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NOTES
* This framework was prepared by TDSI for the purposes of the review as an illustration of how a financial framework may change as Canada Post transitions to a steady state both financially and operationally. The ratios were derived after examining the characteristics and financial metrics of companies in the telecommunications, pipeline and utilities, and courier industries as well as those of peer postal administrations.

1. Investment Phase: The capital-intensive phase of modernization includes one-time operating expenses and increased interest expenses that may temporarily impact profitability. It would be appropriate to suspend dividends to enable reinvestment. This phase would be marked by a wider capital structure range.
2. 
   
3. Transition Phase: This phase would be marked by decreasing capital intensity. Targeted savings would start to be realized and dividend payments would be resumed albeit at reduced levels.
4. 
   
5. Steady State: Capex intensity returns to maintenance levels as the modernization program concludes. A steady state revised Financial Framework would be appropriate. Cash flow would be available to fund the next investment phase (alterations and renovations and/or the next modernization plan).

1. EBITDAR refers to ‘earnings before interest, taxes, depreciation, amortization and rent’. This is an indicator of financial performance and profitability. The debt to EBITDAR ratio demonstrates debt relative to cash flow. A ratio that is below the range may indicate that Canada Post is underleveraged and a ratio that is above that range may indicate that Canada Post has too much debt.
2. 
   
3. Total Debt/Book Capital provides an assessment of how the firm is leveraging its capital. When attained, ratios (1) and (2) will support Canada Post’s case to obtain an investment grade rating appropriate to access the debt capital market.
4. 
   
5. Canada Post’s liquidity can be assessed by the EBITDAR minus capex divided by Interest ratio, where capex refers to maintenance capital expenditure. This ratio shows the ability of Canada Post to generate sufficient cash flow to cover interest expense after maintenance capital expenditures. The ratio reflects an estimate of the recurring cash generated by the business that can be used to cover debt and lease costs.
6. 
   
7. EBITDA- Earnings before interest, taxes, depreciation and amortization - is a good indicator of profitability and is a widely used metric to assess the recurring cash generated.
8. 
   
9. ROE - Return on book equity provides proxy indicator of the return that Canada Post would have to demonstrate to the market so that it would be able to attract equity investors.
10. 
    
11. Dividend Payout Ratio is another proxy indicator of the level that Canada Post would have to achieve so that it would be able to attract equity investors.
12. 
    
13. Credit Rating will be determined by credit rating agencies taking into account the risks inherent in the businesses of Canada Post, its financial performance, the strength of its monopoly and implicit support provided by its shareholder.

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(x) Operating leases capitalized using a multiple of 7.0X
(y) Interest includes lease expense

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