TORONTO, July 29, 2016 /CNW/ - George Weston Limited
(TSX: WN) ("GWL" or the "Company") today announced its consolidated
unaudited results for the 12 weeks ended June 18, 2016.
GWL's 2016 Second Quarter Report to Shareholders has been filed
with SEDAR and is available at sedar.com and in the Investor Centre
section of the Company's website at weston.ca.
Pavi Binning, President and Chief
Executive Officer, George Weston Limited, commented that "George
Weston Limited's second quarter results reflect the Company's
operating segments' progress on their strategic priorities. Loblaw
achieved its target of annualized synergies of $300 million since the acquisition of Shoppers
Drug Mart and grew earnings as it delivered same-store sales
growth, stable gross margins and efficiencies. Weston Foods
delivered sales and volume growth and results in line with
expectations."
2016 SECOND QUARTER HIGHLIGHTS
(unaudited)
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($ millions except where otherwise
indicated)
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12 Weeks Ended
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24 Weeks Ended
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For the periods ended as
indicated
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Jun. 18, 2016
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Jun. 20, 2015
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Change
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Jun. 18, 2016
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Jun. 20, 2015
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Change
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Sales
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$
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11,075
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$
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10,851
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2.1%
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$
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21,875
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$
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21,260
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2.9%
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Adjusted
EBITDA(1)
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$
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981
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$
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913
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7.4%
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$
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1,871
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$
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1,763
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6.1%
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Adjusted EBITDA
margin(1)
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8.9%
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8.4%
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8.6%
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8.3%
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Net earnings attributable to
shareholders
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of the Company
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$
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143
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$
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51
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180.4%
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$
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190
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$
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218
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(12.8)%
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Net earnings available to common
shareholders
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of the Company
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$
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133
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$
|
41
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|
224.4%
|
|
$
|
170
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$
|
198
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(14.1)%
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Adjusted net earnings available to
common
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shareholders of the
Company(1)
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$
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200
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$
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170
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17.6%
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$
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368
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$
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322
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14.3%
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Diluted net earnings per common share
($)
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$
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1.04
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$
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0.31
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235.5%
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$
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1.31
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$
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1.53
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(14.4)%
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Adjusted diluted net earnings per common
share(1) ($)
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$
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1.56
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$
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1.32
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18.2%
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$
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2.85
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$
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2.50
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14.0%
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CONSOLIDATED RESULTS OF OPERATIONS
Adjusted net earnings available to common shareholders of the
Company(1) increased by $30 million ($0.24 per common share) to $200 million
($1.56 per common share) in the
second quarter of 2016 compared to the same period in 2015. The
improvement was primarily due to an increase in Loblaw Companies
Limited ("Loblaw") earnings, driven by the improved performance of
its Retail segment, the positive contribution from incremental net
synergies, and the favourable impact of a decrease in depreciation
and amortization. Adjusted net earnings available to common
shareholders of the Company(1) also included the
positive contribution from the increase in the Company's ownership
interest in Loblaw, as a result of Loblaw's share repurchases.
Net earnings available to common shareholders of the Company
increased by $92 million ($0.73
per common share) to $133 million ($1.04 per common share) in the second quarter of
2016 compared to the same period in 2015. The increase in net
earnings available to common shareholders of the Company was as a
result of the improvement in operating performance, as described
above, and the favourable year-over-year net impact of the
following significant items:
- the favourable impact of the fair value adjustment of the
forward sale agreement for 9.6 million Loblaw common shares of
$65 million ($0.37 per common share);
- the favourable impact of a prior year statutory corporate
income tax rate change of $45 million
($0.19 per common share); and
- the favourable impact of lower foreign currency translation
losses of $10 million ($0.07 per common share); partially offset
by,
- the unfavourable impact of the fair value adjustment of the
Trust Unit liability of $95 million
($0.14 per common share).
REPORTABLE OPERATING SEGMENTS
Weston Foods Segment Results
(unaudited)
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($ millions except where otherwise
indicated)
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12 Weeks Ended
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24 Weeks Ended
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For the periods ended as
indicated
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Jun. 18, 2016
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Jun. 20, 2015
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Change
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Jun. 18, 2016
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Jun. 20, 2015
|
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Change
|
Sales
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$
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496
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$
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464
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6.9%
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$
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1,058
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$
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968
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9.3%
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Adjusted
EBITDA(1)
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$
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59
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$
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58
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1.7%
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$
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122
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$
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121
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0.8%
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Adjusted EBITDA
margin(1)
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11.9%
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12.5%
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11.5%
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12.5%
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Depreciation and
amortization(i)
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$
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24
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$
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19
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26.3%
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$
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51
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$
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37
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37.8%
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(i)
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Depreciation and amortization in the second quarter
of 2016 includes $2 million (2015 – nil) of accelerated
depreciation related to restructuring and other
charges.
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Sales Weston Foods sales in the second quarter of
2016 were $496 million, an increase of $32 million, or
6.9%, compared to the same period in 2015. Sales included the
positive impact of foreign currency translation of approximately
2.6%. Excluding the impact of foreign currency translation, sales
increased by 4.3% primarily due to an increase in volumes. The
timing of Easter had a nominal impact when compared to 2015.
Adjusted EBITDA(1) Weston Foods adjusted
EBITDA(1) in the second quarter of 2016 was
$59 million, an increase of $1
million, or 1.7%, compared to the same period in 2015.
