George Weston Limited Reports 2013 First Quarter Results and Announces 9.2% Dividend Increase(1).
TORONTO, May 7, 2013 /CNW/ - George Weston Limited (TSX: WN) ("GWL") today announced its consolidated unaudited results for the 12 weeks ended March 23, 2013.
The 2013 First 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 12 weeks ended March 23, 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 First Quarter Summary
• Adjusted basic net earnings per common share(2) of $0.88 compared to $0.87 in the first quarter of 2012.
• Adjusted operating income(2) growth of 3.9% to $323 million.
• Sales growth of 3.7% to $7,494 million.
• Quarterly common share dividend increase of 9.2% to $0.415 per common share, which follows a 5.6% increase late last year.
"The first quarter of 2013 delivered strong operating results for George Weston Limited. Our continued focus on enhancing shareholder value is a priority and today we announced a dividend increase - building on the increase announced late last year. Work is well underway on the initial public offering of the Loblaw Real Estate Investment Trust, and I am pleased with the progress", said W. Galen Weston, Executive Chairman, George Weston Limited.
| CONSOLIDATED RESULTS OF OPERATIONS | |||||||||||||||
| (unaudited) | |||||||||||||||
| ($ millions except where otherwise indicated) | 12 Weeks Ended | ||||||||||||||
| For the periods ended as indicated | Mar. 23, 2013 | Mar. 24, 2012(3) | Change | ||||||||||||
| Sales | $ | 7,494 | $ | 7,224 | 3.7 | % | |||||||||
| Operating income | $ | 382 | $ | 274 | 39.4 | % | |||||||||
| Adjusted operating income(2) | $ | 323 | $ | 311 | 3.9 | % | |||||||||
| Adjusted operating margin(2) | 4.3 % | 4.3 % | |||||||||||||
| Adjusted EBITDA(2) | $ | 520 | $ | 495 | 5.1 | % | |||||||||
| Adjusted EBITDA margin(2) | 6.9 % | 6.9 % | |||||||||||||
| Net interest expense and other financing charges | $ | 84 | $ | 50 | 68.0 | % | |||||||||
| Income taxes | $ | 73 | $ | 58 | 25.9 | % | |||||||||
| Net earnings attributable to shareholders of the Company | $ | 162 | $ | 121 | 33.9 | % | |||||||||
| Basic net earnings per common share ($) | $ | 1.19 | $ | 0.87 | 36.8 | % | |||||||||
| Adjusted basic net earnings per common share(2) ($) | $ | 0.88 | $ | 0.87 | 1.1 | % | |||||||||
| Free cash flow(2) | $ | (377) | $ | (388) | 2.8 | % | |||||||||
Pavi Binning, President, George Weston Limited, commented that "We are pleased with the first quarter's operating results. Loblaw delivered positive sales performance while investing in an improved in-store experience and made good progress on the roll-out of its new IT system. Weston Foods achieved performance consistent with the prior year. We anticipate the benefits of growth, marketing and innovation investments to be realized increasingly over the course of the year".
The Company's first quarter 2013 adjusted basic net earnings per common share(2) were $0.88 compared to $0.87 in the same period in 2012, an increase of $0.01. The increase was attributable to the improvement in the operating performance of Loblaw Companies Limited ("Loblaw"), partially offset by a higher effective income tax rate(4).
The Company's basic net earnings per common share were $1.19 compared to $0.87 in the same period in 2012, an increase of $0.32. The increase included the year-over-year favourable net impact of certain items, primarily the impact of certain foreign currency translation, the impact of defined benefit plan amendments and the impact of the forward sale agreement for 9.6 million Loblaw common shares.
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, in the first quarter of 2013, the Company recorded a gain of $51 million and will realize annual pre-tax savings of approximately $14 million related to these defined benefit plan amendments.
The Company uses non-GAAP financial measures. See the "Non-GAAP Financial Measures" section of this News Release for more information on these non-GAAP financial measures.
