out. in the form of increased traffi c from existing 2 1 We have direct access into customers, new facilities 5 NIOBARA HAYNESVILLE Wisconsin, the largest emerging on our lines, and WOODFORD producer of the highly through additional volumes 18 sought after Northern - bound for the Bakken or 9 White frac sand. We Western Canada - being originate traffi c directly interchanged to us. MARCELLUS OTHER from frac sand mines located along our track The importance of frac sand in Iowa and Wisconsin to the hydraulic fracturing 9 PERMIAN and move the product in process and the great customer-owned cars to a distances between the shale BARNETT 16 diverse set of shale plays plays and silica deposits, necessitates shipment by rail. WESTERN including the Bakken, CANADA Marcellus, Eagleford As the number of wells in and Western Canadian North America continues to BAKKEN grow, so, too, will shipments 12 EAGLE FORD Sedimentary Basin either via single line haul or in of sand by rail. 14 14
73 MERCHANDISE – METALS, MINERALS & CONSUMER PRODUCTS
STRATEGY
Metals, minerals & consumer products has been one of our fastest growing lines of business over the past several years. We expect this upward trajectory to continue in the coming years, targeting $1 billion in annual revenues by 2020.
We plan to achieve this Chicago and St. Paul, we are in areas where we have a VANCOUVER growth through disciplined able to service the Eagleford, market advantage. We can pricing, a reliable and Permian, Barnett, Woodford, also expand our product effi cient service offering, Haynesville, Niobrara and offering to customers by and targeting both existing Utica shale plays. Through working with CP Logistic and emerging markets by these same interchange Solutions (CPLS), who can leveraging our transload points, we can assist customers provide their transloading facilities and extended not located on our network and supply-chain management network footprint. in accessing the Bakken, expertise as well as industry- Marcellus, and Western leading tracking programs. LEVERAGING Canadian Sedimentary Basin. ENERGY GROWTH LOW-COST GROWTH The largest opportunities DELIVERING What makes these for growth are related to RELIABLE SERVICE opportunities so exciting the burgeoning oil and Our operational is that growth is occurring gas industry. We plan to improvements provide in areas along our network leverage our network – from faster and more consistent where we have existing origination points in the rail service for customers. capacity. As a result, growth U.S. Midwest and Alberta to Our customers can more can be accommodated the shale-rich destinations precisely plan production without signifi cant capital of the Bakken, Marcellus, cycles and inventory levels, investment on our side. and Western Canada – to as well as cycle their assets Furthermore, several strategically target energy- more quickly. This helps customers are demonstrating related growth. customers reduce underlying confi dence in the longer term cost structures and make prospects of their businesses Growth is not limited to our them more competitive in the by investing their own capital physical network. By working markets they serve. in facilities and railcars with our Class 1 partners we which limits the downside can extend our reach across As we move forward, we will to our company if economic North America. Through major leverage the strength of our conditions were to change. interchanges at Kansas City, network to target growth
74 | INVESTOR FACT BOOK 2014 EDMONTON LLOYDMINSTER CALGARY SASKATOON
REGINA WINNIPEG
KINGSGATE THUNDER BAY COUTTS SUDBURY MONTREAL DULUTH
MINNEAPOLIS/ ST. PAUL TORONTO TRACY ALBANY MILWAUKEE COMMODITY FLOWS: The majority of our frac sand BUFFALO traffi c moves from the U.S. DETROIT NEW YORK CHICAGO Midwest to the Bakken Shale PHILADELPHIA Formation, Marcellus Shale, Eagle Ford, Permian and to the Canadian West. KANSAS CITY
CANADIAN PACIFIC SAND PRODUCERS’ PRINCIPAL HAULAGE OR TRACKAGE RIGHTS FACILITIES ON CP NETWORK
FRAC SAND ORIGIN ANNUAL SAND CAPACITY START PRODUCER PLANT (MILLION TONS) DATE DESTINATIONS PRIMARY TRAFFIC FLOWS Unimin Tunnel City, 2.0 Q1 2014 ND, NEUS, TX, WI WCAN Manley, WI 0.3 Pre 2008 LA, CO, AB US Silica Sparta, WI 1.6 Q1 2013 TX, NEUS, OK, WCAN, ND Pattison Clayton, IA 1.5 Pre 2008 TX, NEUS Sands Smart Sand Oakdale, WI 2.0 Q3 2012 TX, NEUS, WCAN
Victory Winona, MN 0.4 Q1 2014 WCAN Silica (Transload) Total: 7.8
75 MERCHANDISE MERCHANDISE
CHEMICALS & PLASTICS
CP’s chemicals and plastics portfolio encompasses a wide variety of commodities that ship across our network. Petroleum products represent the largest segment of this portfolio, followed by chemicals and plastics, respectively.
PETROLEUM PRODUCTS Our connectivity to several styrene, sulphuric acid, Petroleum products consist rail interline partners gives methanol, sodium chlorate, of commodities such as liquid us strong and long-term caustic soda, insecticides petroleum gas (LPG), gasoline, exposure to refi neries and and herbicides as well as diesel, condensate (diluent), export facilities in the Pacifi c soda ash which move to end asphalt and lubricant oils. Northwest and Gulf Coast, markets in Canada, the U.S. In Western Canada, the as well as refi neries and and overseas via the North majority of our petroleum emerging shale plays in the American ports. shipments originate in Northeast U.S. – notably Saskatchewan and in the the Marcellus and Utica PLASTICS Alberta Industrial Heartland, shale plays. In addition, our Plastics are most heavily Canada’s largest hydrocarbon interline connections provide used in food packaging and processing region and one of us access to the Texas and consumer products, building the world’s most attractive Louisiana petrochemical and construction materials, locations for chemical, corridor and port connections, and automotive materials. petrochemical, oil, and gas enabling our customers to The most commonly shipped investment. Our network penetrate the market not only plastic resins are polyethylene also reaches the Bakken in Canada, but throughout and polypropylene. A little formation in Saskatchewan the U.S. and beyond. under half of our plastic and North Dakota. Although shipments originate in the Bakken is better known CHEMICALS central and northern Alberta for its oil production, the Our chemical shipments where we have a strong region continues to present originate from one of presence with petrochemical exciting opportunities for four key regions: Eastern manufacturers. The durability petroleum growth given our Canada (primarily Ontario and moisture resistance of ability to provide effi cient and Quebec), Alberta, the plastic means it can remain truck-to-rail transportation U.S. Midwest and the Gulf in storage, or be transloaded solutions for condensate, LPG of Mexico. Our chemical into silos, with very little and natural gas liquids (NGL). carloads include products impact to the integrity of such as ethylene glycol, the product.
7676 | INVESTOR| INVESTOR FACT FACT BOOK BOOK 2014 2014 REVENUE 600
500
400
300 CHEMICALS & 200 PLASTICS 100 (BASED ON 2013 0 REVENUES OF $565M) 2011 2012 2013 H1 2013 H1 2014 Petroleum Products 57% Revenue ($ millions) Chemicals 31% 2011 | 489 Plastics 12% 2012 | 512 2013 | 565
H1 2013 | 277 H1 2014 | 302
RTMS 1,500
1,250
1,000
750
500
250
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 13,522 2012 | 13,233 2013 | 13,573
H1 2013 | 6,969 The Bakken formation H1 2014 | 6,532 CARLOADS 200 presents exciting opportunities 175 150 for growth given our ability 125 100 75 to provide effi cient truck-to- 50 25 rail transportation solutions. 0 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands)
2011 | 192 2012 | 193 2013 | 197
H1 2013 | 99 H1 2014 | 94
77 MERCHANDISE – CHEMICALS & PLASTICS
OUTLOOK
The continued development of a growing number of oil-and-gas related plays across North America, combined with tight pipeline take- away capacity, are expected to create attractive growth opportunities for petroleum products.
In particular, there is manufacturing of goods (such as natural gas) are signifi cant potential to move critical to the North American also expected to benefi t the VANCOUVER LPG from Western Canada to economy. Our chemical plastics industry through the Canadian and U.S. West shipments primarily serve the improved margins, facility Coast, as well as to the U.S. oil and gas, automotive, food expansions and new project Midwest. We also anticipate and beverage, construction, approvals. There are a substantial opportunity plastics, and forest products number of expansion projects to grow our condensate industries. Demand will be slated over the next several volumes – particularly from closely correlated with the years – such as the expansion the Bakken, Marcellus and performance of the North at the Nova Chemicals facility Utica plays to the Alberta American economy. in Joffre, Alberta – that could diluent market. benefi t our plastics segment. The abundance of Chemicals are used as competitively priced energy raw input materials in the products and feedstock
SPOTLIGHT
general, blending bitumen As the production from Diluent in with diluent requires the oil sands has grown approximately a 70:30 signifi cantly, the resulting demand bitumen to diluent ratio. demand for diluent exceeds Shipping heavy oil or domestic production. We Growing Canadian bitumen by rail requires have direct access to the production of oil sands little to no diluent, which is major diluent offl oading requires diluent to blend it to a signifi cant advantage for facilities in Alberta. The pipeline-fl ow specifi cations our customers. We also see strength of our network as heavy crude oil or bitumen tremendous opportunity and proven experience in does not fl ow at ambient in bringing heavy crude oil the transportation of temperatures and pressures. trains to market and then energy products positions Blending requirements using the same railcars to us for success in bringing vary depending on the move the diluent back diluent from the U.S. and type of crude oil (heavy, into Alberta. various Canadian shale bitumen, synthetic). In plays into Alberta.
