TORONTO, March 2, 2017 /CNW/ - George Weston Limited (TSX: WN) ("GWL" or the "Company") today announced its consolidated unaudited results for the 12 weeks ended December 31, 2016.

GWL's 2016 Annual Report includes the Company's audited annual consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the fiscal year ended December 31, 2016. The 2016 Annual Report 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.

Galen Weston, Chairman and Chief Executive Officer, George Weston Limited, commented that "George Weston Limited's fourth quarter results reflect the successful execution of the strategic priorities by both of the Company's operating segments. Loblaw delivered strong results as it remained focused on its financial plan in a highly competitive environment with continued pressures of healthcare reform. Weston Foods delivered results in line with expectations driven by volume growth and productivity improvements as it continued to invest in the business."

CONSOLIDATED RESULTS OF OPERATIONS
Net earnings available to common shareholders of the Company decreased by $56 million ($0.44 per common share) to $82 million ($0.64 per common share) in the fourth quarter of 2016 compared to the same period in 2015. The decrease was primarily due to the unfavourable year-over-year net impact of certain adjusting items, as described below, partially offset by the increase in Loblaw Companies Limited ("Loblaw") earnings and the positive contribution from the increase in the Company's ownership interest in Loblaw, as a result of Loblaw's share repurchases. The increase in Loblaw earnings was primarily due to improvements in the underlying operating performance of its Retail segment, including the favourable impact of a decrease in depreciation and amortization.

The unfavourable year-over-year net impact of certain adjusting items totaling $77 million ($0.60 per common share) was primarily due to:

• foreign currency translation of $52 million ($0.40 per common share);
• asset impairments, net of recoveries, of $42 million ($0.32 per common share); and
• a fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of $39 million ($0.29 per common share);

partially offset by,

• the favourable impact of the impairment of Loblaw's drug retail ancillary assets held for sale in the fourth quarter of 2015 of $37 million ($0.28 per common share); and
• the favourable impact of Loblaw's accelerated transition of certain grocery stores to more cost effective and efficient Labour Agreements in the fourth quarter of 2015 of $18 million ($0.14 per common share).

Adjusted net earnings available to common shareholders of the Company⁽¹⁾ increased by $21 million ($0.16 per common share) to $204 million ($1.59 per common share) in the fourth quarter of 2016 compared to the same period in 2015, primarily due to the increase in Loblaw earnings and the positive contribution from the increase in the Company's ownership interest in Loblaw, as described above.

REPORTABLE OPERATING SEGMENTS
The Company has two reportable operating segments, Loblaw and Weston Foods. The Company also holds cash, short term investments and an interest in Choice Properties Real Estate Investment Trust ("Choice Properties") of 6%. Loblaw has three reportable operating segments including retail businesses, a bank and Choice Properties. Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise, retail banking, credit card services, insurance and wireless mobile products and services. Loblaw also holds an 83% effective interest in Choice Properties, which owns, manages and develops retail and commercial properties across Canada. The Weston Foods operating segment includes a leading fresh bakery business in Canada and frozen, artisan bakery and biscuit businesses throughout North America.

Weston Foods Segment Results

Sales  Weston Foods sales in the fourth quarter of 2016 were $537 million, an increase of $10 million, or 1.9%, compared to the same period in 2015, primarily due to an increase in volumes. Foreign currency translation had a nominal negative impact on sales compared to the same period in 2015.

Operating income  Weston Foods operating income in the fourth quarter of 2016 was $38 million, a decrease of $4 million, or 9.5%, compared to the same period in 2015. The decrease was due to the unfavourable year-over-year net impact of certain adjusting items and an increase in depreciation and amortization, partially offset by an improvement in underlying operating performance, as described below. The unfavourable year-over-year net impact of certain adjusting items was primarily due to:

• charges associated with damaged inventory in the fourth quarter of 2016 of $5 million; and
• the fair value adjustment of derivatives of $4 million;

partially offset by,

• the favourable impact of settlement charges related to pension annuities and buy-outs in the fourth quarter of 2015 of $3 million.

Adjusted EBITDA⁽¹⁾  Weston Foods adjusted EBITDA⁽¹⁾ in the fourth quarter of 2016 was $73 million, an increase of $6 million, or 9.0%, compared to the same period in 2015. The increase was driven by the positive impact of the increase in sales and productivity improvements, partially offset by continued investments in the business and higher input costs.

Adjusted EBITDA margin⁽¹⁾ in the fourth quarter of 2016 was 13.6% compared to 12.7% in the same period in 2015. The improvement in adjusted EBITDA margin⁽¹⁾ in the fourth quarter of 2016 was mainly due to the factors impacting adjusted EBITDA⁽¹⁾, as described above.

Depreciation and Amortization  Weston Foods depreciation and amortization was $27 million in the fourth quarter of 2016, an increase of $2 million compared to the same period in 2015. Depreciation and amortization in the fourth quarter of 2016 included $3 million (2015 – $6 million) of accelerated depreciation related to the planned closures of bread, pie and cake manufacturing facilities. Excluding these amounts, depreciation and amortization increased by $5 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. Weston Foods recorded restructuring and other charges in the fourth quarter of 2016 of $7 million (2015 – $8 million) and year-to-date of $17 million (2015 – $26 million), including $3 million (2015 – $6 million) and $14 million (2015 – $11 million) of accelerated depreciation. These charges primarily relate to restructuring plans to close manufacturing facilities in Canada and the U.S. with production transferring to other facilities.

