Welcome to CN's investor conference call, Full Speed Ahead – Redefining Railroading. I would now like to turn the meeting over to Paul Butcher, Vice President, Investor Relations. Ladies and gentlemen, Mr. Butcher. Good morning, thank you for joining us. Today's conference call regarding CN's vision for the future, our exciting new strategy to redefine railroading for the next generation. With me today are JJ Ruest, our President and CEO, Ghislain Houle, Executive Vice President and CFO, and Rob Reilly, Executive Vice President and Chief Operating Officer. Earlier this morning, CN issued a press release announcing our compelling, ambitious, but achievable new strategy. You may obtain a copy of this press release and the presentation that we will refer to on today's call on our website at www.cn.ca. This call is being webcast live, and a replay will be available on the Investor Relations section of our website. Before we begin, I'd like to draw your attention to the forward-looking statements and additional legal information which are available at the beginning of the presentation. As a reminder, today's conference call contains certain projections and other forward-looking statements within the meaning of the U.S. and Canadian securities law. These statements are subject to risk and uncertainty that may cause actual results to differ materially from those expressed or implied in these statements and are more fully described in our cautionary statement regarding forward-looking statements in our presentation. At the end of the prepared remarks, we will conduct a Q&A session, we will ask that you please limit yourself to one question. It is now my pleasure to turn the call over to JJ. Well, thank you, Paul, and thank you for all of you for joining us on a short notice this morning. It's a very important call. I'm going to start on page three just to introduce our webcast here. I'm here with my team, as Paul said, to discuss the CN Strategic and Financial Value Creation Plan, our vision for the future, which will deliver both high-quality service to customers while we generate enhanced and sustainable returns for shareholders. I know a lot has been said lately about the wisdom of our bid and the quality of our team, and I'm here to tell you that we fully appreciate that our bid for KCS may not have been in CP's interest, but it has absolutely served CN's interest despite the disappointing outcome. I'm also here to tell you that CN is going to continue to lead the industry toward a growing, profitable, customer-centric customer service model of railroading, just as we have pioneered PSR when the industry needed to become more efficient. As the STB Chair, Mr. Oberman, recently said, it bears repeating that this is 2021, not 1980 or 2008 for that matter. We at CN are focused on the future of railroading, not the past. I am also here to tell you that we have a plan to realize the value of our recent investment in technology and capacity for the benefit of our customers, our shareholders, our 24,000 employees, and many other key stakeholders. CN has a rich tradition as an industry leader and has an extensive network that we have built that runs through coast to coast to coast, and I'm excited to continue building the premier railroad of the 21st century, just as we've done since 1995. Rob, Ghislain, and I will lead you through the presentation outlining how we're planning to achieve these goals. We'll go to the next slide. In January 2021, before the KCS opportunity emerged, CN approved a new strategic plan to lead in customer value in operational excellence in safety, in environmental sustainability, and social inclusion, to also deliver industry-leading total shareholder return, and as well as a major governance reform. The KCS bid materialized as a once-in-a-lifetime opportunity, and that was entirely consistent with our long-standing vision to be the USMCA railway. The KCS bid produced multiple net benefits to CN despite being terminated. It reaffirmed CN as a premier North American railroad. We secured $1.4 billion from KCS, including the $700 million net cash from the breakup fee, and we engaged throughout the process with many stakeholders and shareholders, and we got a lot of expanded insight as to growth opportunities that CN can now pursue. Our bid was positive for CN shareholders and CN freight customers. Next page. In line with our long-term strategy, CN is positioned to grow over the long term, and I'm not going to go over all the examples on this page. I just want to pick a couple. Customers want congestion-free proven gateway into North America, like Prince Rupert and Halifax. Customers also want to have a great railroad in chemical to partner with them as they look at future opportunities in their sub areas of methanol, propane, halogen-based petrochemical, and renewable fuel for the future of North America. Customers have also made massive investment in the grain supply chain on our network, and we at CN also have made significant investment in our own grain supply chain. Mainly, 50% of the increase of the grain export capacity on the West Coast is actually being built on CN, physically served by CN. CN also has an industry-leading cargo pool capacity, which is a service for the future to serve the consumer economy. Obviously, we have the fastest growing animal network in North America, and there's a great story to that in terms of truck conversion and ESG benefit. I'm going to turn it over to Ghislain, who can reaffirm our financial outlook. Thank you, JJ. On the next page six, our strategic plan builds on the great foundation we already have. It starts with reaffirming our 2021 financial outlook. This is despite weaker volume outlook, offset by right-sizing our cost base. We continue to target double-digit adjusted diluted EPS growth versus 2020 adjusted diluted EPS of CAD 5.31. Our capital investments will complete at approximately CAD 3 billion. We are resuming our share buybacks. We expect to complete the remaining CAD 1.1 billion of our CAD 1.5 billion current program by the end of January 2022. We continue to target free cash flow in the range of CAD 3 billion-CAD 3.3 billion. Turn it over to you, JJ. Thank you. Now I want to give you a sense of what we're going to do here in 2022. We are targeting CAD 700 million of additional operating income for next year. First thing, we will attack cost. Rob will drive car velocity, train speed, and train length. He will give you some more detail later. Our strategic team will review our non-rail business, example, TransX, our vessel, and our freight forwarding business to ensure that we have best-in-class operating margin performance in each of these different segments versus their industry peer and/or may divest