Press Releases

George Weston Limited Reports 2017 Fourth Quarter and Fiscal Year Ended December 31, 2017 Results(2)

TORONTO, March 2, 2018 /CNW/ - George Weston Limited (TSX: WN) ("GWL" or the "Company") today announced its consolidated unaudited results for the 12 weeks ended December 31, 2017.

GWL's 2017 Annual Report includes the Company's audited annual consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the fiscal year ended December 31, 2017. The 2017 Annual Report has been filed with SEDAR and is available at sedar.com and in the Investor Centre section of the Company's website at weston.ca.

Galen G. Weston, Chairman and Chief Executive Officer, George Weston Limited, commented that "Loblaw delivered strong results in the fourth quarter driven by retail segment with positive same-store sales, while maintaining a stable trading environment. Weston Foods results for the quarter came in as expected for our artisan, biscuit and fresh businesses, and the frozen business has stabilized. In the fourth quarter, Weston Foods launched an ambitious three-year transformation program. We are confident that this transformation program will position us to become a premier North American bakery, and deliver strong financial performance in the long term."

2017 FOURTH QUARTER HIGHLIGHTS



(unaudited)
($ millions except where otherwise indicated)
For the periods ended as indicated

Quarters Ended


Years Ended


Dec. 31, 2017

Dec. 31, 2016

Change

Dec. 31, 2017

Dec. 31, 2016

Change

Sales

$

11,409

$

11,519

(1.0)%

$

48,292

$

47,999

0.6%

Operating income

$

147

$

491

(70.1)%

$

2,540

$

2,255

12.6%

Adjusted EBITDA(1)

$

1,072

$

1,027

4.4%

$

4,340

$

4,140

4.8%

Adjusted EBITDA margin(1)

9.4%


8.9%



9.0%


8.6%


Net earnings attributable to shareholders












of the Company              

$

38

$

92

(58.7)%

$

759

$

550

38.0%

Net earnings available to common shareholders












of the Company

$

28

$

82

(65.9)%

$

715

$

506

41.3%

Adjusted net earnings available to common












shareholders of the Company(1)                              

$

228

$

204

11.8%

$

904

$

838

7.9%

Diluted net earnings per common share ($)

$

0.22

$

0.64

(65.6)%

$

5.53

$

3.90

41.8%

Adjusted diluted net earnings per common share(1) ($)

$

1.78

$

1.59

11.9%

$

7.00

$

6.49

7.9%












 

CONSOLIDATED RESULTS OF OPERATIONS

Net earnings available to common shareholders of the Company in the fourth quarter of 2017 were $28 million ($0.22 per common share), a decrease of $54 million ($0.42 per common share) compared to the same period in 2016. The decrease included improvements in underlying operating performance of $24 million ($0.19 per common share) which were more than offset by the unfavourable year-over-year net impact of adjusting items totaling $78 million ($0.61 per common share), as described below.

  • The improvements in underlying operating performance of $24 million ($0.19 per common share) were primarily due to:
    • the underlying operating performance of Loblaw Companies Limited ("Loblaw") primarily due to the Retail segment;

partially offset by,

    • the unfavourable underlying operating performance of Weston Foods.

  • The unfavourable year-over-year net impact of certain adjusting items totaling $78 million ($0.61 per common share) was primarily due to:
    • an increase in restructuring and other charges of $78 million ($0.61 per common share);
    • the unfavourable impact of Loblaw's charges related to the announcement of the PC Optimum Program, including the revaluation of the existing points liability and the impairment of certain information technology ("IT") assets, of $75 million ($0.58 per common share); and
    • the unfavourable impact of the Loblaw Card Program of $39 million ($0.30 per common share);

partially offset by,

    • the favourable impact of the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of $39 million ($0.29 per common share);
    • the favourable year-over-year impact of asset impairments, net of recoveries, of $25 million ($0.19 per common share);
    • the favourable year-over-year impact of the statutory corporate income tax rate change of $19 million ($0.15 per common share); and
    • the favourable impact of the remeasurement of deferred tax balances of $10 million ($0.08 per common share).

  • Net earnings available to common shareholders of the Company also included the positive contribution from the increase in the Company's ownership interest in Loblaw, as a result of Loblaw's share repurchases.

Adjusted net earnings available to common shareholders of the Company(1) in the fourth quarter of 2017 were $228 million ($1.78 per common share), an increase of $24 million ($0.19 per common share) compared to the same period in 2016, primarily due to the improvement in underlying operating performance, as described above.

Competition Bureau Investigation

On December 19, 2017, the Company and Loblaw announced actions taken to address their role in an industry-wide price-fixing arrangement involving certain packaged bread products. The arrangement involved the coordination of retail and wholesale prices of certain packaged bread products over a period extending from late 2001 to March 2015. Under the arrangement, the participants regularly increased prices on a coordinated basis.

Class action lawsuits have been commenced against the Company and Loblaw as well as a number of other major grocery retailers and another bread wholesaler. It is too early to predict the outcome of such legal proceedings. Neither the Company nor Loblaw believes that the ultimate resolution of such legal proceedings will have a material adverse impact on their financial condition or prospects. The Company and Loblaw's cash balances far exceed any realistic damages scenario and therefore the Company and Loblaw do not anticipate any impacts on the Company and Loblaw's dividend, dividend policy or Loblaw's share buyback plan. 

The Company and Loblaw have not recorded any amounts related to the potential civil liability associated with the class action lawsuits in the fourth quarter of 2017 on the basis that a reliable estimate of the liability cannot be determined at this time. The Company and Loblaw will continue to assess whether a provision for civil liability associated with the class action lawsuits can be reliably estimated and will record an amount in the period that a reliable estimate of liability can be determined or the matter is ultimately resolved. 

As part of its response to this issue, Loblaw has announced the Loblaw Card Program pursuant to which Loblaw is offering a $25 Loblaw Card to eligible customers. The Loblaw Card can be used to purchase items sold in Loblaw grocery stores across Canada. Loblaw has recorded a charge of $107 million in relation to the Loblaw Card Program in the fourth quarter of 2017. The Company and Loblaw expect that Loblaw Cards issued to customers will be an offset against civil liability. The charge recorded for the Loblaw Card Program should not be viewed as an estimate of damages.

As a result of their admission that they participated in the arrangement and their cooperation in the Competition Bureau's investigation, the Company and Loblaw will not face criminal charges or penalties.