The increase was driven by the positive impact of the increase in
sales and productivity improvements, partially offset by continued
investments in the business and new plant costs.
Adjusted EBITDA margin(1) in the second quarter of
2016 was 11.9% compared to 12.5% in the same period in 2015.
The decline in adjusted EBITDA margin(1) was mainly due
to incremental investments in the business and new plant costs.
Depreciation and Amortization Weston Foods
depreciation and amortization was $24 million in the second
quarter of 2016, an increase of $5 million compared to the
same period in 2015. Depreciation and amortization in the second
quarter of 2016 included $2 million (2015 – nil) of
accelerated depreciation related to the planned closures of pie and
cake manufacturing facilities. Excluding this amount, depreciation
and amortization increased by $3 million due to investments in
capital.
Weston Foods Other Business Matters
Restructuring Weston Foods continuously
evaluates strategic and cost reduction initiatives related to its
manufacturing assets, distribution networks and administrative
infrastructure with the objective of ensuring a low cost
operating structure. Restructuring activities related to these
initiatives are ongoing and in the second quarter of 2016,
Weston Foods recorded restructuring and other charges of
$5 million (2015 – nil), including $2 million (2015 –
nil) of accelerated depreciation. These charges primarily relate to
restructuring plans to close manufacturing facilities in
Canada and the U.S. with
production transferring to other facilities.
Loblaw Segment Results
(unaudited)
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($ millions except where otherwise
indicated)
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12 Weeks Ended
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24 Weeks Ended
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For the periods ended as
indicated
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Jun. 18, 2016
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Jun. 20, 2015
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Change
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Jun. 18, 2016
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Jun. 20, 2015
|
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Change
|
Sales
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$
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10,731
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$
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10,535
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1.9%
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$
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21,112
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$
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20,583
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2.6%
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Retail gross
profit(i)
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$
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2,811
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$
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2,711
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3.7%
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$
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5,587
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$
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5,335
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4.7%
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Adjusted
EBITDA(1)
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$
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922
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$
|
855
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7.8%
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$
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1,749
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$
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1,642
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6.5%
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Adjusted EBITDA
margin(1)
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8.6%
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8.1%
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8.3%
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8.0%
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Depreciation and
amortization(ii)
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$
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346
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$
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369
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(6.2)%
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$
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714
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$
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739
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(3.4)%
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(i)
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Loblaw Retail gross profit in the second quarter of
2016 includes the impact of certain items described in the Retail
Gross Profit section below that are excluded from adjusted
EBITDA(1).
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(ii)
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Depreciation and amortization includes
$123 million (2015 – $124 million) of amortization of
intangible assets acquired with Shoppers Drug Mart Corporation
("Shoppers Drug Mart").
|
Loblaw has three reportable operating segments: Retail,
Financial Services and Choice Properties Real Estate Investment
Trust ("Choice Properties"). Loblaw is one reportable operating
segment of GWL.
Overall Loblaw Performance Loblaw adjusted
EBITDA(1) increased by $67 million in the second
quarter of 2016 compared to the same period in 2015, primarily
driven by Retail. The increase in Retail adjusted
EBITDA(1) was primarily driven by higher sales,
incremental net synergies and improvements in selling general
and administrative expenses ("SG&A") as a percentage of sales.
The increase in Loblaw adjusted EBITDA(1) in the second
quarter of 2016 also included the improved performance in Financial
Services.
During the second quarter of 2016, Loblaw achieved its target of
annualized synergies of $300 million since the acquisition of
Shoppers Drug Mart.
Sales Loblaw sales in the second quarter of 2016
were $10,731 million, an
increase of $196 million compared to the same period in
2015, primarily driven by Retail. Retail sales increased by
$176 million, or 1.7%, compared to
the same period in 2015 and included food retail sales of
$7,718 million (2015 –
$7,629 million) and drug retail
sales of $2,776 million (2015 –
$2,689 million).
The increase in Retail sales was primarily due to the following
factors:
- food retail same-store sales growth was 0.4%. The timing of
Easter had a negative impact of approximately 1.0%. Loblaw's food
retail average quarterly internal food price index was slightly
lower than the average quarterly national food price inflation of
1.8% as measured by "The Consumer Price Index for Food Purchased
from Stores" ("CPI"). CPI does not necessarily reflect the effect
of inflation on the specific mix of goods sold in Loblaw
stores;
- drug retail same-store sales growth was 4.0%, including
same-store pharmacy sales growth of 3.6% and front store same-store
sales growth of 4.3%. The timing of Easter had a negative impact on
front store same-store sales of approximately 1.0%; and
- in the last 12 months, there was a decrease in Retail net
square footage of 0.4 million square feet, or 0.6%, primarily
driven by Loblaw's store closure plan announced in 2015. Loblaw's
store closure plan had a negative impact on sales of approximately
$75 million.
Retail gross profit and adjusted EBITDA(1) in the
second quarter of 2016 included the impacts related to the
franchises consolidated in the quarter, as set out in "Loblaw Other
Business Matters".
Retail Gross Profit Loblaw Retail gross profit in
the second quarter of 2016 was $2,811 million, an increase of
$100 million compared to the same period in 2015 and included
the unfavourable year-over-year net impact of the following:
- a charge of $9 million related to
inventory losses and related costs at retail locations in
Fort McMurray impacted by the
wildfire;
- a charge of $4 million related to
inventory impairment as a result of Loblaw's revised plans to
restructure certain drug retail ancillary assets that were
previously marketed for sale; and
- a charge of $2 million related to
restructuring and other charges; partially offset by,
- a prior year charge of $8 million
related to apparel inventory.
