LOBLAW COMPANIES LIMITED 2017 COMPANIES LOBLAW ready ANNUAL REPORT 2017 ANNUAL REPORT LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT 1 Growth in Digital Five Online Platforms In 2017, we launched wellwise.ca to offer online shopping for home • Click & Collect healthcare products, accelerated growth of our online grocery service, • BeautyBOUTIQUE.ca partnered with Instacart to explore grocery home delivery in certain • JoeFresh.ca urban areas, and expanded our product offerings across all of our • mypharmacy.shoppersdrugmart.ca digital platforms. • wellwise.ca for everyday digital retail With smarter technology at their fingertips, Canadians are managing their everyday tasks in an increasingly digital way. In this digital world, customers expect a multi-channel, convenient and personalized shopping experience. Since beginning our e-commerce journey in 2013, we have built five digital platforms that integrate with our network of stores to offer a more convenient shopping experience in apparel, pharmacy and healthcare. Loblaw_2017-AR_English_cs5_v11_Mar14_blue.indd 1 2018-03-15 10:35 AM 2 LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT Loblaw_2017-AR_English_cs5_v10_Mar9_film.indd 2 2018-03-13 12:06 PM LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT 3 Evolving Our Payments and Rewards Offering We know our customers want seamless, personalized ways to pay. In 2017, we started to refocus PC Financial on payments and rewards to build on the success of the PC Financial Mastercard and gave customers more ways to pay. Introducing PC Optimum and PC Insiders In 2017, we announced plans to bring together the PC Plus and Shoppers Optimum loyalty programs, under the PC Optimum brand. Unlike any other rewards program, PC Optimum offers personalized rewards and the ability to earn and redeem more points, on more products, in more stores than ever before. We also introduced PC Insiders, a pilot subscription service that gives our busy customers access to exclusive benefits and perks across our businesses and enables them to enjoy the things that make life better. to reward our customers even more Our customers each have their own unique shopping needs, preferences and habits, and are searching for ways to make shopping easier and more personalized. Our long-standing commitment to being a truly customer-centric organization is showcased, in part, by our payments and rewards offerings. We believe our unparalleled loyalty program and rewarding payments products have the potential to deepen our relationship with customers and unlock the value they are looking for. Loblaw_2017-AR_English_cs5_v10_Mar9_film.indd 3 2018-03-13 12:06 PM 4 LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT Loblaw_2017-AR_English_cs5_v10_Mar9_film.indd 4 2018-03-13 12:06 PM LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT 5 Expanded Healthcare Services Digitally Connected Healthcare We are finding more ways for our pharmacists, nurses, opticians, In 2017, we introduced new digital healthcare dietitians and nutritionists to help patients and customers live capabilities, which included new wellness stations healthier lives. In 2017, we expanded optical services into in our grocery stores, an ePrescribing platform and three Shoppers Drug Mart stores, administered over 1.5 million online prescription refills at Shoppers Drug Mart. And, we continued to grow our electronic medical flu shots and vaccinations, achieved our 550th Certified Diabetes record platform. Educator pharmacist, and held dietitian-led cooking classes in stores across the country. to integrate our health and wellness offerings Aging populations, rising costs and fast-growing urban areas are having an impact on the delivery of healthcare solutions to Canadians across the country. More than ever, our customers expect convenient and accessible ways to manage their health and wellness – and these needs go far beyond food. The acquisition of Shoppers Drug Mart in 2014 accelerated our efforts to evolve from grocery retailer to health and wellness partner. Today, with our network of food stores, pharmacies and thousands of health and wellness experts, we can support Canadians with medication checks, minor ailment assessments, flu shots, eye exams, nutrition counselling, and more. And thanks to QHR – our electronic medical records provider – we are poised to make healthcare more convenient and accessible too. Loblaw_2017-AR_English_cs5_v11_Mar14_blue.indd 5 2018-03-15 10:35 AM 6 LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT TABLE OF CONTENTS 6 Financial Highlights 9 Chairman’s Message 12 Review of Operations 20 Corporate Social Responsibility 22 Corporate Governance Practices 24 Board of Directors 24 Leadership 25 Shareholder and