REPORTABLE OPERATING SEGMENTS

The Company has two reportable operating segments, Loblaw and Weston Foods. The Company also holds cash, short term investments and an interest in Choice Properties Real Estate Investment Trust ("Choice Properties") of 6.1% (2016 – 5.8%). Loblaw has three reportable operating segments: Retail, Financial Services and Choice Properties. Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise, credit card services, insurance brokerage services, gift cards and telecommunication services. Loblaw also holds an 82.4% (2016 – 82.7%) effective interest in Choice Properties, which owns, manages and develops well-located retail and other commercial real estate across Canada. The Weston Foods operating segment includes a leading fresh bakery business in Canada and frozen, artisan bakery and biscuit businesses throughout North America.

Weston Foods Segment Results

(unaudited)
($ millions except where otherwise indicated)
For the periods ended as indicated

Quarters Ended


Years Ended


Dec. 31, 2017

Dec. 31, 2016

Change

Dec. 31, 2017

Dec. 31, 2016

Change

Sales

$

527

$

537

(1.9)%

$

2,243

$

2,268

(1.1)%

Operating income

$

8

$

38

(78.9)%

$

91

$

173

(47.4)%

Adjusted EBITDA(1)

$

61

$

73

(16.4)%

$

256

$

296

(13.5)%

Adjusted EBITDA margin(1)

11.6%

13.6%


11.4%

13.1%


Depreciation and amortization(i)

$

35

$

27

29.6%

$

117

$

111

5.4%














(i)

Depreciation and amortization in the fourth quarter of 2017 includes $10 million (2016 – $3 million) and $10 million (2016 – $14 million) year-to-date of accelerated depreciation related to restructuring and other charges.

 

Sales  Weston Foods sales in the fourth quarter of 2017 were $527 million, a decrease of $10 million, or 1.9%, compared to the same period in 2016. Sales included the negative impact of foreign currency translation of approximately 2.8%. Excluding the unfavourable impact of foreign currency translation, sales increased 0.9% mainly driven by an increase in volumes and positive sales mix.

Operating income  Weston Foods operating income in the fourth quarter of 2017 was $8 million, a decrease of $30 million compared to the same period in 2016. The decrease was primarily due to the decline in underlying operating performance of $13 million and the unfavourable year-over-year net impact of adjusting items totaling $17 million, as described below:

  • an increase in restructuring and other charges of $26 million;

partially offset by,

  • the favourable impact of inventory loss, net of recoveries, of $7 million; and
  • the favourable impact of the fair value adjustment of derivatives of $2 million.

Adjusted EBITDA(1)  Weston Foods adjusted EBITDA(1) in the fourth quarter of 2017 was $61 million, a decrease of $12 million compared to the same period in 2016. The decrease was driven by changes in sales mix, and higher input and distribution costs, partially offset by productivity improvements.

Weston Foods adjusted EBITDA margin(1) in the fourth quarter of 2017 was 11.6% compared to 13.6% in the same period in 2016. The decline in adjusted EBITDA margin(1) in the fourth quarter of 2017 was mainly due to the factors impacting adjusted EBITDA(1), as described above.

Depreciation and Amortization  Weston Foods depreciation and amortization in the fourth quarter of 2017 was $35 million, an increase of $8 million compared to the same period in 2016. Depreciation and amortization included $10 million and $3 million in the fourth quarters of 2017 and 2016, respectively, of accelerated depreciation related to the closures of unprofitable facilities in the U.S. and Canada. Excluding these amounts, depreciation and amortization in the fourth quarter of 2017 increased nominally.

Weston Foods Other Business Matters

Restructuring and other charges  Weston Foods continuously evaluates strategic and cost reduction initiatives related to its manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure. In the fourth quarter of 2017, Weston Foods recorded restructuring and other charges of $33 million (2016 – $7 million). In the fourth quarter of 2017, the restructuring charges were primarily related to the previously announced closure of an unprofitable facility in the U.S., which is expected to be completed in the first quarter of 2018, and reorganization costs related to the transformation program. In the fourth quarter of 2017, these charges included severance and exit costs of $14 million, accelerated depreciation of $10 million, and impairment of a definite life intangible asset of $9 million.

Loblaw Segment Results

(unaudited)

($ millions except where otherwise indicated)
For the periods ended as indicated

Quarters Ended


Years Ended


Dec. 31, 2017

Dec. 31, 2016

Change

Dec. 31, 2017

Dec. 31, 2016

Change

Sales

$

11,030

$

11,130

(0.9)%

$

46,702

$

46,385

0.7%

Operating income

$

138

$

447

(69.1)%

$

2,486

$

2,084

19.3%

Adjusted EBITDA(1)

$

1,011

$

954

6.0%

$

4,084

$

3,844

6.2%

Adjusted EBITDA margin(1)

9.2%

8.6%


8.7%

8.3%


Depreciation and amortization(i)

$

372

$

365

1.9%

$

1,568

$

1,543

1.6%














(i)

Depreciation and amortization includes $121 million (2016 – $124 million) in the fourth quarter of 2017 and $524 million (2016 – $535 million) year-to-date of amortization of intangible assets acquired with Shoppers Drug Mart Corporation ("Shoppers Drug Mart").

 

Sales, operating income and adjusted EBITDA(1) in the fourth quarter of 2017 include the impacts of the consolidated franchises and the impact of the disposition of gas bar operations, as set out in "Loblaw Other Business Matters".

Sales  Loblaw sales in the fourth quarter of 2017 were $11,030 million, a decrease of $100 million, or 0.9%, compared to the same period in 2016, primarily driven by Retail. Retail sales decreased by $127 million, or 1.2%, compared to the same period in 2016 and included food retail sales of $7,546 million (2016 – $7,789 million) and drug retail sales of $3,172 million (2016 – $3,056 million).

Excluding the consolidation of franchises, Retail sales decreased by $214 million primarily driven by the following factors:

  • the impact of the disposition of gas bar operations of $350 million;

partially offset by,

  • food retail same-store sales growth was 0.5%, after excluding gas bar operations. Loblaw's food retail average quarterly internal food price index was marginally higher than the average quarterly national food price inflation of 1.0% as measured by "The Consumer Price Index for Food Purchased from Stores" ("CPI"). CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw stores;
  • drug retail same-store sales growth was 3.6%, including pharmacy same-store sales growth of 3.9% and front store same-store sales growth of 3.5%; and
  • in the last 12 months, Retail net square footage increased 0.1 million square feet, or 0.1%.

