TORONTO, Nov. 23, 2021 /CNW/ - George Weston Limited (TSX:
WN) ("GWL" or the "Company") today announced its consolidated
unaudited results for the 16 weeks ended October 9, 2021.
GWL's 2021 Third Quarter Report has been filed on SEDAR and
is available at sedar.com and in the Investor Centre section of
the Company's website at weston.ca.
"George Weston's third quarter
results reflect the strength of its underlying operating
businesses. Loblaw's focus on core retail execution and an
enthusiastic consumer response drove another quarter of strong
financial results, while Choice Properties' results were stable and
reflect its resilient necessity-based portfolio," said Galen G. Weston, Chairman and Chief Executive
Officer, George Weston Limited. "With the recently announced
agreements to sell Weston Foods, George
Weston will continue to focus on its market-leading Retail
and Real Estate businesses. The Company is pleased that the proud
legacy of the bakery business is well-positioned to continue into
the future with two high-quality buyers."
Loblaw Companies Limited ("Loblaw") delivered another quarter of
positive financial results. Loblaw experienced strong demand in
stores and online, as economies re-opened and eat-at-home trends
remained elevated. Seasonal shopping for back-to-school and
Thanksgiving was robust. In Loblaw's pharmacy business, beauty
sales climbed with gradual return to social and work activities
while drug sales grew, supported by demand for pharmacy services.
Loblaw maintained its focus on delivering service and value where
consumers and their families need it most.
Choice Properties Real Estate Investment Trust ("Choice
Properties") delivered strong financial and operational results in
the third quarter of 2021. Contractual rent collections remained
high at 99%, reflecting Choice Properties' necessity-based
portfolio. During the quarter, Choice Properties continued to
advance its long-term pipeline of mixed-use development, submitting
zoning applications for two additional projects. To date, Choice
Properties has approximately 10 million square feet of potential
density submitted for zoning approval. Choice Properties' balance
sheet is strong, and the business is well positioned to execute on
its pipeline of compelling development opportunities.
As at the end of the third quarter of 2021, the Company's
interest in Weston Foods is presented under Discontinued
Operations. Unless otherwise indicated, all financial information
in this News Release represents the results from Continuing
Operations.
2021 THIRD QUARTER HIGHLIGHTS
George Weston Limited's net earnings available to common
shareholders of the Company from continuing operations were
$238 million ($1.58 per common
share) a decrease of $51 million
($0.29 per common share) compared to
the same period in 2020. The decrease was due to the unfavourable
year-over-year net impact of adjusting items totaling
$73 million ($0.50 per common
share), which were primarily comprised of the unfavourable
year-over-year impact of the fair value adjustment of the Trust
Unit liability of $64 million
($0.43 per common share) as a result
of the increase of Choice Properties' unit price in the quarter,
partially offset by an improvement of $22 million
($0.21 per common share) in the
Company's consolidated underlying operating performance.
Adjusted net earnings available to common shareholders of the
Company(1) from continuing operations in the third
quarter of 2021 were $365 million
($2.43 per common share). Compared to
the same period in 2020, this represented an increase of
$22 million ($0.21 per common share), or 6.4%, primarily due
to the improvement in the underlying operating performance of
Loblaw. The increase in adjusted diluted net earnings per common
share(1) from continuing operations of $0.21, or 9.5%, was due to the
improvement in adjusted net earnings available to common
shareholders of the Company(1) from continuing
operations and the favourable impact of share repurchases.
CONSOLIDATED RESULTS OF OPERATIONS
The Company's results reflect the impact of COVID-19 and the
year-over-year impact of the fair value adjustment of the Trust
Unit liability as a result of the significant changes in Choice
Properties' unit price, recorded in net interest expense and other
financing charges. The Company's results are impacted by market
price fluctuations of Choice Properties' Trust Units on the basis
that the Trust Units held by unitholders, other than the Company,
are redeemable for cash at the option of the holder and are
presented as a liability on the Company's consolidated balance
sheet. The Company's financial results are negatively impacted when
the Trust Unit price rises and positively impacted when the Trust
Unit price declines.
The Company's interest in Weston Foods is presented separately
as Discontinued Operations in the Company's current and comparative
results.
Unless otherwise indicated, all financial information represents
the Company's results from Continuing Operations.