OPERATING SEGMENTS
| Weston Foods | |||||||||||||
| (unaudited) | 12 Weeks Ended | ||||||||||||
| ($ millions except where otherwise indicated) | Mar. 23, 2013 | Mar. 24, 2012 | |||||||||||
| Sales | $ | 424 | $ | 425 | |||||||||
| Operating income | $ | 48 | $ | 60 | |||||||||
| Adjusted operating income(2) | $ | 59 | $ | 59 | |||||||||
| Adjusted operating margin(2) | 13.9 % | 13.9 % | |||||||||||
| Adjusted EBITDA(2) | $ | 73 | $ | 73 | |||||||||
| Adjusted EBITDA margin(2) | 17.2 % | 17.2 % | |||||||||||
Weston Foods sales in the first quarter of 2013 decreased by 0.2% to $424 million from $425 million and volumes decreased by 1.3% compared to the same period in 2012 largely due to the loss of certain frozen distributed products that Weston Foods distributed on behalf of certain customers in 2012. This loss negatively impacted sales and volume growth by approximately 1.9% and 0.8%, respectively, while foreign currency translation positively impacted sales by approximately 0.3%. Excluding the impact of the loss of certain distributed products and foreign currency translation, sales increased 1.4% mainly due to the positive impact of pricing across key product categories of 1.9%, partially offset by a decrease in volume of 0.5% compared to the same period in 2012.
Weston Foods operating income in the first quarter of 2013 was $48 million compared to $60 million in the same period in 2012, a decrease of $12 million. The decrease was primarily due to the unfavourable year-over-year impact of the change in the fair value adjustment of commodity derivatives of $11 million.
Weston Foods adjusted operating income(2) was $59 million in the first quarters of both 2013 and 2012. Weston Foods adjusted operating margin(2) remained flat at 13.9% compared to the same period in 2012. Adjusted operating income(2) was positively impacted by the benefits realized from productivity improvements and other cost reduction initiatives and higher pricing in key product categories. These benefits were offset by lower sales volumes and investments in growth, marketing and innovation compared to the same period in 2012.
| Loblaw | |||||||||||||
| (unaudited) | 12 Weeks Ended | ||||||||||||
| ($ millions except where otherwise indicated) | Mar. 23, 2013 | Mar. 24, 2012 | |||||||||||
| Sales | $ | 7,202 | $ | 6,937 | |||||||||
| Operating income | $ | 307 | $ | 237 | |||||||||
| Adjusted operating income(2) | $ | 264 | $ | 252 | |||||||||
| Adjusted operating margin(2) | 3.7 % | 3.6 % | |||||||||||
| Adjusted EBITDA(2) | $ | 447 | $ | 422 | |||||||||
| Adjusted EBITDA margin(2) | 6.2 % | 6.1 % | |||||||||||
In the first quarter of 2013, Loblaw showed continued evidence of momentum in its core business, with the fresh-led, customer-focused strategy delivering results. Greater assortment and an improved in-store experience contributed to same-store sales growth and positive trends in tonnage and market share across the country and across all banners.
Loblaw sales in the first quarter of 2013 increased by 3.8% to $7,202 million from $6,937 million in the same period in 2012. Loblaw's Retail segment sales increased by 3.4% and same-store sales growth was 2.8% (2012 - decline of 0.7%), positively impacted by the shift in timing of certain holidays. Sales growth in food and gas bar was strong, sales growth in drugstore was modest, sales in general merchandise, excluding apparel, declined marginally and sales in apparel were flat. Loblaw experienced flat (2012 - modest) average quarterly internal food price inflation during the first quarter of 2013, which was lower than the average quarterly national food price inflation of 1.4% (2012 - 3.7%) as measured by "The Consumer Price Index for Food Purchased from Stores". In the last twelve months, Loblaw opened 20 corporate and franchise stores and closed 12 corporate and franchise stores, resulting in a net increase of 0.2 million square feet, or 0.4%. Loblaw sales in the first 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 first quarter of 2013 was $307 million compared to $237 million in the same period in 2012, an increase of $70 million. The increase was mainly due to the $51 million gain related to the defined benefit plan amendments recorded in the first quarter of 2013 and an increase in adjusted operating income(2) of $12 million as described below.
