George Weston Limited Reports Third Quarter 2021 Results(2)

TORONTO, Nov. 23, 2021 /CNW/ - George Weston Limited (TSX: WN) ("GWL" or the "Company") today announced its consolidated unaudited results for the 16 weeks ended October 9, 2021.

GWL's 2021 Third Quarter Report has been filed on SEDAR and is available at sedar.com and in the Investor Centre section of the Company's website at weston.ca.

"George Weston's third quarter results reflect the strength of its underlying operating businesses. Loblaw's focus on core retail execution and an enthusiastic consumer response drove another quarter of strong financial results, while Choice Properties' results were stable and reflect its resilient necessity-based portfolio," said Galen G. Weston, Chairman and Chief Executive Officer, George Weston Limited. "With the recently announced agreements to sell Weston Foods, George Weston will continue to focus on its market-leading Retail and Real Estate businesses. The Company is pleased that the proud legacy of the bakery business is well-positioned to continue into the future with two high-quality buyers."

Loblaw Companies Limited ("Loblaw") delivered another quarter of positive financial results. Loblaw experienced strong demand in stores and online, as economies re-opened and eat-at-home trends remained elevated. Seasonal shopping for back-to-school and Thanksgiving was robust. In Loblaw's pharmacy business, beauty sales climbed with gradual return to social and work activities while drug sales grew, supported by demand for pharmacy services. Loblaw maintained its focus on delivering service and value where consumers and their families need it most.

Choice Properties Real Estate Investment Trust ("Choice Properties") delivered strong financial and operational results in the third quarter of 2021. Contractual rent collections remained high at 99%, reflecting Choice Properties' necessity-based portfolio. During the quarter, Choice Properties continued to advance its long-term pipeline of mixed-use development, submitting zoning applications for two additional projects. To date, Choice Properties has approximately 10 million square feet of potential density submitted for zoning approval. Choice Properties' balance sheet is strong, and the business is well positioned to execute on its pipeline of compelling development opportunities.

As at the end of the third quarter of 2021, the Company's interest in Weston Foods is presented under Discontinued Operations. Unless otherwise indicated, all financial information in this News Release represents the results from Continuing Operations.

2021 THIRD QUARTER HIGHLIGHTS

George Weston Limited's net earnings available to common shareholders of the Company from continuing operations were $238 million ($1.58 per common share) a decrease of $51 million ($0.29 per common share) compared to the same period in 2020. The decrease was due to the unfavourable year-over-year net impact of adjusting items totaling $73 million ($0.50 per common share), which were primarily comprised of the unfavourable year-over-year impact of the fair value adjustment of the Trust Unit liability of $64 million ($0.43 per common share) as a result of the increase of Choice Properties' unit price in the quarter, partially offset by an improvement of $22 million ($0.21 per common share) in the Company's consolidated underlying operating performance.

Adjusted net earnings available to common shareholders of the Company(1) from continuing operations in the third quarter of 2021 were $365 million ($2.43 per common share). Compared to the same period in 2020, this represented an increase of $22 million ($0.21 per common share), or 6.4%, primarily due to the improvement in the underlying operating performance of Loblaw. The increase in adjusted diluted net earnings per common share(1) from continuing operations of $0.21, or 9.5%, was due to the improvement in adjusted net earnings available to common shareholders of the Company(1) from continuing operations and the favourable impact of share repurchases.

CONSOLIDATED RESULTS OF OPERATIONS

The Company's results reflect the impact of COVID-19 and the year-over-year impact of the fair value adjustment of the Trust Unit liability as a result of the significant changes in Choice Properties' unit price, recorded in net interest expense and other financing charges. The Company's results are impacted by market price fluctuations of Choice Properties' Trust Units on the basis that the Trust Units held by unitholders, other than the Company, are redeemable for cash at the option of the holder and are presented as a liability on the Company's consolidated balance sheet. The Company's financial results are negatively impacted when the Trust Unit price rises and positively impacted when the Trust Unit price declines.

The Company's interest in Weston Foods is presented separately as Discontinued Operations in the Company's current and comparative results.

Unless otherwise indicated, all financial information represents the Company's results from Continuing Operations.