Excluding these impacts, Retail gross profit increased
$107 million to $2,826 million and Retail gross profit
percentage of 26.9% increased by 50 basis points compared to the
second quarter of 2015. Excluding the consolidation of franchises,
Retail gross profit percentage was 26.4%, an increase of 10 basis
points compared to the second quarter of 2015, driven by the
achievement of operational synergies and strong drug retail front
store margins, partially offset by food retail promotional
investment.
Adjusted EBITDA(1) Loblaw adjusted
EBITDA(1) in the second quarter of 2016 was
$922 million, an increase of $67 million compared to the
same period in 2015, primarily driven by Retail. Retail adjusted
EBITDA(1) increased $61 million driven by an
increase in Retail gross profit, as described above, partially
offset by an increase in Retail SG&A of $46 million.
Retail SG&A as a percentage of sales was 18.6%, an increase of
10 basis points compared to the second quarter of 2015.
Excluding the consolidation of franchises, SG&A as a percentage
of sales was 18.0%, an improvement of 40 basis points compared to
the second quarter of 2015, driven by the positive impact of
Loblaw's store closure plan announced in 2015 and operational
efficiencies in retail stores.
Loblaw adjusted EBITDA(1) in the second quarter of
2016 also included the increase in Financial Services adjusted
EBITDA(1) of $6 million primarily driven by higher
interest and net interchange income attributable to the growth in
credit card receivables and higher Mobile Shop sales.
Depreciation and Amortization Loblaw's depreciation
and amortization was $346 million in the second
quarter of 2016, a decrease of $23 million compared to
the same period in 2015. The decline in depreciation
and amortization was primarily attributable to a change in the
estimated useful life of certain equipment and fixtures.
Depreciation and amortization in the second quarter of 2016
included $123 million (2015 – $124 million) of
amortization of intangible assets acquired with Shoppers
Drug Mart.
Loblaw Other Business Matters
Gas Bar Network In the second quarter of
2016, Loblaw began engaging with potential buyers for the sale of
its gas bar operations. The gas bar network is comprised of
approximately 200 retail fuel sites. On an annual basis, the gas
bar operations sell approximately 1,700 million litres of gas
and generate sales of approximately $1,600 million.
Consolidation of Franchises Loblaw has more
than 500 franchise stores in its network. As of the end of the
second quarter of 2016, 132 of these stores were consolidated for
accounting purposes under a new, simplified franchise agreement
("Franchise Agreement") implemented in 2015.
Loblaw will convert franchises to the Franchise Agreement as
existing agreements expire, at the end of which all franchises will
be consolidated. The following table presents the franchises
consolidated in the second quarter of 2016 and the total impact of
the consolidated franchises:
(unaudited)
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($ millions)
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|
12 Weeks Ended
|
For the periods ended as
indicated
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Jun. 18, 2016
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|
Jun. 20, 2015
|
Number of Consolidated Franchise stores, beginning of
period
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115
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Add: Number of Consolidated
Franchise stores in the period
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|
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|
|
17
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|
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16
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Number of Consolidated Franchise stores, end of
period
|
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|
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132
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16
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Sales
|
|
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$
|
75
|
|
$
|
5
|
Retail gross profit
|
|
|
|
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75
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|
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5
|
Adjusted
EBITDA(1)
|
|
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(1)
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(2)
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Depreciation and
amortization
|
|
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4
|
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Net income (loss) attributable to Non-Controlling
Interest
|
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(5)
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1
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Retail locations in Fort
McMurray In the second quarter of 2016,
10 Loblaw retail locations in Fort
McMurray were impacted by a wildfire that caused an
evacuation of the city. During the second quarter of 2016, Loblaw
recognized a charge of approximately $12
million related to inventory losses, site clean-up and
restoration costs at these locations. An insurance claim is in
progress and proceeds are expected to be recorded as the claim
progresses.
Loblaw estimates the financial impact to Retail results in the
second quarter of 2016 from the temporary closure of these retail
locations as follows: a decrease in sales of approximately
$25 million and a decrease in adjusted EBITDA(1) of
approximately $6 million. Loblaw maintains business
interruption insurance and expects that certain losses will be
recoverable under this insurance coverage.
Restructuring and other related charges In
the second quarter of 2016, Loblaw recorded an additional charge
related to store closures of approximately $43 million. This
amount was primarily related to the closure of the remaining
Joe Fresh retail location in the
U.S.
Drug Retail Ancillary Assets In 2015, Loblaw
began actively marketing the sale of certain assets of the Shoppers
Drug Mart ancillary healthcare business and recorded asset
impairments on these assets and other related restructuring
charges. In the second quarter of 2016, Loblaw signed agreements
for the sale of a portion of these assets and ceased actively
marketing the remaining assets and restructured those assets as
part of ongoing operations. As a result, Loblaw recorded a charge
of $4 million related to inventory impairment and reversals of
$8 million of previous asset impairments and restructuring and
other related charges in the second quarter and year-to-date.
