Canadian Pacific Kansas City Limited

Good afternoon. My name is Christine, and I'll be your conference operator today. At this time, I would like to welcome everyone to Canadian Pacific's first quarter 2021 conference call. The slides accompanying today's call are available at www.cpr.ca. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press star and the number one on your telephone keypad. If you would like to withdraw your questions, press the pound key. I would now like to introduce Chris Dobryn, Managing Director, Investor Relations and Treasury, to begin the conference.

Thank you, Christine. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information. Actual results may differ materially. The risks, uncertainties, and other factors that could influence actual results are described on slide two in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on slide three. With me here today is Keith Creel, our President and Chief Executive Officer, Nadeem Villani, our Executive Vice President and Chief Financial Officer, and John Brooks, our Executive Vice President and Chief Marketing Officer. The formal remarks will be followed by Q&A. In the interest of time, we would appreciate if you limit your questions to one. It is now my pleasure to introduce our President and CEO,

Thank you, Chris. Good afternoon. Appreciate everyone joining us today. Certainly, we've got some exciting things to talk about. I would suggest the results are very compelling. I look forward to getting to those and sharing those great results and thanking our 12,000 strong family of railroaders that enabled them. But before we get to the actual results, I think it's appropriate that we address perhaps the M&A buzz that's in the air. And I'm going to take it from an approach where I'm going to focus on the truth because the truth matters. I think the truth will indicate that yesterday we all woke up to witness CN's unsolicited alleged superior offer to the KCS board and to the market in comparison to our partnership agreement with the KCS that we announced a month ago. And I'm sure the truth is you're all sitting there thinking, well, Where does CP stand? What do we think? How will we react? Perhaps were we surprised? And I think the best and only way to address those points, and frankly anything tied to what is truly the only unique and unparalleled strategic value opportunity combination is with the truth. The undeniable facts, I think that's perhaps the best way to do that. So let's start with were we surprised? The answer is no, obviously. Perhaps I've got a bit of unique industry experience in my history. I've uniquely ran both companies as a CEO, obviously, at this company, as an operating officer at this company, as the senior operating officer at the competitor, the alternative, both with experience on the CN network. And actually, I think perhaps people realize by now, if it's not my vernacular that gives it away than my resume does, I started my career with the Canadian National and the Illinois Central in Memphis, Tennessee, and worked in Jackson, Mississippi, where I, as I shared with our KCS partners last week in Kansas City, my first experience 25 years ago, working with the KCS started, competing against and partnering with at the same time in Jackson, interchanging with, and actually the truth is that my senior of Operating chief here, Mark Radd, actually started his career on the KCS, spent 20 years there. And that's where, if I go back to my IC days, I developed the respect for Mark as an operator. So that's true. Beyond that, though, if you think about the unique value that this combination, this partnership, this very unique partnership represents, they're undeniable truths. And I think I'm just going to go through them. So truth number one, based on the merits, the facts of our proposed combination and partnership with the KCS, our combination, CPKCS is the only true USMCA network and opportunity. It's the only possible class one combination that answers the STB's public interest test. The only, not one of many, the only. Why do we say that? Why is that true? Why is that undeniable? Well, number one, let's start with truth number two. It's pro-competitive. Multiple fronts, new routes, new markets, new competition introduced. Customers get reached today with this combination when approved, and we believe it will be. That, quite frankly, without it is impossible. New competition is introduced, be it with BNSF, be it with UP, be it with CN, that simply doesn't exist today that's enabled by this combination. Truth number three, pro-service. The service that this creates where service doesn't exist for many of those customers, the opportunity, perhaps, to invest in a grain elevator, 200 miles north of Kansas City, in the heart of Iowa Territory, where our line runs. The KCS shipper today that perhaps have always wanted to have a better origin market, but the investment wouldn't support it. The economics didn't work. Well, in a single-line railroad, that changes the entire conversation. In fact, I know that's true, because the truth is, last week in Kansas City, when I had the opportunity to meet and share vision with and discuss and listen to the concerns of several KCS customers, that happened to be a topic. And the truth is that's not the first time we've discussed it. So pro service. And the truth number four that's undeniable, the resounding overwhelming support of our customers. 