Investor Presentation
January 2020
Katie Brine, Director Finance, Investor Relations
Phone: 905-238-7124 x2092
Email: [email protected]
2
Disclaimers
Forward-Looking Information
This document contains forward-looking statements which are presented for the purpose of assisting the reader to contextualize Empire Company Limited’s
(“Empire” or the “Company”) financial position and understand management’s expectations regarding the Company’s strategic priorities, objectives and plans.
These forward-looking statements may not be appropriate for other purposes. Forward-looking statements are identified by words or phrases such as “estimates”,
“plans”, “predicts”, “anticipates” and other similar expressions or the negative of these terms.
These forward-looking statements include, but are not limited to, the following items:
• The Company’s expectations regarding the impact of Project Sunrise, including expected cost savings and efficiencies, the expected timing of the
realization of overall and fiscal 2020 in-year incremental benefits, and the expected $50 million overachievement of the initial $500 million target which could
be impacted by several factors, including the execution and completion of category resets, time required by the Company to complete the project as well as
the factors identified under the heading “Risk Management” in the fiscal 2019 annual Management’s Discussion & Analysis (“MD&A”);
• The FreshCo expansion in Western Canada and Farm Boy expansion in Ontario, including the Company’s expectations regarding future operating results
and profitability, the amount and timing of expenses, and the number, location, feasibility and timing of construction and conversions, all of which may be
impacted by construction schedules and permits, the economic environment and labour relations;
• The Company’s plans to purchase for cancellation Non-Voting Class A shares under the normal course issuer bid (“NCIB”) which may be impacted by
market and economic conditions, and the results of operations; and
• The Company’s expectations regarding the implementation of its online grocery home delivery service which may be impacted by the timing of launching
the business, the customer response to the service and the performance of its business partner, Ocado Group plc (“Ocado”).
By its nature, forward-looking information requires the Company to make assumptions and is subject to inherent risks, uncertainties and other factors which may
cause actual results to differ materially from forward-looking statements made. For more information on risks, uncertainties and assumptions that may impact the
Company’s forward-looking statements, please refer to the Company’s materials filed with the Canadian securities regulatory authorities, including the “Risk
Management” section of Empire’s fiscal 2019 annual MD&A.
Non-GAAP Financial Measures & Financial Metrics
There are measures and metrics included in this earnings call presentation, such as adjusted EBITDA, adjusted earnings per share, same-store sales, free cash
flow, funded debt and total capital that do not have a standardized meaning under generally accepted accounting principles (“GAAP”) and therefore may not be
comparable to similarly titled measures and metrics presented by other publicly traded companies. The Company includes these measures and metrics because
it believes certain investors use these measures and metrics as a means of assessing financial performance.
For a more complete description of Empire’s non-GAAP measures and metrics, please see Empire’s MD&A for the second quarter ended November 2, 2019.
3
CEO’s Direct Reports
Michael MedlinePresident &
Chief Executive Officer
Vivek Sood
Related Businesses
MikeVenton
Discount Format
Pierre St-Laurent
Chief Operating
Officer, Full Service
Sarah Joyce
E-commerce
Vittoria Varalli
Sustainability,Chief of Staff, Office of the
CEO
MichaelVels
Chief Financial Officer
Simon Gagné
Human Resources
Doug Nathanson
General Counsel & Corporate
Secretary
Sandra Sanderson
Marketing
Mohit Grover
Innovation & Strategy
Empire Company Limited –Who are we?
• Canadian company headquartered in Stellarton,
Nova Scotia.
• Food retailing and related real estate through wholly
owned subsidiary Sobeys Inc. and a 41.5% equity
accounted interest in Crombie REIT.
• Empire is a national Canadian grocery retailer,
serving the food shopping needs of Canadians under
retail banners that include Sobeys, Safeway, IGA,
Foodland, FreshCo, Thrifty Foods, Farm Boy and
Lawtons Drugs.
• In addition to food retail we are:
• Pharmacy retailers with in-store pharmacy
banners and free-standing locations through
Lawton’s Drug Stores;
• Wholesalers, distributing to our corporate and
franchised stores and over 8,000 retail stores
and independent wholesale accounts; and
• Owner and operator of fuel and convenience
stores, and liquor operations.
