Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia. Empire’s key businesses are food retailing and related real estate. With approximately $23.8 billion in sales and $8.7 billion in assets, Empire and its subsidiaries, franchisees and affiliates employ approximately 125,000 people.
|($ in millions, except per share amounts)||52 weeks ended
May 6, 2017
|53 weeks ended
May 7, 2016
|52 weeks ended
May 2, 2015(1)
|Sales||$ 23,806.2||$ 24,618.8||$ 23,928.8|
|Operating income (loss)||333.0||(2,418.5)||742.4|
|Net earnings (loss)(3)||158.5||(2,131.0)||419.0|
|per share (fully diluted)(4)||0.58||(7.78)||1.51|
|Adjusted net earnings(2) (3)||191.3||410.2||511.0|
|per share (fully diluted)||0.70||1.50||1.84|
|Book value per share||13.41||13.34||21.61|
|Dividends per share||0.41||0.40||0.36|
(1) Amounts have been reclassified to correspond to the current period presentation on the consolidated statement of earnings (loss).
(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) The weighted average number of shares used for the purpose of basic and diluted loss per share is equal, as the impact of all potential common shares would be anti-dilutive.
(5) Compound annual growth rate.
Our challenges as a Company over the past couple of years have been well documented in the media and investment community, as well as the subject of much internal conversation at Empire. Michael Medline, President & CEO of Empire Company Limited and its wholly-owned subsidiary Sobeys Inc., talks candidly about the business and our bold plans to thrill our customers, build our brands and excite our shareholders.(1)
|Q||Michael, let’s start with why you decided to join Empire?|
|A||I always admired this Company from afar. In fact, in a speech a couple of years back, I referred to Sobeys as one of a small handful of ‘national champions’ of retail in this country. This is a great Company that is proudly Canadian, has a unique culture, a rich history of serving the food needs of Canadians for 110 years, and is supported by the Sobey family’s long-standing commitment to the business. So when the opportunity to join the Empire team presented itself, I considered it an honour and a privilege.|
|Q||What were your initial impressions when you started in your role?|
|A||Since I joined the Company in January, I’ve been travelling the country, walking stores with our leadership teams, talking to employees at town hall and other meetings, and assessing our assets, strategy and opportunities. I can tell you we have great locations throughout most of the country, strong leaders, an engaged team, as well as a Board and controlling shareholder who are truly committed to creating long-term shareholder value.
These strengths provide a solid foundation for our business. I’m very excited to embark on this journey, and meet the challenge of thrilling our customers and delivering growth for this Company.
|Q||When you think about the future for Empire and Sobeys, what does it look like?|
|A||I think about what this Company can and will be most every waking hour of my day. I want to be the best, most innovative and customer-focused retailer in Canada. I want customers to think of us first when they do their food shopping. And I want our employees to feel the pride of working for a Company that is making a difference in the lives of its customers.
I’ve asked our employees on many occasions to think about how it’s going to feel when we get some wind in our sails, when we are delivering on that promise to our customers and putting solid numbers up on the board. I can tell you, there’s no feeling like it.
Are we there yet? Not at all, we have a lot of hard work in front of us. But we have a proud history we can build upon, a loyal and committed workforce who can make it happen and a plan to get us there.
|Q||You’ve said that the future requires nothing less than the transformation of the business and to move forward with confidence. Why is that?|
|A||Clearly our results have been extremely disappointing and our employees and vendors have been frustrated by both the complexity of our business and decision-making processes. So when I speak about the need for a transformation of our business what I mean is that we must greatly simplify our structure, take costs out, re-engage with customers, grow sales and gain market share. There are so many opportunities to improve. It’s going to also mean making a lot of tough decisions, especially involving our employees, but it is absolutely the right thing to do if we are to thrive in the future.|
|Q||Are you going to get at this important work through ‘Project Sunrise’?|
|A||Sunrise is simply the moniker we’ve given to the important work I just referred to in the previous question. It’s a comprehensive roadmap and well-conceived plan of attack that is going to allow us to create a focused, high-performing organization where accountabilities are defined, priorities are clear, and tools and core processes are the same across the country. This is really about eliminating from the business all of the complexity that has slowed us down.