Loblaw adjusted operating income(2) was $264 million in the first quarter of 2013 compared to $252 million in the same period in 2012. Adjusted operating margin(2) was 3.7% compared to 3.6% in the same period in 2012. The increase in adjusted operating income(2) was primarily attributable to an improvement in the operating performance of Loblaw's Financial Services segment, increased gross profit from Loblaw's Retail segment and lower costs related to the transition of certain Ontario conventional stores to the more cost effective and efficient operating terms of collective agreements ratified in the third quarter of 2010. These increases were partially offset by increased labour associated with higher sales, increased operating costs and the impact of foreign exchange. The increase in Loblaw's Financial Services segment was mainly attributable to higher revenue and lower costs related to the renegotiation of vendor contracts, partially offset by investments in the Mobile Shop business, higher credit card losses on higher receivables balances and higher PC points loyalty costs.
NET INTEREST EXPENSE AND OTHER FINANCING CHARGES
In the first quarter of 2013, net interest expense and other financing charges increased by $34 million to $84 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 an unfavourable year-over-year impact in the first quarter of 2013 of $37 million.
Excluding this impact, net interest expense and other financing charges decreased by $3 million compared to the same period in 2012, primarily due to the decline in net interest on the Company's net defined benefit obligation.
INCOME TAXES
In the first quarter of 2013, income tax expense increased to $73 million from $58 million in the same period in 2012. The effective income tax rate decreased to 24.5% in the first quarter of 2013 from 25.9% 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). The effective income tax rate in the first quarter of 2012 was also impacted by recoveries related to certain prior year income tax matters.
REAL ESTATE INVESTMENT TRUST ("REIT") UPDATE
During the fourth quarter of 2012, the Company announced Loblaw's intention to create a REIT to acquire approximately 35 million square feet of Loblaw's real estate assets. Since that announcement, work has progressed according to plan. Loblaw expects to file a preliminary prospectus for the REIT in late May 2013 and to complete the initial public offering ("IPO") of the REIT in early to mid-July of 2013, subject to prevailing market conditions and receipt of required regulatory approvals, including approval to list the units on the Toronto Stock Exchange. A highly experienced board of trustees has been selected and the senior management team for the REIT is now in place. Approximately 35 million square feet of property with a market value of at least $7 billion will be transferred to the REIT.
OUTLOOK(1)
The outlook reflects the underlying operating performance of the Company's operating segments as discussed below.
For full year 2013, Weston Foods sales growth is expected to be moderate due to a combination of pricing and modest volume growth. Adjusted operating margins(2) are expected to remain in line with 2012 as Weston Foods invests in growth, marketing and innovation. The benefits from these investments are expected to be realized increasingly over the course of the year.
Over the past several quarters, Loblaw has strengthened its customer proposition and made significant progress with its information technology ("IT") infrastructure implementation. These initiatives, with investments in price, assortment and labour are expected to be offset by operating efficiencies. Investment in infrastructure programs will continue as the IT system is rolled out to distribution centres and stores, with associated expenses flat to 2012. Sales growth in 2013 will be moderated by a competitive environment characterized by ongoing square footage expansions, a new competitor's entry into the market and generic drug deflation. As a result, Loblaw expects modest growth in adjusted operating income(2) in 2013, excluding the impact of the $61 million restructuring charge recorded in the fourth quarter of 2012, the impact of the previously announced plan to launch an IPO of a new REIT, and the $51 million gain recorded in the first quarter of 2013 associated with amendments to certain defined benefit plans.
Over the long term, Loblaw still expects positive same-store sales, a decline in IT and supply chain costs, and a moderation of capital expenditures. This should result in growth in adjusted operating income(2), adjusted EBITDA(2) and an increase in free cash flow(2).
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 statements with respect to anticipated future results are included in the "Outlook" section of this News Release. 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.
