Press Releases

George Weston Limited Reports 2018 Fourth Quarter and Fiscal Year Ended December 31, 2018 Results(2)

TORONTO, Feb. 26, 2019 /CNW/ - George Weston Limited (TSX: WN) ("GWL" or the "Company") today announced its consolidated unaudited results for the 12 weeks ended December 31, 2018.

GWL's 2018 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, 2018. The 2018 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 "Having successfully completed the spin-out of Choice Properties, George Weston has transformed into a more balanced and diversified company, with three strong and well-positioned pillars in retail, food and real estate."

"Loblaw delivered strong operational performance again this quarter and is accelerating its investments in growth as its strategy continues to gain momentum. Choice Properties delivered solid financial and operational results and the integration of CREIT and Choice Properties continues to progress well. At Weston Foods, fourth quarter results came in as expected, as the business began to stabilize."

2018 FOURTH QUARTER HIGHLIGHTS

Unless otherwise indicated, the Company's results include:

  • the impact of the acquisition of Canadian Real Estate Investment Trust ("CREIT") by Choice Properties Real Estate Investment Trust ("Choice Properties"), as set out in the "Choice Properties Segment Results" section below; and
  • the dilutive impact on both the Company's diluted net earnings per common share and adjusted diluted net earnings per common share(1), as a result of the issuance of approximately 26.6 million common shares in connection with the spin-out of Loblaw Companies Limited ("Loblaw") interest in Choice Properties to the Company, as described below.

(unaudited)




($ millions except where otherwise












 indicated)

Quarters Ended






Years Ended





For the periods ended as indicated

Dec. 31, 2018


Dec. 31, 2017(4)


$ Change


% Change


Dec. 31, 2018


Dec. 31, 2017(4)


$ Change


% Change

Sales

$

11,717


$

11,402


315


2.8%


$

48,568


$

48,289


279


0.6 %

Operating income

$

690


$

164


526


320.7%


$

2,585


$

2,561


24


0.9 %

Adjusted EBITDA(1)

$

1,146


$

1,065


81


7.6%


$

4,528


$

4,337


191


4.4 %

Adjusted EBITDA margin(1)


9.8%



9.3%







9.3%



9.0%





Net earnings attributable to




















shareholders




















of the Company

$

281


$

44


237


538.6%


$

574


$

766


(192)


(25.1)%

Net earnings available to




















common shareholders




















of the Company

$

271


$

34


237


697.1%


$

530


$

722


(192)


(26.6)%

Adjusted net earnings




















available to common




















shareholders




















of the Company(1)

$

232


$

226


6


2.7%


$

908


$

903


5


0.6%

Diluted net earnings per




















common share ($)

$

1.86


$

0.27


1.59


588.9%


$

3.99


$

5.58


(1.59)


(28.5)%

Adjusted diluted net earnings




















per common share(1) ($)

$

1.59


$

1.76


(0.17)


(9.7)%


$

6.85


$

6.99


(0.14)


(2.0)%





















 

On November 1, 2018, the Company and Loblaw completed a reorganization under which Loblaw spun out its approximate 61.6% effective interest in Choice Properties to the Company (the "reorganization"), as described in the "Consolidated Other Business Matters" section below. The Company issued approximately 26.6 million common shares to Loblaw shareholders other than the Company and its subsidiaries ("Loblaw minority shareholders").

Following the reorganization, the Company owned an approximate 65.4% effective interest in Choice Properties directly (which includes the approximate 3.8% interest in Choice Properties directly owned by GWL prior to the reorganization) and Choice Properties became a reportable operating segment of the Company.

CONSOLIDATED RESULTS OF OPERATIONS

Net earnings available to common shareholders of the Company in the fourth quarter of 2018 were $271 million, an increase of $237 million compared to the same period in 2017. The increase included the favourable year-over-year net impact of adjusting items totaling $231 million and the improvement in underlying operating performance of $6 million, as described below.

  • The favourable year-over-year net impact of certain adjusting items totaling $231 million was primarily due to:
    • the fair value adjustment to the Trust Unit Liability of $97 million;
    • the year-over-year favourable impact of restructuring and other charges of $77 million;
    • the impact of prior year charges at Loblaw related to the PC Optimum Program of $67 million; and
    • the favourable impact of deferred tax recoveries of $52 million;

      partially offset by,

    • the unfavourable year-over-year impact of the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of $84 million.

  • The improvement in underlying operating performance of $6 million was mainly due to the following:
    • the favourable underlying operating performance of Choice Properties, including the impact of the acquisition of CREIT;
    • the favourable underlying operating performance of Loblaw's Retail segment, which more than offset the negative year-over-year impact of minimum wage increases and incremental healthcare reform, partially offset by a decline in the underlying operating performance of Loblaw's Financial Services segment; and
    • the positive contribution from the increase in the Company's ownership interest in Loblaw, as a result of Loblaw's share repurchases;

      partially offset by,

    • an increase in adjusted net interest expense and other financing charges(1), including the impact of the acquisition of CREIT, as described below;
    • an increase in depreciation and amortization expense, as described below; and
    • the unfavourable underlying operating performance of Weston Foods.

Adjusted net earnings available to common shareholders of the Company(1) in the fourth quarter of 2018 were $232 million, an increase of $6 million, or 2.7%, compared to the same period in 2017, due to the improvement in underlying operating performance, as described above.

Diluted net earnings per common share in the fourth quarter of 2018 were $1.86 per common share, an increase of $1.59 per common share compared to the same period in 2017. The increase was mainly due to:

  • the favourable year-over-year impact of adjusting items totaling $1.76 per common share, primarily due to the following:
    • the fair value adjustment to the Trust Unit Liability of $0.66 per common share;
    • the year-over-year favourable impact of restructuring and other charges of $0.61 per common share;
    • the impact of prior year charges at Loblaw related to the PC Optimum Program of $0.51 per common share; and
    • the favourable impact of deferred tax recoveries of $0.35 per common share;

      partially offset by,

    • the unfavourable year-over-year impact of the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of $0.58 per common share;

       partially offset by,

  • a decline of $0.17 per common share, including the net earnings improvement in the underlying operating performance described above, which was more than offset by the dilutive impact of the Company's issuance of approximately 26.6 million common shares in connection with the reorganization.

Adjusted diluted net earnings per common share(1) in the fourth quarter of 2018 were $1.59 per common share, a decline of $0.17 per common share, or 9.7%, compared to the same period in 2017. Normalized for the dilutive impact of the Company's issuance of approximately 26.6 million common shares, adjusted diluted net earnings per common share(1) increased by approximately $0.06 per common share, or 3.4%, which included the positive contribution from the increase in the Company's ownership interest in Loblaw of approximately $0.04 per common share.

CONSOLIDATED OTHER BUSINESS MATTERS

Loblaw's Spin-out of Choice Properties Real Estate Investment Trust  On November 1, 2018, the Company and Loblaw completed a reorganization under which Loblaw distributed its approximate 61.6% effective interest in Choice Properties to the Company on a tax-free basis to Loblaw and its Canadian shareholders. In connection with the reorganization, Loblaw minority shareholders received 0.135 of a common share of the Company for each common share of Loblaw held, which was equivalent to the market value of their pro rata interest in Choice Properties as at the announcement date of the reorganization, and the Company received Loblaw's approximate 61.6% effective interest in Choice Properties. Following the reorganization, Loblaw no longer had an interest in Choice Properties and the Company owned an approximate 65.4% effective interest in Choice Properties directly (which includes the approximate 3.8% interest in Choice Properties directly owned by the Company prior to the completion of the reorganization).