(unaudited)

($ millions except where otherwise
   indicated)
For the periods ended as indicated

16 Weeks Ended




40 Weeks Ended




Oct. 9, 2021

Oct. 3, 2020(3,4)

$ Change

% Change

Oct. 9, 2021

Oct 3, 2020(3,4)

$ Change

% Change

Revenue

$

16,192

$

15,806

$

386

2.4 %

$

40,846

$

39,840

$

1,006

2.5 %

Operating income

$

1,125

$

964

$

161

16.7 %

$

3,018

$

2,006

$

1,012

50.4 %

Adjusted EBITDA(1)

$

1,780

$

1,644

$

136

8.3 %

$

4,542

$

3,960

$

582

14.7 %

Adjusted EBITDA margin(1)

11.0 %


10.4 %





11.1 %


9.9 %




Net earnings attributable to
   shareholders of the Company
   from Continuing Operations

$

252

$

303

$

(51)

(16.8)%

$

325

$

683

$

(358)

(52.4)%

Net earnings available to
   common shareholders
   of the Company

$

124

$

303

$

(179)

(59.1)%

$

170

$

630

$

(460)

(73.0)%

Continuing Operations

$

238

$

289

$

(51)

(17.6)%

$

291

$

649

$

(358)

(55.2)%

Discontinued Operations

$

(114)

$

14

$

(128)

(914.3)%

$

(121)

$

(19)

$

(102)

(536.8)%

Adjusted net earnings 
   available to common
   shareholders of the Company(1)

$

359

$

358

$

1

0.3 %

$

874

$

736

$

138

18.8 %

Continuing Operations

$

365

$

343

$

22

6.4 %

$

885

$

725

$

160

22.1 %

Discontinued Operations

$

(6)

$

15

$

(21)

(140.0)%

$

(11)

$

11

$

(22)

(200.0)%

Diluted net earnings 
   per common share 
($)

$

0.82

$

1.96

$

(1.14)

(58.2)%

$

1.10

$

4.08

$

(2.98)

(73.0)%

Continuing Operations

$

1.58

$

1.87

$

(0.29)

(15.5)%

$

1.90

$

4.21

$

(2.31)

(54.9)%

Discontinued Operations

$

(0.76)

$

0.09

$

(0.85)

(944.4)%

$

(0.80)

$

(0.13)

$

(0.67)

(515.4)%

Adjusted diluted net earnings
   per common share(1) ($)

$

2.39

$

2.32

$

0.07

3.0 %

$

5.76

$

4.77

$

0.99

20.8 %

Continuing operations

$

2.43

$

2.22

$

0.21

9.5 %

$

5.83

$

4.70

$

1.13

24.0 %

Discontinued operations

$

(0.04)

$

0.10

$

(0.14)

(140.0)%

$

(0.07)

$

0.07

$

(0.14)

(200.0)%
















In the third quarter of 2021, the Company recorded net earnings available to common shareholders of the Company from continuing operations of $238 million ($1.58 per common share), a decrease of $51 million ($0.29 per common share) compared to the same period in 2020. The decrease was due to the unfavourable year-over-year net impact of adjusting items totaling $73 million ($0.50 per common share), partially offset by an improvement of $22 million ($0.21 per common share) in the consolidated underlying operating performance of the Company described below.

  • The unfavourable year-over-year net impact of adjusting items totaling $73 million ($0.50 per common share) was primarily due to:
    • the unfavourable year-over-year impact of the fair value adjustment of the Trust Unit liability of $64 million ($0.43 per common share) as a result of the increase in Choice Properties' unit price in the third quarter of 2021; and
    • the unfavourable year-over-year impact of the fair value adjustment of the forward sale agreement of Loblaw common shares of $41 million ($0.28 per common share); 

               partially offset by,

    • the favourable year-over-year impact of the fair value adjustment on investment properties of $30 million ($0.21 per common share) primarily driven by Choice Properties, net of consolidation adjustments in Other and Intersegment.
  • The improvement in the Company's consolidated underlying operating performance of $22 million ($0.21 per common share) was due to:
    • the favourable underlying operating performance of Loblaw; and
    • a decrease in adjusted net interest expense and other financing charges(1);

               partially offset by,

    • the unfavourable year-over-year impact of certain one-time gains in the prior year recorded on consolidation in Other and Intersegment related to Choice Properties' transactions.
  • Diluted net earnings per common share from continuing operations also included the favourable impact of shares purchased for cancellation over the last 12 months ($0.06 per common share).

Adjusted net earnings available to common shareholders of the Company(1) from continuing operations were $365 million, an increase of $22 million, or 6.4%, compared to the same period in 2020 due to the improvement in the Company's consolidated underlying operating performance described above. Adjusted diluted net earnings per common share(1) from continuing operations were $2.43 per common share in the third quarter of 2021, an increase of $0.21 per common share, or 9.5%, compared to the same period in 2020. The increase was due to the favourable performance in adjusted net earnings available to common shareholders of the Company(1) from continuing operations and the favourable impact of share repurchases.

SALE OF WESTON FOODS AND DISCONTINUED OPERATIONS On March 23, 2021, the Company announced its intention to launch a process to sell the Weston Foods business, comprised of the fresh, frozen and ambient bakery businesses. As at October 9, 2021, Weston Foods was classified as assets held for sale and discontinued operations. Subsequent to the end of the third quarter of 2021, the Company announced on October 26, 2021, an agreement to sell the fresh and frozen bakery businesses, for aggregate cash consideration of $1.2 billion and on November 15, 2021, an agreement to sell the ambient business for aggregate cash consideration of $370 million. The transactions are subject to compliance with applicable competition law and regulatory reviews and other closing conditions customary for transactions of this nature. Subject to the receipt of all regulatory approvals and satisfaction of customary closing conditions, the Company expects to close each of the transactions before the end of the first quarter of 2022. Upon closing of each respective transaction, the respective purchaser will enter into a supply agreement with Loblaw.

