President Pavi Binning said the results reflected the “challenging environments in which both of its operating segments participate”

President Pavi Binning said the results reflected the “challenging environments in which both of its operating segments participate”

Canadian food manufacturer and retailer George Weston saw its earnings fall in the third quarter as investments in its domestic business, a competitive grocery sector and a higher tax rate all hit its bottom line.

George Weston, the owner of the Loblaw chain, recorded a net income of C$171m (US$163.5m) in the three months ended 5 October. This fell from C$156m a year earlier, while its adjusted basic net earnings from continuing operations fell to $1.38 per share, down from $1.47 a year earlier.

Operating profit from Loblaw and from food business Weston Foods fell. President Pavi Binning said the results reflected the "challenging environments in which both of its operating segments participate".

Binning said both divisions had enjoyed a "good sales performance" but their operating results reflected the investments required to execute their respective strategies in "highly competitive sales environments".

As a result, group operating income in the quarter dropped to C$86m from C$114m in the same period of 2012, primarily due to the unfavourable impact of the fair value adjustment of commodity derivatives of $19m and a decline in underlying operating performance, the retailer said.

Sales, however, were up 3.9% to C$562m. Excluding the impact of the loss of certain frozen products and foreign currency translation, sales increased 4.3% due to the combined positive impact of pricing and changes in sales mix of 3.1% and a 1.2% increase in volumes.

Show the press release

George Weston Limited Reports 2013 Third Quarter Results(2)

TORONTO, Nov. 19, 2013 /CNW/ - George Weston Limited (TSX: WN) ("GWL") today announced its consolidated unaudited results for the 16 weeks ended October 5, 2013.

The 2013 Third Quarter Report to Shareholders of George Weston Limited and its subsidiaries, together referred to as the "Company", including the Company's unaudited interim period condensed consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the 16 and 40 weeks ended October 5, 2013, 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.

2013 Third Quarter Summary

Adjusted basic net earnings per common share from continuing operations(1) declined to $1.38 from $1.47 in the third quarter of 2012.
Adjusted operating income(1) declined to $489 million from $510 million.
Sales growth of 2.1% to $10,377 million.
"George Weston Limited has made progress this year to ensure it is well-positioned for the future. The third quarter of 2013 marked the completion of important milestones: the initial public offering of Choice Properties REIT, Shoppers Drug Mart shareholders voted in favour of the arrangement agreement and the financing required to close the acquisition was successfully completed", said W. Galen Weston, Executive Chairman, George Weston Limited.


CONSOLIDATED RESULTS OF OPERATIONS
(unaudited)
($ millions except where otherwise indicated) 16 Weeks Ended 40 Weeks Ended

For the periods ended as indicated Oct. 5, 2013 Oct. 6, 2012(3) Change Oct. 5, 2013 Oct. 6, 2012(3) Change
Sales $ 10,377 $ 10,164 2.1% $ 25,663 $ 25,015 2.6%
Operating income $ 467 $ 475 (1.7)% $ 1,227 $ 1,072 14.5%
Adjusted operating income(1) $ 489 $ 510 (4.1)% $ 1,210 $ 1,188 1.9%
Adjusted operating margin(1) 4.7% 5.0% 4.7% 4.7%
Adjusted EBITDA(1) $ 762 $ 769 (0.9)% $ 1,886 $ 1,823 3.5%
Adjusted EBITDA margin(1) 7.3% 7.6% 7.3% 7.3%
Net interest expense and other
financing charges $ 157 $ 139 12.9% $ 391 $ 266 47.0%
Income taxes $ 82 $ 99 (17.2)% $ 219 $ 210 4.3%
Net earnings from continuing
operations attributable to
shareholders of the Company $ 171 $ 156 9.6% $ 431 $ 412 4.6%
Net earnings from discontinued
operations $ 58 $ 58
Basic net earnings per common share
from continuing operations ($) $ 1.23 $ 1.11 10.8% $ 3.11 $ 2.95 5.4%
Adjusted basic net earnings per
common share from continuing
operations(1) ($) $ 1.38 $ 1.47 (6.1)% $ 3.38 $ 3.39 (0.3)%

Pavi Binning, President, George Weston Limited, commented that "George Weston Limited's third quarter results reflect the challenging environments in which both of its operating segments participate. Loblaw and Weston Foods delivered good sales performance while their operating results reflected the investments required to execute their respective strategies in highly competitive sales environments".

During the third quarter of 2013, Choice Properties Real Estate Investment Trust ("Choice Properties") completed a $460 million Initial Public Offering ("IPO") of its Trust Units ("Units"), including the exercise of a $60 million over-allotment option, a public offering of $600 million aggregate principal amount of senior unsecured debentures (the "Debentures"), and issued $200 million of Units to GWL as described in the "Choice Properties Real Estate Investment Trust" section of this News Release.