Numerous risks and uncertainties could cause the Company's actual results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking statements, including, but not limited to:
- failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies from the Company's major initiatives, including those from restructuring;
- failure to realize benefits from investments in the Company's IT systems, including the Company's systems implementation, or unanticipated results from these initiatives;
- the inability of the Company's IT infrastructure to support the requirements of the Company's business;
- unanticipated results associated with the Company's strategic initiatives and the impact of acquisitions or dispositions of businesses on the Company's future revenues and earnings;
- heightened competition, whether from current competitors or new entrants to the marketplace;
- changes in economic conditions including the rate of inflation or deflation, changes in interest and foreign currency exchange rates and changes in derivative and commodity prices;
- public health events;
- risks associated with product defects, food safety and product handling;
- failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements which could lead to work stoppages;
- the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink;
- the impact of potential environmental liabilities;
- failure to respond to changes in consumer tastes and buying patterns;
- reliance on the performance and retention of third-party service providers including those associated with the Company's supply chain and apparel business;
- supply and quality control issues with vendors;
- changes to the regulation of generic prescription drug prices and the reduction of reimbursement under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
- changes in the Company's income, commodity, other tax and regulatory liabilities including changes in tax laws, regulations or future assessments;
- any requirement of the Company to make contributions to its registered funded defined benefit pension plans or the multi-employer pension plans in which it participates in excess of those currently contemplated;
- the risk that the Company would experience a financial loss if its counterparties fail to meet their obligations in accordance with the terms and conditions of their contracts with the Company;
- the inability of Loblaw to collect on its credit card receivables; and
- failure to execute the IPO of Loblaw's proposed REIT.
This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including the "Enterprise Risks and Risk Management" section of the MD&A included in the Company's 2013 First Quarter Report to Shareholders and Section 13, "Enterprise Risks and Risk Management", of the MD&A included in the Company's 2012 Annual Report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Company's expectations only as of the date of this News Release. 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, adjusted basic net earnings per common share and free cash flow. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below.
Certain expenses and income that must be recognized under GAAP are not necessarily reflective of the Company's underlying operating performance. For this reason, management uses certain non-GAAP financial measures to exclude the impact of these items when analyzing consolidated and segment underlying operating performance. These non-GAAP financial measures are also helpful in assessing underlying operating performance on a consistent basis.
From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring. Loblaw does not report its results of operations on an adjusted basis, however the Company excludes the impact of certain Loblaw items, as applicable, when reporting its consolidated and segment results.
These non-GAAP financial measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and they should not be construed as an alternative to other financial measures determined in accordance with GAAP.
Adjusted Operating Income and Adjusted EBITDA
The Company believes adjusted operating income is useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business. The Company believes adjusted EBITDA is also useful in assessing the underlying operating performance of the Company's ongoing operations and in assessing the Company's ability to generate cash flows to fund its cash requirements, including its capital investment program.
The following table reconciles adjusted operating income and adjusted EBITDA to GAAP net earnings attributable to shareholders of the Company reported for the periods ended as indicated.
| 12 Weeks Ended | ||||||||||||||||||||||||||||
| Mar. 23, 2013 | Mar. 24, 2012(1) | |||||||||||||||||||||||||||
| (unaudited) ($ millions) |
Weston Foods |
Loblaw | Other(2) | Consolidated | Weston Foods |
Loblaw | Other(2) | Consolidated | ||||||||||||||||||||
| Net earnings attributable to shareholders of the Company | $ | 162 | $ | 121 | ||||||||||||||||||||||||
| Add impact of the following: | ||||||||||||||||||||||||||||
| Non-controlling interests | 63 | 45 | ||||||||||||||||||||||||||
| Income taxes | 73 | 58 | ||||||||||||||||||||||||||
| Net interest expense and other financing charges | 84 | 50 | ||||||||||||||||||||||||||