Discontinued operations represents results of Weston Foods, net of intersegment eliminations.

Weston Foods sales were $584 million in the third quarter of 2021, a decrease of 1.4% compared to the same period of 2020, and included the unfavourable impact of foreign currency translation of approximately 3.1%. Excluding the unfavourable impact of foreign currency translation, Weston Foods sales increased by 1.7% compared to the same period of 2020.

Net loss available to common shareholders of the Company from discontinued operations in the third quarter of 2021 was $114 million ($0.76 per common share) compared to net earnings available to common shareholders of the Company from discontinued operations of $14 million ($0.09 per common share) in the same period of 2020, a decrease of $128 million ($0.85 per common share). The decrease was due to the unfavourable year-over-year net impact of adjusting items totaling $107 million ($0.71 per common share) and the unfavourable underlying operating performance of Weston Foods of $21 million ($0.14 per common share). The unfavourable year-over-year net impact of adjusting items were primarily due to:

    • a non-cash goodwill impairment net of deferred tax recovery of $79 million ($0.53 per common share). Upon classifying Weston Foods as held for sale, the net assets of fresh and frozen, and ambient businesses were separately measured at the lower of their carrying value or fair value less costs to sell. Fair value less costs to sell represents expected aggregate proceeds from the sale less estimated closing costs and estimated adjustments customary of transactions of this nature;
    • deferred tax expense on outside basis difference of Weston Foods of $17 million ($0.11 per common share). The deferred tax expense pertains to temporary differences in respect of GWL's investment in Weston Foods that are expected to reverse in the foreseeable future; and
    • transaction and other related costs in connection with the sale of the Weston Foods business of $13 million ($0.09 per common share).

Adjusted net loss available to common shareholders of the Company(1) from discontinued operations in the third quarter of 2021 was $6 million ($0.04 per common share), a decrease of $21 million ($0.14 per common share) compared to the same period in 2020, driven by a decline in the underlying operating performance of Weston Foods.

CONSOLIDATED OTHER BUSINESS MATTERS

COVID-19 RELATED COSTS  The Company incurred COVID-19 related costs of approximately $20 million and $141 million in the third quarter of 2021 and year-to-date, respectively (2020 - $89 million and $418 million), primarily related to safety and security measures to protect colleagues, customers, tenants and other stakeholders. The estimated COVID-19 related costs incurred by each of the Company's reportable operating segments were as follows:

(unaudited)

($ millions)

16 Weeks Ended

40 Weeks Ended

Oct. 9, 2021

Oct. 3, 2020

Oct. 9, 2021

Oct. 3, 2020

Loblaw(i)

$

19

$

85

$

137

$

399

Choice Properties(ii)

1

4

4

19

Consolidated

$

20

$

89

$

141

$

418












(i)

Loblaw's COVID-19 related costs included $25 million and $180 million related to one-time bonuses and benefits for store and distribution centre colleagues in the second quarters of 2021 and 2020, respectively.     

(ii)

Choice Properties recorded a provision of $1 million (2020 – $4 million) and $4 million (2020 – $19 million) in the third quarter of 2021 and year-to-date, respectively, for certain past due amounts, reflecting increased collectability risk and negotiated rent abatements.

Refer to "Outlook" of this News Release for more information.

GWL CORPORATE(5) FINANCING ACTIVITIES  The Company completed the following financing activities during the third quarters of 2021 and 2020. The cash impacts of these activities are set out below:

(unaudited)

($ millions)

16 Weeks Ended

40 Weeks Ended

Oct. 9, 2021

Oct. 3, 2020

Oct. 9, 2021

Oct. 3, 2020

Net Debt Associated with Equity Forward Sale
   Agreement

$

(462)

$

$

(515)

$

GWL Normal Course Issuer Bid ("NCIB") - Purchased
   and cancelled(i)(ii)

(411)

(577)

GWL's Participation in Loblaw's NCIB

136

169

474

261

Net Cash Flow (Used) From Above Activities

$

(737)

$

169

$

(618)

$

261












(i)

$26 million of cash consideration related to common shares repurchased under the NCIB for cancellation in the second quarter of 2021 was paid in the third quarter of 2021.

(ii)

$31 million of cash consideration related to common shares repurchased under the NCIB for cancellation in the third quarter of 2021 was paid in the fourth quarter of 2021.

