TORONTO, May 6, 2014 /CNW/ - George Weston Limited (TSX:
WN) ("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
$0.42 per common share.
"On March 28, 2014, Loblaw
completed its transformational deal announced in July 2013 by acquiring Shoppers Drug Mart. This
transaction combines Canada's
number-one grocery retailer and number-one pharmacy and beauty
retailer, and positions us extremely well to meet the changing
needs of Canadian consumers", said W. Galen Weston, Executive Chairman, George Weston
Limited.
CONSOLIDATED RESULTS OF
OPERATIONS |
(unaudited) |
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($ millions except where otherwise indicated) |
12 Weeks Ended |
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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% |
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|
|
4.2% |
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|
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Adjusted EBITDA(1) |
|
$ |
529 |
|
|
$ |
510 |
|
|
3.7% |
Adjusted EBITDA
margin(1) |
|
|
6.9% |
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|
|
6.8% |
|
|
|
Net interest expense and other financing
charges |
|
$ |
168 |
|
|
$ |
84 |
|
|
100.0% |
Net earnings attributable to shareholders of the
Company |
|
$ |
109 |
|
|
$ |
162 |
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|
(32.7)% |
Basic net earnings per common share ($) |
|
$ |
0.78 |
|
|
$ |
1.19 |
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|
(34.5)% |
Adjusted basic net earnings per
common share(1) ($) |
|
$ |
0.83 |
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$ |
0.83 |
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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 $1.19 in the same period in 2013. The decrease
was due to the year-over-year unfavourable impact of the forward
sale agreement for 9.6 million Loblaw common shares and a number of
other items. For a complete list of items which impacted basic
net earnings per common share but are excluded from adjusted basic
net earnings per common share(1), see the "Non-GAAP
Financial Measures" section of this News Release.
REPORTABLE OPERATING SEGMENTS
Weston Foods |
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(unaudited) |
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($ millions except where otherwise indicated) |
12 Weeks Ended |
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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 |
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$ |
57 |
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Adjusted operating
margin(1) |
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11.6% |
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13.4% |
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Adjusted EBITDA(1) |
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$ |
68 |
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$ |
71 |
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Adjusted EBITDA
margin(1) |
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15.1% |
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16.7% |
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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
$57 million in the same period
in 2013. Weston Foods adjusted operating margin(1) for
the first quarter of 2014 decreased to 11.6% from 13.4% in the same
period in 2013.
Adjusted operating income(1) was positively impacted
by higher sales volumes driven by investments in growth, marketing
and innovation, the benefits realized from productivity
improvements and other cost reduction initiatives and the foreign
currency translation of United
States ("U.S.") operations. This improvement was more than
offset by higher commodity and other input costs, including the
negative impact of the appreciation of the U.S. dollar, the cost
impact of investments, including plant start-up costs and the
impact of changes in sales mix, and a decline in the performance of
the frozen dough business.
Loblaw |
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(unaudited) |
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($ millions except where otherwise indicated) |
12 Weeks Ended |
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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 |
|
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$ |
256 |
Adjusted operating
margin(1) |
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3.6% |
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3.6% |
Adjusted EBITDA(1) |
|
$ |
461 |
|
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$ |
439 |
Adjusted EBITDA
margin(1) |
|
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6.3% |
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6.1% |
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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 $300 million in the third full year following the
close of the transaction (net of related costs), phased in evenly
over three years. First year synergies are expected to be generated
primarily from improved cost of goods sold and from purchasing
efficiencies in goods not for resale.
Pursuant to a Consent Agreement reached with the Competition
Bureau in the first quarter of 2014, Loblaw is required to divest
of 14 Shoppers Drug Mart stores and four of its own franchise
grocery stores, as well as nine of its pharmacy operations. The
divestitures are not expected to have a material impact on Loblaw's
operations or the planned synergies.
Based on a preliminary assessment, Loblaw expects to recognize
the following amounts of net tangible assets, goodwill and
intangible assets in the second quarter of 2014:
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(unaudited)
($ millions) |
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Estimated
Useful Life |
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Fair value of net tangible assets
acquired |
|
$ |
552 |
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Goodwill |
|
$ |
2,251 |
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Prescription files |
|
$ |
5,040 |
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11 years |
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Brands |
|
|
3,340 |
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indefinite |
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Optimum loyalty program |
|
|
490 |
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18 years |
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Other |
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600 |
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5 to 10 years |
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Intangible assets |
|
$ |
9,470 |
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Total net assets acquired |
|
$ |
12,273 |
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|
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:
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Common Shares |
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$0.42 per share payable July 1,
2014, to
shareholders of record June 15, 2014; |
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Preferred Shares, Series I |
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$0.3625 per share payable June 15,
2014, to
shareholders of record May 31, 2014; |
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Preferred Shares, Series III |
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$0.3250 per share payable July 1,
2014, to
shareholders of record June 15, 2014; |
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Preferred Shares, Series IV |
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$0.3250 per share payable July 1,
2014, to
shareholders of record June 15, 2014; and |
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Preferred Shares, Series V |
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$0.296875 per share payable July
1, 2014, to
shareholders of record June 15, 2014. |
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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.
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12 Weeks Ended |
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|
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 |
|
|
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|
$ |
162 |
Add impact of the following: |
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Non-controlling interests |
|
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|
|
38 |
|
|
|
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|
|
|
|
|
|
|
63 |
Income taxes |
|
|
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|
|
|
|
|
|
|
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|
|
|
40 |
|
|
|
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|
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|
|
|
|
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|
|
|
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