Inventory loss  In the fourth quarter of 2016 and year-to-date, Weston Foods recorded $5 million (U.S. $4 million) and $11 million (U.S. $9 million), respectively, related to the write-off of damaged inventory and other associated costs in selling, general and administrative expenses ("SG&A") in the Company's consolidated statement of earnings. An insurance claim is in progress and proceeds are expected to be recorded as the claim progresses.

Loblaw Segment Results

Sales, operating income and adjusted EBITDA⁽¹⁾ in the fourth quarter of 2016 included the impacts related to the franchises consolidated in the quarter, as set out in "Loblaw Other Business Matters".

Sales  Loblaw sales in the fourth quarter of 2016 were $11,130 million, an increase of $265 million compared to the same period in 2015, primarily driven by Retail. Retail sales increased by $239 million, or 2.3%, compared to the same period in 2015 and included food retail sales of $7,789 million (2015 – $7,631 million) and drug retail sales of $3,056 million (2015 – $2,975 million).

Excluding the consolidation of franchises, Retail sales increased by $168 million primarily driven by the following factors:

• food retail same-store sales growth was 1.1%. The same-store sales growth includes the impact of retail promotional investments. Food retail same-store sales included the favourable impact of an extra selling day in the fourth quarter of 2016, due to the timing of New Year's Day, of approximately 1.0%. Loblaw's food retail average quarterly internal food price index declined and was slightly lower than the average quarterly national food price deflation of 2.3% 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 3.4%, including same-store pharmacy sales growth of 2.5% and same-store front store sales growth of 4.1%. Drug retail same-store sales included the favourable impact of an extra selling day in the fourth quarter of 2016, due to the timing of New Year's Day, of approximately 0.6%; and
• in the last 12 months, Retail net square footage increased 0.3 million square feet, or 0.4%, primarily driven by new store openings, partially offset by Loblaw's store closure plan announced in 2015 and completed in 2016.

Operating income  Loblaw operating income in the fourth quarter of 2016 was $447 million, an increase of $133 million compared to the same period in 2015, primarily driven by the improvements in underlying operating performance of $86 million and the favourable year-over-year net impact of certain adjusting items totaling $47 million, as described below:

• the improvements in underlying operating performance were primarily driven by Retail including higher sales with stable gross margins, lower SG&A, lower depreciation and amortization and the favourable impact of the consolidation of franchises; and
• the favourable year-over-year net impact of certain Retail adjusting items totaling $47 million was primarily due to:
  • the impairment of drug retail ancillary assets held for sale in the fourth quarter of 2015 of $112 million;
  • the accelerated transition of certain Loblaw's grocery stores to more cost effective and efficient Labour Agreements of $55 million in the fourth quarter of 2015; and
  • a charge related to inventory measurement of $33 million associated with the conversion of Loblaw's franchised grocery stores to the new information technology ("IT") systems in the fourth quarter of 2015;

partially offset by,

• the unfavourable impact of asset impairments, net of recoveries, of $126 million; and
• the unfavourable impact of settlement charges related to pension annuities and buy-outs of $15 million.

Adjusted EBITDA⁽¹⁾  Loblaw adjusted EBITDA⁽¹⁾ in the fourth quarter of 2016 was $954 million, an increase of $75 million compared to the same period in 2015, primarily driven by Retail. Retail adjusted EBITDA⁽¹⁾ was $889 million, an increase of $66 million driven by an increase in gross profit, partially offset by an increase in SG&A.

• Retail gross profit percentage of 27.2% increased by 40 basis points compared to the fourth quarter of 2015. Excluding the consolidation of franchises, Retail gross profit percentage was 26.4%, a decrease of 20 basis points compared to the fourth quarter of 2015. The decrease in gross profit was driven by food retail promotional investments, partially offset by improvements in drug retail margins, due to strong front store performance, and improvements in shrink, driven by improved inventory management.
• Retail SG&A as a percentage of sales was 19.0%, a decrease of 10 basis points compared to the fourth quarter of 2015. Excluding the consolidation of franchises, SG&A decreased $9 million and as a percentage of sales was 18.4%, an improvement of 40 basis points compared to the fourth quarter of 2015, driven by the following factors:
  • lower store support costs;
  • the positive impact of Loblaw's store closure plan announced in 2015 and completed in 2016; and
  • favourable year-over-year foreign exchange impacts;

partially offset by,

• higher retail store costs as efficiencies achieved in retail stores were more than offset by an increase in financial support to franchises.

Loblaw adjusted EBITDA⁽¹⁾ in the fourth quarter of 2016 also included an increase in Financial Services adjusted EBITDA⁽¹⁾ of $5 million, primarily driven by growth in credit card receivables and higher Mobile Shop sales, and an increase in Choice Properties adjusted EBITDA⁽¹⁾ of $4 million, primarily due to the expansion of the portfolio through development of properties and an increase in base rent from existing properties.

Depreciation and Amortization  Loblaw's depreciation and amortization was $365 million in the fourth quarter of 2016, a decrease of $11 million compared to the same period in 2015. The decline in depreciation and amortization was primarily attributable to a change in the estimated useful life of certain equipment and fixtures in the second quarter of 2016.