As a result of the reorganization, Loblaw ceased to consolidate its equity interest in Choice Properties and Choice Properties became a separate reportable operating segment of the Company. The Loblaw segment results include transactions between Loblaw and Choice Properties in the current and comparative period, including, but not limited to, rent payments made by Loblaw to Choice Properties. Following the reorganization, the Loblaw segment results also include impairment and depreciation of certain assets associated with the retail locations that are leased from Choice Properties. These transactions are eliminated and the impairment and depreciation is reversed, as applicable, in Other and Intersegment Eliminations as they are consolidated by the Company.

In connection with the reorganization, the Company issued approximately 26.6 million common shares to Loblaw minority shareholders. The Company continues to be controlled by Mr. W. Galen Weston who, directly and indirectly through entities which he controls, owns approximately 53.1% of the outstanding common shares of the Company.

The Company consolidated Loblaw and Choice Properties into its financial statements before and after the reorganization, and as a result adjusted net earnings(1) remain relatively unchanged. The issuance of approximately 26.6 million common shares in connection with the reorganization has a dilutive impact on both the Company's diluted net earnings per common share and adjusted diluted net earnings per common share(1).

The Company recorded $10 million and $20 million in transaction costs and other related costs in the fourth quarter and year-to-date 2018, respectively. 

REPORTABLE OPERATING SEGMENTS
The Company operates through its three reportable operating segments, Weston Foods, Loblaw and Choice Properties. The Company also holds cash and short term investments. The Weston Foods operating segment includes a leading North American bakery that offers packaged bread and rolls in Canada as well as frozen and artisan bread and rolls, cakes, donuts, pies, biscuits and alternatives throughout Canada and the U.S.

Loblaw has two reportable operating segments, Retail and Financial Services. Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise, financial services and wireless mobile products and services. Loblaw is one reportable operating segment of the Company.

Choice Properties owns, manages and develops a high quality portfolio of commercial retail, industrial, office and residential properties across Canada.

Weston Foods Segment Results

(unaudited)













($ millions except where otherwise












indicated)


Quarters Ended






Years Ended




For the periods ended as indicated


Dec. 31, 2018


Dec. 31, 2017


$ Change


% Change


Dec. 31, 2018


Dec. 31, 2017


$ Change


% Change

Sales


$

507


$

527


$

(20)


(3.8)%


$

2,122


$

2,243


$

(121)


(5.4)%

Operating income


$

22


$

8


$

14


175.0%


$

73


$

91


$

(18)


(19.8)%

Adjusted EBITDA(1)


$

55


$

61


$

(6)


(9.8)%


$

219


$

256


$

(37)


(14.5)%

Adjusted EBITDA margin(1)



10.8%



11.6%








10.3%



11.4%






Depreciation and























amortization(i)


$

27


$

35


$

(8)


(22.9)%


$

130


$

117


$

13


11.1%


























(i) 

Depreciation and amortization includes $10 million in the fourth quarter of 2017 and $9 million (2017 – $10 million) year-to-date in 2018 of accelerated depreciation and amortization related to restructuring and other charges.

 

Sales  Weston Foods sales in the fourth quarter of 2018 were $507 million, a decrease of $20 million, or 3.8%, compared to the same period in 2017. Sales included the favourable impact of foreign currency translation of approximately 2.1%. Excluding the favourable impact of foreign currency translation, sales decreased by 5.9%, mainly due to a decrease in volumes, including the impact of product rationalization and the loss of sales to key customers, and the negative impact of changes in sales mix.

Operating income  Weston Foods operating income in the fourth quarter of 2018 was $22 million, an increase of $14 million, or 175.0% compared to the same period in 2017. The increase included the favourable year-over-year net impact of adjusting items totaling $22 million, partially offset by the decline in underlying operating performance of $8 million. The year-over-year net impact of adjusting items included the following:

  • the favourable year-over-year impact of restructuring and other charges of $24 million;

       partially offset by,

  • the unfavourable year-over-year impact of inventory losses, net of recoveries, of $2 million.

Adjusted EBITDA(1)  Weston Foods adjusted EBITDA(1) in the fourth quarter of 2018 was $55 million, a decrease of $6 million compared to the same period in 2017. Excluding the impact of a net gain related to the sale leaseback of a property for $10 million, the decrease was driven by higher input and distribution costs and the decline in sales, partially offset by productivity improvements and the net benefits realized from the transformation program.

Weston Foods adjusted EBITDA margin(1) in the fourth quarter of 2018 was 10.8% compared to 11.6% in the same period in 2017. The decline in adjusted EBITDA margin(1) in the fourth quarter of 2018 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 2018 was $27 million, a decrease of $8 million compared to the same period in 2017. Depreciation and amortization in the fourth quarter of 2017 included $10 million of accelerated depreciation related to the closure of an unprofitable facility in the U.S. Excluding this amount, depreciation and amortization in the fourth quarter of 2018 increased by $2 million due to investments in capital.

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 2018, Weston Foods recorded restructuring and other charges of $9 million (2017 – $33 million) which were primarily related to the reorganization costs from the transformation program. Restructuring and other related costs recorded in the fourth quarter of 2018 included $8 million of severance and exit costs and a nominal amount of accelerated depreciation.

Loblaw Segment Results(3) 

(unaudited)














($ millions except where otherwise












 indicated)

Quarters Ended





        Years Ended






For the periods ended as indicated

Dec. 31, 2018


Dec. 31, 2017(4)


$ Change


% Change


Dec. 31, 2018


Dec. 31, 2017(4)


$ Change


% Change

Sales

$

11,218


$

10,992


$

226


2.1%


$

46,693


$

46,587


$

106


0.2%

Operating income

$

443


$

55


$

388


705.5%


$

1,915


$

2,041


$

(126)


(6.2)%

Adjusted EBITDA(1)

$

893


$

880


$

13


1.5%


$

3,520


$

3,513


$

7


0.2%

Adjusted EBITDA margin(1)


8.0%



8.0%








7.5%



7.5%






Depreciation and






















amortization(i)

$

356


$

342


$

14


4.1%


$

1,497


$

1,454


$

43


3.0%

























(i)    

Depreciation and amortization includes $120 million (2017 – $121 million) in the fourth quarter of 2018 and $521 million (2017 – $524 million) year-to-date of amortization of intangible assets acquired with Shoppers Drug Mart Corporation ("Shoppers Drug Mart").  

 

Immediately following Loblaw's spin-out of Choice Properties, Loblaw no longer retained its interest in Choice Properties and has ceased to consolidate its equity interest in Choice Properties from its consolidated financial statements.  As a result, Loblaw's current and comparative financial results are restated to present Continuing Operations of Loblaw. For further details, see the "Consolidated Other Business Matters" section.

As previously announced, Loblaw's year-over-year financial performance was negatively impacted by minimum wage increases and incremental healthcare reform.

Sales  Loblaw sales in the fourth quarter of 2018 were $11,218 million, an increase of $226 million, or 2.1%, compared to the same period in 2017, primarily driven by Retail. Retail sales increased by $181 million, or 1.7%, compared to the same period in 2017 and included food retail sales of $7,750 million (2017 – $7,623 million) and drug retail sales of $3,226 million (2017 – $3,172 million).

