Ambitious value creation plan targeting C$700 million of additional operating income, as well as a 57% operating ratio for 2022

CN announced the details of its strategic and financial value creation plan, “Full Speed Ahead – Redefining Railroading,” which will allow CN to continue delivering high-quality service to customers while generating profitable growth and enhanced returns to shareholders. The plan announced today builds upon CN’s January 2021 strategic plan to lead on safety, customer value, operational excellence, sustainability and social inclusion, while also delivering industry-leading shareholder returns.

“CN’s ambition is to build the premier railway of the 21st century by methodically investing in technologies to deliver high-quality service to customers, improve safety and sustainability, create capacity and reduce costs and delays. Just as CN pioneered the industry’s focus on efficiency to increase reliability, we are now well-positioned to lead the industry through its next transformation by investing in the success of our customers, workforce and communities while delivering enhanced financial results.”

— JJ Ruest, President and Chief Executive Officer of CN

“We spent the last several years making strategic and important customer-centric investments in our network, technology, sustainability and people. These investments have allowed us to deliver high-quality service to our customers and position us well to drive more sustainable returns to shareholders over the long-term. I am confident that CN’s senior management, a team of world-class railroaders who are focused on redefining the rail industry, have the skills and determination to lead the Company into this exciting next phase.”

— Robert Pace, Chair of the Board of Directors of CN

CN’s Vision for the Future

CN is a unique franchise with 19,500 miles of railroad network connecting Canada’s Eastern and Western coasts with the U.S. South. As the only railroad with this three-coast access, CN has the best rail network in North America to drive long-term, sustainable, profitable growth.

CN has outlined a plan that is both ambitious and achievable. The Company’s focus will be on redefining railroading, driving profitable growth and making structural improvements for the next generation. CN has conducted an extensive review of all revenue and cost levers and has targeted C$700 million of operating income improvements to drive future growth. To achieve these improvements in 2022, CN intends to use a balanced approach that includes a strategic review of non-rail businesses and an optimization of labor productivity.

For 2022 CN expects to grow operating income and earnings per share (EPS) by approximately 20% and improve its operating ratio to 57%. Additionally, CN is reviewing its capital structure and financial leverage with a view to increasing total shareholder distributions.

CN is committed to operational excellence and delivering value for its shareholders by:

  • Resuming share repurchases: CN will recommence share repurchases under the plan previously approved by CN’s Board of Directors in January 2021 and expects to complete the remaining C$1.1 billion of share repurchases by the end of January 2022.
  • Increasing shareholder returns: CN is reviewing capital structure and financial leverage with a view to increase total shareholder distributions, including share repurchases in the range of C$5 billion for 2022.
  • Reducing capital expenditures: CN expects to reduce capex to 17% of revenue in 2022 as a result of the current good condition of its network and the Company’s continued absolute commitment to safety and customer service. CN expects to maintain capex at 17% of revenue for 2023-24 unless there are significant market shifts.
  • Producing compelling financial returns: CN is committed to driving top-quartile Total Shareholder Return (TSR), leading the industry in organic revenue growth driven by CN’s intermodal business and showing continuous improvement on its operating margin.
  • Lowering its operating ratio: CN is targeting an operating ratio of 57% for 2022 by:
    • Prioritizing rail operations, including car velocity, train speed and train length, and committing to pursuing strategic alternatives for adjacent non-rail businesses that are not best-in-class; and
    • Rationalizing its cost structure by streamlining management, especially support functions, to improve labor productivity by accelerating speed and quality of decision making.

CN believes an operating ratio of 57% is optimal for a world in which customers and regulators are putting a greater emphasis than ever on expanding customer choice, service and reliability.

As part of its strategic and financial plan, CN is reaffirming its 2021 financial outlook targets of double-digit adjusted diluted EPS growth versus 2020 adjusted diluted EPS of C$5.31, capital investments of approximately C$3.0 billion and free cash flow in the range of C$3.0 to C$3.3 billion.(2)

Focused on Leading the Industry with ESG Commitments

CN has a high-quality, experienced management team with a proven track record of executing on a forward-looking strategy as part of a sustainable future. CN continues to be the industry leader in fuel and carbon efficiency, with an uncompromising commitment to safety while also enhancing its top tier corporate governance profile. Key progress made on our plan to Deliver Responsibly includes:

  • Setting a science-based target of 43% carbon emission intensity reduction by 2030 based on 2019 levels;
  • Becoming the North American rail industry leader in fuel efficiency, consuming approximately 15% less locomotive fuel per gross ton mile;
  • Introducing an annual advisory vote on CN’s climate change action plan;
  • Aligning executive compensation with ESG objectives, including safety and fuel efficiency;
  • Reducing the mandatory retirement age and confirmed term limits for the Board of Directors;
  • Adding two new directors in 2021, along with a March 2021 announcement that our Board Chair will not be seeking re-election when his term expires in 2022; and
  • Setting a target of at least 50% of non-management directors coming from diverse groups, including gender parity, by the end of 2022.

Commitment to Enhancing Competition

Despite the recently terminated transaction, CN’s bid for Kansas City Southern reaffirmed CN as the premier North American railroad and secured CN an incremental US$700 million in break-up fees.

CN will continue to engage with market participants, railroads and shippers to ensure that all regulatory rules are enforced fairly, and customers do not suffer anti-competitive effects arising from a combination between Canadian Pacific and KCS.