(unaudited)
($ millions except
where otherwise
indicated)
For the periods ended as indicated
|
16 Weeks
Ended
|
|
|
|
40 Weeks
Ended
|
|
|
|
Oct. 9,
2021
|
Oct. 3,
2020(3,4)
|
$ Change
|
% Change
|
Oct. 9,
2021
|
Oct 3,
2020(3,4)
|
$ Change
|
% Change
|
Revenue
|
$
|
16,192
|
$
|
15,806
|
$
|
386
|
2.4
%
|
$
|
40,846
|
$
|
39,840
|
$
|
1,006
|
2.5
%
|
Operating
income
|
$
|
1,125
|
$
|
964
|
$
|
161
|
16.7
%
|
$
|
3,018
|
$
|
2,006
|
$
|
1,012
|
50.4
%
|
Adjusted
EBITDA(1)
|
$
|
1,780
|
$
|
1,644
|
$
|
136
|
8.3 %
|
$
|
4,542
|
$
|
3,960
|
$
|
582
|
14.7 %
|
Adjusted EBITDA
margin(1)
|
11.0
%
|
|
10.4 %
|
|
|
|
|
11.1
%
|
|
9.9 %
|
|
|
|
Net earnings
attributable to
shareholders of the Company
from Continuing Operations
|
$
|
252
|
$
|
303
|
$
|
(51)
|
(16.8)%
|
$
|
325
|
$
|
683
|
$
|
(358)
|
(52.4)%
|
Net earnings
available to
common shareholders
of the Company
|
$
|
124
|
$
|
303
|
$
|
(179)
|
(59.1)%
|
$
|
170
|
$
|
630
|
$
|
(460)
|
(73.0)%
|
Continuing
Operations
|
$
|
238
|
$
|
289
|
$
|
(51)
|
(17.6)%
|
$
|
291
|
$
|
649
|
$
|
(358)
|
(55.2)%
|
Discontinued
Operations
|
$
|
(114)
|
$
|
14
|
$
|
(128)
|
(914.3)%
|
$
|
(121)
|
$
|
(19)
|
$
|
(102)
|
(536.8)%
|
Adjusted net
earnings
available to common
shareholders
of the Company(1)
|
$
|
359
|
$
|
358
|
$
|
1
|
0.3 %
|
$
|
874
|
$
|
736
|
$
|
138
|
18.8 %
|
Continuing
Operations
|
$
|
365
|
$
|
343
|
$
|
22
|
6.4 %
|
$
|
885
|
$
|
725
|
$
|
160
|
22.1 %
|
Discontinued
Operations
|
$
|
(6)
|
$
|
15
|
$
|
(21)
|
(140.0)%
|
$
|
(11)
|
$
|
11
|
$
|
(22)
|
(200.0)%
|
Diluted net
earnings
per common share ($)
|
$
|
0.82
|
$
|
1.96
|
$
|
(1.14)
|
(58.2)%
|
$
|
1.10
|
$
|
4.08
|
$
|
(2.98)
|
(73.0)%
|
Continuing
Operations
|
$
|
1.58
|
$
|
1.87
|
$
|
(0.29)
|
(15.5)%
|
$
|
1.90
|
$
|
4.21
|
$
|
(2.31)
|
(54.9)%
|
Discontinued
Operations
|
$
|
(0.76)
|
$
|
0.09
|
$
|
(0.85)
|
(944.4)%
|
$
|
(0.80)
|
$
|
(0.13)
|
$
|
(0.67)
|
(515.4)%
|
Adjusted diluted net
earnings
per
common share(1) ($)
|
$
|
2.39
|
$
|
2.32
|
$
|
0.07
|
3.0 %
|
$
|
5.76
|
$
|
4.77
|
$
|
0.99
|
20.8 %
|
Continuing
operations
|
$
|
2.43
|
$
|
2.22
|
$
|
0.21
|
9.5 %
|
$
|
5.83
|
$
|
4.70
|
$
|
1.13
|
24.0 %
|
Discontinued
operations
|
$
|
(0.04)
|
$
|
0.10
|
$
|
(0.14)
|
(140.0)%
|
$
|
(0.07)
|
$
|
0.07
|
$
|
(0.14)
|
(200.0)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2021, the Company recorded net earnings
available to common shareholders of the Company from continuing
operations of $238 million ($1.58 per common share), a decrease of
$51 million ($0.29 per common share) compared to the same
period in 2020. The decrease was due to the unfavourable
year-over-year net impact of adjusting items totaling
$73 million ($0.50 per common
share), partially offset by an improvement of $22 million
($0.21 per common share) in the
consolidated underlying operating performance of the Company
described below.
- The unfavourable year-over-year net impact of adjusting items
totaling $73 million ($0.50 per common share) was primarily due
to:
-
- the unfavourable year-over-year impact of the fair value
adjustment of the Trust Unit liability of $64 million ($0.43
per common share) as a result of the increase in Choice Properties'
unit price in the third quarter of 2021; and
- the unfavourable year-over-year impact of the fair value
adjustment of the forward sale agreement of Loblaw common shares of
$41 million ($0.28 per common share);
partially offset by,
-
- the favourable year-over-year impact of the fair value
adjustment on investment properties of $30
million ($0.21 per common
share) primarily driven by Choice Properties, net of consolidation
adjustments in Other and Intersegment.
- The improvement in the Company's consolidated underlying
operating performance of $22 million
($0.21 per common share) was due
to:
-
- the favourable underlying operating performance of Loblaw;
and
- a decrease in adjusted net interest expense and other financing
charges(1);
partially offset by,
-
- the unfavourable year-over-year impact of certain one-time
gains in the prior year recorded on consolidation in Other and
Intersegment related to Choice Properties' transactions.
- Diluted net earnings per common share from continuing
operations also included the favourable impact of shares purchased
for cancellation over the last 12 months ($0.06 per common share).
Adjusted net earnings available to common shareholders of the
Company(1) from continuing operations were
$365 million, an increase of $22
million, or 6.4%, compared to the same period in 2020 due to
the improvement in the Company's consolidated underlying operating
performance described above. Adjusted diluted net earnings per
common share(1) from continuing operations were
$2.43 per common share in the third
quarter of 2021, an increase of $0.21
per common share, or 9.5%, compared to the same period in 2020. The
increase was due to the favourable performance in adjusted net
earnings available to common shareholders of the
Company(1) from continuing operations and the favourable
impact of share repurchases.
