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2016 ANNUAL REPORT 1 2016 ANNUAL REPORT 2016 ANNUAL REPORT 1 2016 Financial Highlights 53 weeks ended 52 weeks ended 52 weeks ended ($ in millions, except per share amounts) May 7, 2016 May 2, 2015(1) May 3, 2014(1) Sales $ 24,618.8 $ 23,928.8 $ 20,957.8 EBITDA (2) (1,944.7) 1,224.9 753.5 Adjusted EBITDA (2) 1,161.4 1,321.9 1,052.8 Operating (loss) income (2,418.5) 742.4 326.7 Net (loss) earnings from continuing operations (3) (2,131.0) 419.0 151.0 per share (fully diluted) (7.78) 1.51 0.63 Net (loss) earnings (3) (2,131.0) 419.0 235.4 per share (fully diluted) (7.78) 1.51 0.98 Adjusted net earnings from continuing operations (2)(3) 410.2 511.0 390.6 per share (fully diluted) 1.50 1.84 1.63 Book value per share 13.33 21.60 20.59 Dividends per share 0.40 0.36 0.35 SaleS ADJUSTED net earnIngS FROM DIVIDenDS ($ billions) contInuIng operatIonS (3) ($ per share) ($ millions) 25 + 6.5% CAGR(4) 600 + 7.3% CAGR(4) 0.5 + 7.9% CAGR(4) 500 20 0.4 400 15 0.3 300 10 0.2 200 5 0.1 100 0 0 0 07 08 09 10 11 12 13 14 15 16 07 08 09 10 11 12 13 14 15 16 07 08 09 10 11 12 13 14 15 16 (1) Amounts have been reclassified to correspond to the current period presentation on the consolidated statement of (loss) earnings. (2) See “Non-GAAP Financial Measures & Financial Metrics” section of the Management’s Discussion and Analysis (“MD&A”). (3) Net of non-controlling interest. (4) Compound annual growth rate. About forward-looking statements This document includes statements about our objectives, plans, goals, strategies, future growth, financial condition, results of operations, cash flows, performance, business prospects and opportunities. These statements are forward-looking because they are based on management’s expectations about the future – they are not historical facts. Forward-looking statements usually include words like anticipates, expects, believes, estimates, could, intends, may, plans, predicts, projects, will, would, foresees and other similar expressions, or the negative of these words. For more information and a caution about using forward-looking information, see Forward-Looking Information on page 26. About non-GAAP measures Certain financial measures in this document are not defined terms under GAAP, so they are not a reliable way to compare us to other companies. See Non-GAAP Financial Measures & Financial Metrics on page 60 for more information. EMPIRE COMPANY LIMITED Building a stronger platform for growth As Canada’s largest full service food retailer, backed by What'S INSIDE 109 years of food retailing experience and a food culture Proudly Canadian with 109 years that extends across the entire organization, Empire has in food retailing 2 A long-term track record of growth 4 a long-term strategy that works. Fiscal 2016 was a difficult Message from the Chair 6 year for our company, but we are confident in the direction Letter to Shareholders 8 we are taking and remain focused on delivering long-term Canada’s better food destination 10 value to our shareholders. The value of strong governance 24 Management’s Discussion and Analysis 25 Consolidated Financial Statements 64 Shareholder information 119 2016 ANNUAL REPORT 1 ProuDLY CanaDIan WITH 109 YearS IN fooD retaILIng We meet the food shopping needs of Canadians from BY THE numbers coast to coast. 1,800+ LOcatIONS* 38.6M TOtal SQ. FOOtagE 900+ COmmUNITIES 125,000 PEOPLE * includes more than 350 retail fuel locations Food Fuel Canada’s largest full service food retailer Expanding the relationship between > $24.6 billion in annual sales food and fuel > more than 1,500 stores in 10 provinces > more than 350 retail fuel locations > 3 banners Pharmacy One of Canada’s leading pharmacy retailers Wholesale > 348 in-store pharmacies Canada’s largest food wholesaler > 78 Lawtons Drug Stores > 8,000 accounts, including retail stores and convenience stores coast to coast Liquor Building our position as a liquor retailer Real estate > 80 locations Owning and developing real estate > 3 banners > strong real estate development team > 41.5% equity interest in Crombie REIT 2 EMPIRE COMPANY LIMITED LOCATIONS BY REGION Proudly Canadian and headquartered in Stellarton, Nova Scotia, Empire Company Limited (TSX: EMP.A) Our reach is one of the country’s leading food retailers. Our key businesses are food retailing, through our wholly-owned subsidiary Sobeys Inc., and investments and other operations, including a 41.5% equity accounted interest in Crombie REIT. Our food retailing business is made up of a diversified and complementary group of businesses – food, pharmacy, wholesale, liquor and fuel – supported by a comprehensive logistics and distribution network of 34 distribution centres, warehouses and retail support centres, and a real estate development team that supports our strategy for