Canadian Tire Corporation, Limited
CanadianCanadian TireTire InvestorInvestor PresentationPresentation Forward-lookingForward-looking statementsstatements
This disclosure contains statements that are forward-looking. Actual results or events may differ materially from those forecasted in this disclosure because of the risks and uncertainties associated with Canadian Tire’s business and the general economic environment.
Risks and uncertainties outlined here are disclosed in other public filings by the Company, such as Management’s Discussion and Analysis in the 2005 Annual Report and include, but are not limited to: changes in interest, currency exchange and tax rates, the ability of Canadian Tire to attract and retain quality employees, Associate Dealers, Petroleum agents and PartSource and Mark’s Work Wearhouse store operators and franchisees; and the willingness of customers to shop at the Company’s stores or access financial products and services.
2 OurOur rolerole inin thethe CaCanadiannadian retailretail spacespace
Estimated Market Size $45.0 Billion $20 Billion $52 Billion $3.8 Billion $19.0 Billion (receivables)
Retail Sales Revenues Receivables Comp Sales Retail Sales $6.8 Billion $1.3 Billion $3.2 Billion (1) >4-5% $790.7 Million
Canadian Tire participates directly in a commercial marketplace valued at close to $140 Billion. With leadership positions in our businesses, we have considerable space ahead of us to grow.
(1)(1) Gross averageaverage receivables. 3 Canadian Tire: More than just tires
• Canadian Tire today is:
More than $9 billion in retail sales
An inter-related network of businesses engaged in retail, retail-related and financial services businesses
1,100 stores and gas stations
We operate Canada’s most-shopped general merchandise retailer
nd We are the 2 largest MasterCard issuer in Canada based on the number of active accounts
We operate Canada’s largest independent gasoline retailer, outpumping integrated retailers on average more than 2:1 per site.
4 Canadian Tire is a growth company
Top-quartile TRS among North American retailers
TRSTRS -- 2001-20052001-2005 286%*
Annual TRS Ranking 2001 40.3% Second quartile 2002 30.4% Top quartile 2003 26.5% Second quartile 2004 43.0% Top quartile 2005 24.7% Top quartile
* December 31, 2000 to December 31, 2005 5 Performance compared to aspirational targets Aspirational 2001- 2005 2005 Targets Performance Performance
1 Comparable store 3-4% 2.6% 3.0% sales increase 2,4
Gross Operating Revenue 3 >10% 8.3% 8.7%
EBITDA and minority 10-15% 11.7% 12.2% interest increase 3
Basic Earnings per share 12-15% 16.9% 12.2% increase 3
4 1 After-Tax ROIC >10% 8.7% 9.7%
1 Averages of 2001 to 2005 performance, not calculated on a compound annual growth rate (CAGR) basis. 2 Represents sales growth at CTR only. 3 These metrics are expressed in terms of (CAGR). 4 Average of 2001-2005 percentages 6 Consolidated Financial Performance
7.8 8 Gross Operating Revenue 7.2 ($ billions) 6.6 5.9 6 Canadian Tire 5.2 5.4 4.7 4.3 has delivered 3.9 4.1 4 consistent financial 2 1.6 performance
0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 YTD 3/06
5 721 Basic EPS from 800 Cash Flow from continuing operations ($) 4.04 Operations ($ millions) 630 4 3.60 600 535 2.99 460 3 2.54 362 400 350 2.09 2.21 307 316 324 1.85 2 1.77 1.85 272 1.49 200 161 1 0.66
0 0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 YTD '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 YTD 3/06 3/06
7 FinancialFinancial Snapshot:Snapshot: AA positionposition ofof strengthstrength
Q1 2006 Q1 2005 +/- Retail Sales $1.71 billion $1.60 billion 6.9% Revenues $1.57 billion $1.51 billion 4.2% Net Earnings $47.6 million $35.3 million 34.9% Cash(1) $160.7 million $139.6 million 15.1% Assets $5.3 billion $5.0 billion 5.5%
(1) Cash generated from operationsoperations 8 Distribution of Q1 2006 Revenues and Earnings
Gross Operating Revenue Earnings Before Taxes
Financial Services 10% Financial Services 38%
Petroleum 21% CTR 61% CTR 49% Petroleum Mark's 8% 2% Mark's 11%