400 plus, 408, 409, the number continues to change. In fact, we welcome Bartlett, which the truth is, It's KCS's largest customer that supports the opportunity this deal uniquely unlocks just yesterday that we filed with the STB. So to deny that 400 voices plus have spoken and continue to speak is denying the truth in support of this value-creating transaction. Truth number five, there are no true losers. Zero. That's a pretty undeniable number. It's a very unique number, and again, the truth of this proposed transaction is the only combination that results in zero instances of any customer that enjoys a level of service today, optionality from different carriers, to truly lose zero, only gain. Truth number six, in support of truth number five, not one customer with less options. Truth number seven, this uniquely enables quality growth. And when I say quality, quality matters, that's a key word. You've got two railroads that the last three years have led the industry producing sustainable, profitable, quality growth. Not growth for growth's sake, growth that matters, growth that comes to the bottom line, that drives earnings performance, that drives value creation. And the truth is, these two railroads have led the industry the last three years in total shareholder return. It's undeniable. The truth speaks for itself. Truth number eight, this investment uniquely unlocks and enables additional investment to create capacity on these lines, key lines of needed capacity, especially in light of what's happening in North America today and key routes from Mexico to Chicago and existing infrastructure that we uniquely own, being CP and KCS, that quite frankly stand alone would never be possible. Truth number nine, it benefits the environment. True, realistic opportunity to take trucks off the road and put them to rail. And another undeniable truth, if you think about some of the communities that that matters in, I think about Chicago. And you know why I think about Chicago? Because the truth is I'm a Chicagoan. I live in Chicago. I understand the congestion on the highways in Chicago. I've lived it. I understand the congestion in the rail network and how exposed we are at times. I've lived through it. So to suggest that bringing more traffic into Chicago is beneficial, I think it's untrue. To suggest that taking traffic out, to suggest that taking trucks off the road that otherwise would be populated on Highway 294 or on Highway 80 or on Highway 90 or on Highway 94, to take them off the road and put them on the rail, that's a huge opportunity, not only for local congestion and less greenhouse gas emissions in the Chicago metropolis area, but for the entire route from Mexico, from Monterey, Mexico City, that 2,800 miles we talked about yesterday, I heard so much about, to truly realize that opportunity is undeniable. Number 10, the truth that it unlocks unique, actually attainable value for the shareholders. This deal is approvable. It's doable. And in order to realize the value, you've got to get the deal done. There's over $800 million of conservative synergies that we've spoken to that this deal represents for our shareholders to benefit from, for our employees, both KCS as well as CPs, job creation to benefit from. for the environment truly to benefit from. Value across all areas. Truth number 11. All those reasons stated 1 through 10 leads to one undeniable truth, and that's called deal certainty. This deal represents the path to true realized value. Compelling value now, and the value it represents, and even more compelling value long-term. Long-term sustainable value that is only uniquely created by this combination. Those are undeniable truths. Now, keeping with that thought, let's now take a look at the Seeing KCS proposal. Let's talk about what's undeniable truth. So, were my eyes open yesterday when I read the press release? The truth is, yes. The headline value number was undeniably eye-opening, $325. But the reality is, That only matters if it's attainable. Unrealized value is still equal to zero. If you can't do the deal, if it's not doable, you never get there. The facts matter. Truth number two, why I feel so strong about number one, this deal is anti-competitive. When you look at it, the facts and not just the spin or perhaps the small, I think, disingenuous comments yesterday that this really boils down to 65 miles in Louisiana. Come on, I... Come on, man, that's not the truth. It's anti-competitive. How many customers, multiple customers, are losing service options? How many customers today that just CPC and alone enjoy an opportunity to choose between the two of us in partnership with KCS lose that option? How many two-to-one scenarios? How many losses of routes four-to-three? The undeniable truth, if I'm in Superior, Wisconsin, Today, and I happen to know who is in Superior, Wisconsin today, it would be CN, UP, BN, and guess who? CP. Well, guess how CP gets to the southeast out of Superior, Wisconsin? CP partners with KCS over Kansas City. The truth is our deal represents a single line move with a CP-KC combination. The truth is also that in the absence of that, you eliminate an option in Superior, Wisconsin. And that's just one of many. Somehow that truth didn't come out yesterday. Truth number three, it's anti-service. How many customers are left with no service or less service options? The truth is, once it's analyzed, those numbers will be revealed because certainly they weren't spoken to yesterday. But the truth will be revealed because the truth matters. Number four truth, already an overwhelming outcry of opposition from customers. And here's some undeniable truths. The reality is this proposed transaction, CNKCS, is already picking winners and losers. The truth is if you're in the ag industry and you happen to be located in North Dakota, South Dakota, Minnesota, Iowa, in the grain belt of America, middle America, this deal represents a lost opportunity. This still strands your product. This still says you never enjoy single line service that the CP KCS provides or creates in the history again. This says if