STELLARTON, NS, June 27, 2013 /CNW/ - Empire Company Limited (TSX: EMP.A) today announced financial results for its fourth quarter and fiscal year ended May 4, 2013. For the fourth quarter, the Company recorded net earnings, net of non-controlling interest, of $107.4 million ($1.58 per diluted share) compared to $92.1 million ($1.35 per diluted share) in the fourth quarter last year. Adjusted net earnings, net of non-controlling interest, in the fourth quarter were $98.6 million ($1.45 per diluted share) compared to $89.6 million ($1.32 per diluted share) in the fourth quarter last year, a $9.0 million increase.
Fourth Quarter Highlights
- Sales of $4.31 billion, up $235.1 million or 5.8 percent (up 2.4 percent excluding the impact of the acquisition of 236 retail gas locations and related convenience store operations).
- Sobeys' same-store sales increased 0.6 percent.
- Adjusted EBITDA (1) of $235.9 million versus $222.2 million last year.
- Net earnings, net of non-controlling interest, of $107.4 million ($1.58 per diluted share) compared to $92.1 million ($1.35 per diluted share) last year.
- Adjusted net earnings (1), net of non-controlling interest, of $98.6 million ($1.45 per diluted share) versus $89.6 million ($1.32 per diluted share) last year.
- Funded debt to total capital ratio of 20.6 percent compared to 25.0 percent last year.
- Free cash flow reported by Sobeys of $131.0 million.
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(1) Excludes items which are considered not indicative of underlying business operating performance.
Net earnings, net of non-controlling interest, for the 52 weeks ended May 4, 2013 were $384.8 million ($5.65 per diluted share) compared to $339.4 million ($4.99 per diluted share) recorded last fiscal year. Adjusted net earnings, net of non-controlling interest, for the fiscal year ended May 4, 2013 were $367.3 million ($5.39 per diluted share) compared to $322.7 million ($4.74 per diluted share) for the 52 weeks ended May 5, 2012, a $44.6 million increase.
Fiscal 2013 Highlights
- Sales of $17.61 billion, up $1,363.6 million or 8.4 percent (up 2.9 percent excluding the impact of the acquisition of 236 retail gas locations and related convenience store operations).
- Sobeys' same-store sales increased 1.3 percent.
- Adjusted EBITDA (1) of $921.7 million versus $856.2 million last year.
- Net earnings, net of non-controlling interest, of $384.8 million ($5.65 per diluted share) compared to $339.4 million ($4.99 per diluted share) last year.
- Adjusted net earnings (1), net of non-controlling interest, of $367.3 million ($5.39 per diluted share) versus $322.7 million ($4.74 per diluted share) last year.
- Free cash flow reported by Sobeys of $317.6 million.
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(1) Excludes items which are considered not indicative of underlying business operating performance.
"We are pleased with our fourth quarter and full year financial results which reflect the continued solid performance of Sobeys and our related real estate businesses," said Paul Sobey, President and CEO of Empire Company Limited. "We are also energized by our June 12th announcement to acquire substantially all of the assets of Canada Safeway. This acquisition represents a highly strategic opportunity for Sobeys to leverage its existing asset base and effectively create a new platform for growth.
"Our improved financial performance as well as the opportunity to acquire Canada Safeway would not have been possible without the quality and depth of talent that exists in our organization. On behalf of management and our Board, we would like to thank our employees, franchisees and affiliates for their hard work and dedication as their efforts have allowed us to capitalize on this exciting opportunity. Their commitment to execute our strategy and provide our customers with a high quality offering, with excellence in fresh food supported by great service, continues to be a long term strategic advantage for the Company.
"Consistent with our growth and the improvement in our financial position, we are pleased to announce an increase in Empire's quarterly dividend per share, from 24.0 cents per share to 26.0 cents per share, an 8.3 percent increase. This marks the eighteenth consecutive year of Empire dividend increases."
Dividend Declaration
The Board of Directors declared a quarterly dividend of 26.0 cents per share on both the Non-Voting Class A shares and the Class B common shares that will be payable on July 31, 2013 to shareholders of record on July 15, 2013. These dividends are eligible dividends as defined for the purposes of the Income Tax Act (Canada) and applicable provincial legislation and, therefore, qualify for the favourable tax treatment applicable to such dividends.
