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Monday, January 09, 2012

CP continues push toward low 70s Operating Ratio

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Canadian Pacific sent a letter to its shareholders from John Cleghorn, Chairman of the Board of Directors. In the letter, Cleghorn explained CP's Multi-Year Plan, which has three key elements: driving volume growth, expanding network capacity to safely and efficiently support higher volumes and controlling costs.

"CP's management team is aggressively executing on the company's Multi-Year Plan and has the full support of the Board of Directors," the letter stated. "The board is working closely with management and monitoring the company's performance and will continue to hold CP's President and Chief Executive Officer, Fred Green, and CP's senior management, fully accountable for delivering on the Multi-Year Plan. This plan has been specifically designed to generate the best possible operational and financial results from CP's unique assets and circumstances."

The letter said the board is confident in CP's ability to reach an operating ratio or operating expenses as a percentage of revenue, in the low 70s in the next three years.

"We will not stop there; as we achieve our goals, we will set new targets," said Cleghorn.

"As early as 2010, the results of management's execution against the Multi-Year Plan could be seen in a four hundred basis point improvement in OR. The company responded to an economic rebound that exceeded both CP's and our customers' expectations by a significant margin, handling an unprecedented 17 percent increase in workload," he continued. "Our 2011 actions have included increasing our locomotive fleet and manpower to improve reliability for customers and position ourselves for future growth. Today, as management continues to execute on the Multi-Year Plan, we expect to deliver meaningful improvements in CP's financial performance starting in the first quarter of 2012.

He says an improvement in OR from 78 in 2010 to 65 in 2015 is achievable.

"We are focused on continuously improving service reliability, asset velocity, cost savings, productivity and achieving the financial flexibility necessary to increase shareholder value. Coming out of the 2008-2009 recession, CP accelerated its multi-year capital investment program, which we believe will materially enhance productivity, reduce costs and provide the quality service and network capacity to fully capitalize on market opportunities," Cleghorn explained.

As part of this plan, in the fall of 2010 the board approved a four-year capital investment program of more than $400 million to expand and improve the efficiency, flexibility, capacity and safety of the network. This included constructing additional passing sidings to facilitate longer train strategy in the Western Corridor, North Line and the U.S. Midwest.
In addition, CP is revitalizing operating information technology systems to better manage its assets and service levels and to seamlessly interface with our customers.

CP expects these system upgrades to position CP to achieve labor efficiencies, improve asset management and provide better shipment visibility to all parties.

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