OUTLOOK(2)
Weston Foods expects sales growth generated by new capacity and
productivity improvements to drive an increase in adjusted
EBITDA(1) in 2016 when compared to 2015. The increase in
adjusted EBITDA(1) is expected to be greater in the
second half of the year as new plant capacity and capability come
on-line. Management now expects to make capital investments of
approximately $275 million in 2016
compared to $300 million previously
stated. Depreciation is projected to increase in 2016 when compared
to 2015, and largely offset the improvement in adjusted
EBITDA(1). The competitive retail landscape continues to
intensify and this may put added pressure on the business.
Loblaw remains focused on its strategic framework, delivering
the best in food, best in health and beauty, operational excellence
and growth. This strategic framework is supported by a financial
strategy of maintaining a stable trading environment that targets
positive same-store sales and stable gross margin; surfacing
efficiencies; delivering synergies as a result of its acquisition
of Shoppers Drug Mart; and returning capital to shareholders. In
2016, Loblaw expects to:
- deliver positive same-store sales and stable gross margin in
its Retail segment in a highly competitive grocery market and with
continued negative pressure from healthcare reform;
- grow adjusted net earnings(1);
- invest approximately $1.3 billion
in capital expenditures, including $1.0
billion in its Retail segment; and
- return capital to shareholders by allocating a significant
portion of free cash flow to share repurchases.
For 2016, the Company expects growth in net earnings to be
driven by an increase in net earnings at Loblaw, and the positive
impact of the Company's increased ownership in Loblaw as a result
of Loblaw's share repurchases.
DECLARATION OF QUARTERLY DIVIDENDS
Subsequent to the end of the second quarter of 2016, the Company's
Board of Directors declared a quarterly dividend on GWL Common
Shares, Preferred Shares, Series I, Preferred Shares, Series III,
Preferred Shares, Series IV and Preferred Shares, Series V
payable as follows:
|
Common Shares
|
|
$0.44 per share payable October 1, 2016, to
shareholders of record September 15,
2016;
|
|
|
|
|
|
Preferred Shares, Series
I
|
|
$0.3625 per share payable September 15, 2016, to
shareholders of record August 31,
2016;
|
|
|
|
|
|
Preferred Shares, Series
III
|
|
$0.3250 per share payable October 1, 2016, to
shareholders of record September 15,
2016;
|
|
|
|
|
|
Preferred Shares, Series
IV
|
|
$0.3250 per share payable October 1, 2016, to
shareholders of record September 15, 2016;
and
|
|
|
|
|
|
Preferred Shares, Series
V
|
|
$0.296875 per share payable October 1, 2016, to
shareholders of record September 15,
2016.
|
NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures: EBITDA,
adjusted EBITDA and adjusted EBITDA margin, adjusted net earnings
attributable to shareholders of the Company, adjusted net earnings
available to common shareholders of the Company and adjusted
diluted net earnings per common share. In addition to these items,
the following measures are used by management in calculating
adjusted diluted net earnings per common share: adjusted net
interest expense and other financing charges, adjusted income
taxes and adjusted income tax rate. The Company believes these
non-GAAP financial measures provide useful information to both
management and investors in measuring the financial performance of
the Company for the reasons outlined below.
Management uses these and other non-GAAP financial measures to
exclude the impact of certain expenses and income that must be
recognized under GAAP when analyzing consolidated and segment
underlying operating performance. The excluded items are not
necessarily reflective of the Company's underlying operating
performance and make comparisons of underlying financial
performance between periods difficult. From time to time, the
Company may exclude additional items if it believes doing so would
result in a more effective analysis of underlying operating
performance. The exclusion of certain items does not imply that
they are non-recurring.
These measures do not have a standardized meaning prescribed by
GAAP and therefore they may not be comparable to similarly titled
measures presented by other publicly traded companies, and they
should not be construed as an alternative to other financial
measures determined in accordance with GAAP.
For details on the nature of items excluded in the calculation
of any of the non-GAAP financial measures detailed below, see the
"Non-GAAP Financial Measures" section of the Company's Second
Quarter 2016 Report to Shareholders.
EBITDA and Adjusted EBITDA The Company believes
adjusted EBITDA is useful in assessing and making decisions
regarding the underlying operating performance of the Company's
ongoing operations and in assessing the Company's ability to
generate cash flows to fund its cash requirements, including its
capital investment program.
The following table reconciles EBITDA and adjusted EBITDA to
operating income, which is reconciled to GAAP net earnings
attributable to shareholders of the Company reported for the
periods ended as indicated.