Depreciation and amortization in the fourth quarter of 2016 included $124 million (2015 – $124 million) of amortization of intangible assets acquired with Shoppers Drug Mart.

Loblaw Other Business Matters

Impairment of Ancillary Healthcare Business  In the fourth quarter of 2016, a Shoppers Drug Mart ancillary healthcare business was triggered for impairment testing due to impacts of Ontario healthcare reform implemented in the long term care industry. Loblaw recorded a charge of $88 million related to the impairment of fixed assets of $15 million and a customer relationship intangible asset of $73 million.

Consolidation of Franchises  Loblaw has more than 500 franchise food retail stores in its network. As at year end 2016, 200 of these stores were consolidated for accounting purposes under a new, simplified franchise agreement ("Franchise Agreement") implemented in 2015.

Loblaw will convert franchises to the Franchise Agreement as existing agreements expire, at the end of which all franchises will be consolidated. The following table presents the number of franchises consolidated in the fourth quarter of 2016 and year-to-date, and the total impact of the consolidation of franchises included in the consolidated results of the Company:

(unaudited)				Quarters Ended						Years Ended
($ millions except where otherwise indicated)				Dec. 31, 2016			Dec. 31, 2015			Dec. 31, 2016			Dec. 31, 2015
Number of Consolidated Franchise stores,
	beginning of period			165				43		85
Add:  Number of Consolidated Franchise stores
		in the period		35				42		115			85
Number of Consolidated Franchise stores, end
	of period			200				85		200			85
Sales				$	99		$	28		$	363		$	56
Operating income (loss)				21				(7)		(1)			(17)
Adjusted EBITDA(1)				27				(4)		20			(12)
Depreciation and amortization				6				3		21			5
Net earnings (loss) attributable to
	Non-Controlling Interest			28				(4)		7			(9)

 

Operating income included in the table above does not significantly impact net earnings available to common shareholders of the Company as this amount is largely attributable to Non-Controlling Interests.

Loblaw expects that the estimated impact in 2017 of new and current consolidated franchises will be revenue of approximately $680 million, adjusted EBITDA⁽¹⁾ of approximately $55 million, depreciation and amortization of approximately $45 million and net earnings attributable to Non-Controlling Interests of approximately $10 million.

OUTLOOK⁽²⁾
Weston Foods expects sales growth generated by incremental capacity and productivity improvements to drive an increase in adjusted EBITDA⁽¹⁾ in 2017 when compared to 2016. However, this improvement will be partially offset by a challenging environment in our Canadian fresh bakery business and incremental investments required to meet new more stringent regulatory requirements in food safety and labelling. The increase in adjusted EBITDA⁽¹⁾ is expected to be greater in the second half of the year. Management expects to make capital investments of approximately $250 million in 2017 related to growth, regulatory and maintenance. Depreciation is projected to increase in 2017 when compared to 2016, and more than offset the improvement in adjusted EBITDA⁽¹⁾.

Loblaw remains focused on its strategic framework, delivering the best in food, best in health and beauty, operational excellence and growth. This framework is supported by a financial plan of maintaining a stable trading environment that targets positive same-store sales and stable gross margin, surfacing efficiencies to deliver operating leverage, and returning capital to shareholders. In 2017, on a full year comparative basis, despite the current deflationary environment, Loblaw expects to:

• deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive grocery market with continued negative pressure from healthcare reform;
• grow adjusted net earnings⁽¹⁾;
• 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 2017, 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 fourth 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:




	Common Shares		$0.44 per share payable April 1, 2017, to shareholders of record March 15, 2017;
	Preferred Shares, Series I		$0.3625 per share payable March 15, 2017, to shareholders of record February 28, 2017;
	Preferred Shares, Series III		$0.3250 per share payable April 1, 2017, to shareholders of record March 15, 2017;
	Preferred Shares, Series IV		$0.3250 per share payable April 1, 2017, to shareholders of record March 15, 2017; and
	Preferred Shares, Series V		$0.296875 per share payable April 1, 2017, to shareholders of record March 15, 2017.

 

NON-GAAP FINANCIAL MEASURES
The Company uses the following non-GAAP financial measures: 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 operating income, 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 Section 18, "Non-GAAP Financial Measures", of the Company's 2016 Annual Report.

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 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.

			Quarters Ended
			Dec. 31, 2016																	Dec. 31, 2015
(unaudited) ($ millions)			Weston Foods			Loblaw			Other(i)			Consolidated				Weston Foods		Loblaw		Other(i)		Consolidated
Net earnings attributable to shareholders
	of the Company											$	92									$	148
Add impact of the following:
	Non-controlling interests											139										68
	Income taxes											83										66
	Net interest expense and other
		financing charges										177										139
Operating income			$	38		$	447		$	6		$	491			$	42	$	314	$	65	$	421
Add impact of the following:
	Amortization of intangible assets acquired
		with Shoppers Drug Mart				124						124						124				124
	Asset impairments, net of recoveries					130						130						4				4
	Restructuring and other charges		7			2						9				8		(7)				1
	Pension annuities and buy-outs					21						21				3		6				9
	Fair value adjustment of derivatives		(1)			(6)						(7)				(5)		(6)				(11)
	Charges related to retail locations in
		Fort McMurray, net of recoveries				(5)						(5)
	Drug retail ancillary assets																	112				112
	Inventory loss		5									5
	Accelerated transition of Labour Agreements																	55				55
	Charge related to inventory measurement
		and other conversion differences																33				33
	Modifications to certain franchise fee
		arrangements																(8)				(8)
	Foreign currency translation								(6)			(6)								(65)		(65)
Adjusting items			$	11		$	266		$	(6)		$	271			$	6	$	313	$	(65)	$	254
Adjusted operating income			$	49		$	713					$	762			$	48	$	627			$	675
Depreciation and amortization excluding the
	impact of the above adjustments(ii)		24			241						265				19		252					271
Adjusted EBITDA			$	73		$	954					$	1,027			$	67	$	879			$	946