SALE OF WESTON FOODS AND DISCONTINUED OPERATIONS
On March 23, 2021, the Company
announced its intention to launch a process to sell the Weston
Foods business, comprised of the fresh, frozen and ambient bakery
businesses. As at October 9, 2021,
Weston Foods was classified as assets held for sale and
discontinued operations. Subsequent to the end of the third
quarter of 2021, the Company announced on October 26, 2021, an agreement to sell the fresh
and frozen bakery businesses, for aggregate cash consideration of
$1.2 billion and on November 15, 2021, an agreement to sell the
ambient business for aggregate cash consideration of $370 million. The transactions are subject to
compliance with applicable competition law and regulatory reviews
and other closing conditions customary for transactions of this
nature. Subject to the receipt of all regulatory approvals and
satisfaction of customary closing conditions, the Company expects
to close each of the transactions before the end of the first
quarter of 2022. Upon closing of each respective transaction, the
respective purchaser will enter into a supply agreement with
Loblaw.
Discontinued operations represents results of Weston Foods, net
of intersegment eliminations.
Weston Foods sales were $584 million in the third quarter
of 2021, a decrease of 1.4% compared to the same period of 2020,
and included the unfavourable impact of foreign currency
translation of approximately 3.1%. Excluding the unfavourable
impact of foreign currency translation, Weston Foods sales
increased by 1.7% compared to the same period of 2020.
Net loss available to common shareholders of the Company from
discontinued operations in the third quarter of 2021 was
$114 million ($0.76 per common
share) compared to net earnings available to common shareholders of
the Company from discontinued operations of $14 million
($0.09 per common share) in the same
period of 2020, a decrease of $128 million ($0.85 per common share). The decrease was due to
the unfavourable year-over-year net impact of adjusting items
totaling $107 million ($0.71 per
common share) and the unfavourable underlying operating performance
of Weston Foods of $21 million ($0.14 per common share). The unfavourable
year-over-year net impact of adjusting items were primarily due
to:
- a non-cash goodwill impairment net of deferred tax recovery of
$79 million ($0.53 per common share). Upon classifying Weston
Foods as held for sale, the net assets of fresh and frozen, and
ambient businesses were separately measured at the lower of their
carrying value or fair value less costs to sell. Fair value less
costs to sell represents expected aggregate proceeds from the sale
less estimated closing costs and estimated adjustments customary of
transactions of this nature;
- deferred tax expense on outside basis difference of Weston
Foods of $17 million ($0.11 per common share). The deferred tax expense
pertains to temporary differences in respect of GWL's investment in
Weston Foods that are expected to reverse in the foreseeable
future; and
- transaction and other related costs in connection with the sale
of the Weston Foods business of $13
million ($0.09 per common
share).
Adjusted net loss available to common shareholders of the
Company(1) from discontinued operations in the third
quarter of 2021 was $6 million ($0.04 per common share), a decrease of
$21 million ($0.14 per common
share) compared to the same period in 2020, driven by a decline in
the underlying operating performance of Weston Foods.
CONSOLIDATED OTHER BUSINESS MATTERS
COVID-19 RELATED COSTS The Company incurred
COVID-19 related costs of approximately $20 million and
$141 million in the third quarter of
2021 and year-to-date, respectively (2020 - $89 million and $418
million), primarily related to safety and security measures
to protect colleagues, customers, tenants and other stakeholders.
The estimated COVID-19 related costs incurred by each of the
Company's reportable operating segments were as follows:
(unaudited)
($
millions)
|
16 Weeks
Ended
|
40 Weeks
Ended
|
Oct. 9,
2021
|
Oct. 3,
2020
|
Oct. 9,
2021
|
Oct. 3,
2020
|
Loblaw(i)
|
$
|
19
|
$
|
85
|
$
|
137
|
$
|
399
|
Choice
Properties(ii)
|
1
|
4
|
4
|
19
|
Consolidated
|
$
|
20
|
$
|
89
|
$
|
141
|
$
|
418
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Loblaw's COVID-19
related costs included $25 million and $180 million related to
one-time bonuses and benefits for store and distribution centre
colleagues in the second quarters of 2021 and 2020,
respectively.
|
(ii)
|
Choice Properties
recorded a provision of $1 million (2020 – $4 million) and $4
million (2020 – $19 million) in the third quarter of 2021
and year-to-date, respectively, for certain past
due amounts, reflecting increased collectability risk and
negotiated rent abatements.
|
Refer to "Outlook" of this News Release for more
information.
GWL
CORPORATE(5) FINANCING ACTIVITIES The
Company completed the following financing activities during the
third quarters of 2021 and 2020. The cash impacts of these
activities are set out below:
(unaudited)
($
millions)
|
16 Weeks
Ended
|
40 Weeks
Ended
|
Oct. 9,
2021
|
Oct. 3,
2020
|
Oct. 9,
2021
|
Oct. 3,
2020
|
Net Debt Associated
with Equity Forward Sale
Agreement
|
$
|
(462)
|
$
|
—
|
$
|
(515)
|
$
|
—
|
GWL Normal Course
Issuer Bid ("NCIB") - Purchased
and cancelled(i)(ii)
|
(411)
|
—
|
(577)
|
—
|
GWL's Participation
in Loblaw's NCIB
|
136
|
169
|
474
|
261
|
Net Cash Flow (Used)
From Above Activities
|
$
|
(737)
|
$
|
169
|
$
|
(618)
|
$
|
261
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
$26 million of cash
consideration related to common shares repurchased under the NCIB
for cancellation in the second quarter of 2021 was paid in the
third quarter of 2021.
|
(ii)
|
$31 million of cash
consideration related to common shares repurchased under the NCIB
for cancellation in the third quarter of 2021 was paid in the
fourth quarter of 2021.
|
NET DEBT ASSOCIATED WITH EQUITY FORWARD SALE
AGREEMENT In the second quarter of 2021, the Company
began to settle the net debt associated with the equity forward
sale agreement. In the third quarter of 2021, the Company paid
$462 million, net of the $298
million gain on the settlement of 5.83 million of the 9.6
million shares under the agreement, to redeem $283 million of the Series A Debentures and
$475 million of the Series B
Debentures, plus accrued interest.