9 2005-20092005-2009 StrategicStrategic PlanPlan chartscharts ourour coursecourse forfor growthgrowth
11 Grow sales and revenue Detailed underlying Improve earnings performance 22 strategies are in place to execute 33 Embed a Customers for Life Culture Canadian Tire’s 2005-2009 Extend growth and performance Strategic 44 beyond 2009 Plan imperatives Enhance value creation through financial 55 flexibility and maximization of real estate
10 CTC’s competitive advantage exists through its brand, loyalty and product mix
Platform of inter-related businesses
Brand recognition Canadian Tire & trust ‘Money’
Innovative Reach & scale formats, products & services Real estate 11 SignificantSignificant valuevalue existsexists inin inter-relatednessinter-relatedness Indexed Share of Spending at CTR * • Customers who shop at 150 130 CTP and use OMC spend 115 118 100 significantly more at CTR 83
than the average customer 50
0 • CTR shopping frequency CTR Only CTR/CTP CTR/OMC CTR/OMC/CTP drastically increases when Indexed Shareofwallet at CTR (Average of all CTR Customers = 100) customers begin using CTP OMC Spend at CTP OMC Spend at CTR $4,000
• OMC customers who shop $3,000 $2,701 at CTR and fill-up at CTP $2,000
are Canadian Tire’s best $1,000 $638 Average Annual OMC Annual Average
Spend at CTR and CTP and CTR at Spend $414 $667 $1,003 customers $0 No CTP CTP Average Octile 1 Average Cardholder Total Spend on OMC$3.1M $6.7M $11.8M * Universe of all CTR customers (based on customer survey data). 12 Five major inter-related strategic priorities
Loyalty Co-marketing Exploit CTFS Share Co-location petroleum of Tender of Mark’s at CTR advantages sites
13 Business Unit Strategic Focus
14 Canadian Tire Retail (CTR): Strategic Highlights 2006 • Concept 20/20 Store Renewal Program - up to 80 projects • Exciting, New and Exclusive products • Global sourcing
2005-2009 • 300 store projects, including 100 new or replacement stores and 200 retrofits • 50% global sourcing target • Inventory systems 15 Canadian Tire Retail (CTR): Differentiation Strategy
CTR Strategy Discount Home Improvement Department/ Stores Warehouses Specialty Stores 3 Differentiators 4 Imperatives • Exciting, new & • Right selection & exclusive products quality • Impactful • Price assurance merchandising • Friendly, quick & • Inspiring events & helpful assistance promotions • Products in-stock
16 Three primary CTR product divisions
Automotive Retail Sales by Parts Product Divisions Auto Custom Car Care & Accessories Home Tires and Batteries Home Décor Auto Service Home Repair & $1.8 billion Maintenance 27% Tools Consumables Electronics 43% & Home Office Leisure Kitchen & Small Outdoor Recreation Household Appliances Sports Storage & Organization Backyard Living 30% Lawn & Garden $2.8 billion Outdoor Tools Seasonal Footwear & Apparel $1.9 billion
As of December 31, 2005 17 Canadian Tire Retail’s market position is very strong
Categories with Highest Market Share Merchandise Among Mass Strengths Growth Areas Group Merchants
Automotive 22/35 (63%) Light to medium DIYer Car Care, Accessories, Power Sports, Auto Electronics
Home Kitchen & Home Appliances, Home Repair & Maintenance, 18/43 (42%) Storage & Organization, Tools Home Décor and Organization, Renewable Energy
Leisure 36/58 (62%) Hunting, Fishing, Camping, Footwear & Apparel, Outdoor Tools, Backyard Backyard Living, Seasonal Living, Pool Equipment & Accessories We are the market leader in 56% of our categories
18 CTR’s story is one of transformation
Planned investment in CTR stores is ~$850-900 million
457 462 470 475 477 481 441 450 451 452 423 424 426 430 430 432 25 4 53 8 35 67 129 103 199 137 249 188 299 233 270 290 305 302 292 238 415 389 188 359 327 293 158 244 128 208 180 161 143 130 117 103 88 70 54
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006F 2007F 2008F 2009F
Traditional stores New Format stores Concept 20/20
19 ConceptConcept 2020 // 2020 PerformancePerformance
Year 1 Sales Growth Comparable Sales Growth (53 stores) 2003 2004 Stores Stores New On Plan