But in addition to the absolute necessity in eliminating complexity from our business, we have also declared war on costs. We are a high-cost competitor in the marketplace and you don’t have to be the CEO to know that is not the position you want to be in. We are laser-focused on achieving $500 million in annualized costs savings which will allow us to move quickly and efficiently, reinvest savings into marketing to thrill our customers, and importantly improve our bottom line. These are tangible benefits for both our customers and our shareholders. We will get at a lot of those costs by operating like a $24 billion company instead of five $5 billion companies, which is really how we have gone to market over the past years.
Taking costs and complexity out of the business frees us up to move from defence to offense. At every customer touch point, in every way we choose to compete, we will deliver value and communicate the compelling reasons why Canadians should be shopping with us and that will keep them coming back.
We’ll do this by investing in our brand and expanding the impact of our marketing – especially digital – and finding ways to maintain our ‘regional touch’ in communities across the country. That’s one of the things that has made Sobeys the iconic Canadian food retailer we are.
|Q||How are you managing this transformation to ensure you deliver on the commitments you have made?|
|A||As you would expect regarding a change of this magnitude, we have put in place a solid governance structure to manage the transformation and deliver on the commitments we made to our shareholders and our employees. We have a fully staffed Transformation Management Office, led by Clinton Keay, as well as a special committee of the Board of Directors that provides Board oversight for the transformation. Executing this transformation, while ensuring we continue to run the existing business, remains my main focus and that of my leadership team.
But just as importantly, I believe managing this transition means ensuring our organization remains focused and engaged. So while I am chomping at the bit to move quickly on a number of other initiatives that will allow us to innovate and better respond to the needs of our customers, I know that I cannot overburden the organization with a long list of other priorities that will take our focus and resources away from our critical focus: Project Sunrise.
|Q||How does the transformation affect store operations and capital spending?|
|A||The transformation is actually designed to benefit our stores so that they can better serve the needs of our customers, but the organizational changes will not impact the stores or distribution centres directly. If we simplify our structure, operate more efficiently and make better decisions faster, we’re ultimately helping our stores and better serving our customers.
We’re also putting our capital expenditure plans under the microscope because, frankly, we have not earned the right to spend at the levels of the past few years. We’re scrutinizing every dollar of shareholders’ capital that we spend, and see plenty of opportunities in the square footage we have today to generate superior returns.
|Q||You like to use the word 'velocity' in your communications. Why is speed so important to you?|
|A||I talk about velocity because the retail landscape, and food retailing in particular, is experiencing such immense change. Disruptors are reshaping food retailing and the risks are significant if we are unable to move with speed, adapt to new concepts, innovate, or respond to the needs of the customer and how they tell us they want to shop with us.
In the context of Project Sunrise, velocity is even more critical because the faster we can simplify our structure and take $500 million in costs out of our business, the sooner we can move from defence to offense – where we are innovating, where we are playing a leading role in shaping food retail and where we are winning in the marketplace.
Four Strategic Priorities
We've set four priorities for our fiscal 2018 game plan:
|Q||You’ve built an executive team that includes both Company veterans and a couple of new faces. Was that important to you?|
|A||Really important. First of all, Empire has some of the best talent I have seen in Canadian retail – especially our executive team. I also think it’s critical in any organization to introduce new thinking and new approaches in order to challenge the status quo, innovate and continually grow. I cannot tell you how thrilled I was to have Mike Vels join us as CFO in June. Mike is a highly accomplished executive, one of the country’s most respected CFOs and a highly results-oriented leader. I am confident that we will identify and hire a great new head of marketing, which I consider an incredibly important role as we work to connect and communicate a compelling story to our customers that will keep them coming back.|
|Q||Do you see Sobeys culture changing?|
|A||There are certainly some aspects of our culture that need to change if we are going to be nimble and adapt to the ever-changing realities of food retailing. Having said that, there is a lot about our culture that has served as a beacon for our Company and our employees over the 110 years we have been in business. It is our culture that will allow us to navigate and ultimately succeed on the transformation journey we are now on. Our culture is rooted in a commitment to putting our customers first, providing great service, and supporting the communities we serve. I guarantee you those cultural attributes aren’t about to change. They will remain foundational to everything we do.|
|Q||Do you have any final comments?|
|A||We have scale, talent and a solid plan to return the Company to long-term, profitable growth. We also have a great Board of Directors and an outstanding Chair in Jim Dickson. Our future is very bright. This year, Canada is celebrating its 150th birthday and Sobeys is marking 110 years in the food retailing business. We cherish our rich heritage and values, but it is more important than ever that we move forward quickly and decisively to ensure that Sobeys’ best days are still to come.|
signed “Michael Medline”
President & Chief Executive Officer
Empire Company Limited
June 28, 2017
(1) This discussion contains forward-looking information. For more information see the section entitled "Forward-Looking Information" on page 9 of the Company's Management’s Discussion and Analysis.