7878 | INVESTOR| INVESTOR FACT FACT BOOK BOOK 2014 2014 EDMONTON LLOYDMINSTER
SASKATOON CALGARY
REGINA WINNIPEG
KINGSGATE COUTTS
THUNDER BAY SUDBURY MONTREAL DULUTH
MINNEAPOLIS/ ST. PAUL TORONTO TRACY ALBANY MILWAUKEE BUFFALO
DETROIT NEW YORK ALBERTA INDUSTRIAL HEARTLAND CHICAGO PHILADELPHIA BAKKEN OIL FORMATION
ETHANOL KANSAS CITY MARCELLUS SHALE
79 MERCHANDISE
FOREST PRODUCTS
CP’s forest products franchise consists primarily of pulp, paper, lumber and panel products. Pulp is the primary raw material used in the manufacture of fi nished paper products, ranging from standard newsprint and photocopier paper to coated papers used in magazines.
These fi nished paper Lumber and panel account accounting for 83% of products are often shipped in for 36% of forest product revenues. The business is large rolls and transported to revenues. We directly serve shipped to markets across printing presses throughout nine lumber and panel North America. North America. Lumber mills in North America. and panel products supply However, we are able to Paper products, accounting the home construction and extend our reach and grow for 19% of revenues, are renovation industries. our business by utilizing comprised of newsprint strategically located and paperboard. Newsprint In 2013, we handled 66,000 transload facilities. We originates primarily in Quebec carloads of forest products, have key transload facilities and Ontario. Paperboard equating to $206 million established in B.C., Alberta, typically originates on foreign in revenue. Saskatchewan, Ontario and lines and is interchanged with us for delivery to Minnesota Pulp products comprise Quebec. Lumber and panel and Wisconsin. the largest segment of this shipments originate primarily portfolio, accounting for 43% in Western Canada, with of forest products revenues. B.C. and Alberta shipments We serve eight pulp mills in B.C., Ontario and Quebec. Approximately 55% of the pulp produced on our lines is consumed by the domestic We are able to extend our North American market. The remaining 45% of the reach and grow our business by pulp is exported to Asia. utilizing strategically located transload facilities.
80 | INVESTOR FACT BOOK 2014 REVENUE 200
150
100
50 FOREST PRODUCTS (BASED ON 2013 0 REVENUES OF $206M) 2011 2012 2013 H1 2013 H1 2014 Pulp 43% Revenue ($ millions)
Lumber 29% 2011 | 189 Paper 19% 2012 | 193 Panel 7% 2013 | 206 Other 2% H1 2013 | 106 H1 2014 | 100
RTMS 5,000
4,000
3,000
2,000
1,000
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 4,960 2012 | 4,713 2013 | 4,619
H1 2013 | 2,490 H1 2014 | 1,923
CARLOADS 80 70 60 We have a stronger, more 50 40 30 sustainable revenue base 20 10 0 from which to grow our 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands)
forest products business. 2011 | 72 2012 | 67 2013 | 66
H1 2013 | 36 H1 2014 | 29
81 MERCHANDISE – FOREST PRODUCTS
OUTLOOK
Over the course of 2013, we took steps to exit certain low margin lanes of traffi c, particularly in the lumber and panel segment. The result is a stronger, more sustainable revenue base from which to grow our forest products business going forward. This growth will be driven by our
improved service offering and a recovery in U.S. housing starts. VANCOUVER KINGSGATE
Further consolidation in U.S. market share. With a number of mills previously the pulp and paper industry improved service levels, we shuttered on our network is still expected. However will be looking to maximize are expected to re-start our customers are well- growth opportunities by production in the second half positioned in the market capturing volumes that of 2014 and fi rst half of 2015. and have been responding would have previously moved We are well equipped to positively to the changing via truck or other carriers. meet the increasing demand. environment. In fact, the recent weakening of The demand for lumber and the Canadian dollar has panel products is driven benefi ted Canadian paper primarily by U.S. housing manufacturers and enabled starts. With economic them to capture additional conditions improving,
SPOTLIGHT
Transloading is the process of Our transload network is Extending transferring a shipment from operated by key business one mode of transportation partners who are committed our reach to another to create an to exceptional customer effi cient customer supply service. Our operators provide Lumber mills aren’t always chain. Producers of lumber, all the required equipment located right next to railroad panel and wood products and all of these facilities are tracks. Our network of are able to truck product to overseen by experienced and strategically located transload key reloads located in B.C., responsive on-site managers. facilities allows us to extend Alberta, Saskatchewan, We continue to work with the reach of our network to Ontario and Quebec for customers to expand our non-rail served lumber mills. transfer to railcar. transload reach to meet customer’s needs.
82 | INVESTOR FACT BOOK 2014 EDMONTON LLOYDMINSTER
CALGARY SASKATOON REGINA WINNIPEG
COUTTS
THUNDER BAY MONTREAL SUDBURY DULUTH
MINNEAPOLIS/ ST. PAUL TRACY TORONTO ALBANY MILWAUKEE COMMODITY FLOWS: BUFFALO Forest products include lumber, DETROIT wood pulp, paper products NEW YORK and panel transported from CHICAGO PHILADELPHIA key producing areas in Western Canada, Ontario and Quebec to various KANSAS CITY destinations in North America.
CANADIAN PACIFIC
PRINCIPAL HAULAGE OR TRACKAGE RIGHTS
CP SHORTLINE CONNECTION
CP SERVED PULP MILL
CP SERVED LUMBER MILL/TRANSLOAD
83 INTERMODAL
INTERMODAL
Beginning early 2013, CP intermodal began a renewal and rebalancing of the portfolio. Our objectives were three-fold: improve the quality of the book of business; leverage our faster and more consistent rail service; and, grow in a controlled, sustainable and profi table way.
Our intermodal portfolio products and various other INTERNATIONAL is comprised of two main commodities and consumer- Our international segment, segments: domestic and related products. Key service which represented 49% international. Domestic factors in domestic intermodal of intermodal revenues in intermodal primarily involves include: speed; consistent 2013, has a customer base the distribution of domestic on-time delivery; the ability to primarily composed of ocean 53-foot container shipments provide door-to-door service; shipping lines. Containerized within North America. and, the availability of value- traffi c moves between ports International intermodal added services. in Vancouver, Montreal and involves the movement of New York, and inland points In 2013, 87% of our domestic ocean-carrier owned marine across Canada and the U.S. intermodal business originated containers through the ports Import and export traffi c in Canada where we market and into North American from Vancouver’s port is our services directly to retailers inland markets, as well as largely long-haul business and manufacturers, provide export shipments of goods to destined for Eastern Canada complete door-to-door Asia, Europe and beyond. and the U.S. Midwest and service and maintain direct Northeast. Montreal’s port, relationships with customers. DOMESTIC a major year-round East In the U.S., our service is Our domestic intermodal Coast gateway to Europe, delivered predominantly segment, which represented primarily serves markets through intermodal marketing 51% of intermodal revenues in in Canada and the U.S. companies (IMC). 2013, covers a broad spectrum Midwest. Our U.S. Northeast of industries including: service connects the port food, retailers, less than of New York to Canada, truckload, trucking, forest offering a competitive alternative to trucks.
84 | INVESTOR FACT BOOK 2014 REVENUE 1500 1250 1000 750 500 INTERMODAL 250 (BASED ON 2013 0 REVENUES OF $1,328M) 2011 2012 2013 H1 2013 H1 2014 Domestic 51% Revenue ($ millions) Canada 43% Cross-border 8% 2011 | 1,303 International 49% 2012 | 1,370 Port Metro Vancouver 34% 2013 | 1,328 Port of Montreal 13% Other 2% H1 2013 | 653 H1 2014 | 667
RTMS 25,000
20,000
15,000
10,000
5,000
0 2011 2012 2013 H1 2013 H1 2014 Revenue Ton Miles (millions)
2011 | 23,907 2012 | 24,853 2013 | 24,101
H1 2013 | 11,854 H1 2014 | 11,522
CARLOADS 1000 900 800 700 We believe the intermodal 600 400 portfolio is poised to be a 300 200 100 signifi cant growth engine 0 2011 2012 2013 H1 2013 H1 2014 Carloads (thousands)
over the next several years. 2011 | 997 2012 | 1,024 2013 | 1,004
H1 2013 | 491 H1 2014 | 477
85 INTERMODAL
LEVERAGING OUR • Improved service and leading services from Eastern NETWORK AND OPERATING lower cost advantages Canada to Calgary and ADVANTAGES allowing growth into Vancouver; and from Port Our intermodal network more traditionally truck Metro Vancouver to the has sustainable competitive competitive lanes. U.S. Midwest. The result has advantages, including: been double-digit growth in In 2013, after an in-depth these key lanes as the market • Shortest route miles in key examination of core takes advantage of the domestic and international operational processes, we benefi ts from a faster, more lanes on the “Intermodal introduced a new 61-hour consistent service. PITT MEADOWS Triangle“: from Vancouver service from Toronto to (west), Montreal (east) and Calgary to deliver goods not Chicago (south); only one day sooner than previous, but faster than • Faster, more consistent VANCOUVER any competing rail offering. KINGSGATE service defi ning the Since then, we have also premium product for our implemented industry- customers; and
OUTLOOK
Global sourcing, population growth, highway congestion and rising fuel costs all support the long-term fundamentals for intermodal growth. We believe the intermodal portfolio is poised to be a signifi cant growth engine for the company over the next several years.
Domestic intermodal is a services and expand them Our strong customer base key focus because of the to new markets. Further values our consistent, value customers place on growth will come from new reliable service and the new speed and consistency of product offerings such as an offering is gaining traction. service. With 27% and 22% expanded fl eet of specialized, We anticipate that growth improvements in transit time temperature-controlled will be driven by a stronger between Toronto-Calgary equipment; continued U.S. economy, increasing and Calgary-Vancouver, conversion; and, re-entry our network reach beyond respectively, our offering into specifi c truck markets. Chicago, and winning is second-to-none in the The rebalancing of our back business as ocean industry. We will continue to international business has carriers recognize the value- grow over the next several created a strong platform proposition of our improved years as we leverage our new for growth going forward. service offering.
