CNI

Business Context and Reporting Period

Company: Canadian National Railway Company (CN)
Filing Type: Form 6-K (Report of Foreign Issuer)
Date: September 9, 2022 (Reporting for the month of September 2022)
Content: 2022 Investor Fact Book Update
Business Overview: CN is a world-class transportation leader operating an 18,600-mile rail network connecting Canada's eastern and western coasts with the U.S. southern coast. The company transports approximately 300 million tonnes of natural resources, manufactured products, and finished goods annually. The filing highlights a transformational period focused on innovation, safety, and sustainability under new President and CEO Tracy Robinson.

Key Financial Metrics (Fiscal Year 2021)

Note: All financial figures are in Canadian dollars unless otherwise specified.

Material Changes vs. Prior Comparable Period

• Revenue Growth: Total revenues increased 5% to $14.5 billion in 2021 compared to $13.8 billion in 2020. On a constant currency basis, total revenues grew 9%.
• Profitability: Net income rose 38% to $4.9 billion from $3.5 billion in 2020. Diluted EPS increased to $6.90 from $4.97.
• Operating Efficiency: The operating ratio improved to 61.2% in 2021 from 65.4% in 2020, driven by higher revenue per carload and improved productivity.
• Commodity Performance:
  • Intermodal: Revenues grew 10% to $4.1 billion.
  • Petroleum and Chemicals: Revenues grew 7% to $2.8 billion.
  • Coal: Revenues grew 17% to $618 million.
  • Grain and Fertilizers: Revenues declined 5% to $2.5 billion.
  • Automotive: Revenues declined 3% to $576 million.
• One-Time Items: 2021 results included a $886 million merger termination fee received from Kansas City Southern (KCS) following the termination of their merger agreement. This was offset by transaction-related costs and advisory fees.

Guidance, Outlook, and Risks

Management Commentary: Management emphasizes a strategy of "Delivering Responsibly," focusing on operational excellence, safety, and environmental stewardship. The company is committed to investing in its network to sustain growth and returning value to shareholders through dividends and share repurchases. CN suspended its share buyback program in 2020 and part of 2021 but currently has a normal course issuer bid in the range of $5 billion for up to 42 million shares.

Dividends: CN has achieved 26 consecutive years of dividend growth. A 19% increase in the dividend rate was approved for 2022.

Risks and Contingencies:

• Forward-Looking Statements: The filing includes standard disclaimers regarding risks such as global supply chain disruptions, pandemics, geopolitical conflicts, inflation, fuel price fluctuations, and regulatory changes.
• Operational Risks: Specific risks include illegal blockades of rail networks, severe weather, cybersecurity threats, and labor negotiations.
• Accounting Change: In Q1 2022, CN changed its method of calculating market-related values of pension assets using a retrospective approach, impacting reported financial figures.

Key Facts for Investor Verification

• Merger Termination Fee: Verify the impact of the $886 million fee received from KCS on 2021 net income and adjusted earnings metrics.
• Accounting Policy Change: Review the restatement of selected financial information due to the change in pension asset valuation methodology effective Q1 2022.
• Share Repurchase Program: Confirm the status and remaining capacity of the current $5 billion normal course issuer bid.
• Constant Currency Impact: Note that reported growth figures differ from constant currency growth (e.g., 5% reported revenue growth vs. 9% constant currency) due to foreign exchange fluctuations.
• Dividend Sustainability: Assess the 19% dividend increase approved for 2022 against free cash flow generation of $3.3 billion.