Operating income  Loblaw operating income in the fourth quarter of 2017 was $138 million, a decrease of $309 million compared to the same period in 2016, primarily driven by improvements in underlying operating performance of $47 million which were more than offset by the unfavourable year-over-year net impact of adjusting items totaling $356 million, as described below:

  • the improvements in underlying operating performance of $47 million were primarily driven by Retail due to higher Retail gross profit, partially offset by an increase in Retail SG&A, and included the unfavourable year-over-year impact of the consolidation of franchises in the quarter and the unfavourable impact of the disposition of gas bar operations; and
  • the unfavourable year-over-year net impact of adjusting items totaling $356 million was primarily due to:
    • the unfavourable impact of charges related to the announcement of the PC Optimum Program, including the revaluation of the existing points liability and the impairment of certain IT assets, of $211 million;
    • an increase in restructuring and other related charges of $163 million; and
    • the unfavourable impact of the Loblaw Card Program of $107 million;

partially offset by,

    • the year-over-year favourable impact of asset impairments, net of recoveries, of $77 million;
    • the year-over-year favourable impact of pension annuities and buy-outs in the prior year of $21 million; and
    • the favourable impact of income earned, net of certain costs incurred, from the wind-down of PC Financial banking services of $17 million.

Adjusted EBITDA(1) Loblaw adjusted EBITDA(1) in the fourth quarter of 2017 was $1,011 million, an increase of $57 million compared to the same period in 2016. The increase was primarily driven by Retail and included no impact for the consolidation of franchises in the quarter and the unfavourable impact of the disposition of gas bar operations. Retail adjusted EBITDA(1) was $936 million, an increase of $47 million driven by an increase in gross profit, partially offset by an increase in SG&A.

  • Retail gross profit percentage of 28.9% increased by 170 basis points compared to the fourth quarter of 2016. Excluding the consolidation of franchises, Retail gross profit percentage was 27.5%, an increase of 110 basis points compared to the fourth quarter of 2016. The increase in gross profit was due to the favourable impact of the disposition of gas bar operations of approximately 70 basis points and higher drug retail margins primarily driven by front store margins. Food retail margins were stable.

  • Retail SG&A as a percentage of sales was 20.1%, an increase of 110 basis points compared to the fourth quarter of 2016. Excluding the consolidation of franchises, SG&A increased $8 million and as a percentage of sales was 18.8%, an unfavourable increase of 40 basis points compared to the fourth quarter of 2016 mainly driven by the unfavourable impact from the disposition of gas bar operations of approximately 50 basis points as store and store support costs were relatively flat as a percentage of sales.

Loblaw adjusted EBITDA(1) in the fourth quarter of 2017 also included an increase in Choice Properties adjusted EBITDA(1), net of consolidation and eliminations, of $6 million, primarily due to an increase in base rent and operating costs recoveries from existing properties and the expansion of the portfolio through acquisitions and development of properties, and an increase in Financial Services adjusted EBITDA(1) of $4 million, primarily driven by the growth in the credit card portfolio and higher Mobile Shop sales.

Depreciation and Amortization  Loblaw's depreciation and amortization in the fourth quarter of 2017 was $372 million, an increase of $7 million compared to the same period in 2016. The increase in depreciation and amortization was primarily driven by the consolidation of franchises and an increase in IT assets.

Depreciation and amortization in the fourth quarter of 2017 included $121 million (2016 – $124 million) of amortization of intangible assets acquired with Shoppers Drug Mart.

Loblaw Other Business Matters

PC Optimum Program  In the fourth quarter of 2017, Loblaw announced plans to bring together the Shoppers Optimum and PC Plus reward programs to create one program, PC Optimum. As a result, Loblaw recorded a charge of $189 million, related to the revaluation of the existing liability for outstanding points to reflect a higher anticipated redemption rate under the new program, and a charge of $22 million, related to the impairment of certain IT assets that support the existing loyalty programs in the fourth quarter of 2017. Subsequent to the fourth quarter of 2017, Loblaw successfully launched the PC Optimum Program.

Restructuring and other charges  In the fourth quarter of 2017, Loblaw eliminated approximately 500 corporate and store-support positions and finalized a plan that will result in the closure of 22 unprofitable retail locations across a range of banners and formats. Loblaw expects to record charges of approximately $135 million related to this restructuring, of which $123 million was recorded in the fourth quarter of 2017. The charges included $109 million for severance and lease related costs, $7 million for asset impairments and $7 million related to other costs. Loblaw expects to realize approximately $85 million in annualized savings related to these plans. Loblaw expects that the store closures will be substantially complete by the end of the first quarter of 2018. 

In addition, Loblaw recorded $20 million in severance and other related charges and $3 million for asset impairments as a result of other restructuring plans approved in the fourth quarter of 2017 and a charge of $19 million related to an adjustment of onerous contract provisions related to previously announced restructuring plans.

Consolidation of Franchises  Loblaw has more than 500 franchise food retail stores in its network. As at year end 2017, 310 of these stores were consolidated for accounting purposes under a new, simplified franchise agreement ("Franchise Agreement") implemented in 2015.

Loblaw will convert franchises to the Franchise Agreement as existing agreements expire, at the end of which all franchises will be consolidated. The following table presents the net number of franchises consolidated in the fourth quarter of 2017 and year-to-date, and the total impact of the consolidation of franchises included in the consolidated results of the Company:

(unaudited)

Quarters Ended


Years Ended

($ millions except where otherwise indicated)

Dec. 31, 2017

Dec. 31, 2016


Dec. 31, 2017

Dec. 31, 2016

Number of Consolidated Franchise stores,







beginning of period

273

165


200

85

Add: Net Number of Consolidated Franchise







stores in the period

37

35


110

115

Number of Consolidated Franchise stores, end







of period

310

200


310

200

Sales

$

186

$

99


$

710

$

363

Operating income (loss)

16

21


23

(1)

Adjusted EBITDA(1)

27

27


66

20

Depreciation and amortization

11

6


43

21

Net earnings attributable to







non-controlling interests                         

14

28


24

7








 

Operating income (loss) included in the table above does not significantly impact net earnings available to common shareholders of the Company as this amount is largely attributable to non-controlling interests.

Loblaw expects that the estimated annual impact in 2018 of new and current consolidated franchises will be revenue of approximately $1,000 million, adjusted EBITDA(1) of approximately $100 million, depreciation and amortization of approximately $60 million and net earnings attributable to non-controlling interests of approximately $25 million.

Acquisition of properties In the fourth quarter of 2017, Choice Properties acquired two investment properties from third-party vendors for an aggregate purchase price of approximately $18 million, excluding acquisition costs, which was settled by an assumption of a $7 million mortgage, with the remainder in cash.

Choice Properties' Agreement to Acquire Canadian Real Estate Investment Trust  On February 15, 2018, Choice Properties entered into an agreement to acquire all of the assets and assume all of the liabilities, including long term debt and all residual liabilities of Canadian Real Estate Investment Trust ("CREIT"). CREIT will then redeem all of its outstanding units for $22.50 in cash plus 2.4904 Choice Properties units per CREIT unit, on a fully prorated basis. Using the Choice Properties closing unit price on February 14, 2018 of $12.49, this represents $53.61 per CREIT unit. The maximum amount of cash to be paid by Choice Properties will be approximately $1.65 billion and approximately 183 million units will be issued, based on the fully diluted number of CREIT units outstanding.