Quick Facts – Empire¹
Share price (CAN$)² $31.10
52-Week High² $37.43
52-Week Low² $27.61
Shares outstanding (diluted) 272.4M
Quarterly dividend $0.12
Number of Stores³ > 1,500
Number of Retail fuel locations > 350
Employees ~123,000
Total Square footage ~40.0 M
Communities served > 900
¹As at Q2, Fiscal 2020 (November 2, 2019) unless noted
otherwise
²As of January 23, 2020
³See http://corporate.sobeys.com/at-a-glance/ for details of
stores per banner and location and slide 14 for a map
4
Key Achievements – Last twelve months
January
• Progress with B.C. labour decision enabled Empire to move forward with Discount expansion strategy in B.C.
April
• Opened first Western Canada FreshCo store in in Mission B.C.
May
• Unveiled Voilà by Sobeys and Voilà par IGA – the name and brand for the Company’s online grocery home delivery
service for the Greater Toronto Area, Ottawa and major cities in the province of Quebec
• Announced Innovation leadershipJune
• Announced full year results reflecting fourth consecutive quarter of growth
• Project Sunrise exceeded targets for fiscal 2019 – achieved $200 million of incremental savings in fiscal 2019, and
increased total savings target to $550 million
• Annual dividend per share increased 9% to $0.48
• Capital investment program for fiscal 2020 expected to be $600 million
• Announced intent to repurchase approximately $100 million of Non-Voting Class A shares (“Class A shares”)
July
• With announcement of additional FreshCo store investments in Western Canada, one-third (22) of Western FreshCo locations confirmed
• DBRS Upgrades Ratings on Sobeys Inc. to BBB (low) and changes trend to Stable; S&P revises outlook to Positive
October
• Sobeys pilots Smart Cart, the first intelligent grocery shopping cart
• Sobeys Inc. diverts 720,000 plastic bags from landfill to make waterfront benches and picnic tables for public spaces along Atlantic Canadian shores
November
• Sobeys Inc. diverts plastic from landfills with cutting-edge parking lot at Timberlea store
December
• Empire’s family of brands rolls out Sensory Friendly Shopping to more than 450 stores across the country
• Farm Boy market growth accelerates with 10 new Ontario locations announced
• Announced second quarter results
• Same-store sales excluding fuel increased by 2.0%
• Adjusted earnings per share of $0.58 compared to $0.40 last year
• 11 FreshCo locations opened in British Columbia and Manitoba in calendar 2019
• At December 11, 2019, repurchased 1,769,184 Class A shares, fiscal year to date, for a total consideration of $62.0 million
January
• NCIB reached $100 million
• Sobeys banner to remove all plastic grocery bags by the end of the month. This will remove 225 million plastic grocery bags from circulation at
Sobeys’ 255 locations across Canada each year.
2019
5
2020
Strategic Focus
Successful completion of
Sunrise by end
of fiscal 2020.
Reset our Foundation
Strengthen the emotional
connection to our banner
brands.
Bolster our Brand
Expand discount to Western
Canada and refine our
FreshCo model.
Enhance Discount
Launch home delivery and
rapidly grow the number of Farm
Boy stores.
Fill the Urban Gap
Win in our Stores
Improve service and offering in
our conventional stores.
6
Leverage digital and data to accelerate
growth.
Invest in Innovation
Project Sunrise Update
In the fourth quarter of fiscal 2017, the Company launched Project Sunrise, a comprehensive, three year
transformation initiative intended to simplify organizational structures and reduce costs. The initiative is now
expected to generate at least $550 million in annualized benefits by the end of fiscal 2020.
1) Organizational realignment – from a regional to a national structure, is complete.
2) Operational efficiencies – store operations, labour standards and other operational process initiatives
continue to progress as planned, with increased benefits achieved in fiscal 2019 and planned for 2020.
3) Cost of goods sold – harmonization of costs with suppliers; more competitive net acquisition costs achieved;
category resets are providing an improved, simplified and in some cases more innovative assortment for
customers.
Financial benefits from Phases one and two largely impacted selling and administrative expenses. Phase
three financial benefits will be reflected mostly in gross margin expansion. As at Q2 F20, Project Sunrise is
on track.
