TORONTO, May 10, 2016 /CNW/ - George Weston Limited (TSX: WN) ("GWL" or the "Company") today announced its consolidated unaudited results for the 12 weeks ended March 26, 2016.

GWL's 2016 First Quarter Report to Shareholders has been filed with SEDAR and is available at sedar.com and in the Investor Centre section of the Company's website at weston.ca.

"Both of the Company's operating segments continued to execute on their strategic priorities in the first quarter of 2016. We remain confident in the Company's ability to deliver long term growth and profitability and today George Weston Limited announced a dividend increase for the fourth consecutive year", said W. Galen Weston, Executive Chairman, George Weston Limited.

2016 FIRST QUARTER HIGHLIGHTS

Pavi Binning, President and Chief Executive Officer, George Weston Limited, commented that "George Weston Limited's first quarter results came in as expected. Loblaw continued to execute against its financial plan and remains confident in its ability to fund growth initiatives despite a highly competitive retail environment and the continued pressure of healthcare reform. Weston Foods delivered sales growth and results in line with expectations as it continued to invest in the business and execute on its priorities".

CONSOLIDATED RESULTS OF OPERATIONS

Adjusted net earnings available to common shareholders of the Company⁽¹⁾ increased by $16 million ($0.12 per common share) to $168 million ($1.31 per common share) in the first quarter of 2016 compared to the same period in 2015. The improvement was primarily due to an increase in Loblaw Companies Limited ("Loblaw") earnings, driven by the results of its Retail segment including the positive contribution from incremental net synergies.

Net earnings available to common shareholders of the Company decreased by $120 million ($0.94 per common share) to $37 million ($0.29 per common share) in the first quarter of 2016 compared to the same period in 2015. The decrease in net earnings available to common shareholders of the Company was as a result of the increase in operating performance, as described above, being more than offset by the unfavourable year-over-year impact of the following significant items:

• the unfavourable impact of foreign currency translation losses of $77 million ($0.53 per common share); and
• the unfavourable impact of an increase in net interest expense and other financing charges primarily due to the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of $85 million ($0.48 per common share).

REPORTABLE OPERATING SEGMENTS

Weston Foods Segment Results

Sales  Weston Foods sales in the first quarter of 2016 were $562 million, an increase of $58 million, or 11.5%, compared to the same period in 2015. Sales included the positive impact of foreign currency translation of approximately 6.7%. Excluding the impact of foreign currency translation, sales increased by 4.8% primarily due to an increase in volumes and the combined positive impact of pricing and changes in sales mix. The timing of Easter had a nominal impact when compared to 2015.

Adjusted EBITDA⁽¹⁾  Weston Foods adjusted EBITDA⁽¹⁾ in the first quarter of 2016 was flat at $63 million, compared to the same period in 2015. The positive impact of the increase in sales and productivity improvements was offset by higher input costs, continued investments in the business and new plant costs.

Adjusted EBITDA margin⁽¹⁾ in the first quarter of 2016 was 11.2% compared to 12.5% in the same period in 2015. The decline in adjusted EBITDA margin⁽¹⁾ in the first quarter of 2016 was due to incremental investments in the business and new plant costs.

Depreciation and Amortization  Weston Foods depreciation and amortization was $27 million in the first quarter of 2016, an increase of $9 million compared to the same period in 2015. Depreciation and amortization included $6 million (2015 – nil) of accelerated depreciation related to the planned closures of pie and cake manufacturing facilities. Excluding this amount, depreciation and amortization increased $3 million due to investments in capital.

Weston Foods Other Business Matters

Restructuring  Weston Foods continuously evaluates strategic and cost reduction initiatives related to its 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 and in the first quarter of 2016, Weston Foods recorded restructuring and other charges of $9 million (2015 – $4 million), including $6 million (2015 – nil) of accelerated depreciation. These charges primarily relate to restructuring plans to close manufacturing facilities in Canada and the United States ("U.S.") with production transferring to other facilities.