Choice Properties will finance the cash portion of the transaction with committed credit facilities totaling $3.6 billion. These committed facilities consist of an $850 million bridge facility that Choice Properties intends to refinance through the issuance of senior unsecured debentures and a $1.25 billion term loan. The term loan is structured in tranches maturing in 3, 4 and 5 years. Choice Properties will consider hedging the term loan to manage floating interest rate exposure. Choice Properties has also arranged a new $1.5 billion committed revolving credit facility, that will replace its and CREIT's existing credit facilities ensuring that Choice Properties will have maximum flexibility to support ongoing growth prospects, including acquisitions and development.

Loblaw, Choice Properties' controlling unitholder, has entered into a voting agreement in support of the transaction. To facilitate Choice Properties' financing for the transaction, Loblaw has agreed to convert all of its outstanding Class C Limited Partnership units of Choice Properties Limited Partnership with a face value of $925 million into Class B LP units of Choice Properties Limited Partnership on closing. Following the transaction, the Company and Loblaw will own approximately 4% and 62% of Choice Properties, respectively.

The transaction is anticipated to close in the second quarter of 2018. The transaction will require the approval of at least 66 2/3% of the votes cast by unitholders of CREIT at a special meeting expected to take place in April 2018. In addition to CREIT unitholder approval and court approvals, the transaction is subject to compliance with the Competition Act and certain other closing conditions customary in transactions of this nature. There can be no assurance that any such approvals will be obtained or that Loblaw will be able to successfully consummate the proposed transaction as currently contemplated or at all.

OUTLOOK(2)

Weston Foods' three year strategic framework is focused on becoming a premier North American Bakery and delivering solid financial results. In 2018, Weston Foods will focus on key fundamental areas by growing the core business, selectively innovating in new segments and markets, and strengthening key processes in the organization.

In 2018, on a full-year comparative basis, Weston Foods expects

  • Sales will be essentially flat to 2017. Growth in volume is expected to be offset by product rationalization and negative impacts of foreign exchange;
  • Adjusted EBITDA(1) will be essentially flat to 2017. Adjusted EBITDA(1) will include improvements from the transformation program and productivity, but will be offset by headwinds from higher input and distribution costs in an inflationary environment, minimum wage increases and foreign exchange. In the first half of 2018, adjusted EBITDA(1) is expected to decline primarily due to costs related to the transformation program and inflation. Adjusted EBITDA(1) in the second half of 2018 is expected to improve driven by sales growth and realized benefits from the transformation program, partially offset by continued inflationary pressures;
  • Investment in capital expenditures of approximately $230 million related to growth, regulatory and maintenance; and
  • Depreciation will increase.

Loblaw is focused on its strategic framework, delivering best in food and health and beauty, using data driven insights underpinned by process and efficiency excellence. This framework is supported by Loblaw's financial plan of maintaining a stable trading environment that targets positive same-store sales and stable gross margin, creating efficiencies to deliver operating leverage, investing for the future and returning capital to shareholders.

Headwinds from minimum wage increases and healthcare reform will negatively impact Loblaw's financial performance in 2018. In addition to the previously announced incremental impact of minimum wage increases of approximately $190 million, Loblaw now expects that the announced healthcare reform will have an additional impact of approximately $250 million on operating income. This compares to the average impact of healthcare reform of approximately $70 million to $80 million per year over the past three years.

In 2018, on a full-year comparative basis, normalized for the disposition of Loblaw's gas bar business, Loblaw expects to:

  • deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive market;
  • deliver essentially flat adjusted net earnings growth with positive adjusted earnings per share growth based on our share buyback program;
  • invest approximately $1.3 billion in capital expenditures, including $1.0 billion in its Retail segment; and
  • return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.

For 2018, the Company expects adjusted net earnings to be essentially flat due to the results of Loblaw and Weston Foods, as described above.

DECLARATION OF QUARTERLY DIVIDENDS

Subsequent to the end of the fourth quarter of 2017, 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

$0.455 per share payable April 1, 2018, to
shareholders of record March 15, 2018;





Preferred Shares, Series I

$0.3625 per share payable March 15, 2018, to
shareholders of record February 28, 2018;





Preferred Shares, Series III

$0.3250 per share payable April 1, 2018, to
shareholders of record March 15, 2018;





Preferred Shares, Series IV

$0.3250 per share payable April 1, 2018, to
shareholders of record March 15, 2018; and





Preferred Shares, Series V

$0.296875 per share payable April 1, 2018, to
shareholders of record March 15, 2018.


 

NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures: adjusted EBITDA and adjusted EBITDA margin, adjusted net earnings attributable to shareholders of the Company, adjusted net earnings available to common shareholders of the Company and adjusted diluted net earnings per common share. In addition to these items, the following measures are used by management in calculating adjusted diluted net earnings per common share: adjusted operating income, adjusted net interest expense and other financing charges, adjusted income taxes and adjusted income tax rate. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below.

Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under GAAP when analyzing consolidated and segment underlying operating performance. The excluded items are not necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.

These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and they should not be construed as an alternative to other financial measures determined in accordance with GAAP.

For details on the nature of items excluded in the calculation of any of the non-GAAP financial measures detailed below, see Section 18, "Non-GAAP Financial Measures", of the Company's 2017 Annual Report.

Adjusted EBITDA  The Company believes adjusted EBITDA is useful in assessing and making decisions regarding the underlying operating performance of the Company's ongoing operations and in assessing the Company's ability to generate cash flows to fund its cash requirements, including its capital investment program.

The following table reconciles adjusted EBITDA to operating income, which is reconciled to GAAP net earnings attributable to shareholders of the Company reported for the periods ended as indicated.