partially or totally some of these segments. In the case of the freight forwarding business, we might actually shut it down. The management team will also streamline the management and especially the support function to improve our labor productivities by accelerating speed of quality and decision making. On the revenue side, we are going to be more focused on price than ever, make sure that we price well ahead of rail inflation, reflecting the current strength of pricing in transportation market. We'll also be looking for volume opportunities in 2022. Take into account, though, that right now, as we sit here toward the end of the summer, the grain crop in Canada will probably be in the range of 33%-38% volume drop versus last year as opposed to the 5% that we were hoping for back in June. If we go to the next page, that summarized some of the key financial target for 2022, our business plan for 2022. As I said, we are looking to increase operating income by CAD 700 million. We're targeting an operating ratio of 57%. We're also going to be putting a CapEx as a percent of revenue at 17%, EPS growth in the range of 20%, return on investment capital a range of 15%, and about CAD 4 billion of free cash flow. We are shifting our capital spending to 17% of revenue for 2022-2024, unless we have significant market shift in terms of significant growth demand during that period of time. CN is also reviewing its capital structure and financial leverage now that the KCS transaction is not going to go forward, with a view to increase total shareholder distribution, including share buyback in the range of CAD 5 billion in 2022. All of this is a very achievable business plan. We'll go to Rob. All right. Thanks, JJ. On page nine, operational excellence has been and will continue to be a cornerstone in our strategy. All of our key operating metrics have improved over the past couple of years, leading to greater efficiencies and improved customer service. On page 10, from a sustainability standpoint, we will continue to be the leader in the industry. Our fuel efficiency initiatives alone have saved us over CAD 100 million while reducing CO2 emissions. Our disciplined execution from the engineer pulling the throttle to how we utilize our locomotives is how we got here, and we'll continue to find ways to further reduce our carbon footprint with the use of renewable fuels and piloting battery electric locomotives in the future. Our safety results are not by chance, but through a concerted effort of leadership, training, and engineering and technology to minimize and eliminate human error. The CN team is on pace to deliver all-time bests in both accidents and injuries. Running a safe, sustainable, and efficient operation that partners with our customers are key elements of our strategy. On page 11, our productivity levels across the board and operations have improved to all-time best levels. On page 12, this plan presented will improve the efficiency of the company as a whole as well. Page 13, the reason we are so well-positioned to implement digital scheduled railroading as part of this compelling new strategy is because we've already made the necessary investments and built the foundation of the next era of CN's growth. Following the reduction in capital spending enabled by our technology investments, we expect to deliver improved safety, more reliable service, and increased efficiency and productivity. Just as CN pioneered PSR when railroads needed to become more efficient, we are now at the forefront of DSR at a time when railroads need to deliver greater value, choice, service, and environmental benefits to their customers. DSR is a modern approach that utilizes state-of-the-art technology and innovation to deliver high-quality services to customers and more sustainable returns to our shareholders over the long term. It will define our future success. Having said all of that, I'll now turn the call back over to JJ. Thank you, Rob. We'll go to the page on ESG. I don't want to cover all the items that CN do on ESG. I think CN has been known as an ESG leader in the rail industry for a long time, not just on emission, but also on quite a number of fronts. Three things I'd like to cover that we're very focused on beyond our robust disclosure and clear target. One is on the emission side. Already we are the leader in terms of fuel efficiency, which means that we produce less CO2 emission per ton mile, but we have a target to reduce by 43% our emission intensity by 2030, based on 2019 level. We also, on the safety side, are very focused on the safety, especially of safety of our own people, of our employees. There's nothing more important in our safety target than to aim for zero serious injuries and zero fatalities at CN. Of all the safety statistics or maybe of all the ESG target, it's probably the most important, the one I feel mostly passionate about, and I know Rob feels the same way. On the governance side, CN has updated and modernized our board governance, and we've already achieved at least 50% of the non-management director coming from diverse groups, including gender diversity. We'll go to the next page. In conclusion, CN truly has the best rail network in North America to drive long-term growth, sustainable growth, and profitable growth. We have the right leadership team and management team to execute our strategic plan, both in the short term and the long term. We have a vision for our industry, which is forward-looking, not backward-looking. We're committed to drive total shareholder return through our operational excellence, and you heard a number of the targets today. Customer-first culture, railroad have to railroad for customers and shareholders, both equally in a balanced way, using innovation, Rob covers a couple of those things, and really addressing the needs of today, we have to be a relevant contributor to the ESG agenda. The bid for KCS yielded valuable insight into our growth opportunities, and it gave us the opportunity to have positive engagement with all stakeholders, including us listening to our shareholders as to what they want and need and expect from us. That's partly why we have this business plan here today. Executing on a comprehensive strategy plan targeting CAD 700 million of additional operating income and 57% OR in 2022 is very much part of that. Returning additional capital to shareholders toward the CAD 1 billion, resuming the CAD 1 billion buyback between now and the end of the year. Also, since we're now going to be doing a large transaction, also in the range of CAD 5 billion share buyback in 2022. We are in constant dialogue with all of our shareholders, and we want to be sure that we do what's right for the CN shareholders and what's right