86 | INVESTOR FACT BOOK 2014 EDMONTON
LLOYDMINSTER
CALGARY
SASKATOON REGINA WINNIPEG
COUTTS LACHINE
THUNDER BAY VAUGHAN MONTREAL DULUTH SUDBURY
COMMODITY FLOWS: MINNEAPOLIS/ TRACY ST. PAUL Our international segment TORONTO ALBANY moves container volumes MILWAUKEE between the ports of BUFFALO Vancouver, Montreal and DETROIT New York to inland destinations NEW YORK across Canada and the U.S. CHICAGO PHILADELPHIA The domestic segment is primarily long-haul, east-west business. We are focused on KANSAS CITY leveraging our competitive BENSENVILLE advantages along the Intermodal Triangle between Vancouver, Montreal and Chicago.
CANADIAN PACIFIC
PRINCIPAL HAULAGE OR TRACKAGE RIGHTS
CP INTERMODAL FACILITIES
PORT FACILITIES
PRIMARY TRAFFIC FLOWS
87 INTERMODAL
STRATEGY
Profi table and measured growth is a key feature of the intermodal strategy over the next several years. There are three pillars to support this growth:
NEW PRODUCTS NEW CUSTOMERS NEW MARKETS Building on superior train The fastest, most reliable In partnership with other service and the success of service continues to generate railroads, we will extend our our fl agship transcontinental interest from current and premium service to markets service between Eastern new customers, resulting not previously served by us. Canada and the major in quality revenue growth. distribution hubs of Calgary and Vancouver, we will apply our new service model to additional destinations on our “Intermodal Triangle.”
CP’S INTERMODAL REVENUES ARE EXPECTED TO GROW GENERATING REVENUES OF
GROWTH 50% $2B
2015 2016 2017 2018
88 | INVESTOR FACT BOOK 2014 SPOTLIGHT Expressway winning business
Our Expressway service is a Expressway’s proven system, multi-modal transportation common operating platform system operating in the and brand recognition has Expressway has more Montreal-Toronto corridor. more than met the needs We work in partnership of a growing number of than met the needs with retailers, private fl eet motor carriers. We believe operators and the trucking Expressway’s unique system of a growing number industry. This innovative and partnership approach system uses a fl exible drive- give us a competitive of motor carriers. on, drive-off ramp system advantage over other multi- capable of handling a wide modal retailing specialty variety of trailers – including trailers in short-haul markets. vans, fl ats, tankers and In addition, Expressway reefers – on specialized continues to win government fl atcars in dedicated trains. and community support as it The resulting combination works to divert trailers from provides the trailers and congested highways and their contents with a ride reduce greenhouse gases. quality similar or superior to over-the-road transport. Expressway has also Expressway’s market-driven reaped the benefi ts of our schedules, competitive company’s focus on improved transit times and high operations. Faster transit productivity between times and improved reliability Montreal and Toronto give have resulted in double-digit trucking companies a lower growth in this segment. cost alternative and the Carloads have grown from opportunity to re-deploy 36,000 carloads in 2012 to scarce resources, such as 48,000 carloads in 2013, drivers, to other areas. an increase of 33%.
89 INTERMODAL
SPOTLIGHT Offering customized supply chain management solutions
CP Logistics Solutions CPLS generates value for the fl ow of goods across (CPLS) delivers logistics and customers by: modes, facilities, borders transportation management and agencies. We also provide • evaluating distribution and solutions that create value intervention, problem transportation strategies within our customers’ resolution and vendor to meet a customer’s supply chains. management. Acting as supply chain goals; an extension of a customer’s When the movement of • designing and managing logistics team, CPLS integrates goods requires a single party solutions that bring processes and technology at to coordinate activities and together the capabilities an operational level. information from end- of a number of logistics to-end, CPLS works with service providers; Our ability to provide railroads, truckers, facility effective solutions means • sourcing lower-cost, operators, freight forwarders we can respond to market quality providers and other vendors to deliver changes in established of transportation, integrated logistics solutions. industries such as food warehousing and manufacturing and retailing, distribution services; To bring the advantages and new emerging markets of our rail services to • streamlining the delivery of such as energy and other customers, we focus on their goods through integrated industrial products. We goals through the lens of logistics and transportation provide custom design managing and controlling management solutions; and and manage multi-modal operational activities across • capturing and distribution solutions, different organizations reporting performance delivering added value and regions. Working with information to identify for both our customers customers in a variety opportunities for supply- and company. This winning of industries – including chain performance combination enhances packaged goods, bulk improvement. benefi ts to customers, liquids, industrial materials while generating profi ts and dimensional machinery CPLS develops shipment and new rail business. It is – CPLS designs, builds plans that balance customer also integral to our goal of and executes customized delivery commitments, mode fl uidity and an important transportation solutions. selection and overall lowest tool for us to be able to adapt total cost. We facilitate and grow in new markets.
90 | INVESTOR FACT BOOK 2014 91 INVESTOR FOCUS
CAPITAL EXPENDITURES VANCOUVER
CP’s focus on cost control and asset utilization has unleashed signifi cant capacity across the railroad. We have generated surplus locomotives; under-utilized track have been re-deployed; and, previously congested hump yards that processed thousands of cars per day now process a fraction of what they used to.
As we turn our focus towards improvements to increase portions of our mainline growth opportunities, the productivity, effi ciency between Portal, North capacity generated through and capacity. Dakota and Glenwood. velocity and productivity CTC not only provides will be supplemented Recent investments include: for simplifi ed and safer with additional targeted • new sidings and siding movement of trains but corridor expansions and extensions along our also allows for switches improvements. Core capital network to enable to be lined from a will continue to be focused longer trains, improve remote centralized on investments that improve transit times, and reduce location eliminating the productivity, fl uidity and train and crew starts. the need for crews to safety of our railroad. In 2013, we extended stop and line switches eight sidings along our manually. This effi ciency TRACK AND ROADWAY mainline between Toronto improves the travel time Track and roadway and Vancouver. We are over a subdivision which expenditures include constructing or extending ultimately increases the replacement and another 12 sidings in 2014. capacity; and enhancement of our track Work will be targeted • track upgrades to our infrastructure. Approximately along our North Line North Line between $700 million of expenditures between Wetaskiwin, Winnipeg and Edmonton, are dedicated annually to Alberta and Portage have increased corridor the renewal of depleted La Prairie, Manitoba; speed from 25 to 40 miles assets – namely rail, ties, between Calgary and per hour, and improved ballast, signals and bridges. Edmonton; and between service reliability. The remaining track and Glenwood and St. Paul in roadway expenditure, which Minnesota; amounted to $130 million in • upgrades to signaling 2013, is targeted on network systems – specifi cally, the installation of Centralized Traffi c Control (CTC) – on
92 | INVESTOR FACT BOOK 2014 EDMONTON WETASKIWIN LLOYDMINSTER CALGARY SASKATOON
REGINA MOOSE JAW PORTAGE LA PRAIRIE
KINGSGATE WINNIPEG THUNDER BAY COUTTS PORTAL SUDBURY MONTREAL
DULUTH
GLENWOOD FUTURE CTC INSTALLATION MINNEAPOLIS/ST. PAUL TORONTO CURRENT CTC TRACY ALBANY OCS/TWC MILWAUKEE BUFFALO DOUBLE TRACK (ABS) SUNBURY NEW YORK HAULAGE OR TRACKAGE DETROIT RIGHTS ON FOREIGN PHILADELPHIA RAILROAD CHICAGO
KANSAS CITY
2013 CAPITAL EXPENDITURE (BASED ON SPEND OF $1.2 BILLION) Track & Roadway 66% Rolling Stock 13% Information Systems 9% CAPITAL INVESTMENTS Buildings & Other 12% 1.50
1.25
1.00
0.75
0.50 2014E CAPITAL 0.25 EXPENDITURE (BASED ON ESTIMATED 0 SPEND OF $1.3 BILLION) 2012 2013 2014E 2015E Track & Roadway 67% Capital investments ($ billions) Rolling Stock 20% 2012 | 1.1 Information Systems 7% 2013 | 1.2 2014E | 1.3 Buildings & Other 6% 2015E | Approximately 1.5
93 INVESTOR FOCUS
ROLLING STOCK Other rolling stock to reduce the total number of Investments in rolling stock investments include the supported applications while have primarily been focused purchase of existing railcars migrating to a standardized on the remanufacture of that had previously been platform. The net result is older four-axle yard and leased and the acquisition a more responsive and less local service locomotives as of temperature-controlled costly system infrastructure. well as six-axle SD40 road intermodal containers to units. In addition to reducing meet growing demand. BUILDINGS AND OTHER maintenance costs and Building expenditures improving fuel effi ciency, INFORMATION SYSTEMS are focused on providing these investments also We have been investing productive and safe work reduce the number of units roughly $100 million per year environments for our No. 1 required through improved toward insourcing activities asset: our people. In 2013, reliability, the allowance and the rationalization building expenditures for interoperability with and modernization of were signifi cantly higher our existing road fl eet and our information systems. as we spent $40 million better utilize horsepower. Insourcing activities have constructing and relocating The remanufacture of our included the construction our headquarters from four-axle fl eet in 2013 and of new data centres in a leased offi ce tower to 2014 represents the fi rst Calgary and Minneapolis to Calgary’s Ogden Yard. The major investment in new replace data centre space move is expected to save us yard locomotives in several and hardware that had approximately $20 million a years and also allows us previously been leased from, year in lease costs. to stay ahead of the more and managed by, third- restrictive 2015 Tier 4 party vendors. There is also emissions standards. signifi cant work underway
SPOTLIGHT
train crews to proceed across Currently, only a portion of Expanding main lines, or divert trains CP’s route across Canada onto sidings, yard tracks or is CTC, as is the U.S. route Centralized branch lines. In places where between the Chicago area CTC is not in place, the RTC and Glenwood. However, Traffi c Control must issue instructions to most key secondary routes crews by radio, and crews still rely on radio-issued Centralized Traffi c Control must stop their trains to instructions to train crews. (CTC) is a system in which a rail line switches by hand. CTC Future investments in CTC traffi c controller (RTC) gives uses track circuits to detect will focus on completing the routing instructions to train whether a stretch of track is Portal to Glenwood corridor, crews using lineside signals occupied, and displays red the North Line from Calgary and remotely controlled signals to trains approaching to Portage la Prairie and power switches. With the click occupied track “blocks.” southern B.C. and Alberta. of a mouse, the RTC can direct
94 | INVESTOR FACT BOOK 2014 95 INVESTOR FOCUS
96 | INVESTOR FACT BOOK 2014 INFORMATION TECHNOLOGY
CP relies on many information systems for resource planning, scheduling, monitoring and reporting railroad traffi c, customer relationships, accounting and fi nancial controls, staff records, payroll and the safe effi cient execution of our operations.