Loblaw Segment Results

Overall Loblaw Performance  Loblaw adjusted EBITDA⁽¹⁾ increased by $40 million in the first quarter of 2016 compared to the same period in 2015, primarily driven by Retail. Retail adjusted EBITDA⁽¹⁾ growth was driven by higher sales, including the positive impact of Easter, incremental net synergies, an increase in Retail gross profit rate and improvements in selling, general and administrative expenses ("SG&A") excluding the impact of consolidated franchises. Retail adjusted EBITDA⁽¹⁾ included the positive impact of $28 million in incremental net synergies.

Sales  Loblaw sales in the first quarter of 2016 were $10,381 million, an increase of $333 million compared to the same period in 2015, primarily driven by Retail. Retail sales increased by $324 million, or 3.3%, compared to the same period in 2015 and included food retail sales of $7,390 million (2015 – $7,234 million) and drug retail sales of $2,764 million (2015 – $2,596 million).

The increase in Retail sales was primarily due to the following factors:

• food retail same-store sales growth was 2.0%. The timing of Easter had a positive impact of approximately 1.0%. Loblaw's food retail average quarterly internal food price index was moderately higher than the average quarterly national food price inflation of 4.3% as measured by "The Consumer Price Index for Food Purchased from Stores" ("CPI"). CPI does not necessarily reflect the effect of inflation on the specific mix of goods sold in Loblaw stores;
• drug retail same-store sales growth was 6.3%, including same-store pharmacy sales growth of 4.2% and front store same-store sales growth of 8.2%. The timing of Easter had a positive impact on front store same-store sales of approximately 1.9%; and
• in the last 12 months, there was a decrease in Retail net square footage of 0.2 million square feet, or 0.3%, primarily driven by Loblaw's store closure plan announced in 2015.

Retail gross profit and adjusted EBITDA⁽¹⁾ in the first quarter of 2016 included the impacts related to the franchises consolidated in the quarter, as set out in "Loblaw Other Business Matters".

Retail Gross Profit  Loblaw Retail gross profit in the first quarter of 2016 was $2,776 million, an increase of $152 million compared to the same period in 2015 and included the unfavourable year-over-year impact of a charge of $1 million related to restructuring and other charges.

Excluding this impact, Retail gross profit increased $153 million to $2,777 million. Retail gross profit percentage was 27.3%, an increase of 60 basis points compared to the same period in 2015. Excluding the consolidation of franchises, Retail gross profit percentage was 26.9%, an increase of 20 basis points compared to the same period in 2015 driven by the achievement of operational synergies and an increase in underlying Retail gross margin, partially offset by the impact of healthcare reform.

Adjusted EBITDA⁽¹⁾  Loblaw adjusted EBITDA⁽¹⁾ in the first quarter of 2016 was $827 million, an increase of $40 million compared to the same period in 2015, primarily driven by Retail. Retail adjusted EBITDA⁽¹⁾ increased $41 million driven by an increase in Retail gross profit, as described above, partially offset by an increase in Retail SG&A of $112 million. Retail SG&A as a percentage of sales was 19.6%, an increase of 40 basis points compared to the first quarter of 2015. Excluding the consolidation of franchises, as a percentage of sales, SG&A was 19.1%, an improvement of 10 basis points compared to the same period in 2015 with higher store and store support costs being more than offset by the achievement of operational synergies and favourable foreign exchange impacts.

Depreciation and Amortization  Loblaw's depreciation and amortization was $368 million in the first quarter of 2016, a decrease of $2 million compared to the same period in 2015, and included $124 million (2015 – $124 million) of amortization of intangible assets related to the acquisition of Shoppers Drug Mart. The decline in depreciation and amortization was driven by lower depreciation on older supply chain assets.

Loblaw Other Business Matters

Consolidation of Franchises   As at the end of the first quarter of 2016, Loblaw consolidated 115 franchise stores, which included 30 additional franchises and 85 stores consolidated in 2015. Loblaw recorded the incremental impact of the 115 consolidated franchise stores as follows:

Loblaw operates more than 500 franchise stores, including the 115 consolidated franchise stores, under the new and existing franchise agreements. Loblaw will continue to convert franchises to the new, simplified franchise agreement as the existing agreements expire.

