TORONTO,
July 29, 2014 /CNW/ - George Weston
Limited (TSX: WN) ("GWL" or the "Company") today announced its
consolidated unaudited results for the 12 weeks ended June 14, 2014. With the completion of Loblaw
Companies Limited's ("Loblaw") acquisition of Shoppers Drug Mart
Corporation ("Shoppers Drug Mart"), the Company's second quarter
results include the results of Shoppers Drug Mart for the full
quarter as well as the associated acquisition related accounting
adjustments.
The 2014 Second Quarter Report to Shareholders
of GWL, including the Company's unaudited interim period condensed
consolidated financial statements and Management's Discussion and
Analysis ("MD&A") for the 12 and 24 weeks ended
June 14, 2014, is available in
the Investor Centre section of the Company's website at
www.weston.ca and has been filed with the System for
Electronic Document Analysis and Retrieval ("SEDAR") and will be
available at www.sedar.com.
2014 Second Quarter Highlights
- Sales growth of 36.0% to $10,598 million. Excluding Shoppers Drug
Mart, sales increased by 2.5%.
- Adjusted operating income(1) increased by
$200 million to $589 million. Excluding Shoppers Drug Mart,
adjusted operating income(1) declined by 4.9%.
- Adjusted EBITDA(1) increased by $269 million to $864 million. Excluding Shoppers Drug Mart,
Loblaw adjusted EBITDA(1) was flat while Weston Foods
adjusted EBITDA(1) declined.
- Adjusted basic net earnings per common share(1)
increased to $1.26 from $1.08.
- Free cash flow(1) was $808
million for the second quarter and $394 million year-to-date.
"The country's number-one grocery retailer and
number-one pharmacy and beauty retailer were brought together in
the second quarter through the successful completion of Loblaw's
acquisition of Shoppers Drug Mart. The increased scale and
competitive positioning of the Company within the Canadian market
as well as the opportunities to realize significant synergies
position us extremely well to meet both the changing needs of
Canadian consumers and to create long term value for shareholders",
said W. Galen Weston, Executive
Chairman, George Weston Limited.
CONSOLIDATED RESULTS OF
OPERATIONS
|
(unaudited) |
|
|
|
|
|
|
|
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($ millions except where otherwise
indicated) |
12 Weeks
Ended |
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24
Weeks Ended |
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For
the periods ended as indicated |
Jun. 14, 2014 |
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Jun.
15, 2013(3) |
|
Change |
|
Jun. 14, 2014 |
|
Jun. 15,
2013(3) |
|
Change |
Sales |
|
$ |
10,598 |
|
$ |
7,792 |
|
36.0 % |
|
$ |
18,210 |
|
$ |
15,286 |
|
19.1% |
|
Sales excluding Shoppers Drug
Mart |
|
$ |
7,989 |
|
$ |
7,792 |
|
2.5 % |
|
$ |
15,601 |
|
$ |
15,286 |
|
2.1% |
EBITDA(1) |
|
$ |
(42) |
|
$ |
584 |
|
(107.2)% |
|
$ |
547 |
|
$ |
1,184 |
|
(53.8)% |
Adjusted
EBITDA(1) |
|
$ |
864 |
|
$ |
595 |
|
45.2 % |
|
$ |
1,416 |
|
$ |
1,125 |
|
25.9% |
Adjusted EBITDA
margin(1) |
|
|
8.2% |
|
|
7.6 % |
|
|
|
|
7.8 % |
|
|
7.4% |
|
|
|
Adjusted EBITDA(1)
excluding Shoppers Drug Mart |
|
$ |
583 |
|
$ |
595 |
|
(2.0 )% |
|
$ |
1,135 |
|
$ |
1,125 |
|
0.9% |
Adjusted EBITDA
margin(1) excluding Shoppers Drug Mart |
|
|
7.3% |
|
|
7.6% |
|
|
|
|
7.3% |
|
|
7.4% |
|
|
Operating (loss) income |
|
$ |
(442) |
|
$ |
377 |
|
(217.2)% |
|
$ |
(64) |
|
$ |
779 |
|
(108.2)% |
Adjusted operating
income(1) |
|
$ |
589 |
|
$ |
389 |
|
51.4% |
|
$ |
930 |
|
$ |
722 |
|
28.8 % |
Adjusted operating
margin(1) |
|
|
5.6% |
|
|
5.0 % |
|
|
|
|
5.1% |
|
|
4.7% |
|
|
|
Adjusted operating
income(1) excluding Shoppers Drug Mart |
|
$ |
370 |
|
$ |
389 |
|
(4.9)% |
|
$ |
711 |
|
$ |
722 |
|
(1.5)% |
Net interest expense and other
financing charges |
|
$ |
159 |
|
$ |
150 |
|
6.0% |
|
$ |
327 |
|
$ |
234 |
|
39.7% |
Net (loss) earnings
attributable to shareholders of the Company |
|
$ |
(208) |
|
$ |
97 |
|
(314.4)% |
|
$ |
(88) |
|
$ |
269 |
|
(132.7)% |
Basic net (loss) earnings per common
share ($) |
|
$ |
(1.71) |
|
$ |
0.68 |
|
(351.5)% |
|
$ |
(0.85) |
|
$ |
1.95 |
|
(143.6)% |
Adjusted basic net
earnings per common share(1) ($) |
|
$ |
1.26 |
|
$ |
1.08 |
|
16.7% |
|
$ |
2.17 |
|
$ |
1.99 |
|
9.0% |
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Pavi Binning,
President, George Weston Limited, commented that "We are pleased
with George Weston Limited's second quarter results. Loblaw
delivered strong sales and excluding Shoppers Drug Mart, strong
same-store sales growth in a challenging retail environment. Weston
Foods' operating performance was challenged by higher than
anticipated commodity and other input costs, higher plant start-up
costs, lower fresh sales volumes and the costs associated with
continued investments in future growth".
On March 28, 2014,
Loblaw acquired all of the outstanding shares of Shoppers Drug Mart
as described in the "Acquisition of Shoppers Drug Mart Corporation"
section of this News Release. As part of the acquisition, there
were a number of acquisition related accounting adjustments that
had a negative impact on the Company's results, including the
recognition of the fair value increment on the acquired Shoppers
Drug Mart inventory sold of $622 million, the amortization of the
acquired Shoppers Drug Mart intangible assets of $125 million, and costs related to the
acquisition of $52 million as
described in the "Non-GAAP Financial Measures" section of this
News Release.
In connection with Loblaw's upgrade of its
information technology ("IT") infrastructure, Loblaw recorded a
non-cash charge of $190 million
relating to inventory measurement and other conversion differences
associated with the implementation of a perpetual inventory system.
This charge had a negative impact on the Company's results in
second quarter of 2014, as described in the "Non-GAAP Financial
Measures" section of this News Release.
The Company does not anticipate any significant
additional Shoppers Drug Mart acquisition costs to be incurred, and
expects the above non-cash adjustments to negatively impact its
results in future periods as follows:
- annual amortization of approximately $550 million associated with the acquired
intangible assets over the next ten years, and decreasing
thereafter;
- remaining inventory fair value adjustment of $176 million over the remainder of 2014 as
the acquired inventory is sold, the majority of which will be
incurred in the third quarter of 2014; and
- further adjustments related to inventory measurement and other
conversion differences associated with the implementation of a
perpetual inventory system will be recorded as Loblaw converts its
remaining corporate grocery stores.
George Weston Limited's second quarter 2014
adjusted basic net earnings per common share(1)
increased by $0.18 compared to the
same period in 2013. The improvement was due to the operating
performance of Loblaw including Shoppers Drug Mart, partially
offset by the operating performance of Weston Foods, higher
interest expense and other financing charges and the impact of the
Company's change in ownership in Loblaw after its acquisition of
Shoppers Drug Mart.
Basic net earnings per common share decreased by
$2.39 compared to the same period in
2013. The decrease was due to the year-over-year unfavourable
impact of certain items related to the acquisition of Shoppers Drug
Mart and the impact of Loblaw's inventory measurement and other
conversion differences associated with the implementation of a
perpetual inventory system, as well as a number of other items,
partially offset by an improvement in underlying operating
performance as described above. For a complete list of items that
impacted basic net loss per common share but that are excluded from
adjusted basic net earnings per common share(1), see the
"Non-GAAP Financial Measures" section of this News Release.