Our information system contracts in 2013/2014 MORE INFORMED DECISIONS reporting capabilities relating applications capture and built an internal team Our “Railway Performance to legal, risk management, shipment orders and both of “railroad” IT experts Monitoring” (RPM) fi nance, operations and fi nancial and operational (infrastructure, networks, application is a near real time current government data. These systems also map software development dashboard that consolidates regulatory requirements, out complex interconnections and support). We have information from multiple with an improved system of freight cars, locomotives, transitioned from an 85% sources into an easy to read security and access control. facilities, and track and train outsourced IT service to 80% geographical map interface We have also continued the crews to meet more than internal support capabilities. of railroad operations. RPM is build-out of our disaster 10,000 individual customer This is leading to improved designed to provide visibility recovery capability for service commitments daily. knowledge of our systems, to key information to assist technology systems that reduced resolution times, our operating personnel Since 2013, our Information support business functions. reduced incident frequency (from executive to the train Technology (IT) structure This will ensure we can keep and improved response master) in making rapid and and capabilities have been all aspects of the business times. We have strengthened informed decisions on train undergoing a fundamental functioning in the midst of any our ability to build out our movements and other asset- change in direction with a unplanned disruptive events. technical capability in line related topics. focus on operations, asset with business objectives. utilization, cost control, IMPROVED SECURITY service improvements and In 2014, we also invested in AND REPORTING people development. new data centres in Calgary Our new Environment, and Minneapolis to replace Health & Safety (EHS) INTERNAL CAPABILITIES existing “outsourced” data system will provide an STRENGTHENED centres that were service integrated solution We have a new approach managed by external replacing three existing to ownership and control vendors. These new centres legacy systems. EHS will of all areas related to IT. will provide the foundation deliver incident reporting, For the past decade, our IT for a reduction in the number WCB claims, U.S. casualty systems have been largely of technology platforms management and regulatory developed and supported and decommissioning of incident management. The by outsourced resources more than 800 mid-range integration of these modules or non-company staff. We servers and two mainframes, will feature strengthened have now insourced a large leading to reduced cost and security and access control portion of these outsourced improved service. and feature enhanced
97 INVESTOR FOCUS
REGULATORY
CP’s railroad operations are subject to extensive federal laws, regulations and rules in both Canada and the United States which directly affect how operations and business activities are managed.
Operations are subject STB is an economic regulatory Association of Canada. No It is too soon to determine to economic and safety body with jurisdiction over assurance can be given to what impact the changes regulation in Canada railroad rate and service the content, timing or effect proposed in Bill C-30 will have primarily by the Canadian issues and reviewing on our company of any on our company’s fi nancial Transportation Agency proposed railroad mergers. anticipated legislation or condition and operations. (the Agency) and Transport The FRA regulates safety- further legislative action. Canada through the Canada related aspects of our railroad After the tragic accident Transportation Act (CTA) operations in the U.S. under REGULATORY CHANGE in Lac-Megantic, Quebec in July of 2013 following and the Railway Safety the Federal Railroad Safety On March 26, 2014, the a signifi cant derailment Act. The CTA provides Act, as well as rail portions of Canadian government involving a non-related short- shipper rate and service other safety statutes. State introduced Bill C-30, “Fair line railroad, the Government remedies, including and local regulatory agencies Rail Act for Farmers”. This of Canada implemented Final Offer Arbitration, may also exercise limited legislation requires our several measures pursuant competitive line rates and jurisdiction over certain safety company and CN to move a to the Rail Safety Act and compulsory inter-switching and operational matters of minimum amount of grain the Transportation of in Canada. The Agency local signifi cance. specifi ed in the legislation Dangerous Goods Act. These regulates the maximum or as specifi ed by the Various other regulators modifi cations implemented revenue entitlement for federal cabinet. In addition, directly and indirectly affect changes with respect to rules the movement of grain, it expands the terms and our operations in areas such associated with securing commuter and passenger conditions associated with as health, safety, security unattended trains, the access, charges for ancillary the interswitching provisions and environmental and classifi cation of crude oil services and noise-related of the CTA in the provinces other matters. To mitigate being imported, handled, disputes. Transport Canada of Alberta, Saskatchewan statutory and regulatory offered for transport regulates safety-related and Manitoba. Bill C-30 also impacts, we are actively or transported and the aspects of railroad operations amends the Canada Grain and extensively engaged provision of information in Canada. Act to permit the regulation throughout the different to municipalities through of contracts relating to Our U.S. operations are levels of government and which dangerous goods grain and the arbitration subject to economic and regulators, both directly and are transported by rail. of disputes respecting the safety regulation by the indirectly through industry These changes do not have provisions of those contracts. Surface Transportation Board associations, including the a material impact on our Bill C-30 received a second (STB) and Federal Railroad Association of American operating practices. reading on March 28, 2014. Administration (FRA). The Railroads and the Railway
98 | INVESTOR FACT BOOK 2014 On November 19, 2013, the Bill C-52 was enacted by the that any future regulatory industry and government CTA initiated consultation Canadian government on or legislative initiatives by working groups to evaluate on the current approach to June 26, 2013. This legislation the STB will not materially the scope of effort that determining the adequacy provides shippers with adversely affect the Company’s will be required to comply of railroad third-party the right to an agreement operations or its competitive with these regulatory liability coverage and concerning the manner in or fi nancial position. requirements, and to solicited input on possible which a railroad company further the development improvements to the current must provide service to the In the U.S., the Rail of an industry standard regulatory framework. shipper. If a service agreement Safety Improvement Act interoperable solution that cannot be reached through requires Class 1 railroads to can be supplied in time to There is ongoing discussion commercial negotiations, implement, by December 31, complete deployment. At with Canadian and arbitration is available to the 2015, interoperable PTC on this time we estimate the American regulators shipper to establish the terms main track in the U.S. that cost to implement PTC concerning amendments of service. It is too soon to has passenger rail traffi c as required for railroad to the regulation for the determine if this legislation or toxic inhalant hazard operations in the U.S. to transportation of hazardous will have a material impact on commodity traffi c. The be up to US$328 million. commodities including our company. legislation defi nes PTC as a As at June 30, 2014, total the tank cars used for the system designed to prevent expenditures related to transportation of crude Congress did not reauthorize train-to-train collisions, PTC were approximately oil. The freight rail industry the Railway Safety over-speed derailments, $175 million. petitioned the U.S. Pipeline Improvement Act and the incursions into established and Hazardous Materials Passenger Rail Investment work zone limits, and Safety Administration in and Improvement Act the movement of a train 2011 to adopt the industry’s which expired at the end through a switch left in the new tank car standards. of September of 2013. It is wrong position. The FRA has In November 2013, the uncertain whether legislation issued rules and regulations industry renewed its request will be enacted in 2014. for the implementation to the U.S. Pipeline and of PTC, and we fi led our Hazardous Materials Safety The STB serves as both an PTC Implementation Administration and also adjudicatory and regulatory Plans in April 2010, which urged that existing cars used body. Matters pending before outlined our solution for for crude oil and ethanol the STB include proposed interoperability as well as be retrofi tted to the higher rules to address its rate case our consideration of relative standard or phased out of processes and a petition risk in the deployment plan. fl ammable service. We do not by the National Industrial We are participating in own any tank cars used for Transportation League for commercial transportation of new reciprocal switching rules. hazardous commodities. No assurance can be given
99 INVESTOR FOCUS
LABOUR RELATIONS
CP employs 15,000 employees across North America with 75% based in Canada and the remainder in the United States. Unionized employees represent 77% of our workforce and are represented by 39 bargaining units.
CANADA Agreements with unions U.S. Within Canada there are representing Canadian In the U.S., there are seven bargaining units running trades employees currently 32 bargaining representing 8,300 Canadian and Canadian car and units on three subsidiary unionized employees. From locomotive repair employees railroads representing 3,000 time-to-time, we negotiate to expire at the end of 2014. unionized employees. renew collective agreements Agreements with the other with various unionized groups fi ve Canadian bargaining All of the U.S. collective of employees. In such cases, units are in place through bargaining agreements are the collective agreements at least December 31, 2017. in place until the end of 2014, remain in effect until the with the exception of two bargaining process has been agreements on the Dakota, exhausted (as per Canada Minnesota & Eastern which Labour Code). became amendable at the end of 2013.
SPOTLIGHT
Hourly rated agreements the competitive nature of Hourly rated introduce work/rest today’s labor market, hourly scheduling for employees agreements will also enhance agreements and pay each employee the our ability to attract and same all-inclusive hourly rate retain employees. An hourly based pay for work performed under structure is commonplace in their collective agreement. many industries. However, These agreements remove this straightforward concept traditional work rules in still is considered somewhat order to provide operational uncommon for Train and fl exibility that enables our Engine (T&E) employees company to manage our among Class 1 railroads business in the most effi cient in North America. Yet the and competitive manner. benefi ts are mutual to both We also believe that due to employees and employers.