(i)	Represents the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.
(ii)	Depreciation and amortization for the calculation of adjusted EBITDA excludes $124 million (2015 – $124 million) of amortization of intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $3 million (2015 – $6 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other charges.

 

			Years Ended
			Dec. 31, 2016																			Dec. 31, 2015(3)
(unaudited) ($ millions)			Weston Foods			Loblaw			Other(i)			Consolidated				Weston Foods			Loblaw			Other(i)			Consolidated
Net earnings attributable to shareholders
	of the Company											$	550												$	511
Add impact of the following:
	Non-controlling interests											540													319
	Income taxes											465													418
	Net interest expense and other
		financing charges										700													681
Operating income			$	173		$	2,084		$	(2)		$	2,255			$	177		$	1,593		$	159		$	1,929
Add impact of the following:
	Amortization of intangible assets acquired
		with Shoppers Drug Mart				535						535							536						536
	Asset impairments, net of recoveries					135						135							13						13
	Restructuring and other charges		17			46						63				26			154						180
	Pension annuities and buy-outs		3			23						26				3			8						11
	Prior year tax assessment					10						10
	Fair value adjustment of derivatives		(5)			5										(5)			(21)						(26)
	Charges related to retail locations in
		Fort McMurray, net of recoveries				2						2
	Drug retail ancillary assets					(4)						(4)							112						112
	Inventory losses		11									11				1									1
	Accelerated transition of Labour Agreements																		55						55
	Charge related to inventory measurement
		and other conversion differences																	33						33
	Charge related to apparel inventory																		8						8
	Shoppers Drug Mart divestitures loss																		2						2
	Modifications to certain franchise fee
		arrangements																	(8)						(8)
	Foreign currency translation								2			2										(159)			(159)
Adjusting items			$	26		$	752		$	2		$	780			$	25		$	892		$	(159)		$	758
Adjusted operating income			$	199		$	2,836					$	3,035			$	202		$	2,485					$	2,687
Depreciation and amortization excluding the
	impact of the above adjustments(ii)		97			1,008						1,105				83			1,056						1,139
Adjusted EBITDA			$	296		$	3,844					$	4,140			$	285		$	3,541					$	3,826

(i)	Represents the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.
(ii)	Depreciation and amortization for the calculation of adjusted EBITDA excludes $535 million (2015 – $536 million) of amortization of intangible assets, acquired with Shoppers Drug Mart, recorded by Loblaw and $14 million (2015 – $11 million) of accelerated depreciation recorded by Weston Foods, related to restructuring and other charges.

 

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.

(unaudited) ($ millions)				Quarters Ended					Years Ended
				Dec. 31, 2016		Dec. 31, 2015			Dec. 31, 2016		Dec. 31, 2015
Net interest expense and other financing charges				$	177	$	139		$	700	$	681
Add:	Fair value adjustment of the Trust Unit liability			1		(5)			(79)		(55)
	Fair value adjustment of the forward sale agreement for
		9.6 million Loblaw common shares		(43)		9			(53)		(26)
	Accelerated amortization of deferred financing costs										(15)
Adjusted net interest expense and other financing charges				$	135	$	143		$	568	$	585

 

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.

(unaudited)			Quarters Ended								Years Ended
($ millions except where otherwise indicated)			Dec. 31, 2016				Dec. 31, 2015				Dec. 31, 2016				Dec. 31, 2015(3)
Adjusted operating income(i)			$	762			$	675			$	3,035			$	2,687
Adjusted net interest expense and other financing charges(i)				135				143				568				585
Adjusted earnings before taxes			$	627			$	532			$	2,467			$	2,102
Income taxes			$	83			$	66			$	465			$	418
Add:	Tax impact of items excluded from adjusted earnings
	before taxes(ii)			89				78				216				232
	Statutory corporate income tax rate change											(3)				(79)
Adjusted income taxes			$	172			$	144			$	678			$	571
Effective income tax rate applicable to earnings before taxes				26.4%				23.4%				29.9%				33.5%
Adjusted income tax rate applicable to adjusted earnings
before taxes				27.4%				27.1%				27.5%				27.2%

(i)	See reconciliations of adjusted operating income and adjusted net interest expense and other financing charges above.
(ii)	See the adjusted EBITDA table and the adjusted net interest expense and other financing charges table above for a complete list of items excluded from adjusted earnings before taxes.

 

Adjusted Net Earnings Available to Common Shareholders and Adjusted Diluted Net Earnings per Common Share  The Company believes adjusted net earnings available to common shareholders and adjusted diluted net earnings per common share 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 net earnings attributable to shareholders of the Company to net earnings available to common shareholders of the Company and then to adjusted net earnings available to common shareholders of the Company reported for the periods ended as indicated.