OUTLOOK⁽²⁾

Weston Foods expects sales growth generated by new capacity and productivity improvements to drive an increase in adjusted EBITDA⁽¹⁾ in 2016 when compared to 2015. The increase in adjusted EBITDA⁽¹⁾ is expected to be greater in the second half of the year as new plant capacity and capability come on-line. Depreciation is projected to increase in 2016 when compared to 2015, and largely offset the improvement in adjusted EBITDA⁽¹⁾. Management expects to make capital investments of approximately $300 million in 2016.

Loblaw remains focused on its strategic framework, delivering the best in food, best in health and beauty, operational excellence and growth. This strategic framework is supported by a financial strategy of maintaining a stable trading environment that targets positive same-store sales and stable gross margin; surfacing efficiencies; delivering synergies as a result of its acquisition of Shoppers Drug Mart; and returning capital to shareholders. In 2016, Loblaw expects to:

• deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive grocery market and with continued negative pressure from healthcare reform;
• grow adjusted net earnings;
• invest approximately $1.3 billion in capital expenditures, including $1.0 billion in its Retail segment; and
• return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.

For 2016, the Company expects growth in net earnings to be driven by an increase in net earnings at Loblaw, and the positive impact of the Company's increased ownership in Loblaw as a result of Loblaw's share repurchases.

DECLARATION OF QUARTERLY DIVIDENDS

Subsequent to the end of the first quarter of 2016, the Company's Board of Directors declared a quarterly dividend on GWL Common Shares, Preferred Shares, Series I, Preferred Shares, Series III, Preferred Shares, Series IV and Preferred Shares, Series V payable as follows:

NON-GAAP FINANCIAL MEASURES

The Company uses the following non-GAAP financial measures: EBITDA, adjusted EBITDA and adjusted EBITDA margin, adjusted net earnings attributable to shareholders of the Company, adjusted net earnings available to common shareholders of the Company and adjusted diluted net earnings per common share. In addition to these items, the following measures are used by management in calculating adjusted diluted net earnings per common share: adjusted net interest expense and other financing charges, adjusted income taxes and adjusted income tax rate. The Company believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below.

Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under GAAP when analyzing consolidated and segment underlying operating performance. The excluded items are not necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.

These measures do not have a standardized meaning prescribed by GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies, and they should not be construed as an alternative to other financial measures determined in accordance with GAAP.

For details on the nature of items excluded in the calculation of any of the non-GAAP financial measures detailed below, see the "Non-GAAP Financial Measures" section of the Company's First Quarter 2016 Report to Shareholders.

EBITDA and Adjusted EBITDA  The Company believes adjusted EBITDA is useful in assessing and making decisions regarding 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 EBITDA and adjusted EBITDA to operating income, which is reconciled to GAAP net earnings attributable to shareholders of the Company reported for the periods ended as indicated.

The following new item impacted operating income in the first quarter of 2016:

Prior year tax assessment  In the first quarter of 2016, the province of Ontario enacted retroactive amendments to the Land Transfer Tax Act. The amendments were applicable to land transfer activities between related parties that occurred on or after July 19, 1989. The amendments impacted certain land transfers between Loblaw and Choice Properties Real Estate Investment Trust at the time of the initial public offering, resulting in a charge to SG&A in the first quarter of 2016.

Adjusted Net Interest Expense and Other Financing Charges  The Company believes adjusted net interest expense and other financing charges is useful in assessing the ongoing net financing costs of the Company.

The following table reconciles adjusted net interest expense and other financing charges to GAAP net interest expense and other financing charges reported for the periods ended as indicated.

Adjusted Income Taxes and Adjusted Income Tax Rate  The Company believes the adjusted income tax rate applicable to adjusted earnings before taxes is useful in assessing the underlying operating performance of its business.

The following table reconciles the effective income tax rate applicable to adjusted earnings before taxes to the GAAP effective income tax rate applicable to earnings before taxes as reported for the periods ended as indicated.

The following new item impacted incomes taxes in the first quarter of 2016:

Statutory corporate income tax rate change  The Company's deferred income tax assets and liabilities are impacted by changes to provincial and federal statutory corporate income tax rates resulting in a charge or benefit to earnings. The Company implements changes in the statutory corporate income tax rate in the same period the change is substantively enacted by the legislative body. In the first quarter of 2016, the government of New Brunswick announced an increase to the statutory corporate income tax rate from 12% to 14% effective April 1, 2016 which was enacted in the first quarter of 2016. As a result, Loblaw recorded a charge related to the remeasurement of deferred tax assets and liabilities.