| Operating income (loss) | $ | 48 | $ | 307 | $ | 27 | $ | 382 | $ | 60 | $ | 237 | $ | (23) | $ | 274 | ||||||||||||
| Add (deduct) impact of the following: | ||||||||||||||||||||||||||||
| Restructuring and other charges(3) | 1 | 1 | 1 | 3 | 4 | |||||||||||||||||||||||
| Fair value adjustment of commodity derivatives at Weston Foods | 8 | 8 | (3) | (3) | ||||||||||||||||||||||||
| Share-based compensation net of equity derivatives | 2 | 8 | 10 | 1 | 12 | 13 | ||||||||||||||||||||||
| Defined benefit plan amendments | (51) | (51) | ||||||||||||||||||||||||||
| Foreign currency translation (gain) loss | (27) | (27) | 23 | 23 | ||||||||||||||||||||||||
| Adjusted operating income | $ | 59 | $ | 264 | $ | $ | 323 | $ | 59 | $ | 252 | $ | $ | 311 | ||||||||||||||
| Depreciation and amortization | 14 | 183 | 197 | 14 | 170 | 184 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 73 | $ | 447 | $ | $ | 520 | $ | 73 | $ | 422 | $ | $ | 495 | ||||||||||||||
| (1) | Certain 2012 figures have been restated due to the implementation of revised IAS 19, "Employee Benefits". See note 2 of the Company's condensed consolidated financial statements included in the 2013 First Quarter Report to Shareholders. |
| (2) | Operating income in the first quarter of 2013 included a gain of $27 million (2012 - loss of $23 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. |
| (3) | Restructuring and other charges included $1 million (2012 - nil) of accelerated depreciation incurred by Weston Foods. Restructuring and other charges at Loblaw in the first quarter of 2012 of $3 million related to changes in Loblaw's distribution network. |
The year-over-year changes in the following items influenced operating income in the first quarter of 2013:
Restructuring and other charges The Company continuously evaluates strategic and cost reduction initiatives related to its store infrastructure, manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure. Restructuring activities related to these initiatives are ongoing. The details of restructuring and other charges are included in the "Reportable Operating Segments" section of the MD&A included in the Company's 2013 First Quarter Report to Shareholders.
Fair value adjustment of commodity derivatives at Weston Foods Weston Foods is exposed to commodity price fluctuations primarily as a result of purchases of certain raw materials, fuels and utilities. In accordance with the Company's risk management policy, Weston Foods enters into commodity derivatives to reduce the impact of price fluctuations in forecasted raw material purchases over a specified period of time. These commodity derivatives are not acquired for trading or speculative purposes. 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 2013, Weston Foods recorded a charge of $8 million (2012 - income of $3 million) related to the fair value adjustment of exchange traded commodity derivatives. Despite the impact of accounting for these commodity derivatives on the Company's reported results, the derivatives have the economic impact of largely mitigating the associated risks arising from price fluctuations in the underlying commodities during the period that the commodity derivatives are held.
Share-based compensation net of equity derivatives GWL and Glenhuron Bank Limited ("Glenhuron") held equity derivatives to partially hedge the impact of increases in the value of GWL and Loblaw common shares on share-based compensation cost. The amount of net share-based compensation cost recorded in operating income has historically been mainly dependent upon changes in the value of GWL and Loblaw common shares and the number and vesting of Restricted Share Units ("RSUs") and Performance Share Units ("PSUs") relative to the number of common shares underlying the equity derivatives. In the first quarter of 2013, GWL and Glenhuron settled their remaining equity derivative contracts and the RSU and PSU plans were amended to require settlement in common shares rather than in cash. As a result of the settlements and plan amendments, the components of share-based compensation and their exposure to changes in the value of GWL and Loblaw common shares have changed. In order to assess consolidated and segment operating performance on a consistent basis, management continues to exclude the impact of share-based compensation from operating income. In the first quarter of 2013, a charge of $10 million (2012 - $13 million) was recorded related to share-based compensation net of equity derivatives.
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 and will realize annual pre-tax savings of approximately $14 million related to these defined benefit plan amendments.
Foreign currency translation gains and losses 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 2013, a foreign currency translation gain of $27 million (2012 - loss of $23 million) was recorded in operating income as a result of the depreciation (2012 - appreciation) of the Canadian dollar.
Adjusted Basic Net Earnings per Common Share
The Company believes adjusted basic net earnings per common share is useful in assessing the Company's underlying operating performance and in making decisions regarding the ongoing operations of its business.