CONSOLIDATED FINANCIAL RESULTS
| 13 Weeks Ended | 52 Weeks Ended | ||||||||||||||||
| ($ in millions, except per share amounts) | May 4, 2013 | May 5, 2012 | ($) Change | May 4, 2013 | May 5, 2012 | ($) Change | |||||||||||
| Sales | $ | 4,308.9 | $ | 4,073.8 | $ | 235.1 | $ | 17,612.7 | $ | 16,249.1 | $ | 1,363.6 | |||||
| EBITDA (1) | 247.0 | 224.2 | 22.8 | 944.1 | 876.6 | 67.5 | |||||||||||
| Operating income (1) | 155.1 | 136.4 | 18.7 | 584.8 | 534.3 | 50.5 | |||||||||||
| Net earnings, net of non-controlling interest | 107.4 | 92.1 | 15.3 | 384.8 | 339.4 | |
45.4 | ||||||||||
| Adjusted net earnings, net of non-controlling interest (1)(2) | 98.6 | 89.6 | 9.0 | 367.3 | 322.7 | 44.6 | |||||||||||
| EPS (fully diluted) | $ | 1.58 | $ | 1.35 | $ | 0.23 | $ | 5.65 | $ | 4.99 | $ | 0.66 | |||||
| Adjusted EPS (fully diluted) (2) | $ | 1.45 | $ | 1.32 | $ | 0.13 | $ | 5.39 | $ | 4.74 | $ | 0.65 | |||||
| (1) | See Non-GAAP Financial Measures contained in this news release. |
| (2) | Excludes items which are considered not indicative of underlying business operating performance. |
Sales
Consolidated sales for the 13 weeks ended May 4, 2013 were $4.31 billion compared to $4.07 billion in the fourth quarter last year, an increase of $235.1 million or 5.8 percent. Sobeys contributed sales to Empire of $4.26 billion versus $4.02 billion in the fourth quarter last year, an increase of $233.6 million or 5.8 percent. Excluding sales of $269.7 million (fiscal 2012 - $131.0 million) related to the acquisition of 236 retail gas locations and related convenience store operations in the fourth quarter last year, Sobeys' sales contribution to Empire increased by $94.9 million or 2.4 percent. Sobeys' same-store sales increased 0.6 percent in the fourth quarter of fiscal 2013.
Consolidated sales for fiscal 2013 were $17.61 billion compared to $16.25 billion in fiscal 2012, an increase of $1,363.6 million or 8.4 percent. Sobeys contributed sales to Empire of $17.39 billion versus $16.04 billion in fiscal 2012, an increase of $1,346.4 million or 8.4 percent. Excluding sales of $1,031.6 million (fiscal 2012 - $131.0 million) related to the acquisition of 236 retail gas locations and related convenience store operations in the fourth quarter last year, Sobeys' sales contribution to Empire increased by $445.8 million or 2.8 percent. Sobeys' same-store sales increased 1.3 percent in fiscal 2013.
Investments and other operations' sales in the fourth quarter were $52.1 million versus $50.6 million in the fourth quarter last year, an increase of $1.5 million or 3.0 percent. In fiscal 2013, investments and other operations' recorded sales of $221.7 million compared to $204.5 million last year, an increase of $17.2 million or 8.4 percent.
EBITDA
Consolidated EBITDA in the fourth quarter was $247.0 million compared to $224.2 million in the fourth quarter last year. For the fiscal year ended May 4, 2013, consolidated EBITDA was $944.1 million compared to $876.6 million last year. Adjusting EBITDA for items which are considered not indicative of underlying business operating performance, as presented in the following table, resulted in fourth quarter adjusted EBITDA of $235.9 million compared to $222.2 million in the fourth quarter last year and annual adjusted EBITDA of $921.7 million compared to $856.2 million last fiscal year.
| 13 Weeks Ended | 52 Weeks Ended | |||||||||||
| ($ in millions) | May 4, 2013 | May 5, 2012 | May 4, 2013 | May 5, 2012 | ||||||||
| EBITDA (consolidated) | $ | 247.0 | $ | 224.2 | $ | 944.1 | $ | 876.6 | ||||
| Adjustments: | ||||||||||||
| Sobeys' organizational realignment costs | 2.0 | 2.8 | 9.1 | 9.2 | ||||||||
| One-time charge from equity accounted investments (1) | 1.5 | - | 8.3 | - | ||||||||
| Transaction costs for Canada Safeway proposed acquisition | 5.0 | - | 5.0 | - | ||||||||
| Sobeys Québec distribution network restructuring | (0.7) | 0.7 | 2.4 | 3.0 | ||||||||
| Dilution gains (2) | (1.5) | (0.4) | (18.2) | (10.4) | ||||||||
| Gain on disposal of assets | (17.4) | (5.1) | (29.0) | (22.2) | ||||||||
| (11.1) | (2.0) | (22.4) | (20.4) | |||||||||
| Adjusted EBITDA | $ | 235.9 | $ | 222.2 | $ | 921.7 | $ | 856.2 | ||||
| (1) | Reflects a decrease in equity earnings from the investment in Crombie REIT to account for the fair value of Crombie REIT's convertible debentures for the current year and restatement of prior years. |
| (2) | Includes an increase in previously recorded dilution gains as a result of the adjustment to Crombie REIT's equity to account for the fair value of its convertible debentures for the current year and the restatement of prior years. |
Operating Income
Consolidated operating income in the fourth quarter was $155.1 million, an increase of $18.7 million or 13.7 percent from the $136.4 million recorded in the fourth quarter last year. For the 52 weeks ended May 4, 2013, consolidated operating income was $584.8 million, an increase of $50.5 million or 9.5 percent from the $534.3 million recorded last year. Adjusting operating income for items which are considered not indicative of underlying business operating performance, as presented in the previous table for EBITDA, resulted in quarterly adjusted consolidated operating income of $144.0 million compared to $134.4 million in the fourth quarter last year. For the full year, adjusted consolidated operating income of $562.4 million compared to $513.9 million last fiscal year.