for the CN customer. On that note, I think we will prepare. We will turn it to questions. Paul? Operator, we'll go to questions. As a reminder to ask a question, please press star then a number one on your telephone keypad. Again, that is star then a number one. Your first question is from Cherilyn Radbourne with TD Securities. Thanks very much, and good morning. Good morning. With respect to the non-rail businesses, a bit of a shift there. Could you elaborate on what you're grouping in that bucket, if there's anything beyond what's listed on the slide? Just talk about how you'll consider the contribution of those businesses to volume on the railroad in determining whether they're candidates for divestiture. Thank you, Cherilyn. There's no sacred cow at CN, and when we look at the future, every aspect of the business that we do, every piece of the operation that we do, needs to contribute to the ultimate goal that we have. In the case of the non-rail activities I'm talking about, I'm talking about the Great Lakes vessels, the dock, TransX, some of our operation in transload and Autoport, and as well as our freight forwarding. When you look at these things, where we've already started to review sometime midsummer about do they fit in the long-term strategy? Are they producing results, financial results, in the range of their publicly listed peer as using as benchmark? Do they also contribute to feeding the beast or bringing business to the railroad? When we make those decisions, on one end, we will be looking to improving the cost structure of this business. We will be looking to increase the pricing structure of this business. We are going to be looking whether they stay in CN or they are partly divested or fully divested, that it is done in such a way that the rail business they were contributing to us stays with us. Maybe, I think we have some ideas, we might actually be able to improve the amount of business we are getting from those, whether we own them totally or partially or not at all. Going back, I think the question often asked is what is the weight of the non-rail business on the operating ratio of CN? It's about 200 basis points, JJ. TransX alone, and we've said that publicly, is about 100 basis points. It's about 200 basis points when you put them all together. They're accretive to EPS, but they're dilutive to operating ratio. Yeah, they're accretive to EPS. They produce operating income, and then we'll make sure that they either produce more operating income, that they're more accretive to feeding volume to the railroad. If they can't do neither of the two on a world-class basis, then we might divest partially or totally, or we might shut it down. By the way, on the freight forwarding side, my mind's pretty much made up that I will slowly, over time, shut it down. When I say slowly, I mean over the next six months. That's my one. Thank you. Thank you. Your next question is from David Vernon with Bernstein. Hey, good morning, guys. Thanks for taking the time. JJ, I'm sure you've been on the road a bit, talking to shareholders. Can you give us some insight into their level of satisfaction and maybe how the arguments that TCI made either resonated or didn't resonate? The last part of the question would be around, beyond what you're doing with the business, is the company also contemplating making any changes at the board level? Our shareholders, I would say if we start, obviously the topic this summer was KCS, first and foremost. As you know, twice this summer were we able to convince the board of KCS that we had the superior offer, the first time around back in the spring, and the second time around when the CP came up with a second offer. By and large, most of our shareholders, those at least who own CN, were supportive of our bid. Like us, they're disappointed that the regulators actually stopped us. CP did not stop us. The regulators actually stopped us. The feedback we were getting during this summer is that CN should be putting more effort into operating income. Recentering, if you ask what kind of operating ratio we should be targeting. We were obviously getting that feedback during the summers as well, and we were preparing to integrate with KCS sometime in early 2023 with the light that we wanted to enter in the transaction to be really fit. Fit financially, fit in terms of cost structure. The plan that we're rolling out today is a result of that, and the plan that we're rolling out today is also the result of feedback of our shareholders on these two fronts during the course of the summer. As it relates to the board, I think it's well known, it was always in our proxy that our Chairman is retiring next April. He's at the end of his term. We also have another board member who's also retiring next April. He's at the age limit. In time, the board will make the decision as to who will join the board of CN, replacing those two. All right. Thanks, guys. Thank you. The next question? Operator, the next question, please? Yes. Yes. Next question. Okay. Your next question is from Walter Spracklin with RBC Capital Markets. Yeah. Thanks very much. Good morning, everyone. Good morning, Walter. When I look at OR improvement, obviously there's three components. You got price, cost, and volume, and I think pricing is clear you're in a good situation there. I want to focus my question on volume, and really that is, you highlighted, JJ, that it's going to be a tough year for grain next year, which is a fairly meaningful part of your business. That implies with mid-single-digit growth that you're going to get a fairly nice lift in non-grain businesses. Are you expecting just across the board, mid- to high-single digits in all lines? Could you call out a few that you're expecting to see because of line of sight you have with customers or whatever other bases you have line of sight to see some nice growth in any segments in particular? Okay. I'll let Ghislain start because our 2022 business plan starts with cost, and then price, and then volume is last. I can make some color in the volume, but it starts with cost. You can start? Yeah, maybe. Okay. Thanks, JJ. Thanks, Walter, for the question. Exactly. I can break down the CAD 700 million of additional operating income in a couple of buckets. To your point, Walter, CAD 150 million will come from price. CAD 550 million will come from cost. CAD 250 million will come from headcount reductions. We're looking for about 650 headcount reductions in management, and as JJ said in his prepared remarks, it's mostly support functions at CN that will make up that number. There's 400 headcount reductions in unionized, mostly in engineering, mechanical, and transportation with the productivity targets that Rob talked about, that