TORONTO, July 31, 2012 /CNW/ - George Weston Limited (TSX:
WN) ("GWL") and its subsidiaries (collectively the "Company") today
is announcing its unaudited results for the 12 weeks ended
June 16, 2012.
The Company's Q2 2012 Quarterly Report to Shareholders,
including the Company's unaudited interim period condensed
consolidated financial statements and Management's Discussion and
Analysis ("MD&A") for the 12 and 24 weeks ended June 16, 2012, 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.
CONSOLIDATED RESULTS OF OPERATIONS
George Weston Limited's second quarter 2012 adjusted basic net
earnings per common share(2) were $1.06 compared to $1.34 in the same period in 2011, a decrease of
$0.28. The decrease was primarily
attributable to a decline in the operating performance of Loblaw
Companies Limited ("Loblaw"). The decline in the operating
performance of Loblaw was primarily due to an increase in labour
and other operating costs, incremental costs related to investments
in information technology ("IT") and supply chain(3), a
decline in gross profit and a charge related to the transition of
certain Ontario conventional
stores to the more cost effective and efficient operating terms of
collective agreements ratified in the third quarter of 2010.
Increased labour costs and the decline in gross profit included
incremental investments in Loblaw's customer proposition that were
not covered by operations.
| (unaudited) |
|
|
|
|
|
|
|
|
|
|
| ($ millions except where otherwise
indicated) |
12 Weeks Ended |
|
24 Weeks Ended |
|
| |
|
|
|
|
|
|
|
|
|
|
| As at or for the periods ended as indicated |
|
Jun. 16, 2012 |
|
Jun. 18, 2011 |
Change |
|
Jun. 16, 2012 |
|
Jun. 18, 2011 |
Change |
| Sales |
$ |
7,627 |
$ |
7,531 |
1.3% |
$ |
14,851 |
$ |
14,679 |
1.2% |
| Operating income |
$ |
323 |
$ |
397 |
(18.6)% |
$ |
597 |
$ |
700 |
(14.7)% |
| Adjusted operating income(2) |
$ |
364 |
$ |
440 |
(17.3)% |
$ |
675 |
$ |
820 |
(17.7)% |
| Adjusted operating margin(2) |
|
4.8% |
|
5.8% |
|
|
4.5% |
|
5.6% |
|
| Net interest expense and other financing
charges |
$ |
72 |
$ |
98 |
(26.5)% |
$ |
116 |
$ |
164 |
(29.3)% |
| Income taxes |
$ |
55 |
$ |
69 |
(20.3)% |
$ |
114 |
$ |
141 |
(19.1)% |
| Net earnings attributable to shareholders of the
Company |
$ |
137 |
$ |
157 |
(12.7)% |
$ |
261 |
$ |
262 |
(0.4)% |
| Net earnings |
$ |
196 |
$ |
230 |
(14.8)% |
$ |
367 |
$ |
395 |
(7.1)% |
| Basic net earnings per common share ($) |
$ |
0.99 |
$ |
1.13 |
(12.4)% |
$ |
1.88 |
$ |
1.87 |
0.5% |
| Adjusted basic net earnings per common
share(2) ($) |
$ |
1.06 |
$ |
1.34 |
(20.9)% |
$ |
1.95 |
$ |
2.41 |
(19.1)% |
| Adjusted EBITDA(2) |
$ |
556 |
$ |
612 |
(9.2)% |
$ |
1,051 |
$ |
1,158 |
(9.2)% |
| Adjusted EBITDA margin(2) |
|
7.3% |
|
8.1% |
|
|
7.1% |
|
7.9% |
|
| |
|
|
|
|
|
|
|
|
|
|
The Company's basic net earnings per common share were
$0.99 compared to $1.13 in the same period in 2011, a decrease of
$0.14, or 12.4%. Adjusted basic net
earnings per common share(2) declined $0.28 and excluded the year-over-year favourable
net impact of certain items, primarily certain foreign currency
translation gains and the fair value adjustment of the forward sale
agreement for 9.6 million Loblaw common shares, partially offset by
the accrual of a multi-employer pension plan ("MEPP") withdrawal
liability incurred by Weston Foods in the second quarter of
2012.
The Company uses non-GAAP financial measures. See the "Non-GAAP
Financial Measures" section of this News Release for more
information on these non-GAAP financial measures.