Subsequent to the end of the third quarter of 2021, the Company
paid $275 million to settle the
remaining balance, resulting in the extinguishment of the Series A
Debentures, Series B Debentures and the settlement of the equity
forward sale agreement. In aggregate, $790
million was paid to extinguish the net debt associated with
the equity forward sale agreement.
The 9.6 million Loblaw shares securing the net debt have been
released and the Company's economic interest in Loblaw is now equal
to its voting interest in Loblaw.
Refer to Section 3.3, "Components of Total Debt" of the
Company's 2021 Third Quarter MD&A for more information.
GWL CREDIT FACILITY In the third quarter of
2021, GWL entered into a $350 million
revolving committed credit facility provided by a syndicate of
lenders with a maturity date of September
13, 2024. The credit facility contains certain financial
covenants. Subsequent to the end of the third quarter of 2021, the
Company drew $275 million on its
credit facility to fund the settlement of the net debt associated
with the equity forward sale agreement.
Refer to Section 3.3, "Components of Total Debt" of the
Company's 2021 Third Quarter MD&A for more information.
GWL'S NCIB - PURCHASED AND CANCELLED
SHARES In the third quarter of 2021, the
Company purchased and cancelled 3.2 million shares under its
NCIB program. At the end of the quarter, the Company had 147.5
million shares outstanding.
In the second quarter of 2021, the Company entered into an
automatic share purchase plan ("ASPP") with a broker in order to
facilitate the repurchase of the Company's common shares under its
NCIB. During the effective period of the ASPP, the Company's broker
may purchase common shares at times when the Company would not be
active in the market. Subsequent to the end of the third quarter of
2021, the Company purchased and cancelled approximately
$70 million of its common shares
under its ASPP.
Refer to Section 3.6, "Share Capital" of the Company's 2021
Third Quarter MD&A for more information.
GWL'S PARTICIPATION IN LOBLAW'S
NCIB Commencing in the first quarter of
2020, the Company began participating in Loblaw's NCIB program
in order to maintain its proportionate percentage ownership.
During the third quarter of 2021, GWL received proceeds of
$136 million from the sale of Loblaw shares.
REPORTABLE OPERATING SEGMENTS
The Company operates through its two reportable operating
segments: Loblaw and Choice Properties. Other and Intersegment
includes eliminations, intersegment adjustments related to the
consolidation and cash and short-term investments held by the
Company. All other company level activities that are not allocated
to the reportable operating segments, such as interest expense,
corporate activities and administrative costs are included in Other
and Intersegment.
Loblaw has two reportable operating segments, retail and
financial services. Loblaw's retail segment consists primarily of
food retail and drug retail. Loblaw provides Canadians with
grocery, pharmacy, health and beauty, apparel, general merchandise
and financial services.
Choice Properties owns, manages and develops a high-quality
portfolio of commercial retail, industrial, office and residential
properties across Canada.
Loblaw Operating Results
(unaudited) ($
millions except where otherwise indicated) For the periods ended as indicated
|
|
16 Weeks
Ended
|
|
|
|
40 Weeks
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct. 9,
2021
|
Oct. 3,
2020(3)
|
$ Change
|
% Change
|
Oct. 9,
2021
|
Oct. 3,
2020(3)
|
$ Change
|
% Change
|
Revenue
|
|
$
|
16,050
|
$
|
15,671
|
$
|
379
|
2.4 %
|
$
|
40,413
|
$
|
39,428
|
$
|
985
|
2.5 %
|
Operating
income
|
|
$
|
861
|
$
|
716
|
$
|
145
|
20.3 %
|
$
|
2,226
|
$
|
1,657
|
$
|
569
|
34.3 %
|
Adjusted
EBITDA(1)
|
|
$
|
1,672
|
$
|
1,516
|
$
|
156
|
10.3 %
|
$
|
4,257
|
$
|
3,685
|
$
|
572
|
15.5 %
|
Adjusted EBITDA
margin(1)
|
|
10.4
%
|
9.7 %
|
|
|
10.5
%
|
9.3 %
|
|
Depreciation and
amortization(i)
|
|
$
|
817
|
$
|
795
|
$
|
22
|
2.8 %
|
$
|
2,041
|
$
|
1,987
|
$
|
54
|
2.7 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Depreciation and
amortization in the third quarter of 2021 includes
$155 million (2020 – $155 million) of amortization of
intangible assets acquired with Shoppers Drug Mart Corporation
("Shoppers Drug Mart").
|
Revenue Loblaw revenue in the third quarter of 2021
was $16,050 million, an increase
of $379 million, or 2.4%, compared to the same period in
2020, driven by an increase in retail sales and an improvement in
financial services revenue.
Retail sales increased by $367 million, or 2.4%, compared
to the same period in 2020 and included food retail sales of
$11,382 million (2020 –
$11,215 million) and drug retail
sales of $4,449 million (2020 –
$4,249 million). The increase
was primarily driven by the following factors:
- food retail same-store sales grew by 0.2% for the quarter.
Sales were impacted by lower eat-at-home trends after strong growth
last year, offset by higher industry inflation levels. The two year
food retail sales Compound Annual Growth Rate
("CAGR")(6) was 4.5%. Food retail basket size decreased
and traffic increased in the quarter, as compared to the third
quarter of 2020;
- Loblaw's internal measures of inflation were slightly higher
than the average quarterly national food price inflation of 2.6%
(2020 – 1.8%), as measured by The Consumer Price Index for Food
Purchased from Stores; and
- drug retail same-store sales grew by 4.4% (2020 – 6.1%).