Net Earnings
Consolidated net earnings, net of non-controlling interest, in the fourth quarter equalled $107.4 million ($1.58 per diluted share) compared to $92.1 million ($1.35 per diluted share) in the fourth quarter last year, a $15.3 million or 16.6 percent increase. For fiscal 2013, consolidated net earnings, net of non-controlling interest, equalled $384.8 million ($5.65 per diluted share) compared to $339.4 million ($4.99 per diluted share) last year.
The following table presents Empire's segmented net earnings, net of non-controlling interest, for the 13 and 52 weeks ended May 4, 2013 compared to the 13 and 52 weeks ended May 5, 2012.
| 13 Weeks Ended | 52 Weeks Ended | ||||||||||||||||
| ($ in millions, except per share amounts, net of tax) | May 4, 2013 | May 5, 2012 | ($) Change | May 4, 2013 | May 5, 2012 | ($) Change | |||||||||||
| Food retailing | $ | 89.1 | $ | 81.2 | $ | 7.9 | $ | 339.9 | $ | 304.1 | $ | 35.8 | |||||
| Investments and other operations | 18.3 | 10.9 | 7.4 | 44.9 | 35.3 | 9.6 | |||||||||||
| Consolidated | $ | 107.4 | $ | 92.1 | $ | 15.3 | $ | 384.8 | $ | 339.4 | $ | 45.4 | |||||
| EPS (fully diluted) | $ | 1.58 | $ | 1.35 | $ | 0.23 | $ | 5.65 | $ | 4.99 | $ | 0.66 | |||||
Adjusted Net Earnings
The table below adjusts reported net earnings, net of non-controlling interest, for items which are considered not indicative of underlying business operating performance. After factoring in the impact of the adjustments noted in the table, Empire recorded adjusted net earnings, net of non-controlling interest, of $98.6 million ($1.45 per diluted share) for the 13 weeks ended May 4, 2013 compared to $89.6 million ($1.32 per diluted share) recorded in the fourth quarter last year. For fiscal 2013, adjusted net earnings, net of non-controlling interest, were $367.3 million ($5.39 per diluted share) compared to $322.7 million ($4.74 per diluted share) last year.
| 13 Weeks Ended | 52 Weeks Ended | |||||||||||
| ($ in millions, except per share amounts, net of tax) | May 4, 2013 | May 5, 2012 | May 4, 2013 | May 5, 2012 | ||||||||
| Net earnings, net of non-controlling interest | $ | 107.4 | $ | 92.1 | $ | 384.8 | $ | 339.4 | ||||
| Adjustments: | ||||||||||||
| Sobeys' organizational realignment costs | 1.5 | 2.0 | 6.7 | 6.4 | ||||||||
| One-time charge from equity accounted investment (1) | 1.1 | - | 5.9 | - | ||||||||
| Transaction costs for Canada Safeway proposed acquisition | 4.0 | - | |
4.0 | - | |||||||
| Sobeys Québec distribution network restructuring | (0.5) | 0.4 | 1.8 | 2.1 | ||||||||
| Dilution gains (2) | (1.1) | (0.3) | (13.0) | (7.3) | ||||||||
| Gain on disposal of assets | (13.8) | (4.6) | (22.9) | (17.9) | ||||||||
| (8.8) | (2.5) | (17.5) | (16.7) | |||||||||
| Adjusted net earnings, net of non-controlling interest | $ | 98.6 | $ | 89.6 | $ | 367.3 | $ | 322.7 | ||||
| Adjusted net earnings, net of non-controlling interest, by segment: | |
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| Food retailing | $ | 82.3 | $ | 79.2 | $ | 331.0 | $ | 294.6 | ||||
| Investment and other operations | 16.3 | 10.4 | 36.3 | 28.1 | ||||||||
| Adjusted net earnings, net of non-controlling interest | $ | 98.6 | $ | 89.6 | $ | 367.3 | $ | 322.7 | ||||
| Adjusted EPS (fully diluted) | $ | 1.45 | $ | 1.32 | $ | 5.39 | $ | 4.74 | ||||
| (1) | Reflects a decrease in equity earnings, net of tax, from the investment in Crombie REIT to account for the fair value of Crombie REIT's convertible debentures for the current year and restatement of prior years. |
| (2) | Includes an increase in previously recorded dilution gains, net of tax, as a result of the adjustment to Crombie REIT's equity to account for the fair value of its convertible debentures for the current year and the restatement of prior years. |
SEGMENTED FINANCIAL RESULTS
The Company operates and reports on two business segments:
| 1) | Food Retailing, which consists of wholly-owned Sobeys Inc. ("Sobeys"), and |
| 2) | Investments and Other Operations, the principal components of which include investments in Crombie REIT (42.8 percent ownership interest; 40.8 percent fully diluted), an approximate 40.0 percent ownership interest in Genstar, as well as wholly-owned ETL Canada Holdings Limited ("Empire Theatres"). |
FOOD RETAILING
The following table presents the food retailing segment's contribution to Empire's consolidated sales, EBITDA, adjusted EBITDA, operating income, adjusted operating income, net earnings, net of non-controlling interest, and adjusted net earnings, net of non-controlling interest.