100 | INVESTOR FACT BOOK 2014 CANADIAN UNIONS # OF EMPLOYEES EXPIRATION AS AT JUNE 2014 TYPE OF EMPLOYEES Teamsters Canada Rail Conference (TCRC - T&E) 3,289 Train & Engine Crews 31-Dec-14 Teamsters Canada Rail Conference Maintenance of Way Track Maintainers, 31-Dec-17 Employees Division (TCRC - MWED) 2,476 Buildings/Structures Car & Locomotive Repair 31-Dec-14 Unifor Local 101R (previously Canadian Auto Workers) 1315 Employees United Steel Workers of America Transportation 31-Dec-17 Communications Local 1976 (TC-USWA) 644 Clerical Employees International Brotherhood of Electrical Workers (IBEW) 436 Signal Maintainers 31-Dec-17 Teamsters Canada Rail Conference - Rail Canada Traffi c 31-Dec-20 Controllers (TCRC - RCTC) 122 Rail Traffi c Controllers Canadian Pacifi c Police Association (CPPA) 48 Police 31-Dec-17 Total 8,330
U.S. UNIONS # OF EMPLOYEES SOO LINE AS AT JUNE 2014 TYPE OF EMPLOYEES EXPIRATION United Transportation Union (UTU) 463 Train Service Employees 31-Dec-14 Teamsters (BMWE) 462 Track Maintainers 31-Dec-14 Teamsters (BLE&T) 409 Locomotive Engineers 31-Dec-14 Transportation Communications International Union (TCU) 148 Clerical Employees 31-Dec-14 Brotherhood of Railway Carmen - Division of Transportation Communication International Union (TCU-BRC) 125 Car Repair Employees 31-Dec-14 Brotherhood of Railway Signalmen (BRS) 113 Signal Maintainers 31-Dec-14 International Association of Machinists & Areospace Workers (IAM) 96 Machinists 31-Dec-14 International Brotherhood of Electrical Workers (IBEW) 52 Electricians 31-Dec-14 American Train Dispatchers Department - Division of Brotherhood of Locomotive Engineers (ATDD) 49 Train Dispatchers 31-Dec-14 Soo Line Locomotive and Car Foremen Association (SLL&CFA) 24 Locomotive/Car Foremen 31-Dec-14 National Conference of Firemen and Oilers (NCF&O) 22 Mechanical Laborers 31-Dec-14 United Transportation Union - Yardmasters (UTU-Y) 20 Yardmasters 31-Dec-14 Various 2 Various 31-Dec-14
DELEWARE AND HUDSON Teamsters (BMWE) 207 Track Maintainers 31-Dec-14 United Transportation Union (UTU) 70 Conductors & Trainpersons 31-Dec-14 Teamsters (BLE&T) 57 Locomotive Engineers 31-Dec-14 Brotherhood of Railway Signalmen (BRS) 37 Signal Maintainers 31-Dec-14 Brotherhood of Railway Carmen (BRC) 15 Car Repair Employees 31-Dec-14 Various 36 Various 31-Dec-14
DAKOTA, MINNESOTA AND EASTERN Locomotive Engineers Teamsters 271 (represent Conductors and 31-Dec-13 Trainpersons on ICE network) Brotherhood of Maintenance of Way (BMWED) 186 Track Maintainers 31-Dec-14 International Association of Machinists (IAM) 53 Mechanics 31-Dec-14 United Transportation Union (UTU) 48 Conductors & Trainpersons 31-Dec-13 Brotherhood of Railway Signalmen (BRS) 38 Signal Maintainers 31-Dec-14 Total 3,003
101 DRIVINGINVESTOR SHAREHOLDER FOCUS VALUE
DRIVING SHAREHOLDER VALUE
Since embarking on our turnaround journey just over two years ago, CP has transformed from the worst performing railroad in North America to quickly approaching industry best.
We ended 2011 with an Our stock price appreciation SHARE REPURCHASE operating ratio of 81.3% - and market capitalization PROGRAM trailing the industry average growth have been With a strong balance sheet by nearly 1,200 basis points. unprecedented. Since the and improved cash fl ow By the end of 2013, our start of 2012, our share generation, we announced operating ratio had improved price has grown by more a normal course issuer bid to 69.9%, and we anticipate than 280% and our market (NCIB) in the fi rst quarter ending 2014 with a mid-60s capitalization has increased of 2014 to purchase up to operating ratio – two years from $11.7 billion to more 5.3 million common shares ahead of plan. than $33.4 billion.
CP SHARE PRICE PERFORMANCE – JANUARY 2012 TO JUNE 2014 JANUARY 2012 = 100
350 CP (TSX) 300
250 CP (NYSE)
200 S&P Rail 150 S&P 500 100
50 S&P TSX
0 Jul 12 Jul 13 Jan 12 Jan 13 Jan 14 Oct 12 Oct 13 Apr 12 Apr 13 Apr 14
102 | INVESTOR FACT BOOK 2014 FREE CASH(1) 600 400 or three per cent of our fi nancial position, we have 200 common shares outstanding. received upgrades from all 0 The share repurchase three agencies in the fi rst half (200) program commenced on of 2014. (400) (600) March 17, 2014, and is due • On April 16, 2014, Standard & (800) to terminate no later than 2011 2012 2013 H1 2013 H1 2014 Poor’s Ratings Services raised March 16, 2015. Free Cash ($ millions) our long-term corporate From March 17, 2014 to June credit rating to “BBB” from 2011 | (724) 30, 2014, we repurchased “BBB-” and assigned a 2012 | 93 2013 | 530 3.3 million common shares at positive outlook to the rating. an average price of $172.90 • On April 24, 2014, Moody’s H1 2013 | 171 H1 2014 | 534 per share. Investors Service upgraded our senior unsecured ratings We expect to amend to Baa2 from Baa3 and the NCIB prior to expiration ADJUSTED DILUTED assigned a positive outlook in order to increase the EARNINGS PER SHARE(1) to the rating. number of common shares $7.00 that may be repurchased • On June 5, 2014, DBRS $6.00 $5.00 under the program. upgraded our Issuer Rating, $4.00 Unsecured Debentures and $3.00 DIVIDENDS Medium-Term Notes ratings $2.00 We currently pay a quarterly to “BBB” from “BBB(low)” $1.00 $0.00 dividend of $0.35 per and assigned a positive 2011 2012 2013 H1 2013 H1 2014 common share. Our Board of outlook to the ratings. Adjusted Diluted Directors gives consideration Earnings per Share on a quarterly basis to the 2011 | $3.15 payment of future dividends. 2012 | $4.34 2013 | $6.42
BOND RATINGS H1 2013 | $2.64 Credit ratings provide H1 2014 | $3.55 information relating to our fi nancing costs, liquidity and DEBT TO TOTAL operations. Credit ratings CAPITALIZATION affect our ability to obtain 55% short-term and long-term 50% fi nancing and/or the cost of 45% such fi nancing. As a result of 40% the signifi cant improvement in our operating results and 35% 30% 2011 2012 2013 H1 2013 H1 2014 Debt to Total Capitalization (%)
2011 | 50.7% 2012 | 47.9% 2013 | 40.7%
H1 2013 | 45.9% H1 2014 | 39.8%
(1) See description of “Reconciliation of Non-GAAP measures to GAAP measures,” on page 110.
103 APPENDIX
FINANCIALS
QUARTERLY CONSOLIDATED STATEMENT OF INCOME $ in millions, except per share data or unless otherwise indicated
2012 2013 2014 H1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 2013 2014 REVENUES Canadian Grain 202 160 186 219 767 203 191 212 263 869 221 252 394 473 U.S. Grain 86 73 110 136 405 111 91 107 122 431 106 115 202 221 Coal 137 148 161 156 602 149 144 177 157 627 148 165 293 313 Potash 63 97 59 62 281 82 95 66 69 312 80 101 177 181 Fertilizers & Sulphur 63 53 52 71 239 70 68 63 57 258 54 64 138 118 Forest Products 50 48 49 46 193 53 53 51 49 206 48 52 106 100 Chemicals & Plastics 134 120 125 133 512 139 138 142 146 565 147 155 277 302 Crude 28 48 59 71 206 92 97 78 108 375 104 114 189 218 Metals, Minerals & Consumer 136 138 145 131 550 141 144 164 159 608 161 170 285 331 Products Automotive 105 116 105 99 425 97 106 95 105 403 88 104 203 192 Domestic Intermodal 169 153 165 166 653 170 171 170 173 684 177 200 341 377 International Intermodal 167 178 198 174 717 152 160 170 162 644 140 150 312 290 Total freight revenues 1,340 1,332 1,414 1,464 5,550 1,459 1,458 1,495 1,570 5,982 1,474 1,642 2,917 3,116 Other revenue 36 34 37 38 145 36 39 39 37 151 35 39 75 74 Total revenues 1,376 1,366 1,451 1,502 5,695 1,495 1,497 1,534 1,607 6,133 1,509 1,681 2,992 3,190
OPERATING EXPENSES Compensation and benefi ts 382 358 364 371 1,474 392 334 324 335 1,385 345 342 726 687 Fuel 269 242 232 256 999 270 246 226 262 1,004 271 273 516 544 Materials 43 41 40 42 166 44 35 36 45 160 52 47 79 99 Equipment rents 50 56 52 48 206 46 44 44 39 173 41 40 90 81 Depreciation and amortization 127 135 137 140 539 141 141 139 144 565 141 137 282 278 Purchased services and other 231 295 251 267 1,044 240 277 241 240 998 236 255 517 491 Asset impairment - - - 265 265 - - - 435 435 - - Labour restructuring - - - 53 53 - - - (7) (7) - - Total operating expenses 1,102 1,127 1,075 1,442 4,746 1,133 1,077 1,010 1,493 4,713 1,086 1,094 2,210 2,180
Operating income 274 239 376 60 949 362 420 524 114 1,420 423 587 782 1,010 Other income and charges 13 19 2 3 37 3 8 - 6 17 - 3 11 3 Net interest expense 69 69 69 69 276 70 68 70 70 278 70 69 138 139
Income before income tax 192 151 305 (12) 636 289 344 454 38 1,125 353 515 633 868 Income tax expense (recovery) 50 48 81 (27) 152 72 92 130 (44) 250 99 144 164 243 Net income $ 142 $ 103 $ 224 $ 15 $ 484 $ 217 $ 252 $ 324 $ 82 $ 875 $ 254 $ 371 $ 469 $ 625
Operating ratio 80.1% 82.5% 74.1% 96.0% 83.3% 75.8% 71.9% 65.9% 92.9% 76.8% 72.0% 65.1% 73.9% 68.3% Adjusted operating ratio (1) 80.1% 78.5% 74.1% 74.8% 77.0% 76.4% 71.9% 65.9% 65.9% 69.9% 72.2% 65.1% 73.9% 68.3%
Diluted earnings per share $ 0.82 $ 0.60 $ 1.30 $ 0.08 $ 2.79 $ 1.24 $ 1.43 $ 1.84 $ 0.47 $ 4.96 $ 1.44 $ 2.11 $ 2.66 $ 3.54 Adjusted diluted earnings per share (1) $ 0.88 $ 0.90 $ 1.30 $ 1.28 $ 4.34 $ 1.21 $ 1.43 $ 1.88 $ 1.91 $ 6.42 $ 1.42 $ 2.11 $ 2.63 $ 3.52
(1) See description of “Reconciliation of Non-GAAP measures to GAAP measures,” on page 110. Certain of the comparative fi gures have been reclassifi ed in order to be consistent with the 2014 presentation.