NET DEBT ASSOCIATED WITH EQUITY FORWARD SALE AGREEMENT  In the second quarter of 2021, the Company began to settle the net debt associated with the equity forward sale agreement. In the third quarter of 2021, the Company paid $462 million, net of the $298 million gain on the settlement of 5.83 million of the 9.6 million shares under the agreement, to redeem $283 million of the Series A Debentures and $475 million of the Series B Debentures, plus accrued interest.

Subsequent to the end of the third quarter of 2021, the Company paid $275 million to settle the remaining balance, resulting in the extinguishment of the Series A Debentures, Series B Debentures and the settlement of the equity forward sale agreement. In aggregate, $790 million was paid to extinguish the net debt associated with the equity forward sale agreement.

The 9.6 million Loblaw shares securing the net debt have been released and the Company's economic interest in Loblaw is now equal to its voting interest in Loblaw.

Refer to Section 3.3, "Components of Total Debt" of the Company's 2021 Third Quarter MD&A for more information.

GWL CREDIT FACILITY  In the third quarter of 2021, GWL entered into a $350 million revolving committed credit facility provided by a syndicate of lenders with a maturity date of September 13, 2024. The credit facility contains certain financial covenants. Subsequent to the end of the third quarter of 2021, the Company drew $275 million on its credit facility to fund the settlement of the net debt associated with the equity forward sale agreement.

Refer to Section 3.3, "Components of Total Debt" of the Company's 2021 Third Quarter MD&A for more information.

GWL'S NCIB - PURCHASED AND CANCELLED SHARES  In the third quarter of 2021, the Company purchased and cancelled 3.2 million shares under its NCIB program. At the end of the quarter, the Company had 147.5 million shares outstanding.

In the second quarter of 2021, the Company entered into an automatic share purchase plan ("ASPP") with a broker in order to facilitate the repurchase of the Company's common shares under its NCIB. During the effective period of the ASPP, the Company's broker may purchase common shares at times when the Company would not be active in the market. Subsequent to the end of the third quarter of 2021, the Company purchased and cancelled approximately $70 million of its common shares under its ASPP.

Refer to Section 3.6, "Share Capital" of the Company's 2021 Third Quarter MD&A for more information.

GWL'S PARTICIPATION IN LOBLAW'S NCIB  Commencing in the first quarter of 2020, the Company began participating in Loblaw's NCIB program in order to maintain its proportionate percentage ownership. During the third quarter of 2021, GWL received proceeds of $136 million from the sale of Loblaw shares.

REPORTABLE OPERATING SEGMENTS

The Company operates through its two reportable operating segments: Loblaw and Choice Properties. Other and Intersegment includes eliminations, intersegment adjustments related to the consolidation and cash and short-term investments held by the Company. All other company level activities that are not allocated to the reportable operating segments, such as interest expense, corporate activities and administrative costs are included in Other and Intersegment.

Loblaw has two reportable operating segments, retail and financial services. Loblaw's retail segment consists primarily of food retail and drug retail. Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise and financial services.

Choice Properties owns, manages and develops a high-quality portfolio of commercial retail, industrial, office and residential properties across Canada.

Loblaw Operating Results 

(unaudited)
($ millions except where otherwise
    indicated)
For the periods ended as indicated


16 Weeks Ended




40 Weeks Ended













Oct. 9, 2021

Oct. 3, 2020(3)

$ Change

% Change

Oct. 9, 2021

Oct. 3, 2020(3)

$ Change

% Change

Revenue


$

16,050

$

15,671

$

379

2.4 %

$

40,413

$

39,428

$

985

2.5 %

Operating income


$

861

$

716

$

145

20.3 %

$

2,226

$

1,657

$

569

34.3 %

Adjusted EBITDA(1)


$

1,672

$

1,516

$

156

10.3 %

$

4,257

$

3,685

$

572

15.5 %

Adjusted EBITDA margin(1)


    ­    10.4 %

9.7 %



    ­    10.5 %

9.3 %


Depreciation and
  amortization(i)


$

817

$

795

$

22

2.8 %

$

2,041

$

1,987

$

54

2.7 %

















(i)

Depreciation and amortization in the third quarter of 2021 includes $155 million (2020 – $155 million) of amortization of intangible assets acquired with Shoppers Drug Mart Corporation ("Shoppers Drug Mart").

Revenue  Loblaw revenue in the third quarter of 2021 was $16,050 million, an increase of $379 million, or 2.4%, compared to the same period in 2020, driven by an increase in retail sales and an improvement in financial services revenue.