allows us to run the railroad with 400 less people. CAD 250 million coming from lower purchasing services and material. This is really with less consumptions, including reductions and consolidations of material and contractors. We will eliminate all consultants, specifically in IT. We will close underutilized buildings and facilities that we have across the network. Finally, we'll be more aggressive with our suppliers when we negotiate contracts. Then finally, CAD 50 million will come from other, including casualty and other, and that we're assuming that a good chunk of this will be with lower accident costs with the improvement of inspections that we're doing both on track with our ATIP car that you know well of, Walter, and our portals. This is an example, by the way, of reaping the benefits of some of our technology investments, and we are very confident that we'll be able to reduce accident cost next year versus this year. Maybe turn it over to you, JJ, on the volume side. On the volume, Walter, as you know, there is volume opportunity at CN, exploiting the three coasts, exploiting our great intermodal network. We also have a very solid franchise in carload, petrochemical, forest products, and some metals and minerals. The point though is next year, in our view anyway, there is two big negatives. One of them is grain, the Canadian grain crop. People have been talking all summer about the fire in British Columbia, which is real, but the real story on the business side is the prairies grain didn't grow. The wheat wasn't very tall, and it was harvested very early, and there was not that much of it, and that's true also for other commodities. We're looking potentially in the range of 35%-40% drop in volume for the grain crop in Canada, as opposed to the 5% growth we were hoping for. On the crude by rail, and I think everybody's been listening to what we're talking during the summer on the KCS. CN is not a crude by rail network railroad, neither then CN was going to be a crude by rail merger combination with KCS. When you look at that, the two negatives are going to be offsetting the other mini positive. The focus next year is to make it on our costs, make it on price, make it where there is volume growth in some segments. When the grain crop resumes late 2022, then the CN growth story in total RTM will have the wind in our sail again, volume-wise. That's great color. I really appreciate it. Thank you. Thank you. Your next question is from Jason Seidl with Cowen. Thank you, operator and JJ and team. Appreciate you guys doing this call. You mentioned potential divestitures in there. Are any profits from that baked into your 57% OR? I guess the companies that you're looking at, while they have a higher OR than your base rail business, what's the return profile look like? Maybe just broadly speaking, the final decision is not made, but obviously, we made some scenarios, and these businesses are profitable. Make no mistake, they are all profitable. In our scenario, as we divest them, they actually bring operating income down to an extent. When we say that we're going to improve the operating income by CAD 700 million next year, it takes into account the loss of some of these business which were bringing in operating income. In terms of operating ratio, we're not going to get into what was the weight of each of these segment operating ratio, but all in in total, all of them together, it was 210 points. That's right. If I can add, JJ, if we offload or sell any of these businesses, as you know, Jason, it will be below the line. It will be another income. Again, it will not be in OR. No, nothing is included in OR because, again, if we do offload and when we do offload, you'll see that appear. Any gains, you'll see that appear in the other income line, so therefore below the OR line. That's right. It's the same thing as when we sell land at CN, it does not go into the operating income. Below the line. That makes sense. The question I had in terms of your returns, I mean, yes, I get that they're higher OR businesses, but some of them don't require a lot of capital expenditures. Could you give us a sense on the returns on some of these businesses versus the base rail business? Yeah, as we said, they are accretive. They do provide TransX for an example. We've said and we went back, TransX, our return on invested capital when we invested in TransX, is actually higher than our internal threshold. It is accretive. TransX is feeding the beast. We will look to improve TransX. TransX does some pure trucking, we will look at that very closely, make sure that this fits into the CN strategic model. We've increased, by the way, the intermodal piece of TransX quite significantly, almost doubled it since we've acquired it. The purpose here is to have these businesses continue to feed the beast, and the question we're having ourselves is: Do we need to own them, all of it? Do we need to own part of it? Surely, we want these businesses to continue to feed CN. That was the purpose of acquiring them. That was the purpose of having them. I think it's always good, Jason, to go back and re-question yourself. The boats is a good example. I remember when we bought the GLT, we were questioning ourselves whether we were going to buy the boats with it or keep the boats with it, and we decided at the time that we would, and this is like 15 years ago. Now we are questioning owning the boats, whether we actually need to own them to have that supply chain with iron ore and our good customer, U.S. Steel. Those are things that we're looking at, and I'd say stay tuned on what will happen on that front. You can be assured that these businesses will continue. We'll keep the piece that they feed the beast or they feed CN. We'll keep that for sure. We're questioning ourselves as to whether we need to own all of them, part of them, and focus as well on making these businesses better, more efficient, and more productive. Just, I want to be sure here as we talk about these adjacent business, that's not where the improvement plan from next year really come from. It comes from costs, labor costs, operation costs, and it comes from price. The adjacent business is part of our review. There's no sacred cow. I think as earlier when Ghislain peeled up how we come up with the 700, the adjacent business, they're a very small factor, relatively small factor to the overall game plan. Well, I appreciate your perspective. Just to put it in perspective. Good luck with everything. Thank you. Thank you. Your next question is from Chris Wetherbee with Citi. Hey. Thanks. Good morning, guys. Good morning. Maybe one clarification and then a question. Just want to make sure I understand. On the operating income expansion, you talk about CAD 