OPERATING SEGMENTS
Weston Foods
| (unaudited) |
12 Weeks Ended |
24 Weeks Ended |
| |
|
|
|
|
|
|
|
|
| ($ millions) |
|
Jun. 16, 2012 |
|
Jun. 18, 2011 |
|
Jun. 16, 2012 |
|
Jun. 18, 2011 |
| Sales |
$ |
400 |
$ |
407 |
$ |
825 |
$ |
817 |
| Operating income |
$ |
12 |
$ |
55 |
$ |
72 |
$ |
74 |
| Adjusted operating income(2) |
$ |
65 |
$ |
65 |
$ |
124 |
$ |
122 |
| Adjusted operating margin(2) |
|
16.3% |
|
16.0% |
|
15.0% |
|
14.9% |
| Adjusted EBITDA(2) |
$ |
78 |
$ |
78 |
$ |
151 |
$ |
149 |
| Adjusted EBITDA margin(2) |
|
19.5% |
|
19.2% |
|
18.3% |
|
18.2% |
| |
|
|
|
|
|
|
|
|
Weston Foods sales in the second quarter of 2012 decreased by
1.7% to $400 million from
$407 million in the same period in
2011. Foreign currency translation positively impacted sales by
approximately 1.6%. Excluding this impact, sales decreased 3.3%
mainly due to a decrease in volumes of 3.9% compared to the same
period in 2011. Pricing across certain product categories
contributed positively to sales growth by 0.6%.
Weston Foods operating income in the second quarter of 2012 was
$12 million compared to $55 million in the same period in 2011, a
decrease of $43 million. The decrease
was mainly due to the accrual of a MEPP withdrawal liability of
$35 million recorded in the second
quarter of 2012.
Weston Foods adjusted operating income(2) remained
flat at $65 million in the second
quarter of 2012 compared to the same period in 2011. Weston Foods
adjusted operating margin(2) was 16.3% compared to 16.0%
in the same period in 2011. Adjusted operating income(2)
in the second quarter of 2012 was positively impacted by the
benefits realized from productivity improvements and other cost
reduction initiatives. These benefits were offset by higher
commodity and other input costs and lower sales volumes compared to
the same period in 2011.
Loblaw
| (unaudited) |
12 Weeks Ended |
24 Weeks Ended |
| |
|
|
|
|
| ($ millions) |
Jun. 16, 2012 |
Jun. 18, 2011 |
Jun. 16, 2012 |
Jun. 18, 2011 |
| Sales |
$ |
7,375 |
$ |
7,278 |
$ |
14,312 |
$ |
14,150 |
| Operating income |
$ |
288 |
$ |
343 |
$ |
525 |
$ |
644 |
| Adjusted operating income(2) |
$ |
299 |
$ |
375 |
$ |
551 |
$ |
698 |
| Adjusted operating margin(2) |
|
4.1% |
|
5.2% |
|
3.8% |
|
4.9% |
| Adjusted EBITDA(2) |
$ |
478 |
$ |
534 |
$ |
900 |
$ |
1,009 |
| Adjusted EBITDA margin(2) |
|
6.5% |
|
7.3% |
|
6.3% |
|
7.1% |
| |
|
|
|
|
In the second quarter of 2012, Loblaw continued to execute on
its plan. Loblaw began to gain traction on sales, particularly in
its core food and drug businesses, as it continued its disciplined
approach to improving its customer proposition.
Loblaw sales in the second quarter of 2012 increased by 1.3% to
$7,375 million from $7,278 million in the same period in 2011. Retail
segment sales increased by 1.1% and same-store sales growth was
0.2% (2011 - 0.4% decline). Sales growth in food was moderate,
sales growth in drugstore was modest, gas bar sales declined
marginally, sales in general merchandise, excluding apparel,
declined moderately and sales in apparel were flat. Loblaw
experienced modest average quarterly internal food price inflation
during the second quarter of 2012 and moderate average quarterly
food price inflation during the second quarter of 2011, lower than
the average quarterly national food price inflation of 2.5% (2011 -
4.0%) as measured by "The Consumer Price Index for Food Purchased
from Stores". In the last twelve months, Loblaw opened 22 corporate
and franchise stores and closed seven corporate and franchise
stores, resulting in a net increase of 0.4 million square feet, or
0.8%. Loblaw sales in the second quarter of 2012 were also
positively impacted by an increase in revenue from its Financial
Services segment, which includes President's Choice Bank, a
subsidiary of Loblaw. The increase in Financial Services segment
revenue was primarily driven by higher interchange fee income,
interest income and PC Telecom revenues when compared to the
same period in 2011.
Loblaw operating income in the second quarter of 2012 was
$288 million compared to $343 million in the same period in 2011, a
decrease of $55 million. The decrease
was mainly due to a decline in adjusted operating
income(2) of $76 million,
partially offset by the effect of certain prior years' commodity
tax matters of $15 million recorded
in the second quarter of 2011.
Loblaw adjusted operating income(2) was $299 million in the second quarter of 2012
compared to $375 million in the same
period in 2011, a decrease of $76
million. Loblaw adjusted operating margin(2) was
4.1% compared to 5.2% in the same period in 2011. The decreases in
adjusted operating income(2) and adjusted operating
margin(2) were primarily attributable to an increase in
labour and other operating costs, incremental costs related to
investments in IT and supply chain(3), a decline in
gross profit, a decrease in foreign exchange gains and a charge
related to the transition of certain Ontario conventional stores to the more cost
effective and efficient operating terms of collective agreements
ratified in the third quarter of 2010, partially offset by changes
in the value of Loblaw's investments in its franchise business.