REPORTABLE OPERATING SEGMENTS
Weston
Foods |
(unaudited) |
|
|
|
|
|
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|
|
($ millions except
where otherwise indicated) |
|
12
Weeks Ended |
|
24
Weeks Ended |
|
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For the periods
ended as indicated |
|
Jun. 14, 2014 |
|
|
Jun.
15, 2013(3) |
|
Jun. 14, 2014 |
|
|
Jun.
15, 2013(3) |
Sales |
|
$ |
431 |
|
|
$ |
413 |
|
$ |
880 |
|
|
$ |
837 |
EBITDA(1) |
|
$ |
61 |
|
|
$ |
80 |
|
$ |
138 |
|
|
$ |
143 |
Adjusted EBITDA(1) |
|
$ |
67 |
|
|
$ |
79 |
|
$ |
135 |
|
|
$ |
150 |
Adjusted EBITDA
margin(1) |
|
|
15.5% |
|
|
|
19.1% |
|
|
15.3% |
|
|
|
17.9% |
Operating income |
|
$ |
45 |
|
|
$ |
64 |
|
$ |
106 |
|
|
$ |
112 |
Adjusted operating
income(1) |
|
$ |
51 |
|
|
$ |
64 |
|
$ |
103 |
|
|
$ |
121 |
Adjusted operating
margin(1) |
|
|
11.8% |
|
|
|
15.5% |
|
|
11.7% |
|
|
|
14.5% |
|
|
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Sales In the second quarter of
2014, Weston Foods sales increased by $18 million, or 4.4%, compared to the same
period in 2013. Foreign currency translation positively impacted
sales by approximately 3.2%. Excluding the impact of foreign
currency translation, sales increased by 1.2%, primarily due to an
increase in volume.
Earnings Before Interest Taxes Depreciation
and Amortization Weston Foods EBITDA(1) in the
second quarter of 2014 decreased by $19 million. The decrease was primarily due
to a decline in underlying operating performance and the
year-over-year unfavourable impact of the fair value adjustment of
commodity derivatives and restructuring and other charges of
$7 million. Adjusted
EBITDA(1) in the second quarter of 2014 decreased by
$12 million, or 15.2%, compared
to the same period in 2013. Adjusted EBITDA margin(1)
for the second quarter of 2014 decreased by 3.6% compared to the
same period in 2013.
The decrease in adjusted EBITDA(1)
was primarily due to higher commodity and other input costs,
including the negative impact of foreign exchange, plant start-up
costs, lower fresh bakery sales volumes and the cost impact of
continued investments.
Operating Income Weston Foods
operating income decreased by $19 million compared to the second quarter
of 2013 and was negatively impacted by the adjustments described
above to EBITDA(1). Adjusted
operating income(1) decreased by $13 million compared to the second quarter
of 2013, driven by the decrease in adjusted EBITDA(1)
described above and an increase in depreciation and amortization of
$1 million.
|
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Loblaw |
|
|
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|
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|
(unaudited) |
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|
($
millions except where otherwise indicated) |
|
12
Weeks Ended |
|
24
Weeks Ended |
|
|
|
|
|
|
|
|
|
|
For
the periods ended as indicated |
|
Jun. 14, 2014 |
|
Jun.
15, 2013(3) |
|
Jun. 14, 2014 |
|
Jun.
15, 2013(3) |
Sales |
|
$ |
10,307 |
|
$ |
7,520 |
|
|
$ |
17,599 |
|
$ |
14,722 |
|
Sales excluding Shoppers Drug
Mart |
|
$ |
7,698 |
|
$ |
7,520 |
|
|
$ |
14,990 |
|
$ |
14,722 |
EBITDA(1) |
|
$ |
(74) |
|
$ |
510 |
|
|
$ |
395 |
|
$ |
1,020 |
Adjusted
EBITDA(1) |
|
$ |
797 |
|
$ |
516 |
|
|
$ |
1,281 |
|
$ |
975 |
Adjusted EBITDA
margin(1) |
|
|
7.7% |
|
|
6.9% |
|
|
|
7.3% |
|
|
6.6% |
|
Adjusted EBITDA(1)
excluding Shoppers Drug Mart |
|
$ |
516 |
|
$ |
516 |
|
|
$ |
1,000 |
|
$ |
975 |
|
Adjusted EBITDA
margin(1) excluding Shoppers Drug Mart |
|
|
6.7% |
|
|
6.9% |
|
|
|
6.7% |
|
|
6.6% |
Operating (loss) income |
|
$ |
(458) |
|
$ |
319 |
|
|
$ |
(184) |
|
$ |
646 |
Adjusted operating
income(1) |
|
$ |
538 |
|
$ |
325 |
|
|
$ |
827 |
|
$ |
601 |
Adjusted operating
margin(1) |
|
|
5.2% |
|
|
4.3% |
|
|
|
4.7% |
|
|
4.1% |
|
Adjusted operating
income(1) excluding Shoppers Drug Mart |
|
$ |
319 |
|
$ |
325 |
|
|
$ |
608 |
|
$ |
601 |
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Sales Loblaw sales in the second
quarter of 2014 increased by $2,787 million, or 37.1%, to $10,307 million, compared to the second
quarter of 2013, and included $2,609 million in sales related to Shoppers
Drug Mart. Excluding Shoppers Drug Mart, Retail sales increased by
1.6% and same-store sales growth was 1.8% (2013 - 1.1%) and was
positively impacted by approximately 0.1% due to the shift in the
timing of Easter. Loblaw's average quarterly internal food price
index was in line with (2013 - lower than) the average quarterly
national food price inflation of 2.5% (2013 - 1.5%) as
measured by "The Consumer Price Index for Food Purchased from
Stores". In the last twelve months, corporate and franchise store
square footage increased 0.8% (2013 - 0.8%). Loblaw sales in
the second quarter of 2014 were also positively impacted by an
increase in Financial Services revenue, which includes President's
Choice Bank, a subsidiary of Loblaw.
Gross Profit Loblaw's Retail gross
profit increased by $198 million
to $1,840 million in the second
quarter of 2014 from $1,642 million
in the same period in 2013. The increase included:
- $999 million of gross profit
generated by Shoppers Drug Mart; partially offset by
- the charge of $190 million
related to the inventory measurement and other conversion
differences associated with the implementation of a perpetual
inventory system at Loblaw; and
- the negative impact of the recognition of the fair value
increment on inventory sold of $622
million recorded on the acquisition of Shoppers Drug
Mart.
Excluding the above impacts, Retail gross profit
increased by $11 million, or 0.7%, in
the second quarter of 2014 compared to the same period in 2013,
driven by higher sales, partially offset by a decline in gross
profit percentage. Retail gross profit percentage was 22.1%
compared to 22.3% in the same period in 2013 due to a decrease in
retail margins and higher shrink due to investments in fresh
assortment.
Earnings Before Interest Taxes Depreciation
and Amortization Loblaw EBITDA(1) decreased by
$584 million compared to the
second quarter of 2013, and was negatively impacted by a number of
items, including those described above. For a complete list of
items that impacted EBITDA(1) but that are excluded from
adjusted EBITDA(1), see the "Non-GAAP
Financial Measures" section of this News Release.
Loblaw adjusted EBITDA(1) increased
by $281 million to $797 million in the second quarter of 2014
from the same period in 2013, driven by Shoppers Drug Mart results.
Excluding Shoppers Drug Mart, adjusted EBITDA(1) was
flat compared to the second quarter of 2013, primarily driven by a
decrease in Retail, which included a $22 million (2013 - $8 million) charge related to the transition of
certain stores to more cost effective and efficient operating terms
under collective agreements, partially offset by an increase in
Financial Services. The remaining decline in Retail was primarily
driven by investments in Loblaw's franchise business, gains from
the settlement of foreign exchange related financial derivative
instruments recorded in the second quarter of 2013 and higher other
operating costs, partially offset by supply chain and labour
efficiencies, and higher gross profit. Excluding Shoppers Drug
Mart, adjusted EBITDA margin(1) was 6.7% compared to
6.9% in the same period in 2013.