|
12 Weeks Ended
|
|
Jun. 18, 2016
|
Jun. 20, 2015
|
(unaudited)
($ millions)
|
Weston
Foods
|
Loblaw
|
Other(i)
|
Consolidated
|
Weston
Foods
|
Loblaw
|
Other(i)
|
Consolidated
|
Net earnings attributable to shareholders of the
Company
|
|
|
|
|
|
|
$
|
143
|
|
|
|
|
|
|
$
|
51
|
Add impact of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
103
|
|
Income taxes
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
129
|
|
Net interest expense and other financing
charges
|
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
140
|
Operating income
|
$
|
26
|
$
|
515
|
$
|
(16)
|
$
|
525
|
$
|
38
|
$
|
411
|
$
|
(26)
|
$
|
423
|
Depreciation and
amortization
|
24
|
346
|
|
|
370
|
19
|
369
|
|
|
388
|
EBITDA
|
$
|
50
|
$
|
861
|
$
|
(16)
|
$
|
895
|
$
|
57
|
$
|
780
|
$
|
(26)
|
$
|
811
|
Operating income
|
$
|
26
|
$
|
515
|
$
|
(16)
|
$
|
525
|
$
|
38
|
$
|
411
|
$
|
(26)
|
$
|
423
|
Add impact of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets acquired
with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shoppers Drug Mart
|
|
|
|
123
|
|
|
|
123
|
|
|
|
124
|
|
|
|
124
|
|
Restructuring and other
charges
|
|
5
|
|
43
|
|
|
|
48
|
|
|
|
54
|
|
|
|
54
|
|
Fair value adjustment of
derivatives
|
|
3
|
|
10
|
|
|
|
13
|
|
1
|
|
9
|
|
|
|
10
|
|
Charges related to retail locations in Fort
McMurray
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Fixed asset and other related impairments, net
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Pension annuities and
buy-outs
|
|
3
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Drug retail ancillary
assets
|
|
|
|
(4)
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
Charge related to apparel
inventory
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Foreign currency
translation
|
|
|
|
|
|
16
|
|
16
|
|
|
|
|
|
26
|
|
26
|
Adjusted operating
income
|
$
|
37
|
$
|
699
|
|
|
$
|
736
|
$
|
39
|
$
|
610
|
|
|
$
|
649
|
Depreciation and amortization excluding the
impact
|
|
|
|
|
|
|
|
|
|
|
|
of the above
adjustments(ii)
|
22
|
223
|
|
|
245
|
19
|
245
|
|
|
264
|
Adjusted EBITDA
|
$
|
59
|
$
|
922
|
|
|
$
|
981
|
$
|
58
|
$
|
855
|
|
|
$
|
913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Represents the effect of foreign currency translation
on a portion of the U.S. dollar denominated cash and cash
equivalents and short term investments held
by foreign
operations.
|
(ii)
|
Depreciation and amortization for the calculation of
adjusted EBITDA excludes $123 million (2015 – $124 million) of
amortization of intangible assets, acquired
with Shoppers Drug Mart, recorded by
Loblaw and $2 million (2015 – nil) of accelerated depreciation
recorded by Weston Foods, related to restructuring and
other
charges.
|
|
|
|
|
|
24 Weeks Ended
|
|
Jun. 18, 2016
|
Jun. 20, 2015
|
(unaudited)
($ millions)
|
Weston
Foods
|
Loblaw
|
Other(i)
|
Consolidated
|
Weston
Foods
|
Loblaw
|
Other(i)
|
Consolidated
|
Net earnings attributable to shareholders of the
Company
|
|
|
|
|
|
|
$
|
190
|
|
|
|
|
|
|
$
|
218
|
Add impact of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests
|
|
|
|
|
|
|
|
182
|
|
|
|
|
|
|
|
182
|
|
Income taxes
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
225
|
|
Net interest expense and other financing
charges
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
317
|
Operating income
|
$
|
60
|
$
|
949
|
$
|
(27)
|
$
|
982
|
$
|
79
|
$
|
823
|
$
|
40
|
$
|
942
|
Depreciation and
amortization
|
51
|
714
|
|
|
765
|
37
|
739
|
|
776
|
EBITDA
|
$
|
111
|
$
|
1,663
|
$
|
(27)
|
$
|
1,747
|
$
|
116
|
$
|
1,562
|
$
|
40
|
$
|
1,718
|
Operating income
|
$
|
60
|
$
|
949
|
$
|
(27)
|
$
|
982
|
$
|
79
|
$
|
823
|
$
|
40
|
$
|
942
|
Add impact of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets acquired
with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shoppers Drug Mart
|
|
|
|
247
|
|
|
|
247
|
|
|
|
248
|
|
|
|
248
|
|
Restructuring and other
charges
|
|
14
|
|
44
|
|
|
|
58
|
|
4
|
|
66
|
|
|
|
70
|
|
Fair value adjustment of
derivatives
|
|
2
|
|
20
|
|
|
|
22
|
|
|
|
(3)
|
|
|
|
(3)
|
|
Charges related to retail locations in Fort
McMurray
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Prior year tax
assessment
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Fixed asset and other related impairments, net
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recoveries
|
|
|
|
2
|
|
|
|
2
|
|
|
|
7
|
|
|
|
7
|
|
Pension annuities and
buy-outs
|
|
3
|
|
2
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Drug retail ancillary
assets
|
|
|
|
(4)
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
Charge related to apparel
inventory
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Shoppers Drug Mart net divestitures and
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
costs
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Inventory loss
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
1
|
|
Foreign currency
translation
|
|
|
|
|
|
27
|
|
27
|
|
|
|
|
|
(40)
|
|
(40)
|
Adjusted operating
income
|
$
|
79
|
$
|
1,282
|
|
|
$
|
1,361
|
$
|
84
|
$
|
1,151
|
|
|
$
|
1,235
|
Depreciation and amortization excluding the
impact
|
|
|
|
|
|
|
|
|
|
|
|
of the above
adjustments(ii)
|
43
|
467
|
|
|
510
|
37
|
491
|
|
|
528
|
Adjusted EBITDA
|
$
|
122
|
$
|
1,749
|
|
|
$
|
1,871
|
$
|
121
|
$
|
1,642
|
|
|
$
|
1,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Represents the effect of foreign currency translation
on a portion of the U.S. dollar denominated cash and cash
equivalents and short term investments held
by foreign
operations.
|
(ii)
|
Depreciation and amortization for the calculation of
adjusted EBITDA excludes $247 million (2015 –
$248 million) of amortization of intangible assets,
acquired
with Shoppers Drug Mart, recorded by
Loblaw and $8 million (2015 – nil) of accelerated depreciation
recorded by Weston Foods, related to restructuring and
other
charges.
|
The following new items impacted operating income in the second
quarter of 2016:
Charges related to Retail locations in Fort McMurray In the second
quarter of 2016, 10 retail locations in Fort McMurray were impacted by the wildfire
that caused the evacuation of the city. Loblaw recognized a charge
related to the inventory losses, site clean-up and other
restoration costs as set out in the "Loblaw Other Business Matters"
section of this News Release.