The following table reconciles adjusted basic net earnings per common share to GAAP basic net earnings per common share reported for the periods ended as indicated.
| (unaudited) | 12 Weeks Ended | |||||||||
| ($) | Mar. 23, 2013 | Mar. 24, 2012(1) | ||||||||
| Basic net earnings per common share | $ | 1.19 | $ | 0.87 | ||||||
| Add (Deduct) impact of the following(2): | ||||||||||
| Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares | (0.03) | (0.25) | ||||||||
| Restructuring and other charges | 0.01 | 0.02 | ||||||||
| Fair value adjustment of commodity derivatives at Weston Foods | 0.05 | (0.02) | ||||||||
| Share-based compensation net of equity derivatives | 0.05 | 0.07 | ||||||||
| Defined benefit plan amendments | (0.18) | |||||||||
| Foreign currency translation (gain) loss | (0.21) | 0.18 | ||||||||
| Adjusted basic net earnings per common share | $ | 0.88 | $ | 0.87 | ||||||
| (1) | Certain 2012 figures have been restated due to the implementation of revised IAS 19, "Employee Benefits". See note 2 of the Company's condensed consolidated financial statements included in the 2013 First Quarter Report to Shareholders. |
| (2) | 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 item also influenced basic net earnings per common share in the first quarter of 2013:
Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares The fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares is non-cash and is included in consolidated net interest expense and other financing charges. The adjustment is determined by changes in the value of the underlying Loblaw common shares. The first quarter year-over-year decrease in income related to the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares was $0.22 per common share and was attributable to a smaller decrease in the market price of Loblaw common shares in 2013 compared to 2012.
Free Cash Flow
In the first quarter of 2013, the Company refined its definition of free cash flow as calculated below. The Company believes that this definition of free cash flow is the appropriate measure in assessing the Company's cash available for additional funding and investing activities.
The following table reconciles free cash flow to GAAP measures reported for the periods ended as indicated.
| (unaudited) | 12 Weeks Ended | ||||||||||
| ($ millions) | Mar. 23, 2013 | Mar. 24, 2012 | |||||||||
| Cash flows used in operating activities | $ | (20) | $ | (38) | |||||||
| Net decrease in credit card receivables | (130) | (114) | |||||||||
| Less: | Interest paid | 93 | 92 | ||||||||
| Fixed asset purchases | 134 | 144 | |||||||||
| Free cash flow | $ | (377) | $ | (388) | |||||||
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 2013 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 2012 Annual Report and 2013 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
| (unaudited) | 12 Weeks Ended | |||||||||||
| (millions of Canadian dollars except where otherwise indicated) | Mar. 23, 2013 | Mar. 24, 2012(3) | ||||||||||
| Revenue | $ | 7,494 | $ | 7,224 | ||||||||
| Operating Expenses | ||||||||||||
| Cost of inventories sold | 5,625 | 5,422 | ||||||||||
| Selling, general and administrative expenses | 1,487 | 1,528 | ||||||||||
| 7,112 | 6,950 | |||||||||||
| Operating Income | 382 | 274 | ||||||||||
| Net Interest Expense and Other Financing Charges | 84 | 50 | ||||||||||
| Earnings Before Income Taxes | 298 | 224 | ||||||||||
| Income Taxes | 73 | 58 | ||||||||||
| Net Earnings | 225 | 166 | ||||||||||
| Attributable to: | ||||||||||||
| Shareholders of the Company | 162 | 121 | ||||||||||
| Non-Controlling Interests | 63 | 45 | ||||||||||
| Net Earnings | $ | 225 | $ | 166 | ||||||||
| Net Earnings per Common Share ($) | ||||||||||||