Operating Income Loblaw operating
income in the second quarter of 2014 decreased by $777 million compared to the second quarter
of 2013, and was negatively impacted by a number of items including
those described above. For a complete list of items that impacted
operating income but that are excluded from adjusted operating
income(1), see the "Non-GAAP Financial Measures" section
of this News Release.
Adjusted operating income(1)
increased by $213 million, or
65.5%, in the second quarter of 2014 compared to the same period in
2013, and included $219 million
of adjusted operating income(1) related to Shoppers Drug
Mart. Excluding Shoppers Drug Mart, adjusted operating
income(1) decreased by $6 million, driven by an increase in
depreciation and amortization of $6 million as adjusted EBITDA(1)
remained flat as described above.
NET INTEREST EXPENSE AND OTHER FINANCING
CHARGES
In the second quarter of 2014, net interest expense and other
financing charges increased by $9 million to $159 million compared to the same period in
2013. The increase included:
- a charge of $14 million (2013 -
nil) related to the accelerated amortization of deferred financing
costs due to Loblaw's repayment of $1.6
billion of the $3.5 billion
term loan facility; and
- a fair value loss of $6 million (2013 - nil) related to the Trust
Unit liability, reflecting the change in the fair value of
Choice Properties Real Estate Investment Trust's ("Choice
Properties") Trust Units ("Units") held by unitholders other than
the Company; offset by
- the favourable year-over-year impact of $55 million for the fair value adjustment of the
forward sale agreement for 9.6 million Loblaw common
shares.
Excluding the above impacts, net interest
expense and other financing charges increased by $44 million in the second quarter of 2014
compared to the same period in 2013, driven by higher interest on
long term debt, primarily as a result of debt incurred by Loblaw to
finance the acquisition of Shoppers Drug Mart and distributions
paid by Choice Properties on its Units held by unitholders other
than the Company.
INCOME TAXES
In the second quarter of 2014, income tax recovered was
$145 million compared to income
tax expense of $64 million in
the same period in 2013, and the effective income tax rate
decreased to 24.1%, compared to 28.2%. The decrease in the
effective income tax rate was primarily due to an increase in
non-deductible amounts, including the fair value adjustment related
to the Trust Unit liability and foreign currency translation
losses, partially offset by an increase in income tax recoveries
related to prior year matters.
ADJUSTED DEBT(1)
The Company's adjusted debt(1) balance increased
significantly as a result of Loblaw's acquisition of Shoppers Drug
Mart. On closing of the acquisition, adjusted debt(1)
increased to approximately $12.1 billion. Since the acquisition, the
Company has made progress towards its debt reduction targets by
Loblaw repaying a $350 million medium
term note ("MTN") at maturity, resulting in an adjusted
debt(1) balance of $11.8 billion as at the end of the second
quarter of 2014.
During the second quarter of 2014, Loblaw also
replaced and subsequently sold $1.5
billion of Choice Properties transferor notes to third
parties and used the proceeds and existing cash to repay
$1.6 billion of its $3.5 billion term loan. The overall impact was
neutral to consolidated adjusted debt(1).
FREE CASH FLOW(1)
For the second quarter of 2014, free cash flow(1) was
$808 million compared to
$409 million in the same period
in 2013. The increase in free cash flow(1) of
$399 million was primarily due
to an increase in net earnings before non-cash items, driven by
earnings related to Shoppers Drug Mart.
ACQUISITION OF SHOPPERS DRUG MART
CORPORATION
On March 28, 2014, Loblaw acquired
all of the outstanding shares of Shoppers Drug Mart for total
consideration of $12.3 billion,
comprised of approximately $6.6 billion of cash and the issuance of
approximately 119.5 million Loblaw common shares.
The cash portion of the acquisition of Shoppers
Drug Mart was financed by Loblaw as follows:
- $3.5 billion was obtained through
an unsecured term loan facility bearing interest at a rate equal to
the Bankers' Acceptance rate plus 1.75% and maturing March 28, 2019;
- $1.6 billion of proceeds from the
issuance of unsecured notes in the third quarter of 2013;
- $500 million was received in
consideration of the issuance of 10.5 million Loblaw common
shares to GWL; and
- approximately $1.0 billion
was used from cash on hand.
Loblaw expects to achieve annualized synergies
of $300 million in the third
full year following the close of the transaction (net of related
costs). First year synergies are expected to be generated primarily
from improved cost of goods sold and from purchasing efficiencies
in goods not for resale. During the second quarter of 2014, Loblaw
realized net synergies of approximately $8 million, primarily in cost of goods
sold.
Pursuant to a Consent Agreement reached with the
Competition Bureau in the first quarter of 2014, Loblaw was
required to divest 14 Shoppers Drug Mart stores and four of its
franchise grocery stores, as well as nine Loblaw pharmacy
operations. This was subsequently revised to 16 Shoppers Drug Mart
stores and two Loblaw franchise grocery stores. The planned
divestitures for the nine in-store pharmacies remain unchanged. The
divestitures are expected to be completed in the third quarter of
2014, subject to approval by the Competition Bureau, and are not
expected to have a material impact on the operations of Loblaw or
the planned synergies. Subsequent to the end of the second quarter
of 2014, the Competition Bureau approved the sale of the two
franchise grocery stores, two of the Shoppers Drug Mart stores and
approved the licensing of the nine in-store pharmacies to unrelated
parties.
Based on a preliminary assessment, Loblaw
recognized the following amounts of net tangible assets, goodwill
and intangible assets in the second quarter of 2014:
|
|
|
|
|
|
|
(unaudited)
($ millions) |
|
|
|
|
Estimated
Useful Life |
|
Fair value of net tangible assets
acquired |
|
$ |
539 |
|
|
|
|
|
Goodwill |
|
$ |
2,259 |
|
|
|
|
|
|
Prescription files |
|
$ |
5,040 |
|
|
|
11 years |
|
|
Brands |
|
|
3,340 |
|
|
|
indefinite |
|
|
Optimum loyalty program |
|
|
490 |
|
|
|
18 years |
|
|
Other |
|
|
605 |
|
|
|
5 to 10 years |
|
Intangible assets |
|
$ |
9,475 |
|
|
|
|
|
Total net assets acquired |
|
$ |
12,273 |
|
|
|
|
|
Loblaw has one year to finalize the fair value
of net tangible assets, goodwill and intangible assets, however,
Loblaw does not expect significant changes from the amounts
presented above.
In the second quarter of 2014, Loblaw incurred
costs related to the acquisition of $52 million, which were recorded in selling,
general and administrative expenses.
Upon closing of the acquisition, all amounts
owing on Shoppers Drug Mart's revolving bank credit facility were
repaid and the facility was cancelled. In addition, upon closing,
Loblaw guaranteed the outstanding principal amount of Shoppers Drug
Mart's MTNs of $500 million,
along with accrued interest. Loblaw has also provided guarantees to
various Canadian banks in support of the financing obtained by
Shoppers Drug Mart's Associates ("Associates"). An Associate is a
pharmacist-owner of a corporation that is licensed to operate a
retail drug store at a specific location using Shoppers Drug Mart's
trademarks.
As a result of the acquisition, GWL's ownership
interest in Loblaw decreased from approximately 63% to
approximately 46%. The Company remains the controlling shareholder
and continues to consolidate Loblaw.
OUTLOOK(2)
The outlook reflects the underlying operating
performance of the Company's operating segments as discussed
below.
Weston Foods expects a decline in adjusted
operating income(1) in the third quarter of 2014 when
compared to the same period in 2013. Despite this anticipated
decline, efforts to grow sales volumes and easing pressures on
commodity and other input costs are expected to improve adjusted
operating income(1) increasingly over the second half of
2014 when compared to the first half.
Loblaw continues to successfully execute on its
strategy against the backdrop of an extremely competitive
supermarket environment and the deflationary pressure of regulatory
drug reform. In its supermarket business, Loblaw will continue to
focus on investing in the customer proposition to drive sales
growth while surfacing efficiencies in its business to offset these
investments. The acquisition of Shoppers Drug Mart provides Loblaw
with increased scale and improved competitive positioning with the
Canadian consumer, and also creates opportunities to realize
significant synergies - particularly in cost of goods sold and
expense in areas such as goods not for resale.