700 million, but in the press release, you're talking about 20% year-over-year growth in EBIT and EPS. I just want to make sure that we're talking about 20%, because I'm just not sure I'm reconciling that correctly. Is it more than CAD 700 on a year-over-year basis to get to 20% growth, or is there something missing there? Then maybe the next question would be about the 57% operating ratio. Great improvement on a year-over-year basis. I think you also mentioned that that's a good OR for the environment we're in. Do you think that's a stopping point, or is that just sort of a marker on the way? Presumably as the business grows and cost is disciplined and pricing is good, there's incremental operating leverage, opportunity beyond 57%. I just want to make sure I understand your thinking around what you think the operating ratio potential of the business could be longer term beyond 2022. Yeah. Maybe I can start with a question on the operating ratio. Going forward, we at CN believe it's time that the industry look at a balance between how we railroad for shareholders and how we railroad for the customers and the users of the network. Definitely, operating ratio is one of our major focus. We talked about 57%, but also we have EPS target. This is in the range of 27%, free cash flow, return investment capital, which we believe will increase in the range close to 15%. It is time, really, to do the balance between where is the OR. We spent a whole summer here engaging with regulators and shareholders and customers, as well as getting signal, very clear signal from the STB as well as the White House executive order. The STB is very clear that they want the rail industry in United States. to be mindful of how far we go in term of cost efficiencies at the expense of what it does for customer service and moving customer freight. I mean, some of our peer actually reduced their operating ratio by putting as much, I think it was 400,000 units off the railroad, of intermodal railroad, back on the highway. I mean, that's a big negative in terms of CO2 emissions. That's also a big negative as to the mandate of rail industry in North America should be to take truck off the road, not putting truck back on the road just to achieve an OR target. I think when you put all these things together, and especially at CN, where I think the size of our intermodal segment is the highest of all the industry, I think, Rob, we're about 30%? Right. 30% of our revenue is intermodal, where others actually, for whatever reason, are not as high as that. This is where the message from the STB come in as well. I think the message from the executive order is to say, hey, I'm not sure that I want you guys to keep growing your bottom line or your spreadsheet just by getting bigger and bigger by buying one another. You have to find ways to be successful and do that in an environment where there'll be no more Class I merger. We think, so we understand at CN anyway, I think the other deal is not necessarily a slam dunk at this point based on the decision of STB and the message from the White House. Also at the same time, we need to be more balanced, and we think 57% is the optimal point. That's the balance point. That's where we're targeting. 55%, if you wish, is kind of what I would call one bridge too far. 55% is going back to, I think, like Mr. Oberman said, you're going back in the past. This is 2021, and you got to find a way to look at the future by doing something more than just repeating PSR, PSR. I'm not putting PSR down, but I'm saying we need to evolve, and that's why at CN calls it DSR, using technology, getting freight off the highway, making sure that we work on diversity and inclusion, and create a future where something in it for investors, there's something in it for customers, and there's something in it also for what the society expect from us. We think 57% in the light of all these different things. Maybe, Chris, to answer your question on the CAD 700 million of operating income, this is CAD 700 million over and above the financial guidance that we have for 2021. If you look at our financial guidance and you assume an operating income that would target double-digit EPS growth, then you add on to that CAD 700 million of operating income in 2022. That's where you get to 57% OR. You get to 20% EPS growth. We do assume a low single-digit RTM growth due to the fact that the grain crop is down 35%-40%, as JJ mentioned. I mean, if you do exclude that, then we'd be in the high single-digit RTM growth. That's what we assume. We're assuming CAD 150 million of pricing in there, and then the cost that I've talked about. I hope that clarifies a little bit your question and answers your question. Very clear. JJ, just one point of clarification. Is it that incremental margins beyond what we're talking about here are not going to be what we've normally seen through the rest of the group? It's more like sort of a 40% type of level is what we should be thinking about incremental margins for the business going forward? I mean, the incremental margins will work with the 57% I've just talked about. When you look at what you can expect next year, in fact, because we do assume that the 57% will be for the entire year. As you know, typically in Q1 and Q4, OR is slightly higher due to winter. I mean, we do have winter in Canada, and winter starts sometimes end of October, early November in some parts of the country. From a seasonality standpoint, the OR is typically slightly higher in those two quarters. Typically, Q3 is the place where the OR is the lowest. You don't have any effect of winter whatsoever. Q2 is slightly higher typically than Q3 because you still have the frost season and the spring and so on, and sometimes you may have the washouts out west and so on. That's in between. That's the cadence that you can expect that you will see in 2022. Thanks, guys. Appreciate it. Thank you. Your next question is from Amit Malhotra with Deutsche Bank. Thanks. Morning, JJ. I'm a little bit confused by your last answer, JJ. I was hoping if you can just clarify it, because you've previously kind of talked down the importance of operating ratio over growth in operating income dollars and EBITDA dollars. At the same time, today, you're having this pretty ambitious OR target for the company for next year, which is great. The question is that it doesn't seem like, based on your answer to the last question, that your philosophy around how to operate this railroad is changing in the sense that the 57% OR seems like it represents this recalibration of the cost structure and then kind of it's business as usual going forward. Correct me if I'm wrong on that? Also, when other railroads announce these types of moves, there's obviously