George Weston Limited Reports 2014 First Quarter Results and Announces 1.2% Increase to Quarterly Common Share Dividend(2)

CNW Group

TORONTO , May 6, 2014 /CNW/ - George Weston Limited (WN.TO) ("GWL" or the "Company") today announced its consolidated unaudited results for the 12 weeks ended March 22, 2014 .

The 2014 First Quarter Report to Shareholders of GWL, including the Company's unaudited interim period condensed consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the 12 weeks ended March 22, 2014 , is available in the Investor Centre section of the Company's website at www.weston.ca and has been filed with the System for Electronic Document Analysis and Retrieval ("SEDAR") and will be available at www.sedar.com.

2014 First Quarter Highlights

  • Sales growth of 1.6% to $7,612 million .
  • Adjusted operating income(1) increased to $318 million from $313 million .
  • Adjusted basic net earnings per common share(1) remained flat at $0.83 .
  • Quarterly common share dividend increase of approximately 1.2% from $0.415 per common share to $0.42 per common share.

"On March 28, 2014 , Loblaw completed its transformational deal announced in July 2013 by acquiring Shoppers Drug Mart. This transaction combines Canada's number-one grocery retailer and number-one pharmacy and beauty retailer, and positions us extremely well to meet the changing needs of Canadian consumers", said W.  Galen Weston , Executive Chairman, George Weston Limited.

CONSOLIDATED RESULTS OF OPERATIONS    
(unaudited)                    
($ millions except where otherwise indicated) 12 Weeks Ended        
                     
For the periods ended as indicated Mar. 22, 2014   Mar. 23, 2013(3)   Change
Sales   $ 7,612     $ 7,494     1.6%
Operating income   $ 355     $ 382     (7.1)%
Adjusted operating income(1)   $ 318     $ 313     1.6%
Adjusted operating margin(1)     4.2%       4.2%      
Adjusted EBITDA(1)   $ 529     $ 510     3.7%
Adjusted EBITDA margin(1)     6.9%       6.8%        
Net interest expense and other financing charges   $ 168     $ 84     100.0%
Net earnings attributable to shareholders of the Company   $ 109     $ 162     (32.7)%
Basic net earnings per common share ($)   $ 0.78     $ 1.19     (34.5)%
Adjusted basic net earnings per common share(1) ($)   $ 0.83     $ 0.83        
                   

Pavi Binning , President, George Weston Limited, commented that "George Weston Limited's first quarter results were in-line with expectations as Loblaw and Weston Foods remain focused on delivering their respective strategies. Loblaw achieved positive same-store sales and satisfactory operating results in what continues to be an intensely competitive environment with growing retail square footage. Weston Foods' operating results reflected the investments required for growth as well as higher commodity and other input costs as anticipated".

George Weston Limited's first quarter 2014 adjusted basic net earnings per common share(1) remained flat at $0.83 compared to the same period in 2013. An improvement in the operating performance of Loblaw Companies Limited ("Loblaw") was offset by a decline in the operating performance of Weston Foods.

Basic net earnings per common share were $0.78 compared to $1.19 in the same period in 2013. The decrease was due to the year-over-year unfavourable impact of the forward sale agreement for 9.6 million Loblaw common shares and a number of other items. For a complete list of items which impacted basic net earnings per common share but are excluded from adjusted basic net earnings per common share(1), see the "Non-GAAP Financial Measures" section of this News Release.

REPORTABLE OPERATING SEGMENTS

Weston Foods            
(unaudited)            
($ millions except where otherwise indicated) 12 Weeks Ended
                 
For the periods ended as indicated   Mar. 22, 2014     Mar. 23, 2013(3)
Sales   $ 449     $ 424  
Operating income   $ 61     $ 48  
Adjusted operating income(1)   $ 52     $ 57  
Adjusted operating margin(1)     11.6%       13.4%  
Adjusted EBITDA(1)   $ 68     $ 71  
Adjusted EBITDA margin(1)     15.1%       16.7%  
             

In the first quarter of 2014, Weston Foods sales increased by 5.9% to $449 million from $424 million compared to the same period in 2013. Foreign currency translation positively impacted sales by approximately 4.9%. Excluding the impact of foreign currency translation, sales increased 1.0% due to an increase in volume of 0.9% and the combined positive impact of pricing and changes in sales mix of 0.1%.

