SEDAR Weston Eng Covers
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SEDAR Weston Eng Covers 4/7/04 11:10 AM Page 1 George Weston Limited Weston George Today Annual Report George Weston Limited Annual Report 2003 2003 SEDAR Weston Eng Covers 4/7/04 11:08 AM Page 2 Sha Executiv George W Weston at a Glance 22 St. Cla Toronto, C Tel: 416. Fax: 416. www.wes Stock Ex The Comp Stock Exc “WN.PR.B Common At year en 1,215 regi available Corporate Profile The avera shares wa George Weston Limited (“Weston”) is a Canadian public In order to be successful in delivering long term value company founded in 1882 and is one of North America’s to shareholders and to fulfill its long term objectives Preferred At year en largest food processing and distribution companies. Weston of security and growth, Weston employs various outstandi 67 registe has three reportable operating segments: Weston Foods, operating strategies. The Weston Foods segment were avai Food Distribution and Fisheries. The Weston Foods segment concentrates on brand development, low operating costs The avera shares wa is primarily engaged in the baking and dairy industries and maintaining a broad customer base, with the objective Seri Seri within North America. The Food Distribution segment, of being the best provider of bakery solutions and fresh Common which is operated by Loblaw Companies Limited, the dairy products to its customers. The Food Distribution It is the C approxim largest food distributor in Canada, concentrates on food segment concentrates on food retailing, with the objective earnings p retailing while increasing its offering of non-food products of providing Canadian consumers with the best in one-stop Common and services. The Fisheries segment is primarily engaged shopping for everyday household needs. The Fisheries The decla to approv in the hatching, growing and processing of fresh farmed segment concentrates on new product development and payment d salmon in North America and Chile. building on its strong brand equity, with the objective Record D March 15 of producing and delivering top quality Atlantic fresh June 15 Sept. 15 Weston seeks long term, stable growth in its operating farmed salmon products to the North American market. Dec. 15 segments through continuous capital investment supported Normal C The Comp by a strong balance sheet, thereby providing sustainable Weston is committed to creating value for its shareholders Exchange returns to its shareholders through a combination of and to participating along with its more than 145,000 Value of common share appreciation and dividends. Weston strives employees in supporting the communities in which For capita cost base to be the best in each of its reportable operating segments. it operates. May 27, 1 $1.50 per Design and SEDAR Weston Eng Front 4/7/04 11:14 AM Page 1 Weston at a Glance Our network of production facilities and retail stores spans North America, supporting our strong portfolio of national and regional brands and banners. Weston Foods Food Distribution Fisheries SEDAR Weston Eng Front 4/7/04 11:14 AM Page 2 $ 29 for gatefold 1” cut-off billion sales exceeded A Harvest of Hope Top of the class In the fall of 2003, Weston Bakeries At more than $29 billion in sales, supported the Canadian Breast Cancer George Weston Limited is once again Foundation through the “A Harvest of one of the largest revenue-producing Hope” promotion with a donation made companies in Canada. for every purchase of a Country Harvest product. Finding a delicious source of soy has never been easier – or felt so good – than with Country Harvest whole wheat soy bread and bagels. Weston Foods Baking Facilities North America 66 Dairy Facilities Canada 2 Food Distribution Corporate 646 Franchised 397 Associated 598 Independent 6,676 Fisheries Fresh Farmed Salmon Facilities North America 45 Chile 13 Chile 1” cut-off for gatefold 1” cut-off George Weston Limited Annual Report 2003 3 SEDAR Weston Eng Front 4/7/04 11:15 AM Page 3 1” cut-off for gatefold 1” cut-off Tomorrow Our goal is to deliver what consumers want, not necessarily what we make today. Through innovation we provide products, services and brands that are more relevant to the consumer and through our low cost operating structure we are able to deliver them at superior value. Through consistent execution of our strategies, our skilled employees continue to drive long term growth and returns for our shareholders. Weston at a Glance 3 Financial Highlights 4 Report to Shareholders 5 Operating Directory 8 Operating Review 10 Corporate Governance 22 Financial Information 24 Glossary 94 Corporate Directory 96 2003 1 1” cut-off for gatefold 1” cut-off George Weston Limited Annual Report SEDAR Weston Eng Front 4/7/04 11:15 AM Page 4 Financial Highlights (1) For the