some fundamental change to the network that they're also contemplating, and price and costs are really good, and you should get credit for that. Is there maybe a more root cause issue with respect to the network plan that's caused the incremental margins of CNI to be so much weaker than everybody else's? I'd like you to address how your philosophy is changing about how to operate a railroad from an OR versus growth perspective, and is there any fundamental change to the network that you're introducing with respect to this announcement? Thank you. It's a good question. There's a lot in that question, Amit, I'll see how much of that I can unpack. Definitely, as I said, we've been listening to our customers, shareholders, and stakeholders during the course of the summer, when we did the KCS transaction. We've been asked and reminded that we need to work harder on operating margin or operating ratio. We decided that as much as EPS is one of the key metrics at CN, growing EPS and growing operating income, that we need to have a more aggressive target on operating ratio. The 57% is what we believe is a balanced way to look at the future railroad, the future for our shareholders, but also having an operating ratio that allow us to also railroad for our customers and taking the feedback, I think fairly clear black and white feedback from regulators like the STB. On the network itself, if you look at CN, one of the thing that was been of a headwind on the operating margin, one was depreciation. We've had elevated CapEx. When I joined as the CEO of the company, we were desperately short on capacity, and also our property management also been quite late in getting engaged in spending the capital to do PTC. We had elevated capital, and then we went down to 20%, down to 19%, next year down to 17%, the next two years. We still have quite a bit of depreciation dollar coming through, which has obviously an impact on a transient basis. I think also CN is the railroad that has the highest amount of intermodal in our network. As you know, it's no secret that intermodal, even though it's part of the long-term future of the industry, how we benefit in the consumer economy in North America, it does not generate the same OR as carload and bulk. We have 29% of our revenue coming from intermodal. Some of the railroads have 20%, some other railroads actually below 20%. It does have an impact when you try to work out your OR target based on the type of growth available to us and the kind of railroad we want to be. In term of the operating plan, and I think I should pass it on to Rob, we are making some significant change, not only just in making sure that the weight of the headquarter and the weight of the function is not excessive on the total labor cost per operating dollar or total labor cost per GTM, but also we're doing things in term of the operating target, and I think Rob went through a number of them. Maybe, Rob, you want to go through that again, but also talk about some of the new position you're creating in operation to be sure that we're even more focused in the past on some of the day-to-day tactical issues. Yeah. Thanks, JJ. I think you covered it quite well in terms of some of our differentiation, whether it's depreciation mix or the adjacencies that we have. Operationally, we're never settled, right? We're always going to try and continue to improve, and that's the way we have been the last several years, and we'll continue to be that way. Structurally, from an organizational standpoint, we're going to make some changes, including Derek Taylor, who's a seasoned CN railroader, will be head of our operational excellence. He'll be VP of operational excellence that will be dedicated on a day-to-day basis to driving and improving some of our core metrics to even new levels to get to. We're not sitting still on this, and we're proud of where we've been, but we know we can always get better in operations. That's where our focus is. It's really not just singly on the metrics. It's also doing it in line with our key strategy initiatives. It's not sacrificing customer service, as JJ said. It's not sacrificing safety, and it's not sacrificing our sustainability leadership piece of it. We see improvements across the board with that. Thanks for the question. Okay. Thank you. Your next question is from Scott Group with Wolfe Research. Morning, Scott. Hey, thanks. Morning, guys. I just want to clarify one of the earlier questions, and then I've got another question. I'm still confused, but the CAD 700 million of operating income growth is like 13% off of the 2021 base. The press release said 20%. I'm still confused there, if you can help. Thank you. I've got a different question. Yes. Sure. Yeah, Scott. As I said, CAD 700 million over and above the operating income that we have in our financial outlook for 2021. When you do the math and you assume the share buyback, don't forget that's CAD 5 billion that we're assuming, and again, that's accretive to EPS. When you do the math, we get to around 20% of EPS growth and the numbers that we have on the presentation. Okay. I thought the presentation said operating income and earnings. Okay, that's fine. Then I guess going back to just the last couple of questions about operating ratio and focus, right? We should probably keep in mind that the STB just approved the merger or the voting trust and everything for the one with the best operating ratio. That other railroad would say, if you focus on earnings growth, the outcome is just a better operating ratio if you're just growing profitably, and it's just an output of the model if you're running the railroad. Do you think that that's wrong? Are they missing something? I guess maybe that's the same question that you just addressed, but I'm still confused by the answer. This is all about what is the best optimal point for each network, right? We do have different networks, we definitely, as we mentioned earlier, have different mix of business. We are at 29% are intermodal. What's the numbers for some of these other railroads? I think, Rob, you had that earlier. 