104 | INVESTOR FACT BOOK 2014 QUARTERLY CONSOLIDATED BALANCE SHEET $ in millions
2012 2013 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 ASSETS Current assets Cash and cash equivalents 77 82 207 333 347 442 329 476 279 369 Restricted cash and cash equivalents - - - - - 99 261 411 409 402 Accounts receivable, net 526 497 533 546 585 547 594 580 723 687 Materials and supplies 171 151 142 136 190 174 158 165 190 174 Deferred income taxes 187 175 175 254 292 305 294 344 345 220 Other current assets 67 69 61 60 67 84 73 53 64 61 1,028 974 1,118 1,329 1,481 1,651 1,709 2,029 2,010 1,913
Investments 135 138 87 83 85 89 177 92 98 98 Properties 12,743 12,964 12,967 13,013 13,122 13,422 13,493 13,327 13,518 13,538 Assets held for sale ------222 230 - Goodwill and intangible assets 188 192 185 161 164 170 166 162 168 162 Pension asset ------1,028 1,092 1,151 Other assets 142 138 134 141 175 187 189 200 199 150 Total assets $ 14,236 $ 14,406 $ 14,491 $ 14,727 $ 15,027 $ 15,519 $ 15,734 $ 17,060 $ 17,315 $ 17,012
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Short-term borrowing ------Accounts payable and accrued liabilities 1,059 1,101 1,047 1,176 1,089 1,086 1,074 1,189 1,144 1,257 Long-term debt maturing within one year 51 52 54 54 154 172 177 189 95 92 1,110 1,153 1,101 1,230 1,243 1,258 1,251 1,378 1,239 1,349
Pension and other benefi t liabilities 1,312 1,240 1,174 1,366 1,172 1,104 1,036 657 663 660 Other long-term liabilities 353 313 306 306 315 337 329 338 348 364 Long-term debt 4,681 4,745 4,602 4,636 4,590 4,692 4,591 4,687 4,774 4,633 Deferred income taxes 1,954 2,017 2,077 2,092 2,258 2,403 2,499 2,903 3,028 2,870 Total liabilities 9,410 9,468 9,260 9,630 9,578 9,794 9,706 9,963 10,052 9,876
Shareholders’ equity Share capital 1,909 1,934 2,042 2,127 2,183 2,213 2,221 2,240 2,253 2,248 Additional paid-in capital 72 81 57 41 35 33 35 34 36 34 Accumulated other comprehensive loss (2,691) (2,656) (2,610) (2,768) (2,621) (2,563) (2,533) (1,503) (1,465) (1,452) Retained earnings 5,536 5,579 5,742 5,697 5,852 6,042 6,305 6,326 6,439 6,306 4,826 4,938 5,231 5,097 5,449 5,725 6,028 7,097 7,263 7,136
Total liabilities and shareholders’ equity $ 14,236 $ 14,406 $ 14,491 $ 14,727 $ 15,027 $ 15,519 $ 15,734 $ 17,060 $ 17,315 $17,012
105 APPENDIX
QUARTERLY CONSOLIDATED STATEMENT OF CASH FLOWS $ in millions
2012 2013 2014 H1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 2013 2014 OPERATING ACTIVITIES Net income 142 103 224 15 484 217 252 324 82 875 254 371 469 625 Reconciliation of net income to cash provided by (used in) operating activities: Depreciation and amortization 127 135 137 140 539 141 141 139 144 565 141 137 282 278 Deferred income taxes 46 48 68 (22) 140 63 87 110 (48) 212 89 (15) 150 74 Pension funding in (excess) of / less than expense (7) (23) (14) (17) (61) (9) (14) (17) (15) (55) (32) (33) (23) (65) Asset impairment - - - 265 265 - - - 435 435 - - - - Labour restructuring, net - - - 50 50 - - - (12) (29) - - - - Other operating activities, net (29) 6 (58) (3) (84) 2 (21) (21) (28) (51) 17 23 (19) 40 Change in non-cash working capital balances related to operations (78) 57 (25) 41 (5) (147) 75 (31) 101 (2) (182) 162 (72) (20) Cash provided by (used in) operating activities 201 326 332 469 1,328 267 520 504 659 1,950 287 645 787 932
INVESTING ACTIVITIES Additions to properties (233) (292) (287) (336) (1,148) (203) (301) (298) (434) (1,236) (224) (298) (504) (522) Proceeds from sale of west end of Dakota, Minnesota & Eastern Railroad ------236 - 236 Proceeds from sale of properties and other assets 45 17 76 7 145 16 11 11 35 73 5 11 27 16 Change in restricted cash and cash equivalents - - (99) (247) (65) (411) 2 7 (99) 9 Other (1) - - (7) (8) (25) (1) (1) 4 (23) - (1) (26) (1) Cash used in investing activities (189) (275) (211) (336) (1,011) (212) (390) (535) (460) (1,597) (217) (45) (602) (262)
FINANCING ACTIVITIES Dividends paid (51) (51) (60) (61) (223) (61) (60) (62) (61) (244) (61) (62) (121) (123) Issuance of common shares 38 17 81 62 198 40 23 6 14 83 14 22 63 36 Purchase of common shares ------(85) (447) - (532) Issuance of long-term debt 71 - - - 71 ------Repayment of long-term debt (12) (13) (16) (9) (50) (19) (7) (19) (11) (56) (143) (11) (26) (154) Net increase (decrease) in short-term borrowing (27) - - - (27) ------Other - - - 1 1 - - - (3) (3) - - - - Cash (used in) provided by fi nancing activities 19 (47) 5 (7) (30) (40) (44) (75) (61) (220) (275) (498) (84) (773)
Effect of foreign currency fl uctuations on U.S. dollar-denominated cash and cash equivalents (1) 1 (1) - (1) (1) 9 (7) 9 10 8 (12) 8 (4)
CASH POSITION Increase (decrease) in cash and cash equivalents 30 5 125 126 286 14 95 (113) 147 143 (197) 90 109 (107) Cash and cash equivalents at beginning of period 47 77 82 207 47 333 347 442 329 333 476 279 333 476
Cash and cash equivalents at end of period $ 77 $ 82 $ 207 $ 333 $ 333 $ 347 $ 442 $ 329 $ 476 $ 476 $ 279 $369 $ 442 $ 369
106 | INVESTOR FACT BOOK 2014 QUARTERLY STATISTICAL DATA
2012 2013 2014 H1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 2013 2014 VOLUME Gross Ton Miles (GTM) (millions) 62,688 60,926 64,536 66,204 254,354 67,679 67,232 64,188 68,531 267,629 62,349 71,333 134,910 133,682 Train Miles (thousands) 10,342 9,681 10,201 10,046 40,270 9,993 9,645 8,837 9,341 37,817 8,727 9,335 19,639 18,062 Revenue Ton Miles (RTM) (millions) 32,811 32,559 34,133 35,529 135,032 36,163 35,991 34,684 37,411 144,249 34,375 38,429 72,154 72,804 Carloads (thousands) 656 646 687 680 2,669 659 668 675 686 2,688 618 689 1,327 1,307
FUEL Fuel effi ciency (Gallons per 1,000 GTMs) 1.23 1.14 1.09 1.14 1.15 1.13 1.05 1.02 1.06 1.06 1.11 1.00 1.09 1.05 Average fuel price (U.S. dollars per U.S. gallon) 3.50 3.49 3.35 3.47 3.45 3.55 3.45 3.34 3.51 3.47 3.63 3.53 3.50 3.58 U.S. gallons of locomotive fuel consumed (millions) 76.6 68.8 69.4 74.4 289.2 75.7 69.8 64.7 71.4 281.7 68.3 70.3 145.6 138.7
OPERATIONS Train speed (miles per hour) 18.7 17.5 18.3 17.6 18.0 18.0 18.6 18.7 17.6 18.2 15.9 18.1 18.4 17.1 Terminal dwell (hours) 7.6 7.8 7.4 7.4 7.5 6.6 6.8 7.2 7.9 7.1 10.3 8.6 6.7 9.4 Train weight (tons) 6,420 6,690 6,723 7,014 6,709 7,209 7,471 7,817 7,844 7,573 7,653 8,178 7,337 7,924 Train length (feet) 5,757 5,955 6,021 6,198 5,981 6,298 6,444 6,746 6,668 6,530 6,371 6,880 6,369 6,634
SAFETY FRA personal injuries per 200,000 employee-hours 1.15 1.31 1.58 2.05 1.55 1.74 1.51 1.89 1.77 1.69 1.50 1.84 1.62 1.73 FRA train accidents per million train-miles 1.58 1.43 1.98 1.68 1.67 1.96 1.94 1.78 1.35 1.78 0.92 1.03 1.95 1.08
PEOPLE Total employees (average) 16,671 17,327 17,572 16,369 16,999 14,920 15,471 14,974 14,677 15,011 14,246 14,787 15,196 14,516 Total employees (end of period) 16,862 17,998 17,175 15,713 15,713 15,112 15,355 14,766 14,506 14,506 14,446 14,736 15,355 14,736 Workforce (end of period) 18,945 19,505 18,587 16,907 16,907 16,108 16,053 15,318 14,977 14,977 14,774 14,960 16,053 14,960
107 APPENDIX
QUARTERLY COMMODITY DETAILS