Excluding the consolidation of franchises, Retail sales increased by $103 million, or 1.0% due to positive same-store sales growth, primarily driven by the following factors:

  • food retail same-store sales growth was 0.8%. Loblaw's food retail average quarterly internal food price index was moderately lower than the average quarterly national food price inflation of 1.7% 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; and
  • drug retail same-store sales growth was 1.9%, including pharmacy same-store sales growth of 0.6% and front store same-store sales growth of 2.8%. Pharmacy same-store sales growth included the impact of incremental healthcare reform.

In the last 12 months, 17 food and drug stores were opened and 22 food and drug stores were closed, resulting in a net increase in Retail square footage of 0.1 million square feet, or 0.1%.

The redemption of Loblaw Cards resulted in the delivery of approximately $4 million of free products to customers in the fourth quarter of 2018, which was provided for in the fourth quarter of 2017. The redemptions did not benefit sales or Loblaw's financial performance and Loblaw's management does not believe it had a significant impact on food retail same-store sales.

Operating income  Loblaw operating income in the fourth quarter of 2018 was $443 million, an increase of $388 million compared to the same period in 2017, primarily driven by the favourable year-over-year net impact of adjusting items totaling $390 million, partially offset by a decline in underlying operating performance of $2 million, as described below:

  • the decline in underlying operating performance of $2 million was primarily driven by Financial Services, partially offset by the improvements in the underlying operating performance of Retail, including the favourable year-over-year contribution from the consolidation of franchises in the quarter; and

  • the favourable year-over-year net impact of adjusting items totaling $390 million was primarily due to the following:
    • prior year charges related to the PC Optimum Program of $187 million;
    • the year-over-year favourable impact of restructuring and other related charges of $175 million; and
    • the year-over-year favourable impact of prior year charges related to the Loblaw Card Program of $107 million;

      partially offset by,

    • the year-over-year unfavourable impact of asset impairments, net of recoveries, of $30 million;
    • the unfavourable impact of prior year income earned, net of certain costs incurred, from the wind-down of PC Financial banking services of $17 million;
    • the unfavourable change in fair value adjustment on fuel and foreign currency contracts of $13 million; and
    • the unfavourable impact of the prior year recovery related to land transfer tax assessment of $9 million.

Adjusted EBITDA(1)  Loblaw adjusted EBITDA(1) in the fourth quarter of 2018 was $893 million, an increase of $13 million compared to the same period in 2017. The increase was primarily driven by improvements in Retail including the favourable contribution from the consolidation of franchises in the quarter, partially offset by Financial Services.

Retail adjusted EBITDA(1) was $855 million, an increase of $26 million compared to the same period in 2017, driven by an increase in gross profit, partially offset by an increase in SG&A.

  • Retail gross profit percentage of 29.6% increased by 20 basis points compared to the fourth quarter of 2017. Excluding the consolidation of franchises, Retail gross profit percentage was 27.7%, a decrease of 30 basis points compared to the fourth quarter of 2017. Margins were negatively impacted by health care reform and positively impacted by food retail.
  • Retail SG&A as a percentage of sales was 21.9%, an increase of 20 basis points compared to the fourth quarter of 2017. Excluding the consolidation of franchises, SG&A decreased $19 million and as a percentage of sales was 20.1%, an improvement of 30 basis points compared to the fourth quarter of 2017, mainly driven by the following factors:
    • lower store costs driven by process efficiencies and a decrease in advertising costs, partially offset by minimum wage increases; and
    • lower store support costs driven by previously announced costs savings initiatives;
      partially offset by,
    • the unfavourable year-over-year impact of foreign exchange.

Financial Services adjusted EBITDA(1) decreased by $13 million compared to the same period in 2017, primarily driven by lower core banking income attributable to the discontinuation of the personal banking services under the PC Financial brand, higher operating costs including investments in digital strategy and higher customer acquisition costs, partially offset by higher net interchange income attributable to the growth in the credit card portfolio.

Loblaw adjusted EBITDA(1) in the fourth quarter of 2018 also included a net gain of $8 million (2017 – $7 million) related to the sale leaseback of properties.

Depreciation and Amortization  Loblaw's depreciation and amortization in the fourth quarter of 2018 was $356 million, an increase of $14 million compared to the same period in 2017. The increase in depreciation and amortization was primarily driven by the consolidation of franchises, an increase in information technology ("IT") assets and the change in estimated useful life of certain building components as a result of the spin-out of Choice Properties. Depreciation and amortization in the fourth quarter of 2018 included $120 million (2017 – $121 million) of amortization of intangible assets acquired with Shoppers Drug Mart.

Loblaw Other Business Matters

Process and Efficiency  Loblaw continues to execute on a multi-year plan, initiated in 2018, focused on improving processes and generating efficiencies across its administrative, store, and distribution network infrastructures. Many initiatives are underway to reduce the complexity and cost of business operations, ensuring a low cost operating structure that allows for continued investments in Loblaw's strategic growth areas. Loblaw's management anticipates investing capital as well as recording restructuring and other charges related to these initiatives in 2019 and beyond.

Consolidation of Franchises  Loblaw has more than 500 franchise food retail stores in its network. As at year end 2018, 400 of these stores were consolidated for accounting purposes under a new, simplified franchise agreement ("Franchise Agreement") implemented in 2015.

Loblaw will convert the remaining franchises to the Franchise Agreement as existing agreements expire, at the end of which all franchises will be consolidated for accounting purposes. The following table presents the number of franchises consolidated in the fourth quarter of 2018 and year-to-date, and the total impact of the consolidation of franchises included in the consolidated results of the Company.

(unaudited)




($ millions except where otherwise indicated)

Quarters Ended


Years Ended

For the periods ended as indicated

Dec. 31, 2018


Dec. 31, 2017


Dec. 31, 2018


Dec. 31, 2017

Number of Consolidated Franchise stores,








beginning of period

379


273


310


200

Add:

Net Number of Consolidated Franchise








stores in the period

21


37


90


110

Number of Consolidated Franchise stores, end








of period

400


310


400


310

Sales

$

264


$

186


$

1,048


$

710

Operating income

20


16


33


23

Adjusted EBITDA(1)

35


27


92


66

Depreciation and amortization

15


11


59


43

Net earnings attributable to








non-controlling interests

19


14


34


24









 

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

Choice Properties Segment Results

(unaudited)












($ millions except where otherwise












indicated)

Quarters Ended






Years Ended





For the periods ended as indicated

Dec. 31, 2018


Dec. 31, 2017


$ Change


% Change


Dec. 31, 2018


Dec. 31, 2017


$ Change


% Change

Revenue

$

323


$

211


$

112


53.1%


$

1,148


$

830


$

318


38.3%

Net interest (income) expense






















and other financing charges(i)

$

(80)


$

116


$

196


169.0%


$

(57)


$

351


$

408


116.2%

Net income

$

281


$

36


$

245


680.6%


$

650


$

405


$

245


60.5%

Funds from operations(1)(ii)

$

172


$

117


$

55


47.0%


$

604


$

443


$

161


36.3%

























(i)

Net interest expense and other financing charges includes a fair value adjustment on Class B Limited Partnership units.

(ii)

Funds from operations is calculated for management purposes and includes the accelerated amortization of debt premium of $37 million.

Choice Properties' current and comparative financial results are presented as a reportable operating segment of the Company on a full year basis.

Revenue  Revenue in the fourth quarter of 2018 was $323 million, an increase of $112 million compared to the fourth quarter of 2017, and included $185 million (2017 – $180 million) generated from tenants within Loblaw Retail. The increase in revenue was primarily driven by:

  • additional revenue generated from the investment properties included in the CREIT acquisition of $106 million; and
  • an increase in base rent and operating cost recoveries from existing properties.

