Loblaw 2015 Annual Report
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optimize LOBLAW COMPANIES LIMITED 2015 ANNUAL REPORT at a glance JANUARY 2, 2016 A portfolio of strong, complementary and independent businesses RETAIL FINANCIAL CHOICE SERVICES PROPERTIES REIT shoppers market discount emerging joe fresh PC choice drug mart fi nancial properties REIT ® Our Purpose – Live Life Wel l Loblaw Companies Limited (“Loblaw” or the “Company”) is Canada’s food and pharmacy leader and the majority unitholder of Choice Properties Real Estate Investment Trust (“Choice Properties”). Loblaw – and its portfolio of grocery, health and beauty, fi nancial services and apparel businesses – provides Canadians with an unparalleled mix of value, assortment and convenience, and offers Canadians three of the top consumer brands in President ’s Choice®, Life Brand®, and no name®. Loblaw’s purpose – Live Life Well – supports the needs and well-being of Canadians who make one billion visits each year to the Company’s network of corporate and independently operated stores in communities across the country. Loblaw is positioned to meet and exceed those needs in many ways: convenient locations that span the value spectrum from Discount to specialty; full-service pharmacies; no-fee banking; affordable fashion and family apparel. TABLE OF CONTENTS 4 Financial Highlights 23 Corporate Governance Practices 6 Letter to Shareholders 25 Board of Directors 10 Review of Operations 25 Leadership 22 Corporate Social Responsibility 26 Shareholder and Corporate Information Loblaw continued to innovate and execute throughout 2015, introducing new products and services that delivered the best in food, and health and beauty to our customers. Equally important, we continued to build the foundation required to fully optimize our portfolio of strong, 1 complementary LIMITED 2015 ANNUAL REPORT COMPANIES LOBLAW and independent optimize businesses. This year’s report explores some of the important initiatives that we are focused on to improve our position and better serve Canad ians as Canada’s largest retailer. WE CONTINUE TO OPTIMIZE OUR PORTFOLIO OF ASSETS, Optimizing LEVERAGING TECHNOLOGY TO IMPROVE THE EFFICIENCY OF OUR STORE NETWORK AND SUPPLY CHAIN, GIVING CUSTOMERS INCREASED ACCESS TO OUR PRODUCTS AND SERVICES, AND TAKING ADVANTAGE OF GROWTH OPPORTUNITIES. Our Network Technology 2015 marked the completion of the implementation of the SAP information technology system across all of our Food retail corporate and franchise banners, a signifi cant milestone that will help accelerate the optimization of our entire food-retailing network. We also continued to invest in our growing ecommerce programs, enabling services such as: our increasingly Synergies popular Click & Collect online food shopping service; Following the completion of the acquisition of Shoppers beautyboutique.ca, which extends our prestige Drug Mart , the Company established a target to generate beauty lines to Canadians wherever they $300 million in net synergies. live and shop; and joefresh.com, A key driver of our fi nancial plan, we have made signifi cant our fast-growing distribution progress, generating $242 million in net synergies in 2015. channel for stylish and 2 The synergies achievements were the result of a relentless affordable family apparel. focus on the optimization of our product costs across the Company, the refi nement and expansion of our enhanced food offer pilots in Shoppers Drug Mart and improved assortment of the health and beauty offer in a number of our 2015 ANNUAL REPORT grocery stores. Building on these successes, we expect to successfully complete our $300 million synergy target in 2016. Dynamic Supply Chain LOBLAW COMPANIES LIMITED COMPANIES LOBLAW We are determined to make our 27 distribution centers part of the most responsive and customer-centric supply chain in North America. The recent completion of a common information technology system for all Food retail banners will enable key initiatives to harmonize business processes, allow the dynamic fl ow of product, and otherwise optimize Strategic Locations the effi ciency of our national distribution system. Making it easier for customers to fi nd us requires not necessarily a bigger, but a better retail network. We will continue to optimize our footprint to refl ect urbanization and other demographic trends while carefully managing total capital costs. Loyalty Programs With more than 20 million members between them, the PC Plus and Optimum programs are two of the leading loyalty programs in Canada and key to building stronger one-to-one relationships with our customers. We continue to look at new Our Colleagues ways to increase the value of our points systems, Colleagues are the key to success in businesses that depend on create broader and deeper earning the satisfaction and loyalty of our customers every day. relationships and strengthen That is why we have identifi ed culture as a strategic business our ability to help us build priority, one which helps to ensure we do the right things to loyalty with Canadians . harness the energy, enthusiasm and talents of all colleagues. An engaged workforce and a winning culture are essential for achieving our Company purpose and business goals. A strong emphasis on training and development helps our people achieve 3 personal satisfaction and growth, and contributes meaningfully to LIMITED COMPANIES LOBLAW our future success. Our colleagues are becoming more actively engaged in creating a winning culture focused on achieving our sharedared C Companyompany purpose – Live Life Well. 2015 ANNUAL REPORT Health Care As Canada’s population ages, governments are searching for new ways to control costs. With a national network of more than 1, 7 50 pharmacies, we are well positioned to play a larger role in health care delivery and help Canadians better manage Omnii -ChannelCh l their health care needs. More and more Canadians are shopp ing online and , increasingly, they are looking for the kind of everyday products and services offered by our retail businesses. We continue to invest to improve and expand our omni-channel presence . We are committed to providing a seamless, one-to-one experience no matter how, when or where our customers wish to shop with us, and we gain new insights into their needs and preferences with every transaction. Delivering 2015 RESULTS REFLECT THE SUCCESSFUL EXECUTION OF A FINANCIAL PLAN THROUGH WHICH WE MAINTAINED STABLE TRADING, ACHIEVED $242 MILLION IN NET SYNERGIES, GAINED Solid Results INCREMENTAL EFFICIENCIES AND ACHIEVED OUR DELEVERAGING TARGET. 3.5% 4.7% 3.7% Food retail same store Drug retail front store Drug retail pharmacy sales growth same store sales growth same store sales growth 2013 2014 2015 2013 2014 2015 2013 2014 2015 3.5%1 4.7% 3.7% 2.7% 2.0% 2.5% 2.4% 1.1% 1.3% 4 2015 ANNUAL REPORT Forward-Looking Statements This Annual Report for Loblaw Companies Limited and its subsidiaries (collectively, the “Company” or “Loblaw”) contains forward-looking statements about the Company’s objectives, plans, goals, aspirations, strategies, fi nancial condition, results of operations, cash fl ows, performance, prospects, opportunities and legal and regulatory matters. Specifi c forward-looking statements in this Annual Report include, but are not limited to, statements with respect to the Company’s anticipated future results, events and plans, synergies and other benefi ts associated with the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug Mart”), future liquidity, planned capital investments, and status and impact of information technology (“IT”) systems implementation. Forward-looking statements are typically identifi ed by words such as “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “intend”, “plan”, “seek”, “strive”, “will”, “may” and “should” and similar expressions, as they relate to the Company and its management. LOBLAW COMPANIES LIMITED COMPANIES LOBLAW Forward-looking statements refl ect 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 fi nancial performance in 2016 is based on certain assumptions, including assumptions about anticipated cost savings, operating effi ciencies and continued growth from current initiatives. The Company’s estimates, beliefs and assumptions are inherently subject to signifi cant 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. These risks and uncertainties include, but are not limited to, those discussed in section 1, Forward-Looking Statements, and section 12, Enterprise Risks and Risk Management, of Management’s Discussion and Analysis in the 2015 Annual Report – Financial Review, and section 4 of the Company’s 2015 Annual Information Form (for the year ended January 2, 2016). 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