you're an ADM or CHS, and those are our customers at CP, the truth is they hurt. The truth is they're penalized. Let's talk about the automotive industry. The truth is If you're a Ford or GM, you're a current CPKCS OEM that enjoys business coming out of Mexico, moving to all Canadian markets over Kansas City through that partnership. In the absence of that partnership, what are your options? The truth is, and if I were at Ford, I would be concerned. Conversely, General Motors. The truth is, CN has four plants. in the US, two in Canada. And in this instance, if CN were to combine with the KCS, they'd have three uniquely single line served GM plants in Mexico. The truth is that creates imbalance. CN would serve nearly half of their North American plants. If I were General Motors, I think I'd be concerned. Let's talk about ECP, energy, chemicals, and plastics. Truth is, think about the propane customers. CN would have virtually a monopoly on the propane market. They'd have control of complete markets, access for LPG, CN Rupert Export, U.S. and Canada destinations in Mexico. If you're Exxon, and that's a customer we care about at Canadian Pacific, and you happen to be located in Edmonton because they are, And you also own a refinery in Baton Rouge that today is uniquely served and provided access by a CP-KCS combination over Kansas City, or the alternative would be a CN direct line to Baton Rouge. That goes away. That's the truth. Forest products. There's some more painful truth there, too. If you're a customer single line served by CN in Canada... you understand they've already got control of 90% of the Canadian production. In this model, they're suggesting the truth is they could direct forest product flows based on broad control of origin and destination markets across Canada and U.S. They could pick and choose. The truth is I don't know a customer that would enjoy that or choose that. Now, let's go to intermodal. That's where the real value creation is in this story. The truth is there's only four north-south options today. UPBN, CN, and KCS. This still suggests there would be three. With the CN-KCS merger, UPBN, CN-KCS as the CN absorbs the KCS option. Pretty undeniable truth. If you're a Maersk, and that's a partner that we care about at CP, especially so with our new partnership, and the long-term commitment they've made to us and the long-term commitment we made to them and the unique investments we made with them and the unique investments they've made with us, we care about their long-term health. Because CM would control access to the ports of Mobile, their terminal, Lazaro-Cardenas, which would be their terminal. I think it's undeniable that would create a lot of leverage in that relationship that if I were mayors, the truth is I probably wouldn't be happy about. Truth number five. I think it's important we keep talking about the truce. To suggest overlap is isolated, again, to my point earlier, to 65 miles in Louisiana. It's not true. I guess that suggests, if you believe it to be true, that the overlapping connection in Springfield, Illinois doesn't exist. The customers that are served by KCS or served by Canadian National in Omaha and Council Bluffs that would go to one, I guess that doesn't exist. Same concerns in St. Louis. The points I made about Superior, Wisconsin. Mobile, Alabama. Jackson, Mississippi. Of many. Perhaps to some that don't understand, that's not material, but I would suggest that every one of those locations with every one of those customers, the truth is they care. Truth number six. And I think this to be true. They either don't know how much damage this proposed combination could create, or worse yet, they do, and they prefer not to share the truth. Truth number seven, I don't think they really know what growth this may or may not create. They obviously haven't done their homework or understand the markets, or worse yet, they have and they do, and they prefer not to speak to the adverse impacts and the lack of growth The lack of stifled competition that this represents, back to my earlier truce when I'm thinking about the ag shipper or the chemical shipper or the lumber shipper that gets stranded because of this proposal, that uniquely would be benefited compared to ours. Truth number eight, I think about investment. To realize these growth potentials that they spoke to, it takes some investment. And to think about the truth is they're prepared to go to a 4.6 times balance sheet, locking up their capital and the money they would need to invest in this proposed combination to unlock this growth is undeniable. Truth number nine, the benefits to the environment. You know, I heard that spoken to a lot yesterday. I think pretty aspirational. Road to rail conversion. I think we understand the market better than they have because we've done our diligence. We've been at this for quite some time in partnership with our partners at KCS developing these opportunities. You know, John will get to the facts, the truth of our synergies. Conservative, yes, but realistic, absolutely at the same time, yes. And to think about the number I heard yesterday, 75%. of the synergies, of this billion dollars of synergies, is all an intermodal. If you look at the facts, it suggests that this intermodal is coming off the road, going to the rail, it's coming out of Mexico, Monterey, Mexico City, it's going to Chicago, it's going to Detroit, it's going to Toronto. Again, if I go back to our truths about our deal, let's just speak about Chicago. The truth is, their terminal is located on the south side of Chicago. and perhaps a smaller terminal in Joliet. If the traffic is going there to get to its markets, which are currently all over the greater Chicago area, it's a very large population center, the