Quarters Ended


Dec. 31, 2017

Dec. 31, 2016

(unaudited)
($ millions)

Weston
Foods

Loblaw

Other

Consolidated

Weston
Foods

Loblaw

Other

Consolidated

Net earnings attributable to shareholders












of the Company




$

38




$

92

Add impact of the following:










Non-controlling interests




28




139


Income taxes




(34)




83


Net interest expense and other











financing charges                                   




115




177

Operating income

$

8

$

138

$

1

$

147

$

38

$

447

$

6

$

491

Add impact of the following:










Amortization of intangible assets acquired











with Shoppers Drug Mart


121


121


124


124


PC Optimum Program


211


211





Restructuring and other charges

33

165


198

7

2


9


Loblaw Card Program


107


107





Asset impairments, net of recoveries


53


53


130


130


Fair value adjustment of derivatives

(3)

(5)


(8)

(1)

(6)


(7)


Pension annuities and buy-outs





21


21


Certain prior period items


(4)


(4)





Prior year land transfer tax assessment











(recovery)


(9)


(9)





Wind-down of PC Financial banking services


(17)


(17)





Inventory losses, net of recoveries

(2)



(2)

5



5


Charges related to retail locations in











Fort McMurray, net of recoveries    





(5)


(5)


Foreign currency translation(i)



(1)

(1)



(6)

(6)

Adjusting items

$

28

$

622

$

(1)

$

649

$

11

$

266

$

(6)

$

271

Adjusted operating income

$

36

$

760

$

$

796

$

49

$

713

$

$

762

Depreciation and amortization excluding the










impact of the above adjustments(ii)

25

251


276

24

241


265

Adjusted EBITDA

$

61

$

1,011

$

$

1,072

$

73

$

954

$

$

1,027




















(i)

Represents the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.

(ii)

Depreciation and amortization for the calculation of adjusted EBITDA excludes $121 million (2016 – $124 million) of amortization of intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $3 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other charges.

 



Years Ended


Dec. 31, 2017

Dec. 31, 2016

(unaudited) 
($ millions)

Weston
Foods

Loblaw

Other

Consolidated

Weston
Foods

Loblaw

Other

Consolidated

Net earnings attributable to shareholders











of the Company




$

759




$

550

Add impact of the following:










Non-controlling interests




815






540


Income taxes




443






465


Net interest expense and other














financing charges                             





523






700

Operating income

$

91

$

2,486

$

(37)

$

2,540

$

173

$

2,084

$

(2)

$

2,255

Add impact of the following:










Amortization of intangible assets acquired











with Shoppers Drug Mart


524


524


535


535


PC Optimum Program


211


211





Restructuring and other charges

48

165


213

17

46


63


Loblaw Card Program


107


107





Asset impairments, net of recoveries


53

3

56


135


135


Fair value adjustment of derivatives

14

20


34

(5)

5



Pension annuities and buy-outs

2

12


14

3

23


26


Certain prior period items


(4)


(4)





Prior year land transfer tax assessment











(recovery)


(9)


(9)


10


10


Wind-down of PC Financial banking services


(24)


(24)





Gain on disposition of Loblaw's gas











bar operations


(501)


(501)





Inventory losses, net of recoveries

(6)



(6)

11



11


Charges related to retail locations in











Fort McMurray, net of recoveries





2


2


Drug retail ancillary assets





(4)


(4)


Foreign currency translation(i)



34

34



2

2

Adjusting items

$

58

$

554

$

37

$

649

$

26

$

752

$

2

$

780

Adjusted operating income

$

149

$

3,040

$

$

3,189

$

199

$

2,836

$

$

3,035

Depreciation and amortization excluding the










impact of the above adjustments(ii)

107

1,044


1,151

97

1,008


1,105

Adjusted EBITDA

$

256

$

4,084

$

$

4,340

$

296

$

3,844

$

$

4,140













(i) 

Represents the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.

(ii) 

Depreciation and amortization for the calculation of adjusted EBITDA excludes $524 million (2016 – $535 million) of amortization of intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $10 million (2016 – $14 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other charges.

 

Adjusted Net Interest Expense and Other Financing Charges  The Company believes adjusted net interest expense and other financing charges is useful in assessing the ongoing net financing costs of the Company.

The following table reconciles adjusted net interest expense and other financing charges to GAAP net interest expense and other financing charges reported for the periods ended as indicated.

(unaudited)
($ millions)

Quarters Ended


Years Ended

Dec. 31, 2017

Dec. 31, 2016


Dec. 31, 2017

Dec. 31, 2016

Net interest expense and other financing charges

$

115

$

177


$

523

$

700

Add:

Fair value adjustment of the Trust Unit liability

8

1


7

(79)


Fair value adjustment of the forward sale agreement for








9.6 million Loblaw common shares                          

10

(43)


25

(53)

Adjusted net interest expense and other financing charges

$

133

$

135


$

555

$

568








 

Adjusted Income Taxes and Adjusted Income Tax Rate  The Company believes the adjusted income tax rate applicable to adjusted earnings before taxes is useful in assessing the underlying operating performance of its business.

The following table reconciles the effective income tax rate applicable to adjusted earnings before taxes to the GAAP effective income tax rate applicable to earnings before taxes as reported for the periods ended as indicated.

(unaudited)
($ millions except where otherwise indicated)

Quarters Ended


Years Ended

Dec. 31, 2017

Dec. 31, 2016


Dec. 31, 2017

Dec. 31, 2016

Adjusted operating income(i)

$

796

$

762


$

3,189

$

3,035

Adjusted net interest expense and other financing charges(i)

133


135



555


568

Adjusted earnings before taxes

$

663

$

627


$

2,634

$

2,467

Income taxes

$

(34)

$

83


$

443

$

465

Add:

Tax impact of items excluded from adjusted earnings











before taxes(ii)                                                                             

177


89



232


216


Remeasurement of deferred tax balances

19





19




Statutory corporate income tax rate change

19





19


(3)

Adjusted income taxes

$

181

$

172


$

713

$

678

Effective income tax rate applicable to earnings before taxes

(106.3)%


26.4%



22.0%


29.9%

Adjusted income tax rate applicable to adjusted earnings










before taxes

27.3%


27.4%



27.1%


27.5%












(i)

See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges above.

(ii)

See the adjusted EBITDA table and the adjusted net interest expense and other financing charges table above for a complete list of items excluded from adjusted earnings before taxes.

 

Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net Earnings per Common Share  The Company believes adjusted net earnings available to common shareholders and adjusted diluted net earnings per common share are useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business.

The following table reconciles net earnings attributable to shareholders of the Company to net earnings available to common shareholders of the Company and then to adjusted net earnings available to common shareholders of the Company reported for the periods ended as indicated.

(unaudited)
($ millions except where otherwise indicated)

Quarters Ended


Years Ended

Dec. 31, 2017

Dec. 31, 2016


Dec. 31, 2017

Dec. 31, 2016

Net earnings attributable to shareholders of the Company

$

38

$

92


$

759

$

550

Less:

Prescribed dividends on preferred shares in share capital

(10)

(10)


(44)

(44)

Net earnings available to common shareholders











of the Company

$

28

$

82


$

715

$

506

Reduction in net earnings due to dilution at Loblaw




6

5

Net earnings available to common shareholders for diluted











earnings per share

$

28

$

82


$

709

$

501







Net earnings attributable to shareholders of the Company

$

38

$

92


$

759

$

550

Adjusting items (refer to the following table)

200

122


189

332

Adjusted net earnings attributable to shareholders











of the Company

$

238

$

214


$

948

$

882

Less:

Prescribed dividends on preferred shares in share capital

(10)

(10)


(44)

(44)

Adjusted net earnings available to common shareholders











of the Company

$

228

$

204


$

904

$

838

Reduction in net earnings due to dilution at Loblaw




6

5

Adjusted net earnings available to common shareholders for











diluted earnings per share

$

228

$

204


$

898

$

833







Weighted average common shares outstanding (millions)(i)

128.3

128.2


128.3

128.3









(i)

Includes impact of dilutive instruments for purposes of calculating adjusted diluted net earnings per common share. 