| 13 Weeks Ended (1) | 52 Weeks Ended (1) | ||||||||||||||||
| ($ in millions) | May 4, 2013 | May 5, 2012 | ($) Change | May 4, 2013 | May 5, 2012 | ($) Change | |||||||||||
| Sales | $ | 4,256.8 | $ | 4,023.2 | $ | 233.6 | $ | 17,391.0 | $ | 16,044.6 | $ | 1,346.4 | |||||
| EBITDA | 217.9 | 203.7 | 14.2 | 859.5 | 801.8 | 57.7 | |||||||||||
| Adjusted EBITDA (2) | 209.4 | 202.3 | 7.1 | 848.9 | 791.6 | 57.3 | |||||||||||
| Operating income | 129.2 | 120.0 | 9.2 | 515.3 | 475.8 | 39.5 | |||||||||||
| Adjusted operating income (2) | 120.7 | 118.6 | 2.1 | 504.7 | 465.6 | 39.1 | |||||||||||
| Net earnings, net of non-controlling interest | 89.1 | 81.2 | 7.9 | 339.9 | 304.1 | 35.8 | |||||||||||
| Adjusted net earnings, net of non-controlling interest (2) | 82.3 | 79.2 | 3.1 | 331.0 | 294.6 | 36.4 | |||||||||||
| (1) | Net of consolidation adjustments which includes a purchase price allocation from the privatization of Sobeys. |
| (2) | Excludes items which are considered not indicative of underlying business operating performance. |
Sales
Empire's food retailing segment contributed sales of $4.26 billion in the fourth quarter of fiscal 2013 compared to $4.02 billion in the same period last year, an increase of $233.6 million or 5.8 percent. Excluding sales of $269.7 million (fiscal 2012 - $131.0 million) related to the acquisition of 236 retail gas locations and related convenience store operations in the fourth quarter last year, the food retailing segment realized a sales increase of $94.9 million or 2.4 percent. During the fourth quarter, same-store sales increased 0.6 percent.
For the 52 weeks ended May 4, 2013, Empire's food retailing segment contributed sales of $17.39 billion compared to $16.04 billion last year, an increase of $1,346.4 million or 8.4 percent. Excluding sales of $1,031.6 million (fiscal 2012 - $131.0 million) related to the acquisition of 236 retail gas locations and related convenience store operations in the fourth quarter last year, the food retailing segment realized a sales increase of $445.8 million or 2.8 percent in fiscal 2013. During the fiscal year, same-store sales increased 1.3 percent.
Gross Profit
Sobeys recorded gross profit of $995.9 million in the fourth quarter, an increase of $12.3 million or 1.3 percent compared to $983.6 million in the fourth quarter last year. Gross margin decreased 104 basis points from 24.50 percent in the fourth quarter of fiscal 2012 to 23.46 percent in the current quarter. Excluding the impact of lower margin fuel sales, gross margin was 24.70 percent for the 13 weeks ended May 4, 2013 compared to 25.34 percent in the same period last year.
Sobeys recorded gross profit for the 52 weeks ended May 4, 2013 of $4,013.1 million, an increase of $138.9 million or 3.6 percent compared to $3,874.2 million in fiscal 2012. For the year ended May 4, 2013, gross margin decreased 104 basis points to 23.14 percent compared to 24.18 percent last year. Excluding the impact of lower margin fuel sales, gross margin was 24.36 percent in fiscal 2013 compared to 24.53 percent in fiscal 2012.
EBITDA
Sobeys contributed EBITDA to Empire in the fourth quarter of $217.9 million (5.12 percent of sales) compared to $203.7 million (5.06 percent of sales) last year, an increase of $14.2 million or 7.0 percent. Adjusting for items which are considered not indicative of underlying business operating performance, as presented in the following table, resulted in an adjusted EBITDA contribution from Sobeys to Empire of $209.4 million (4.92 percent of sales) in the fourth quarter compared to a $202.3 million (5.03 percent of sales) contribution in the fourth quarter last year.
For fiscal 2013, Sobeys contributed EBITDA to Empire of $859.5 million (4.94 percent of sales) compared to $801.8 million (5.00 percent of sales) last year, an increase of $57.7 million or 7.2 percent. Adjusting for items which are considered not indicative of underlying business operating performance, as presented in the following table, resulted in an adjusted EBITDA contribution from Sobeys to Empire of $848.9 million (4.88 percent of sales) for fiscal 2013 compared to a $791.6 million (4.93 percent of sales) contribution last year.