Sobeys is a proud Canadian family business with roots dating back 110 years to an immigrant family that settled in rural Nova Scotia. In our nation’s 150th year, we’re proud to partner with the Canadian Museum of Immigration at Pier 21 to celebrate the Canadians from all over the world who have helped build Canada and our business. Through this philanthropic partnership, Sobeys' employees are contributing personal and family histories to the National Stories Archive at the Canadian Museum of Immigration, making their families’ journeys accessible for future generations to share and learn from. To read these stories please visit www.Sobeys110.com.
One such submission to the National Archives at Pier 21 came from Archel Imperial, the Deli Manager at Winchester Foodland. Archel is featured on the cover of this Annual Report and her compelling immigration story is also shared here.
"I am Archel Imperial, I have two sisters and five younger brothers. We grew up up in a countryside in the Philippines province of Aklan in Malinao.
When I was 10 years old I started to worked in the farm, planting rice manually under the heat of the sun from morning until afternoon making P40 pesos/$1.25 Canadian dollar a day in order to have money to buy clothes and school allowance. Some days we woke up in the morning 4 o’clock am getting ready to go to the corn field for harvesting, we walked about 15 kilometers to get there, while the other kids are still sleeping. We never encounter playing barbies or any fancy toys, we were content in what we have at home.
We also helped our parents carrying the harvested products like rice and corn from the field to the house.
After my high school years, my dream was to become an Engineer, but its because of poverty, my parents cannot afford to send us to school. I decided to take Bachelor of Science in Home Technology, its affordable and in public University with the help of my sister, aunt and parents as well.
In 2005 I gave birth to my son. Everything did not go well, my parents were so disappointed, they expected too high from me. I felt I let them down.
Two years after (son 2 years old) I decided to work out of country to give my son a good future. I worked in Hong Kong for over two years taking care of new born twins and doing household chores. I was working 18 hours a day and one 8 hours day off per week making $500 Canadian/month. Every payday I only saved allowance for my self, the rest will be sent home to my family to support my brothers education as well as my sons needs.
In 2009, I came to Canada to work as a Live in Caregiver (nanny). I am blessed to have a very supportive employer. After my contract, I started to work at Winchester Foodland in bakery and deli department. One Year later, I was promoted to Deli Manager. Everything was all so new to me, the only thing I could think of, was how to look after my customers, the inventory and all the other aspects of running the department correctly. A few years after starting, I met my Deli Specialist Team and the new store owner Dan Pettigrew, They helped me become successful in my department. I worked really hard to reach my goals.
In 2015, my son and I reunited. I was able to pick him up from the Philippines and brought home in Canada. He is my life and strength. Finally, after eight years of working all of my hardship paid off, all my bothers finished all their degrees that they wanted. Two of them finished Bachelor of Science in Electrical Technology, Bachelor of Science in Electronic Technology, Bachelor of Science in Civil Engineering (license) and Bachelor of Science in Marine Transportation. I build duplex house for my parents to keep them safe if there’s any floods and bought a van for family use.
Lastly, above all I would like to thanks to our almighty father for giving me strength and courage, to my parents, in-laws and fiancee for looking after my son while I was away, co-workers and friends for always there for me, To all Canadian Immigration Team for giving me opportunity to work and live to this beautiful country and most of all to Sobeys and Foodland Family for giving me a chance to share my story. If its not for you, I wont be able to reach my goals and dreams come true!
Happy 110th year Anniversary Sobeys and 150th Year Anniversary Canada.
God bless you all!"
|(1)||Audit Committee Member|
|(2)||Audit Committee Chair|
|(3)||Human Resources Committee member|
|(4)||Human Resources Committee Chair|
|(5)||Corporate Governance Committee member|
|(6)||Corporate Governance Committee Chair|
|(7)||Nominating Committee member|
|(8)||Nominating Committee Chair|
|(9)||Chair of the Board|