 

The following table reconciles adjusted net earnings available to common shareholders of the Company and adjusted diluted net earnings per common share to GAAP net earnings available to common shareholders of the Company and diluted net earnings per common share as reported for the periods ended as indicated.



Quarters Ended



Dec. 31, 2017

Dec. 31, 2016

(unaudited)
($ except where otherwise indicated)

Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)

Diluted
Net
Earnings
Per
Common
Share

Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)

Diluted
Net
Earnings
Per
Common
Share

As reported

$

28

$

0.22

$

82

$

0.64

Add (deduct) impact of the following(i):






Amortization of intangible assets acquired with Shoppers







Drug Mart

44

0.35

41

0.33


PC Optimum Program

75

0.58




Restructuring and other charges

82

0.64

4

0.03


Loblaw Card Program

39

0.30




Asset impairments, net of recoveries

19

0.15

44

0.34


Fair value adjustment of derivatives

(5)

(0.04)

(3)

(0.02)


Pension annuities and buy-outs



7

0.05


Certain prior period items

(6)

(0.05)




Prior year land transfer tax assessment (recovery)

(3)

(0.02)




Wind-down of PC Financial banking services

(7)

(0.05)




Inventory losses, net of recoveries

(1)

(0.01)

2

0.02


Charges related to retail locations in Fort McMurray, net







of recoveries



(1)

(0.01)


Fair value adjustment of the forward sale agreement for







9.6 million Loblaw common shares                  

(7)

(0.05)

32

0.24


Fair value adjustment of the Trust Unit liability

(2)

(0.02)

1

0.01


Remeasurement of deferred tax balances

(10)

(0.08)




Statutory corporate income tax rate change

(19)

(0.15)




Foreign currency translation

1

0.01

(5)

(0.04)

Adjusting items

$

200

$

1.56

$

122

$

0.95

Adjusted

$

228

$

1.78

$

204

$

1.59












(i)

Net of income taxes and non-controlling interests, as applicable.

 



Years Ended



Dec. 31, 2017

Dec. 31, 2016

(unaudited)
($ except where otherwise indicated)

Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)

Diluted
Net
Earnings
Per
Common
Share

Net Earnings
Available to
Common
Shareholders of
the Company
($ millions)

Diluted
Net
Earnings
Per
Common
Share

As reported

$

715

$

5.53

$

506

$

3.90

Add (deduct) impact of the following(i):






Amortization of intangible assets acquired with Shoppers







Drug Mart

184

1.43

182

1.42


PC Optimum Program

75

0.58




Restructuring and other charges

93

0.73

28

0.22


Loblaw Card Program

39

0.30




Asset impairments, net of recoveries

22

0.17

46

0.35


Fair value adjustment of derivatives

17

0.13

(1)

(0.01)


Pension annuities and buy-outs

5

0.04

10

0.08


Certain prior period items

(6)

(0.05)




Prior year land transfer tax assessment (recovery)

(3)

(0.02)

3

0.02


Wind-down of PC Financial banking services

(9)

(0.07)




Gain on disposition of Loblaw's gas bar operations

(207)

(1.61)




Inventory losses, net of recoveries

(3)

(0.02)

6

0.05


Charges related to retail locations in Fort McMurray, net







of recoveries



1

0.01


Drug retail ancillary assets



(1)

(0.01)


Fair value adjustment of the forward sale agreement for







9.6 million Loblaw common shares

(18)

(0.14)

39

0.31


Fair value adjustment of the Trust Unit liability

(2)

(0.02)

16

0.12


Statutory corporate income tax rate change

(19)

(0.15)

1

0.01


Remeasurement of deferred tax balances

(10)

(0.08)




Foreign currency translation

31

0.25

2

0.02

Adjusting items

$

189

$

1.47

$

332

$

2.59

Adjusted

$

904

$

7.00

$

838

$

6.49












(i)

Net of income taxes and non-controlling interests, as applicable.

 

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 minimum wage increases and further healthcare reform, and planned capital investments. These specific forward-looking statements are contained throughout this News Release including, without limitation, in the "Outlook" section of this News Release. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may", "maintain", "achieve", "grow", "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 2018 is based on certain assumptions including assumptions about sales and volume growth, anticipated cost savings, operating efficiencies, anticipated benefits from strategic initiatives, anticipated minimum wage increases and healthcare reform impacts. 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 Section 12, "Enterprise Risks and Risk Management", of the MD&A of the Company's 2017 Annual Report and the Company's Annual Information Form ("AIF") for the year ended December 31, 2017. Such risks and uncertainties include:

  • changes to the regulation of generic prescription drug prices, the reduction of reimbursements under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
  • failure to effectively manage or combine Loblaw's loyalty programs;
  • the inability of the Company's IT infrastructure to support the requirements of the Company's business, or the occurrence of any internal or external security breaches, denial of service attacks, viruses, worms and other known or unknown cybersecurity or data breaches;
  • failure to execute Loblaw's e-commerce initiative or to adapt its business model to the shifts in the retail landscape caused by digital advances;
  • failure to realize benefits from investments in the Company's new IT systems;
  • failure to effectively respond to consumer trends or heightened competition, whether from current competitors or new entrants to the marketplace;
  • changes to any of the laws, rules, regulations or policies applicable to the Company's business, including increases to minimum wage;
  • public health events including those related to food and drug safety;
  • failure to realize the anticipated benefits, including revenue growth, anticipated cost savings or operating efficiencies, associated with the Company's investment in major initiatives that support its strategic priorities;
  • adverse outcomes of legal and regulatory proceedings and related matters;
  • reliance on the performance and retention of third party service providers, including those associated with the Company's supply chain and Loblaw's apparel business, including issues with vendors in both advanced and developing markets;
  • failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements;
  • the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink;
  • changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates and household debt, political uncertainty, interest rates, currency exchange rates or derivative and commodity prices;
  • the inability of the Company to effectively develop and execute its strategy; and
  • the inability of the Company to anticipate, identify and react to consumer and retail 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, including without limitation, the section entitled "Operating and Financial Risks and Risk Management" in the Company's AIF for the year ended December 31, 2017. 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.