Net Interest (Income) Expense and Other Financing Charges  Net interest expense and other financing charges in the fourth quarter of 2018 resulted in income of $80 million, compared to net interest expense of $116 million in the fourth quarter of 2017. The change of $196 million was primarily driven by:

  • a favourable change in the fair value adjustment on Class B Limited Partnership units of $234 million;

       partially offset by,

  • higher interest expense resulting from the issuance of new debt related to the acquisition of CREIT; including senior unsecured debentures, term loans and draws on the syndicated credit facility and interest expense on the debt assumed on the acquisition of CREIT.

Net income  Net income in the fourth quarter of 2018 was $281 million, an increase of $245 million compared to the fourth quarter of 2017. The increase was primarily driven by:

  • an increase in net operating income from investment properties acquired as part of the acquisition of CREIT;
  • an increase in net operating income from existing properties; and
  • the favourable change in net interest expense and other financing charges, described above;

       partially offset by,

  • an unfavourable change in the fair value adjustment to investment properties; and
  • acquisition and other costs related to the acquisition of CREIT of $11 million.

Funds from Operations(1)  Funds from Operations(1) in the fourth quarter of 2018 were $172 million, an increase of $55 million compared to the fourth quarter of 2017, primarily driven by additional property operating income attributable to the acquired portfolio, partially offset by higher interest expense due to the acquisition of CREIT.

Choice Properties Other Matters

Acquisition of Investment Properties  During 2018, Choice Properties acquired eight investment properties for an aggregate purchase price of $112 million, excluding acquisition costs. Of the eight investment properties acquired during 2018, three investment properties were acquired from third-party vendors, for an aggregate purchase price of $34 million, excluding acquisition costs, which was settled by an assumption of a $3 million mortgage, with the remainder in cash. During 2018, Choice Properties acquired five investment properties from Weston Foods and Loblaw, of which one property was acquired from Weston Foods and four properties from Loblaw. This included one property from Weston Foods and three properties from Loblaw during the fourth quarter of 2018, for an aggregate purchase price of $78 million, excluding acquisition costs, fully settled in cash.

Choice Properties' Acquisition of CREIT  On May 4, 2018, Choice Properties acquired all the assets and assumed all the liabilities, including outstanding debt, of CREIT for total consideration of $3,708 million. The consideration was comprised of $1,652 million of cash and the issuance of 182,836,481 new Trust Units.

As at December 31, 2018, on a year-to-date basis, Choice Properties incurred costs totaling $141 million related to the acquisition of CREIT, which were recorded in SG&A.

The following table provides impact of the acquisition of CREIT on the Choice Properties segment in the fourth quarter and year-to-date of 2018:















(unaudited)











Quarter Ended


Year Ended

($ millions unless where otherwise indicated)











Dec. 31, 2018


Dec. 31, 2018

Revenue











$

106


$

280

Net income











60



165















 

On a year-to-date pro forma basis, the impact of the CREIT acquisition on Choice Properties revenue and net income in 2018 would have amounted to approximately $420 million and $250 million, respectively, excluding the impact of acquisition transaction costs and other related expenses and any adjustment to the fair value of the investment properties acquired. This pro forma information incorporates the effect of the purchase equation as if the acquisition had been effective January 1, 2018.

The following table provides the impacts of the acquisition of CREIT on the consolidated results of the Company in the fourth quarter and year-to-date of 2018:








(unaudited)



Quarter Ended



Year Ended

($ millions unless where otherwise indicated)



Dec. 31, 2018



Dec. 31, 2018(i)

Revenue



$

103



$

274

Adjusted EBITDA(1)




71




192

Adjusted net interest expense and other financing charges(1)




68




187

Adjusted net earnings available to common shareholders of









the Company(1)




2




4

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




0.01




0.03












(i)

Year-to-date adjusted net interest and other financing charges(1) includes $2 million recorded in the first quarter of 2018. Year-to-date adjusted net earnings available to common shareholders of the Company(1) includes a nominal loss recorded in the first half of 2018.

 

OUTLOOK(2)

Weston Foods is focused on becoming a premier North American bakery and delivering solid financial results. In 2019, Weston Foods will focus on growing its core business, selectively innovating in new segments and markets, and strengthening key processes. 

In 2019, on a full-year comparative basis, Weston Foods expects its business performance to stabilize:

  • Sales will be lower when compared to 2018, due to the impact of lapping sales lost from key customers last year and the impact of product rationalization, partially offset by growth in key categories and pricing;
  • Excluding the prior year gains on the sale leaseback of properties, adjusted EBITDA(1) will be slightly lower when compared to 2018. Adjusted EBITDA(1) will be impacted by headwinds from higher input and distribution costs in an inflationary environment and by sales trends as described above, partially offset by improvements driven from productivity and the transformation program;
  • Investment in capital expenditures to decrease to approximately $200 million; and
  • Depreciation will increase compared to 2018.

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.

Loblaw will remain focused on delivering Process and Efficiency improvements to offset increasing costs and to fund continued incremental investments in its strategic growth areas of Everyday Digital Retail, Connected Healthcare and Payments & Rewards. 

In 2019, on a full-year comparative basis, Loblaw expects to:

  • deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive market;
  • deliver positive adjusted net earnings(1) growth;
  • invest approximately $1.1 billion in capital expenditures, net of proceeds from property disposals; and
  • return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.

Choice Properties' strategy is to grow and manage its portfolio and cash flow by leveraging its sizable base of assets, its relationship with Loblaw and its solid capital structure. With the acquisition of CREIT on May 4, 2018, Choice Properties has evolved into two primary functional areas: an existing income producing property portfolio and a development business. The income producing property portfolio provides a solid foundation for stable cash flows and is diversified by both geographic location and product type including retail, industrial, office and residential assets. Development initiatives provide the opportunity to add high quality real estate by focusing primarily on retail intensification projects and well located rental residential projects at various stages of development.  Looking forward, Choice Properties will continue to focus on financial and operational stability, the advancement of retail and industrial development projects and the expansion of its multi-residential platform. 

In 2019, Choice Properties will continue to focus on financial and operational stability. This includes improvement to its portfolio quality through property acquisition and dispositions, the advancement of retail and industrial development projects, the expansion of its multi-residential platform and prudent management of maturing debt and variable interest rate exposure.

For 2019, the Company expects adjusted net earnings(1) to increase due to the results from its operating segments as described above.

DECLARATION OF QUARTERLY DIVIDENDS

Subsequent to the end of the fourth quarter of 2018, 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

$0.515 per share payable April 1, 2019, to
shareholders of record March 15, 2019;





Preferred Shares, Series I

$0.3625 per share payable March 15, 2019, to
shareholders of record February 28, 2019;





Preferred Shares, Series III

$0.3250 per share payable April 1, 2019, to
shareholders of record March 15, 2019;





Preferred Shares, Series IV

$0.3250 per share payable April 1, 2019, to
shareholders of record March 15, 2019; and





Preferred Shares, Series V

$0.296875 per share payable April 1, 2019, to
shareholders of record March 15, 2019.