Retail sales increased by $367 million, or 2.4%, compared to the same period in 2020 and included food retail sales of $11,382 million (2020 – $11,215 million) and drug retail sales of $4,449 million (2020 – $4,249 million). The increase was primarily driven by the following factors:

  • food retail same-store sales grew by 0.2% for the quarter. Sales were impacted by lower eat-at-home trends after strong growth last year, offset by higher industry inflation levels. The two year food retail sales Compound Annual Growth Rate ("CAGR")(6) was 4.5%. Food retail basket size decreased and traffic increased in the quarter, as compared to the third quarter of 2020;
  • Loblaw's internal measures of inflation were slightly higher than the average quarterly national food price inflation of 2.6% (2020 – 1.8%), as measured by The Consumer Price Index for Food Purchased from Stores; and
  • drug retail same-store sales grew by 4.4% (2020 – 6.1%). Pharmacy same-store sales growth benefited from strong sales in fee related services. Front store same-store sales growth benefited from the economic re-opening in the third quarter of 2021. Pharmacy same-store sales growth was 4.8% and front store same-store sales increased by 4.1%. The two year drug retail sales CAGR(6) was 5.5%.

In the last 12 months, 15 food and drug stores were opened and fourteen food and drug stores were closed, resulting in a net increase in retail square footage of 0.3 million square feet, or 0.4%. 

Financial services revenue in the third quarter of 2021 increased by $19 million compared to the same period in 2020. The increase was primarily driven by higher interchange income from an increase in customer spending.

Operating income  Loblaw operating income in the third quarter of 2021 was $861 million, an increase of $145 million, or 20.3%, compared to the same period in 2020. The increase included the improvement in underlying operating performance of $134 million and the favourable year-over-year net impact of adjusting items totaling $11 million, as described below:

  • the improvement in underlying operating performance of $134 million was primarily due to the following:
    • an improvement in the underlying operating performance of retail due to an increase in retail gross profit, partially offset by an increase in selling, general and administrative expenses ("SG&A") and depreciation and amortization; and
    • the improvement in the underlying operating performance of financial services.
  • the favourable year-over-year net impact of adjusting items totaling $11 million was primarily due to:
    • the favourable year-over-year impact of fair value adjustments on fuel and foreign currency contracts of $8 million; and
    • the favourable year-over-year impact of a net gain on sale of non-operating properties of $6 million;

               partially offset by,

    • the unfavourable year-over-year impact of restructuring and other related costs of $3 million.

Adjusted EBITDA(1)  Loblaw adjusted EBITDA(1) in the third quarter of 2021 was $1,672 million, an increase of $156 million, or 10.3%, compared to the same period in 2020. The increase was primarily due to an increase in retail of $149 million and an increase in financial services of $7 million.

Retail adjusted EBITDA(1) in the third quarter of 2021 increased by $149 million driven by an increase in retail gross profit partially offset by an increase in SG&A of $173 million.

  • Retail gross profit percentage of 30.7% increased by 140 basis points compared to the same period in 2020, from a favourable change in sales mix in both food retail and drug retail and underlying improvements in business initiatives.
  • Retail SG&A as a percentage of sales was 20.5%, an increase of 70 basis points compared to the same period of 2020. The increase was primarily due to the normalization of post-lockdown operating conditions and higher costs incurred in drug retail from providing fee related services, partially offset by a reduction in COVID-19 costs.

Financial services adjusted EBITDA(1) increased by $7 million compared to the same period in 2020, primarily driven by higher revenue as described above, lower contractual charge-off and lower funding costs. This was partially offset by higher loyalty program costs and operating costs.

Depreciation and Amortization  Loblaw depreciation and amortization in the third quarter of 2021 was $817 million, an increase of $22 million compared to the same period in 2020, primarily driven by an increase in depreciation of information technology ("IT") and leased assets and an increase in depreciation in the financial services due to the launch of the PC Money Account. Included in depreciation and amortization is the amortization of intangible assets acquired with Shoppers Drug Mart of $155 million (2020 – $155 million).

Consolidation of Franchises  Loblaw has more than 500 franchise food retail stores in its network. Non-controlling interests at Loblaw represent the franchise's earnings in food. Loblaw's net earnings attributable to non-controlling interests were $54 million in the third quarter of 2021. When compared to the third quarter of 2020, this represented an increase of $39 million or 260%. The increases in non-controlling interests at Loblaw were primarily driven by higher franchise earnings in comparison to the same period in 2020.

Network Optimization  Subsequent to the end of the third quarter of 2021, Loblaw finalized network optimization plans that will result in banner conversions, closures and right-sizing of approximately 20 unprofitable retail locations across a range of banners and formats, the majority of which will be banner conversions and 3 will be closures within food retail. Loblaw expects to record charges of approximately $25 million to $35 million resulting from this network optimization. These charges will be recorded as incurred and are expected to include equipment, severance, lease related and other costs. Loblaw expects to realize approximately $25 million in annualized EBITDA run-rate savings related to these plans. This store optimization project will be substantially complete by the end of 2022. As Loblaw places emphasis on optimizing its store and office network, there may be additional charges of this nature in the fourth quarter of 2021 and into 2022. 