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 audited annual consolidated financial statements for the year ended December 31, 2017. 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 2017 Annual Report available in the Investor Centre section of the Company's website at www.weston.ca.


Consolidated Statements of Earnings

(unaudited)





(millions of Canadian dollars except where otherwise indicated)

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

For the periods ended as indicated

(12 weeks)

(12 weeks)

(52 weeks)

(52 weeks)

Revenue

$

11,409

$

11,519

$

48,292

$

47,999

Operating Expenses






Cost of inventories sold

7,875

8,143

33,836

34,108


Selling, general and administrative expenses                     

3,387

2,885

11,916

11,636


11,262

11,028

45,752

45,744

Operating Income

147

491

2,540

2,255

Net Interest Expense and Other






Financing Charges

115

177

523

700

Earnings Before Income Taxes

32

314

2,017

1,555

Income Tax

(34)

83

443

465

Net Earnings

66

231

1,574

1,090

Attributable to:






Shareholders of the Company

38

92

759

550


Non-Controlling Interests

28

139

815

540

Net Earnings

$

66

$

231

$

1,574

$

1,090

Net Earnings per Common Share ($)






Basic

$

0.22

$

0.64

$

5.60

$

3.96


Diluted

$

0.22

$

0.64

$

5.53

$

3.90











 

Consolidated Balance Sheets

As at December 31



(millions of Canadian dollars)

2017

2016

ASSETS



Current Assets




Cash and cash equivalents

$

2,034

$

1,560


Short term investments

1,113

1,011


Accounts receivable

1,324

1,284


Credit card receivables

3,100

2,926


Inventories

4,623

4,559


Prepaid expenses and other assets

236

201


Assets held for sale

33

40

Total Current Assets

12,463

11,581

Fixed Assets

11,689

11,534

Investment Properties

235

218

Intangible Assets

8,368

8,875

Goodwill

4,377

4,364

Deferred Income Taxes

247

201

Security Deposits

86

89

Franchise Loans Receivable

166

233

Other Assets

868

851

Total Assets

$

38,499

$

37,946

LIABILITIES



Current Liabilities




Bank indebtedness

$

110

$

115


Trade payables and other liabilities

5,864

5,356


Provisions

325

135


Income taxes payable

137

341


Short term debt

1,258

1,241


Long term debt due within one year                                 

1,635

400


Associate interest

263

243

Total Current Liabilities

9,592

7,831

Provisions

190

146

Long Term Debt

10,457

11,385

Trust Unit Liability

634

635

Deferred Income Taxes

2,151

2,370

Other Liabilities

762

789

Total Liabilities

23,786

23,156

EQUITY



Share Capital

1,038

1,012

Retained Earnings

7,148

6,704

Contributed Surplus

(432)

(156)

Accumulated Other Comprehensive Income

140

204

Total Equity Attributable to Shareholders of the Company

7,894

7,764

Non-Controlling Interests

6,819

7,026

Total Equity

14,713

14,790

Total Liabilities and Equity

$

38,499

$

37,946







 

Consolidated Statements of Cash Flows

(unaudited)





(millions of Canadian dollars)

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

For the periods ended as indicated

(12 weeks)

(12 weeks)

(52 weeks)

(52 weeks)

Operating Activities






Net earnings

$

66

$

231

$

1,574

$

1,090


Add:






Net interest expense and other financing charges

115

177

523

700


Income taxes

(34)

83

443

465


Depreciation and amortization

407

392

1,685

1,654


Gain on disposition of Loblaw's gas bar operations



(501)



Asset impairments, net of recoveries

98

130

109

142


Foreign currency translation (gain) loss

(1)

(6)

34

2


Change in provisions

261

(13)

238

(52)


PC Optimum Program

189


189



1,101

994

4,294

4,001


Change in credit card receivables

(182)

(157)

(174)

(136)


Change in non-cash working capital

379

158

147

160


Income taxes paid

(110)

(52)

(892)

(345)


Interest received

7

4

23

15


Other

18

29

27

65

Cash Flows from Operating Activities

1,213

976

3,425

3,760

Investing Activities






Fixed asset purchases

(486)

(452)

(1,177)

(1,129)


Intangible asset additions

(89)

(116)

(297)

(336)


Acquisition of QHR Corporation, net of cash acquired


(153)


(153)


Cash assumed on initial consolidation of franchises

8

11

26

42


Change in short term investments

(325)

(89)

(135)

160


Proceeds from sale of Loblaw's gas bar operations



540



Other

(58)

24

(32)

92

Cash Flows used in Investing Activities

(950)

(775)

(1,075)

(1,324)

Financing Activities






Change in bank indebtedness

(169)

(142)

(5)

(28)


Change in short term debt

41

200

17

155


Interest paid

(104)

(103)

(556)

(570)


Long term debt

– Issued

366

159

686

815



– Retired

(72)

(380)

(450)

(1,399)


Share capital

– Issued

21

1

22

4



– Purchased and held in trusts



(7)

(11)



– Purchased and cancelled

(28)

(2)

(31)

(8)


Loblaw common share capital

– Issued

17

4

41

42



– Purchased and held in trusts



(48)

(90)



– Purchased and cancelled

(154)

(200)

(1,091)

(708)


Dividends

– To common shareholders



(229)

(221)



– To preferred shareholders

(3)

(3)

(44)

(44)



– To minority shareholders


(56)

(175)

(232)


Other

16

16

5

20

Cash Flows used in Financing Activities

(69)

(506)

(1,865)

(2,275)

Effect of foreign currency exchange rate changes on cash






and cash equivalents

2

2

(11)

(14)

Change in Cash and Cash Equivalents

196

(303)

474

147

Cash and Cash Equivalents, Beginning of Period

1,838

1,863

1,560

1,413

Cash and Cash Equivalents, End of Period

$

2,034

$

1,560

$

2,034

$

1,560










 

Basic and Diluted Net Earnings per Common Share

(unaudited)





(millions of Canadian dollars except where otherwise indicated)

Dec. 31, 2017

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2016

For the periods ended as indicated

(12 weeks)

(12 weeks)

(52 weeks)

(52 weeks)

Net earnings attributable to shareholders










of the Company

$

38

$

92

$

759

$

550

Prescribed dividends on preferred shares






in share capital

(10)

(10)

(44)

(44)

Net earnings available to common shareholders of










the Company

$

28

$

82

$

715

$

506

Reduction in net earnings due to dilution at Loblaw



(6)

(5)

Net earnings available to common shareholders










for diluted earnings per share

$

28

$

82

$

709

$

501

Weighted average common shares






outstanding (in millions)

127.7

127.6

127.7

127.7

Dilutive effect of share-based






compensation(i) (in millions)                                         

0.6

0.6

0.6

0.6

Weighted average common shares outstanding(ii)






(in millions)

128.3

128.2

128.3

128.3

Basic net earnings per common share ($)

$

0.22

$

0.64

$

5.60

$

3.96

Diluted net earnings per common share ($)

$

0.22

$

0.64

$

5.53

$

3.90












(i)

In the fourth quarter of 2017 and year-to-date, 381,770 (2016 – 215,049) and 450,042 (2016 – 316,643) potentially dilutive instruments, respectively, were excluded from the computation of diluted net earnings per common share as they were anti-dilutive.