| 13 Weeks Ended | 52 Weeks Ended | |||||||||||
| ($ in millions) | May 4, 2013 | May 5, 2012 | May 4, 2013 | May 5, 2012 | ||||||||
| EBITDA (contributed by Sobeys) | $ | 217.9 | $ | 203.7 | $ | 859.5 | $ | 801.8 | ||||
| Adjustments: | ||||||||||||
| Sobeys' organizational realignment costs | 2.0 | 2.8 | 9.1 | 9.2 | ||||||||
| Transaction costs for Canada Safeway proposed acquisition | 5.0 | - | 5.0 | - | ||||||||
| Sobeys Québec distribution network restructuring | (0.7) | 0.7 | 2.4 | 3.0 | ||||||||
| Dilution gains | - | - | (0.7) | (0.4) | ||||||||
| Gain on disposal of assets | (14.8) | (4.9) | (26.4) | (22.0) | ||||||||
| (8.5) | (1.4) | (10.6) | (10.2) | |||||||||
| Adjusted EBITDA | $ | 209.4 | $ | 202.3 | $ | 848.9 | $ | 791.6 | ||||
Operating Income
Sobeys' operating income contribution to Empire in the fourth quarter was $129.2 million (3.04 percent of sales) compared to $120.0 million (2.98 percent of sales) in the same quarter last year, an increase of $9.2 million or 7.7 percent. For the 52 weeks ended May 4, 2013, Sobeys' operating income contribution to Empire was $515.3 million (2.96 percent of sales) compared to $475.8 million (2.97 percent of sales) last year, an increase of $39.5 million or 8.3 percent.
Adjusting Sobeys' operating income for items which are considered not indicative of underlying business operating performance, as presented in the previous table for EBITDA, resulted in adjusted operating income contribution of $120.7 million (2.84 percent of sales) in the fourth quarter compared to $118.6 million (2.95 percent of sales) in the fourth quarter last year, an increase of $2.1 million or 1.8 percent. On an annual basis, adjusted operating income contribution was $504.7 million (2.90 percent of sales) for fiscal 2013 compared to $465.6 million (2.90 percent of sales) last year, a $39.1 million or 8.4 percent increase.
Net Earnings
During the fourth quarter of fiscal 2013, Sobeys contributed net earnings, net of non-controlling interest, to Empire of $89.1 million versus $81.2 million in the fourth quarter last year, an increase of $7.9 million or 9.7 percent. Sobeys contributed adjusted net earnings, net of non-controlling interest, to Empire of $82.3 million versus $79.2 million in the fourth quarter last year, an increase of $3.1 million or 3.9 percent.
For the 52 weeks ended May 4, 2013, Sobeys contributed net earnings, net of non-controlling interest, to Empire of $339.9 million versus $304.1 million last year, an increase of $35.8 million or 11.8 percent. Sobeys contributed adjusted net earnings, net of non-controlling interest, to Empire of $331.0 million versus $294.6 million in fiscal 2012, an increase of $36.4 million or 12.4 percent.
INVESTMENTS AND OTHER OPERATIONS
The table below presents investments and other operations' contribution to Empire's consolidated sales, EBITDA, adjusted EBITDA, operating income, net earnings and adjusted net earnings.
| 13 Weeks Ended | 52 Weeks Ended | |||||||||||||||||
| ($ in millions) | May 4, 2013 | May 5, 2012 | ($) Change | May 4, 2013 | May 5, 2012 | ($) Change | ||||||||||||
| Sales | $ | 52.1 | $ | 50.6 | $ | 1.5 | $ | 221.7 | $ | 204.5 | $ | 17.2 | ||||||
| EBITDA | 29.1 | 20.5 | 8.6 | 84.6 | 74.8 | 9.8 | ||||||||||||
| Adjusted EBITDA (1) | 26.5 | 19.9 | 6.6 | 72.8 | 64.6 | 8.2 | ||||||||||||
| Operating income | ||||||||||||||||||
| Crombie REIT (2) | 4.9 | 4.9 | - | 13.7 | 19.7 | (6.0) | ||||||||||||
| Real estate partnerships (3) | 13.7 | 13.2 | 0.5 | 29.6 | 30.0 | (0.4) | ||||||||||||
| Other operations, net of corporate expenses (4) | 7.3 | (1.7) | 9.0 | 26.2 | 8.8 | 17.4 | ||||||||||||
| 25.9 | 16.4 | 9.5 | 69.5 | 58.5 | 11.0 | |||||||||||||
| Net earnings | 18.3 | 10.9 | 7.4 | 44.9 | 35.3 | 9.6 | ||||||||||||
| Adjusted net earnings (1) | 16.3 | 10.4 | 5.9 | 36.3 | 28.1 | 8.2 | ||||||||||||
| (1) | Excludes items which are considered not indicative of underlying business operating performance. |
| (2) | 42.8 percent equity accounted interest in Crombie REIT (as at May 5, 2012 - 44.3 percent interest). Crombie REIT's operating income contribution for fiscal 2013 was impacted by a one-time charge of $8.3 million (fiscal 2012 - $nil); this charge accounts for the fair value of the convertible debentures for the current year and the restatement of prior years. |
| (3) | 40.7 percent equity accounted interest in Genstar Development Partnership, 48.6 percent equity accounted interest in Genstar Development Partnership II, 42.1 percent equity accounted interests in each of GDC Investments 4, L.P., GDC Investments 5, L.P. and GDC Investments 6, L.P., 45.8 percent equity accounted interest in GDC Investments 7, L.P. and 43.7 percent equity accounted interest in GDC Investments 8, L.P. (collectively referred to as "Genstar"). |
| (4) | Other operations, net of corporate expenses, for the 52 weeks ended May 4, 2013 includes dilution gains of $17.5 million (fiscal 2012 - $10.0 million), which includes an increase in previously recorded dilution gains of $6.1 million (fiscal 2012 - $nil) as a result of the adjustment to Crombie REIT's equity to account for the fair value of its convertible debentures for the current year and the restatement of prior years, and an impairment charge related to an investment of $nil (fiscal 2012 - $1.1 million). |
Sales
Investments and other operations' sales, primarily generated by Empire Theatres, were $52.1 million in the fourth quarter ended May 4, 2013 versus $50.6 million in the fourth quarter last year, a $1.5 million or 3.0 percent increase. For fiscal 2013, investments and other operations reported sales of $221.7 million, an increase of $17.2 million or 8.4 percent from the $204.5 million reported last year.