Weston Foods operating income was $61 million in the first quarter of 2014 compared to $48 million in the same period in 2013, an increase of $13 million . The increase was primarily due to the year-over-year favourable impact of the fair value adjustment of commodity derivatives of $17 million , partially offset by a decline in underlying operating performance, as described below.

Adjusted operating income(1) in the first quarter of 2014 was $52 million compared to $57 million in the same period in 2013. Weston Foods adjusted operating margin(1) for the first quarter of 2014 decreased to 11.6% from 13.4% in the same period in 2013.

Adjusted operating income(1) was positively impacted by higher sales volumes driven by investments in growth, marketing and innovation, the benefits realized from productivity improvements and other cost reduction initiatives and the foreign currency translation of United States ("U.S.") operations. This improvement was more than offset by higher commodity and other input costs, including the negative impact of the appreciation of the U.S. dollar, the cost impact of investments, including plant start-up costs and the impact of changes in sales mix, and a decline in the performance of the frozen dough business.

Loblaw              
(unaudited)              
($ millions except where otherwise indicated) 12 Weeks Ended  
               
For the periods ended as indicated   Mar. 22, 2014     Mar. 23, 2013(3) 
Sales   $ 7,292     $ 7,202  
Operating income   $ 251     $ 307  
Adjusted operating income(1)   $ 266     $ 256  
Adjusted operating margin(1)     3.6%       3.6%  
Adjusted EBITDA(1)   $ 461     $ 439  
Adjusted EBITDA margin(1)     6.3%       6.1%  
               

Loblaw sales in the first quarter of 2014 increased by 1.2% to $7,292 million from $7,202 million in the same period in 2013. Loblaw's Retail segment sales increased by 0.8% and same-store sales growth was 0.9% (2013 - 2.8%) and was negatively impacted by approximately 0.2% due to the shift in the timing of Easter. Loblaw's average quarterly internal food price index was slightly higher (2013 - lower) than the average quarterly national food price inflation of 1.2% (2013 - 1.4%) as measured by "The Consumer Price Index for Food Purchased from Stores". In the last twelve months, corporate and franchise store square footage increased 0.8% (2013 - 0.4%). Loblaw sales in the first quarter of 2014 were also positively impacted by an increase in revenue from its Financial Services segment, which includes President's Choice Bank, a subsidiary of Loblaw.

Loblaw operating income in the first quarter of 2014 was $251 million compared to $307 million in the same period in 2013, a decrease of $56 million . The decrease was primarily due to the year-over-year impact of the gain related to defined benefit plan amendments recorded in the first quarter of 2013, costs related to the acquisition of Shoppers Drug Mart Corporation ("Shoppers Drug Mart") and a number of other items, partially offset by an improvement in underlying operating performance, as described below. For a complete list of items which impacted operating income but that are excluded from adjusted operating income(1),see the "Non-GAAP Financial Measures" section of this News Release.

Loblaw adjusted operating income(1) increased by $10 million to $266 million in the first quarter of 2014 compared to $256 million in the same period in 2013. Adjusted operating margin(1) remained flat at 3.6% when compared to the same period in 2013.

The increase in adjusted operating income(1) was primarily driven by an improvement in the operating performance of Loblaw's Financial Services segment, mainly attributable to higher revenues, partially offset by certain higher operating costs and higher credit losses.

NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
In the first quarter of 2014, net interest expense and other financing charges increased by $84 million to $168 million compared to the same period in 2013. The increase included:

  • the unfavorable year-over-year impact of the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of $54 million ;
  • a fair value loss of $8 million (2013 - nil) related to the Trust Unit liability, reflecting the change in the fair value of Choice Properties Real Estate Investment Trust's ("Choice Properties") Trust Units ("Units") held by unitholders other than the Company; and
  • net interest expense of $15 million in the first quarter of 2014 (2013 - nil) related to indebtedness incurred to finance the acquisition of Shoppers Drug Mart.

Excluding the above impacts, net interest expense and other financing charges increased by $7 million , primarily driven by distributions paid by Choice Properties on its Units, and by higher interest on long term debt.

INCOME TAXES
In the first quarter of 2014, income tax expense decreased to $40 million from $73 million in the same period in 2013. The effective income tax rate decreased to 21.4% from 24.5% in the same period in 2013, primarily due to an increase in income tax recoveries related to prior year matters and higher non-taxable foreign currency translation gains partially offset by an increase in non-deductible amounts, including the fair value adjustment related to the Trust Unit liability.

ACQUISITION OF SHOPPERS DRUG MART CORPORATION
On March 28, 2014 , subsequent to the end of the first quarter, Loblaw acquired all of the outstanding shares of Shoppers Drug Mart for total consideration of $12.3 billion , comprised of approximately $6.6 billion of cash and the issuance of approximately 119.5 million Loblaw common shares.

The cash portion of the acquisition was financed by Loblaw as follows:

  • $3.5 billion was obtained through an unsecured term loan facility bearing interest at a rate equal to the Bankers' Acceptance rate plus 1.75% and maturing March 28, 2019 ;
  • $1.6 billion of proceeds from the issuance of unsecured notes in the third quarter of 2013 were released from escrow;
  • $500 million was received in consideration of the issuance of 10.5 million Loblaw common shares to GWL; and
  • approximately $1.0 billion was used from cash on hand.

Loblaw expects to achieve annualized synergies of $300 million in the third full year following the close of the transaction (net of related costs), phased in evenly over three years. First year synergies are expected to be generated primarily from improved cost of goods sold and from purchasing efficiencies in goods not for resale.

Pursuant to a Consent Agreement reached with the Competition Bureau in the first quarter of 2014, Loblaw is required to divest of 14 Shoppers Drug Mart stores and four of its own franchise grocery stores, as well as nine of its pharmacy operations. The divestitures are not expected to have a material impact on Loblaw's operations or the planned synergies.

Based on a preliminary assessment, Loblaw expects to recognize the following amounts of net tangible assets, goodwill and intangible assets in the second quarter of 2014:

                 
(unaudited)  
($ millions)
            Estimated
Useful Life
 
Fair value of net tangible assets acquired   $ 552          
Goodwill   $ 2,251          
  Prescription files   $ 5,040       11 years  
  Brands     3,340       indefinite  
  Optimum loyalty program     490       18 years  
  Other     600       5 to 10 years  
Intangible assets   $ 9,470          
Total net assets acquired   $ 12,273          

Loblaw anticipates annual amortization of approximately $550 million relating to the intangible assets identified above. In addition, other purchase-related fair value adjustments will be recognized, including a fair value adjustment to inventory of approximately $800 million , representing the difference between inventory cost and its fair value. This difference will be recognized in cost of sales as the inventory is sold over the remainder of 2014, with a resulting negative impact on gross profit. The Company will exclude these impacts in calculating adjusted operating income(1), as management does not consider them to be reflective of the Company's underlying operating performance.

In the first quarter of 2014, Loblaw incurred costs related to the acquisition of $23 million , of which $8 million was recorded in selling, general and administrative expenses and $15 million was recorded in net interest expense and other financing charges.

Upon closing of the acquisition, all amounts owing on Shoppers Drug Mart's revolving bank credit facility were repaid and the facility was cancelled. In addition, upon closing, Loblaw guaranteed the outstanding principal amount of Shoppers Drug Mart medium term notes of $500 million , along with any accrued interest. Loblaw has also provided guarantees to various Canadian banks in support of the financing obtained by Shoppers Drug Mart associates.