Loblaw expects the following in 2014:
- the supermarket environment to be competitive but stable;
- deflationary pressures from the impact of drug reform to
moderate, with greater visibility for the balance of the year;
- its business divisions to achieve financial and operational
performance, on an adjusted basis and excluding synergies, in line
with the 2013 performance trends; and
- to achieve $100 million in
synergies in the first twelve months following the transaction. For
2014, synergies are projected to ramp up through the third and
fourth quarter.
DECLARATION OF QUARTERLY DIVIDENDS
Subsequent to the end of the second quarter of 2014, the Company's
Board of Directors declared a quarterly dividend on George Weston
Limited Common Shares, Preferred Shares, Series I, Preferred
Shares, Series III, Preferred Shares, Series IV and Preferred
Shares, Series V payable as follows:
|
|
|
|
|
|
Common Shares |
|
$0.42 per share payable October 1,
2014, to
shareholders of record September 15, 2014; |
|
|
|
|
|
|
|
Preferred Shares, Series I |
|
$0.3625 per share payable September
15, 2014, to
shareholders of record August 31, 2014; |
|
|
|
|
|
|
|
Preferred Shares, Series III |
|
$0.3250 per share payable October 1,
2014, to
shareholders of record September 15, 2014; |
|
|
|
|
|
|
|
Preferred Shares, Series IV |
|
$0.3250 per share payable October 1,
2014, to
shareholders of record September 15, 2014; and |
|
|
|
|
|
|
|
Preferred Shares, Series V |
|
$0.296875 per share payable October
1, 2014, to
shareholders of record September 15, 2014. |
|
|
|
|
|
|
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
and events, targeted synergies expected following the acquisition
of Shoppers Drug Mart and future plans. These specific
forward-looking statements are contained throughout this News
Release including, without limitation, in the "Outlook" and
"Consolidated Results of Operations" sections. Forward-looking
statements are typically identified by words such as "expect",
"anticipate", "believe", "foresee", "could", "estimate", "goal",
"intend", "plan", "seek", "strive", "will", "may" 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 2014 is based
on certain assumptions including assumptions about sales and volume
growth, anticipated cost savings and operating efficiencies, and
competitive square footage growth. 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 MD&A in the Company's 2013 Annual Report, the
"Enterprise Risks and Risk Management" section of the MD&A
included in the Company's 2014 Second Quarter Report to
Shareholders and the Company's Updated and Restated Annual
Information Form ("AIF") for the year ended December 31, 2013; updated to June 2, 2014. Such risks and uncertainties
include:
- failure by Loblaw to realize the anticipated strategic benefits
or operational, competitive and cost synergies expected following
the acquisition of Shoppers Drug Mart;
- failure to realize benefits from investments in the Company's
IT systems, including the Company's IT systems implementation, or
unanticipated results from these initiatives;
- failure to realize anticipated results, including revenue
growth, anticipated cost savings or operating efficiencies from the
Company's major initiatives, including those from
restructuring;
- the inability of the Company's IT infrastructure to support the
requirements of the Company's business;
- public health events and risks associated with those related to
food and drug safety and product handling;
- failure to achieve desired results in labour negotiations,
including the terms of future collective bargaining agreements
which could lead to work stoppages;
- heightened competition, whether from current competitors or new
entrants to the marketplace;
- changes in economic conditions including the rate of inflation
or deflation, changes in interest and foreign currency exchange
rates and changes in derivative and commodity prices;
- changes in the Company's income, capital, commodity, property
and other tax and regulatory liabilities including changes in tax
laws, regulations or future assessments;
- changes to the regulation of generic prescription drug prices
and the reduction of reimbursements under public drug benefit plans
and the elimination or reduction of professional allowances paid by
drug manufacturers;
- the inability of the Company to manage inventory to minimize
the impact of obsolete or excess inventory and to control
shrink;
- changes in the Company's estimate of inventory cost as a result
of its IT system upgrade; and
- failure to respond to changes in consumer and retail customer
trends.
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.
Information on risks and uncertainties related to Shoppers Drug
Mart are disclosed in the Information Statement filed by Loblaw on
August 20, 2013, the Shoppers Drug
Mart 2013 annual MD&A filed by Shoppers Drug Mart on
February 20, 2014 and the Company's
Updated and Restated AIF for the year ended December 31, 2013; updated to June 2, 2014. 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.
NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures: EBITDA,
adjusted EBITDA and adjusted EBITDA margin, adjusted operating
income and adjusted operating margin, adjusted basic net earnings
per common share, adjusted debt, and free cash flow. 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, 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. 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.
Beginning in the first quarter of 2014,
management no longer excludes share-based compensation when
analyzing consolidated and segment underlying operating
performance. As a result, prior year adjusted EBITDA and adjusted
EBITDA margin, adjusted operating income and adjusted operating
margin, and adjusted basic net earnings per common share were
restated to conform with the current year's presentation. Beginning
in the second quarter of 2014, management no longer excludes net
interest expense incurred in connection with the financing related
to the acquisition of Shoppers Drug Mart when analyzing
consolidated underlying operating performance. These amounts were
excluded from adjusted basic net earnings per common share in
periods prior to the closing of the acquisition of Shoppers Drug
Mart.
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.
EBITDA, Adjusted EBITDA and Adjusted
Operating Income The Company believes adjusted EBITDA is
useful in assessing 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 and debt reduction objectives. The
Company believes adjusted operating income is also useful in
assessing the Company's underlying operating performance and in
making decisions regarding the ongoing operations of its
business.
The following table reconciles EBITDA, adjusted
EBITDA and adjusted operating income to operating (loss) income,
which is reconciled to GAAP net (loss) earnings attributable to
shareholders of the Company reported in the unaudited interim
period condensed consolidated statements of earnings for the 12
weeks and 24 weeks ended June 14, 2014 and June 15, 2013.