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, 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 2018 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, 2018







Dec. 31, 2017(4)

(unaudited)                                    
($ millions)


Weston
Foods


Loblaw(3)


Choice
Properties(3)


Other &
Intersegment(3)


Consolidated


Weston
Foods


Loblaw(3)


Choice
Properties(3)


Other &
Intersegment(3)


Consolidated

Net earnings attributable to





















shareholders of the Company










$

281








$

44

Add impact of the following:



















Non-controlling interests










131








34

Income taxes










60








(29)

Net interest expense and other



















financing charges










218








115

Operating income


$

22


$

443


$

202


$

23


$

690


$

8


$

55


$

152


$

(51)


$

164

Add impact of the following:





















Amortization of intangible assets































acquired with Shoppers































Drug Mart


$


$

120


$


$


$

120


$


$

121


$


$


$

121

Asset impairments, net of





















 recoveries



83



(77)


6



53




53

Restructuring and other charges


9


(4)




5


33


171



(6)


198

Loblaw's Spin-out of Choice





















Properties



2



8


10






Loblaw Card Program








107




107

Fair value adjustment on





















investment properties



5


15


(16)


4




3


(3)


Fair value adjustment of derivatives


(3)


8




5


(3)


(5)




(8)

Wind-down of PC Financial banking





















services








(17)




(17)

CREIT acquisition and other





















related costs




11



11






Inventory loss, net of recoveries







(2)





(2)

PC Optimum Program








187




187

Certain prior period items








(4)




(4)

Prior year land transfer tax





















recovery








(9)




(9)

Foreign currency translation(i)





(1)


(1)





(1)


(1)

Adjusting items


$

6


$

214


$

26


$

(86)


$

160


$

28


$

604


$

3


$

(10)


$

625

Adjusted operating income


$

28


$

657


$

228


$

(63)


$

850


$

36


$

659


$

155


$

(61)


$

789

Depreciation and amortization





















excluding the impact of the above





















adjustments(ii)


27


236


1


32


296


25


221



30


276

Adjusted EBITDA


$

55


$

893


$

229


$

(31)


$

1,146


$

61


$

880


$

155


$

(31)


$

1,065




























(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 $120 million (2017 – $121 million) of amortization of intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $10 million in 2017 of accelerated depreciation and amortization recorded by Weston Foods, related to restructuring and other charges.

 



Years Ended









Dec. 31, 2018








Dec. 31, 2017(4)

(unaudited)
($ millions)


Weston
Foods


Loblaw(3)


Choice
Properties(3)


Other &
Intersegment(3)


Consolidated


Weston
Foods


Loblaw(3)


Choice
Properties(3)


Other &
Intersegment(3)


Consolidated

Net earnings attributable to































shareholders of the Company














$

574














$

766

Add impact of the following:






























Non-controlling interests














424














823

Income taxes














639














449

Net interest expense and other





























financing charges














948














523

Operating income


$

73


$

1,915


$

593


$

4


$

2,585


$

91


$

2,041


$

756


$

(327)


$

2,561

Add impact of the following:






























Amortization of intangible assets































acquired with Shoppers































Drug Mart


$


$

521


$


$


$

521


$


$

524


$


$


$

524

Asset impairments, net of





















recoveries



83



(77)


6



53



3


56

Impact of healthcare reform on





















inventory balances



19




19






Restructuring and other charges


38


10



(15)


33


48


177



(12)


213

Loblaw's Spin-out of Choice





















Properties



8



12


20






Loblaw Card Program



4




4



107




107

Fair value adjustment on





















investment properties



6


89


(47)


48




(160)


160


Pension annuities and buy-outs



1




1


2


12




14

Fair value adjustment of





















derivatives


(12)


(3)




(15)


14


20




34

Wind-down of PC Financial





















banking services



(20)




(20)



(24)




(24)

CREIT acquisition and other





















related costs




141



141






Inventory loss, net of recoveries


(1)





(1)


(6)





(6)

Gain on sale of air rights





(13)


(13)






PC Optimum Program








187




187

Certain prior period items








(4)




(4)

Prior year land transfer tax





















recovery








(9)




(9)

Gain on disposition of Loblaw's gas





















bar operations








(501)




(501)

Foreign currency translation(i)





(17)


(17)





34


34

Adjusting items


$

25


$

629


$

230


$

(157)


$

727


$

58


$

542


$

(160)


$

185


$

625

Adjusted operating income


$

98


$

2,544


$

823


$

(153)


$

3,312


$

149


$

2,583


$

596


$

(142)


$

3,186

Depreciation and amortization





















excluding the impact of the above





















adjustments(ii)


121


976


1


118


1,216


107


930


1


113


1,151

Adjusted EBITDA


$

219


$

3,520


$

824


$

(35)


$

4,528


$

256


$

3,513


$

597


$

(29)


$

4,337


































(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 $521 million (2017 – $524 million) of amortization of intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $9 million (2017 – $10 million) of accelerated depreciation and amortization 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, 2018

Dec. 31, 2017(4)

Dec. 31, 2018

Dec. 31, 2017(4)

Net interest expense and other financing charges

$

218

$

115

$

948

$

523

Add:

Loblaw's charge related to Glenhuron Bank Limited

(176)


Fair value adjustment of the Trust Unit liability

85

8

41

7


Fair value adjustment of the forward sale agreement for






9.6 million Loblaw common shares

(94)

10

(50)

25


Loblaw's Spin-out of Choice Properties

(1)

(1)

Adjusted net interest expense and other financing charges

$

208

$

133

$

762

$

555










 

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, 2018

Dec. 31, 2017(4)


Dec. 31, 2018

Dec. 31, 2017(4)

Adjusted operating income(i)

$

850


$

789


$

3,312


$

3,186

Adjusted net interest expense and other financing charges(i)

208


133


762


555

Adjusted earnings before taxes

$

642


$

656


$

2,550


$

2,631

Income taxes

$

60


$

(29)


$

639


$

449

Add:

Tax impact of items excluded from adjusted earnings









 before taxes(ii)

56


170


170


225


Loblaw's charge related to Glenhuron Bank Limited



(191)



Remeasurement of deferred tax balances

62


19


62


19


Statutory corporate income tax rate change


19



19

Adjusted income taxes

$

178


$

179


$

680


$

712

Effective income tax rate applicable to earnings before taxes

12.7%


(59.2)%


39.0%


22.0%

Adjusted income tax rate applicable to adjusted earnings








 before taxes

27.7%


27.3%


26.7%


27.1%



























(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, 2018



Dec. 31, 2017(4)



Dec. 31, 2018



Dec. 31, 2017(4)

Net earnings attributable to shareholders of the Company

$

281



$

44



$

574



$

766

Less:

Prescribed dividends on preferred shares in share capital

(10)



(10)



(44)



(44)

Net earnings available to common shareholders















of the Company

$

271



$

34



$

530



$

722

Reduction in net earnings due to dilution at Loblaw

$



$



$

(2)



$

(6)

Net earnings available to common shareholders for diluted















earnings per share

$

271



$

34



$

528



$

716










Net earnings attributable to shareholders of the Company

$

281



$

44



$

574



$

766

Adjusting items (refer to the following table)

(39)



192



378



181

Adjusted net earnings attributable to shareholders















 of the Company

$

242



$

236



$

952



$

947

Less:

Prescribed dividends on preferred shares in share capital

(10)



(10)



(44)



(44)

Adjusted net earnings available to common shareholders















 of the Company

$

232



$

226



$

908



$

903

Reduction in net earnings due to dilution at Loblaw

$



$



$

(2)



$

(6)

Adjusted net earnings available to common shareholders for















 diluted earnings per share

$

232



$

226



$

906



$

897










Weighted average common shares outstanding (millions)(i)