Pharmacy same-store sales growth benefited from strong sales in fee
related services. Front store same-store sales growth benefited
from the economic re-opening in the third quarter of 2021. Pharmacy
same-store sales growth was 4.8% and front store same-store sales
increased by 4.1%. The two year drug retail sales
CAGR(6) was 5.5%.
In the last 12 months, 15 food and drug stores were opened and
fourteen food and drug stores were closed, resulting in a net
increase in retail square footage of 0.3 million square feet, or
0.4%.
Financial services revenue in the third quarter of 2021
increased by $19 million compared to
the same period in 2020. The increase was primarily driven
by higher interchange income from an increase in customer
spending.
Operating income Loblaw operating income in the
third quarter of 2021 was $861 million, an increase of
$145 million, or 20.3%, compared to the same period in 2020.
The increase included the improvement in underlying operating
performance of $134 million and the favourable year-over-year
net impact of adjusting items totaling $11 million, as
described below:
- the improvement in underlying operating performance of
$134 million was primarily due to the
following:
-
- an improvement in the underlying operating performance of
retail due to an increase in retail gross profit, partially offset
by an increase in selling, general and administrative expenses
("SG&A") and depreciation and amortization; and
- the improvement in the underlying operating performance of
financial services.
- the favourable year-over-year net impact of adjusting items
totaling $11 million was primarily
due to:
-
- the favourable year-over-year impact of fair value adjustments
on fuel and foreign currency contracts of $8
million; and
- the favourable year-over-year impact of a net gain on sale of
non-operating properties of $6
million;
partially offset by,
- the unfavourable year-over-year impact of restructuring and
other related costs of $3
million.
Adjusted EBITDA(1) Loblaw adjusted
EBITDA(1) in the third quarter of 2021 was
$1,672 million, an increase of
$156 million, or 10.3%, compared to the same period in 2020.
The increase was primarily due to an increase in retail of
$149 million and an increase in
financial services of $7 million.
Retail adjusted EBITDA(1) in the third
quarter of 2021 increased by $149 million driven by an
increase in retail gross profit partially offset by an increase in
SG&A of $173 million.
- Retail gross profit percentage of 30.7% increased by 140 basis
points compared to the same period in 2020, from a favourable
change in sales mix in both food retail and drug retail and
underlying improvements in business initiatives.
- Retail SG&A as a percentage of sales was 20.5%, an increase
of 70 basis points compared to the same period of 2020. The
increase was primarily due to the normalization of post-lockdown
operating conditions and higher costs incurred in drug retail from
providing fee related services, partially offset by a reduction in
COVID-19 costs.
Financial services adjusted EBITDA(1) increased by
$7 million compared to the same period in 2020, primarily
driven by higher revenue as described above, lower contractual
charge-off and lower funding costs. This was partially offset by
higher loyalty program costs and operating costs.
Depreciation and Amortization Loblaw depreciation
and amortization in the third quarter of 2021 was
$817 million, an increase of $22 million compared to the
same period in 2020, primarily driven by an increase in
depreciation of information technology ("IT") and leased assets and
an increase in depreciation in the financial services due to
the launch of the PC Money Account. Included in
depreciation and amortization is the amortization of intangible
assets acquired with Shoppers Drug Mart of $155 million (2020
– $155 million).
Consolidation of Franchises Loblaw has more than
500 franchise food retail stores in its network. Non-controlling
interests at Loblaw represent the franchise's earnings in food.
Loblaw's net earnings attributable to non-controlling interests
were $54 million in the third quarter of 2021. When compared
to the third quarter of 2020, this represented an increase of
$39 million or 260%. The increases in non-controlling
interests at Loblaw were primarily driven by higher franchise
earnings in comparison to the same period in 2020.
Network Optimization Subsequent to the end of the
third quarter of 2021, Loblaw finalized network optimization plans
that will result in banner conversions, closures and right-sizing
of approximately 20 unprofitable retail locations across a range of
banners and formats, the majority of which will be banner
conversions and 3 will be closures within food retail. Loblaw
expects to record charges of approximately $25 million to $35
million resulting from this network optimization. These
charges will be recorded as incurred and are expected to include
equipment, severance, lease related and other costs. Loblaw expects
to realize approximately $25 million
in annualized EBITDA run-rate savings related to these plans. This
store optimization project will be substantially complete by the
end of 2022. As Loblaw places emphasis on optimizing its store and
office network, there may be additional charges of this nature in
the fourth quarter of 2021 and into 2022.
Choice Properties Operating Results
(unaudited)
($ millions except
where otherwise
indicated)
For the periods ended
as indicated
|
16 Weeks
Ended
|
|
|
|
40 Weeks
Ended
|
|
|
|
|
|
|
|
|
|
|
|
Oct. 9,
2021
|
Oct. 3,
2020
|
$ Change
|
% Change
|
Oct. 9,
2021
|
Oct. 3,
2020
|
$ Change
|
% Change
|
Revenue
|
$
|
316
|
$
|
309
|
$
|
7
|
2.3 %
|
$
|
967
|
$
|
949
|
$
|
18
|
1.9 %
|
Net interest expense
(income)
and other financing charges(i)
|
$
|
113
|
$
|
145
|
$
|
(32)
|
(22.1)%
|
$
|
878
|
$
|
(44)
|
$
|
922
|
2,095.5 %
|
Net income
|
$
|
163
|
$
|
97
|
$
|
66
|
68.0%
|
$
|
186
|
$
|
334
|
$
|
(148)
|
(44.3)%
|
Funds from
Operations(1)
|
$
|
173
|
$
|
169
|
$
|
4
|
2.4 %
|
$
|
515
|
$
|
480
|
$
|
35
|
7.3 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Net interest expense
(income) and other financing charges includes a fair value
adjustment on Exchangeable Units.
|
Revenue Revenue in the third quarter of 2021
was $316 million, an increase of
$7 million, or 2.3%, compared to the same period in 2020, and
included $176 million (2020 –
$176 million) generated from tenants within Loblaw.