network expansion and oversees our store properties across Canada. ATLANTIC CANADA WESTERN CANADA QUÉBEC 463 397 Corporate: 328 701 Franchised: 135 Corporate: 303 5.5M sq. ft. Corporate: 183 Franchised: 94 ONTARIO 12.5M sq. ft. Franchised: 518 334 11.6M sq. ft. Corporate: 94 Franchised: 240 9.0M sq. ft. HEAD OFFICE FooD PHARMACY LIQUOR Fuel urban FRESH at Shell Trade Marks reproduced by permission of Shell Brands International AG. 2016 ANNUAL REPORT 3 A LONG-TERM TRACK RECORD OF GROWTH We focus on maximizing long-term value for shareholders. FIScal $13.4 $200.1 $10.77 Sales ($ in billions) Adjusted net earnings Book value ($ per share) from continuing 07 operations ($ in millions) BooBook vka lvuaelu (e$ (p$e pr esrh ashrea)re) 10-year look back 07 08 09 10 11 AUGUST 2006 JUNE 2007 MARCH 2009 MAY 2010 OCTOBER 2010 Sobeys acquires Achille Empire acquires the Empire issues 2.713 Sobeys enjoys another Empire sells its de la Chevrotière Ltée, outstanding common million Non-Voting record year and receives investment in Wajax for $79.2 million. shares of Sobeys that it Class A shares at $49.75 credit rating upgrades for net proceeds of did not own for $1.06 per share. from Standard & $121.3 million. billion, achieving 100% Poor’s and DBRS, Empire reduces its ratio ownership. with both ratings at MAY 2011 of debt to capital to Sobeys completes the investment grade. SEPTEMBER 2007 32.7% from 39.8%. first year of the FreshCo. Sobeys acquires Thrifty Empire reduces its ratio discount banner in NOVEMBER 2009 Foods for $253.6 million. of debt to capital to Ontario with a network Sobeys opens its 29.3% from 32.7%. of 57 stores in operation first automated APRIL 2008 by fiscal year-end. Empire sells 61 proper- distribution centre in ties for $428.5 million to Vaughan, Ontario. Crombie REIT. 4 EMPIREEMPIRE COMPANYCOMPANY LIMITEDLIMITED In fiscal 2016, shareholders approved the fourth share split in our history and we increased our dividend for the 20th consecutive year. Empire shares have delivered an average annual compound return of 13.8% for the last 20 years. FIScal $24.6 $410.2 $13.33 Sales ($ in billions) Adjusted net earnings Book value ($ per share) from continuing BooBook vka lvuaelu (e$ (p$e pr esrh ashrea)re) 16 operations ($ in millions) 7.3% CAGR 2006 to 2016 Adjusted net earnings from continuing operations 16 During fiscal 2016, Sobeys acquires 12 liquor stores in Western Canada, 12 13 14 15 strengthening its position as a liquor retailer. OCTOBER 2011 NOVEMBER 2012 SEPTEMBER 2013 FEBRUARY 2015 Sobeys initiates Sobeys begins shipping Sobeys introduces Sobeys implements JUNE 2015 an organizational from its second the Better Food for SAP at Safeway, bringing Sobeys acquires 10 Co-op realignment to optimize automated distribution All movement to SAP coast to coast. food stores and fuel sites in productivity and fully centre in Terrebonne, Canadians. Atlantic Canada, and begins MAY 2015 capitalize on its scale. Québec. supplying food and gas to the NOVEMBER 2013 Sobeys becomes the majority of the member-owned MARCH 2012 MARCH 2013 Sobeys completes the first Canadian grocer to Co-op locations. Sobeys purchases 236 Sobeys completes its purchase of Canada issue AIR MILES® reward Shell branded retail gas national implementation Safeway for $5.8 billion. miles across Canada. OCTOBER 2015 locations in Québec of the SAP business Empire completes Sobeys acquires the grocery and Atlantic Canada for platform to fully the sale of Empire retail and wholesale businesses $214.9 million. capitalize on its Theatres for a net gain of Pete’s Fine Foods in scale as a $17 billion Atlantic Canada. of $104.2 million. organization. ®™ Trademarks of AIR MILES International Trading B.V. used under licence by LoyaltyOne, Co. and Sobeys Capital. 2016 ANNUAL REPORT 5 Message from the Chair Robert P. Dexter CHAIR The priority of Empire’s Board of Directors is to ensure the successful execution of our strategy and return the Company to long-term profitable growth. At Empire, our goal is to create long-term, long-lived assets in the West business unit, The Board is unanimous in its support sustainable value through our steadfast and softening sales in other parts of the of François Vimard’s leadership and his focus on food retailing and related real country led to weak overall results. team’s ability to advance the most critical estate, and our commitment to excellent elements of our strategy as we undertake On July 7, 2016, the Board of Directors customer service. the succession process. instituted a leadership change, appointing Empire shares have delivered an average François Vimard, Empire’s Chief Financial François is a strong leader with a deep annual compound return of 13.8 percent and Administrative Officer, as Interim understanding of the business.
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