Choice Properties Operating Results

(unaudited)

($ millions except where otherwise
   indicated)

For the periods ended as indicated

16 Weeks Ended




40 Weeks Ended












Oct. 9, 2021

Oct. 3, 2020

$ Change

% Change

Oct. 9, 2021

Oct. 3, 2020

$ Change

% Change

Revenue

$

316

$

309

$

7

2.3 %

$

967

$

949

$

18

1.9 %

Net interest expense (income)
   and other financing charges(i)

$

113

$

145

$

(32)

(22.1)%

$

878

$

(44)

$

922

2,095.5 %

Net income

$

163

$

97

$

66

68.0%

$

186

$

334

$

(148)

(44.3)%

Funds from Operations(1)

$

173

$

169

$

4

2.4 %

$

515

$

480

$

35

7.3 %
















(i)

Net interest expense (income) and other financing charges includes a fair value adjustment on Exchangeable Units.

Revenue  Revenue in the third quarter of 2021 was $316 million, an increase of $7 million, or 2.3%, compared to the same period in 2020, and included $176 million (2020 – $176 million) generated from tenants within Loblaw.

The increase in revenue was primarily driven by:

  • the contribution from acquisitions and development transfers completed in 2020 and 2021;

      partially offset by,

  • declines due to foregone revenue from dispositions in 2020; and
  • vacancies in select retail and office assets.

Net Interest Expense and Other Financing Charges  Net interest expense and other financing charges in the third quarter of 2021 were $113 million compared to $145 million in the same period in 2020. The decrease of $32 million was primarily driven by the favourable year-over-year impact of the fair value adjustment of Exchangeable Units of $31 million.

Net Income  Net income in the third quarter of 2021 was $163 million, compared to $97 million in the same period in 2020. The increase of $66 million was primarily driven by:

  • lower net interest expense and other financing charges as described above;
  • the favourable change in the adjustment to fair value of investment properties, including those held within equity accounted joint ventures;
  • a decline in expected credit loss provisions; and
  • an increase in rental revenue as described above.

Funds from Operations(1)  Funds from Operations(1) in the third quarter of 2021 was $173 million, an increase of $4 million compared to the same period in 2020, primarily due to a decline in expected credit loss provisions, and the contribution from acquisitions and development transfers completed in 2020 and 2021.

Other Matters  Subsequent to the end of the third quarter of 2021, Choice Properties announced that on December 10, 2021, it will redeem in full, at par, plus accrued and unpaid interest thereon, the $300 million aggregate principal amount of series I senior unsecured debentures outstanding bearing interest at 3.01% with an original maturity date of March 21, 2022.

Subsequent to the end of the third quarter of 2021, Choice Properties agreed to issue, on a private placement basis, $350 million aggregate principal amount of series Q senior unsecured debentures, bearing interest at a rate of 2.456% per annum and maturing on November 30, 2026.

Subsequent to the end of the third quarter of 2021, Choice Properties announced that the Toronto Stock Exchange ("TSX") accepted its intention to make a NCIB to purchase on the TSX or through alternative trading systems up to 27,558,665 of its Trust Units during a 12-month period commencing November 19, 2021 and terminating November 18, 2022.

OUTLOOK(2)

For 2021, the Company expects adjusted net earnings(1) from continuing operations to increase due to the results from its operating segments, including the continued improved performance of Loblaw, and to use excess cash to repurchase shares.

Loblaw  Loblaw's businesses continues to be impacted by the pandemic in 2021, including the challenge of lapping elevated 2020 sales.

On a full year basis, Loblaw expects:

  • its core retail business to grow earnings faster than sales;
  • growth in financial services profitability;
  • to invest approximately $1.2 billion in capital expenditures, net of proceeds from property disposals; and
  • to return capital to shareholders by allocating a significant portion of free cash flow to share repurchases.

Based on its year to date operating and financial performance and momentum exiting the third quarter, Loblaw expects year-over-year adjusted diluted net earnings per common share(1) growth in the low-to-mid thirty percent range, excluding the impact of the 53rd week in the fourth quarter of fiscal year 2020 and the charges associated with Loblaw's network optimization as described in Loblaw Operating Results of this News Release.

In the third quarter, Loblaw's COVID-19 related costs were approximately $19 million. Loblaw incurred COVID-19 costs in the four weeks after the end of the third quarter of 2021 of approximately $4 million.

Choice Properties  Choice Properties' goal is to provide net asset value appreciation, stable net operating income growth and capital preservation, all with a long-term focus. 

Although there remains uncertainty on the longer-term impact of the COVID-19 pandemic, Choice Properties remains confident that its business model, stable tenant base, and disciplined approach to financial management will continue to position it well. At the end of the third quarter of 2021, Choice Properties' diversified portfolio of retail, industrial and office properties was 97% occupied and leased to high-quality tenants across Canada. Choice Properties' retail portfolio is primarily leased to grocery stores, pharmacies or other necessity-based tenants, and logistics providers, who continue to perform well in this environment and provide stability to Choice Properties' overall portfolio. The stability is evident in Choice Properties' financial results and rent collections, which exceeded 99% for the third quarter.