The increase in revenue was primarily driven by:
- the contribution from acquisitions and development transfers
completed in 2020 and 2021;
partially offset by,
- declines due to foregone revenue from dispositions in 2020;
and
- vacancies in select retail and office assets.
Net Interest Expense and Other Financing Charges
Net interest expense and other financing charges in the third
quarter of 2021 were $113 million compared to
$145 million in the same period in 2020. The decrease of
$32 million was primarily driven by the favourable
year-over-year impact of the fair value adjustment of Exchangeable
Units of $31 million.
Net Income Net income in the third quarter of 2021
was $163 million, compared to $97 million in the same
period in 2020. The increase of $66 million was primarily
driven by:
- lower net interest expense and other financing charges as
described above;
- the favourable change in the adjustment to fair value of
investment properties, including those held within equity accounted
joint ventures;
- a decline in expected credit loss provisions; and
- an increase in rental revenue as described above.
Funds from Operations(1) Funds from
Operations(1) in the third quarter of 2021 was
$173 million, an increase of $4 million compared to
the same period in 2020, primarily due to a decline in expected
credit loss provisions, and the contribution from acquisitions and
development transfers completed in 2020 and 2021.
Other Matters Subsequent to the end of the third
quarter of 2021, Choice Properties announced that on December 10, 2021, it will redeem in full, at
par, plus accrued and unpaid interest thereon, the $300 million aggregate principal amount of series
I senior unsecured debentures outstanding bearing interest at 3.01%
with an original maturity date of March 21,
2022.
Subsequent to the end of the third quarter of 2021, Choice
Properties agreed to issue, on a private placement basis,
$350 million aggregate principal
amount of series Q senior unsecured debentures, bearing interest at
a rate of 2.456% per annum and maturing on November 30, 2026.
Subsequent to the end of the third quarter of 2021, Choice
Properties announced that the Toronto Stock Exchange ("TSX")
accepted its intention to make a NCIB to purchase on the TSX or
through alternative trading systems up to 27,558,665 of its Trust
Units during a 12-month period commencing November 19, 2021 and terminating November 18, 2022.
OUTLOOK(2)
For 2021, the Company expects adjusted net
earnings(1) from continuing operations to increase due
to the results from its operating segments, including the continued
improved performance of Loblaw, and to use excess cash to
repurchase shares.
Loblaw Loblaw's businesses continues to be impacted
by the pandemic in 2021, including the challenge of lapping
elevated 2020 sales.
On a full year basis, Loblaw expects:
- its core retail business to grow earnings faster than
sales;
- growth in financial services profitability;
- to invest approximately $1.2
billion in capital expenditures, net of proceeds from
property disposals; and
- to return capital to shareholders by allocating a significant
portion of free cash flow to share repurchases.
Based on its year to date operating and financial performance
and momentum exiting the third quarter, Loblaw expects
year-over-year adjusted diluted net earnings per common
share(1) growth in the low-to-mid thirty percent range,
excluding the impact of the 53rd week in the fourth quarter of
fiscal year 2020 and the charges associated with Loblaw's network
optimization as described in Loblaw Operating Results of this News
Release.
In the third quarter, Loblaw's COVID-19 related costs were
approximately $19 million. Loblaw
incurred COVID-19 costs in the four weeks after the end of the
third quarter of 2021 of approximately $4
million.
Choice Properties Choice Properties' goal is to
provide net asset value appreciation, stable net operating income
growth and capital preservation, all with a long-term
focus.
Although there remains uncertainty on the longer-term impact of
the COVID-19 pandemic, Choice Properties remains confident that its
business model, stable tenant base, and disciplined approach to
financial management will continue to position it well. At the end
of the third quarter of 2021, Choice Properties' diversified
portfolio of retail, industrial and office properties was 97%
occupied and leased to high-quality tenants across Canada. Choice Properties' retail portfolio is
primarily leased to grocery stores, pharmacies or other
necessity-based tenants, and logistics providers, who continue to
perform well in this environment and provide stability to Choice
Properties' overall portfolio. The stability is evident in Choice
Properties' financial results and rent collections, which exceeded
99% for the third quarter.
Choice Properties continues to advance its development program,
which provides Choice Properties with the best opportunity to add
high-quality real estate to its portfolio at a reasonable cost and
drive net asset value appreciation over time. Choice Properties has
a mix of active development projects ranging in size, scale, and
complexity, including retail intensification projects, industrial
greenfield development and rental residential projects located in
urban markets with a focus on transit accessibility.
Underpinning all aspects of Choice Properties' business model is
a strong balance sheet and a disciplined approach to financial
management. Choice Properties takes a conservative approach to
leverage and financing risk by maintaining strong leverage ratios
and a staggered debt maturity profile.