|
|
|
|
|
|
12
Weeks Ended |
|
|
|
|
|
|
|
|
|
|
|
|
Jun. 14,
2014 |
|
|
|
Jun. 15,
2013(i) |
|
(unaudited)
($ millions) |
|
Weston
Foods |
|
Loblaw |
|
Other(ii) |
|
Consolidated |
|
Weston
Foods |
|
Loblaw |
|
Other(ii) |
|
Consolidated |
|
Net (loss)
earnings attributable to shareholders
of the Company |
|
|
|
|
|
|
|
|
|
|
$ |
(208) |
|
|
|
|
|
|
|
|
|
|
$ |
97 |
|
Add impact of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interests |
|
|
|
|
|
|
|
|
|
|
|
(248) |
|
|
|
|
|
|
|
|
|
|
|
66 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
(145) |
|
|
|
|
|
|
|
|
|
|
|
64 |
|
Net interest
expense and other financing
charges |
|
|
|
|
|
|
|
|
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
150 |
|
Operating income (loss) |
|
$ |
45 |
|
$ |
(458) |
|
$ |
(29) |
|
$ |
(442) |
|
$ |
64 |
|
$ |
319 |
|
$ |
(6) |
|
$ |
377 |
|
Depreciation and
amortization |
|
|
16 |
|
|
384 |
|
|
|
|
|
400 |
|
|
16 |
|
|
191 |
|
|
|
|
|
207 |
|
EBITDA |
|
$ |
61 |
|
$ |
(74) |
|
$ |
(29) |
|
$ |
(42) |
|
$ |
80 |
|
$ |
510 |
|
$ |
(6) |
|
$ |
584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
45 |
|
$ |
(458) |
|
$ |
(29) |
|
$ |
(442) |
|
$ |
64 |
|
$ |
319 |
|
$ |
(6) |
|
$ |
377 |
|
Add (deduct) impact of the
following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of
fair value increment on inventory
sold at Loblaw |
|
|
|
|
|
622 |
|
|
|
|
|
622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge related to
inventory measurement and other
conversion differences at Loblaw |
|
|
|
|
|
190 |
|
|
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets acquired
with Shoppers Drug Mart |
|
|
|
|
|
125 |
|
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other
charges |
|
|
3 |
|
|
|
|
|
|
|
|
3 |
|
|
1 |
|
|
|
|
|
|
|
|
1 |
|
Fair value
adjustment of commodity derivatives
at Weston Foods |
|
|
3 |
|
|
|
|
|
|
|
|
3 |
|
|
(1) |
|
|
|
|
|
|
|
|
(1) |
|
Fixed asset and
other related impairments |
|
|
|
|
|
2 |
|
|
|
|
|
2 |
|
|
|
|
|
6 |
|
|
|
|
|
6 |
|
Shoppers Drug Mart acquisition
costs |
|
|
|
|
|
52 |
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Choice Properties general and
administrative costs |
|
|
|
|
|
5 |
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
loss |
|
|
|
|
|
|
|
|
29 |
|
|
29 |
|
|
|
|
|
|
|
|
6 |
|
|
6 |
|
Adjusted operating
income |
|
$ |
51 |
|
$ |
538 |
|
|
|
|
$ |
589 |
|
$ |
64 |
|
$ |
325 |
|
|
|
|
$ |
389 |
|
Depreciation and
amortization excluding the impact
of the above adjustments(iii) |
|
|
16 |
|
|
259 |
|
|
|
|
|
275 |
|
|
15 |
|
|
191 |
|
|
|
|
|
206 |
|
Adjusted EBITDA |
|
$ |
67 |
|
$ |
797 |
|
|
|
|
$ |
864 |
|
$ |
79 |
|
$ |
516 |
|
|
|
|
$ |
595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
Certain 2013 figures have been amended. See
note 2 of the Company's unaudited interim period condensed
consolidated financial statements included
in the 2014 Second Quarter Report to Shareholders. |
(ii) |
Operating (loss) income in the second quarter
of 2014 included a loss of $29 million (2013 -
$6 million) related to the effect of foreign currency
translation
on a portion of the United States ("U.S.") dollar denominated cash
and short term investments held by foreign operations. |
(iii) |
Depreciation and amortization for the
calculation of adjusted EBITDA at Loblaw excludes $125 million
(2013 - nil) of amortization of intangible assets acquired
with Shoppers Drug Mart, and in the second quarter of 2013,
$1 million of accelerated depreciation recorded as
restructuring and other charges at Weston Foods. |
|
|
|
|
|
|
24 Weeks Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun. 14,
2014 |
|
|
|
|
|
Jun. 15,
2013(i) |
|
(unaudited)
($ millions) |
|
Weston
Foods |
|
Loblaw |
|
Other(ii) |
|
Consolidated |
|
|
Weston
Foods |
|
Loblaw |
|
Other(ii) |
|
Consolidated |
|
Net (loss)
earnings attributable to shareholders
of the Company |
|
|
|
|
|
|
|
|
|
|
$ |
(88) |
|
|
|
|
|
|
|
|
|
|
$ |
269 |
|
Add impact of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
(204) |
|
|
|
|
|
|
|
|
|
|
|
134 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
(99) |
|
|
|
|
|
|
|
|
|
|
|
142 |
|
Net interest
expense and other
financing charges |
|
|
|
|
|
|
|
|
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
|
234 |
|
Operating income (loss) |
|
$ |
106 |
|
$ |
(184) |
|
$ |
14 |
|
$ |
(64) |
|
$ |
112 |
|
$ |
646 |
|
$ |
21 |
|
$ |
779 |
|
Depreciation and amortization |
|
|
32 |
|
|
579 |
|
|
|
|
|
611 |
|
|
31 |
|
|
374 |
|
|
|
|
|
405 |
|
EBITDA |
|
$ |
138 |
|
$ |
395 |
|
$ |
14 |
|
$ |
547 |
|
$ |
143 |
|
$ |
1,020 |
|
$ |
21 |
|
$ |
1,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
106 |
|
$ |
(184) |
|
$ |
14 |
|
$ |
(64) |
|
$ |
112 |
|
$ |
646 |
|
$ |
21 |
|
$ |
779 |
|
Add (deduct) impact of the
following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of
fair value increment on inventory
sold at Loblaw |
|
|
|
|
|
622 |
|
|
|
|
|
622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge related to
inventory measurement and other
conversion differences at Loblaw |
|
|
|
|
|
190 |
|
|
|
|
|
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible assets acquired with
Shoppers Drug Mart |
|
|
|
|
|
125 |
|
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other
charges |
|
|
3 |
|
|
|
|
|
|
|
|
3 |
|
|
2 |
|
|
|
|
|
|
|
|
2 |
|
Fair value
adjustment of commodity derivatives
at Weston Foods |
|
|
(6) |
|
|
|
|
|
|
|
|
(6) |
|
|
7 |
|
|
|
|
|
|
|
|
7 |
|
Fixed asset and other related
impairments |
|
|
|
|
|
5 |
|
|
|
|
|
5 |
|
|
|
|
|
6 |
|
|
|
|
|
6 |
|
Shoppers Drug Mart acquisition
costs |
|
|
|
|
|
60 |
|
|
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Choice Properties general and
administrative costs |
|
|
|
|
|
9 |
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plan
amendments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51) |
|
|
|
|
|
(51) |
|
Foreign currency translation
gain |
|
|
|
|
|
|
|
|
(14) |
|
|
(14) |
|
|
|
|
|
|
|
|
(21) |
|
|
(21) |
|
Adjusted operating income |
|
$ |
103 |
|
$ |
827 |
|
|
|
|
$ |
930 |
|
$ |
121 |
|
$ |
601 |
|
|
|
|
$ |
722 |
|
Depreciation and
amortization excluding the impact
of the above adjustments(iii) |
|
|
32 |
|
|
454 |
|
|
|
|
|
486 |
|
|
29 |
|
|
374 |
|
|
|
|
|
403 |
|
Adjusted EBITDA |
|
$ |
135 |
|
$ |
1,281 |
|
|
|
|
$ |
1,416 |
|
$ |
150 |
|
$ |
975 |
|
|
|
|
$ |
1,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
Certain 2013 figures have been amended. See
note 2 of the Company's unaudited interim period condensed
consolidated financial statements included
in the 2014 Second Quarter Report to Shareholders. |
(ii) |
Year-to-date operating (loss) income included a
gain of $14 million (2013 - $21 million) related to the
effect of foreign currency translation
on a portion of the U.S. dollar denominated cash and short term
investments held by foreign operations. |
(iii) |
Year-to-date depreciation and amortization for
the calculation of adjusted EBITDA at Loblaw excludes
$125 million (2013 - nil) of amortization of intangible
assets acquired with Shoppers Drug Mart, and in 2013,
$2 million of accelerated depreciation recorded as
restructuring and other charges at Weston Foods. |
The following items influenced operating income
in the second quarters of 2014 and 2013:
Recognition of fair value increment on
inventory sold at Loblaw In connection with the
acquisition of Shoppers Drug Mart, acquired assets and liabilities
were recorded on the Company's consolidated balance sheet at their
fair value. This resulted in a fair value adjustment to Shoppers
Drug Mart inventory on the date of acquisition of $798 million representing the difference between
inventory cost and its fair value. In the second quarter of 2014,
$622 million was recognized in
gross profit and operating income.
Charge related to inventory measurement
and other conversion differences for Loblaw's corporate grocery
stores With the upgrade of its IT infrastructure,
Loblaw expects to complete the conversion of its corporate grocery
stores to a perpetual inventory management system in 2014. The
implementation of a perpetual inventory system, combined with
visibility to integrated costing information provided by the new IT
systems, enabled Loblaw to estimate the cost of inventory using a
more precise system-generated average cost. By the second quarter
of 2014, sufficient corporate grocery stores had been converted to
enable Loblaw to record the impact of the inventory measurement and
other conversion differences associated with the implementation of
a perpetual inventory system. This impact was estimated to be
a $190 million decrease in the
value of the inventory, which was recognized in gross profit and
operating income in the second quarter of 2014.
Amortization of intangible assets acquired
with Shoppers Drug Mart The acquisition of
Shoppers Drug Mart in the second quarter of 2014 included
approximately $6 billion of definite
life intangible assets, which will be amortized over their
estimated useful lives. During the second quarter of 2014,
$125 million of amortization was
recognized in operating income.