truth is it's going to be on the highway. The truth is it's still going to congest the streets of Chicago. It's still going to create greenhouse gas emissions in Chicago. And again, sticking to the Chicago truce, If I think about the western part of their network and I think about all those other truths with the way they would direct traffic, SANS only route to access the new network they propose via Kansas City or their existing network is through Chicago. And you know what? It is true that it would go over the EG&E. The truth is probably the folks that live in Barrington, the same folks that were concerned about the deal when it was created, The same environmental impact, the adverse environmental impacts that CN has had to mitigate, I know to be true because I understand those. I was there when that was created. It's those same communities. It's Barrington. It's Aurora. It's Naperville. It's Joliet. Those are truths. And I would suggest that their truth and their reality would beg to differ with perhaps the version that CN has. has put forward. Truth number 10, is the value really attainable? To me, if value is unattainable, it's not true value. And I think you've got to think, is it attainable? Even if we're in denial, I think this is a fact. I think nobody would discount this or disagree. I heard yesterday a mention of pioneers, PSR pioneers. Well, the last I looked, the truth is they don't work there anymore. They're not there. They're running out of the railroads. That talent is all over this industry. It's not the pioneers, at least, still working at Canadian National. So then I think about the current company. They say they can, but can they? And the truth is, I have to go back. The only thing I can look at, and that's fact. And the facts show, and I think I spoke to it earlier, the track record. That's all I can gauge it by. That's the truth. 10 years of underperformance in our industry. 10 years of underperformance. Not one, 10, a decade. And if I go back in history, because I was there then, 10 years ago, that team, those pioneers led the industry. They didn't trail the industry. It's a different team. It's a different game. So to assume the same future performance, because... We did it in the past. We could do it in the future. The truth is, as an investor, that's a pretty risky proposition. That leads me to truth 11. Absolute truth that's undeniable is deal uncertainty for all of 1 through 10, which means to me the headline value could be 500% more than our real attainable value. It's fantasy money. It's fool's gold. And then my last truth is, I know the team at the KCS. I've got a deep respect. I've had time to work with those future partners. Like-minded company, proud company, smart railroaders, engaged board of directors. They're no fools. STB, I feel the same way. They're experts in this space. They understand what pro-competition means. They understand what pro-service means. And to suggest that they'd be foolish enough to believe what was said yesterday as fact points that represent that proposed deal is just simply not true. And then finally, the investors, that's you. At the end of the day, you're the ones that have to make the decision. Ultimately, and again, I think truth matters. I think if you're an investor and you look at what story do you believe, what represents truth, I think the train that you want to join the train you want to get aboard is the one that's most probable based on, not by what they say, but by what they've done. Our story at CP, it's a story of doing what we said we're going to do. It's a story of turning this company around, taking this proud, talented group of railroaders and creating a unique value in this industry. That's a 10 times multiple over the last decade compared to that story. And again, the truth is you'll have to decide where to put your value. So that's my story of the truce. I think the conclusions are pretty obvious, and we'll save discussion about that for the Q&A. So now let me get to the other real truth, and that's the exciting results that we're about to talk about. And I want to thank our team of railroaders. Again, I say this over and over again. It's because I mean it. We couldn't do this without these railroaders. These railroaders are family of railroaders. That's all of us. That's not just management. That's not just leaders. That's our partners. That's our family. Enable these results. It's our collective efforts that enable it. That's never going to change. They're extremely proud of this company, about this historic transformation. They're excited. They recognize what this represents, whether it's the man or woman on the ground or whether it's the union leader we've been engaging. The partners in our business are excited about this opportunity. And they're excited about these results. So to these results, again, I think the truth is it's pretty unique in this industry. First quarter revenues of $2 billion. An adjusted operating ratio of 58.5 and adjusted EPS of 1%. It's pretty impressive. It's a strong performance enabled by a strong operating performance. Mark and his team have done a phenomenal job. If you look into the details, The truth says records for weights again and lengths again, even in spite of the polar vortex that we went through in February. Optimizing our assets, our operation, finding new levels of efficiency, essentially creating new levels. That's what a true culture of PSR enables. It's an outcome. It's not an aspirational goal. So, again, they've done a phenomenal job. I'm going to stop at that point and turn it over to John to bring some color on the markets, and then Nadim will wrap us up with color on the numbers, and we look forward to having a truthful, frankful discussion after. Over to you, John.