(unaudited)		Quarters Ended							Years Ended
($ millions except where otherwise indicated)		Dec. 31, 2016				Dec. 31, 2015			Dec. 31, 2016			Dec. 31, 2015(3)
Net earnings attributable to shareholders of the Company			$	92		$	148		$	550		$	511
Less:	Prescribed dividends on preferred shares in share capital		(10)			(10)			(44)				(44)
Net earnings available to common shareholders of the Company			$	82		$	138		$	506		$	467
Reduction in net earnings due to dilution at Loblaw										5			3
Net earnings available to common shareholders for diluted earnings per share			$	82		$	138		$	501		$	464
Net earnings attributable to shareholders of the Company			$	92		$	148		$	550		$	511
Adjusting items (refer to the following table)			122			45			332				250
Adjusted net earnings attributable to shareholders of the Company			$	214		$	193		$	882		$	761
Less:	Prescribed dividends on preferred shares in share capital		(10)			(10)			(44)				(44)
Adjusted net earnings available to common shareholders of the Company			$	204		$	183		$	838		$	717
Reduction in net earnings due to dilution at Loblaw										5			3
Adjusted net earnings available to common shareholders for diluted earnings per share			$	204		$	183		$	833		$	714
Weighted average common shares outstanding (millions)(i)			128.2			128.2			128.3			128.2

(i)	Includes impact of dilutive instruments for purposes of calculating adjusted diluted net earnings per common share.

 

The following table reconciles adjusted net earnings available to common shareholders of the Company and adjusted diluted net earnings per common share to GAAP net earnings available to common shareholders of the Company and diluted net earnings per common share as reported for the periods ended as indicated.

		Quarters Ended
		Dec. 31, 2016							Dec. 31, 2015
(unaudited) ($ except where otherwise indicated)		Net Earnings Available to Common Shareholders of the Company ($ millions)				Diluted Net  Earnings Per Common Share			Net Earnings Available to Common Shareholders of the Company ($ millions)				Diluted Net  Earnings Per Common Share
As reported			$	82		$	0.64			$	138		$	1.08
Add (deduct) impact of the following(i):
	Amortization of intangible assets acquired with Shoppers Drug Mart		41			0.33				42			0.32
	Asset impairments, net of recoveries		44			0.34				2			0.02
	Restructuring and other charges		4			0.03				3			0.01
	Pension annuities and buy-outs		7			0.05				5			0.04
	Fair value adjustment of derivatives		(3)			(0.02)				(6)			(0.04)
	Charges related to retail locations in Fort McMurray, net of recoveries		(1)			(0.01)
	Drug retail ancillary assets									37			0.28
	Inventory loss		2			0.02
	Accelerated transition of Labour Agreements									18			0.14
	Charge related to inventory measurement and other conversion differences									11			0.09
	Modifications to certain franchise fee arrangements									(4)			(0.03)
	Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares		32			0.24				(7)			(0.05)
	Fair value adjustment of the Trust Unit liability		1			0.01				1			0.01
	Foreign currency translation		(5)			(0.04)				(57)			(0.44)
Adjusting items			$	122		$	0.95			$	45		$	0.35
Adjusted			$	204		$	1.59			$	183		$	1.43

(i)	Net of income taxes and non-controlling interests, as applicable.

 

		Years Ended
		Dec. 31, 2016							Dec. 31, 2015(3)
(unaudited) ($ except where otherwise indicated)		Net Earnings Available to Common Shareholders of the Company ($ millions)				Diluted Net Earnings Per Common Share			Net Earnings Available to Common Shareholders of the Company ($ millions)				Diluted Net Earnings Per Common Share
As reported			$	506		$	3.90			$	467		$	3.62
Add (deduct) impact of the following(i):
	Amortization of intangible assets acquired with Shoppers Drug Mart		182			1.42				179			1.40
	Asset impairments, net of recoveries		46			0.35				5			0.04
	Restructuring and other charges		28			0.22				75			0.58
	Pension annuities and buy-outs		10			0.08				5			0.04
	Prior year tax assessment		3			0.02
	Fair value adjustment of derivatives		(1)			(0.01)				(11)			(0.08)
	Charges related to retail locations in Fort McMurray, net of recoveries		1			0.01
	Drug retail ancillary assets		(1)			(0.01)				37			0.28
	Inventory losses		6			0.05				1			0.01
	Accelerated transition of Labour Agreements									18			0.14
	Charge related to inventory measurement and other conversion differences									11			0.09
	Charge related to apparel inventory									3			0.02
	Shoppers Drug Mart divestitures loss									1			0.01
	Modifications to certain franchise fee arrangements									(4)			(0.03)
	Fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares		39			0.31				19			0.15
	Fair value adjustment of the Trust Unit liability		16			0.12				11			0.09
	Accelerated amortization of deferred financing costs									5			0.04
	Statutory corporate income tax rate change		1			0.01				41			0.31
	Foreign currency translation		2			0.02				(146)			(1.14)
Adjusting items			$	332		$	2.59			$	250		$	1.95
Adjusted			$	838		$	6.49			$	717		$	5.57

(i)	Net of income taxes and non-controlling interests, as applicable.