145.7



128.3



132.2



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, 2018



Dec. 31, 2017(4)

($ 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


$

271



$

1.86




$

34



$

0.27

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










Amortization of intangible assets acquired with Shoppers

















 Drug Mart


$

44



$

0.30




$

44



$

0.35

Asset impairments, net of recoveries


(26)



(0.17)




19



0.15

Restructuring and other charges


5



0.03




82



0.64

Loblaw's Spin-out of Choice Properties


9



0.06






Loblaw Card Program







39



0.30

Fair value adjustment on investment properties


4



0.03






Fair value adjustment of derivatives


1



0.01




(5)



(0.04)

Wind-down of PC Financial banking services







(7)



(0.05)

CREIT acquisition and other related costs


9



0.06






Inventory loss, net of recoveries







(1)



(0.01)

PC Optimum Program







67



0.51

Certain prior period items







(6)



(0.05)

Prior year land transfer tax recovery







(3)



(0.02)

Fair value adjustment of the forward sale agreement for













 9.6 million Loblaw common shares


77



0.53




(7)



(0.05)

Remeasurement of deferred tax balances


(62)



(0.43)




(10)



(0.08)

Fair value adjustment of the Trust Unit liability


(99)



(0.68)




(2)



(0.02)

Statutory corporate income tax rate change







(19)



(0.15)

Foreign currency translation


(1)



(0.01)




1



0.01

Adjusting items


$

(39)



$

(0.27)




$

192



$

1.49

Adjusted


$

232



$

1.59




$

226



$

1.76













(i) 

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

 



Years Ended



Dec. 31, 2018



Dec. 31, 2017(4)

($ 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


$

530



$

3.99




$

722



$

5.58

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










Amortization of intangible assets acquired with Shoppers













 Drug Mart


191



1.45




184



1.43

Loblaw's charge related to Glenhuron Bank Limited


184



1.39






Asset impairments, net of recoveries


(26)



(0.19)




22



0.17

Impact of healthcare reform on inventory balances


7



0.05






Restructuring and other charges


26



0.19




93



0.73

Loblaw's Spin-out of Choice Properties


16



0.12






Loblaw Card Program


1



0.01




39



0.30

Fair value adjustment on investment properties


23



0.17








Pension annuities and buy-outs


1



0.01




5



0.04

Fair value adjustment of derivatives


(10)



(0.08)




17



0.13

Wind-down of PC Financial banking services


(7)



(0.05)




(9)



(0.07)

CREIT acquisition and other related costs


68



0.51






Inventory loss, net of recoveries


(1)



(0.01)




(3)



(0.02)

Gain on sale of air rights


(6)



(0.05)






PC Optimum Program







67



0.52

Certain prior period items







(6)



(0.05)

Prior year land transfer tax recovery







(3)



(0.02)

Gain on disposition of Loblaw's gas bar operations







(207)



(1.61)

Fair value adjustment of the forward sale agreement for













9.6 million Loblaw common shares


45



0.35




(18)



(0.14)

Remeasurement of deferred tax balances


(62)



(0.47)




(10)



(0.08)

Fair value adjustment of the Trust Unit liability


(57)



(0.43)




(2)



(0.02)

Statutory corporate income tax rate change







(19)



(0.15)

Foreign currency translation


(15)



(0.11)




31



0.25

Adjusting items


$

378



$

2.86




$

181



$

1.41

Adjusted


$

908



$

6.85




$

903



$

6.99













(i) 

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

 

Choice Properties' Funds from Operations  The following table reconciles Choice Properties' Funds from Operations to net income for the periods ended as indicated. Choice Properties considers Funds from Operations to be a useful measure of operating performance as it adjusts for items included in net income that do not arise from operating activities or do not necessarily provide an accurate depiction of the Trust's performance. 

(unaudited)












($ millions)


Quarters Ended



Years Ended

For the periods ended as indicated


Dec. 31, 2018




Dec. 31, 2017



Dec. 31, 2018




Dec. 31, 2017

Net income


$

281




$

36




$

650




$

405

Add (deduct) impact of the following:













Fair value adjustments on Class B Limited
















Partnership units


(215)




19




(594)




(38)


Distributions on Class B Limited Partnership units


72




59




271




232


Fair value adjustments on investment properties


19




3




89




(159)


CREIT acquisition and other related costs


11







141





Fair value adjustments of investment property held
















in equity accounted joint ventures


1







5




1


Internal expenses for leasing


2




1




6




2


Capitalized interest on equity accounted joint
















venture


1







3





Accelerated amortization of debt premium








37





Net income attributable to non-controlling interests





(1)







(1)


Fair value adjustments on unit-based compensation








(4)




1

Funds from Operations


$

172




$

117




$

604




$

443
















 

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, regulatory changes including 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 2019 is based on certain assumptions including assumptions about sales and volume growth, anticipated cost savings, operating efficiencies, anticipated benefits from strategic initiatives and restructuring, healthcare reform impacts, future liquidity, planned capital investments, and the status and impact of information technology ("IT") systems implementations. 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 2018 Annual Report and the Company's Annual Information Form ("AIF") for the year ended December 31, 2018. 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;
  • 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 realize benefits from investments in the Company's new IT systems;
  • failure to realize the anticipated benefits associated with the Company's strategic priorities and major initiatives, including revenue growth, anticipated cost savings, operating efficiencies, or organizational changes that may impact the relationships with franchisees and associates;
  • failure to effectively respond to consumer trends or heightened competition, whether from current competitors or new entrants to the marketplace;
  • failure to maintain an effective supply chain could adversely affect the assortment and product availability at store level, which may negatively impact customer experience;
  • 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;
  • public health events including those related to food and drug safety;
  • errors made through medication dispensing or errors related to patient services or consultations;
  • adverse outcomes of legal and regulatory proceedings and related matters;
  • changes to any of the laws, rules, regulations or policies applicable to the Company's business;
  • failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements;
  • 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, 2018. 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, 2018. 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 2018 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, 2018




Dec. 31, 2017(4)




Dec. 31, 2018



Dec. 31, 2017(4)

For the periods ended as indicated


(12 weeks)




(12 weeks)




(52 weeks)




        (52 weeks)

Revenue


$

11,717




$

11,402




$

48,568




$

48,289

Operating Expenses












Cost of inventories sold


7,997




7,875




33,378




33,836

Selling, general and administrative expenses


3,030




3,363




12,605




11,892



11,027




11,238




45,983




45,728

Operating Income


690




164




2,585




2,561

Net Interest Expense and Other















Financing Charges


218




115




948




523

Earnings Before Income Taxes


472




49




1,637




2,038

Income Tax


60




(29)




639




449

Net Earnings


412




78




998




1,589

Attributable to:












Shareholders of the Company


281




44




574




766

Non-Controlling Interests


131




34




424




823

Net Earnings


$

412




$

78




$

998




$

1,589

Net Earnings per Common Share ($)












Basic


$

1.86




$

0.27




$

4.02




$

5.65

Diluted


$

1.86




$

0.27




$

3.99




$

5.58















 

Consolidated Balance Sheets

As at December 31







(millions of Canadian dollars)


2018




2017(4)