Adjusted Diluted Net Earnings per Common Share and Adjusted Net Earnings  The Company believes adjusted diluted net earnings per common share and adjusted net earnings are 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 diluted net earnings per common share and adjusted net earnings to GAAP diluted net earnings per common share reported for the periods ended as indicated.

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, events and plans, synergies and other anticipated benefits associated with the acquisition of Shoppers Drug Mart, and planned capital investments. These specific forward-looking statements are contained throughout this News Release including, without limitation, 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", "maintain", "achieve", "grow", 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 2016 is based on certain assumptions including assumptions about sales and volume growth, anticipated cost savings, operating efficiencies, and continued growth from current initiatives. The Company's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. The Company can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

Numerous risks and uncertainties could cause the Company's actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in the "Enterprise Risks and Risk Management" section of the Management's Discussion and Analysis in the Company's 2015 Annual Report and the Company's Annual Information Form ("AIF") for the year ended December 31, 2015. Such risks and uncertainties include:

• changes to the regulation of generic prescription drug prices, the reduction of reimbursements under public drug benefit plans and the elimination or reduction of professional allowances paid by drug manufacturers;
• the inability of the Company's information technology ("IT") infrastructure to support the requirements of the Company's business, or the occurrence of any internal or external security breaches, denial of service attacks, viruses, worms and other known or unknown cybersecurity or data breaches;
• failure to realize benefits from investments in Loblaw's new IT systems;
• the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink;
• public health events including those related to food and drug safety;
• failure by Loblaw to realize the anticipated strategic benefits associated with the acquisition of Shoppers Drug Mart;
• the inability of the Company to effectively develop and execute its strategy;
• failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies associated with the Company's major initiatives, including those from restructuring;
• failure by Loblaw's franchisees or Shoppers Drug Mart licensees ("Associates") to operate in accordance with prescribed procedures or standards, or disruptions to Loblaw's relationship with its franchisees or Associates;
• failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements, which could lead to work stoppages;
• changes in the Company's income, capital, commodity, property and other tax and regulatory liabilities, including changes in tax laws, regulations or future assessments;
• reliance on the performance and retention of third-party service providers, including those associated with the Company's supply chain and Loblaw's apparel business;
• issues with vendors in both advanced and developing markets;
• 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;
• failure to merchandise effectively or in a manner that is responsive to customer demand;
• heightened competition, whether from current competitors or new entrants to the marketplace;
• the inability of the Company to anticipate, identify and react to consumer and retail trends;
• changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates, changes in interest rates, currency exchange rates and derivative and commodity prices;
• the impact of potential environmental liabilities; and
• the inability of Loblaw to collect on or fund its credit card receivables.

This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including without limitation, the section entitled "Operating and Financial Risks and Risk Management" in the Company's AIF for the year ended December 31, 2015. 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.

2016 FIRST QUARTER REPORT TO SHAREHOLDERS
The Company's 2015 Annual Report and 2016 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 are available online at www.sedar.com.

INVESTOR RELATIONS
Shareholders, security analysts and investment professionals should direct their requests to Mr. Geoffrey H. Wilson, Senior Vice President, Investor Relations, Business Intelligence and Communications, at the Company's Executive Office or by e-mail at [email protected].

Additional financial information has been filed electronically with various securities regulators in Canada through SEDAR. This News Release includes selected information on Loblaw Companies Limited, a public company with shares trading on the Toronto Stock Exchange. For information regarding Loblaw, readers should also refer to the materials filed by Loblaw with SEDAR from time to time. These filings are also maintained at Loblaw's corporate website at www.loblaw.ca.

FIRST QUARTER CONFERENCE CALL AND WEBCAST PRESENTATION
George Weston Limited will host a conference call as well as an audio webcast on Tuesday, May 10, 2016 at 9:00 a.m. (EDT). 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:  77470371#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.

ANNUAL MEETING
The George Weston Limited Annual Meeting of Shareholders will be held on Tuesday, May 10, 2016, at 11:00 a.m. (EDT) 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:  78081258#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.

SOURCE George Weston Limited