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Management Message

We continued our two-decade-long record of positive same-store sales growth in 2012, even as economic conditions deteriorated, consumer confidence remained fragile and the competitive environment intensified. We are continuing to innovate and respond to the challenging operating conditions through a multi-faceted approach that builds on our strengths.

Dear Fellow Shareholder,

Nearly 50 years ago, our founders opened their first restaurants. They built their business on the foundation of providing guests with quality coffee and baked goods in a friendly environment and at reasonable prices.

With more than 4,200 restaurants in North America and the Gulf Cooperation Council (GCC), Tim Hortons has changed considerably since our founding, but that central vision of providing our guests with great-tasting coffee and food at reasonable prices is as much a part of our success today as it was back in 1964.

As the world has evolved and changed, so, too, has our business. Our Company has become one of the largest publicly-traded restaurant chains in North America as measured by market capitalization, and the largest in Canada. Our organization has grown significantly in complexity and scale. We have emerged with a unique, differentiated concept including our hallmark coffee, tremendous menu depth and value position.

I am proud of our accomplishments and how far we have come; however, there is much more to do. The economy remains fragile in the geographies where we operate. Consumers are under pressure and competitive intensity has increased. We are doing well given those circumstances, but we can do better.

Last summer, after having been deeply immersed back in the business for a year, I commenced a reorganization process to put our business on a stronger footing for the future. We did so in advance of a CEO succession that the Board anticipates completing by early this summer.

We had become the clear market leader in the Canadian quick service restaurant sector and established a great foothold as a strong regional player in our core markets in the Northeast and Midwest U.S. We have also begun seeding future long-term growth in the Gulf Cooperation Council.

However, we weren’t as agile as we needed to be. Our processes and structure had not kept pace with the phenomenal growth we have experienced over the past decade.

Following a disciplined and comprehensive process, we implemented a new, streamlined organizational structure to allow for more efficient, scalable growth in the future. This process involved some difficult decisions, but in the end, they were the right ones for our business.

We accomplished a lot in 2012. Strategically, we introduced two new menu platforms in the form of Panini sandwiches in Canada and single-serve coffee throughout our North American markets. We commenced efforts to create much-needed capacity in a targeted manner at our Canadian locations, including drive-thru initiatives. We enhanced our ongoing system renovation efforts with new designs that improve the guest experience and better define our brand. We also implemented free Wi-Fi, introduced new payment technologies and rolled out dynamic digital menu boards.

We grew our top line in both Canada and the U.S., continuing our two-decade-long track record of positive same-store sales growth. We opened more than 260 restaurants, bringing the Tim Hortons experience to guests in various markets in North America and the GCC.

Financially, we surpassed $3 billion in revenues for the first time. We delivered operating income of nearly $600 million and $2.59 in diluted earnings per share, an increase of 9.9%. This performance includes expenses of $0.10 per share related to the reorganization.

While operating conditions around us remain tough, we are not standing still. We are creating a bolder, more dynamic Tim Hortons. We continue to redefine what Tim Hortons stands for through menu, operational, marketing and restaurant design initiatives.

In 2013, we plan to invest between $250 million and $300 million to grow our business. We believe that the restaurants we are building today, and the enhanced renovations we are targeting, will help sustain our leadership position in Canada.

We believe that active development in our core growth markets of the U.S., where we are acting as a “challenger brand,” will continue to build our critical mass and scale as we seek to increase our brand’s relevance and deliver profitable growth. Internationally, we continue to seed the brand and are targeting another 20 restaurants for development in the GCC in 2013 as we consider other potential market entries.

In all likelihood, the operating environment in the year ahead will continue to be volatile, with ongoing uncertainty and modest economic recovery. We are focused on the many things that are within our control in this environment and raising the competitive bar as we respond to our guests’ needs.

Paul D. House Signature Paul D. House
Executive Chairman,
President and CEO