| Basic | $ | 1.19 | $ | 0.87 | ||||||||
| Diluted | $ | 1.18 | $ | 0.87 | ||||||||
Condensed Consolidated Balance Sheets
| (unaudited) | As at | ||||||||||||||||
| (millions of Canadian dollars) | Mar. 23, 2013 | Mar. 24, 2012(3) | Dec. 31, 2012(3) | ||||||||||||||
| ASSETS | |||||||||||||||||
| Current Assets | |||||||||||||||||
| Cash and cash equivalents | $ | 975 | $ | 1,134 | $ | 1,589 | |||||||||||
| Short term investments | 2,415 | 2,221 | 2,138 | ||||||||||||||
| Accounts receivable | 648 | 549 | 559 | ||||||||||||||
| Credit card receivables | 2,175 | 1,987 | 2,305 | ||||||||||||||
| Inventories | 2,057 | 2,027 | 2,132 | ||||||||||||||
| Income taxes recoverable | 12 | 52 | 37 | ||||||||||||||
| Prepaid expenses and other assets | 116 | 129 | 83 | ||||||||||||||
| Assets held for sale | 35 | 18 | 30 | ||||||||||||||
| Total Current Assets | 8,433 | 8,117 | 8,873 | ||||||||||||||
| Fixed Assets | 9,410 | 9,135 | 9,452 | ||||||||||||||
| Investment Properties | 95 | 95 | 100 | ||||||||||||||
| Goodwill and Intangible Assets | 1,583 | 1,545 | 1,571 | ||||||||||||||
| Deferred Income Taxes | 302 | 300 | 316 | ||||||||||||||
| Security Deposits | 302 | 348 | 348 | ||||||||||||||
| Franchise Loans Receivable | 372 | 352 | 363 | ||||||||||||||
| Other Assets | 736 | 831 | 781 | ||||||||||||||
| Total Assets | $ | 21,233 | $ | 20,723 | $ | 21,804 | |||||||||||
| LIABILITIES | |||||||||||||||||
| Current Liabilities | |||||||||||||||||
| Trade payables and other liabilities | $ | 3,350 | $ | 3,263 | $ | 3,937 | |||||||||||
| Provisions | 109 | 65 | 123 | ||||||||||||||
| Short term debt | 1,330 | 1,290 | 1,319 | ||||||||||||||
| Long term debt due within one year | 972 | 82 | 672 | ||||||||||||||
| Total Current Liabilities | 5,761 | 4,700 | 6,051 | ||||||||||||||
| Provisions | 98 | 91 | 94 | ||||||||||||||
| Long Term Debt | 5,965 | 6,753 | 6,261 | ||||||||||||||
| Deferred Income Taxes | 160 | 175 | 160 | ||||||||||||||
| Other Liabilities | 825 | 996 | 943 | ||||||||||||||
| Capital Securities | 223 | 222 | 223 | ||||||||||||||
| Total Liabilities | 13,032 | 12,937 | 13,732 | ||||||||||||||
| EQUITY | |||||||||||||||||
| Share Capital | 952 | 950 | 953 | ||||||||||||||
| Contributed Surplus | 35 | 19 | 28 | ||||||||||||||
| Retained Earnings | 4,810 | 4,585 | 4,736 | ||||||||||||||
| Accumulated Other Comprehensive Loss | (9) | (25) | (24) | ||||||||||||||
| Total Equity Attributable to Shareholders of the Company | 5,788 | 5,529 | 5,693 | ||||||||||||||
| Non-Controlling Interests | 2,413 | 2,257 | 2,379 | ||||||||||||||
| Total Equity | 8,201 | 7,786 | 8,072 | ||||||||||||||
| Total Liabilities and Equity | $ | 21,233 | $ | 20,723 | $ | 21,804 | |||||||||||
Condensed Consolidated Statements of Cash Flow
| (unaudited) | 12 Weeks Ended | |||||||||||
| (millions of Canadian dollars) | Mar. 23, 2013 | Mar. 24, 2012(3) | ||||||||||
| Operating Activities | ||||||||||||
| Net earnings | $ | 225 | $ | 166 | ||||||||
| Income taxes | 73 | 58 | ||||||||||
| Net interest expense and other financing charges | 84 | 50 | ||||||||||
| Depreciation and amortization | 198 | 184 | ||||||||||
| Foreign currency translation (gain) loss | (27) | 23 | ||||||||||
| Gain on defined benefit plan amendments | (51) | |||||||||||
| Income taxes paid | (52) | (73) | ||||||||||
| Interest received | 13 | 9 | ||||||||||
| Settlement of equity derivative contracts | (45) | |||||||||||
| Change in credit card receivables | 130 | 114 | ||||||||||
| Change in non-cash working capital | (570) | (580) | ||||||||||
| Fixed assets and other related impairments | 3 | |||||||||||
| Gain on disposal of assets | (1) | |||||||||||
| Other | 3 | 8 | ||||||||||
| Cash Flows used in Operating Activities | (20) | (38) | ||||||||||