Choice Properties continues to advance its development program, which provides Choice Properties with the best opportunity to add high-quality real estate to its portfolio at a reasonable cost and drive net asset value appreciation over time. Choice Properties has a mix of active development projects ranging in size, scale, and complexity, including retail intensification projects, industrial greenfield development and rental residential projects located in urban markets with a focus on transit accessibility.

Underpinning all aspects of Choice Properties' business model is a strong balance sheet and a disciplined approach to financial management. Choice Properties takes a conservative approach to leverage and financing risk by maintaining strong leverage ratios and a staggered debt maturity profile.

DECLARATION OF QUARTERLY DIVIDENDS

Subsequent to the end of the third quarter of 2021, 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

$0.600 per share payable January 1, 2022, to shareholders of record December 15, 2021;







Preferred Shares, Series I

$0.3625 per share payable December 15, 2021, to shareholders of record November 30, 2021;







Preferred Shares, Series III

$0.3250 per share payable January 1, 2022, to shareholders of record December 15, 2021;







Preferred Shares, Series IV

$0.3250 per share payable January 1, 2022, to shareholders of record December 15, 2021;







Preferred Shares, Series V

$0.296875 per share payable January 1, 2022, to shareholders of record December 15, 2021.


NON-GAAP FINANCIAL MEASURES

The Company uses non-GAAP financial measures as it believes these measures provide useful information to both management and investors with regard to accurately assessing the Company's financial performance and financial condition.

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 underlying consolidated and segment operating performance, as the excluded items are not necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. The Company excludes 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 should not be construed as an alternative to other financial measures determined in accordance with GAAP.

For reconciliation to, and description of the Company's non-GAAP financial measures and financial metrics, see Section 9, "Non-GAAP Financial Measures", of the MD&A in the Company's 2021 Third Quarter Report.

Non-GAAP Financial Measures Policy Change Effective First Quarter of 2021  In 2020, management undertook a review of historical adjusting items as part of an effort to reduce the number of non-GAAP items it adjusts for in its financial reporting. Management concluded that, in order to present adjusting items in a manner more consistent with that of its Canadian and U.S. peers, the Company will no longer adjust for fixed asset and other related impairments (net of recoveries), certain restructuring and other related costs, pension settlement costs, statutory income tax rate changes or other items. For further details please refer to Section 9.1 "Non-GAAP Financial Measures Policy Change Effective First Quarter of 2021" of the MD&A in the Company's 2021 Third Quarter Report.

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, opportunities and legal and regulatory matters. 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, strategic initiatives and restructuring, regulatory changes including further healthcare reform, future liquidity, planned capital investments, and the status and impact of IT systems implementations. Additionally, there can be no assurance regarding (a) the ability of the Company to successfully complete the sale of the Weston Foods fresh, frozen or ambient businesses, (b) the proceeds to be derived from the transactions referenced in this News Release, and (c) the timing of closing of any such sale. 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", "should" and similar expressions, as they relate to the Company and its management.

Forward-looking statements reflect the Company's 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 2021 is based on certain assumptions, including assumptions about the COVID-19 pandemic, healthcare reform impacts, anticipated cost savings and operating efficiencies and anticipated benefits from strategic initiatives. The Company's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events, including the COVID-19 pandemic 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 "Enterprise Risks and Risk Management" section, of the MD&A in the Company's 2020 Annual Report and the Company's Annual Information Form for the year ended December 31, 2020.

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.

SEGMENT INFORMATION

The Company has two reportable operating segments: Loblaw and Choice Properties. Other and Intersegment includes eliminations, intersegment adjustments related to the consolidation, cash and short-term investments held by the Company and all other company level activities that are not allocated to the reportable operating segments, as further illustrated below.

The accounting policies of the reportable operating segments are the same as those described in the Company's 2020 audited annual consolidated financial statements. The Company measures each reportable operating segment's performance based on adjusted EBITDA(1) and adjusted operating income(1). No reportable operating segment is reliant on any single external customer.