On September 12, 2013, Shoppers Drug Mart Corporation ("Shoppers Drug Mart") shareholders voted in favour of Loblaw Companies Limited's ("Loblaw") agreement to acquire all of the outstanding common shares of Shoppers Drug Mart. As part of the financing of the acquisition, GWL has agreed to subscribe for approximately $500 million of additional Loblaw common shares, as described in the "Agreement to Acquire Shoppers Drug Mart Corporation" section of this News Release.

During the third quarter of 2013, the Company recorded income related to discontinued operations of $58 million, as described in the "Discontinued Operations" section of this News Release.

The Company's third quarter 2013 adjusted basic net earnings per common share from continuing operations(1) were $1.38 compared to $1.47 in the same period in 2012, a decrease of $0.09. The decrease was primarily attributable to the decline in the operating performance of Loblaw and Weston Foods and a higher effective income tax rate(4).

The Company's basic net earnings per common share from continuing operations were $1.23 compared to $1.11 in the same period in 2012. The increase included the year-over-year favourable impact of certain items, including certain foreign currency translation and the impact of the forward sale agreement for 9.6 million Loblaw common shares. The increase was partially offset by the year-over-year unfavourable impact of the fair value adjustment of commodity derivatives at Weston Foods and certain 2013 items relating to the Choice Properties and Shoppers Drug Mart transactions.

The Choice Properties Units held by the public are presented as a liability and are recorded at fair value at each reporting period. The transaction costs relating to the issuance of Units of $43 million and a fair value gain of $5 million were recorded in net interest expense and other financing charges in the third quarter of 2013. Start-up costs of $3 million and incremental general and administrative costs of $3 million were also incurred and recorded in operating income in the third quarter of 2013 associated with the creation of Choice Properties.

During the third quarter of 2013, Loblaw incurred acquisition related costs, completed the re-financing of the $1.6 billion bridge loan entered into to finance a portion of the cash element of the transaction and settled a forward contract it had entered into to hedge certain exposures relating to this re-financing. During the third quarter of 2013, Loblaw recorded Shoppers Drug Mart related acquisition costs of $9 million in operating income and net financing charges of $1 million in net interest expense and other financing charges associated with the above.

Subsequent to the end of the third quarter of 2013, Loblaw announced the reduction of approximately 275 store-support positions. Loblaw expects to incur a charge of approximately $30 million in the fourth quarter of 2013, reflecting the anticipated costs of the reductions.

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.

REPORTABLE OPERATING SEGMENTS

 


Weston Foods
(unaudited) 16 Weeks Ended 40 Weeks Ended
($ millions except where otherwise indicated)
For the periods ended as indicated Oct. 5, 2013 Oct. 6, 2012 Oct. 5, 2013 Oct. 6, 2012
Sales $ 562 $ 541 $ 1,399 $ 1,366
Operating income $ 86 $ 114 $ 198 $ 186
Adjusted operating income(1) $ 88 $ 94 $ 213 $ 218
Adjusted operating margin(1) 15.7% 17.4% 15.2% 16.0%
Adjusted EBITDA(1) $ 107 $ 112 $ 261 $ 263
Adjusted EBITDA margin(1) 19.0% 20.7% 18.7% 19.3%

Weston Foods sales in the third quarter of 2013 increased by 3.9% to $562 million from $541 million and volumes increased by 0.4% compared to the same period in 2012 despite challenging market conditions. Excluding the impact of the loss of certain frozen products that Weston Foods distributed on behalf of certain customers in 2012 and foreign currency translation, sales increased 4.3% due to the combined positive impact of pricing and changes in sales mix of 3.1% and an increase in volume of 1.2%.

Weston Foods operating income in the third quarter of 2013 was $86 million compared to $114 million in the same period in 2012, a decrease of $28 million. The decrease was primarily due to the year-over-year unfavourable impact of the fair value adjustment of commodity derivatives of $19 million and a decline in underlying operating performance.

Weston Foods adjusted operating income(1) in the third quarter of 2013 was $88 million compared to $94 million in the same period in 2012. Weston Foods adjusted operating margin(1) for the third quarter of 2013 decreased to 15.7% from 17.4% in the same period in 2012. Adjusted operating income(1) was positively impacted by higher sales volumes driven by investments in growth, marketing and innovation including new manufacturing capacity and promotional activity as well as higher pricing and the benefits realized from productivity improvements and other cost reduction initiatives. This improvement was more than offset by a decline in the performance of the frozen dough business, the cost impact of investments, including the impact from changes in sales mix and higher commodity and other input costs. The decline in the performance of the frozen dough business was as a result of lower sales due in part to certain retail customers focusing less on frozen dough products as well as some operational challenges.