Increased labour costs and the decline in gross profit included an
estimated $5 million and $10 million, respectively, of incremental
investments in Loblaw's customer proposition that were not covered
by operations.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
In the second quarter of 2012, net interest expense and other
financing charges decreased by $26
million to $72 million
compared to the same period in 2011. The decrease was mainly due to
an increase of $22 million in
non-cash income related to the fair value adjustment of the forward
sale agreement for 9.6 million Loblaw common shares. Excluding this
impact, net interest expense and other financing charges decreased
by $4 million compared to the same
period in 2011, mainly due to GWL's refinancing of certain long
term debt through the issuance of new Medium Term Notes in the
fourth quarter of 2011 which resulted in lower overall interest
rates.
INCOME TAXES
In the second quarter of 2012, income tax expense decreased to
$55 million from $69 million, and the effective income tax rate
decreased to 21.9% from 23.1%, compared to the same period in 2011.
The decreases were primarily due to non-taxable foreign currency
translation gains recorded in the second quarter of 2012,
reductions in the federal and Ontario statutory income tax rates and a
decrease in income tax expense related to certain prior year income
tax matters. The effective income tax rate in the second quarter of
2011 was also impacted by the utilization of realized foreign
currency losses.
OUTLOOK(1)
This outlook reflects the underlying operating performance of the
Company's operating segments as discussed below.
For the full year 2012, Weston Foods expects to deliver sales in
line with 2011. Weston Foods will continue its efforts to reduce
costs through improved efficiencies and ongoing cost reduction
initiatives in an effort to achieve full year operating margins in
line with those in 2011.
For the full year 2012, Loblaw estimates operating income to be
down year-over-year, with more pressure in the first half of the
year, as it does not expect its operations to cover incremental
costs related to investments in IT and supply chain and the ongoing
investments in its customer proposition.
For the full year 2012, George Weston Limited anticipates
adjusted basic net earnings per common share(2) to be
down year-over-year, primarily due to the impact of the incremental
costs and ongoing customer proposition investments at Loblaw.
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. These forward-looking
statements are typically identified by words such as "anticipate",
"expect", "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. In this News Release, forward-looking statements
include the Company's continued expectations that for the full year
2012:
For Weston Foods:
- sales will be in line with 2011; and
- efforts will be made to achieve full year operating margins in
line with those in 2011.
For Loblaw Companies Limited ("Loblaw"):
- there will be incremental costs related to investments in IT
and supply chain, as well as incremental investments in Loblaw's
customer proposition; and
- operating income will be down year-over-year, with more
pressure in the first half of the year, as a result of Loblaw's
expectation that its operations will not cover the incremental
costs related to the investments in IT and supply chain and its
customer proposition.
For the Company:
- adjusted basic net earnings per common share(2) will
be down year-over-year.
These forward-looking statements are not historical facts but
reflect the Company's current expectations concerning future
results and events. They also reflect management's current
assumptions regarding the risks and uncertainties referred to below
and their respective impact on the Company. In addition, the
Company's expectation with regard to Weston Foods' operating
margins in 2012 is based in part on the assumptions that there will
be no significant unanticipated increase in the price of
commodities and other input costs that Weston Foods will not be able to offset
through pricing, improved efficiencies and ongoing cost reduction
initiatives. The Company's expectation with regard to Loblaw's
operating income in 2012 is based in part on the assumptions that
Loblaw achieves its plan to increase net retail square footage by
1% and there are no unexpected adverse events or costs related to
Loblaw's investments in IT and supply chain. The Company's
expectation with regard to adjusted basic net earnings per common
share(2) in 2012 is based in part on the assumption that
interest rates, income tax rates and the Company's ownership
interest in Loblaw will be similar to those in 2011.
These forward-looking statements are subject to a number of
risks and uncertainties that could cause actual results or events
to differ materially from current expectations, including, but not
limited to:
- failure to realize sales growth, anticipated cost savings or
operating efficiencies from the Company's major initiatives,
including investments in the Company's IT systems and the Company's
IT systems implementation, or unanticipated results from these
initiatives;
- the inability of the Company's IT infrastructure to support the
requirements of the Company's business;
- unanticipated results associated with the Company's strategic
initiatives and the impact of acquisitions or dispositions of
businesses on the Company's future revenues and earnings;
- 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;
- public health events;
- risks associated with product defects, 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;
- the inability of the Company to manage inventory to minimize
the impact of obsolete or excess inventory and to control
shrink;
- failure by the Company to maintain appropriate records to
support its compliance with accounting, tax or legal rules,
regulations and policies;
- the availability and increased costs relating to raw materials,
ingredients and utilities, including electricity and fuel;
- failure of the Company's franchise stores to perform as
expected;
- reliance on the performance and retention of third-party
service providers including those associated with the Company's
supply chain and apparel business;
- supply and quality control issues with vendors;
- changes to or failure to comply with laws and regulations
affecting the Company and its businesses, including changes to the
regulation of generic prescription drug prices and the reduction of
reimbursement under public drug benefit plans and the elimination
or reduction of professional allowances paid by drug
manufacturers;
- changes in the Company's income, commodity, other tax and
regulatory liabilities including changes in tax laws, regulations
or future assessments;
- any requirement of the Company to make contributions to its
registered funded defined benefit pension plans or the
multi-employer pension plans in which it participates in excess of
those currently contemplated;
- the risk that the Company would experience a financial loss if
its counterparties fail to meet their obligations in accordance
with the terms and conditions of their contracts with the Company;
and
- the inability of the Company to collect on its credit card
receivables.