7
YearApproximate In-Year
Savings break-down ($M)Achieved Through
1 F2018 (completed) ~100Organizational design, indirect sourcing cost reductions and improvements in store
operations.
2 F2019 (completed) ~200 Initial rollout of category resets, continued cost reductions and operational improvements.
3 F2020 (expected) ~250Completion of category resets rollout, continued cost reductions and operational
improvements.
Total ~550
Initial Target (set May 2017) 500
Expected to exceed by ~50
Significant improvement in Empire’s key metrics since the launch of Project Sunrise.
Project Sunrise Update
8
Fiscal
2019 2017 Change
52 weeks
4-May-19¹52 weeks
6-May-17+/-
Sales $25,142.0 $23,806.2 + 5.6%
Same-store sales, excluding fuel 4.3% 3.3% + 100 bps
Gross margin 24.2% 24.0% + 20 bps
Adjusted EBITDA $1,076.2 $769.9 + 39.8%
Adjusted EBITDA margin 4.3% 3.3% + 100 bps
Selling and Administrative margin (adjusted)² 22.1% 22.9% - 80 bps
Adjusted EPS $1.50 $0.70 + 114.3%
$23
$24
$24
$25
$25
$26
2017 2018 2019
+1.8% CAGR³
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2017 2018 2019
+11.8% CAGR
$0.00
$0.50
$1.00
$1.50
$2.00
2017 2018 2019
+28.9% CAGR
Sales ($B) Adjusted EBITDA ($M) Adjusted EPS ($/share)
¹ Empire’s results for the fiscal year ended May 4, 2019 include Farm Boy operations as of December 10, 2018.
² Selling and Administrative costs, excluding the impact from adjustments made to operating income during the fiscal year. See Empire’s fiscal 2019 MD&A.
³ Compound annual growth rate.
9
Farm Boy AcquisitionAdvances Ontario Strategy, Accelerating Ontario Presence and GTA Growth
Farm Boy Stores acquired
Farm Boy Stores opened
Existing Farm Boy Distribution Centre
Announced Farm Boy Distribution Centre Opening
• Farm Boy acquired on December
10th, 2018.
• Farm Boy contributed to Company
results for 21 weeks of fiscal 2019;
sales of $212.7 million and net
earnings of $7.9 million.
• For fiscal 2020, the Company
expects to spend approximately $70
million in capital for the expansion of
the Farm Boy store network in
Ontario.
• Since the acquisition, the Company
has opened three new Farm Boy
stores in Ontario. Seven further
stores will open in calendar 2020 and
two more in 2021.
• Farm Boy Private Label will be part of
the Voilà e-commerce offering when
it launches in Spring 2020.Farm Boy Stores announced to open
Note – For further company and transaction information, please see Appendix A
10
Ocado Solutions
With more than 15 years at the forefront of innovation and success in grocery ecommerce,
Ocado will partner exclusively in Canada with Sobeys on our end-to-end e-commerce solution.
Key facts:
• Canadian online grocery market is
growing 30%+ per year
• Greater Toronto Area Customer
Fulfilment Centre (“CFC”) complete
in 2 years
• Soft launch in Spring 2020
Ocado by the numbers*:
• 99% order accuracy
• 95% delivery punctuality
• 0.7% product waste
• 318,000 orders a week (average)
• 741,000 active customers*Per Ocado Group’s 2019 Half Year Report
This is a link to a video showing the Ocado’s Andover facility.
https://youtu.be/EeMTZd68fOU
Financial Results – Annual
11
¹ Empire’s results for the fiscal year ended May 4, 2019 include Farm Boy operations as of December 10, 2018. All metrics, including same-store sales, include the
consolidation of Farm Boy operations
² The Company revised the definition of free cash flow in Q4 F19 as cash flows from operating activities, plus proceeds on disposal of property, equipment and
investment property, less acquisitions of property, equipment, investment property and intangibles. All amounts in the chart have been restated to reflect the new
definition.