Replacement 67% Year 2 4.9% 6.8% Retrofit 10% Year 3 5.8% N/A Retrofit Expansion 20%
Performance of the Concept 20 / 20 store format led to the decision to accelerate CTR’s national roll-out
20 Concept 20/20 performance driven by combination of increased basket size and customer count
AverageAverage TransactionTransaction AverageAverage CustomerCustomer CountCount ChangeChange
$45 +15.3%+15.3% 600,000600,000 $45 +21.7%+21.7% $37.81$37.81 $32.77$32.77 $30$30 400,000400,000
$15$15 200,000200,000
$-$- YearYear 00 (Pre-20/20)(Pre-20/20) YearYear 11 (Post-(Post- 20/20)20/20) YearYear 00 (Pre-20/20)(Pre-20/20) YearYear 11 (Post(Post 20/20)20/20)
21 CTR marketing a differentiator
Strong Marketing Platforms
Canadian Tire catalogue Flyer program Exciting, New and Exclusive products Exclusive Innovative Brands Items
30% of CTR products are private-label 22 CTR is investing in the infrastructure to take the ENE concept to the “next” level
World search capabilities Advanced consumer feedback methods Global sourcing infrastructure New “Innovation” and “Style and Design” management teams Trend and category innovation focus (versus item focus)
23 Global sourcing is critical to CTR’s success
Provides margin 2005 Percentage of 2009F Products Sourced Offshore protection
Provide stronger retail sales results “Breakthrough” price points Access to innovative 65% 35% 50% products Promotional program
Supply chain evolution to handle offshore Domestic Offshore growth
24 China:China: SomeSome ContextContext
1998 2005
China had 1 port in China had 3 ports in the world’s top 4 ports the world’s top 4 ports for container for container throughput throughput China represented China represented 24% of the 57% of the throughput for the throughput for the world’s top 10 ports world’s top 10 ports
Source: Century Logistics 25 CanadianCanadian Tire:Tire: GrowthGrowth throughthrough GlobalGlobal SourcingSourcing
Canadian Tire Retail has been sourcing products globally since 1970s, and developed strong working relationships with suppliers throughout Asia
1970’s 1980’s 1990’s 2000’s
26 SupplySupply ChainChain CapacityCapacity forfor OffshoreOffshore GrowthGrowth
To enhance our capabilities and prepare for continuing offshore growth, we have expanded our Supply Chain presence to Asia
In March 2005, the Supply Chain Operations - Asia team began working out of our Cantire (China) Ltd. office in Hong Kong. Direct Supply Chain execution in Asia Provide forecasting support and education to suppliers Deal with Supply Chain issues at origin and improve vendor relations Provide analysis to category managers in Canada and Asia Work with suppliers on factory consolidation and establishing Export Licensed Consolidation facilities Act as a resource to support packaging quality, quantity and sizing decisions
27 CanadianCanadian TireTire usesuses 2929 PacRimPacRim portsports inin 1010 countriescountries
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28 Canadian Tire Financial Services: Strategic Highlights 2006 • Growing average balances • Improving productivity • Testing new card products and services
2005-2009 • Retail banking pilot • New cards and loan products • Insurance and warranty products
29 FinancialFinancial ServicesServices hashas significantsignificant competitivecompetitive advantagesadvantages
World class call centres Low cost acquisition channels
Sophisticated credit risk management systems
Brand trust & loyalty Technology Partnerships & Platforms / Scale
30 Personal (Term) Loan Portfolio
Target Q1-2006 (end of 2007)
# Accounts ~38,625 80,000
Gross Receivables $294MM $350MM
Target pretax return on receivables of ~4.0%
31 EvaluatingEvaluating longer-termlonger-term opportunitiesopportunities
• Canadian Tire is actively pursuing the development of potential new financial services for testing, such as:
Mortgages
High Rate Savings Accounts
GICs
• As with all new products or services, we will take a measured and balanced approach to testing of any new services.