Restructuring and other
charges The Company continuously evaluates
strategic and cost reduction initiatives related to its store
infrastructure, 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.
Fair value adjustment of commodity
derivatives at Weston Foods Weston Foods is exposed
to commodity price and U.S. dollar exchange rate fluctuations
primarily as a result of purchases of certain raw materials, fuels
and utilities. In accordance with the Company's commodity risk
management policy, Weston Foods enters into commodity and foreign
currency derivatives to reduce the impact of price fluctuations in
forecasted raw material purchases over a specified period of time.
These derivatives are not acquired for trading or speculative
purposes. Pursuant to Weston Foods' derivative instruments
accounting policy, certain changes in fair value, which include
realized and unrealized gains and losses related to future
purchases of raw materials, are recorded in operating income. In
the second quarter of 2014, Weston Foods recorded a charge of
$3 million (2013 - income of
$1 million) related to the fair
value adjustment of exchange traded commodity derivatives and
foreign currency derivatives. Despite the impact of accounting for
these commodity and foreign currency derivatives on the Company's
reported results, the derivatives have the economic impact of
largely mitigating the associated risks arising from price and
exchange rate fluctuations in the underlying commodities.
Fixed asset and other related
impairments At each balance sheet date, the Company
assesses and, when required, records impairments and recoveries of
previous impairments related to the carrying value of its fixed
assets, investment properties and intangible assets. In the second
quarter of 2014, Loblaw recorded a charge of $2 million (2013 - $6 million) related to fixed asset and other
related impairments.
Shoppers Drug Mart acquisition
costs In connection with the agreement to acquire all of
the outstanding common shares of Shoppers Drug Mart, Loblaw
recorded $52 million of
acquisition costs in the second quarter of 2014.
Choice Properties general and
administrative costs During the second quarter of
2014, Loblaw recorded incremental general and administrative costs
incurred by Choice Properties of $5 million.
Foreign currency translation
losses The Company's consolidated financial
statements are expressed in Canadian dollars. A portion of the
Company's (excluding Loblaw's) net assets are denominated in U.S.
dollars and as a result, the Company is exposed to foreign currency
translation gains and losses. The impact of foreign currency
translation on a portion of the U.S. dollar denominated net assets,
primarily cash and short term investments held by foreign
operations, is recorded in operating income. In the second quarter
of 2014, a foreign currency translation loss of $29 million (2013 - $6 million) was recorded in operating income
as a result of the depreciation of the U.S. dollar relative to the
Canadian dollar.
Adjusted Basic Net Earnings per Common
Share The Company believes adjusted basic net earnings
per common share is useful in assessing the Company's underlying
operating performance and in making decisions regarding the ongoing
operations of its business.
The following table reconciles adjusted basic
net earnings per common share to GAAP basic net (loss) earnings per
common share reported for the periods ended as indicated.
|
|
|
|
|
|
|
|
|
|
|
12
Weeks Ended |
|
|
24
Weeks Ended |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
($) |
|
|
Jun. 14, 2014 |
|
|
Jun. 15,
2013(i) |
|
|
Jun. 14, 2014 |
|
|
Jun. 15,
2013(i) |
|
Basic net (loss)
earnings per common share |
|
|
$ |
(1.71) |
|
|
$ |
0.68 |
|
|
$ |
(0.85) |
|
|
$ |
1.95 |
|
Add (deduct)
impact of the following(ii): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
adjustment of the forward sale agreement for 9.6 million Loblaw
common shares |
|
|
|
0.02 |
|
|
|
0.34 |
|
|
|
0.31 |
|
|
|
0.31 |
|
Recognition of
fair value increment on inventory sold at Loblaw |
|
|
|
1.63 |
|
|
|
|
|
|
|
1.63 |
|
|
|
|
|
Charge related to
inventory measurement and other conversion differences at
Loblaw |
|
|
|
0.49 |
|
|
|
|
|
|
|
0.49 |
|
|
|
|
|
Amortization of
intangible assets acquired with Shoppers Drug Mart |
|
|
|
0.33 |
|
|
|
|
|
|
|
0.33 |
|
|
|
|
|
Restructuring and
other charges |
|
|
|
0.02 |
|
|
|
|
|
|
|
0.02 |
|
|
|
0.01 |
|
Fair value
adjustment of commodity derivatives at Weston Foods |
|
|
|
0.02 |
|
|
|
(0.01) |
|
|
|
(0.03) |
|
|
|
0.04 |
|
Fixed asset and
other related impairments |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.02 |
|
Shoppers Drug Mart
acquisition costs and net financing charges |
|
|
|
0.16 |
|
|
|
|
|
|
|
0.25 |
|
|
|
|
|
Choice Properties
general and administrative costs |
|
|
|
0.01 |
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
Defined benefit
plan amendments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.18) |
|
Accelerated
amortization of deferred financing costs |
|
|
|
0.04 |
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
Fair value
adjustment of Trust Unit liability |
|
|
|
0.01 |
|
|
|
|
|
|
|
0.04 |
|
|
|
|
|
Foreign currency
translation loss (gain) |
|
|
|
0.23 |
|
|
|
0.05 |
|
|
|
(0.11) |
|
|
|
(0.16) |
|
Adjusted basic net
earnings per common share |
|
|
$ |
1.26 |
|
|
$ |
1.08 |
|
|
$ |
2.17 |
|
|
$ |
1.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
Certain 2013 figures have been amended. See note 2 of the
Company's unaudited interim period condensed consolidated financial
statements included in the 2014 Second Quarter Report
to Shareholders. |
(ii) |
Net of interest, income taxes and non-controlling interests, as
applicable. |
|
|
In addition to the items described in the
"EBITDA, Adjusted EBITDA and Adjusted Operating Income" section
above, the following items also influenced basic net earnings per
common share in the second quarters of 2014 and 2013:
Accelerated amortization of deferred
financing costs In the second quarter of 2014, Loblaw
recorded a charge of $14 million
on a pre-tax basis related to the accelerated amortization of
deferred financing costs due to the repayment of $1.6 billion of the $3.5
billion term loan facility.
Fair value adjustment of the forward sale
agreement for 9.6 million Loblaw common
shares The fair value adjustment of the
forward sale agreement for 9.6 million Loblaw common shares is
non-cash and is included in net interest expense and other
financing charges. The adjustment is determined by changes in the
value of the underlying Loblaw common shares. In the second quarter
of 2014, a charge of $3 million
on a pre-tax basis (2013 - $58 million) was recorded in net interest
expense and other financing charges as a result of the increase in
the market price of Loblaw common shares.
Fair value adjustment of Trust Unit
liability The Company is exposed to market price
fluctuations as a result of the Choice Properties Units held by
unitholders other than the Company. These Units are presented as a
liability on the Company's consolidated balance sheets as they are
redeemable for cash at the option of the holder, subject to certain
restrictions. This liability is recorded at fair value at each
reporting period based on the market price of Units at the end of
the period. In the second quarter of 2014, the Company recorded a
loss of $6 million (2013 - nil)
in net interest expense and other financing charges related to the
fair value adjustment of the Trust Unit liability.
Adjusted Debt The Company believes
adjusted debt to rolling year adjusted EBITDA is useful in
assessing the amount of financial leverage employed. The Company
changed its definition of adjusted debt in the second quarter of
2014 to include capital securities to better align with
management's definition for debt reduction purposes.