16 Weeks Ended


Oct. 9, 2021

Oct. 3, 2020(3,4)

($ millions)

Loblaw

Choice

Properties

Other and

Intersegment

Total

Loblaw

Choice

Properties

Other and

Intersegment

Total

Revenue

$

16,050

$

316

$

(174)

$

16,192

$

15,671

$

309

$

(174)

$

15,806

Operating income

$

861

$

276

$

(12)

$

1,125

$

716

$

242

$

6

$

964

Net interest expense (income) and other
   financing charges

203

113

96

412

228

145

(50)

323

Earnings before income taxes

$

658

$

163

$

(108)

$

713

$

488

$

97

$

56

$

641










Operating income

$

861

$

276

$

(12)

$

1,125

$

716

$

242

$

6

$

964

Depreciation and amortization

817

1

(114)

704

795

1

(114)

682

Adjusting items(i)

(6)

(51)

8

(49)

5

(18)

11

(2)

Adjusted EBITDA(i)

$

1,672

$

226

$

(118)

$

1,780

$

1,516

$

225

$

(97)

$

1,644

Depreciation and amortization(ii)

662

1

(114)

549

640

1

(114)

527

Adjusted operating income(i)

$

1,010

$

225

$

(4)

$

1,231

$

876

$

224

$

17

$

1,117




















(i)

Certain items are excluded from operating income to derive adjusted EBITDA(1). Adjusted EBITDA(1) is used internally by management when analyzing segment underlying operating performance.

(ii)

Excludes $155 million (2020 – $155 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw.

 


40 Weeks Ended


Oct. 9, 2021

Oct. 3, 2020(3,4)

($ millions)

Loblaw

Choice

Properties

Other and

Intersegment

Total

Loblaw

Choice

Properties

Other and

Intersegment

Total

Revenue

$

40,413

$

967

$

(534)

$

40,846

$

39,428

$

949

$

(537)

$

39,840

Operating income

$

2,226

$

1,064

$

(272)

$

3,018

$

1,657

$

290

$

59

$

2,006

Net interest expense (income) and other
   financing charges

524

878

58

1,460

576

(44)

53

585

Earnings before income taxes

$

1,702

$

186

$

(330)

$

1,558

$

1,081

$

334

$

6

$

1,421










Operating income

$

2,226

$

1,064

$

(272)

$

3,018

$

1,657

$

290

$

59

$

2,006

Depreciation and amortization

2,041

3

(274)

1,770

1,987

2

(267)

1,722

Adjusting items(i)

(10)

(393)

157

(246)

41

361

(170)

232

Adjusted EBITDA(i)

$

4,257

$

674

$

(389)

$

4,542

$

3,685

$

653

$

(378)

$

3,960

Depreciation and amortization(ii)

1,652

3

(274)

1,381

1,595

2

(267)

1,330

Adjusted operating income(i)

$

2,605

$

671

$

(115)

$

3,161

$

2,090

$

651

$

(111)

$

2,630



































(i)

Certain items are excluded from operating income to derive adjusted EBITDA(1). Adjusted EBITDA(1) is used internally by management when analyzing segment underlying operating performance.

(ii)

Excludes $389 million (2020 – $392 million) of amortization of intangible assets acquired with Shoppers Drug Mart, recorded by Loblaw.

2021 THIRD QUARTER REPORT

The Company's 2020 Annual Report and 2021 Third Quarter Report are available in the Investor Centre section of the Company's website at www.weston.ca and have been filed on SEDAR and are available at www.sedar.com.

INVESTOR RELATIONS

Shareholders, security analysts and investment professionals should direct their requests to Roy MacDonald, Vice President, Investor Relations, at the Company's Executive Office or by e-mail at investor@weston.ca.

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

This News Release also includes selected information on Choice Properties, a public real estate investment trust with units trading on the TSX. For information regarding Choice Properties, readers should refer to the materials filed by Choice Properties on SEDAR from time to time. These filings are also maintained on Choice Properties' website at www.choicereit.ca.

THIRD QUARTER CONFERENCE CALL AND WEBCAST

George Weston Limited will host a conference call as well as an audio webcast on Tuesday, November 23, 2021 at 9:00 a.m. (ET). To access via tele-conference, please dial 416-764-8688 or 1-888-390-0546. The playback will be available two hours after the event at 416-764-8677 or 1-888-390-0541, passcode: 153670#. To access via audio webcast, please visit the Investor Centre section of www.weston.ca. Pre-registration will be available.

Ce rapport est disponible en français.



Endnotes



(1)

See the "Non-GAAP Financial Measures" section of the Company's 2021 Third Quarter Results, which includes the reconciliation of such non-GAAP measures to the most directly comparable GAAP measures.

(2)

This News Release contains forward-looking information. See "Forward-Looking Statements" section of this News Release and the Company's 2021 Third Quarter Report 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 and assumptions that were used when making these statements. This News Release should 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 due to the non-GAAP financial measures policy change. See the "Non-GAAP Financial Measures Policy Change Effective First Quarter of 2021" section of the Company's 2021 Third Quarter Management Discussion & Analysis.

(4)

Comparative figures have been restated to conform with current year presentation.

(5)

GWL Corporate refers to the non-consolidated financial results and metrics of GWL. GWL Corporate is a subset of Other and Intersegment.

(6)

Compound Average Growth Rate ("CAGR") is the measure of annualized growth over a period longer than one year. CAGR is the mean annual growth rate over a two year period, 2019 to 2021.



 

SOURCE George Weston Limited

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