Fiscal
F2019 F2018 F2017 F2016
52 weeks 52 weeks 52 weeks 53 weeks
4-May-19¹ 5-May-18 6-May-17 7-May-16
Sales $25,142.0 $24,214.6 $23,806.2 $24,618.8
Same store sales growth (decline), excluding fuel 2.7% 0.5% (2.2)% 0.3%
Inflation (deflation) at quarter end – internal 2.2% 0.8% (1.9)% 2.2%
Gross profit $6,083.6 $5,900.5 $5,707.2 $5,957.6
Gross margin 24.2% 24.4% 24.0% 24.2%
Adjusted EBITDA $1,076.2 $1,014.7 $796.9 $1,161.4
Adjusted EBITDA margin 4.3% 4.2% 3.3% 4.7%
Adjusted earnings per share $1.50 $1.27 $0.70 $1.50
Free cash flow ² $540.7 $808.9 $619.7 $367.3
Capital expenditures $434.6 $288.0 $514.5 $672.0
Dividends per share $0.44 $0.42 $0.41 $0.40
Share price $29.94 $25.01 $21.50 $21.09
Fiscal
2020(2)(3)
Fiscal
2019
Fiscal
2018
Fiscal
2017
Q2 F20 Q1 F20 Q4 F19 Q3 F19(4)
Q2 F19 Q1 F19 Q4 F18 Q3 F18 Q2 F18 Q1 F18 Q4 F17 Q3 F17
Nov. 2 Aug. 3 May 4 Feb. 2 Nov. 3 Aug. 4 May 5, Feb. 3, Nov. 4, Aug. 5, May 6, Feb. 4,
2019 2019 2019 2019 2018 2018 2018 2018 2017 2017 2017 2017
Sales $6,436.5 $6,744.1 $6,220.4 $6,247.3 $6,214.0 $6,460.3 $5,886.1 $6,029.2 $6,026.1 $6,273.2 $5,798.9 $5,889.8
Same store sales, excluding fuel 2.0% 2.4% 3.8% 3.3% 2.5% 1.3% 0.0% 1.1% 0.4% 0.5% (1.6)% (3.7)%
Inflation (deflation) – internal 2.4% 3.0% 2.2% 1.8% 1.3% 0.0% 0.8% 1.6% 0.7% 0.5% (1.9)% (2.2)%
Gross profit $1,595.7 $1,660.4 $1,577.5 $1,511.7 $1,482.1 $1,512.3 $1,451.3 $1,444.7 $1,473.5 $1,531.0 $1,420.9 $1,394.8
Gross margin 24.8% 24.6% 25.4% 24.2% 23.9% 23.4% 24.7% 24.0% 24.5% 24.4% 24.5% 23.7%
Adjusted EBITDA $477.7 $460.0 $300.1 $218.3 $279.1 $278.7 $240.4 $253.3 $242.2 $278.8 $193.9 $178.7
Adjusted EBITDA margin 7.4% 6.8% 4.8% 3.5% 4.5% 4.3% 4.1% 4.2% 4.0% 4.4% 3.3% 3.0%
Adjusted EBITDA margin (Pre-IFRS 16) 5.4% 4.9% 4.8% 3.5% 4.5% 4.3% 4.1% 4.2% 4.0% 4.4% 3.3% 3.0%
Adjusted EPS $0.58 $0.49 $0.46 $0.27 $0.40 $0.37 $0.35 $0.33 $0.27 $0.32 $0.18 $0.13
Free cash flow(1)
$28.7 $224.2 $175.6 $179.2 $58.4 $127.5 $342.7 $248.4 $111.2 $106.6 $150.7 $15.5
Capital expenditures $196.0 $91.4 $227.1 $86.5 $73.4 $47.6 $84.0 $70.9 $58.5 $74.6 $111.9 $96.3
Dividends per share $0.12 $0.12 $0.11 $0.11 $0.11 $0.11 $0.105 $0.105 $0.105 $0.105 $0.1025 $0.1025
Share price $34.42 $35.52 $29.94 $29.75 $23.43 $26.12 $25.01 $23.31 $23.73 $20.39 $21.50 $16.24
Financial Results – 12 Quarter Review
12
1 Amounts have been restated to be consistent with the pre-IFRS 16 definitions. See “Non-GAAP Financial Measures & Financial metrics" section of Empire’s News Release for the
second quarter ended November 2, 2019.2 In Q1 F20, the Company expensed $21 million in closure and conversion costs. These costs relate to the announced conversion of ten Safeway locations to FreshCo stores and the
conversion of two Company locations to Farm Boy stores that were announced in Q1 F20. Of the $21 million, $3.7 million was reversed in the Q2 F20.3 Certain financial metrics were impacted by the implementation of IFRS 16 in the Q1 F20. See Appendix C for additional details. 4 Q3 F19 results include $45 million in costs related to the B.C. labour buyouts and FreshCo conversion store closures which impacted selling and administrative costs. Of the $45 million,
$6.1 million was reversed in Q2 F20.