As a result of the acquisition, GWL's ownership interest in Loblaw decreased from approximately 63% to approximately 46%. GWL remains the controlling shareholder of Loblaw at the date of the acquisition and the Company will continue to consolidate Loblaw.

OUTLOOK(2)
The outlook reflects the underlying operating performance of the Company's operating segments as discussed below.

For full year 2014, Weston Foods expects modest sales growth driven primarily by volumes. Despite the anticipated growth in sales, adjusted operating income(1) is expected to decline due to continued investments in growth, including plant start-up costs, capabilities, marketing and innovation and the performance of the frozen dough business. In addition, in the second quarter of 2014, results will be increasingly challenged by pressure on sales volumes and higher commodity and other input costs.

Loblaw expects to update its outlook in the second quarter earnings announcement to reflect the impacts of:

  • accounting policies alignment and the purchase price allocation with respect to the acquisition of Shoppers Drug Mart, and
  • synergies expected to be achieved in 2014. Loblaw's overall synergy targets remain unchanged.

Loblaw expects the competitive environment and industry square footage to remain at historically high levels in the second quarter, and also expects deflationary pressure from regulatory drug reform - the impacts of which are expected to moderate in the second half of the year. During the second quarter, Loblaw also anticipates to be negatively impacted by the timing of charges related to the transition of certain stores to more cost effective and efficient operating terms under collective agreements. These charges are anticipated to be approximately $25 million . Expectations for the full year with respect to these charges are approximately $35 million . In 2013, the charges were $8 million and $24 million , for the second quarter and full year, respectively.

DECLARATION OF QUARTERLY DIVIDENDS
Subsequent to the end of the first quarter of 2014, the Company's Board of Directors declared a quarterly dividend on George Weston Limited Common Shares, Preferred Shares, Series I, Preferred Shares, Series III, Preferred Shares, Series IV and Preferred Shares, Series V payable as follows:

        Common Shares       $0.42 per share payable July 1, 2014, to
shareholders of record June 15, 2014;
 
                   
        Preferred Shares, Series I       $0.3625 per share payable June 15, 2014, to
shareholders of record May 31, 2014;
 
                   
        Preferred Shares, Series III       $0.3250 per share payable July 1, 2014, to
shareholders of record June 15, 2014;
 
                   
        Preferred Shares, Series IV       $0.3250 per share payable July 1, 2014, to
shareholders of record June 15, 2014; and
 
                   
        Preferred Shares, Series V       $0.296875 per share payable July 1, 2014, to
shareholders of record June 15, 2014.
 

FORWARD-LOOKING STATEMENTS
This News Release contains forward-looking statements about the Company's objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects and opportunities. Specific forward-looking statements in this News Release include, but are not limited to, statements with respect to the Company's anticipated future results and events, targeted synergies expected following the acquisition of Shoppers Drug Mart and future plans. These specific forward-looking statements are contained throughout this News Release including, without limitation, in the "Outlook" section. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive", "will", "may" and "should" and similar expressions, as they relate to the Company and its management.

Forward-looking statements reflect the Company's current estimates, beliefs and assumptions, which are based on management's perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company's expectation of operating and financial performance in 2014 is based on certain assumptions including assumptions about sales and volume growth, anticipated cost savings and operating efficiencies, and competitive square footage growth. The Company's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

Numerous risks and uncertainties could cause the Company's actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in the "Enterprise Risks and Risk Management" section of the MD&A in the 2013 Annual Report and the "Enterprise Risks and Risk Management" section of the MD&A included in the Company's 2014 First Quarter Report to Shareholders. Such risks and uncertainties include:

  • failure by Loblaw to realize the anticipated strategic benefits or operational, competitive and cost synergies expected following the acquisition of Shoppers Drug Mart;
  • failure to realize benefits from investments in the Company's Information Technology ("IT") systems, including the Company's IT systems implementation, or unanticipated results from these initiatives;
  • failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including those from restructuring;
  • the inability of the Company's IT infrastructure to support the requirements of the Company's business;
  • public health events and risks associated with those related to food safety and product handling;
  • failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements which could lead to work stoppages;
  • heightened competition, whether from current competitors or new entrants to the marketplace;
  • changes in economic conditions including the rate of inflation or deflation, changes in interest and foreign currency exchange rates and changes in derivative and commodity prices;
  • changes in the Company's income, capital, commodity, property and other tax and regulatory liabilities including changes in tax laws, regulations or future assessments;
  • changes to the regulation of generic prescription drug prices and the reduction of reimbursements under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
  • the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink;
  • changes in the Company's estimate of inventory cost as a result of its IT system upgrade; and
  • failure to respond to changes in consumer and retail customer trends.

This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time. Information on risks and uncertainties related to Shoppers Drug Mart are disclosed in the Information Statement filed by Loblaw on August 20, 2013 , and the Shoppers Drug Mart 2013 annual MD&A filed by Shoppers Drug Mart on February 20, 2014 . Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this News Release. Except as required by law, the Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures: adjusted operating income and adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin, and adjusted basic net earnings per common share. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below.

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

Beginning in the first quarter of 2014, management no longer excludes share-based compensation when analyzing consolidated and segment underlying operating performance. As a result, prior year adjusted operating income and adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin, and adjusted basic net earnings per common share were restated to conform with the current year's presentation.

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.

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

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

                                                                 
        12 Weeks Ended
                                                                 
        Mar. 22, 2014     Mar. 23, 2013(i)
(unaudited)
($ millions)
  Weston
Foods
  Loblaw   Other(ii)   Consolidated     Weston
Foods 
  Loblaw   Other(ii)   Consolidated
Net earnings attributable to shareholders
 of the Company
                          $  109                               $ 162
Add impact of the following:                                                                
Non-controlling interests                             38                                 63
Income taxes                             40                                 73
Net interest expense and other
 financing charges
                            168                                 84
Operating income   $ 61     $ 251     $ 43     $ 355       $ 48     $ 307     $ 27     $ 382
Add (deduct) impact of the following:                                                                
Restructuring and other charges(iii)                                       1                       1
Fair value adjustment of commodity
 derivatives at Weston Foods
    (9)                       (9)         8                       8
Fixed asset and other related impairments               3               3                                  
Shoppers Drug Mart acquisition costs             8               8                                  
Choice Properties general and
 administrative costs
            4               4                                  
Defined benefit plan amendments                                               (51)               (51)
Foreign currency translation gain                     (43)       (43)                         (27)       (27)
Adjusted operating income   $ 52     $ 266     $       $ 318       $ 57     $ 256     $       $ 313
Depreciation and amortization     16       195               211         14       183               197
Adjusted EBITDA   $ 68     $ 461     $       $ 529       $ 71     $ 439     $       $ 510
                                                                 

(i) Certain 2013 figures have been restated to conform with the current year's presentation.
(ii) Operating income in the first quarter of 2014 included a gain of $43 million (2013 - $27 million) related to the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and short term investments held by foreign operations.
(iii) Restructuring and other charges at Weston Foods in the first quarter of 2013 consisted of $1 million of accelerated depreciation.

The year-over-year changes in the following items influenced operating income in the first quarter of 2014:

Restructuring and other charges  The Company continuously evaluates strategic and cost reduction initiatives related to its store infrastructure, manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure. Restructuring activities related to these initiatives are ongoing.

Fair value adjustment of commodity derivatives at Weston Foods  Weston Foods is exposed to commodity price and U.S. dollar exchange rate fluctuations primarily as a result of purchases of certain raw materials, fuels and utilities. In accordance with the Company's commodity risk management policy, Weston Foods enters into commodity and foreign currency derivatives to reduce the impact of price fluctuations in forecasted raw material purchases over a specified period of time. These derivatives are not acquired for trading or speculative purposes. Pursuant to Weston Foods' derivative instruments accounting policy, certain changes in fair value, which include realized and unrealized gains and losses related to future purchases of raw materials, are recorded in operating income. In the first quarter of 2014, Weston Foods recorded income of $9 million (2013 - a charge of $8 million ) related to the fair value adjustment of exchange traded commodity derivatives and foreign currency derivatives. Despite the impact of accounting for these commodity and foreign currency derivatives on the Company's reported results, the derivatives have the economic impact of largely mitigating the associated risks arising from price and exchange rate fluctuations in the underlying commodities during the period that the derivatives are held.