Drug retail ancillary assets In the second
quarter of 2016, Loblaw ceased actively marketing the remaining
assets in certain drug retail ancillary operations that were
previously marketed for sale as set out in the "Loblaw Other
Business Matters" section of this News Release.
Adjusted Net Interest Expense and Other Financing Charges
The Company believes adjusted net interest expense and other
financing charges is useful in assessing the ongoing net financing
costs of the Company.
The following table reconciles adjusted net interest expense and
other financing charges to GAAP net interest expense and other
financing charges reported for the periods ended as indicated.
(unaudited)
|
|
12 Weeks Ended
|
|
24 Weeks Ended
|
($ millions)
|
|
Jun. 18, 2016
|
|
Jun. 20, 2015
|
|
Jun. 18, 2016
|
|
Jun. 20, 2015
|
Net interest expense and other financing
charges
|
|
$
|
157
|
|
$
|
140
|
|
$
|
394
|
|
$
|
317
|
Add:
|
Fair value adjustment of the Trust Unit
liability
|
|
(73)
|
|
22
|
|
(94)
|
|
(17)
|
|
Fair value adjustment of the forward sale agreement
for 9.6 million
|
|
|
|
|
|
|
|
|
|
|
Loblaw common
shares
|
|
51
|
|
(14)
|
|
(31)
|
|
(11)
|
|
Accelerated amortization of deferred
financing costs
|
|
|
|
(8)
|
|
|
|
(11)
|
Adjusted net interest expense and other
financing charges
|
|
$
|
135
|
|
$
|
140
|
|
$
|
269
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Income Taxes and Adjusted Income Tax Rate
The Company believes the adjusted income tax rate applicable
to adjusted earnings before taxes is useful in assessing the
underlying operating performance of its business.
The following table reconciles the effective income tax rate
applicable to adjusted earnings before taxes to the GAAP effective
income tax rate applicable to earnings before taxes as reported for
the periods ended as indicated.
(unaudited)
|
|
12 Weeks Ended
|
|
24 Weeks Ended
|
($ millions except where otherwise
indicated)
|
|
Jun. 18, 2016
|
|
Jun. 20, 2015
|
|
Jun. 18, 2016
|
|
Jun. 20, 2015
|
Adjusted operating
income(i)
|
|
$
|
736
|
|
$
|
649
|
|
$
|
1,361
|
|
$
|
1,235
|
Adjusted net interest expense and other
financing charges(i)
|
|
135
|
|
140
|
|
269
|
|
278
|
Adjusted earnings before
taxes
|
|
$
|
601
|
|
$
|
509
|
|
$
|
1,092
|
|
$
|
957
|
Income taxes
|
|
$
|
141
|
|
$
|
129
|
|
$
|
216
|
|
$
|
225
|
Add:
|
Tax impact of items excluded from adjusted earnings
before taxes(ii)
|
|
30
|
|
54
|
|
95
|
|
80
|
|
Statutory corporate income tax rate
change
|
|
|
|
|
(45)
|
|
(3)
|
|
(45)
|
Adjusted income taxes
|
|
$
|
171
|
|
$
|
138
|
|
$
|
308
|
|
$
|
260
|
Effective income tax rate applicable to earnings
before taxes
|
|
38.3%
|
|
|
45.6%
|
|
|
36.7%
|
|
|
36.0%
|
Adjusted income tax rate applicable to adjusted
earnings before taxes
|
|
28.5%
|
|
|
27.1%
|
|
|
28.2%
|
|
|
27.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
See reconciliations of adjusted operating income and
adjusted net interest expense and other financing charges
above.
|
(ii)
|
See the EBITDA and adjusted EBITDA table and the
adjusted net interest expense and other financing charges table
above for a complete list of items excluded from adjusted earnings
before taxes.
|
Adjusted Diluted Net Earnings per Common Share and Adjusted
Net Earnings The Company believes adjusted diluted net
earnings per common share and adjusted net earnings are useful in
assessing the Company's underlying operating performance and in
making decisions regarding the ongoing operations of its
business.
The following table reconciles adjusted diluted net earnings per
common share and adjusted net earnings to GAAP net earnings
attributable to shareholders of the Company and diluted net
earnings per common share reported for the periods ended as
indicated.