14
OntarioQuebec
Atlantic
West
362 722
414
102
22738
47
461
119
214
33
95
Total Canada
= 1,959 1
National scale and presence, operating over 1,900 stores in 10 provinces.
1 Please refer to Empire’s Annual Information Form for the fiscal year ended May 4, 2019 for more information on Sobeys’ Geographic and Banner Profile.
Geographic Profile
Appendix A
Farm Boy – Company Overview
▪ Founded in 1981, Farm Boy Inc., (“Farm Boy”) is an Ontario-
based retail grocer that has a focus on high quality and locally-
sourced meat and produce and offers a wide range of
exceptional private label and prepared foods and renowned
customer service
▪ Farm Boy is led by Jean-Louis Bellemare (founder and co-CEO)
and Jeff York (co-CEO), both are continuing their leadership
roles with Farm Boy
▪ Farm Boy operates a unique and compelling brand that
resonates with Canadians and has a passionate and loyal
customer base
▪ Scalable platform with infrastructure in place to support future
long-term growth
▪ Over the last 5 years, Farm Boy has approximately doubled
store count and delivered strong revenue, EBITDA and free
cash flow growth
▪ Today, Farm Boy has 29 stores with defined plans for continued
expansion into the GTA
Appendix B
15
Farm Boy – Key Investment Highlights
✓ Aligned with Empire’s Strategic Priorities
✓ Leading Specialty Food Retailer with Strong Brand
Loyalty
✓ Attractive, Scalable Platform Primed for Growth
✓ Enhances Presence in Urban Markets with
Established, Well-Known Brand in Ontario
✓ Exceptional Private Label Offering
✓ Retention of Strong and Driven Management Team
1
2
3
4
5
6
16
Farm Boy – Transaction Overview
Purchase
Price & Timing
▪ Empire, through a subsidiary, signed an agreement on September 24, 2018, to acquire the business of Farm Boy for
a total purchase price of $800 million; transaction closed on December 10, 2018
▪ Farm Boy is set up as a separate company within Empire’s structure
▪ Farm Boy’s Co-CEOs, together with members of their senior management team, have reinvested for a 12% interest
of the continuing Farm Boy business
Financial
Profile
▪ Accretive to adjusted earnings per share and operating cash flow per share in the first full fiscal year after closing
▪ Empire’s fourth quarter of fiscal 2019 was the first full quarter including contributions from Farm Boy
▪ Empire’s fiscal year 2020 will be the first year including a full year of contributions from Farm Boy
▪ Historical EBITDA CAGR of 21% with compelling EBITDA margin profile(1)
▪ Plan to double store count, sales and EBITDA in the next 5 years
▪ Free cash flow generation sufficient to self-fund growth
▪ Three year average same-store sales growth of 5.3%(2)
Financial
Flexibility
▪ The acquisition was financed through a combination of cash on hand and a new $400 million senior, unsecured, non-
revolving two-year credit facility
▪ Rapid deleveraging profile
(1) For the period from FY2014 through the 52 weeks ended July 14, 2018
(2) FY2015 through FY2017.
17
18
IFRS 16
OVERVIEW
• IFRS 16 intends to align the presentation of leased assets more closely to owned assets.
• Impact of the standard has been reflected in the financial statements for the second quarter and year-to-date of fiscal 2020.
• This standard will not impact Empire's strategy, business operations, or cash flow generation.
• The adoption of IFRS 16 had a material impact on balance sheet classifications.
• The Company expects that the adoption of IFRS 16 will not have a material impact on fiscal 2020 EPS.