Fixed asset and other related impairments  At each balance sheet date, the Company assesses and, when required, records impairments and recoveries of previous impairments related to the carrying value of its fixed assets, investment properties and intangible assets. In the first quarter of 2014, Loblaw recorded a charge of $3 million (2013 - nil) related to fixed asset and other related impairments.

Shoppers Drug Mart acquisition costs In connection with the agreement to acquire all of the outstanding common shares of Shoppers Drug Mart, Loblaw recorded $8 million of acquisition costs in the first quarter of 2014.

Choice Properties general and administrative costs  During the first quarter of 2014, Loblaw recorded incremental general and administrative costs incurred by Choice Properties of $4 million .

Defined benefit plan amendments During the first quarter of 2013, the Company announced amendments to certain of its defined benefit plans impacting certain employees retiring after January 1, 2015 . As a result, the Company recorded a gain of $51 million related to these defined benefit plan amendments.

Foreign currency translation gains  The Company's consolidated financial statements are expressed in Canadian dollars. A portion of the Company's (excluding Loblaw's) net assets are denominated in U.S. dollars and as a result, the Company is exposed to foreign currency translation gains and losses. The impact of foreign currency translation on a portion of the U.S. dollar denominated net assets, primarily cash and short term investments held by foreign operations, is recorded in operating income. In the first quarter of 2014, a foreign currency translation gain of $43 million (2013 - $27 million ) was recorded in operating income as a result of the appreciation of the U.S. dollar relative to the Canadian dollar.

Adjusted Basic Net Earnings per Common Share  The Company believes adjusted basic net earnings per common share is useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business.

The following table reconciles adjusted basic net earnings per common share to GAAP basic net earnings per common share reported for the periods ended as indicated.

    12 Weeks Ended  
(unaudited)                
($)   Mar. 22, 2014   Mar. 23, 2013(i) 
Basic net earnings per common share   $ 0.78       $ 1.19 
Add (deduct) impact of the following(ii):                
Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares     0.29           (0.03)
Restructuring and other charges               0.01
Fair value adjustment of commodity derivatives at Weston Foods     (0.05)         0.05
Fixed asset and other related impairments     0.01            
Shoppers Drug Mart acquisition costs and net financing charges     0.09            
Choice Properties general and administrative costs     0.02            
Defined benefit plan amendments               (0.18)
Fair value adjustment of Trust Unit liability     0.03            
Foreign currency translation gain     (0.34)         (0.21)
Adjusted basic net earnings per common share   $ 0.83         $ 0.83
             
(i)  Certain 2013 figures have been restated to conform with the current year's presentation.
(ii)  Net of interest, income taxes and non-controlling interests, as applicable.

In addition to the items described in the "Adjusted Operating Income and Adjusted EBITDA" section above, the year-over-year changes in the following items also influenced basic net earnings per common share in the first quarter of 2014:

Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares  The fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares is non-cash and is included in net interest expense and other financing charges. The adjustment is determined by changes in the value of the underlying Loblaw common shares. In the first quarter of 2014, a charge of $49 million on a pre-tax basis (2013 - income of $5 million ) was recorded in net interest expense and other financing charges as a result of the increase (2013 - decrease) in the market price of Loblaw common shares.

Shoppers Drug Mart net financing charges  In addition to the acquisition costs noted above, during the first quarter of 2014, net charges of $15 million on a pre-tax basis were incurred in connection with the financing related to the acquisition. These financing charges were recorded in net interest expense and other financing charges.