 

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 benefits associated with the acquisition of Shoppers Drug Mart and other strategic initiatives, anticipated insurance recoveries 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 2017 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 Section 12, "Enterprise Risks and Risk Management", of the MD&A of the Company's 2016 Annual Report and the Company's Annual Information Form ("AIF") for the year ended December 31, 2016. 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;
• failure to effectively manage Loblaw's loyalty programs;
• the inability of the Company's 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 the Company's new IT systems;
• failure to effectively respond to consumer trends or heightened competition, whether from current competitors or new entrants to the marketplace;
• public health events including those related to food and drug safety;
• changes to any of the laws, rules, regulations or policies applicable to the Company's business;
• failure to merchandise effectively, to execute Loblaw's e-commerce initiative or to adapt its business model to the shifts in the retail landscape caused by digital advances;
• failure to realize the anticipated benefits, including revenue growth, anticipated cost savings or operating efficiencies, associated with the Company's investment in major initiatives that support its strategic priorities;
• changes in economic conditions, including economic recession or changes in the rate of inflation or deflation, employment rates and household debt, interest rates, currency exchange rates and derivative or commodity prices;
• failure to achieve desired results in labour negotiations, including the terms of future collective bargaining agreements;
• adverse outcomes of legal and regulatory proceedings and related matters;
• 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, including issues with vendors in both advanced and developing markets;
• the inability of the Company to manage inventory to minimize the impact of obsolete or excess inventory and to control shrink;
• the inability of the Company to effectively develop and execute its strategy; and
• the inability of the Company to anticipate, identify and react to consumer and retail trends.

This is not an exhaustive list of the factors that may affect the Company's forward-looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in the Company's materials filed with the Canadian securities regulatory authorities from time to time, including without limitation, the section entitled "Operating and Financial Risks and Risk Management" in the Company's AIF for the year ended December 31, 2016. 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.

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 audited annual consolidated financial statements for the year ended December 31, 2016. 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 2016 Annual Report available in the Investor Centre section of the Company's website at www.weston.ca.

Condensed Consolidated Statements of Earnings

(unaudited)
(millions of Canadian dollars except where otherwise indicated)		Dec. 31, 2016					Dec. 31, 2015					Dec. 31, 2016					Dec. 31, 2015(3)
For the periods ended as indicated			(12 weeks)					(12 weeks)					(52 weeks)					(52 weeks)
Revenue			$	11,519				$	11,248				$	47,999				$	46,894
Operating Expenses
	Cost of inventories sold		8,143					8,046					34,108					33,667
	Selling, general and administrative expenses		2,885					2,781					11,636					11,298
			11,028					10,827					45,744					44,965
Operating Income			491					421					2,255					1,929
	Net Interest Expense and Other Financing Charges		177					139					700					681
Earnings Before Income Taxes			314					282					1,555					1,248
	Income Tax		83					66					465					418
Net Earnings			231					216					1,090					830
Attributable to:
	Shareholders of the Company		92					148					550					511
	Non-Controlling Interests		139					68					540					319
Net Earnings			$	231				$	216				$	1,090				$	830
Net Earnings per Common Share ($)
	Basic		$	0.64				$	1.08				$	3.96				$	3.66
	Diluted		$	0.64				$	1.08				$	3.90				$	3.62

 

Condensed Consolidated Balance Sheets

As at December 31
(millions of Canadian dollars)		2016					2015(3)
ASSETS
Current Assets
	Cash and cash equivalents		$	1,560				$	1,413
	Short term investments		1,011					1,166
	Accounts receivable		1,284					1,478
	Credit card receivables		2,926					2,790
	Inventories		4,559					4,517
	Prepaid expenses and other assets		201					279
	Assets held for sale		40					71
Total Current Assets			11,581					11,714
Fixed Assets			11,534					11,352
Investment Properties			218					160
Intangible Assets			8,875					9,292
Goodwill			4,364					4,254
Deferred Income Taxes			201					156
Security Deposits			89					88
Franchise Loans Receivable			233					329
Other Assets			851					875
Total Assets			$	37,946				$	38,220
LIABILITIES
Current Liabilities
	Bank indebtedness		$	115				$	143
	Trade payables and other liabilities		5,356					5,381
	Provisions		135					180
	Income taxes payable		341					73
	Short term debt		1,241					1,086
	Long term debt due within one year		400					1,348
	Associate interest		243					216
Total Current Liabilities			7,831					8,427
Provisions			146					157
Long Term Debt			11,385					10,928
Trust Unit Liability			635					552
Deferred Income Taxes			2,370					2,448
Other Liabilities			789					818
Total Liabilities			23,156					23,330
EQUITY
Share Capital			1,012					1,008
Retained Earnings			6,704					6,422
Contributed Surplus			(156)					20
Accumulated Other Comprehensive Income			204					231
Total Equity Attributable to Shareholders of the Company			7,764					7,681
Non-Controlling Interests			7,026					7,209
Total Equity			14,790					14,890
Total Liabilities and Equity			$	37,946				$	38,220

 