Loblaw
(unaudited) 16 Weeks Ended 40 Weeks Ended
($ millions except where otherwise indicated)
For the periods ended as indicated Oct. 5, 2013 Oct. 6, 2012 Oct. 5, 2013 Oct. 6, 2012
Sales $ 10,009 $ 9,827 $ 24,731 $ 24,139
Operating income $ 369 $ 403 $ 996 $ 928
Adjusted operating income(1) $ 401 $ 416 $ 997 $ 970
Adjusted operating margin(1) 4.0% 4.2% 4.0% 4.0%
Adjusted EBITDA(1) $ 655 $ 657 $ 1,625 $ 1,560
Adjusted EBITDA margin(1) 6.5% 6.7% 6.6% 6.5%

Loblaw remained focused on its strategy to invest in the customer proposition which resulted in the third straight quarter of same-store sales growth in an intensely competitive environment. At the same time, Loblaw continued to create efficiencies in its business particularly in labour and supply chain.

Loblaw sales in the third quarter of 2013 increased by 1.9% to $10,009 million from $9,827 million in the same period in 2012. Loblaw's Retail segment sales increased by 1.5% and same-store sales growth was 0.4% (2012 - decline of 0.2%), negatively impacted by the timing of the Thanksgiving holiday, estimated to be 0.5% to 0.7%. Loblaw's average quarterly internal food price index was flat during the third quarter of 2013 (2012 - modest inflation), and was lower than the average quarterly national food price inflation of 0.9% (2012 - 1.8%) as measured by "The Consumer Price Index for Food Purchased from Stores". In the last twelve months, corporate and franchise store square footage increased 1.2% (2012 - 0.6%). Loblaw sales in the third quarter of 2013 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 third quarter of 2013 was $369 million compared to $403 million in the same period in 2012, a decrease of $34 million. The decrease includes certain 2013 impacts of the Choice Properties and Shoppers Drug Mart transactions and a decline in underlying operating performance. Loblaw adjusted operating income(1) decreased by $15 million to $401 million in the third quarter of 2013 compared to $416 million in the same period in 2012. Adjusted operating margin(1) was 4.0% compared to 4.2% in the same period in 2012.

The decrease in adjusted operating income(1) was primarily driven by a decline in Loblaw's Retail segment, partially offset by an improvement in Loblaw's Financial Services segment. The decrease in Loblaw's Retail segment was a result of declines in foreign exchange gains, increased other operating costs, including depreciation and amortization, and changes in the value of Loblaw's investments in its franchise business, partially offset by supply chain and labour efficiencies. Retail gross profit was flat in the third quarter of 2013 when compared to the same period in 2012.

NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
In the third quarter of 2013, net interest expense and other financing charges increased by $18 million to $157 million compared to the same period in 2012. Net interest expense and other financing charges are impacted by the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares. This fair value adjustment had a favourable year-over-year impact of $36 million in the third quarter of 2013.

In addition, third quarter 2013 net interest expense and other financing charges were impacted by Choice Properties IPO transaction costs of $43 million, United States private placement ("USPP") note early settlement costs of $18 million and Shoppers Drug Mart related net financing charges of $1 million, partially offset by the fair value gain on the Choice Properties Trust Unit liability of $5 million.

Excluding the above impacts, net interest expense and other financing charges decreased by $3 million in the third quarter of 2013 compared to the same period in 2012. The decrease in the third quarter of 2013 was primarily a result of a decline in net interest on the Company's net defined benefit obligation and interest relating to financial derivative instruments, partially offset by Choice Properties Unit distributions to the public presented in net interest expense and other financing charges.

INCOME TAXES
In the third quarter of 2013, income tax expense decreased to $82 million from $99 million in the same period in 2012. The effective income tax rate decreased to 26.5% in the third quarter of 2013 from 29.5% in the same period in 2012, primarily due to non-taxable foreign currency translation gains recorded in 2013 (2012 - non-deductible foreign currency translation losses) and the change in the proportion of taxable income earned across different tax jurisdictions, partially offset by an increase in non-deductible amounts.

DISCONTINUED OPERATIONS
During the third quarter of 2013, the Company recorded income related to discontinued operations of $58 million, which included the settlement of a previously disclosed litigation of $48 million ($40 million, net of income taxes) and adjustments resulting in income of $18 million associated with the Company's (excluding Loblaw) previously owned operations.

CHOICE PROPERTIES REAL ESTATE INVESTMENT TRUST
During the third quarter of 2013, in connection with its acquisition of approximately $7 billion of properties and related assets from Loblaw, Choice Properties completed a $460 million IPO of Units, including the exercise of a $60 million over-allotment option. In addition, Choice Properties issued $200 million of Units to GWL. After the exercise of the over-allotment option, GWL held an effective interest of approximately 5.6% and Loblaw held an effective interest of approximately 81.7% in Choice Properties.