EBITDA
Investments and other operations contributed EBITDA to Empire in the fourth quarter of $29.1 million compared to $20.5 million last year. Adjusting for items which are considered not indicative of underlying business operating performance, as presented in the following table, resulted in adjusted EBITDA from investments and other operations of $26.5 million compared to $19.9 million last year.
For the 52 weeks ended May 4, 2013, investments and other operations contributed EBITDA to Empire of $84.6 million compared to $74.8 million last year. Adjusting for items which are considered not indicative of underlying business operating performance resulted in adjusted EBITDA from investments and other operations of $72.8 million compared to $64.6 million last year.
| 13 Weeks Ended | 52 Weeks Ended | |||||||||||
| ($ in millions) | May 4, 2013 | May 5, 2012 | May 4, 2013 | May 5, 2012 | ||||||||
| EBITDA (investments and other operations) | $ | 29.1 | $ | 20.5 | $ | 84.6 | $ | 74.8 | ||||
| Adjustments: | ||||||||||||
| One-time charge from equity accounted investments (1) | 1.5 | - | 8.3 | - | ||||||||
| Gain on disposal of assets | (2.6) | (0.2) | (2.6) | (0.2) | ||||||||
| Dilution gains (2) | (1.5) | (0.4) | (17.5) | (10.0) | ||||||||
| (2.6) | (0.6) | (11.8) | (10.2) | |||||||||
| Adjusted EBITDA | $ | 26.5 | $ | 19.9 | $ | 72.8 | $ | 64.6 | ||||
| (1) | Reflects a decrease in equity earnings from the investment in Crombie REIT to account for the fair value of Crombie REIT's convertible debentures for the current year and restatement of prior years. |
| (2) | Includes an increase in previously recorded dilution gains as a result of the adjustment to Crombie REIT's equity to account for the fair value of its convertible debentures for the current year and the restatement of prior years. |
Operating Income
Investments and other operations contributed operating income of $25.9 million in the fourth quarter ended May 4, 2013 compared to $16.4 million in the fourth quarter last year, an increase of $9.5 million. For the 52 weeks ended May 4, 2013, investments and other operations' operating income contribution to Empire was $69.5 million compared to $58.5 million last year, an increase of $11.0 million.
Adjusting investments and other operations' operating income for items which are considered not indicative of underlying business operating performance, as presented in the previous table for EBITDA, resulted in an adjusted operating income contribution during the fourth quarter of $23.3 million versus $15.8 million last year. For fiscal 2013, adjusted operating income contribution was $57.7 million compared to $48.3 million last year.
Net Earnings
Investments and other operations contributed $18.3 million to Empire's consolidated fourth quarter fiscal 2013 net earnings compared to $10.9 million last year. Adjusted net earnings contribution from investments and other operations was $16.3 million versus $10.4 million in the fourth quarter last year.
For fiscal 2013, investments and other operations contributed net earnings of $44.9 million to Empire's consolidated net earnings compared to $35.3 million contribution last year. Adjusted net earnings contribution from investments and other operations was $36.3 million versus $28.1 million last year.
CONSOLIDATED FINANCIAL CONDITION
The Company's overall financial condition has improved since the start of the fiscal year as evidenced by the capital structure and key financial condition measures presented in the table below.
| ($ in millions, except per share ratio calculations) | May 4, 2013 | May 5, 2012 | May 7, 2011 | |||||
| Shareholders' equity, net of non-controlling interest | $ | 3,726.2 | |
$ | 3,396.3 | |
$ | 3,162.1 |
| Book value per common share | $ | 54.84 | $ | 49.98 | $ | 46.48 | ||
| Bank indebtedness | $ | 6.0 | $ | 4.4 | $ | - | ||
| Long-term debt, including current portion | $ | 963.5 | $ | 1,126.4 | $ | 1,152.4 | ||
| Funded debt to total capital | 20.6% | 25.0% | 26.7% | |||||
| Net funded debt to net total capital ratio | 12.1% | 15.4% | 14.5% | |||||
| Funded debt to EBITDA | 1.0x | 1.3x | 1.3x | |||||
| EBITDA to interest expense | 17.8x | 14.4x | 11.9x | |||||
| Current assets to current liabilities | 1.0x | 0.9x | 1.1x | |||||
| Total assets | $ | 7,140.1 | $ | 6,913.1 | $ | 6,518.6 | ||
Book value per common share was $54.84 at May 4, 2013 compared to $49.98 at May 5, 2012. The increase in book value in the current fiscal year largely reflects the Company's earnings growth.