20%, I think. Yeah. Most of them are around 20%. Some are in the teens. Okay. In other words, we probably have done a much better job in the last decade railroading for freight, which would otherwise be on the highway or freight, which would otherwise be on the U.S. port. Now, the weight of intermodal business is at a higher level. We would love to move more grain, more coal, more bulk, but there's only so much of that. The future of the rail industry can't just be, I want to have an OR that is at a specific target. In fact, truly, it's a challenge for, in general, for most railroads to grow because the growth is coming from a segment, intermodal, where the OR is not the same. I think what the STB is saying, in general term, can you be a bigger player in the economy? Can you be a bigger player in enabling the economy? Can you be a better player in terms of getting the freight off the highway? Which probably means you need to do more intermodal, and in some cases, more cargo. We're really talking, by and large, more intermodal. We have picked a very aggressive plan to move from where we are to where we want to go next year with specific target on OR in operating income and EPS growth. We're going to do that on cost, making sure that we don't carry costs in the function and headquarter, which are not conducive to a very profitable railroad. At the same time, doing that in a way that the operating department is left with enough resource, have enough people to run train, have enough capacity to meet demand such that we can continue to play a role in the Canadian economy and U.S. economy. Just remember, when I took the job back in 2018, kind of over a weekend, we were coming up a time where the Canadian regulators were about to change how railroading was going to become in Canada. We had a grain service review, we had a rail service review. This is where after that, we applied what they call extended interswitching. You do not want to be at a point where you have become overly focused on your financial metrics, especially if you're the biggest player, one of the biggest player, therefore your impact on the economy is greater than some of the smaller ones. When you have mishap on capacity and the effect on the economy, you just put your whole business model at risk, right? We're working with sets of duopoly, and they exist as long as the market player produces what they should. We pick 50/57. We think that's where the sweet spot is. We think that's where the sweet spot and balance between long-term shareholders, I'm not talking short-term shareholders, but between long-term shareholders and customers and expectation of regulators from us. That's where we are. We're convinced that we're in the right spot. Other railroads may have other views. They may have different sweet spot, that's fine. The one that we pick, the one we think is relevant for us is 57%. Okay. I guess I would just say every railroad's intermodal mix has increased over time and margins have improved. I think everybody wants all the railroads to get bigger, right? In the rail industry, we all agree the railroads, they should get bigger. I think we're just all hoping that there should be some incremental margin on top of that if you're growing in the right way. That's all I would say. Thank you for the time, guys. I appreciate it. No, we want to get bigger. We tried to do that through acquisition. Now we're going to focus mostly on organic growth, and we want to divert freight from the highway, and we're true to these values. There's no change on that point. Be more profitable for our shareholders. Thank you. Your next question is from Benoit Poirier with Desjardins. Yes. Thank you very much, and good morning, everyone. Just looking at the plan, assuming you deliver on the 2021 and 2022 objectives and you buy back CAD 1.1 billion of shares this year, CAD 5 billion next year, how should we be thinking about your leverage ratio at the end of 2022 and your ability to keep the investment grade? Also, how does it change your philosophy around balance sheet management? Thank you. Yeah. Ghislain? Yeah. Thanks, Benoit. To your point, if we put CAD 1.1 billion or the total program will be CAD 1.5 billion when we're done 2021, and then CAD 5 billion, our leverage ratio will be still well below the 2.25, which is the threshold that justifies our A investment credit rating. It'll be below. How do we think about this? Well, listen, I've always said that we like a strong balance sheet at CN for two reasons. Number one, if there's a financial crisis, and I lived the financial crisis in 2009, I was a young treasurer at the time, or if there's a pandemic, you want a strong balance sheet so you can continue to have access to liquidity and capital, debt markets out there and so on. The other reason is, if there's a strategic acquisition, then you want to be able to jump on it very quickly, and we showed this loud and clear with the acquisition of KCS, where we actually could put CAD 19 billion of debt on the balance sheet and still remain investment-grade credit rating. This is something now we don't have, the acquisition. We know that clearly. We know that other railroads went through the pandemic very nicely. Most of all of our peers are BBB+. We're A investment-grade. I think, we're making the balance sheet work for our shareholders for 2022. We're signaling a CAD 5 billion program. That will still be below our 2.25, as I just mentioned. We're going to review this on an ongoing basis with our board. We're going to review our capital structure with our board. We're going to see what we do. We, for sure, want to make the balance sheet work for our shareholders, and that we're not necessarily wedded to a credit rating, per se. We'll do the right thing for our shareholders, and we're going to make the balance sheet work for them. Stay tuned for beyond 2022, and we'll review that on a consistent basis with our board. Okay. That's great color. Thank you for the thoughts. Thank you, Benoit. Your next question is from Tom Wadewitz with UBS. Good morning. I wanted to ask you about how you think about culture. I think one of the concerns, if you look at performance for the last several years, and I recognize you've had some things that have gone against you with disruptions to the line and a variety of things. One of the concerns seems to be execution against the strategy of growth. How much do you think there's a need for culture change? What gives you confidence you will improve in execution? Maybe another way to ask it is, I think PSR historically, culture change was a big component or culture was very important. Is that important in DSR, and do you think there's some need to change the culture versus the path that you've been on? Thank you, Tom, for the question. Culture is extremely important in the success of a company. I would say the culture at CN is strong. You've seen we have a stronger and stronger culture on safety. Our safety culture is not based on fear. It's based on supporting one another and the people speaking up when you see unsafe condition and not being afraid of bringing up issues as opposed to being penalized because of bringing up issues. We have a strong culture also on ESG. We've always been a leader, and we actually created a job in the VP of Sustainability from Janet Drysdale, and doing a fantastic job, not just on the CO2 emission, but also