2012 2013 2014 H1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 2013 2014 CARLOADS THOUSANDS Canadian Grain 68 54 60 66 248 59 61 61 75 256 62 78 120 140 U.S. Grain 42 37 50 56 185 49 42 45 46 182 39 44 91 83 Coal 78 82 89 88 337 81 75 90 84 330 78 82 156 160 Potash 23 37 22 21 103 30 35 24 25 114 28 33 65 61 Fertilizers & Sulphur 19 17 16 22 74 19 19 17 16 71 15 16 38 31 Forest Products 18 16 17 16 67 18 18 15 15 66 14 15 36 29 Chemicals & Plastics 52 45 47 49 193 51 48 49 49 197 45 49 99 94 Crude 9 13 16 16 54 22 24 19 25 90 24 25 46 49 Metals, Minerals & Consumer Products 54 55 59 54 222 54 58 61 59 232 56 60 112 116 Automotive 42 42 39 39 162 35 38 35 38 146 30 37 73 67 Domestic Intermodal 87 83 89 88 347 89 93 93 95 370 97 110 182 207 International Intermodal 164 165 183 165 677 152 157 166 159 634 130 140 309 270 Total carloads 656 646 687 680 2,669 659 668 675 686 2,688 618 689 1,327 1,307
REVENUE TON MILES MILLIONS Canadian Grain 6,066 4,795 5,364 5,924 22,149 5,375 5,272 5,363 6,854 22,864 5,846 7,074 10,647 12,920 U.S. Grain 2,534 1,917 2,778 3,704 10,933 3,055 2,411 2,501 3,152 11,119 2,539 2,679 5,466 5,218 Coal 5,205 5,329 6,032 5,809 22,375 5,640 5,316 6,440 5,776 23,172 5,441 5,941 10,956 11,382 Potash 2,745 4,500 2,514 2,462 12,221 3,636 4,254 2,583 2,758 13,231 3,293 4,114 7,890 7,407 Fertilizers & Sulphur 1,297 1,117 1,047 1,376 4,837 1,316 1,352 1,179 1,092 4,939 1,074 1,130 2,668 2,204 Forest Products 1,215 1,169 1,200 1,129 4,713 1,223 1,267 1,093 1,036 4,619 920 1,003 2,490 1,923 Chemicals & Plastics 3,533 2,961 3,289 3,450 13,233 3,534 3,435 3,218 3,386 13,573 3,206 3,326 6,969 6,532 Crude 943 1,634 2,244 2,482 7,303 3,491 3,640 2,894 3,873 13,898 3,358 3,816 7,131 7,174 Metals, Minerals & Consumer Products 2,560 2,425 2,533 2,415 9,933 2,511 2,339 2,825 2,729 10,404 2,713 2,698 4,850 5,411 Automotive 659 658 604 561 2,482 604 629 533 563 2,329 514 597 1,233 1,111 Domestic Intermodal 2,437 2,302 2,493 2,486 9,718 2,517 2,546 2,565 2,648 10,276 2,634 3,003 5,064 5,637 International Intermodal 3,617 3,752 4,035 3,731 15,135 3,261 3,530 3,490 3,544 13,825 2,837 3,048 6,790 5,885 Total revenue ton-miles 32,811 32,559 34,133 35,529 135,032 36,163 35,991 34,684 37,411 144,249 34,375 38,429 72,154 72,804
108 | INVESTOR FACT BOOK 2014 2012 2013 2014 H1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year Q1 Q2 2013 2014 FREIGHT REVENUE PER CARLOAD DOLLARS Canadian Grain 2,989 2,978 3,102 3,266 3,089 3,418 3,127 3,512 3,507 3,397 3,570 3,219 3,271 3,374 U.S. Grain 2,002 1,980 2,222 2,442 2,188 2,283 2,159 2,360 2,607 2,359 2,710 2,645 2,225 2,675 Coal 1,759 1,799 1,811 1,777 1,787 1,849 1,921 1,952 1,888 1,904 1,897 2,027 1,878 1,963 Potash 2,705 2,633 2,731 2,828 2,711 2,734 2,706 2,842 2,808 2,745 2,902 3,046 2,719 2,983 Fertilizers & Sulphur 3,288 3,228 3,290 3,379 3,213 3,577 3,609 3,834 3,446 3,615 3,533 3,925 3,593 3,770 Forest Products 2,837 2,918 2,935 2,893 2,895 3,028 2,998 3,145 3,254 3,132 3,400 3,502 2,944 3,452 Chemicals & Plastics 2,566 2,638 2,650 2,746 2,649 2,728 2,809 2,899 2,975 2,857 3,244 3,185 2,759 3,213 Crude 3,306 3,753 3,749 4,232 3,828 4,151 4,095 4,072 4,236 4,144 4,375 4,524 4,122 4,452 Metals, Minerals & Consumer Products 2,530 2,476 2,476 2,446 2,482 2,617 2,537 2,700 2,721 2,655 2,869 2,810 2,571 2,839 Automotive 2,493 2,734 2,664 2,560 2,629 2,742 2,759 2,747 2,797 2,758 2,913 2,798 2,751 2,850 Domestic Intermodal 1,939 2,071 1,855 1,883 1,885 1,916 1,839 1,820 1,831 1,850 1,827 1,822 1,877 1,825 International Intermodal 1,020 1,077 1,081 1,060 1,058 1,004 1,017 1,024 1,020 1,016 1,073 1,074 1,011 1,074 Total freight revenue per carload 2,043 2,061 2,059 2,152 2,079 2,214 2,183 2,214 2,291 2,226 2,385 2,383 2,198 2,384
FREIGHT REVENUE PER RTM CENTS Canadian Grain 3.33 3.33 3.46 3.70 3.46 3.77 3.61 3.96 3.83 3.80 3.78 3.56 3.69 3.66 U.S. Grain 3.37 3.82 3.97 3.67 3.70 3.64 3.77 4.26 3.86 3.87 4.16 4.31 3.70 4.24 Coal 2.63 2.77 2.68 2.68 2.69 2.64 2.70 2.76 2.72 2.71 2.72 2.79 2.67 2.75 Potash 2.28 2.15 2.35 2.51 2.29 2.25 2.24 2.64 2.49 2.36 2.41 2.46 2.24 2.44 Fertilizers & Sulphur 4.89 4.77 5.02 5.14 4.96 5.31 5.01 5.32 5.20 5.22 4.98 5.61 5.16 5.35 Forest Products 4.14 4.08 4.10 4.10 4.11 4.33 4.20 4.66 4.74 4.46 5.18 5.20 4.26 5.19 Chemicals & Plastics 3.79 4.04 3.81 3.85 3.87 3.92 3.98 4.40 4.31 4.15 4.57 4.67 3.94 4.63 Crude 2.98 2.93 2.64 2.80 2.80 2.63 2.67 2.69 2.79 2.70 3.10 2.99 2.65 3.04 Metals, Minerals & Consumer Products 5.32 5.69 5.72 5.47 5.55 5.67 6.22 5.83 5.85 5.90 5.95 6.27 5.92 6.11 Automotive 15.89 17.65 17.39 17.72 17.13 16.09 16.87 17.70 18.64 17.27 17.23 17.37 16.49 17.31 Domestic Intermodal 6.94 6.67 6.61 6.69 6.73 6.73 6.72 6.63 6.53 6.65 6.73 6.66 6.73 6.69 International Intermodal 4.63 4.73 4.89 4.67 4.73 4.68 4.52 4.86 4.58 4.66 4.92 4.94 4.60 4.93 Total freight revenue per RTM $4.08 $4.09 $4.14 $4.12 $4.11 $4.04 $4.05 $4.31 $4.20 $4.15 $4.29 $4.27 $4.04 $4.28
109 APPENDIX
RECONCILIATION OF NON-GAAP meaning and are not defi ned by MEASURES TO GAAP MEASURES GAAP and, therefore, are unlikely to We present non-GAAP measures and be comparable to similar measures cash fl ow information in this document presented by other companies. to provide a basis for evaluating For further discussion on non-GAAP underlying earnings and liquidity trends earnings, refer to Section 15 Non-GAAP in our business that can be compared Measures in our Management Discussion with the results of our operations and Analysis in our Annual Report for in prior periods. These non-GAAP the year ended December 31, 2013. measures have no standardized
2012 2013 H1 Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year 2013 2014 OPERATING RATIO Excluding signifi cant items 80.1% 79.4% 74.1% 74.8% 77.0% 76.4% 71.9% 65.9% 65.9% 69.9% 74.5% 68.5% Signifi cant items: Labour restructuring - - - 3.5% 0.9% - - - (0.4%) (0.1%) - (0.2%) Asset impairment - - - 17.7% 4.7% - - - 27.1% 7.1% - - Management transition costs - 3.1% - - 0.7% (0.6%) - - 0.3% (0.1%) (0.6%) - As reported 80.1% 82.5% 74.1% 96.0% 83.3% 75.8% 71.9% 65.9% 92.9% 76.8% 73.9% 68.3%
DILUTED EARNINGS PER SHARE Excluding signifi cant items $ 0.88 $ 0.90 $ 1.30 $ 1.28 $ 4.34 $ 1.21 $ 1.43 $ 1.88 $ 1.91 $ 6.42 $ 2.63 $ 3.52 Signifi cant items: Labour restructuring - - - 0.22 0.22 - - - (0.03) (0.03) - (0.02) Asset impairment - - - 0.98 0.98 - - - 1.45 1.46 - - Management transition costs - 0.18 - - 0.17 (0.03) - - 0.02 (0.01) (0.03) - Advisory fees related to shareholder matters 0.06 0.06 - 0.12 ------Income tax rate change - 0.06 - - 0.06 - - 0.04 - 0.04 - - As reported $ 0.82 $ 0.60 $ 1.30 $ 0.08 $ 2.79 $ 1.24 $ 1.43 $ 1.84 $ 0.47 $ 4.96 $ 2.66 $ 3.54
FREE CASH Cash provided by operating activities 1,328 1,950 787 932 Cash used in investing activities (1,011) (1,597) (602) (262) ChChaChangehanangngegee inin resrrerestrictedeststritricrictectedtededd cascaccashashshh anandandd casccacashashshh eeqequequivalentsquiuivivavalealenentntstss ususeusedu edd too colcoccollateralizeollallatateteraeraralializeizeze llelettersettetteterersrs ofof crecrccreditrededitditt - 414114 1 9999 (9)(99)) Dividends paid (223) (244) (121) (123) Effect of foreign exchange on cash and cash equivalents (1) 10 8 (4) Free Cash $ 93 $ 530 $ 171 $ 534 Change provided by fi nancing activities, excluding dividend payment 193 24 Change in restricted cash and cash equivalents used to collateralize letters of credit - (411) (99) 9 Increase in cash and cash equivalents, as shown on the Consolidated Statement of Cash Flows $ 286 $ 143 $ 109 $ (107)
110 | INVESTOR FACT BOOK 2014 111 APPENDIX
GLOSSARY