The ratio of funded debt to total capital has improved 4.4 percentage points to 20.6 percent from 25.0 percent at the end of fiscal 2012. This improvement is mainly a result of lower consolidated funded debt levels due partially to the repayment of Sobeys' non-revolving term credit facility of $200.0 million and higher shareholders' equity levels due to growth in retained earnings.
Consolidated free cash flow generation in the fourth quarter of fiscal 2013 was $189.3 million compared to $208.4 million generated in the fourth quarter last year. The $19.1 million decrease was due to a $127.9 million decrease in cash flow from operating activities, partially offset by a $56.4 million increase in proceeds on the disposal of property, equipment and investment property and a $52.4 million decrease in property, equipment and investment property purchases.
For the 52 weeks ended May 4, 2013, free cash flow generation was $437.3 million compared to $407.9 million generated last year. The $29.4 million increase in free cash flow was primarily the result of a $70.8 million decrease in property, equipment and investment property purchases, partially offset by a decline in cash flow from operating activities of $26.5 million and a decline in proceeds on the disposal of property, equipment and investment property of $14.9 million.
Free cash flow is used to measure the change in the Company's cash available for additional investing, dividends and/or debt reduction. The following table reconciles free cash flow to GAAP cash flows from operating activities for the 13 and 52 weeks ended May 4, 2013 and the 13 and 52 weeks ended May 5, 2012.
| 13 Weeks Ended | 52 Weeks Ended | ||||||||||
| ($ in millions) | May 4, 2013 | May 5, 2012 | May 4, 2013 | May 5, 2012 | |||||||
| Cash flow from operating activities | $ | 239.5 | $ | 367.4 | $ | 788.1 | $ | 814.6 | |||
| Add: proceeds on disposal of property, equipment and investment property | 81.4 | |
25.0 | |
181.1 | |
196.0 | ||||
| Less: property, equipment and investment property purchases | (131.6) | |
(184.0) | |
(531.9) | |
(602.7) | ||||
| Free cash flow | $ | 189.3 | $ | 208.4 | $ | 437.3 | $ | 407.9 | |||
SUBSEQUENT EVENTS
On June 12, 2013, the Company and Sobeys announced that Sobeys entered in an Asset Purchase Agreement with Safeway Inc. and its subsidiaries to acquire substantially all of the assets and select liabilities of Canada Safeway for a cash purchase price of Cdn. $5.8 billion, subject to a working capital adjustment, plus the assumption of certain liabilities. The agreement provides for the purchase of the following:
- 213 full service grocery stores under the Safeway banner in Western Canada;
- 199 in-store pharmacies;
- 62 co-located fuel stations;
- 10 liquor stores;
- 4 primary distribution centres; and
- 12 manufacturing facilities.
The Company's and Sobeys' announcement included their intention that financing for the acquisition will come from a combination of the following: (i) a planned $1.5 billion Empire equity offering; (ii) a planned $1.0 billion sale-leaseback of acquired real estate assets; (iii) a $1.825 billion term loan and the issuance of $800 million in unsecured notes by Sobeys; (iv) other real estate and non-core asset sales; and (v) available cash on hand. As some of these transactions may not be completed by the time of closing, Scotiabank has provided Empire and Sobeys with fully committed credit facilities for the full purchase price plus transaction expenses required to close the transaction. Crombie REIT has a right of first offer in respect of any real estate sales undertaken by Sobeys. The closing of the acquisition is expected during the Company's second quarter of fiscal 2014, and is subject to the fulfillment or waiver of certain customary closing conditions as well as the receipt of required regulatory approvals, including that of the Competition Bureau.
Acquisition costs of $5.0 million relating to external legal, consulting, due diligence and other closing costs were incurred to May 4, 2013.
On June 27, 2013, the Company announced that Empire Theatres has reached a definitive agreement with Cineplex Inc. for the sale of 24 theatres in Atlantic Canada and 2 theatres in Ontario. Empire Theatres has also reached a separate definitive agreement with Landmark Cinemas for the sale of 20 theatres in Ontario and Western Canada.
The purchase price for the Cineplex transaction is $200 million to be paid in cash, subject to certain adjustments to be made at closing.
The purchase price for the Landmark transaction is approximately $55 million subject to certain adjustments to be made at closing, with the purchase price to be paid as follows: $31 million in cash on closing; $19 million in equity; and an earn out right which management estimates has a potential value of approximately $5 million. Upon closing, the assets will be held by a new entity with Empire Theatres' equity being the controlling interest. The new entity will be consolidated into the Company's financial statements, including $30 million of debt in the new entity. Landmark will manage the business and have a right to buy out Empire Theatres' equity interest for $19 million in cash until December 31, 2013, following which Empire Theatres can agree to sell its equity interest in the entity and require Landmark to sell on the same terms.