every aspect of ESG. We talked about earlier about having more women on the railroad, making sure that we have inclusion, making sure we bring more diversity in our workforce, making sure that we have specific target, visible target in term of customer satisfaction. Customer satisfaction at CN is something important. A number of our people actually get rewarded in that in their annual bonus. We measure that with Net Promoter Score, not with Trip Plan. Trip Plan is not a measure of customer satisfaction, et cetera. On the cost side, Rob is working hard with his team to make sure that we get the best of what we have. He mentioned a few things on technology. A number of our technology are becoming more mature and are producing good result. You saw the slide where we talked in some cases about return on investment capital, some of these things like the portal, the ATIP car, and the mobile device and what they produce. As they're getting more mature, we're going to get more result out of that. The job created for Derek Taylor as a VP of Railroad Excellence, you could call that VP PSR or VP DSR. His job is to look really at the day-to-day tactical things of where are the place that needs to be fine-tuned so that some of these events, small events that adds up to big total. I get caught up early enough, fast enough, and be dealt with as part of our operating plan. I don't know, Rob, if you want to talk about culture, whether from an operating point of view or just a company culture, but the culture at CN is strong. It may be different than other railroads, but we have the culture that we want to have. On the operating side, Rob, you want to pick it up? Yeah. I think, JJ, you said it. My experience here in a couple of years at CN is that it is indeed a very strong culture with strong operators out there, and that hasn't changed. These are some of the best in the industry. I've been doing this a while, and I've seen what other railroads have to offer, and I'd take these men and women over anybody. Our culture evolves beyond just switching cars. It is about a safe operation. It is about providing the customer service. It is about embedding technology and continuing to lead in the sustainability piece. Culture is one that's always evolving, and couldn't be more proud of where we're at and where we're going. Thanks for the questions. Thank you, Tom. Great. Thank you. Your next question is from Fadi Chamoun with BMO. Morning, Fadi. Good morning. Thanks for squeezing me in. JJ, you have owned the kind of non-rail assets for quite some time. Even TransX has been quite some time now. Have they been incremental to the company's ROIC? Have they been incremental to the growth prospect of the company? I would think after all these years, you would have a clear idea if these things have been synergistic with the rail business or not. The second point, just on kind of related to that, with the new financial targets you're talking about, is there a new return on invested capital target that the company has that will kind of guide your capital allocation moving forward? All of the non-rail activities at CN are profitable, have been profitable. Most of them usually don't take that much capital. They're not as capital-intensive as the rail industry. Some of them, like the freight forwarding, actually don't take capital. It's mostly human cost. It's people who do these things as opposed to large, heavy assets. Their role was to bring more business to the railroad to contribute to the growth. As we do the strategic review, first and foremost, we want to be sure that their cost structure is in line with their peer, right? Is my entire business as a similar cost structure than those who are publicly listed, say, for example, J.B. Hunt? My vessel have a cost structure versus other vessel who sail in the Great Lakes. If not, let's improve those costs to make sure that we are best in class and be the better operator in term of cost in this segment. Next thing is, are they helping to bring business to the network? Eventually you have to ask yourself, can we do that? Can they bring business to the network, but not necessarily without us owning all of it or owning only half of it? That's another thing that's under review. It is a fact that because we have this model which is different, it has not been always well understood by the street, who prefers to maybe look at railroad as railroad, and not for us to step too far out of the boundary to the rail activities. The more we step out of bound rail activities, the more our result, because they're not segmented, may be more difficult to understand. Realistically, we need to take this into account as well. Are they profitable? Yes. They are as profitable from an ROIC point of view, but not from an OR and some of these other things that will be calculated. I think most of them will probably play a role in CN, or maybe the ownership structure will be different, and it will definitely still play a role in CN, but that's really what's under review right now. My point on freight forwarding is just on that specific case, we will probably just really reduce that activity, either unwind it or put it in the hand of somebody else who will maintain the link that we have with some of these shippers from Asia to the Canadian market. I don't know, Ghislain, if you want to add something to that. Yeah, maybe I can add to your second question, which is, do we have an ROIC target for the business? We do. It's in our small presentation. When we deliver 20% EPS growth and CAD 4 billion of additional free cash flow, then the ROIC, we believe, will be around 15% for 2022. Thank you. Thanks, Fadi. Thank you. Thank you. I would now like to turn the meeting back over to Mr. Ruest. Thank you very much. Thank you for joining us this morning on short notice. Hopefully, you sense from our plan that we're very passionate about it. We're confident we can deliver against that plan. It's a plan that even though we talk about 2022, it's a plan that we've actually started to roll some of these elements in the last few weeks. Now that we are public, we're going to roll out with a lot of energy, things in the remaining weeks of the third quarter and definitely through the fourth quarter. A lot of what we talked about here is going to be taking place in a matter of weeks, not a matter of quarter. We feel comfortable with the target that we have. I'm confident about the team. I'm very energized about doing it. Because I've been very involved in working out the detail of this plan with Rob and Ghislain, I intend to see this plan through all the way to its end. Thank you. You're welcome. This conference has now ended. Please disconnect your lines at this time, and thank you for your participation.