32 Canadian Tire Petroleum: Strategic Highlights 2006 • Q pilot concept • Expanding network – Minimum of 3 new gas bars, approximately 10 re- brands • Growing non-gasoline sales
2005-2009 • Q pilot concept • Expand network by adding 25 to 35 gas bars and through re-branding • Grow non-gasoline sales
33 CTP’s market position brings value to other business units
• CTP contributes materially to the profitability of CTFS and CTR, especially in terms of customers shopping one or more branded divisions
• The shopping frequency of CTR customers increases by 28% just one year after starting to use CTP
• 40% of CTR customers state their shopping at CTR increased since buying gas at CTP
34 Petroleum initiatives to grow sales and revenue
Q - redefines the convenience offer and ‘leaps’ over the competition Re-branding strategy Grow the non-gas business Capitalize on CTP’s high fuel volume
35 PartSource:PartSource: StrategicStrategic HighlightsHighlights 2006 • Network expansion – up to eight new stores in Ontario • Grow comparable store sales
2005-2009 • Network expansion to more than 100 stores through new stores and small-scale acquisitions • Operations review
36 PartSource Key Initiatives to Grow Sales and Revenues
More than 100 stores planned by the end of 2009 New store build Small-scale acquisitions
Focused growth in Ontario and Prairies GTA expansion
PartSource adds incremental sales and expands Canadian Tire’s total market penetration
37 Mark’s Work Wearhouse: Strategic Highlights 2006 • Increase comparable store sales growth • Network expansion by 15 to 21 stores. • 24 additional store retrofit / renovation projects
2005-2009 • Network expansion to 395 to 400 stores • Expansion of category offerings and product lines
38 Mark’sMark’s growinggrowing contributionscontributions toto CanadianCanadian TireTire
Mark’s Earnings Contributions The earnings contribution of (Before Tax) Mark’s has climbed close to 200% since the acquisition by CTC in 2002. $65.0 • Market-leading rates of growth in apparel and footwear retailing
• Significant increases in all categories and in all regions $21.7 • Expansion into relatively new segments such as business-to- 2002 2005 business, healthwear and ladieswear 39 Strategic Plan Imperative: Customers for Life Culture
Embedding a ‘Customers for Life’ philosophy is a 2005-2009 Strategic Plan Imperative
Canadian Tire has unrivalled customer relationships and more than 225 million interactions every year
Each business has targeted business activities to embed Customers for Life into the organization:
Customer-centric product design and development
Store auditing and customer measurement
Customer database relationship management
40 2005 - 2009 Strategic Plan: New Business Development
Develop opportunities that materially contribute to CTC’s growth in 2009 and beyond Pursue opportunities to leverage our core capabilities Focus on retail, retail-related and financial services opportunities in Canada Acquisitions Joint ventures, strategic alliances New store concepts
41 2005-2009 Strategic Plan: Financial Flexibility
Steady cash flow from operations $721MM in ’05 Cost Productivity $640 million in committed but unused credit lines* Capital Management No short term debt
Long-term debt to total capitalization is 31.7%* Funding Optimization Rigorous capital allocation program based on risk / return of each project
* as at December 31, 2005 42 Canadian Tire Real Estate
43 CanadianCanadian Tire’sTire’s RealReal EstateEstate PortfolioPortfolio
Real estate development and management is a core competency that enables effective expansion of the company’s store network $2 billion book value of unencumbered real estate active store properties (own over 70%) surplus store properties for disposition special projects in large urban centres Realized approximately $50 million of gains and $250 million of proceeds on the disposal of surplus property in the last 10 years and we expect this to continue Sale-lease back of two distribution centres in early 2006, realized $46M- $50M gain, amortized over 21-year lease
44 Corporate Governance
• MD&A recognized by Canadian Institute of Chartered Accountants as "model of disclosure" • Full disclosure of compliance with Canadian Securities Administrators guidelines • Independent Chairman, separate from CEO • Majority of Directors are independent • Rigorous training and evaluation of directors • Independent Audit Committee and disclosure of all auditor fees paid • Independent Management Resources Committee and disclosure of compensation advisors and fees paid • Share ownership guidelines for Directors and Officers • Executive compensation closely tied to shareholder returns • Minimal earnings dilution from prior stock options • Limited stock appreciation rights granted to Senior Management in 2006
45 Summary
Effective execution of imperatives will:
Enhance our competitive position
Support life-long relationships with our customers
Result in higher revenue and earnings
Entire organization focused on achieving financial aspirations
We believe achievement of financial aspirations will lead to top-quartile TRS
46