(unaudited)
|
|
12 Weeks Ended
|
|
24 Weeks Ended
|
($ except where otherwise
indicated)
|
|
Jun. 18, 2016
|
|
Jun. 20, 2015
|
|
Jun. 18, 2016
|
|
Jun. 20, 2015
|
Weighted average common shares
outstanding(ii) (millions)
|
|
128.4
|
|
128.2
|
|
128.3
|
|
128.2
|
Net earnings attributable to shareholders of the
Company ($ millions)
|
|
$
|
143
|
|
$
|
51
|
|
$
|
190
|
|
$
|
218
|
Prescribed dividends on preferred shares in share
capital ($ millions)
|
|
10
|
|
10
|
|
20
|
|
20
|
Net earnings available to common shareholders of
the Company ($ millions)
|
|
$
|
133
|
|
$
|
41
|
|
$
|
170
|
|
$
|
198
|
Reduction in net earnings due to dilution at
Loblaw ($ millions)
|
|
|
|
1
|
|
2
|
|
2
|
Net earnings available to common shareholders for
diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions)
|
|
$
|
133
|
|
$
|
40
|
|
$
|
168
|
|
$
|
196
|
Diluted net earnings per common share
($)
|
|
$
|
1.04
|
|
$
|
0.31
|
|
$
|
1.31
|
|
$
|
1.53
|
Add impact of the
following(i):
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets acquired with
Shoppers Drug Mart
|
|
0.34
|
|
0.33
|
|
0.66
|
|
0.65
|
|
Restructuring and other
charges
|
|
0.17
|
|
0.18
|
|
0.22
|
|
0.22
|
|
Fair value adjustment of
derivatives
|
|
0.04
|
|
0.03
|
|
0.06
|
|
(0.01)
|
|
Charges related to retail locations in Fort
McMurray
|
|
0.03
|
|
|
|
0.03
|
|
|
|
Prior year tax
assessment
|
|
|
|
|
|
0.02
|
|
|
|
Fixed asset and other related impairments, net of
recoveries
|
|
|
|
0.01
|
|
0.01
|
|
0.02
|
|
Pension annuities and
buy-outs
|
|
0.02
|
|
|
|
0.03
|
|
|
|
Drug retail ancillary
assets
|
|
(0.01)
|
|
|
|
(0.01)
|
|
|
|
Charge related to apparel
inventory
|
|
|
|
0.02
|
|
|
|
0.02
|
|
Shoppers Drug Mart divestitures
loss
|
|
|
|
|
|
|
|
0.01
|
|
Inventory loss
|
|
|
|
|
|
|
|
0.01
|
|
Fair value adjustment of the forward sale agreement
for 9.6 million Loblaw
|
|
|
|
|
|
|
|
|
|
|
common
shares
|
|
(0.29)
|
|
0.08
|
|
0.17
|
|
0.07
|
|
Fair value adjustment of the Trust Unit
liability
|
|
0.11
|
|
(0.03)
|
|
0.15
|
|
0.03
|
|
Accelerated amortization of deferred financing
costs
|
|
|
|
0.02
|
|
|
|
0.03
|
|
Statutory corporate income tax rate
change
|
|
|
|
0.19
|
|
0.01
|
|
0.19
|
|
Foreign currency
translation
|
|
0.11
|
|
0.18
|
|
0.19
|
|
(0.27)
|
Adjusted diluted net earnings per common
share
|
|
$
|
1.56
|
|
$
|
1.32
|
|
$
|
2.85
|
|
$
|
2.50
|
Adjusted net earnings attributable to shareholders of
the Company ($ millions)
|
|
$
|
210
|
|
$
|
180
|
|
$
|
388
|
|
$
|
342
|
Prescribed dividends on preferred shares in share
capital ($ millions)
|
|
10
|
|
10
|
|
20
|
|
20
|
Adjusted net earnings available to common
shareholders of the Company ($
millions)
|
|
$
|
200
|
|
$
|
170
|
|
$
|
368
|
|
$
|
322
|
Reduction in net earnings due to dilution at
Loblaw ($ millions)
|
|
|
|
1
|
|
2
|
|
2
|
Adjusted net earnings available to common
shareholders for diluted earnings
|
|
|
|
|
|
|
|
|
|
|
|
per share ($
millions)
|
|
$
|
200
|
|
$
|
169
|
|
$
|
366
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Net of income taxes and non-controlling interests, as
applicable.
|
(ii)
|
Includes impact of dilutive instruments for purposes
of calculating adjusted diluted net earnings per common
share.
|
FORWARD-LOOKING STATEMENTS
This News Release contains forward-looking statements about the
Company's objectives, plans, goals, aspirations, strategies,
financial condition, results of operations, cash flows,
performance, prospects and opportunities. Specific forward-looking
statements in this News Release include, but are not limited to,
statements with respect to the Company's anticipated future
results, events and plans, synergies and other anticipated benefits
associated with the acquisition of Shoppers Drug Mart, anticipated
insurance proceeds related to the Fort
McMurray wildfire and planned capital investments. These
specific forward-looking statements are contained throughout this
News Release including, without limitation, in the "Outlook"
section of this News Release. Forward-looking statements are
typically identified by words such as "expect", "anticipate",
"believe", "foresee", "could", "estimate", "goal", "intend",
"plan", "seek", "strive", "will", "may", "maintain", "achieve",
"grow", and "should" and similar expressions, as they relate to the
Company and its management.
Forward-looking statements reflect the Company's current
estimates, beliefs and assumptions, which are based on management's
perception of historical trends, current conditions and expected
future developments, as well as other factors it believes are
appropriate in the circumstances. The Company's expectation of
operating and financial performance in 2016 is based on certain
assumptions including assumptions about sales and volume growth,
anticipated cost savings, operating efficiencies, and continued
growth from current initiatives. The Company's estimates, beliefs
and assumptions are inherently subject to significant business,
economic, competitive and other uncertainties and contingencies
regarding future events and as such, are subject to change. The
Company can give no assurance that such estimates, beliefs and
assumptions will prove to be correct.