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 the
Enterprise Risks and Risk Management section of the MD&A
included in the Company's 2012 Second Quarter Report to
Shareholders and Section 12, "Enterprise Risks and Risk
Management", of the MD&A included in the Company's 2011 Annual
Report. 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. The Company
disclaims any intention or obligation to update or revise these
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
| (1) |
This News Release contains forward-looking information. See
Forward-Looking Statements for a discussion of material factors
that could cause actual results to differ materially from the
conclusions, forecasts and projections herein and of the material
factors 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. |
| (2) |
See non-GAAP financial measures. |
| (3) |
Incremental costs related to investments in IT and supply
chain include IT costs, depreciation and amortization and supply
chain project costs. |
NON-GAAP FINANCIAL MEASURES
In this News Release 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.
Certain expenses and income that must be recognized under GAAP
are not necessarily reflective of the Company's underlying
operating performance. For this reason, management uses certain
non-GAAP financial measures to exclude the impact of these items
when analyzing consolidated and segment underlying operating
performance. These non-GAAP financial measures are also helpful in
assessing underlying operating performance on a consistent
basis.
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. Loblaw does not report
its results of operations on an adjusted basis, however the Company
excludes the impact of certain Loblaw items, as applicable, when
reporting its consolidated and segment results.
These non-GAAP financial 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 tables reconcile 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 |
| |
|
|
| |
Jun. 16, 2012 |
Jun. 18, 2011 |
(unaudited)
($ millions) |
|
Weston
Foods |
|
Loblaw |
|
Other(1) |
|
Consolidated |
|
Weston
Foods |
|
Loblaw |
|
Other(1) |
|
Consolidated |
| Net earnings attributable to shareholders of the
Company |
|
|
|
|
|
|
$ |
137 |
|
|
|
|
|
|
$ |
157 |
| Add impact of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-controlling interests |
|
|
|
|
|
|
|
59 |
|
|
|
|
|
|
|
73 |
| Income taxes |
|
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
69 |
| Net interest expense and other financing
charges |
|
|
|
|
|
|
|
72 |
|
|
|
|
|
|
|
98 |
| Operating income (loss) |
$ |
12 |
$ |
288 |
$ |
23 |
$ |
323 |
$ |
55 |
$ |
343 |
$ |
(1) |
$ |
397 |
| Add (deduct) impact of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restructuring and other charges(2) |
|
5 |
|
6 |
|
|
|
11 |
|
|
|
2 |
|
|
|
2 |
| Fair value adjustment of commodity derivatives at
Weston Foods |
|
7 |
|
|
|
|
|
7 |
|
12 |
|
|
|
|
|
12 |
| Share-based compensation net of equity
derivatives |
|
6 |
|
5 |
|
|
|
11 |
|
(2) |
|
15 |
|
|
|
13 |
| MEPP withdrawal liability incurred by Weston
Foods |
|
35 |
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
| Certain prior year's commodity tax matters at
Loblaw |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
15 |
| Foreign currency translation (gain) loss |
|
|
|
|
|
(23) |
|
(23) |
|
|
|
|
|
1 |
|
1 |
| Adjusted operating income |
$ |
65 |
$ |
299 |
$ |
|
$ |
364 |
$ |
65 |
$ |
375 |
$ |
|
$ |
440 |
| Depreciation and amortization |
|
13 |
|
179 |
|
|
|
192 |
|
13 |
|
159 |
|
|
|
172 |
| Adjusted EBITDA |
$ |
78 |
$ |
478 |
$ |
|
$ |
556 |
$ |
78 |
$ |
534 |
$ |
|
$ |
612 |
| |
|
|
(1) |
Operating income in the second quarter of 2012 included a gain
of $23 million (2011 - loss of $1 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. |
|
(2) |
Other charges at Loblaw in the second quarter of 2012 included
$6 million (2011 - $2 million) related to changes in Loblaw's
distribution network. Restructuring and other charges included $1
million (2011 - nil) of accelerated depreciation incurred by Weston
Foods. |
| |
24 Weeks Ended |
| |
|
|
| |
Jun. 16, 2012 |
Jun. 18, 2011 |
(unaudited)
($ millions) |
|
Weston
Foods |
|
Loblaw |
|
Other(1) |
|
Consolidated |
|
Weston
Foods |
|
Loblaw |
|
Other(1) |
|
Consolidated |
| Net earnings attributable to shareholders of the
Company |
|
|
|
|
|
|
$ |
261 |
|
|
|
|
|
|
$ |
262 |
| Add impact of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-controlling interests |
|
|
|
|
|
|
|
106 |
|
|
|
|
|
|
|
133 |
| Income taxes |
|
|
|
|
|
|
|
114 |
|
|
|
|
|
|
|
141 |
| Net interest expense and other financing
charges |
|
|
|
|
|
|
|
116 |
|
|
|
|
|
|
|
164 |