ASSETS







Current Assets







Cash and cash equivalents


$

1,521




$

2,034

Short term investments


281




1,113

Accounts receivable


1,309




1,324

Credit card receivables


3,329




3,100

Inventories


5,001




4,623

Prepaid expenses and other assets


370




236

Assets held for sale


44




33

Total Current Assets


11,855




12,463

Fixed Assets


12,101




11,689

Investment Properties


4,847




276

Equity Accounted Joint Venture


734




19

Intangible Assets


7,958




8,368

Goodwill


4,781




4,377

Deferred Income Taxes


286




247

Security Deposits


87




86

Franchise Loans Receivable


78




166

Other Assets


1,087




849

Total Assets


$

43,814




$

38,540

LIABILITIES






Current Liabilities






Bank indebtedness


$

56




$

110

Trade payables and other liabilities


5,762




5,451

Loyalty liability


228




349

Provisions


205




325

Income taxes payable


171




148

Short term debt


1,579




1,258

Long term debt due within one year


1,343




1,635

Associate interest


260




263

Total Current Liabilities


9,604




9,539

Provisions


167




190

Long Term Debt


13,975




10,457

Trust Unit Liability


2,658




634

Deferred Income Taxes


2,515




2,163

Other Liabilities


691




762

Total Liabilities


29,610




23,745

EQUITY






Share Capital


3,583




1,038

Retained Earnings


5,017




7,188

Contributed Surplus


(799)




(432)

Accumulated Other Comprehensive Income


239




140

Total Equity Attributable to Shareholders of the Company


8,040




7,934

Non-Controlling Interests


6,164




6,861

Total Equity


14,204




14,795

Total Liabilities and Equity


$

43,814




$

38,540








 

Consolidated Statements of Cash Flows

(unaudited)





(millions of Canadian dollars)

Dec. 31, 2018

Dec. 31, 2017(4)

Dec. 31, 2018

Dec. 31, 2017(4)

For the periods ended as indicated


(12 weeks)

(12 weeks)

(52 weeks)

 (52 weeks)

Operating Activities









Net earnings

$

412

$

78

$

998

$

1,589

Add:









Net interest expense and other financing charges


218


115


948


523

Income taxes


60


(29)


639


449

Depreciation and amortization


416


407


1,746


1,685

Adjustment to fair value of investment properties


4



48


Gain on disposition of Loblaw's gas bar operations





(501)

Asset impairments, net of recoveries


4


101


21


109

Foreign currency translation (gain) loss


(1)


(1)


(17)


34

Change in provisions


(39)


261


(188)


238

PC Optimum Program



165



165



1,074


1,097


4,195


4,291

Change in credit card receivables


(227)


(182)


(327)


(174)

Change in non-cash working capital


(341)


379


(624)


147

Income taxes paid


(45)


(110)


(557)


(892)

Interest received


11


7


44


23

Other


(17)


22


(12)


30

Cash Flows from Operating Activities


455


1,213


2,719


3,425

Investing Activities









Fixed asset purchases


(546)


(486)


(1,250)


(1,177)

Intangible asset additions


(74)


(89)


(343)


(297)

Acquisition of CREIT, net of cash acquired




(1,619)


Cash assumed on initial consolidation of franchises


4


8


18


26

Change in short term investments


(58)


(325)


832


(135)

Change in security deposits


397


(4)


(1)


Proceeds from disposal of assets


124


11


189


24

Proceeds from sale of Loblaw's gas bar operations





540

Other


36


(65)


(82)


(56)

Cash Flows used in Investing Activities


(117)


(950)


(2,256)


(1,075)

Financing Activities









Change in bank indebtedness


(210)


(169)


(54)


(5)

Change in short term debt


237


41


321


17

Interest paid


(224)


(104)


(992)


(556)

Long term debt  –  Issued


1,020


366


4,880


686

  –  Retired


(1,324)


(72)


(3,565)


(450)

Share capital    –  Issued


128


21


134


22

                         –  Purchased and held in trusts





(7)

                         –  Purchased and cancelled


(67)


(28)


(123)


(31)

Loblaw common share capital  –  Issued


16


17


78


41

                         –  Purchased and held in trusts


(36)



(36)


(48)

                         –  Purchased and cancelled


(238)


(154)


(1,082)


(1,091)

Dividends    –  To common shareholders




(241)


(229)

                    –  To preferred shareholders


(3)


(3)


(44)


(44)

                  –  To minority shareholders




(228)


(175)

Other


23


16


(35)


5

Cash Flows used in Financing Activities


(678)


(69)


(987)


(1,865)

Effect of foreign currency exchange rate changes on cash









and cash equivalents


8


2


11


(11)

Change in Cash and Cash Equivalents


(332)


196


(513)


474

Cash and Cash Equivalents, Beginning of Period


1,853


1,838


2,034


1,560

Cash and Cash Equivalents, End of Period

$

1,521

$

2,034

$

1,521

$

2,034






 

Basic and Diluted Net Earnings per Common Share

(unaudited)





(millions of Canadian dollars except where otherwise indicated)

Dec. 31, 2018

Dec. 31, 2017(4)

Dec. 31, 2018

Dec. 31, 2017(4)

For the periods ended as indicated

(12 weeks)

(12 weeks)

(52 weeks)

(52 weeks)

Net earnings attributable to shareholders









of the Company

$

281

$

44

$

574

$

766

Prescribed dividends on preferred shares





in share capital

(10)

(10)

(44)

(44)

Net earnings available to common shareholders of









the Company

$

271

$

34

$

530

$

722

Reduction in net earnings due to dilution at Loblaw

(2)


(6)

Net earnings available to common shareholders









for diluted earnings per share

$

271

$

34

$

528

$

716

Weighted average common shares                    





outstanding (in millions)

145.4

127.7

131.8

127.7

Dilutive effect of share-based                           





compensation(i) (in millions)

0.3

0.6

0.4

0.6

Weighted average common shares outstanding(ii)           





(in millions)

145.7

128.3

132.2

128.3

Basic net earnings per common share ($)

$

1.86

$

0.27

$

4.02

$

5.65

Diluted net earnings per common share ($)

$

1.86

$

0.27

$

3.99

$

5.58










(i)

In the fourth quarter of 2018 and year-to-date, 825,683 (2017 – 381,770) and 674,981 (2017 – 450,042) 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 three reportable operating segments: Weston Foods, Loblaw and Choice Properties.

In 2018, the Company and Loblaw completed a reorganization under which Loblaw spun out its approximate 61.6% effective interest in Choice Properties to the Company, as described in "Consolidated Other Business Matters" of this press release. Following the reorganization, the Company owned an approximate 65.4% effective interest in Choice Properties directly and Choice Properties became a reportable operating segment of the Company.

The accounting policies of the reportable operating segments are the same as those described in the Company's 2018 audited annual consolidated financial statements. The Company measures each reportable operating segment's performance based on adjusted EBITDA(1) and adjusted operating income(1). Neither reportable operating segment is reliant on any single external customer.