Condensed Consolidated Statements of Cash Flows

(unaudited)
(millions of Canadian dollars)				Dec. 31, 2016			Dec. 31, 2015			Dec. 31, 2016			Dec. 31, 2015(3)
For the periods ended as indicated				(12 weeks)			(12 weeks)			(52 weeks)			(52 weeks)
Operating Activities
	Net earnings			$	231		$	216		$	1,090		$	830
	Add:
	Net interest expense and other financing charges			177			139			700			681
	Income taxes			83			66			465			418
	Depreciation and amortization			392			401			1,654			1,686
	Charge related to inventory measurement and other conversion differences						4						4
	Asset impairments, net of recoveries			130			26			142			73
	Foreign currency translation (gain) loss			(6)			(65)			2			(159)
				1,007			787			4,053			3,533
	Change in credit card receivables			(157)			(127)			(136)			(160)
	Change in non-cash working capital			144			158			108			220
	Income taxes paid			(52)			(66)			(345)			(263)
	Interest received			4			3			15			13
	Other			30			(71)			65			24
Cash Flows from Operating Activities				976			684			3,760			3,367
Investing Activities
	Fixed asset purchases			(452)			(421)			(1,129)			(1,267)
	Intangible asset additions			(116)			(104)			(336)			(233)
	Acquisition of QHR, net of cash acquired			(153)						(153)
	Cash assumed on initial consolidation of franchises			11			31			42			33
	Change in short term investments			(89)			(19)			160			57
	Change in security deposits			(2)			209			(3)			10
	Other			26			36			95			(7)
Cash Flows used in Investing Activities				(775)			(268)			(1,324)			(1,407)
Financing Activities
	Change in bank indebtedness			(142)			(100)			(28)			(19)
	Change in short term debt			200			(20)			155			(15)
	Interest paid			(103)			(120)			(570)			(587)
	Redemption of Loblaw capital securities												(225)
	Long term debt	– Issued		159			338			815			1,186
		– Retired		(380)			(502)			(1,399)			(1,783)
	Share capital	– Issued		1			1			4			9
		– Purchased and held in trusts								(11)			(7)
		– Purchased and cancelled		(2)						(8)			(14)
	Loblaw common share capital	– Issued		4			15			42			63
		– Purchased and held in trusts					(6)			(90)			(63)
		– Purchased and cancelled		(200)			(186)			(708)			(280)
	Loblaw preferred share capital	– Issued											221
	Dividends	– To common shareholders								(221)			(162)
		– To preferred shareholders		(3)			(3)			(44)			(36)
		– To minority shareholders		(56)			(57)			(232)			(229)
	Other			16			16			20			23
Cash Flows used in Financing Activities				(506)			(624)			(2,275)			(1,918)
Effect of foreign currency exchange rate changes on cash and cash equivalents				2			16			(14)			38
Change in Cash and Cash Equivalents				(303)			(192)			147			80
Cash and Cash Equivalents, Beginning of Period				1,863			1,605			1,413			1,333
Cash and Cash Equivalents, End of Period				$	1,560		$	1,413		$	1,560		$	1,413

 

Basic and Diluted Net Earnings per Common Share

(unaudited)
(millions of Canadian dollars except where otherwise indicated)		Dec. 31, 2016			Dec. 31, 2015			Dec. 31, 2016			Dec. 31, 2015(3)
For the periods ended as indicated		(12 weeks)			(12 weeks)			(52 weeks)			(52 weeks)
Net earnings attributable to shareholders of the Company		$	92		$	148		$	550		$	511
Prescribed dividends on preferred shares in share capital		(10)			(10)			(44)			(44)
Net earnings available to common shareholders of the Company		$	82		$	138		$	506		$	467
Reduction in net earnings due to dilution at Loblaw								(5)			(3)
Net earnings available to common shareholders for diluted earnings per share		$	82		$	138		$	501		$	464
Weighted average common shares outstanding (in millions)		127.6			127.6			127.7			127.7
Dilutive effect of share-based compensation(i) (in millions)		0.6			0.6			0.6			0.5
Weighted average common shares outstanding(ii) (in millions)		128.2			128.2			128.3			128.2
Basic net earnings per common share ($)		$	0.64		$	1.08		$	3.96		$	3.66
Diluted net earnings per common share ($)		$	0.64		$	1.08		$	3.90		$	3.62

(i)	In the fourth quarter of 2016 and year-to-date, 215,049 (2015 – 325,817) and 316,643 (2015 – 347,225) potentially dilutive instruments, respectively, were excluded from the computation of diluted net earnings per common share as they were anti-dilutive.
(ii)	Includes impact of dilutive instruments for purposes of calculating diluted net earnings per common share.

 

Segment Information

The Company has two reportable operating segments: Weston Foods and Loblaw. The accounting policies of the reportable operating segments are the same as those described in the Company's 2016 audited annual consolidated financial statements. The Company measures each reportable operating segment's performance based on adjusted EBITDA⁽ⁱ⁾ and adjusted operating income⁽ⁱ⁾. Neither reportable operating segment is reliant on any single external customer.

		12 Weeks Ended
		2016															2015
(unaudited) (millions of Canadian dollars)		Weston Foods			Loblaw			Other and Intersegment(ii)			Total			Weston Foods			Loblaw			Other and Intersegment(ii)			Total
Revenue		$	537		$	11,130		$	(148)		$	11,519		$	527		$	10,865		$	(144)		$	11,248
Operating income		$	38		$	447		$	6		$	491		$	42		$	314		$	65		$	421
Net interest expense and other financing charges		52				128			(3)		177			3			141			(5)			139
Earnings before income tax		$	(14)		$	319		$	9		$	314		$	39		$	173		$	70		$	282
Operating income		$	38		$	447		$	6		$	491		$	42		$	314		$	65		$	421
Depreciation and amortization		27			365						392			25			376						401
Adjusting items(iii)		8			142			(6)			144						189			(65)			124
Adjusted EBITDA(i)		$	73		$	954					$	1,027		$	67		$	879					$	946
Depreciation and amortization(iv)		24			241						265			19			252						271
Adjusted operating income(i)		$	49		$	713					$	762		$	48		$	627					$	675