| Operating income (loss) |
$ |
72 |
$ |
525 |
$ |
|
$ |
597 |
$ |
74 |
$ |
644 |
$ |
(18) |
$ |
700 |
| Add (deduct) impact of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restructuring and other charges(2) |
|
6 |
|
9 |
|
|
|
15 |
|
6 |
|
31 |
|
|
|
37 |
| Fair value adjustment of commodity derivatives at
Weston Foods |
|
4 |
|
|
|
|
|
4 |
|
28 |
|
|
|
|
|
28 |
| Share-based compensation net of equity
derivatives |
|
7 |
|
17 |
|
|
|
24 |
|
14 |
|
8 |
|
|
|
22 |
| MEPP withdrawal liability incurred by Weston
Foods |
|
35 |
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
| Certain prior year's commodity tax matters at
Loblaw |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
15 |
| Foreign currency translation (gain) loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
18 |
| Adjusted operating income |
$ |
124 |
$ |
551 |
$ |
|
$ |
675 |
$ |
122 |
$ |
698 |
$ |
|
$ |
820 |
| Depreciation and amortization |
|
27 |
|
349 |
|
|
|
376 |
|
27 |
|
311 |
|
|
|
338 |
| Adjusted EBITDA |
$ |
151 |
$ |
900 |
$ |
|
$ |
1,051 |
$ |
149 |
$ |
1,009 |
$ |
|
$ |
1,158 |
| |
|
|
(1) |
Year-to-date operating income included a nominal gain (2011 -
loss of $18 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. |
|
(2) |
Year-to-date other charges at Loblaw included $9 million (2011
- $23 million) related to changes in Loblaw's distribution network.
Other charges in 2011 also included a charge of $8 million related
to an internal realignment of Loblaw's business centered around its
two primary store formats, conventional and discount. Restructuring
and other charges included $1 million (2011 - nil) of accelerated
depreciation incurred by Weston Foods. |
The year-over-year changes in the following items influenced
operating income in the second quarter of 2012:
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. The details of
restructuring and other charges are included in the "Reportable
Operating Segments" section of the MD&A included in the
Company's Q2 2012 Quarterly Report to Shareholders.
Fair value adjustment of commodity derivatives at Weston
Foods Weston Foods is exposed to commodity price
fluctuations primarily as a result of purchases of certain raw
materials, fuels and utilities. In accordance with the Company's
risk management strategy, Weston Foods enters into commodity
derivatives to reduce the impact of price fluctuations in
forecasted raw material purchases over a specified period of time.
These commodity derivatives are not acquired for trading or
speculative purposes. Hedge accounting is not applied to these
commodity derivatives and as a result, changes in their fair value,
which include realized and unrealized gains and losses related to
future purchases of raw materials, are recorded in operating
income. In the second quarter of 2012, Weston Foods recorded a
charge of $7 million (2011 -
$12 million) related to the fair
value adjustment of exchange traded commodity derivatives. Despite
the impact of accounting for these commodity derivatives on the
Company's reported results, the derivatives have the economic
impact of largely mitigating the associated risks arising from
price fluctuations in the underlying commodities during the period
that the commodity derivatives are held.
Share-based compensation net of equity
derivatives Both GWL and Glenhuron Bank Limited have
entered into equity derivatives to partially hedge their exposure
to the impact of increases in the value of GWL and Loblaw common
shares on share-based compensation cost. The amount of net
share-based compensation cost recorded in operating income is
mainly dependent upon changes in the value of GWL and Loblaw common
shares and the number and vesting of outstanding restricted share
units ("RSU") and performance share units ("PSU") relative to the
number of common shares underlying the equity derivatives. The
Company assesses stock option plan, RSU plan, PSU plan and equity
derivative impacts on a net basis and therefore the impact of stock
options is also excluded from operating income when management
reviews consolidated and segment operating performance. In the
second quarter of 2012, a charge of $11
million (2011 - $13 million)
was recorded related to share-based compensation net of equity
derivatives.
Multi-employer pension plan withdrawal liability incurred
by Weston Foods In
the second quarter of 2012, Weston Foods recorded a charge of
$35 million related to its withdrawal
from a United States MEPP in which it participated.
Certain prior years' commodity tax matters at
Loblaw In the second quarter of 2011, Loblaw recorded
a charge of $15 million related to
certain prior years' commodity tax matters.