The following table reconciles adjusted debt
used in the adjusted debt to rolling year adjusted EBITDA ratio to
GAAP measures reported as at the periods ended as indicated.
|
|
|
|
(unaudited) |
|
As at |
|
|
|
|
|
|
|
|
|
|
|
($ millions) |
|
Jun. 14, 2014 |
|
|
Jun. 15, 2013 |
|
|
Dec. 31, 2013 |
|
Bank indebtedness |
|
$ |
335 |
|
|
|
|
|
|
|
|
|
Short term debt |
|
|
1,080 |
|
|
$ |
1,339 |
|
|
$ |
1,060 |
|
Long term debt due within one
year |
|
|
74 |
|
|
|
1,325 |
|
|
|
1,208 |
|
Long term debt |
|
|
12,862 |
|
|
|
5,450 |
|
|
|
7,736 |
|
Trust Unit liability |
|
|
493 |
|
|
|
|
|
|
|
478 |
|
Capital securities |
|
|
224 |
|
|
|
223 |
|
|
|
224 |
|
Certain other liabilities |
|
|
34 |
|
|
|
39 |
|
|
|
39 |
|
Fair value of
financial derivatives related to the above debt |
|
|
(491) |
|
|
|
(454) |
|
|
|
(524) |
|
Total debt |
|
$ |
14,611 |
|
|
$ |
7,922 |
|
|
$ |
10,221 |
|
Less: |
Independent securitization trusts in short term
debt |
|
|
605 |
|
|
|
905 |
|
|
|
605 |
|
|
Independent securitization trusts in long term
debt |
|
|
750 |
|
|
|
600 |
|
|
|
750 |
|
|
Trust Unit liability |
|
|
493 |
|
|
|
|
|
|
|
478 |
|
|
Independent funding trusts |
|
|
476 |
|
|
|
461 |
|
|
|
475 |
|
|
Guaranteed Investment Certificates |
|
|
528 |
|
|
|
273 |
|
|
|
430 |
|
Adjusted debt |
|
$ |
11,759 |
|
|
$ |
5,683 |
|
|
$ |
7,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free Cash Flow The Company believes
free cash flow is useful in assessing the Company's cash available
for additional financing and investing activities.
The following table reconciles free cash flow to
GAAP measures reported for the periods ended as indicated.
|
|
|
|
|
|
|
(unaudited) |
|
12 Weeks Ended |
|
|
24 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ millions) |
|
Jun. 14,
2014 |
|
|
Jun. 15, 2013 |
|
|
Jun. 14,
2014 |
|
|
Jun. 15, 2013 |
|
Cash flows from operating
activities |
|
$ |
1,013 |
|
|
$ |
633 |
|
|
$ |
1,015 |
|
|
$ |
613 |
|
Change in credit card receivables |
|
|
162 |
|
|
|
104 |
|
|
|
23 |
|
|
|
(26) |
|
Less: |
Interest paid |
|
|
119 |
|
|
|
115 |
|
|
|
267 |
|
|
|
208 |
|
|
Fixed asset purchases |
|
|
248 |
|
|
|
213 |
|
|
|
377 |
|
|
|
347 |
|
Free cash flow |
|
$ |
808 |
|
|
$ |
409 |
|
|
$ |
394 |
|
|
$ |
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED FINANCIAL INFORMATION
The following includes selected quarterly financial information
which is prepared by management in accordance with International
Financial Reporting Standards ("IFRS") and is based on the
Company's 2014 Second Quarter Report to Shareholders. This
financial information does not contain all disclosures required by
IFRS, and accordingly, this financial information should be read in
conjunction with the Company's 2013 Annual Report and 2014 Second
Quarter Report to Shareholders available in the Investor Centre
section of the Company's website at www.weston.ca.
Condensed Consolidated Statements of
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
|
24 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
Jun. 14, 2014 |
|
|
Jun.
15, 2013(3) |
|
|
Jun. 14, 2014 |
|
Jun.
15, 2013(3) |
|
(millions of Canadian dollars except where
otherwise indicated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
10,598 |
|
|
$ |
7,792 |
|
|
$ |
18,210 |
|
$ |
15,286 |
|
Operating
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of inventories sold |
|
|
8,422 |
|
|
|
5,867 |
|
|
|
14,090 |
|
|
11,472 |
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenses |
|
|
2,618 |
|
|
|
1,548 |
|
|
|
4,184 |
|
|
3,035 |
|
|
|
|
11,040 |
|
|
|
7,415 |
|
|
|
18,274 |
|
|
14,507 |
|
Operating (Loss)
Income |
|
|
(442) |
|
|
|
377 |
|
|
|
(64) |
|
|
779 |
|
Net Interest Expense
and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Charges |
|
|
159 |
|
|
|
150 |
|
|
|
327 |
|
|
234 |
|
(Loss) Earnings
Before Income Taxes |
|
|
(601) |
|
|
|
227 |
|
|
|
(391) |
|
|
545 |
|
Income Taxes |
|
|
(145) |
|
|
|
64 |
|
|
|
(99) |
|
|
142 |
|
Net (Loss)
Earnings |
|
|
(456) |
|
|
|
163 |
|
|
|
(292) |
|
|
403 |
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of the Company |
|
|
(208) |
|
|
|
97 |
|
|
|
(88) |
|
|
269 |
|
|
Non-Controlling Interests |
|
|
(248) |
|
|
|
66 |
|
|
|
(204) |
|
|
134 |
|
Net (Loss)
Earnings |
|
$ |
(456) |
|
|
$ |
163 |
|
|
$ |
(292) |
|
$ |
403 |
|
Net (Loss) Earnings
per Common Share ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.71) |
|
|
$ |
0.68 |
|
|
$ |
(0.85) |
|
$ |
1.95 |
|
Diluted |
|
$ |
(1.71) |
|
|
$ |
0.67 |
|
|
$ |
(0.85) |
|
$ |
1.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
|
As at |
|
|
|
|
|
|
|
|
(unaudited) |
|
Jun. 14, 2014 |
|
|
Jun.
15, 2013(3) |
|
|
|
Dec.
31, 2013(3) |
|
(millions of Canadian dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
Current
Assets |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,452 |
|
|
$ |
1,028 |
|
|
|
$ |
2,869 |
|
|
Short term investments |
|
897 |
|
|
2,457 |
|
|
|
1,490 |
|
|
Accounts receivable |
|
1,152 |
|
|
595 |
|
|
|
697 |
|
|
Credit card receivables |
|
2,561 |
|
|
2,279 |
|
|
|
2,538 |
|
|
Inventories |
|
4,428 |
|
|
2,130 |
|
|
|
2,244 |
|
|
Income taxes recoverable |
|
58 |
|
|
|
|
|
|
|
Prepaid expenses and other
assets |
|
237 |
|
|
157 |
|
|
|
84 |
|
|
Assets held for sale |
|
44 |
|
|
26 |
|
|
|
22 |
|
Total Current
Assets |
|
10,829 |
|
|
8,672 |
|
|
|
9,944 |
|
Fixed Assets |
|
11,341 |
|
|
9,436 |
|
|
|
9,655 |
|
Investment
Properties |
|
148 |
|
|
97 |
|
|
|
99 |
|
Intangible Assets |
|
9,580 |
|
|
220 |
|
|
|
215 |
|
Goodwill |
|
3,633 |
|
|
1,357 |
|
|
|
1,365 |
|
Deferred Income
Taxes |
|
336 |
|
|
314 |
|
|
|
307 |
|
Security Deposits |
|
187 |
|
|
315 |
|
|
|
1,791 |
|
Franchise Loans
Receivable |
|
380 |
|
|
365 |
|
|
|
375 |
|
Other Assets |
|
777 |
|
|
679 |
|
|
|
853 |
|
Total
Assets |
|
$ |
37,211 |
|
|
$ |
21,455 |
|
|
|
$ |
24,604 |
|
LIABILITIES |
|
|
|
|
|
|
|
Current
Liabilities |
|
|
|
|
|
|
|
|
Bank indebtedness |
|
$ |
335 |
|
|
|
|
|
|
|
Trade payables and other
liabilities |
|
4,727 |
|
|
$ |
3,620 |
|
|
|
$ |
3,989 |
|
|
Provisions |
|
109 |
|
|
97 |
|
|
|
120 |
|
|
Income taxes payable |
|
|
|
2 |
|
|
|
2 |
|
|
Short term debt |
|
1,080 |
|
|
1,339 |
|
|
|
1,060 |
|
|
Long term debt due within one
year |
|
74 |
|
|
1,325 |
|
|
|
1,208 |
|
|
Associate interest |
|
170 |
|
|
|
|
|
|
Total Current
Liabilities |
|
6,495 |
|
|
6,383 |
|
|
|
6,379 |
|
Provisions |
|
88 |
|
|
96 |
|
|
|
81 |
|
Long Term Debt |
|
12,862 |
|
|
5,450 |
|
|
|
7,736 |
|
Trust Unit
Liability |
|
493 |
|
|
|
|
|
478 |
|
Deferred Income
Taxes |
|
2,184 |
|
|
151 |
|
|
|
187 |
|
Other Liabilities |
|
831 |
|
|
827 |
|
|
|
618 |
|
Capital
Securities |
|
224 |
|
|
223 |
|
|
|
224 |
|
Total
Liabilities |
|
23,177 |
|
|
13,130 |
|
|
|
15,703 |
|
EQUITY |
|
|
|
|
|
|
|
Share Capital |
|
988 |
|
|
967 |
|
|
|
972 |
|
Contributed
Surplus |
|
77 |
|
|
48 |
|
|
|
65 |
|
Retained Earnings |
|
6,085 |
|
|
4,840 |
|
|
|
5,260 |
|
Accumulated Other
Comprehensive Income (Loss) |
|
27 |
|
|
(16) |
|
|
|
16 |
|
Total Equity
Attributable to Shareholders of the Company |
|
7,177 |
|
|
5,839 |
|
|
|
6,313 |
|
Non-Controlling
Interests |
|
6,857 |
|
|
2,486 |
|
|
|
2,588 |
|
Total
Equity |
|
14,034 |
|
|
8,325 |
|
|
|
8,901 |
|
Total Liabilities
and Equity |
|
$ |
37,211 |
|
|
$ |
21,455 |
|
|
|
$ |
24,604 |
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Cash
Flows
|
12 Weeks Ended |
|
24 Weeks Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
Jun. 14,
2014 |
|
|
Jun.