AVERAGE LENGTH OF HAUL AVERAGE TRAIN SPEED CARLOADS GROSS TON-MILES (GTM) The average distance in miles The average speed measures Revenue-generating The movement of the one ton is carried. Calculated the line-haul movement shipments of containers, combined tons (freight car by dividing total ton miles by from origin to destination trailers and freight cars. tare, inactive locomotive tons of freight. including terminal dwell hours tare, and contents) a distance calculated by dividing the CONTAINER of one mile. AVERAGE TERMINAL DWELL total train miles traveled by A large, weatherproof box The average time a freight the total hours operated. This designed for shipping and/or HAULAGE car resides within terminal calculation does not include transferring freight between The right of one railroad boundaries expressed in the travel time or the distance rail, truck or marine modes. to have another railroad hours. The timing starts traveled by: i) trains used transport freight over that with a train arriving in in or around our yards; ii) FREIGHT REVENUE PER railroad’s tracks, using the the terminal, a customer passenger trains; and iii) trains CARLOAD other’s crews and usually its releasing the car to us, used for repairing track. The amount of freight locomotives. or a car arriving that is to revenue earned for every be transferred to another AVERAGE TRAIN WEIGHT carload moved, calculated by INTERMODAL SERVICE railroad. The timing ends The average gross weight of dividing the freight revenue Freight moving via two or when the train leaves, a our trains, both loaded and for a commodity by the more modes of transport. customer receives the car empty. This excludes trains number of carloads of the International intermodal from us or the freight car in short haul service, work commodity transported in generally moves via marine, is transferred to another trains used to move our the period. truck and rail, while domestic railroad. Freight cars are track equipment and intermodal typically utilizes excluded if they are being materials and the haulage FREIGHT REVENUE PER RTM truck and rail. stored at the terminal or used of other railroads’ trains The amount of freight in track repairs. on CP’s network. revenue earned for every JOINT USE AGREEMENT RTM moved, calculated by A joint use agreement is AVERAGE TRAIN LENGTH CLASS 1 RAILROAD dividing the total freight an agreement under which The average train length A railroad with annual revenue by the total RTMs in two railroads agree to share is the sum of each car and operating revenues the period. segments of track owned by locomotive’s equipment exceeding US$401.4 million. each carrier. Implementation length multiplied by the of a joint use arrangement distance travelled, divided by may involve either trackage train miles. Local trains are rights and/or haulage excluded from this measure. granted by either railroad to the other.
112 | INVESTOR FACT BOOK 2014 MAINLINE ROUTE RIGHT OF WAY TRACKAGE RIGHTS A primary rail line over which The property owned by a The right of one railroad trains operate from terminal railroad on which tracks to operate over another to terminal. have been laid, including the railroad’s tracks, using its track and land surrounding own crews and locomotives. MARSHALLING that track. The activity of grouping TRANSLOAD FACILITY and connecting together ROLLING STOCK A transfer facility enabling cars and locomotives in the General term for all the railroad to expand correct sequence to make up locomotives and railcars market reach through truck- a train that can safely travel to-rail service. between rail terminals. SHORTLINE A railroad that is not large UNIT TRAIN METRIC TONNE enough to be classifi ed as a A freight train consisting A metric tonne is 2,204.6 Class 1 or regional railroad. of carloads of the same pounds. commodity moving from SIDING origin to one destination. OPERATING RATIO (OR) A section of track, separate The percentage of revenues from, but connecting to, expended in operating the the mainline. Sidings enable railroad. It is calculated by trains travelling in opposite dividing operating expenses directions to pass. by operating revenues. TRACK CAPACITY REVENUE TON-MILE (RTM) The maximum number of The movement of one trains that can operate safely revenue-producing ton of over a given segment of freight one mile. track during a specifi ed time period (e.g., one day). Factors such as signal systems, siding lengths, number of tracks and geography all have an impact on track capacity.
113 APPENDIX
CORPORATE INFORMATION
EXECUTIVE LEADERSHIP Mark Wallace Paul C. Hilal E. Hunter Harrison Vice-President, Corporate Partner Chief Executive Offi cer Affairs and Chief of Staff Pershing Square Capital Management, L.P. Keith Creel BOARD OF DIRECTORS New York, New York President and Chief Gary F. Colter Rebecca MacDonald Operating Offi cer Chairman of the Board Founder, Executive Chair Canadian Pacifi c Railway Bart W. Demosky Just Energy Group Inc. Limited Executive Vice-President and Toronto, Ontario Chief Financial Offi cer President CRS Inc. Dr. Anthony R. Melman Guido De Ciccio Mississauga, Ontario President and Chief Executive Senior Vice-President Offi cer Operations, Western Region William A. Ackman Acasta Capital Founder, Chief Executive Toronto, Ontario Peter Edwards Offi cer Vice-President, Human Pershing Square Capital Linda J. Morgan Resources & Labour Relations Management, L.P. Partner New York, New York Nossaman LLP Paul A. Guthrie Bethesda, Maryland Chief Legal Offi cer and Isabelle Courville Corporate Secretary Corporate Director Andrew F. Reardon Montreal, Quebec Retired Chairman and Chief Robert Johnson Executive Offi cer, TTX Senior Vice-President Krystyna T. Hoeg, C.A. Operations, Southern Region Former President and Chief Corporate Director Executive Offi cer Marco Island, Florida Jeff Kampsen Corby Distilleries Limited Vice-President and Stephen C. Tobias Corporate Director Comptroller Former Vice-Chairman and Toronto, Ontario Chief Operating Offi cer Scott MacDonald Norfolk Southern Paul G. Haggis Senior Vice-President Corporation Corporate Director Operations (System) Garnett, South Carolina Canmore, Alberta Tony Marquis E. Hunter Harrison Senior Vice-President Chief Executive Offi cer Operations, Eastern Region Canadian Pacifi c Railway Michael Redeker Limited Vice-President and Wellington, Florida Chief Information Offi cer
114 | INVESTOR FACT BOOK 2014 SHAREHOLDER & INVESTOR CONTACT INFORMATION
SHAREHOLDER INVESTOR RELATIONS ADMINISTRATION Nadeem Velani Computershare Investor Assistant Vice-President, Services Inc., with transfer Investor Relations facilities in Montreal, Toronto, Calgary and Maeghan Albiston Vancouver, serves as transfer Director, Investor Relations agent and registrar for Telephone: 403-319-3591 the Common Shares in email: [email protected] Canada. Computershare Trust Company NA, Denver, Mailing address Colorado, serves as co- Canadian Pacific transfer agent and co- 7550 Ogden Dale Road S.E. registrar for the Common Calgary, AB T2C 4X9 Shares in the United States. Canada
For information concerning dividends, lost share certificates, estate transfers or for change in share registration or address, please contact the transfer agent and registrar by telephone at 1-877-4-CP-RAIL (1-877-427-7245) toll free North America or International (514) 982-7555, visit their website at www.investorcentre.com/cp; or write to:
Computershare Investor Services Inc. 100 University Avenue, 8th Floor Toronto, Ontario Canada M5J 2Y1 www.cpr.ca