At closing, Loblaw recorded transaction costs of approximately $43 million in net interest expense and other financing charges related to the completion of the IPO.

Concurrent with the offering of Units, Choice Properties completed a public offering of Debentures. A portion of the debt offering proceeds were used to replenish the cash used to repay the United States ("U.S.") $150 million USPP note that matured during the second quarter of 2013 and to early-settle the remaining U.S. $150 million USPP note during the third quarter of 2013, including the associated early-settlement costs of approximately $18 million, which were recorded in net interest expense and other financing charges.

On October 22, 2013, Choice Properties acquired a portfolio of nine investment properties from Loblaw for an aggregate purchase price of approximately $150 million, which was settled through the issuance of 9,925,671 Class B Limited Partnership units and cash. As a result of the transaction, Loblaw now holds an effective interest of approximately 82.2% and GWL holds an effective interest of approximately 5.4% in Choice Properties.

AGREEMENT TO ACQUIRE SHOPPERS DRUG MART CORPORATION
On July 14, 2013, Loblaw entered into an arrangement agreement to acquire all of the outstanding common shares of Shoppers Drug Mart for consideration of up to approximately $6.7 billion of cash and up to approximately 119.9 million common shares. Based on Loblaw's closing common share price on that date, the purchase price would be approximately $12.4 billion.

In connection with the acquisition, Loblaw entered into bank facilities consisting of a $3.5 billion term loan facility and a $1.6 billion bridge loan facility. On September 10, 2013, Loblaw issued $1.6 billion aggregate principal amount of senior unsecured notes and concurrently cancelled the bridge loan facility. As part of the financing of the acquisition, GWL has agreed to subscribe for approximately $500 million of additional Loblaw common shares.

On September 12, 2013, Shoppers Drug Mart shareholders voted in favour of the agreement and on September 16, 2013 a final order of the Ontario Superior Court of Justice approving the agreement was obtained. The transaction is subject to compliance with the Competition Act (Canada) and certain other closing conditions customary in transactions of this nature. The process of review under the Competition Act (Canada) is proceeding as expected and the Company anticipates that the transaction will be completed during the first quarter of 2014. Further information on the transaction and its expected effects on Loblaw can be found in the Information Statement filed by Loblaw on August 20, 2013, in respect of Shoppers Drug Mart shareholder approval of the transaction. There can be no assurance that all conditions will be met or waived or that Loblaw will be able to successfully consummate the proposed transaction as currently contemplated or at all.

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

Weston Foods expects moderate fourth quarter sales growth. Despite the growth in sales, full year adjusted operating margin(1) is expected to decline by an amount approximately equal to the margin decline experienced on a year-to-date basis. Pressures on adjusted operating margin(1) in the fourth quarter are expected to be consistent with those experienced in the third quarter of 2013.

In a highly competitive market, Loblaw's strategy of focusing on its customer proposition has delivered same-store sales growth in each of the first three quarters of 2013. In addition to its focus on sales growth, Loblaw is committed to creating efficiencies in its business. Consistent with the first half of the year, in the third quarter Loblaw delivered operating efficiencies in its core retail business, including labour and supply chain efficiencies.

In the third quarter of 2013, Loblaw made greater than anticipated investments in targeted food categories as a result of an increasingly competitive environment driven by greater than historical square footage expansion. Loblaw remains committed to its strategy to drive its customer proposition, including investments in food margins, in the fourth quarter of 2013. As a result, Loblaw expects adjusted operating income(1) for the full year to be flat compared to 2012.

DECLARATION OF QUARTERLY DIVIDENDS
Subsequent to the end of the third quarter of 2013, the 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 $0.415 per share payable January 1, 2014, to
shareholders of record December 15, 2013;

Preferred Shares, Series I $0.3625 per share payable December 15, 2013, to
shareholders of record November 30, 2013;

Preferred Shares, Series III $0.3250 per share payable January 1, 2014, to
shareholders of record December 15, 2013;

Preferred Shares, Series IV $0.3250 per share payable January 1, 2014, to
shareholders of record December 15, 2013; and

Preferred Shares, Series V $0.296875 per share payable January 1, 2014, to
shareholders of record December 15, 2013.
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, expected costs associated with restructuring, financing of the Company's capital investment program and ongoing business requirements, the status and impact of information technology ("IT") systems implementation, the Canadian retail environment 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 2013 is based on certain assumptions including assumptions about revenue growth, anticipated cost savings and operating efficiencies, no unanticipated changes in the effective income tax rates, no unexpected adverse events or costs related to Loblaw's investments in IT and supply chain, and no significant unanticipated increase in the price of commodities and other input costs at Weston Foods that it will not be able to offset. 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.

 

Original source: George Weston