(i)	Excludes certain items and is used internally by management when analyzing segment underlying operating performance.
(ii)	Other and intersegment includes the following items:
	intercompany revenue elimination; Trust Unit distributions from Choice Properties to GWL and the elimination of the fair value adjustment of the Trust Unit liability related to GWL's direct investment in Choice Properties recorded in net interest expense and other financing charges; and the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.
(iii)	The impact of certain items excluded by management includes restructuring and other charges, fixed asset and other related impairments, net of recoveries, at Loblaw, a charge related to pension annuities and buy-outs, the fair value adjustment of derivatives, inventory loss incurred by Weston Foods, a charge related to drug retail ancillary assets at Loblaw, modifications to certain franchise fee arrangements at Loblaw, a charge related to labour agreements at Loblaw, a charge related to the change in inventory measurement and other conversion differences at Loblaw and charges related to retail locations in Fort McMurray, net of recoveries at Loblaw.
(iv)	Excludes $124 million (2015 – $124 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw, and $3 million (2015 – $6 million) of accelerated depreciation recorded by Weston Foods, included in restructuring and other charges.

 

		52 Weeks Ended
					2016												2015
(millions of Canadian dollars)		Weston Foods			Loblaw			Other and Intersegment(ii)			Total			Weston Foods			Loblaw			Other and Intersegment(ii)			Total
Revenue		$	2,268		$	46,385		$	(654)		$	47,999		$	2,144		$	45,394		$	(644)		$	46,894
Operating income		$	173		$	2,084		$	(2)		$	2,255		$	177		$	1,593		$	159		$	1,929
Net interest expense and other financing charges		102			653			(55)			700			77			644			(40)			681
Earnings before income tax		$	71		$	1,431		$	53		$	1,555		$	100		$	949		$	199		$	1,248
Operating income		$	173		$	2,084		$	(2)		$	2,255		$	177		$	1,593		$	159		$	1,929
Depreciation and amortization		111			1,543						1,654			94			1,592						1,686
Adjusting items(iii)		12			217			2			231			14			356			(159)			211
Adjusted EBITDA(i)		$	296		$	3,844					$	4,140		$	285		$	3,541					$	3,826
Depreciation and amortization(iv)		97			1,008						1,105			83			1,056						1,139
Adjusted operating income(i)		$	199		$	2,836					$	3,035		$	202		$	2,485					$	2,687

(i)	Excludes certain items and is used internally by management when analyzing segment underlying operating performance.
(ii)	Other and intersegment includes the following items:
	intercompany revenue elimination; Trust Unit distributions from Choice Properties to GWL and the elimination of the fair value adjustment of the Trust Unit liability related to GWL's direct investment in Choice Properties recorded in net interest expense and other financing charges; and the effect of foreign currency translation on a portion of the U.S. dollar denominated cash and cash equivalents and short term investments held by foreign operations.
(iii)	The impact of certain items excluded by management includes restructuring and other charges, fixed asset and other related impairments, net of recoveries, at Loblaw, a charge related to pension annuities and buy-outs, certain charges related to the acquisition of Shoppers Drug Mart, the fair value adjustment of derivatives, inventory losses incurred by Weston Foods, a prior year tax assessment at Loblaw, a charge related to Loblaw apparel inventory, a gain (2015 – charge) related to drug retail ancillary assets at Loblaw, modifications to certain franchise fee arrangements at Loblaw, a charge related to labour agreements at Loblaw, a charge related to the change in inventory measurement and other conversion differences at Loblaw and charges related to retail locations in Fort McMurray, net of recoveries at Loblaw.
(iv)	Excludes $535 million (2015 – $536 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw, and $14 million (2015 – $11 million) of accelerated depreciation recorded by Weston Foods, included in restructuring and other charges.

 

2016 ANNUAL AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's annual audited consolidated financial statements and MD&A for the year ended December 31, 2016 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.

FOURTH QUARTER CONFERENCE CALL AND WEBCAST PRESENTATION
George Weston Limited will host a conference call as well as an audio webcast on Thursday, March 2, 2017 at 9:00 a.m. (EST). To access via tele-conference, please dial (647) 427-7450 or 1-888-231-8191. The playback will be available two hours after the event at (416) 849-0833 or 1-855-859-2056 passcode:  77505016#. 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 9, 2017, 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.

Endnotes
(1)	See the "Non-GAAP Financial Measures" section of this News Release.
(2)	This News Release contains forward-looking information. See Forward-Looking Statements of this News Release for a discussion of material factors that could cause actual results to differ materially from the forecasts and projections herein and of the material factors, estimates, beliefs and assumptions that were applied in presenting the conclusions, forecasts and projections presented herein. This News Release must be read in conjunction with GWL's filings with securities regulators made from time to time, all of which can be found at www.weston.ca and www.sedar.com.
(3)	Certain figures have been restated as a result of the IFRS Interpretations Committee's agenda decision on IAS 12, "Income Taxes". See note 2 of the Company's audited consolidated financial statements included in the 2016 Annual Report.

 

SOURCE George Weston Limited



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