George Weston Limited today announced its consolidated unaudited results for the 12 weeks ended June 14, 2014.
With the completion of Loblaw Companies Limited's ("Loblaw") acquisition of Shoppers Drug Mart Corporation ("Shoppers Drug Mart"), the Company's second quarter results include the results of Shoppers Drug Mart for the full quarter as well as the associated acquisition related accounting adjustments.
The 2014 Second Quarter Report to Shareholders of GWL, including the Company's unaudited interim period condensed consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the 12 and 24 weeks ended June 14, 2014, 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.
2014 Second Quarter Highlights
* Sales growth of 36.0% to $10,598 million. Excluding Shoppers Drug Mart, sales increased by 2.5%.
* Adjusted operating income(1) increased by $200 million to $589 million. Excluding Shoppers Drug Mart, adjusted operating income(1) declined by 4.9%.
* Adjusted EBITDA(1) increased by $269 million to $864 million. Excluding Shoppers Drug Mart, Loblaw adjusted EBITDA(1) was flat while Weston Foods adjusted EBITDA(1) declined.
* Adjusted basic net earnings per common share(1) increased to $1.26 from $1.08.
* Free cash flow(1) was $808 million for the second quarter and $394 million year-to-date.
"The country's number-one grocery retailer and number-one pharmacy and beauty retailer were brought together in the second quarter through the successful completion of Loblaw's acquisition of Shoppers Drug Mart. The increased scale and competitive positioning of the Company within the Canadian market as well as the opportunities to realize significant synergies position us extremely well to meet both the changing needs of Canadian consumers and to create long term value for shareholders", said W. Galen Weston, Executive Chairman, George Weston Limited.
Pavi Binning, President, George Weston Limited, commented that "We are pleased with George Weston Limited's second quarter results. Loblaw delivered strong sales and excluding Shoppers Drug Mart, strong same-store sales growth in a challenging retail environment. Weston Foods' operating performance was challenged by higher than anticipated commodity and other input costs, higher plant start-up costs, lower fresh sales volumes and the costs associated with continued investments in future growth".
On March 28, 2014, Loblaw acquired all of the outstanding shares of Shoppers Drug Mart as described in the "Acquisition of Shoppers Drug Mart Corporation" section of this News Release. As part of the acquisition, there were a number of acquisition related accounting adjustments that had a negative impact on the Company's results, including the recognition of the fair value increment on the acquired Shoppers Drug Mart inventory sold of $622 million, the amortization of the acquired Shoppers Drug Mart intangible assets of $125 million, and costs related to the acquisition of $52 million as described in the "Non-GAAP Financial Measures" section of this News Release.
In connection with Loblaw's upgrade of its information technology ("IT") infrastructure, Loblaw recorded a non-cash charge of $190 million relating to inventory measurement and other conversion differences associated with the implementation of a perpetual inventory system. This charge had a negative impact on the Company's results in second quarter of 2014, as described in the "Non-GAAP Financial Measures" section of this News Release.
The Company does not anticipate any significant additional Shoppers Drug Mart acquisition costs to be incurred, and expects the above non-cash adjustments to negatively impact its results in future periods as follows:
* annual amortization of approximately $550 million associated with the acquired intangible assets over the next ten years, and decreasing thereafter;
* remaining inventory fair value adjustment of $176 million over the remainder of 2014 as the acquired inventory is sold, the majority of which will be incurred in the third quarter of 2014; and
* further adjustments related to inventory measurement and other conversion differences associated with the implementation of a perpetual inventory system will be recorded as Loblaw converts its remaining corporate grocery stores.
George Weston Limited's second quarter 2014 adjusted basic net earnings per common share(1) increased by $0.18 compared to the same period in 2013. The improvement was due to the operating performance of Loblaw including Shoppers Drug Mart, partially offset by the operating performance of Weston Foods, higher interest expense and other financing charges and the impact of the Company's change in ownership in Loblaw after its acquisition of Shoppers Drug Mart.
Basic net earnings per common share decreased by $2.39 compared to the same period in 2013. The decrease was due to the year-over-year unfavourable impact of certain items related to the acquisition of Shoppers Drug Mart and the impact of Loblaw's inventory measurement and other conversion differences associated with the implementation of a perpetual inventory system, as well as a number of other items, partially offset by an improvement in underlying operating performance as described above. For a complete list of items that impacted basic net loss per common share but that are excluded from adjusted basic net earnings per common share(1), see the "Non-GAAP Financial Measures" section of this News Release.
Sales In the second quarter of 2014, Weston Foods sales increased by $18 million, or 4.4%, compared to the same period in 2013. Foreign currency translation positively impacted sales by approximately 3.2%. Excluding the impact of foreign currency translation, sales increased by 1.2%, primarily due to an increase in volume.
Earnings Before Interest Taxes Depreciation and Amortization Weston Foods EBITDA(1) in the second quarter of 2014 decreased by $19 million. The decrease was primarily due to a decline in underlying operating performance and the year-over-year unfavourable impact of the fair value adjustment of commodity derivatives and restructuring and other charges of $7 million. Adjusted EBITDA(1) in the second quarter of 2014 decreased by $12 million, or 15.2%, compared to the same period in 2013. Adjusted EBITDA margin(1) for the second quarter of 2014 decreased by 3.6% compared to the same period in 2013.
The decrease in adjusted EBITDA(1) was primarily due to higher commodity and other input costs, including the negative impact of foreign exchange, plant start-up costs, lower fresh bakery sales volumes and the cost impact of continued investments.
Operating Income Weston Foods operating income decreased by $19 million compared to the second quarter of 2013 and was negatively impacted by the adjustments described above to EBITDA(1). Adjusted operating income(1) decreased by $13 million compared to the second quarter of 2013, driven by the decrease in adjusted EBITDA(1) described above and an increase in depreciation and amortization of $1 million.