Foreign currency translation gain and loss
The Company's consolidated financial statements are expressed in
Canadian dollars. A portion of the Company's (excluding Loblaw's)
net assets are denominated in U.S. dollars and as a result, the
Company is exposed to foreign currency translation gains and
losses. The impact of foreign currency translation on a portion of
the U.S. dollar denominated net assets, primarily cash and short
term investments, held by foreign operations is recorded in
operating income. In the second quarter of 2012, a foreign currency
translation gain of $23 million (2011
- loss of $1 million) was recorded in
operating income as a result of the depreciation (2011 -
appreciation) of the Canadian dollar.
Adjusted Basic Net Earnings per Common Share
The Company believes adjusted basic net earnings per common share
is useful in assessing the Company's underlying operating
performance and in making decisions regarding the ongoing
operations of its business.
The following table reconciles adjusted basic net earnings per
common share to GAAP basic net earnings per common share reported
for the periods ended as indicated.
| (unaudited) |
12 Weeks Ended |
24 Weeks Ended |
| |
|
|
|
|
| ($) |
|
Jun. 16,
2012 |
|
Jun. 18,
2011 |
|
Jun. 16,
2012 |
|
Jun. 18,
2011 |
| Basic net earnings per common share |
$ |
0.99 |
$ |
1.13 |
$ |
1.88 |
$ |
1.87 |
| (Deduct) Add impact of the
following(1): |
|
|
|
|
|
|
|
|
| Fair value adjustment of the forward sale
agreement for 9.6 million Loblaw common shares |
|
(0.09) |
|
0.04 |
|
(0.34) |
|
(0.08) |
| Restructuring and other charges |
|
0.05 |
|
0.01 |
|
0.07 |
|
0.14 |
| Fair value adjustment of commodity derivatives at
Weston Foods |
|
0.04 |
|
0.06 |
|
0.02 |
|
0.15 |
| Share-based compensation net of equity
derivatives |
|
0.08 |
|
0.04 |
|
0.15 |
|
0.14 |
| MEPP withdrawal liability incurred by Weston
Foods |
|
0.17 |
|
|
|
0.17 |
|
|
| Certain prior years' commodity tax matters at
Loblaw |
|
|
|
0.05 |
|
|
|
0.05 |
| Foreign currency translation (gain) loss |
|
(0.18) |
|
0.01 |
|
|
|
0.14 |
| Adjusted basic net earnings per common share |
$ |
1.06 |
$ |
1.34 |
$ |
1.95 |
$ |
2.41 |
| |
|
|
|
|
| |
(1) 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
change in the following item also influenced basic net earnings per
common share in the second quarter of 2012:
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 consolidated net
interest expense and other financing charges. The adjustment is
determined by changes in the value of the underlying Loblaw shares.
At maturity, any cash paid under the forward sale agreement could
be offset by the sale of the underlying Loblaw common shares. In
the second quarter of 2012, income of $0.09 (2011 - charge of $0.04) was recorded in net interest expense and
other financing charges as a result of the decrease (2011 -
increase) in the market price of Loblaw common shares.
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 2012 Second Quarter Report to Shareholders. This
financial information does not contain all disclosures required by
IFRS, and accordingly, this financial information should be read in
conjunction with the Company's 2011 Annual Report and 2012 Second
Quarter Report to Shareholders available in the Investor Centre
section of the Company's website at www.weston.ca.
Condensed Consolidated Statements of Earnings
| (unaudited) |
12 Weeks Ended |
24 Weeks Ended |
| (millions of Canadian dollars |
|
|
|
|
| except where otherwise indicated) |
|
Jun. 16,
2012 |
|
Jun. 18,
2011 |
|
Jun. 16, 2012 |
|
Jun. 18, 2011 |
| Revenue |
$ |
7,627 |
$ |
7,531 |
$ |
14,851 |
$ |
14,679 |
| Operating Expenses |
|
|
|
|
|
|
|
|
| |
Cost of inventories sold |
|
5,751 |
|
5,646 |
|
11,173 |