13 Weeks Ended
($ in millions, except
per share amounts)
Aug. 3,
2019
Aug. 4,
2018Change
Impact of
IFRS 16(1)
Change
(excl. IFRS 16)
EBITDA $460.0 $278.7 $181.3 $129.0 $52.3
Adjusted EBITDA $460.0 $278.7 $181.3 $129.0 $52.3
EBITDA margin 6.8% 4.3% 2.5% 1.9% 0.6%
Finance costs, net $71.7 $23.1 $48.6 $46.3 $2.3
Net earnings $130.6 $95.6 $35.0 $(0.9) $35.9
Adjusted net earnings $133.9 $100.2 $33.7 $(2.0) $35.7
Adjusted EPS (fully diluted) $0.49 $0.37 $0.12 $(0.01) $0.13
INCOME STATEMENT IMPACT BALANCE SHEET IMPACT
(1) Reflects the impact of changing accounting standards from IAS 17 to IFRS 16 in the first quarter of fiscal 2020,
including the second quarter and year-to-date add backs of $3.5 million and $7.0 million ($2.6 million and $5.1
million after tax), respectively, in historical straight-line expense under IAS 17.
(2) Net of non-controlling interest.
As at May 5, 2019 ($ in millions)
Asset increase (decrease):
Prepaid expenses $(43.4)
Current loans and other receivables 53.6
Non-current loans and other receivables 519.0
Other assets (7.3)
Property and equipment (22.3)
Right-of-use assets 3,800.7
Intangibles (126.7)
Deferred tax assets 127.3
Total assets $4,300.9
Liabilities and equity (increase) decrease:
Current provisions $7.4
Long-term debt due within one year 6.5
Lease liabilities due within one year (424.4)
Long-term provisions 23.7
Long-term debt 22.6
Long-term lease liabilities (4,569.6)
Other long-term liabilities 164.4
Deferred tax liabilities 36.5
Retained earnings 432.0
Total liabilities and equity $(4,300.9)
Adjustments to opening balances resulting from the initial adoption of IFRS 16:13 Weeks Ended
($ in millions, except
per share amounts)
Nov. 2,
2019
Nov. 3,
2018Change
Impact of
IFRS 16(1)
Change
(excl. IFRS 16)
EBITDA $477.7 $276.1 $201.6 $133.2 $68.4
Adjusted EBITDA $477.7 $279.1 $198.6 $133.2 $65.4
EBITDA margin 7.4% 4.4% 3.0% 2.1% 0.9%
Finance costs, net $69.9 $22.7 $47.2 $47.2 -
Net earnings(2) $154.6 $103.8 $50.8 $0.8 $50.0
Adjusted net earnings(2) $158.0 $110.4 $47.6 $(0.3) $47.9
Adjusted EPS (fully diluted) $0.58 $0.40 $0.18 - $0.18
26 Weeks Ended
($ in millions, except
per share amounts)
Nov. 2,
2019
Nov. 3,
2018Change
Impact of
IFRS 16(1)
Change
(excl. IFRS 16)
EBITDA $937.7 $554.8 $382.9 $262.2 $120.7
Adjusted EBITDA $937.7 $557.8 $379.9 $262.2 $117.7
EBITDA margin 7.1% 4.4% 2.7% 2.0% 0.7%
Finance costs, net $141.6 $45.8 $95.8 $93.5 $2.3
Net earnings(2) $285.2 $199.4 $85.8 $(0.1) $85.9
Adjusted net earnings(2) $291.9 $210.6 $81.3 $(2.3) $83.6
Adjusted EPS (fully diluted) $1.07 $0.77 $0.30 $(0.01) $0.31
IFRS 16 Update
Appendix C
Appendix E
Voilà – Canada’s best online grocery home delivery service
Voilà by Sobeys promises to help Canadians stay one step ahead of their busy lives.
Key Facts:
• Powered by Ocado’s world-leading online grocery engine, Voilà by
Sobeys will offer an expansive product selection of up to 39,000
products, including high quality fresh produce, at prices comparable to
Sobeys and IGA.
• Construction of CFC in Vaughan, Ontario is on track to roll out
testing and soft launch in the GTA in late Spring 2020.
• Ocado is building the grid in the ambient & chilled portions of the
warehouse
• On-boarding suppliers in process
• Finalizing assortment
• Currently testing robots on the grid
• Delivery trucks are ordered and arriving
• Team on-boarding ongoing
• Second CFC announced to open in Montreal in 2021, serving major
cities in Quebec and the Ottawa Area.
• Empire has partnered with Crombie REIT to develop the second CFC in
Montreal.
21