Fair value adjustment of Trust Unit liability  The Company is exposed to market price fluctuations as a result of the Choice Properties Units held by unitholders other than the Company. These Units are presented as a liability on the Company's consolidated balance sheets as they are redeemable for cash at the option of the holder, subject to certain restrictions. This liability is recorded at fair value at each reporting period based on the market price of Units at the end of the period. In the first quarter of 2014, the Company recorded a loss of $8 million (2013 - nil) related to the fair value adjustment of the Trust Unit liability.

SELECTED FINANCIAL INFORMATION

The following includes selected quarterly financial information which is prepared by management in accordance with International Financial Reporting Standards ("IFRS") and is based on the Company's 2014 First Quarter Report to Shareholders. This financial information does not contain all disclosures required by IFRS, and accordingly, this financial information should be read in conjunction with the Company's 2013 Annual Report and 2014 First Quarter Report to Shareholders available in the Investor Centre section of the Company's website at www.weston.ca.

Condensed Consolidated Statements of Earnings

  12 Weeks Ended
(unaudited)                  
(millions of Canadian dollars except where otherwise indicated)      Mar. 22, 2014     Mar. 23, 2013  
Revenue   $ 7,612       $ 7,494  
Operating Expenses                  
  Cost of inventories sold     5,691         5,625  
  Selling, general and administrative expenses     1,566         1,487  
      7,257         7,112  
Operating Income     355         382  
Net Interest Expense and Other Financing Charges     168         84  
Earnings Before Income Taxes     187         298  
Income Taxes     40         73  
Net Earnings     147         225  
Attributable to:                  
  Shareholders of the Company     109         162  
  Non-Controlling Interests     38         63  
Net Earnings   $ 147       $ 225  
Net Earnings per Common Share ($)                  
Basic   $ 0.78       $ 1.19  
Diluted   $ 0.77       $ 1.18  
                   
                   

Condensed Consolidated Balance Sheets

  As at
(unaudited)                              
(millions of Canadian dollars) Mar. 22, 2014     Mar. 23, 2013   Dec. 31, 2013    
ASSETS                              
Current Assets                              
  Cash and cash equivalents   $ 3,321       $ 975       $ 2,869    
  Short term investments     909         2,415         1,490    
  Accounts receivable     753         648         736    
  Credit card receivables     2,399         2,175         2,538    
  Inventories     2,207         2,057         2,231    
  Income taxes recoverable     27         12              
  Prepaid expenses and other assets     133         116         84    
  Assets held for sale     23         35         22    
Total Current Assets     9,772         8,433         9,970    
Fixed Assets     9,594         9,410         9,655    
Investment Properties     115         95         99    
Goodwill and Intangible Assets     1,587         1,583         1,580    
Deferred Income Taxes     330         302         299    
Security Deposits     1,790         302         1,791    
Franchise Loans Receivable     363         372         375    
Other Assets     760         736         853    
Total Assets   $ 24,311       $ 21,233       $ 24,622    
LIABILITIES                              
Current Liabilities                              
  Trade payables and other liabilities   $ 3,436       $ 3,350       $ 3,989    
  Provisions     111         109         120    
  Income taxes payable                         2    
  Short term debt     1,070         1,330         1,060    
  Long term debt due within one year     902         972         1,208    
Total Current Liabilities     5,519         5,761         6,379    
Provisions     78         98         81    
Long Term Debt     8,220         5,965         7,736    
Trust Unit Liability     487                   478    
Deferred Income Taxes     177         160         187    
Other Liabilities     645         825         618    
Capital Securities     224         223         224    
Total Liabilities     15,350         13,032         15,703    
EQUITY                              
Share Capital     972         952         972    
Contributed Surplus     71         35         65    
Retained Earnings     5,270         4,810         5,272    
Accumulated Other Comprehensive Income (Loss)     51         (9)         16    
Total Equity Attributable to Shareholders of the Company     6,364         5,788         6,325    
Non-Controlling Interests     2,597         2,413         2,594    
Total Equity     8,961         8,201         8,919    
Total Liabilities and Equity   $ 24,311       $ 21,233       $ 24,622    
                               