|
10,987 |
| |
Selling, general and
administrative expenses |
|
1,553 |
|
1,488 |
|
3,081 |
|
2,992 |
|
|
|
7,304 |
|
7,134 |
|
14,254 |
|
13,979 |
| Operating Income |
|
323 |
|
397 |
|
597 |
|
700 |
| Net Interest Expense and Other
Financing Charges |
|
72 |
|
98 |
|
116 |
|
164 |
| Earnings Before Income
Taxes |
|
251 |
|
299 |
|
481 |
|
536 |
| Income Taxes |
|
55 |
|
69 |
|
114 |
|
141 |
| Net Earnings |
|
196 |
|
230 |
|
367 |
|
395 |
| Attributable to: |
|
|
|
|
|
|
|
|
| |
Shareholders of the Company |
|
137 |
|
157 |
|
261 |
|
262 |
| |
Non-Controlling Interests |
|
59 |
|
73 |
|
106 |
|
133 |
| Net Earnings |
$ |
196 |
$ |
230 |
$ |
367 |
$ |
395 |
| Net Earnings per Common Share
($) |
|
|
|
|
|
|
|
|
| Basic |
$ |
0.99 |
$ |
1.13 |
$ |
1.88 |
$ |
1.87 |
| Diluted |
$ |
0.98 |
$ |
1.08 |
$ |
1.87 |
$ |
1.86 |
| |
|
|
|
|
|
|
| |
Condensed Consolidated Balance Sheets
| (unaudited) |
As at |
| |
|
|
|
|
|
| (millions of Canadian dollars) |
|
Jun. 16,
2012 |
|
Jun. 18,
2011 |
|
Dec. 31,
2011 |
| ASSETS |
|
|
|
|
|
|
| Current Assets |
|
|
|
|
|
|
| |
Cash and cash equivalents |
$ |
1,559 |
$ |
1,446 |
$ |
1,372 |
| |
Short term investments |
|
2,042 |
|
1,982 |
|
2,362 |
| |
Accounts receivable |
|
557 |
|
510 |
|
559 |
| |
Credit card receivables |
|
2,058 |
|
1,974 |
|
2,101 |
| |
Inventories |
|
1,996 |
|
2,060 |
|
2,147 |
| |
Income taxes recoverable |
|
53 |
|
46 |
|
37 |
| |
Prepaid expenses and other assets |
|
154 |
|
146 |
|
122 |
| |
Assets held for sale |
|
23 |
|
66 |
|
32 |
| Total Current Assets |
|
8,442 |
|
8,230 |
|
8,732 |
| Fixed Assets |
|
9,219 |
|
8,861 |
|
9,172 |
| Investment Properties |
|
95 |
|
73 |
|
82 |
| Goodwill and Intangible Assets |
|
1,587 |
|
1,546 |
|
1,555 |
| Deferred Income Taxes |
|
335 |
|
277 |
|
295 |
| Security Deposits |
|
341 |
|
246 |
|
367 |
| Franchise Loans Receivable |
|
358 |
|
313 |
|
331 |
| Other Assets |
|
822 |
|
809 |
|
789 |
| Total Assets |
$ |
21,199 |
$ |
20,355 |
$ |
21,323 |
| LIABILITIES |
|
|
|
|
|
|
| Current Liabilities |
|
|
|
|
|
|
| |
Bank indebtedness |
|
|
$ |
2 |
$ |
3 |
| |
Trade and other payables |
$ |
3,587 |
|
3,510 |
|
3,940 |
| |
Provisions |
|
71 |
|
107 |
|
67 |
| |
Short term debt |
|
1,299 |
|
1,260 |
|
1,280 |
| |
Long term debt due within one year |
|
226 |
|
381 |
|
87 |
| Total Current Liabilities |
|
5,183 |
|
5,260 |
|
5,377 |
| Provisions |
|
88 |
|
98 |
|
94 |
| Long Term Debt |
|
6,633 |
|
6,279 |
|
6,757 |
| Deferred Income Taxes |
|
167 |
|
157 |
|
160 |
| Other Liabilities |
|
1,091 |
|
802 |
|
1,033 |
| Capital Securities |
|
222 |
|
221 |
|
222 |
| Total Liabilities |
|
13,384 |
|
12,817 |
|
13,643 |
| EQUITY |
|
|
|
|
|
|
| Share Capital |
|
950 |
|
951 |
|
950 |
| Contributed Surplus |
|
21 |
|
25 |
|
24 |
| Retained Earnings |
|
4,593 |
|
4,409 |
|
4,496 |
| Accumulated Other Comprehensive
Loss |
|
(10) |
|
(34) |
|
(11) |
| Total Equity Attributable to
Shareholders of the Company |
|
5,554 |
|
5,351 |
|
5,459 |
| Non-Controlling Interests |
|
2,261 |
|
2,187 |
|
2,221 |
| Total Equity |
|
7,815 |
|
7,538 |
|
7,680 |
| Total Liabilities and
Equity |
$ |
21,199 |
$ |
20,355 |
$ |
21,323 |
| |
|
|
|
| |
Condensed Consolidated Statements of Cash Flow
| (unaudited) |
12 Weeks Ended |
24 Weeks Ended |
| |
|
|
|
|
| (millions of Canadian dollars) |
|
Jun. 16, 2012 |
|
Jun. 18,
2011 |
|
Jun. 16,
2012 |
|
Jun. 18,
2011 |
| Operating Activities |
|
|
|
|
|
|
|
|
| |
Net earnings |
$ |
196 |
$ |
230 |
$ |
367 |
$ |
395 |
| |
Income taxes |
|
55 |
|
69 |
|
114 |
|
141 |
| |
Net interest expense and other
financing charges |
|
72 |
|
98 |
|
116 |
|
164 |
| |
Depreciation and amortization |
|
193 |
|
172 |
|
377 |
|
338 |
| |
Foreign currency translation (gain)
loss |
|
(23) |
|
1 |