12 Weeks Ended





Dec. 31, 2018

Dec. 31, 2017(4)

(unaudited)
(millions of Canadian dollars)

Weston
Foods

Loblaw

Choice
Properties

Other and
Intersegment(i)

Total

Weston
Foods

Loblaw(3)

Choice
Properties

Other and
Intersegment(i)(3)

Total

Revenue

$

507

$

11,218

$

323

$

(331)

$

11,717

$

527

$

10,992

$

211

$

(328)

$

11,402

Operating income

$

22

$

443

$

202

$

23

$

690

$

8

$

55

$

152

$

(51)

$

164

Net interest expense and











other financing charges

103

95

(80)

100

218

(2)

89

116

(88)

115

Earnings before





















income tax

$

(81)

$

348

$

282

$

(77)

$

472

$

10

$

(34)

$

36

$

37

$

49






















Operating income

$

22

$

443

$

202

$

23

$

690

$

8

$

55

$

152

$

(51)

$

164

Depreciation and











amortization

27

356

1

32

416

35

342

30

407

Adjusting items(ii)

6

94

26

(86)

40

18

483

3

(10)

494

Adjusted EBITDA(ii)

$

55

$

893

$

229

$

(31)

$

1,146

$

61

$

880

$

155

$

(31)

$

1,065

Depreciation and











 amortization(iii)

27

236

1

32

296

25

221

30

276

Adjusted operating





















income(ii)

$

28

$

657

$

228

$

(63)

$

850

$

36

$

659

$

155

$

(61)

$

789













(i)   

Other and intersegment includes the following items:

 


12 Weeks Ended





2018

2017(4)

(unaudited)

($ millions)

Revenue

Adjusted
Operating
Income(1)

Net Interest
Expense and
Other
Financing
Charges

Revenue

Adjusted
Operating
Income(1)

Net Interest
Expense and
Other
Financing
Charges

Before Consolidation and Elimination

$

12,048

$

913

$

118

$

11,730

$

850

$

203

Choice Properties Intersegment Consolidation and Elimination







Elimination of rental revenue

(154)

(130)

Elimination of cost recovery

(34)

(42)

Elimination of lease surrender

(6)

(6)

Intercompany charges

(14)

(2)

Weston Foods' net gain on sales leaseback of property to







Choice Properties

(10)

Loblaw's net gain on sales leaseback of property to







Choice Properties

(8)

(7)

Recognition of depreciation on Choice Properties'







investment properties classified as fixed assets by the







Company and measured at cost

(32)

(30)

Fair value adjustment on Choice Properties'







Class B LP Units

214

(19)

Fair value adjustment on Trust Unit liability

(85)

(9)

Unit distribution on Exchangeable Units paid by Choice







Properties to GWL and Loblaw

(72)

(59)

Unit distribution on Trust Units paid by Choice Properties,







excluding amounts paid to GWL and Loblaw

43

8

Interest on debt due from Choice Properties to Loblaw







and accretion income earned on intercompany







Class C Units

(9)

Other

1

(16)

Other







Intercompany sales

(143)

(150)

Total Consolidated

$

11,717

$

850

$

218

$

11,402

$

789

$

115








(ii)   

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.

(iii)   

Excludes $120 million (2017 – $121 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw, and $10 million in the fourth quarter of 2017 of accelerated depreciation and amortization recorded by Weston Foods, related to restructuring and other charges.


 


52 Weeks Ended





Dec. 31, 2018

Dec. 31, 2017(4)

(millions of Canadian dollars)

Weston
Foods

Loblaw

Choice Properties

Other and
Intersegment

Total

Weston Foods

Loblaw(3)

Choice Properties

Other and
Intersegment(3)

Total

Revenue

$

2,122

$

46,693

$

1,148

$

(1,395)

$

48,568

$

2,243

$

46,587

$

830

$

(1,371)

$

48,289

Operating income

$

73

$

1,915

$

593

$

4

$

2,585

$

91

$

2,041

$

756

$

(327)

$

2,561

Net interest expense and











other financing charges

88

564

(57)

353

948

13

374

351

(215)

523

Earnings before





















income tax

$

(15)

$

1,351

$

650

$

(349)

$

1,637

$

78

$

1,667

$

405

$

(112)

$

2,038












Operating income

$

73

$

1,915

$

593

$

4

$

2,585

$

91

$

2,041

$

756

$

(327)

$

2,561

Depreciation and











amortization

130

1,497

1

118

1,746

117

1,454

1

113

1,685

Adjusting items(ii)

16

108

230

(157)

197

48

18

(160)

185

91

Adjusted EBITDA(ii)

$

219

$

3,520

$

824

$

(35)

$

4,528

$

256

$

3,513

$

597

$

(29)

$

4,337

Depreciation and











amortization(iii)

121

976

1

118

1,216

107

930

1

113

1,151

Adjusted operating





















income(ii)

$

98

$

2,544

$

823

$

(153)

$

3,312

$

149

$

2,583

$

596

$

(142)

$

3,186













(i)  

Other and intersegment includes the following items:

 


52 Weeks Ended





2018

2017(4)

($ millions)

Revenue

Adjusted

Operating
Income(1)

Net Interest Expense
and Other  Financing
Charges

Revenue

Adjusted
Operating

Income(1)

Net Interest Expense
and Other  Financing
Charges

Before Consolidation and Elimination

$

49,963

$

3,465

$

595

$

49,660

$

3,328

$

738

Choice Properties Intersegment Consolidation and Elimination







Elimination of rental revenue

(555)

(529)

Elimination of cost recovery

(181)

(183)

Elimination of lease surrender

(10)

(10)

(6)

(6)

Intercompany charges

(4)

(7)

Restructuring and other related costs

Weston Foods' net gain on sales leaseback of property to







Choice Properties

(10)

Loblaw's net gain on sales leaseback of property to Choice







Properties

(6)

(7)

Recognition of depreciation on Choice Properties' investment







properties classified as fixed assets by the Company and







measured at cost

(118)

(113)

Fair value adjustment on Choice Properties' Class B LP Units

594

38

Fair value adjustment on Trust Unit liability

(41)

(10)

Unit distribution on Exchangeable Units paid by Choice







Properties to GWL and Loblaw

(271)

(232)

Unit distribution on Trust Units paid by Choice Properties,







excluding amounts paid to GWL and Loblaw

126

34

Interest on debt due from Choice Properties to Loblaw and







accretion income earned on intercompany Class C Units

(55)

(45)

Other

(1)

(5)

(9)

Other







Intercompany sales

(648)

(653)

Total Consolidated

$

48,568

$

3,312

$

948

$

48,289

$

3,186

$

523








(ii)    

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.

(iii)    

Excludes $521 million (2017 – $524 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw, and $9 million (2017 – $10 million) of accelerated depreciation and amortization recorded by Weston Foods, related to restructuring and other charges.

 

2018 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, 2018 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. Roy MacDonald, Vice President, Investor Relations, at the Company's Executive Office or by e-mail at investor@weston.ca.

Additional financial information has been filed electronically with various securities regulators in Canada through SEDAR. This News Release includes selected information on Loblaw 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.

This Annual Report includes selected information on Choice Properties. The Trust is listed on the TSX. For information regarding Choice Properties, readers should also refer to the materials filed by Choice Properties with SEDAR from time to time.  These filings are also available on Choice Properties' website at www.choicereit.ca.

FOURTH QUARTER CONFERENCE CALL AND WEBCAST PRESENTATION
George Weston Limited will host a conference call as well as an audio webcast on Tuesday, February 26, 2019 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:  8453838#. 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 7, 2019, at 11:00 a.m. (EDT) at The Royal Conservatory, TELUS Centre for Performance and Learning, Koerner Hall, 273 Bloor Street West, Toronto, Ontario, Canada.



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.

(3)

Certain current and comparative figures have been restated to present Continuing Operations at Loblaw as a result of Loblaw's spin-out of Choice Properties.

(4)

Certain figures have been restated as a result of IFRS 15, "Revenue from Contracts with Customers" and a change in accounting policy.



 

SOURCE George Weston Limited

For further information: Mr. Roy MacDonald, Vice President, Investor Relations, at the Company's Executive Office or by e-mail at investor@weston.ca