15, 2013(3) |
|
|
Jun. 14, 2014 |
|
|
Jun.
15, 2013(3) |
|
(millions of Canadian
dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings |
|
$ |
(456) |
|
|
$ |
163 |
|
|
$ |
(292) |
|
|
$ |
403 |
|
|
Income taxes |
|
(145) |
|
|
64 |
|
|
(99) |
|
|
142 |
|
|
Net interest expense and other
financing charges |
|
159 |
|
|
150 |
|
|
327 |
|
|
234 |
|
|
Depreciation and amortization |
|
400 |
|
|
207 |
|
|
611 |
|
|
405 |
|
|
Recognition of fair value increment on
inventory sold |
|
622 |
|
|
|
|
|
622 |
|
|
|
|
|
Charge related to
inventory measurement and
other conversion differences |
|
190 |
|
|
|
|
|
190 |
|
|
|
|
|
Foreign currency translation loss
(gain) |
|
29 |
|
|
6 |
|
|
(14) |
|
|
(21) |
|
|
Gain on defined benefit plan
amendments |
|
|
|
|
|
|
|
|
|
|
(51) |
|
|
Settlement of derivatives |
|
|
|
|
8 |
|
|
|
|
|
(37) |
|
|
Change in credit card receivables |
|
(162) |
|
|
(104) |
|
|
(23) |
|
|
26 |
|
|
Change in non-cash working
capital |
|
395 |
|
|
189 |
|
|
(225) |
|
|
(401) |
|
|
Income taxes paid |
|
(97) |
|
|
(66) |
|
|
(180) |
|
|
(118) |
|
|
Interest received |
|
14 |
|
|
18 |
|
|
25 |
|
|
31 |
|
|
Other |
|
64 |
|
|
(2) |
|
|
73 |
|
|
|
|
Cash Flows from
Operating Activities |
|
1,013 |
|
|
633 |
|
|
1,015 |
|
|
613 |
|
Investing
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset purchases |
|
(248) |
|
|
(213) |
|
|
(377) |
|
|
(347) |
|
|
Change in short term investments |
|
(15) |
|
|
(51) |
|
|
605 |
|
|
(286) |
|
|
Acquisition of Shoppers Drug Mart
Corporation, net of cash acquired |
|
(6,619) |
|
|
|
|
|
(6,619) |
|
|
|
|
|
Change in franchise
investments and other receivables |
|
(19) |
|
|
17 |
|
|
(13) |
|
|
(25) |
|
|
Change in security deposits |
|
1,601 |
|
|
(13) |
|
|
1,605 |
|
|
36 |
|
|
Intangible asset additions |
|
(17) |
|
|
|
|
|
(18) |
|
|
(9) |
|
|
Other |
|
(13) |
|
|
9 |
|
|
(3) |
|
|
(1) |
|
Cash Flows used in
Investing Activities |
|
(5,330) |
|
|
(251) |
|
|
(4,820) |
|
|
(582) |
|
Financing
Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in bank indebtedness |
|
40 |
|
|
|
|
|
40 |
|
|
|
|
|
Change in Associate interest |
|
(4) |
|
|
|
|
|
(4) |
|
|
|
|
|
Change in short term debt |
|
10 |
|
|
9 |
|
|
20 |
|
|
20 |
|
|
Long term debt |
- Issued, net
of financing charges |
|
5,136 |
|
|
|
|
|
5,605 |
|
|
10 |
|
|
|
- Retired |
|
(2,474) |
|
|
(198) |
|
|
(2,800) |
|
|
(224) |
|
|
Share capital |
- Issued |
|
14 |
|
|
13 |
|
|
14 |
|
|
13 |
|
|
|
- Purchased and held in trust |
|
|
|
|
|
|
|
|
|
|
(15) |
|
|
|
- Retired |
|
|
|
|
|
|
|
|
|
|
(42) |
|
|
Loblaw share capital |
- Issued |
|
54 |
|
|
44 |
|
|
64 |
|
|
55 |
|
|
|
- Purchased and
held in trust |
|
|
|
|
|
|
|
|
|
|
(46) |
|
|
|
- Retired |
|
(59) |
|
|
|
|
|
(59) |
|
|
|
|
Interest paid |
|
(119) |
|
|
(115) |
|
|
(267) |
|
|
(208) |
|
|
Dividends |
- To common shareholders |
|
(53) |
|
|
(48) |
|
|
(106) |
|
|
(97) |
|
|
|
- To preferred shareholders |
|
(8) |
|
|
(8) |
|
|
(19) |
|
|
(19) |
|
|
|
- To minority
shareholders |
|
(83) |
|
|
(23) |
|
|
(108) |
|
|
(46) |
|
Cash Flows from
(used in) Financing Activities |
|
2,454 |
|
|
(326) |
|
|
2,380 |
|
|
(599) |
|
Effect of foreign
currency exchange rate |
|
|
|
|
|
|
|
|
|
|
|
|
changes on cash and cash
equivalents |
|
(6) |
|
|
(3) |
|
|
8 |
|
|
7 |
|
Change in Cash and
Cash Equivalents |
|
(1,869) |
|
|
53 |
|
|
(1,417) |
|
|
(561) |
|
Cash and Cash
Equivalents, Beginning of Period |
|
3,321 |
|
|
975 |
|
|
2,869 |
|
|
1,589 |
|
Cash and Cash
Equivalents, End of Period |
|
$ |
1,452 |
|
|
$ |
1,028 |
|
|
$ |
1,452 |
|
|
$ |
1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 SECOND QUARTER REPORT TO
SHAREHOLDERS
The Company's 2013 Annual Report and 2014 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 will be available 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 the Canadian securities regulatory authorities
in Canada through SEDAR. This News
Release includes selected information on Loblaw, 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 the Canadian securities regulatory authorities from
time to time. These filings are also maintained at Loblaw's
corporate website at www.loblaw.ca.
CONFERENCE CALL AND WEBCAST
PRESENTATION
George Weston Limited will host a conference call as well as an
audio webcast on Tuesday July
29, 2014 at 11:00 a.m.
(EST). To access via tele-conference, please dial
(647) 427-7450. The playback will be available two hours after
the event at (416) 849-0833, passcode: 65664673#. 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 George Weston Limited's filings with
securities regulators made from time to time, all of which can be
found at www.weston.ca and www.sedar.com. |
(3) |
Certain 2013 figures have been
amended. See "Non-GAAP Financial Measures" section of this News
Release and note 2 of the Company's unaudited interim period
condensed consolidated financial statements included in the 2014
Second Quarter Report to Shareholders. |
|
|
SOURCE George Weston Limited