|
|
|
18 |
| |
Income taxes paid |
|
(63) |
|
(66) |
|
(136) |
|
(144) |
| |
Interest received |
|
25 |
|
29 |
|
34 |
|
46 |
| |
Change in credit card receivables |
|
(71) |
|
(87) |
|
43 |
|
23 |
| |
Change in non-cash working
capital |
|
292 |
|
95 |
|
(288) |
|
(446) |
| |
Fixed assets and other related
impairments |
|
|
|
5 |
|
3 |
|
9 |
| |
(Gain) loss on disposal of assets |
|
(2) |
|
1 |
|
(2) |
|
1 |
| |
Other |
|
(11) |
|
(7) |
|
(3) |
|
(11) |
| Cash Flows from Operating
Activities |
|
663 |
|
540 |
|
625 |
|
534 |
| Investing Activities |
|
|
|
|
|
|
|
|
| |
Fixed asset purchases |
|
(254) |
|
(170) |
|
(398) |
|
(332) |
| |
Change in short term investments |
|
217 |
|
338 |
|
320 |
|
1,239 |
| |
Business acquisition - net of
cash acquired |
|
|
|
|
|
|
|
(12) |
| |
Proceeds from fixed asset sales |
|
15 |
|
1 |
|
16 |
|
6 |
| |
Change in franchise investments and
other receivables |
|
20 |
|
28 |
|
3 |
|
28 |
| |
Change in security deposits |
|
12 |
|
1 |
|
26 |
|
184 |
| |
Intangible asset additions |
|
(41) |
|
(4) |
|
(41) |
|
(5) |
| |
Other |
|
|
|
7 |
|
|
|
|
| Cash Flows (used in) from Investing
Activities |
|
(31) |
|
201 |
|
(74) |
|
1,108 |
| Financing Activities |
|
|
|
|
|
|
|
|
| |
Change in bank indebtedness |
|
1 |
|
2 |
|
(3) |
|
(9) |
| |
Change in short term debt |
|
9 |
|
9 |
|
19 |
|
389 |
| |
Long term debt |
- Issued |
|
14 |
|
159 |
|
37 |
|
216 |
| |
|
- Retired |
|
(44) |
|
(7) |
|
(73) |
|
(865) |
| |
Share capital issued |
|
|
|
1 |
|
|
|
1 |
| |
Subsidiary share capital |
- Issued |
|
2 |
|
16 |
|
4 |
|
19 |
| |
|
- Retired |
|
(2) |
|
(3) |
|
(4) |
|
(3) |
| |
Interest paid |
|
(117) |
|
(155) |
|
(209) |
|
(266) |
| |
Dividends |
- To common shareholders |
|
(46) |
|
(47) |
|
(92) |
|
(1,093) |
| |
|
- To preferred shareholders |
|
(11) |
|
(11) |
|
(22) |
|
(22) |
| |
|
- To minority shareholders |
|
(22) |
|
(14) |
|
(22) |
|
(14) |
| Cash Flows used in Financing
Activities |
|
(216) |
|
(50) |
|
(365) |
|
(1,647) |
| Effect of foreign currency exchange
rate changes on cash and cash equivalents |
|
9 |
|
1 |
|
1 |
|
(2) |
| Change in Cash and Cash
Equivalents |
|
425 |
|
692 |
|
187 |
|
(7) |
| Cash and Cash Equivalents, Beginning
of Period |
|
1,134 |
|
754 |
|
1,372 |
|
1,453 |
| Cash and Cash Equivalents, End of
Period |
$ |
1,559 |
$ |
1,446 |
$ |
1,559 |
$ |
1,446 |
| |
|
|
|
|
| |
2012 SECOND QUARTER REPORT TO SHAREHOLDERS
The Company's 2011 Annual Report and 2012 Second Quarter Report to
Shareholders are available in the Investor Centre section of the
Company's website at www.weston.ca and have been filed with SEDAR
and will be available at www.sedar.com.
INVESTOR RELATIONS
Shareholders, security analysts and investment professionals should
direct their requests to Mr. Geoffrey H.
Wilson, Senior Vice President, Financial Control and
Investor Relations, 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 Companies Limited, a
63.0%-owned public reporting subsidiary company with shares trading
on the Toronto Stock Exchange. For information regarding Loblaw,
readers should also refer to the materials filed by Loblaw with the
Canadian securities regulatory authorities from time to time. These
filings are also maintained at Loblaw's corporate website at
www.loblaw.ca.
CONFERENCE CALL AND WEBCAST PRESENTATION
George Weston Limited will host a conference call as well as an
audio webcast on Tuesday, July 31,
2012 at 11:00 a.m. (EST). To
access via tele-conference, please dial (647) 427-7450. The
playback will be available two hours after the event at (416)
849-0833, passcode: 94021980#. To access via audio webcast, please
visit the Investor Centre section of www.weston.ca.
Pre-registration will be available.
SOURCE George Weston Limited