                               

Condensed Consolidated Statements of Cash Flows

(unaudited) 12 Weeks Ended  
                   
(millions of Canadian dollars) Mar. 22, 2014   Mar. 23, 2013  
Operating Activities                  
  Net earnings   $ 147       $ 225    
  Income taxes     40         73    
  Net interest expense and other financing charges     168         84    
  Depreciation and amortization     211         198    
  Foreign currency translation gain     (43)         (27)  
  Gain on defined benefit plan amendments               (51)  
  Income taxes paid     (83)         (52)  
  Interest received     11         13    
  Settlement of derivatives               (45)  
  Change in credit card receivables     139         130    
  Change in non-cash working capital     (597)         (570)  
  Fixed asset and other related impairments     3            
  Gain on disposal of assets               (1)  
  Other     6         3    
Cash Flows from (used in) Operating Activities     2         (20)  
Investing Activities                  
  Fixed asset purchases     (129)         (134)  
  Change in short term investments     620         (235)  
  Business acquisition               (9)  
  Proceeds from fixed asset sales     10         2  
  Change in franchise investments and other receivables     6         8    
  Change in security deposits     4         49    
  Intangible asset additions     (1)         (9)  
  Other               (3)  
Cash Flows from (used in) Investing Activities     510         (331)  
Financing Activities                  
  Change in short term debt     10         11    
  Long term debt  - Issued, net of financing charges     469         10    
  - Retired     (326)         (26)  
  Share capital  - Purchased and held in trust               (15)  
  - Retired               (42)  
  Subsidiary share capital  - Issued     10         11    
  - Purchased and held in trust               (46)  
  Interest paid       (148)         (93)  
  Dividends  - To common shareholders     (53)         (49)  
  - To preferred shareholders     (11)         (11)  
  - To minority shareholders     (25)         (23)  
Cash Flows used in Financing Activities     (74)         (273)  
Effect of foreign currency exchange rate changes on cash and cash equivalents     14         10    
Change in Cash and Cash Equivalents     452         (614)  
Cash and Cash Equivalents, Beginning of Period     2,869         1,589  
Cash and Cash Equivalents, End of Period   $ 3,321       $ 975  
                     
                   

2014 FIRST QUARTER REPORT TO SHAREHOLDERS
The Company's 2013 Annual Report and 2014 First Quarter Report to Shareholders are available in the Investor Centre section of the Company's website at www.weston.ca and have been filed with SEDAR and will be available at www.sedar.com.

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

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

CONFERENCE CALL AND WEBCAST PRESENTATION

George Weston Limited will host a conference call as well as an audio webcast on Tuesday May 6, 2014 at 9:00 a.m. (EST) . To access via tele-conference, please dial (647) 427-7450. The playback will be available two hours after the event at (416) 849-0833, passcode:  26251555#. 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 6, 2014 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 . To access via tele-conference, please dial (647) 427-7450. The playback will be available two hours after the event at (416) 849-0833, passcode:  26150811#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.

   
Footnote Legend
   
(1) See non-GAAP financial measures.
(2) This News Release contains forward-looking information. See Forward-Looking Statements of this News Release for a discussion of material factors that could cause actual results to differ materially from the forecasts and projections herein and of the material factors, estimates, beliefs and assumptions that were applied in presenting the conclusions, forecasts and projections presented herein. This News Release must be read in conjunction with George Weston Limited's filings with securities regulators made from time to time, all of which can be found at www.weston.ca and www.sedar.com.
(3) Certain 2013 figures have been restated to conform with the current year's presentation. See "Non-GAAP Financial Measures" section of this News Release.

 

 

 

 

SOURCE George Weston Limited

Contact:

Geoffrey H. Wilson,
Senior Vice President, Investor Relations,
Business Intelligence and Communications
(416) 922-2500

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