| Investing Activities | ||||||||||||
| Fixed asset purchases | (134) | (144) | ||||||||||
| Change in short term investments | (235) | 103 | ||||||||||
| Business acquisition | (9) | |||||||||||
| Proceeds from fixed asset sales | 2 | 1 | ||||||||||
| Change in franchise investments and other receivables | 8 | (17) | ||||||||||
| Change in security deposits | 49 | 14 | ||||||||||
| Intangible asset additions | (9) | |||||||||||
| Other | (3) | |||||||||||
| Cash Flows used in Investing Activities | (331) | (43) | ||||||||||
| Financing Activities | ||||||||||||
| Change in bank indebtedness | (4) | |||||||||||
| Change in short term debt | 11 | 10 | ||||||||||
| Long term debt | - Issued | 10 | 23 | |||||||||
| - Retired | (26) | (29) | ||||||||||
| Share capital | - Purchased and held in trust | (15) | ||||||||||
| - Retired | (42) | |||||||||||
| Subsidiary share capital | - Issued | 11 | 2 | |||||||||
| - Purchased and held in trust | (46) | |||||||||||
| - Retired | (2) | |||||||||||
| Interest paid | (93) | (92) | ||||||||||
| Dividends | - To common shareholders | (49) | (46) | |||||||||
| - To preferred shareholders | (11) | (11) | ||||||||||
| - To minority shareholders | (23) | |||||||||||
| Cash Flows used in Financing Activities | (273) | (149) | ||||||||||
| Effect of foreign currency exchange rate changes on cash and cash equivalents | 10 | (8) | ||||||||||
| Change in Cash and Cash Equivalents | (614) | (238) | ||||||||||
| Cash and Cash Equivalents, Beginning of Period | 1,589 | 1,372 | ||||||||||
| Cash and Cash Equivalents, End of Period | $ | 975 | $ | 1,134 | ||||||||
Footnote Legend:
| (1) | 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 conclusions, 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. |
| (2) | See non-GAAP financial measures. |
| (3) | Certain 2012 figures have been restated due to the implementation of revised IAS 19, "Employee Benefits". See note 2 of the Company's condensed consolidated financial statements included in the 2013 First Quarter Report to Shareholders. |
| (4) | Effective income tax rate excludes the tax impact of items excluded from adjusted basic net earnings per common share(2). |
2013 FIRST QUARTER REPORT TO SHAREHOLDERS
The Company's 2012 Annual Report and 2013 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, Financial Control and Investor Relations, at the Company's Executive Office or by e-mail at [email protected].
Additional financial information has been filed electronically with the Canadian securities regulatory authorities in Canada through SEDAR. This News Release includes selected information on Loblaw Companies Limited, a 63.1%-owned public reporting subsidiary company with shares trading on the Toronto Stock Exchange. For information regarding Loblaw, readers should also refer to the materials filed by Loblaw with the Canadian securities regulatory authorities from time to time. These filings are also maintained at Loblaw's corporate website at www.loblaw.ca.
CONFERENCE CALL AND WEBCAST PRESENTATION
George Weston Limited will host a conference call as well as an audio webcast on Tuesday, May 7, 2013 at 11:00 a.m. (EST). To access via tele-conference, please dial (647) 427-7450. The playback will be available two hours after the event at (416) 849-0833, passcode: 27675018#. 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 Thursday, May 9, 2013 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: 29581945#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.
SOURCE: George Weston Limited
Mr. Geoffrey H. Wilson, Senior Vice President, Financial Control and Investor Relations, at the Company's Executive Office or by e-mail at [email protected].
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