Corporate Information 26 Forward-Looking Statements Delivering Solid Results hhh11.9% 3.9% $1,259 0.3%Food Retail Drug2.9% Retail Front of Drug3.1% Retail Pharmacy Adjusted28.1% Retail Segment Consolidated6.2% Consolidated8.8% Adjusted Adjusted Diluted Net Earnings Dividend Declared Capital Investments Same Store Sales Store Same Store Sales Same Store Sales Gross Margin3 Adjusted EBITDA3 EBITDA Margin3 per Common Share3 per Common Share ($ millions) ($ millions) ($) ($) 3.5%1, 2 5.0% 3.7% 28.1% 8.8% 1,241 1,259 4.7% 26.4% 27.0% 4,092 8.3% 4.53 1.07 1,224 3,852 7.8% 0.995 1.03 3,549 4.05 2.9% 3.1% 3.42 2.9% 1.5%1 0.3%1 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 Loblaw_2017-AR_English_cs5_v11_Mar14_blue.indd 6 2018-03-15 10:35 AM 3.5 1.10 4000 3.0 3500 1.04 3000 2.5 0.98 2500 2.0 2000 1.5 0.92 1500 1.0 1000 0.86 0.5 500 0.0 0.80 '2013''2013' '2014''2014' '2015''2015' 0 '2013' '2014' '2015' LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT 7 We deliver nutrition, wellness, innovation, and value to Canadians. Our PurPOSE – LIvE LIFE WELL Loblaw Companies Limited (“Loblaw” or the “Company”) is Canada’s food and pharmacy leader, the nation’s largest retailer, and the majority unitholder of Choice Properties Real Estate Investment Trust (“Choice Properties”). We are the developer of Canada’s top control brand portfolio and a trusted health and wellness partner to millions of Canadians. From coast-to-coast, our network of corporate and independently operated stores provides customers with grocery, pharmacy, health and beauty, apparel and general merchandise. Our community-based retail locations are complemented by innovative and convenient digital offerings, the PC Financial Mastercard portfolio, and PC Optimum – a loyalty program that rewards our customers even more than before. TM ® ® ® MC ® hhh11.9% 3.9% $1,259 0.3%Food Retail Drug2.9% Retail Front of Drug3.1% Retail Pharmacy Adjusted28.1% Retail Segment Consolidated6.2% Consolidated8.8% Adjusted Adjusted Diluted Net Earnings Dividend Declared Capital Investments Same Store Sales Store Same Store Sales Same Store Sales Gross Margin3 Adjusted EBITDA3 EBITDA Margin3 per Common Share3 per Common Share ($ millions) ($ millions) ($) ($) 3.5%1, 2 5.0% 3.7% 28.1% 8.8% 1,241 1,259 4.7% 26.4% 27.0% 4,092 8.3% 4.53 1.07 1,224 1 S ame store sales after 3,852 7.8% 0.995 1.03 3,549 4.05 excluding the impact of gas bar 2.9% 3.1% 3.42 2 S ame store sales after excluding the negative impact 2.9% 1.5%1 of a change in distribution model by a tobacco supplier 3 S ee the Non-GAAP Financial Measures section of 1 0.3% the 2017 Annual Report – Financial Review 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017 Loblaw_2017-AR_English_cs5_v10_Mar9_film.indd 7 2018-03-13 12:06 PM 3.5 1.10 4000 3.0 3500 1.04 3000 2.5 0.98 2500 2.0 2000 1.5 0.92 1500 1.0 1000 0.86 0.5 500 0.0 0.80 '2013''2013' '2014''2014' '2015''2015' 0 '2013' '2014' '2015' Galen G. Weston Chairman and Chief Executive Officer Loblaw_2017-AR_English_cs5_v10_Mar9_film.indd 8 2018-03-13 12:06 PM LOBLAW COMPANIES LIMITED 2017 ANNUAL REPORT 9 CHAIRMAN’S MESSAGE Loblaw has always sought out innovation. We have created some of the nation’s leading brands, introduced new formats, found strength in partnerships and acquisitions – all based on the needs of our customers. Now, as a wave of change takes place in our industry, we are ready, with a digital portfolio, industry-leading payment and reward options, and a series of connected health and wellness services. We sit on a solid foundation. And it’s only the beginning. Fellow shareholders, This year we faced into several challenges, but also positioned our business for the future. We delivered against our financial plan, while at the same time setting a strategic path for our business based on the evolving needs of our customers. And, as you will see, we remain as committed as ever to delivering on our company purpose – Live Life Well – in new and innovative ways. I am pleased to share a number of highlights from 2017, beginning with strong performance in our retail segment. Ready to deliver what’s next for Canadians Strong Foundation Nationwide, our network of 2,500 stores and pharmacies expanded scope of practice in many provinces, we are remain a powerful competitive advantage. helping to ease the burden on our healthcare system – last year alone, we administered over 1.5 million flu shots Our grocery stores are recognized for offering value, and travel vaccinations. We refined our convenience assortment, and quality, along with many of the country’s food offering in key markets, enhanced our approach in top brands in President’s Choice, no name, Life Brand, beauty with new boutique concepts, and introduced the Farmer’s Market and more.