Numerous risks and uncertainties could cause the Company's
actual results to differ materially from those expressed, implied
or projected in the forward-looking statements, including those
described in the "Enterprise Risks and Risk Management" section of
the Management's Discussion and Analysis in the Company's 2015
Annual Report and the Company's Annual Information Form ("AIF") for
the year ended December 31, 2015. Such risks and uncertainties
include:
- changes to the regulation of generic prescription drug prices,
the reduction of reimbursements under public drug benefit plans and
the elimination or reduction of professional allowances paid by
drug manufacturers to Loblaw;
- the inability of the Company's information technology ("IT")
infrastructure to support the requirements of the Company's
business, or the occurrence of any internal or external security
breaches, denial of service attacks, viruses, worms and other known
or unknown cybersecurity or data breaches;
- failure to realize benefits from investments in Loblaw's new IT
systems;
- the inability of the Company to manage inventory to minimize
the impact of obsolete or excess inventory and to control
shrink;
- public health events including those related to food and drug
safety;
- failure by Loblaw to realize the anticipated strategic benefits
associated with the acquisition of Shoppers Drug Mart;
- the inability of the Company to effectively develop and execute
its strategy;
- failure to realize anticipated results, including revenue
growth, anticipated cost savings or operating efficiencies
associated with the Company's major initiatives, including those
from restructuring;
- failure by Loblaw's franchisees or Shoppers Drug Mart licensees
("Associates") to operate in accordance with prescribed procedures
or standards, or disruptions to Loblaw's relationship with its
franchisees or Associates;
- failure to achieve desired results in labour negotiations,
including the terms of future collective bargaining agreements,
which could lead to work stoppages;
- changes in the Company's income, capital, commodity, property
and other tax and regulatory liabilities, including changes in tax
laws, regulations or future assessments;
- reliance on the performance and retention of third-party
service providers, including those associated with the Company's
supply chain and Loblaw's apparel business;
- issues with vendors in both advanced and developing
markets;
- the risk that the Company would experience a financial loss if
its counterparties fail to meet their obligations in accordance
with the terms and conditions of their contracts with the
Company;
- failure to merchandise effectively or in a manner that is
responsive to customer demand;
- heightened competition, whether from current competitors or new
entrants to the marketplace;
- the inability of the Company to anticipate, identify and react
to consumer and retail trends;
- changes in economic conditions, including economic recession or
changes in the rate of inflation or deflation, employment rates,
changes in interest rates, currency exchange rates and derivative
and commodity prices;
- the impact of potential environmental liabilities; and
- the inability of Loblaw to collect on or fund its credit card
receivables.
This is not an exhaustive list of the factors that may affect
the Company's forward-looking statements. Other risks and
uncertainties not presently known to the Company or that the
Company presently believes are not material could also cause actual
results or events to differ materially from those expressed in its
forward-looking statements. Additional risks and uncertainties are
discussed in the Company's materials filed with the Canadian
securities regulatory authorities from time to time, including
without limitation, the section entitled "Operating and Financial
Risks and Risk Management" in the Company's AIF for the year ended
December 31, 2015. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect the Company's expectations only as of the
date of this News Release. Except as required by law, the Company
does not undertake to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
2016 SECOND QUARTER REPORT TO SHAREHOLDERS
The Company's 2015 Annual Report and 2016 Second Quarter Report to
Shareholders are available in the Investor Centre section of the
Company's website at www.weston.ca and have been filed
with SEDAR and are available online at www.sedar.com.
INVESTOR RELATIONS
Shareholders, security analysts and investment professionals should
direct their requests to Mr. Geoffrey H. Wilson,
Senior Vice President, Investor Relations, Business Intelligence
and Communications, at the Company's Executive Office or
by e-mail at investor@weston.ca.
Additional financial information has been filed electronically
with various securities regulators in Canada through SEDAR. This News Release
includes selected information on Loblaw Companies Limited, a public
company with shares trading on the Toronto Stock Exchange. For
information regarding Loblaw, readers should also refer to the
materials filed by Loblaw with SEDAR from time to time. These
filings are also maintained at Loblaw's corporate website at
www.loblaw.ca.
SECOND QUARTER CONFERENCE CALL AND WEBCAST
PRESENTATION
George Weston Limited will host a conference call as well as an
audio webcast on Friday, July 29, 2016 at 9:00 a.m.
(EDT). To access via tele-conference, please dial
(647) 427-7450 or 1-888-231-8191. The playback will be
available two hours after the event at (416) 849-0833,
passcode: 77515373#. To access via audio webcast, please
visit the Investor Centre section of www.weston.ca.
Pre-registration will be available.
|
|
Endnotes
|
|
|
(1)
|
See "Non-GAAP Financial Measures" section of this
News Release.
|
(2)
|
This News Release contains forward-looking
information. See Forward-Looking Statements of this News Release
for a discussion of material factors that could cause actual
results to differ materially from the forecasts and projections
herein and of the material factors, estimates, beliefs and
assumptions that were applied in presenting the conclusions,
forecasts and projections presented herein. This News Release must
be read in conjunction with GWL's filings with securities
regulators made from time to time, all of which can be found at
www.weston.ca and www.sedar.com.
|
|
|
SOURCE George Weston Limited