DECLARATION OF QUARTERLY DIVIDENDS
Subsequent to the end of the third quarter of 2021, 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
|
$0.600 per share
payable January 1, 2022, to shareholders of record December 15,
2021;
|
|
|
|
|
|
|
Preferred Shares,
Series I
|
$0.3625 per share
payable December 15, 2021, to shareholders of record November 30,
2021;
|
|
|
|
|
|
|
Preferred Shares,
Series III
|
$0.3250 per share
payable January 1, 2022, to shareholders of record December 15,
2021;
|
|
|
|
|
|
|
Preferred Shares,
Series IV
|
$0.3250 per share
payable January 1, 2022, to shareholders of record December 15,
2021;
|
|
|
|
|
|
|
Preferred Shares,
Series V
|
$0.296875 per share
payable January 1, 2022, to shareholders of record December 15,
2021.
|
|
NON-GAAP FINANCIAL MEASURES
The Company uses non-GAAP financial measures as it believes
these measures provide useful information to both management and
investors with regard to accurately assessing the Company's
financial performance and financial condition.
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 underlying consolidated and
segment operating performance, as the excluded items are not
necessarily reflective of the Company's underlying operating
performance and make comparisons of underlying financial
performance between periods difficult. The Company excludes
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 should
not be construed as an alternative to other financial measures
determined in accordance with GAAP.
For reconciliation to, and description of the Company's non-GAAP
financial measures and financial metrics, see Section 9, "Non-GAAP
Financial Measures", of the MD&A in the Company's 2021 Third
Quarter Report.
Non-GAAP Financial Measures Policy Change Effective First
Quarter of 2021 In 2020, management undertook a review of
historical adjusting items as part of an effort to reduce the
number of non-GAAP items it adjusts for in its financial reporting.
Management concluded that, in order to present adjusting items in a
manner more consistent with that of its Canadian and U.S. peers,
the Company will no longer adjust for fixed asset and other related
impairments (net of recoveries), certain restructuring and other
related costs, pension settlement costs, statutory income tax rate
changes or other items. For further details please refer to Section
9.1 "Non-GAAP Financial Measures Policy Change Effective First
Quarter of 2021" of the MD&A in the Company's 2021 Third
Quarter Report.
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, opportunities and legal and regulatory
matters. 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, strategic
initiatives and restructuring, regulatory changes including further
healthcare reform, future liquidity, planned capital investments,
and the status and impact of IT systems implementations.
Additionally, there can be no assurance regarding (a) the ability
of the Company to successfully complete the sale of the Weston
Foods fresh, frozen or ambient businesses, (b) the proceeds to be
derived from the transactions referenced in this News Release, and
(c) the timing of closing of any such sale. 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", "should" and similar expressions, as they
relate to the Company and its management.
Forward-looking statements reflect the Company's 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 2021 is based on certain assumptions,
including assumptions about the COVID-19 pandemic, healthcare
reform impacts, anticipated cost savings and operating efficiencies
and anticipated benefits from strategic initiatives. The Company's
estimates, beliefs and assumptions are inherently subject to
significant business, economic, competitive and other uncertainties
and contingencies regarding future events, including the COVID-19
pandemic 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 "Enterprise Risks and Risk Management" section,
of the MD&A in the Company's 2020 Annual Report and the
Company's Annual Information Form for the year ended
December 31, 2020.
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.
SEGMENT INFORMATION
The Company has two reportable operating segments: Loblaw and
Choice Properties. Other and Intersegment includes eliminations,
intersegment adjustments related to the consolidation, cash and
short-term investments held by the Company and all other company
level activities that are not allocated to the reportable operating
segments, as further illustrated below.
The accounting policies of the reportable operating segments are
the same as those described in the Company's 2020 audited annual
consolidated financial statements. The Company measures each
reportable operating segment's performance based on adjusted
EBITDA(1) and adjusted operating income(1).
No reportable operating segment is reliant on any single external
customer.
|
16 Weeks
Ended
|
|
Oct. 9,
2021
|
Oct. 3,
2020(3,4)
|
($
millions)
|
Loblaw
|
Choice
Properties
|
Other
and
Intersegment
|
Total
|
Loblaw
|
Choice
Properties
|
Other and
Intersegment
|
Total
|
Revenue
|
$
|
16,050
|
$
|
316
|
$
|
(174)
|
$
|
16,192
|
$
|
15,671
|
$
|
309
|
$
|
(174)
|
$
|
15,806
|
Operating
income
|
$
|
861
|
$
|
276
|
$
|
(12)
|
$
|
1,125
|
$
|
716
|
$
|
242
|
$
|
6
|
$
|
964
|
Net interest expense
(income) and other
financing charges
|
203
|
113
|
96
|
412
|
228
|
145
|
(50)
|
323
|
Earnings before
income taxes
|
$
|
658
|
$
|
163
|
$
|
(108)
|
$
|
713
|
$
|
488
|
$
|
97
|
$
|
56
|
$
|
641
|
|
|
|
|
|
|
|
|
|
Operating
income
|
$
|
861
|
$
|
276
|
$
|
(12)
|
$
|
1,125
|
$
|
716
|
$
|
242
|
$
|
6
|
$
|
964
|
Depreciation and
amortization
|
817
|
1
|
(114)
|
704
|
795
|
1
|
(114)
|
682
|
Adjusting
items(i)
|
(6)
|
(51)
|
8
|
(49)
|
5
|
(18)
|
11
|
(2)
|
Adjusted
EBITDA(i)
|
$
|
1,672
|
$
|
226
|
$
|
(118)
|
$
|
1,780
|
$
|
1,516
|
$
|
225
|
$
|
(97)
|
$
|
1,644
|
Depreciation and
amortization(ii)
|
662
|
1
|
(114)
|
549
|
640
|
1
|
(114)
|
527
|
Adjusted operating
income(i)
|
$
|
1,010
|
$
|
225
|
$
|
(4)
|
$
|
1,231
|
$
|
876
|
$
|
224
|
$
|
17
|
$
|
1,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Certain items are
excluded from operating income to derive adjusted
EBITDA(1). Adjusted EBITDA(1) is used
internally by management when analyzing segment underlying
operating performance.