(ii)

Includes impact of dilutive instruments for purposes of calculating diluted net earnings per common share.

 

Segment Information

The Company has two reportable operating segments: Weston Foods and Loblaw. The accounting policies of the reportable operating segments are the same as those described in the Company's 2017 audited annual consolidated financial statements. The Company measures each reportable operating segment's performance based on adjusted EBITDA(i) and adjusted operating income(i). Neither reportable operating segment is reliant on any single external customer.


12 Weeks Ended


Dec. 31, 2017

Dec. 31, 2016

(unaudited)
(millions of Canadian dollars)

Weston
Foods

Loblaw

Other and
Intersegment(ii)

Total

Weston
Foods

Loblaw

Other and
Intersegment(ii)

Total

Revenue

$

527

$

11,030

$

(148)

$

11,409

$

537

$

11,130

$

(148)

$

11,519

Operating income

$

8

$

138

$

1

$

147

$

38

$

447

$

6

$

491

Net interest expense and other










financing charges              

(2)

118

(1)

115

52

128

(3)

177

Earnings before income tax

$

10

$

20

$

2

$

32

$

(14)

$

319

$

9

$

314










Operating income

$

8

$

138

$

1

$

147

$

38

$

447

$

6

$

491

Depreciation and amortization

35

372


407

27

365



392

Adjusting items(i)

18

501

(1)

518

8

142

(6)

144

Adjusted EBITDA(i)

$

61

$

1,011



$

1,072

$

73

$

954



$

1,027

Depreciation and amortization(iii)

25

251



276

24

241



265

Adjusted operating income(i)

$

36

$

760

$

$

796

$

49

$

713

$

$

762




















(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 performance.

(ii)

Other and intersegment includes the following items: 


intercompany revenue elimination;


Trust Unit distributions from Choice Properties to GWL and the elimination of the fair value adjustment of the Trust Unit liability related to GWL's direct investment in Choice Properties recorded in net interest expense and other financing charges; and


the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.

(iii)  

Excludes $121 million (2016 – $124 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw, and $10 million (2016 – $3 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other charges.

 


52 Weeks Ended


Dec. 31, 2017

Dec. 31, 2016

(millions of Canadian dollars)

Weston
Foods

Loblaw

Other and
Intersegment(ii)

Total

Weston
Foods

Loblaw

Other and
Intersegment(ii)

Total

Revenue

$

2,243

$

46,702

$

(653)

$

48,292

$

2,268

$

46,385

$

(654)

$

47,999

Operating income

$

91

$

2,486

$

(37)

$

2,540

$

173

$

2,084

$

(2)

$

2,255

Net interest expense and other










financing charges       

13

525

(15)

523

102

653

(55)

700

Earnings before income tax

$

78

$

1,961

$

(22)

$

2,017

$

71

$

1,431

$

53

$

1,555











Operating income

$

91

$

2,486

$

(37)

$

2,540

$

173

$

2,084

$

(2)

$

2,255

Depreciation and amortization

117

1,568


1,685

111

1,543


1,654

Adjusting items(i)

48

30

37

115

12

217

2

231

Adjusted EBITDA(i)

$

256

$

4,084



$

4,340

$

296

$

3,844



$

4,140

Depreciation and amortization(iii)

107

1,044


1,151

97

1,008


1,105

Adjusted operating income(i)

$

149

$

3,040

$

$

3,189

$

199

$

2,836

$

$

3,035




















(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 performance.

(ii)

Other and intersegment includes the following items: 


intercompany revenue elimination;


Trust Unit distributions from Choice Properties to GWL and the elimination of the fair value adjustment of the Trust Unit liability related to GWL's direct investment in Choice Properties recorded in net interest expense and other financing charges; 


the effect of certain asset impairment related to the carrying value of its fixed asset, intangible, and other assets; and


the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.

(iii)

Excludes $524 million (2016 – $535 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw, and $10 million (2016 – $14 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other charges.

 

2017 ANNUAL AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's annual audited consolidated financial statements and MD&A for the year ended December 31, 2017 are available in the Investor Centre section of the Company's website at www.weston.ca and have been filed with SEDAR and are available online at www.sedar.com.

INVESTOR RELATIONS
Shareholders, security analysts and investment professionals should direct their requests to Mr. Geoffrey H. Wilson, Senior Vice President, Investor Relations, Business Intelligence and Communications, at the Company's Executive Office or by e-mail at investor@weston.ca.

Additional financial information has been filed electronically with various securities regulators in Canada through SEDAR. This News Release includes selected information on Loblaw Companies Limited, a public company with shares trading on the Toronto Stock Exchange. For information regarding Loblaw, readers should also refer to the materials filed by Loblaw with SEDAR from time to time. These filings are also maintained at Loblaw's corporate website at www.loblaw.ca.

FOURTH QUARTER CONFERENCE CALL AND WEBCAST PRESENTATION
George Weston Limited will host a conference call as well as an audio webcast on Friday, March 2, 2018 at 9:00 a.m. (EST). To access via tele-conference, please dial (647) 427-7450 or 1-888-231-8191. The playback will be available two hours after the event at (416) 849-0833 or 1-855-859-2056 passcode:  83622096#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.

ANNUAL MEETING
The George Weston Limited Annual Meeting of Shareholders will be held on Tuesday, May 8, 2018, at 11:00 a.m. (EST) at The Royal Conservatory, TELUS Centre for Performance and Learning, Koerner Hall, 273 Bloor Street West, Toronto, Ontario, Canada.

Ce rapport est disponible en français


Endnotes



(1)

See the "Non-GAAP Financial Measures" section of this News Release.

(2)

This News Release contains forward-looking information. See the "Forward-Looking Statements" section of this News Release for a discussion of material factors that could cause actual results to differ materially from the forecasts and projections herein and of the material factors, estimates, beliefs and assumptions that were applied in presenting the conclusions, forecasts and projections presented herein. This News Release must be read in conjunction with GWL's filings with securities regulators made from time to time, all of which can be found at www.weston.ca and www.sedar.com.



 

SOURCE George Weston Limited

For further information: 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.