Closing of the transaction with Cineplex and also with Landmark is subject to satisfaction of customary conditions and relevant regulatory approvals, which includes approval from the Competition Bureau. Closing of each transaction is expected to occur by late summer of 2013. Empire Theatres is not obligated to close either transaction without closing the other.
FORWARD-LOOKING INFORMATION
This news release contains forward-looking information that reflects management's current expectations related to matters such as future financial performance and operating results of the Company. Expressions such as "anticipates", "expects", "believes", "estimates", "could", "intend", "may", "plans", "will", "would" and other similar expressions or the negative of these terms are generally indicative of forward-looking statements. Forward-looking statements contained in this press release include those relating to our expectations that we will improve our cost structure and productivity which may be impacted by economic and competitive conditions.
By its very nature, forward-looking information requires the Company to make assumptions and is subject to inherent risks and uncertainties which give rise to the possibility that the Company's expectations or objectives will not prove to be accurate. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and risks are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the Risk Management section of the annual Management's Discussion and Analysis report.
Readers are urged to consider these and other risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such forward-looking information. The forward-looking information in this press release reflects the Company's expectations as at June 27, 2013 and is subject to change after this date. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company other than as required by applicable securities laws.
NON-GAAP FINANCIAL MEASURES
There are measures included in this press release that do not have a standardized meaning under GAAP and therefore may not be comparable to similarly titled measures presented by other publicly traded companies. The Company includes these measures because it believes certain investors use these measures as a means of assessing financial performance.
Empire's definition of the non-GAAP terms are as follows:
- Same-store sales are sales from stores in the same location in both reporting periods.
- Gross profit is calculated as sales less cost of sales.
- Gross margin is gross profit divided by sales.
- Operating income, or earnings before interest and taxes ("EBIT"), is calculated as net earnings before non-controlling interest, finance costs (net of finance income) and income taxes.
- Adjusted operating income is operating income excluding items which are considered not indicative of underlying business operating performance.
- Operating income margin is operating income divided by sales.
- Earnings before interest, taxes, depreciation and amortization ("EBITDA") is calculated as operating income plus depreciation and amortization of intangibles.
- Adjusted EBITDA is EBITDA excluding items which are considered not indicative of underlying business operating performance.
- EBITDA margin is EBITDA divided by sales.
- Adjusted net earnings is net earnings excluding items which are considered not indicative of underlying business operating performance.
- Funded debt is all interest bearing debt, which includes bank loans, bankers' acceptances and long-term debt.
- Net funded debt is calculated as funded debt less cash and cash equivalents.
- Total capital is calculated as funded debt plus shareholders' equity, net of non-controlling interest.
- Net total capital is total capital less cash and cash equivalents.
- Book value per common share is shareholders' equity, net of non-controlling interest, divided by total common shares outstanding.
- Free cash flow is calculated as cash flow from operating activities, plus proceeds on disposal of property, equipment and investment property, less property, equipment and investment property purchases.
CONFERENCE CALL INFORMATION
The Company will hold an analyst call on Thursday, June 27, 2013 beginning at 1:00 p.m. (Eastern Daylight Time) during which senior management will discuss the Company's financial results for the fourth quarter ended May 4, 2013. To join this conference call, dial (888) 231-8191 outside the Toronto area or (647) 427-7450 from within the Toronto area. You may also listen to a live audiocast of the conference call by visiting the Company's website located at www.empireco.ca. To secure a line, please call 15 minutes prior to the conference call. You will be placed on hold until the conference call begins. The media and investing public may access this conference call via a listen mode only.
Replay will be available by dialing (855) 859-2056 and entering passcode 96273442 until midnight July 4, 2013, or on the Company's website for 90 days following the conference call.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
To view and download the Company's unaudited consolidated financial statements for the fourth quarter and full year of fiscal 2013 ended May 4, 2013, please access the following link:
Q4 Fiscal 2013 Unaudited Consolidated Financial Statements
This information will be available for download at www.sedar.com or by accessing the Investor Centre of the Company's website at www.empireco.ca.
2013 ANNUAL REPORT
The Company's audited consolidated financial statements and the notes thereto for the fiscal year ended May 4, 2013 and Management's Discussion and Analysis for the year ended May 4, 2013, which includes discussion and analysis of results of operations, financial position and cash flows will be available today, June 27, 2013. These documents can be accessed through the Investor Centre section of the Company's website at www.empireco.ca and also at www.sedar.com.
The Company's 2013 Annual Report will be available on or before August 3, 2013 and can be accessed through the Investor Centre section of the Company's website at www.empireco.ca and also at www.sedar.com.
ABOUT EMPIRE
Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia. Empire's key businesses include food retailing and related real estate. With over $17 billion in annual sales and approximately $7.1 billion in assets, Empire and its subsidiaries directly employ approximately 47,000 people.
Additional financial information relating to Empire, including the Company's Annual Information Form, can be found on the Company's website at www.empireco.ca or at www.sedar.com.
PDF available at: http://stream1.newswire.ca/media/2013/06/27/20130627_C3385_DOC_EN_28594.pdf
SOURCE: EMPIRE COMPANY LIMITED
Paul V. Beesley
Executive Vice President and Chief Financial Officer
(902) 755-4440
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