years ended December 31 ($ millions except where otherwise indicated) 2003 2002 Operating Results Sales 29,198 27,446 EBITDA (2, 3) 2,358 2,185 Operating income (3) 1,812 1,678 Interest expense 266 238 Net earnings 792 690 Cash Flows Cash flows from operating activities 1,283 1,340 Capital investment 1,509 1,397 Per Common Share ($) Basic net earnings 5.80 5.05 Dividend rate at year end 1.20 .96 Cash flows from operating activities 9.52 10.01 Book value 30.71 29.43 Market value at year end 103.71 90.25 Financial Ratios EBITDA margin 8.1 % 8.0 % Operating margin 6.2 % 6.1 % Net earnings margin 2.7 % 2.5 % Return on average total assets (2) 12.0 % 11.8 % Return on average common shareholders’ equity 19.4 % 18.3 % Interest coverage 6.8:1 7.1:1 Net debt (2) to equity 1.23:1 1.09:1 Net debt (excluding Exchangeable Debentures) (2) to equity 1.15:1 1.00:1 Reportable Operating Segments Weston Foods Sales (4) 4,523 4,792 Operating income (3) 374 409 Operating margin 8.3 % 8.5 % Return on average total assets (2) 9.0 % 9.2 % Food Distribution Sales 25,220 23,082 Operating income (3) 1,458 1,295 Operating margin 5.8 % 5.6 % Return on average total assets (2) 13.7 % 13.6 % Fisheries Sales (4) 190 219 Operating loss (20) (26) Operating margin (10.5)% (11.9)% Return on average total assets (2) (7.1)% (8.5)% (1)For financial definitions and ratios refer to the Glossary on page 94. (2) See Supplementary Financial Information beginning on page 59. (3) 2003 includes restructuring and other charges of $60 made up of a $35 charge recognized by Weston Foods and a $25 charge recognized by Food Distribution (see note 2 to the consolidated financial statements). (4) Includes intersegment sales. 4 George Weston Limited Annual Report 2003 SEDAR Weston Eng Front 4/7/04 11:15 AM Page 5 Report to Shareholders I am pleased to report to you that 2003 was another successful year for George Weston Limited. Sales increased 6% to $29.2 billion and operating income increased 8% to $1.8 billion for the year. Basic net earnings per common share increased 15% to $5.80 from the $5.05 reported in 2002. Excellent results in Canada by both Weston Foods and Loblaw Companies Limited were difficult to duplicate in the present operating environment in the United States baking sector, which remains challenging. Weston Foods sales decreased 6% to $4.5 billion, with foreign currency translation negatively impacting sales by approximately 9%. Operating income was 9% behind 2002, including the impacts of foreign currency translation, the restructuring charge of $35 million recognized in 2003 and net stock-based compensation cost, which negatively impacted operating income by approximately 11%. On a comparable basis, both sales and operating income improved over 2002. Our continuing focus in the United States is to streamline facilities, improve productivity in both manufacturing and distribution, direct product development toward ‘healthy’ products and grow our sales through our core retail and fast-growing alternate format customer base. In Canada, our positive sales and earnings George Weston Limited Annual Report 2003 5 SEDAR Weston Eng Front 4/7/04 11:15 AM Page 6 Basic Earnings before Goodwill Total Return on $100 Investment Return on Average Common Charges and Unusual Item and (includes dividend reinvestment) Shareholders’ Equity Dividend Rate per Common Share ($) (%) ($) $5.80 $188 24% 4.35 141 18 2.90 94 12 1.45 47 6 0 0 0 1999 2000 2001 2002 2003 1998 1999 2000 20012002 2003 1999 2000 2001 2002 2003 Dividend Rate per Common Share (year end) George Weston Limited Return on Average Common Basic Earnings before Goodwill Charges S&P/TSX Composite Index Shareholders’ Equity (net of minority interest impact) and Unusual Five Year Average Return Item (net of tax) trends continued in both the bakery and dairy businesses, fuelled by innovative promotional programs and successful new product launches. Our brands throughout North America remain strong and widely recognized for quality and service. We continue to invest in these brands to position our Company as the most efficient bakery and dairy business in North America. Weston’s Food Distribution segment, operated by 62%-owned Loblaw Companies Limited, continued its strong performance trend as Canada’s leading and most successful food distributor. Sales for the year were up 9.3% to $25 billion, with same-store sales growth of 4.6% and an operating income increase of 13% to $1.5 billion. A further investment of $1.3 billion was made to prepare the Company for future growth. Excellent progress was made in a number of important areas during the year: in the way the company is organized; in its store models; in the assortment of food and general merchandise offerings; in support services; and in its relationship with organized labour.