|
(ii)
|
Excludes $155 million
(2020 – $155 million) of amortization of intangible assets acquired
with Shoppers Drug Mart, recorded by Loblaw.
|
|
40 Weeks
Ended
|
|
Oct. 9,
2021
|
Oct. 3,
2020(3,4)
|
($
millions)
|
Loblaw
|
Choice
Properties
|
Other
and
Intersegment
|
Total
|
Loblaw
|
Choice
Properties
|
Other and
Intersegment
|
Total
|
Revenue
|
$
|
40,413
|
$
|
967
|
$
|
(534)
|
$
|
40,846
|
$
|
39,428
|
$
|
949
|
$
|
(537)
|
$
|
39,840
|
Operating
income
|
$
|
2,226
|
$
|
1,064
|
$
|
(272)
|
$
|
3,018
|
$
|
1,657
|
$
|
290
|
$
|
59
|
$
|
2,006
|
Net interest expense
(income) and other
financing charges
|
524
|
878
|
58
|
1,460
|
576
|
(44)
|
53
|
585
|
Earnings before
income taxes
|
$
|
1,702
|
$
|
186
|
$
|
(330)
|
$
|
1,558
|
$
|
1,081
|
$
|
334
|
$
|
6
|
$
|
1,421
|
|
|
|
|
|
|
|
|
|
Operating
income
|
$
|
2,226
|
$
|
1,064
|
$
|
(272)
|
$
|
3,018
|
$
|
1,657
|
$
|
290
|
$
|
59
|
$
|
2,006
|
Depreciation and
amortization
|
2,041
|
3
|
(274)
|
1,770
|
1,987
|
2
|
(267)
|
1,722
|
Adjusting
items(i)
|
(10)
|
(393)
|
157
|
(246)
|
41
|
361
|
(170)
|
232
|
Adjusted
EBITDA(i)
|
$
|
4,257
|
$
|
674
|
$
|
(389)
|
$
|
4,542
|
$
|
3,685
|
$
|
653
|
$
|
(378)
|
$
|
3,960
|
Depreciation and
amortization(ii)
|
1,652
|
3
|
(274)
|
1,381
|
1,595
|
2
|
(267)
|
1,330
|
Adjusted operating
income(i)
|
$
|
2,605
|
$
|
671
|
$
|
(115)
|
$
|
3,161
|
$
|
2,090
|
$
|
651
|
$
|
(111)
|
$
|
2,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i)
|
Certain items are
excluded from operating income to derive adjusted
EBITDA(1). Adjusted EBITDA(1) is used
internally by management when analyzing segment underlying
operating performance.
|
(ii)
|
Excludes
$389 million (2020 – $392 million) of amortization of
intangible assets acquired with Shoppers Drug Mart, recorded by
Loblaw.
|
2021 THIRD QUARTER REPORT
The Company's 2020 Annual Report and 2021 Third Quarter Report
are available in the Investor Centre section of the Company's
website at www.weston.ca and have been filed on SEDAR and are
available at www.sedar.com.
INVESTOR RELATIONS
Shareholders, security analysts and investment professionals
should direct their requests to Roy
MacDonald, Vice President, Investor Relations,
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, a public company with
shares trading on the TSX. For information regarding Loblaw,
readers should refer to the materials filed by Loblaw on SEDAR from
time to time. These filings are also maintained on Loblaw's
corporate website at www.loblaw.ca.
This News Release also includes selected information on Choice
Properties, a public real estate investment trust with units
trading on the TSX. For information regarding Choice Properties,
readers should refer to the materials filed by Choice Properties on
SEDAR from time to time. These filings are also maintained on
Choice Properties' website at www.choicereit.ca.
THIRD QUARTER CONFERENCE CALL AND WEBCAST
George Weston Limited will host a conference call as well as an
audio webcast on Tuesday, November 23,
2021 at 9:00 a.m. (ET). To access via tele-conference,
please dial 416-764-8688 or 1-888-390-0546. The playback will be
available two hours after the event at 416-764-8677 or
1-888-390-0541, passcode: 153670#. To access via audio webcast,
please visit the Investor Centre section of www.weston.ca.
Pre-registration will be available.
Ce rapport est disponible en français.
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Endnotes
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(1)
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See the "Non-GAAP
Financial Measures" section of the Company's 2021 Third Quarter
Results, which includes the reconciliation of such non-GAAP
measures to the most directly comparable GAAP measures.
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(2)
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This News Release
contains forward-looking information. See "Forward-Looking
Statements" section of this News Release and the Company's 2021
Third Quarter Report 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 and assumptions
that were used when making these statements. This News Release
should 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.
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(3)
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Certain figures have
been restated due to the non-GAAP financial measures policy change.
See the "Non-GAAP Financial Measures Policy Change Effective First
Quarter of 2021" section of the Company's 2021 Third Quarter
Management Discussion & Analysis.
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(4)
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Comparative figures
have been restated to conform with current year
presentation.
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(5)
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GWL Corporate refers
to the non-consolidated financial results and metrics of GWL. GWL
Corporate is a subset of Other and Intersegment.
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(6)
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Compound Average
Growth Rate ("CAGR") is the measure of annualized growth over a
period longer than one year. CAGR is the mean annual growth rate
over a two year period, 2019 to 2021.
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SOURCE George Weston Limited